UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-32535
FIRST BANCTRUST CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
37-1406661
(IRS EMPLOYER IDENTIFICATION NO.)
206 SOUTH CENTRAL AVENUE
PARIS, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
61944
(ZIP CODE)
217-465-6381
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY AS OF THE LATEST PRACTICABLE DATE.
AS OF AUGUST 12, 2004 THE REGISTRANT HAD OUTSTANDING
2,500,450 SHARES OF COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
First BancTrust Corporation
Form 10-QSB Quarterly Report
Index Page
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 6
Item 2 Management's Discussion and Analysis of
Financial Condition or Plan of Operation 13
Item 3 Controls and Procedures 23
PART II - Other Information
Item 1 Legal Proceedings 23
Item 2 Changes in Securities and Issuer Purchases of
Equity Securities 23
Item 3 Defaults Upon Senior Securities 24
Item 4 Submission of Matters to a Vote of Security
Holders 24
Item 5 Other Information 25
Item 6 Exhibits and Reports on Form 8-K 25
SIGNATURES 26
CERTIFICATIONS 27
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
JUNE 30, DECEMBER 31,
2004 2003
(unaudited)
-------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 4,409 $ 6,581
Interest-bearing demand deposits 3,754 3,713
--------- ---------
Cash and cash equivalents 8,163 10,294
Available-for-sale securities 85,650 93,742
Loans held for sale 781 453
Loans, net of allowance for loan losses of $2,200 and $2,124 111,020 106,411
Premises and equipment 2,706 2,781
Federal Home Loan Bank stock 4,131 4,006
Foreclosed assets held for sale, net 157 95
Interest receivable 1,601 2,238
Loan servicing rights, net of valuation allowance of $149 and $267 847 964
Cash surrender value of life insurance 4,378 4,346
Deferred income taxes 848 37
Other assets 947 827
--------- ---------
Total assets $ 221,229 $ 226,194
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest bearing deposits $ 15,200 $ 15,495
Interest bearing deposits 143,606 147,533
--------- ---------
Total deposits 158,806 163,028
Federal Home Loan Bank advances 35,500 35,500
Pass through payments received on loans sold 135 262
Advances from borrowers for taxes and insurance 146 109
Interest payable 141 127
Other 754 777
--------- ---------
Total liabilities 195,482 199,803
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $.005 par value; 1,000,000 shares authorized
and unissued
Common stock, $.005 par value, 5,000,000 shares authorized;
3,041,750 shares issued and 2,500,450 shares outstanding 15 15
Additional paid-in capital 14,683 14,579
Retained earnings 18,019 17,743
Unearned employee stock ownership plan shares -
144,514 and 159,718 shares (835) (923)
Unearned incentive plan shares - 91,978 and 98,830 shares (759) (815)
Accumulated other comprehensive income (loss) (812) 356
Treasury stock, at cost - 541,300 shares (4,564) (4,564)
--------- ---------
Total stockholders' equity 25,747 26,391
--------- ---------
Total liabilities and stockholders' equity $ 221,229 $ 226,194
========= =========
See notes to condensed consolidated financial statements.
1
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
(in thousands of dollars-except share data)
(unaudited)
SIX MONTHS ENDED JUNE 30 2004 2003
-------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $ 3,960 $ 4,340
Tax exempt 32 18
Securities
Taxable 1,504 1,364
Tax exempt 187 155
Dividends on Federal Home Loan Bank stock 125 107
Deposits with financial institutions and other 19 35
------- -------
Total interest and dividend income 5,827 6,019
------- -------
INTEREST EXPENSE
Deposits 1,462 1,654
Federal Home Loan Bank advances and other debt 726 680
------- -------
Total interest expense 2,188 2,334
------- -------
NET INTEREST INCOME 3,639 3,685
Provision for loan losses 262 333
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,377 3,352
------- -------
NONINTEREST INCOME
Customer service fees 419 366
Other service charges and fees 361 446
Net gains on loan sales 156 421
Net realized gains on sales of available-for-sale securities 37 --
Net loan servicing fees 255 262
Brokerage fees 35 57
Abstract and title fees 172 227
Other 165 139
------- -------
Total noninterest income 1,600 1,918
------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 2,322 2,051
Net occupancy expense 140 102
Equipment expense 360 337
Data processing fees 211 206
Professional fees 228 148
Foreclosed assets expense, net 46 61
Marketing expense 136 112
Amortization of loan servicing rights 321 467
Recovery of impairment of loan servicing rights (118) (138)
Other expenses 498 451
2
------- -------
Total noninterest expense 4,144 3,797
------- -------
INCOME BEFORE INCOME TAX 833 1,473
Income tax expense 283 502
------- -------
NET INCOME $ 550 $ 971
======= =======
BASIC EARNINGS PER SHARE $ 0.24 $ 0.42
======= =======
DILUTED EARNINGS PER SHARE $ 0.23 $ 0.40
======= =======
See notes to condensed consolidated financial statements.
3
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
(in thousands of dollars-except share data)
(unaudited)
THREE MONTHS ENDED JUNE 30 2004 2003
--------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $ 1,988 $ 2,108
Tax exempt 16 9
Securities
Taxable 741 650
Tax exempt 94 80
Dividends on Federal Home Loan Bank stock 60 51
Deposits with financial institutions and other 8 18
------- -------
Total interest and dividend income 2,907 2,916
------- -------
INTEREST EXPENSE
Deposits 701 807
Federal Home Loan Bank advances and other debt 363 365
------- -------
Total interest expense 1,064 1,172
------- -------
NET INTEREST INCOME 1,843 1,744
Provision for loan losses 112 169
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,731 1,575
------- -------
NONINTEREST INCOME
Customer service fees 233 201
Other service charges and fees 192 234
Net gains on loan sales 96 255
Net loan servicing fees 124 126
Brokerage fees 27 22
Abstract and title fees 89 122
Other 92 68
------- -------
Total noninterest income 853 1,028
------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,153 1,022
Net occupancy expense 66 48
Equipment expense 214 163
Data processing fees 108 105
Professional fees 112 73
Foreclosed assets expense, net 18 36
Marketing expense 90 62
Amortization of loan servicing rights 166 204
Recovery of impairment of loan servicing rights (91) (53)
Other expenses 261 217
4
------- -------
Total noninterest expense 2,097 1,877
------- -------
INCOME BEFORE INCOME TAX 487 726
Income tax expense 163 267
------- -------
NET INCOME $ 324 $ 459
======= =======
BASIC EARNINGS PER SHARE $ 0.14 $ 0.20
======= =======
DILUTED EARNINGS PER SHARE $ 0.13 $ 0.19
======= =======
See notes to condensed consolidated financial statements.
5
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
SIX MONTHS ENDED JUNE 30 2004 2003
-----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 550 $ 971
Items not requiring (providing) cash
Depreciation and amortization 140 137
Provision for loan losses 262 333
Investment securities amortization, net 132 272
Amortization of loan servicing rights 321 467
Recovery of impairment of loan servicing rights (118) (138)
Deferred income taxes -- (12)
Net realized gains on available-for-sale securities (37) --
Net loss on sales of foreclosed assets 4 22
Net loss on sale of premises and equipment 6 --
Net gains on loan sales (156) (421)
Loans originated for sale (8,675) (27,825)
Proceeds from sales of loans originated for sale 8,417 27,328
Federal Home Loan Bank stock dividends (125) (107)
Compensation expense related to employee stock ownership plan 194 141
Compensation expense related to incentive plan 55 55
Changes in
Interest receivable 637 656
Cash surrender value of life insurance (32) (87)
Other assets (120) (178)
Interest payable 14 43
Other liabilities (23) (322)
-------- --------
Net cash provided by operating activities 1,446 1,335
-------- --------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (11,993) (57,010)
Proceeds from maturities of available-for-sale securities 17,876 44,015
Proceeds from sales of available-for-sale securities 135 --
Net change in loans (5,146) 151
Proceeds from sales of foreclosed assets 209 292
Proceeds from sales of premises and equipment 10 --
Purchases of premises and equipment (81) (157)
-------- --------
Net cash provided (used) by investing activities 1,010 (12,709)
-------- --------
6
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market,
NOW and savings deposits $ (660) $ 5,992
Net decrease in certificates of deposit (3,562) (241)
Proceeds from the issuance of Federal Home Loan Bank advances -- 18,000
Repayment of Federal Home Loan Bank advances and other debt -- (9,001)
Pass through payments received on loans sold (127) 127
Net increases in advances by borrowers for taxes and insurance 37 261
Dividends paid (275) (196)
Purchase of treasury stock -- (1,581)
-------- --------
Net cash provided (used) by financing activities (4,587) 13,361
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,131) 1,987
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,294 10,453
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,163 $ 12,440
======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION
Real estate acquired in settlement of loans $ 275 $ 262
Interest paid $ 2,174 $ 2,291
Income tax paid $ 0 $ 875
See notes to condensed consolidated financial statements.
7
FIRST BANCTRUST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(table dollar amounts in thousands of dollars-except share data)
Note 1 - Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations for reporting on Form
10-QSB. Accordingly, certain disclosures required by accounting principles
generally accepted in the United States of America are not included herein.
These interim statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, included in the Company's
Form 10-KSB filed with the Securities and Exchange Commission.
Interim statements are subject to possible adjustments in connection with the
annual audit of the Company for the year ended December 31, 2004. In the opinion
of management of the Company, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial position and consolidated results of operations for the periods
presented. The results of operations for the three and six months ended June 30,
2004 are not necessarily indicative of the results to be expected for the full
year.
The Company has a stock-based employee compensation plan, which is described
more fully in the Notes to Financial Statements included in the December 31,
2003 Annual Report to shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
8
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
Net income, as reported $ 324 $ 459 $ 550 $ 971
Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes (33) (16) (66) (16)
------- ------- ------- -------
Pro forma net income $ 291 $ 443 $ 484 $ 955
======= ======= ======= =======
EARNINGS PER SHARE:
Basic - as reported $ 0.14 $ 0.20 $ 0.24 $ 0.42
Basic - pro forma $ 0.13 $ 0.19 $ 0.21 $ 0.41
Diluted - as reported $ 0.13 $ 0.19 $ 0.23 $ 0.40
Diluted - pro forma $ 0.12 $ 0.18 $ 0.20 $ 0.39
Note 2 - Employee Stock Ownership Plan
The Bank has an Employee Stock Ownership Plan ("ESOP") for the benefit of its
employees. The ESOP purchased required shares in the open market with funds
borrowed from the Company. The ESOP expense was $98,000 and $76,000 for the
three-month periods ended June 30, 2004 and 2003 and $194,000 and $141,000 for
the six-month periods ended June 30, 2004 and 2003.
Shares purchased by the ESOP are held in a suspense account and are allocated to
ESOP participants based on a pro rata basis as debt service payments are made to
the Company. The loan is secured by the shares purchased with the proceeds and
will be repaid by the ESOP with funds from the Company's discretionary
contributions to the ESOP and earnings on ESOP assets. Principal payments are
scheduled to occur over an eight-year period.
Note 3 - Earnings per Share
Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the three month and six month periods ended June
30, 2004 and 2003. Diluted earnings per share reflect the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
Earnings per share were computed as follows:
9
Weighted
Average Per Share
Income Shares Amount
----------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2004:
Basic Earnings Per Share:
Income available to common stockholders $ 550 2,254,770 $ 0.24
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 106,596
Stock Options 52,099
----------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 550 2,413,465 $ 0.23
==================================
FOR THE SIX MONTHS ENDED JUNE 30, 2003:
Basic Earnings Per Share:
Income available to common stockholders $ 971 2,324,460 $ 0.42
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 112,894
Stock Options 6,066
----------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 971 2,443,420 $ 0.40
==================================
FOR THE THREE MONTHS ENDED JUNE 30, 2004:
Basic Earnings Per Share:
Income available to common stockholders $ 324 2,260,285 $ 0.14
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 105,085
Stock Options 59,059
----------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 324 2,424,429 $ 0.13
==================================
FOR THE THREE MONTHS ENDED JUNE 30, 2003:
Basic Earnings Per Share:
Income available to common stockholders $ 459 2,276,206 $ 0.20
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 113,252
Stock options 12,132
----------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 459 2,401,590 $ 0.19
==================================
10
Note 4 - Comprehensive Income (Loss)
Comprehensive income (loss) for the three month and six month periods ended June
30, 2004 and 2003 is listed as follows:
SIX MONTHS ENDED JUNE 30
2004 2003
-------------------------------------------------------------------------------------------------------
Net Income $ 550 $ 971
------- -------
Other Comprehensive Income (Loss)
Unrealized depreciation on available-for-sale securities (1,144) (10)
Less: Reclassification adjustment for realized gains included
in net income 24 0
------- -------
(1,168) (10)
------- -------
Comprehensive Income (Loss) $ (618) $ 961
======= =======
THREE MONTHS ENDED JUNE 30
2004 2003
--------------------------
Net Income $ 324 $ 459
------- -------
Other Comprehensive Income (Loss)
Unrealized appreciation (depreciation) on available-for-sale securities (1,704) 384
------- -------
Comprehensive Income (Loss) $(1,380) $ 843
======= =======
Note 5 - Stock Split
On April 19, 2004, the Board of Directors of the Company approved a two for one
stock split of the Company's common stock payable as a 100% stock dividend on
May 21, 2004 to shareholders of record on April 30, 2004. Prior period financial
information has been adjusted to reflect the stock split.
11
Note 6 - Authorized Share Repurchase Program
On May 15, 2003, the Board of Directors authorized the open-market stock
repurchases of up to 5%, or 124,544 of the Company's outstanding stock over the
one-year period ending May 15, 2004, as, in the opinion of management, market
conditions warrant. None of the 124,544 shares of the Company's outstanding
stock were purchased before the repurchase resolution expired. On May 13, 2004,
the Board of Directors authorized the open-market stock repurchases of up to
100,000 shares of the Company's outstanding stock over the one-year period
ending May 13, 2005. Previously, the Company had completed four other repurchase
programs for stock repurchases of 541,300 shares. As of August 12, 2004, the
Company owned a cumulative total of 541,300 shares in treasury stock.
Note 7 - Recent Accounting Pronouncements
In March 2004, the SEC issued Staff Accounting Bulletin No. 105 (SAB 105),
Application of Accounting Principles to Loan Commitments. Current accounting
guidance requires the commitment to originate mortgage loans to be held for sale
be recognized on the balance sheet at fair value from inception through
expiration or funding. SAB 105 requires that the fair-value measurement include
only differences between the guaranteed interest rate in the loan commitment and
a market interest rate, excluding any expected future cash flows related to the
customer relationship or loan servicing. SAB 105 is effective for commitments to
originate mortgage loans to be held for sale that are entered into after March
31, 2004. The adoption of this bulletin did not have a material impact on the
consolidated financial position on results of operations of the Company.
In March 2004, the FASB's Emerging Issues Task Force reached a consensus on EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. The guidance prescribes a three-step model
for determining whether an investment is other-than-temporarily impaired and
requires disclosures about unrealized losses on investments. The accounting
guidance is effective for reporting periods beginning after June 15, 2004, while
the disclosure requirements are effective for annual reporting periods ending
after June 15, 2004. The adoption of this EITF did not have a material impact on
the consolidated financial position or results of operations of the Company.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 as amended, and is including this statement for purposes of these
safe harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on the operations and future prospects of the Company and its
wholly-owned subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions; legislative/regulatory provisions; monetary
and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board; the quality of composition of the loan
or investment portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market area; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statement. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
The following discussion compares the financial condition of First BancTrust
Corporation (Company), First Bank & Trust, s.b. (Bank), First Charter Service
Corporation, ECS Service Corporation, and the Bank's wholly owned subsidiary,
Community Finance Center, Inc. at June 30, 2004 to its financial condition at
December 31, 2003 and the results of operations for the three-month and
six-month periods ending June 30, 2004 to the same periods in 2003. Application
was made and approved in 2003 by regulators to establish a new banking facility
in Savoy, Illinois in Champaign County. Operations began in a temporary facility
in late September, 2003 with the purchase of $3.2 million in deposits from
another area financial institution. Permanent facilities are under construction
in a prime commercial area, which should be completed in August 2004. This
discussion should be read in conjunction with the interim financial statements
and notes included herein.
FINANCIAL CONDITION
Total assets of the Company decreased by $5.0 million or 2.2%, to $221.2 million
at June 30, 2004 from $226.2 million at December 31, 2003. The decrease in
assets was primarily due to decreases in available-for-sale securities of $8.1
million, cash and cash equivalents of $2.1 million, and interest receivable of
$637,000, offset by an increase in loans, net of allowance for loan losses
13
of $4.6 million, loans held for sale of $328,000, and deferred income taxes of
$811,000. The decrease in assets primarily funded a decrease in deposits.
The Company's cash and due from banks decreased by $2.2 million or 33.0% to $4.4
million at June 30, 2004 from $6.6 million at December 31, 2003. This decrease
was slightly offset by an increase in interest-bearing demand deposits of
$41,000 or 1.1% to $3.8 million at June 30, 2004 compared to $3.7 million at
December 31, 2003. The net decrease in cash and cash equivalents of $2.1 million
was primarily a result of an increase in loans and a decrease in deposits.
Available-for-sale investment securities amounted to $85.7 million at June 30,
2004 compared to $93.7 million at December 31, 2003, an $8.0 million decrease.
The decrease primarily resulted from investment calls and maturities of $17.9
million, primarily in mortgage-backed securities and Federal Home Loan Bank
("FHLB") agency bonds, and a decrease in market value of $2.0 million,
partially offset by investment purchases of $12.0 million.
Loans held for sale increased by $328,000 from $453,000 at December 31, 2003 to
$781,000 at June 30, 2004, an increase of 72.4%. The 1-4 family refinancings
have slowed significantly compared to last year, due to slightly rising interest
rates compared to last year's historic low interest rates. During the first six
months of 2004, residential loans originated for resale into the secondary
market totaled $8.7 million compared to $27.8 million in the first six months of
2003. Loans held for sale at June 30, 2004 consisted entirely of single-family
residential loans.
The Company's net loan portfolio increased by $4.6 million or 4.3% to $111.0
million at June 30, 2004 from $106.4 million at December 31, 2003. Gross loans
increased by $4.7 million while the allowance for loan losses increased by
$76,000. Farmland loans increased by $2.0 million and agricultural production
loans increased by $2.9 million while nonfarm nonresidential real estate loans
increased by $407,000 and commercial loans increased by $493,000. Loans secured
by 1-4 family residences decreased by $817,000 and second mortgages on 1-4
family residences decreased by $129,000, although home equity loans increased by
$900,000. Consumer loans decreased $330,000 and construction loans decreased by
$391,000.
At June 30, 2004 the allowance for loan losses was $2.2 million or 1.94% of the
total loan portfolio compared to $2.1 million, or 1.96% at December 31, 2003.
During the first six months of 2004, the Company charged off $238,000 of loan
losses, of which $82,000 were consumer loans, $70,000 related to three
commercial loans, $59,000 pertained to eight 1-4 family residential loans,
$13,000 was a loss from a commercial real estate loan and $14,000 related to one
agricultural production loan. The chargeoffs of $238,000 were partially offset
by $53,000 in recoveries. The Company's nonperforming loans and troubled debt
restructurings as a percentage of total loans decreased slightly from 2.35% or
$2.5 million at December 31, 2003 compared to 2.27% or $2.6 million at June 30,
2004. This slight percentage decrease was primarily a result of reduced
delinquencies 90 days and over from $1.1 million at December 31, 2003 compared
to $911,000 at June 30, 2004. The Company's troubled debt restructurings of $1.7
million at June 30, 2004 consists primarily of restructured commercial and
agricultural loans. Included in the $1.7 million of troubled debt restructurings
are restructured agricultural loans of $1.1 million which are 90% guaranteed for
$947,000 by the Farmers Home Administration, thereby limiting the Company's
exposure on those loans. Management reviews the adequacy of the allowance
14
for loan losses quarterly, and believes that its allowance is adequate; however,
the Company cannot assure that future chargeoffs and/or provisions will not be
necessary.
Net foreclosed assets held for sale, totaling $157,000 at June 30, 2004
increased $62,000, compared to $95,000 at December 31, 2003. As of June 30, 2004
the Company had three real estate properties totaling $87,000 consisting of
three single-family residential properties and other repossessed assets of
$70,000. Foreclosed assets are carried at lower of cost or net realizable value.
Interest receivable declined by $637,000 or 28.5% from $2.2 million to $1.6
million primarily due to annual payments received on agricultural loans. Federal
Home Loan Bank stock increased by $125,000 due to the receipt of dividends in
the form of stock. Deferred income taxes increased by $811,000 from $37,000 at
December 31, 2003 to $848,000 at June 30, 2004 due to an adjustment for the
deferred tax effect of the decrease in market valuation of available for sale
investment securities.
Loan servicing rights declined by $117,000 from $964,000 at December 31, 2003 to
$847,000 at June 30, 2004. Gross loan servicing rights decreased by $235,000
from $1.2 million at December 31, 2003 to $996,000 at June 30, 2004 due to
amortization of loan servicing rights of $321,000 offset by newly capitalized
assets of $86,000. The valuation allowance decreased from $267,000 at December
31, 2003 to $149,000 at June 30, 2004, due to an $118,000 recovery of a previous
impairment as a result of current valuations.
The Company's total deposits totaled $158.8 million at June 30, 2004 compared to
$163.0 million at December 31, 2003, a decrease of $4.2 million. The 2.6%
decrease in total deposits was due to a $295,000 decrease in non-interest
bearing deposits, and a $3.9 million decrease in interest bearing deposits. The
decrease in interest bearing deposits was a result of a decrease of $1.5 million
in interest-bearing checking accounts, and a $3.6 million decrease in
certificates of deposit, partially offset by a $914,000 increase in savings
accounts. The decline in interest-bearing deposits was primarily due to the
maturing of some significant certificates of deposit, as well as decreases in
municipal accounts to fund capital projects.
Federal Home Loan Bank advances and other debt remained constant at $35.5
million at December 31, 2003 and June 30, 2004. The total average rate of all
advances was 4.04% as of June 30, 2004.
Stockholders' equity at June 30, 2004 was $25.7 million compared to $26.4
million at December 31, 2003, a decrease of $644,000. Retained earnings
increased by the amount of net income or $550,000, partially offset by $275,000
in dividends declared and paid. Accumulated comprehensive income decreased by
$1.2 million due to a decrease in the fair value of securities available for
sale, net of tax.
15
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
Net income for the six months ended June 30, 2004 decreased by $421,000 or 43.4%
from $971,000 for the six months ended June 30, 2003 to $550,000 for the six
months ended June 30, 2004. The decrease in net income is primarily due to
decreases in net interest income and noninterest income, and an increase in
noninterest expense, partially offset by decreases in the provision for loan
losses and income tax expense.
Net interest income decreased $46,000 or 1.3% from $3.7 million for the six
months ended June 30, 2003 to $3.6 million for the six months ended June 30,
2004. The primary reason for the decrease in net interest income was a decrease
in interest and dividend income of $192,000 partially offset by a decrease of
$146,000 in interest expense. The Company's net interest margin was 3.47% and
3.82% during the six months ended June 30, 2004 and 2003, respectively. The net
interest margin decreased as a result of a decrease in interest rates on
interest-bearing assets, partially offset by a decrease in interest rates on
interest-bearing liabilities.
Total interest and dividend income decreased by $192,000 or 3.2% from $6.0
million for the six months ended June 30, 2003 to $5.8 million for the six
months ended June 30, 2004. The decrease was primarily due to a decrease in loan
interest income partially offset by increased interest income on securities
available for sale. The decrease of $366,000 in loan interest income was
primarily due to a decrease in the average loan rate of 92 basis points,
partially offset by an increase in average loans. Interest and dividend income
from available for sale securities increased by $172,000 primarily due to an
increase in the average balance of available for sale investments, partially
offset by a decrease in average interest rate of 24 basis points.
Interest expense declined by $146,000 or 6.3% from $2.3 million for the six
months ended June 30, 2003 to $2.2 million for the six months ended June 30,
2004. This decline was primarily due to a decrease of $192,000 in interest on
deposits, partially offset by $46,000 increase in interest on Federal Home Loan
Bank advances. The $192,000 decrease in interest expense on deposits was
primarily due to a decrease of 50 basis points in the average interest rate on
deposits, partially offset by an increase in the average balance of deposits.
The $46,000 increase in interest on Federal Home Loan Bank advances was due to
an increase in the average balance, partially offset by a reduction in interest
rate of 6 basis points.
For the six months ended June 30, 2004 and 2003 the provision for losses on
loans was $262,000 and $333,000, respectively. The provision for the six months
ended June 30, 2004 was based on the Company's analysis of the allowance for
loan losses. Management meets on a quarterly basis to review the adequacy of the
allowance for loan losses by classifying loans in compliance with regulatory
classifications. Classified loans are individually reviewed to arrive at
specific reserve levels for those loans. Once the specific portion for each loan
is calculated, management calculates a historical portion for each category
based on a combination of loss history, current economic conditions, and trends
in the portfolio. While the Company cannot assure that future chargeoffs and/or
provisions will not be necessary, the Company's management believes that, as of
June 30, 2004, its allowance for loan losses was adequate.
16
Noninterest income decreased $318,000 or 16.6% from $1.9 million for the six
months ended June 30, 2003 to $1.6 million for the six months ended June 30,
2004. The decrease was primarily a result of decreases in net gains on loan
sales and other service fees and charges, and abstracting income, partially
offset by an increase in net realized gains on sales of available for sale
securities and increased customer service fees. Net gains on loan sales
decreased by $265,000 from $421,000 for the six months ended June 30, 2003 to
$156,000 for the six months ended June 30, 2004. This decline occurred as loan
sales decreased from $27.3 million loans sold in the first six months of 2003 to
$8.4 million loans sold in the first six months of 2004. Loan refinancings have
slowed significantly compared to last year, due to slightly rising interest
rates compared to last year's historic low interest rates. Other service charges
and fees decreased by $85,000 from $446,000 for the six months ended June 30,
2003 to $361,000 for the six months ended June 30, 2004 primarily due to a
decrease in fees associated with residential loans sold into the secondary
market resulting from the reduced loan volume. Abstracting and title fees also
declined by $55,000 from $227,000 for the six months ended June 30, 2003 to
$172,000 for the six months ended June 30, 2004, due to the high level of
refinancing activity in 2003. Customer service fees increased by $53,000 from
$366,000 for the six months ended June 30, 2003 to 419,000 for the six months
ended June 30, 2004, primarily a result of increased non-sufficient funds and
overdraft fees associated with checking accounts. Net realized gains on sales of
available for sale securities of $37,000 for the six months ended June 30, 2004
resulted from the sale of equity securities.
Total noninterest expenses were $4.1 million for the six months ended June 30,
2004 as compared to $3.8 million for the six months ended June 30, 2003. The
primary reason for the $347,000 increase was an increase in salaries and
employee benefits of $271,000, an increase in other expenses of $47,000 and an
increase in net occupancy expense of $38,000 partially offset by a reduction of
$146,000 in amortization of loan servicing rights. Salaries and employee
benefits increased by $271,000 from $2.1 million for the six months ended June
30, 2003 to $2.3 million for the six months ended June 30, 2004. The salary
increase was $147,000 which was primarily due to normal pay increases and the
addition of six full-time employees and three part-time employees. The majority
of the employee additions are a result of the branch expansion into Savoy. The
increase in employee benefits of $124,000 was primarily due to increased health
insurance expense and increased Employee Stock Ownership Plan ("ESOP") expense.
Health insurance expense was $221,000 for the six months ended June 30, 2004
compared to $173,000 for the six months ended June 30, 2003, a $48,000 increase
as a result a higher premiums. ESOP expense increased by $53,000 due to a higher
average share price. The monthly expense for the ESOP is determined by the
average share price in the open market for the month, and as the monthly average
share price increases, the ESOP expense increases accordingly.
Net occupancy expense increased by $38,000 from $102,000 for the six months
ended June 30, 2003 compared to $140,000 for the six months ended June 30, 2004
primarily due to the branch expansion into Savoy. Professional fees increased by
$80,000 from $148,000 for the six months ended June 30, 2003 to $228,000 for the
same period in 2004. The increase was primarily a result of higher legal fees in
2004, primarily related to the expansion into Savoy, and increased consulting
fees, primarily from the retention of an investors relations consulting firm.
Amortization of loan servicing rights decreased from $467,000 for the six months
ended June 30,
17
2003 to $321,000 for the six months ended June 30, 2004, as a result of a
decrease in loan prepayments. Other expenses increased by $47,000 from $451,000
for the six months ended June 30, 2003 to $498,000 for the six months ended June
30, 2004. The primary reason for this increase is an increase in office supplies
expense, an increase in supervision fees from the Bank's primary regulator and
an increase in insurance expense due to higher premiums.
Income tax expense was $283,000 for the six months ended June 30, 2004 as
compared to $502,000 for the six months ended June 30, 2003. The decrease of
$219,000 in income tax expense was due to a decrease in income before taxes of
$640,000. The effective tax rates were 33.97% and 34.08%, respectively, for the
six months ended June 30, 2004 and 2003.
COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
Net income for the three months ended June 30, 2004 decreased by $135,000 or
29.4% from $459,000 for the three months ended June 30, 2003 to $324,000 for the
three months ended June 30, 2004. The decrease in net income is primarily due to
a decrease in noninterest income, and an increase in noninterest expense,
partially offset by an increase in net interest income and decreases in the
provision for loan losses and income tax expense.
Net interest income increased $99,000 or 5.7% from $1.7 million for the three
months ended June 30, 2003 to $1.8 million for the three months ended June 30,
2004. The primary reason for the increase in net interest income was a decrease
of $108,000 in interest expense, partially offset by a slight decrease of $9,000
in interest and dividend income. The Company's net interest margin was 3.47% and
3.51% during the three months ended June 30, 2004 and 2003, respectively. The
net interest margin decreased slightly as a result of an increase in the average
interest earning assets.
Total interest and dividend income decreased slightly by $9,000 from $2.92
million for the three months ended June 30, 2003 to $2.91 million for the three
months ended June 30, 2004. The decrease was primarily due to a decrease in loan
interest income partially offset by increased interest income on securities
available for sale. The decrease of $113,000 in loan interest income was
primarily due to a decrease in the average loan rate of 85 basis points,
partially offset by an increase in average loans. Interest and dividend income
from available for sale securities increased by $105,000 primarily due to an
increase in the average balance of available for sale investments.
Interest expense declined by $108,000 or 9.2% from $1.2 million for the three
months ended June 30, 2003 to $1.1 million for the three months ended June 30,
2004. This decline was primarily due to a decrease of $106,000 in interest on
deposits. The $106,000 decrease in interest expense on deposits was primarily
due to a decrease of 48 basis points in the average interest rate on deposits,
partially offset by an increase in the average balance of deposits. For the
three months ended June 30, 2004 and 2003 the provision for losses on loans was
$112,000 and $169,000, respectively. The provision for the three months ended
June 30, 2004 was based on the Company's analysis of the allowance for loan
losses.
18
Noninterest income decreased $175,000 or 17.0% from $1.0 million for the three
months ended June 30, 2003 to $853,000 for the three months ended June 30, 2004.
The decrease was primarily a result of decreases in net gains on loan sales and
other service fees and charges, and a decrease in abstracting income, partially
offset by increased customer service fees. Net gains on loan sales decreased
by $159,000 from $255,000 for the three months ended June 30, 2003 to $96,000
for the three months ended June 30, 2004. This decline occurred as loan sales
decreased from $16.0 million loans sold in the second quarter 2003 to $5.3
million loans sold in the second quarter 2004. Loan refinancings have slowed
significantly compared to last year, due to slightly rising interest rates
compared to last year's historic low interest rates. Other service charges and
fees decreased by $42,000 from $234,000 for the three months ended June 30, 2003
to $192,000 for the three months ended June 30, 2004 primarily due to a decrease
in fees associated with residential loans sold into the secondary market
resulting from the reduced loan volume. Abstracting and title fees also declined
by $33,000 from $122,000 for the three months ended June 30, 2003 to $89,000 for
the three months ended June 30, 2004, due to the high level of refinancing
activity in 2003.
Total noninterest expenses were $2.1 million for the three months ended June 30,
2004 as compared to $1.9 million for the three months ended June 30, 2003. The
primary reason for the $220,000 increase was an increase in salaries and
employee benefits of $131,000, an increase in equipment expense of $51,000, an
increase in professional fees of $39,000, and an increase of $44,000 in other
expenses, partially offset by an increase in the recovery of a previously
identified impairment of loan servicing rights of $38,000, and by a reduction of
$38,000 in amortization of loan servicing rights. Salaries and employee benefits
increased by $131,000 from $1.0 million for the three months ended June 30, 2003
to $1.2 million for the three months ended June 30, 2004. The salary increase
was $53,000 which was primarily due to normal pay increases and the addition of
six full-time employees and three part-time employees. The majority of the
employee additions are a result of the branch expansion into Savoy. The increase
in employee benefits of $78,000 was primarily due to increased health insurance
expense, increased employment taxes, and increased Employee Stock Ownership Plan
("ESOP") expense. Health insurance expense was $122,000 for the three months
ended June 30, 2004 compared to $94,000 for the three months ended June 30,
2003, a $29,000 increase as a result a higher premiums. Employment taxes
increased by $15,000 as a result of the increased salaries expense. ESOP expense
increased due to a higher average share price.
Equipment expense increased by $51,000 from $163,000 for the three months ended
June 30, 2003 to $214,000 for the three months ended June 30, 2004, due to
increased maintenance expense on equipment and software systems. Professional
fees increased by $39,000 from $73,000 for the three months ended June 30, 2003
to $112,000 for the same period in 2004. The increase was primarily a result of
increased consulting fees, primarily from the retention of an investors
relations consulting firm. Amortization of loan servicing rights decreased from
$204,000 for the three months ended June 30, 2003 to $166,000 for the three
months ended June 30, 2004, as a result of a decrease in loan prepayments. The
recovery of impairment of loan servicing rights was $53,000 for the three months
ended June 30, 2003 compared to $91,000 for the three months ended June 30,
2004. The amount of the recovery or impairment is determined by comparing the
book value of the loan servicing rights to an independent valuation based on a
discounted cash flow methodology, utilizing current prepayment speeds and
discount rates.
19
Other expenses increased by $44,000 from $217,000 for the three months ended
June 30, 2003 to $261,000 for the three months ended June 30, 2004, primarily
due to increased supervision fees from the Bank's primary regulator, an increase
in insurance expense due to higher premiums, and increased franchise taxes.
Income tax expense was $163,000 for the three months ended June 30, 2004 as
compared to $267,000 for the three months ended June 30, 2003. The decrease of
$104,000 in income tax expense was due to a decrease in income before taxes of
$239,000. The effective tax rates were 33.5% and 36.8%, respectively, for the
three months ended June 30, 2004 and 2003.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting standards
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. Actual results could differ from those estimates under
different assumptions and conditions. Management believes that its critical
accounting policies and significant estimates include determining the allowance
for loan losses, the valuation of loan servicing rights, and the valuation of
foreclosed real estate.
Allowance for loan losses
The allowance for loan losses is a significant estimate that can and does change
based on management's assumptions about specific borrowers and current general
economic and business conditions, among other factors. Management reviews the
adequacy of the allowance for loan losses on at least a quarterly basis. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the loan portfolio, the current condition and amount of
loans outstanding, identified problem loans and the probability of collecting
all amounts due.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. A worsening or protracted economic
decline would increase the likelihood of additional losses due to credit and
market risk and could create the need for additional loss reserves.
Loan Servicing Rights
The Company recognizes the rights to service loans as separate assets in the
consolidated balance sheet. The total cost of loans when sold is allocated
between loans and loan servicing rights based on the relative fair values of
each. Loan servicing rights are subsequently carried at the lower of the initial
carrying value, adjusted for amortization, or fair value. Loan servicing rights
are evaluated for impairment based on the fair value of those rights. Factors
included in the calculation of fair value of the loan servicing rights include
estimating the present value of future net cash flows, market loan prepayment
speeds for similar loans, discount rates, servicing costs, and other economic
factors. Servicing rights are amortized over the estimated period of net
servicing revenue. It is likely that these economic factors will change over the
life of the loan
20
servicing rights, resulting in different valuations of the loan servicing
rights. The differing valuations will affect the carrying value of the loan
servicing rights on the consolidated balance sheet as well as the income
recorded from loan servicing in the income statement. As of June 30, 2004 and
December 31, 2003, mortgage servicing rights had carrying values of $847,000 and
$964,000, respectively.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are carried at the lower of cost or fair value
less estimated selling costs. Management estimates the fair value of the
properties based on current appraisal information. Fair value estimates are
particularly susceptible to significant changes in the economic environment,
market conditions, and the real estate market. A worsening or protracted
economic decline would increase the likelihood of a decline in property values
and could create the need to write down the properties through current
operations.
LIQUIDITY
At June 30, 2004, the Company had outstanding commitments to originate $3.6
million in loans, and $6.8 million available to be drawn upon for open-end
lines of credit. For more information on the outstanding commitments, see the
discussion below the caption "Off-Balance Sheet Arrangements". As of June 30,
2004, the total amount of certificates scheduled to mature in the following 12
months was $40.7 million. The Company believes that it has adequate resources
to fund all of its commitments. The Company's most liquid assets are cash and
cash equivalents. The level of cash and cash equivalents is dependent on the
Company's operating, financing, lending and investing activities during any
given period. The level of cash and cash equivalents at June 30, 2004 was $8.2
million. The Company's future short-term requirements for cash are not expected
to significantly change. In the event that the Company should require funds
beyond its capability to generate them internally, additional sources of funds
are available such as Federal Home Loan Bank advances.
OFF-BALANCE SHEET ARRANGEMENTS
At June 30, 2004, the Company had outstanding commitments to originate loans of
$3.6 million. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period. Loan commitments at fixed
rates of interest amounted to $2.7 million, with the remainder at floating
rates. In addition, the Company had outstanding unused lines of credit to
borrowers aggregating $4.0 million for commercial lines of credit, and $2.8
million for consumer lines of credit. Outstanding commitments for letters of
credit at June 30, 2004 totaled $182,000. Since these commitments have fixed
expiration dates, and some will expire without being drawn upon, the total
commitment level may not necessarily represent future cash requirements.
The following table presents additional information about our unfunded
commitments as of June 30, 2004, which by their terms have contractual maturity
dates subsequent to June 30, 2004:
21
Next 12 13-36 37-60 More than
Months Months Months 60 Months Totals
------ ------ ------ --------- -------
UNFUNDED COMMITMENTS:
Letters of credit $ 182 $ -- $ -- $ -- $ 182
Lines of credit 4,515 433 118 1,687 6,753
------ ------ ------ ------ ------
Totals $4,697 $ 433 $ 118 $1,687 $6,935
====== ====== ====== ====== ======
CAPITAL RESOURCES
The Bank is subject to capital-to-asset requirements in accordance with Federal
bank regulations. The following table summarizes the Bank's regulatory capital
requirements, versus actual capital as of June 30, 2004:
--------------------------------------------------------------------------------------------------------------
JUNE 30, 2004 REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL CAPITALIZED
-----------------------------------------------------------------
Amount % Amount % Amount %
-----------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $25,690 22.25 $ 9,235 8.0 $11,544 10.0
--------------------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted assets) 24,238 21.00 4,618 4.0 6,926 6.0
--------------------------------------------------------------------------------------------------------------
Tier 1 capital (to average assets) 24,238 10.80 8,977 4.0 11,221 5.0
--------------------------------------------------------------------------------------------------------------
The Company's consolidated capital-to-asset requirements and actual capital as
of June 30, 2004 are summarized in the following table:
--------------------------------------------------------------------------------------------------------------
JUNE 30, 2004 REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL CAPITALIZED
-----------------------------------------------------------------
Amount % Amount % Amount %
-----------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $27,913 23.91 $9,340 8.0 -- N/A
--------------------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted assets) 26,445 22.65 4,670 4.0 -- N/A
--------------------------------------------------------------------------------------------------------------
Tier 1 capital (to average assets) 26,445 11.71 9,036 4.0 -- N/A
--------------------------------------------------------------------------------------------------------------
22
ITEM 3. CONTROLS AND PROCEDURES
The Company carried out an evaluation as of June 30, 2004, under the supervision
and with the participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls during the quarter ended
June 30, 2004.
Disclosure controls and procedures are the controls and other procedures of the
Company that are designed to ensure that the information required to be
disclosed by the Company in its reports filed or submitted under the Securities
Exchange Act of 1934, as amended (Exchange Act) is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in its reports filed under
the Exchange Act is accumulated and communicated to the Company's management,
including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business, such as claims to enforce liens
and claims involving the making and servicing of real property loans and other
issues. It is the opinion of management that the disposition or ultimate
determination of such possible claims or lawsuits will not have a material
adverse effect on the consolidated financial position of the Company.
ITEM 2. CHANGES IN SECURITIES AND ISSUER PURCHASES OF EQUITY SECURITIES
(e) The following table provides information about purchases of the Company's
common stock by the Company during the quarter ended June 30, 2004.
23
ISSUER PURCHASES OF EQUITY SECURITIES
----------------------------------------------------------------------------------------------------------
(c) TOTAL NUMBER OF (d) MAXIMUM NUMBER
SHARES PURCHASED AS OF SHARES THAT MAY
PART OF PUBLICLY YET BE PURCHASED
(a) TOTAL NUMBER OF (b) AVERAGE PRICE ANNOUNCED PLANS OR UNDER THE PLANS OR
PERIOD SHARES PURCHASED PAID PER SHARE PROGRAMS PROGRAMS
----------------------------------------------------------------------------------------------------------
04/01/04 - --- --- --- 62,272
04/30/04
----------------------------------------------------------------------------------------------------------
05/01/04 - --- --- --- 100,000
05/31/04
----------------------------------------------------------------------------------------------------------
06/01/04 - --- --- --- 100,000
06/30/04
----------------------------------------------------------------------------------------------------------
Total --- --- --- 100,000
----------------------------------------------------------------------------------------------------------
(1) Our board of directors approved the repurchase by us of 5%, or 62,272
shares pursuant to the Program. The expiration date of this Program was May
15, 2004. None of these shares were repurchased. On May 13, 2004 our board
of directors approved the repurchase by us of 100,000 shares over the
one-year period ending May 13, 2005. None of these shares have been
repurchased.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Company's Annual Meeting of Shareholders was held on April 19,
2004.
b. Not applicable.
c. At such meeting, there were 1,250,225 shares of Common Stock entitled
to be voted. The shareholders approved the following matters:
1. The election of the following individuals as Directors:
Votes For Votes Withheld Term
--------- -------------- -------
Terry T. Hutchison 1,142,937 16,862 3 years
John W. Welborn 1,115,448 44,351 3 years
24
The directors whose terms continued after the meeting were Vick N.
Bowyer, David W. Dick, Terry J. Howard, James D. Motley, and Joseph R.
Schroeder.
2. The ratification of BKD, LLP as independent auditor of the
Company for the fiscal year ending December 31, 2004, as
reflected by 1,029,029 votes for, 93,560 votes against and
37,210 abstentions.
d. Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Terry J. Howard required by Rule 13a-14(a).
31.2 Certification of Ellen M. Litteral required by Rule 13a-14(a).
32.1 Certification of Terry J. Howard, Chief Executive Officer
pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
32.2 Certification of Ellen M. Litteral, Chief Financial Officer
pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
(b) The Company filed a Current Report on Form 8-K on May 10, 2004 under
Regulation FD to report certain financial information for the quarter
ended March 31, 2004. The Company filed a Current Report on Form 8-K on
April 23, 2004 related to the announcement of a two-for-one stock split
on May 21, 2004 to shareholders of record as of April 30, 2004.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANCTRUST CORPORATION
Date: August 12, 2004 /s/ Terry J. Howard
---------------------------------------
Terry J. Howard
President and Chief Executive Officer
Date: August 12, 2004 /s/ Ellen M. Litteral
---------------------------------------
Ellen M. Litteral
Treasurer and Chief Financial Officer
26