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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File Number 0-20050
PRINCETON NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-32110283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
606 South Main Street
Princeton, Illinois 61356-2080
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (815) 875-4444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each
exchange on
Title of each class which registered
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The Nasdaq
Common Stock Stock Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
[X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 17, 2003, 3,195,504 shares of Common Stock, $5.00 Par Value,
were outstanding. The aggregate market value of the common stock (based upon the
closing representative bid price of the common stock on June 28, 2002, the last
business day of the Registrant's most recently completed second quarter, as
reported by NASDAQ) held by nonaffiliates was approximately $62,016,918.
Determination of stock ownership by nonaffiliates was made solely for
the purpose of responding to this requirement and the registrant is not bound by
this determination for any other purpose.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
[X] YES [ ] NO
Portions of the following documents are incorporated by reference:
2003 Notice and Proxy Statement for the Annual Meeting of Stockholders
April 29, 2003 (the "Proxy Statement") - Part III and portions of the
Corporation's 2002 Annual Report (the "Annual Report") - Parts II and III
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Page 1 of 71 Pages
PART I
ITEM 1. BUSINESS
Princeton National Bancorp, Inc. ("PNBC" or the "Corporation") is a
single-bank holding company which operates in one business segment and conducts
a full service commercial banking and trust business through its subsidiary
bank, Citizens First National Bank ("Citizens Bank", "the Bank", or the
"subsidiary bank"). PNBC was incorporated as a Delaware corporation in 1981 in
contemplation of the acquisition of all of the outstanding common stock of
Citizens Bank and other future acquisitions. At December 31, 2002, the
Corporation had consolidated total assets of $587,375,000 and stockholders'
equity of $51,074,000.
PNBC operates the Bank as a community bank with offices located for
convenience and with professional, highly motivated, progressive employees who
know the Bank's customers and are able to provide individualized, quality
service. As part of its community banking approach, PNBC requires officers of
the Bank to actively participate in community organizations. In addition, within
certain credit and rate of return parameters, PNBC attempts to ensure that the
Bank meets the lending needs of the communities in which offices are located,
and that the Bank invests in local and municipal securities.
Corporate policy, strategy, and goals are established by the Board
of Directors of PNBC. Pursuant to PNBC's holding company philosophy, operational
and administrative policies for the Bank are also established at the holding
company level. Within this framework, the Bank focuses on providing personalized
services and quality products to its customers to meet the needs of the
communities in which its offices are located. In 2002, the majority of the
directors of PNBC also served as the directors of Citizens Bank, which further
assists PNBC to directly implement its policies at Citizens Bank.
ACQUISITION AND EXPANSION STRATEGY
PNBC seeks to diversify both its market area and asset base and
increase profitability through acquisitions and expansion. PNBC's goal, as
reflected by its acquisition policy, is to expand through the acquisition of
established financial service organizations (primarily commercial banks to the
extent suitable candidates may be identified) and by expanding into potential
high growth areas. In integrating acquisitions, PNBC focuses on, among other
actions, implementing the policies established at Citizens Bank, improving asset
quality, the net interest margin, and encouraging community involvement.
PNBC will also consider establishing branch facilities as a means of
expanding its presence into new market areas. PNBC opened new branch facilities
in the Peru/LaSalle/Oglesby area in 1994, in Minooka in 1994, in Hampshire in
1995, in Henry in 1999, and in Huntley in 2001.
CITIZENS FIRST NATIONAL BANK
Citizens Bank was organized in 1865 as a national bank under the
National Bank Act. Currently in its one hundred and thirty-eighth year, Citizens
Bank has fourteen offices in eleven different communities in north central
Illinois: Princeton, DePue, Genoa, Hampshire, Henry, Huntley, Minooka, Oglesby,
Peru, Sandwich and Spring Valley.
Citizens Bank serves individuals, businesses and governmental bodies in
Bureau, DeKalb, Grundy, Kane, Kendall, LaSalle, Marshall, McHenry, and
contiguous counties. Citizens Bank operates a full-service community commercial
bank and trust business that offers a broad range of financial services to
customers. Citizens Bank's services consist primarily of commercial, real estate
and agricultural lending, consumer deposit and financial services, and trust and
farm management services.
2
COMMERCIAL, REAL ESTATE, AND AGRICULTURAL LENDING
Citizens Bank's commercial loan department provides secured and to a
much lesser extent unsecured loans, including real estate loans, to companies
and individuals for business purposes and to governmental units within the
Bank's market area. As of December 31, 2002, Citizens Bank had commercial loans
of $73.2 million (20.5% of the Bank's total loan portfolio) and commercial real
estate loans of $101.4 million (28.4% of the Bank's total loan portfolio).
Citizens Bank does not have a concentration of commercial loans in any single
industry or business, except for loans to the agricultural industry as more
fully disclosed below.
Agricultural and agricultural real estate loans are primarily related
to ventures within thirty miles of branch locations. As of December 31, 2002,
Citizens Bank had agricultural loans of $38.7 million and agricultural real
estate loans of $35.8 million, which represent approximately 10.8% and 10.0%,
respectively, of the Bank's total loan portfolio.
Agricultural loans, many of which are secured by crops, machinery, and
real estate, are provided to finance capital improvements and farm operations as
well as acquisitions of livestock and machinery. The agricultural loan
department, which has the equivalent of four lending officers, works closely
with all agricultural customers including companies and individual farmers, and
assists in the preparation of budgets and cash flow projections for the ensuing
crop year. These budgets and cash flow projections are monitored closely by the
bank during the year. In addition, Citizens Bank works closely with governmental
agencies, including the Farm Service Agency, to assist agricultural customers in
obtaining credit enhancement products, such as loan guaranties.
In accordance with its loan policy, Citizens Bank maintains a
diversified loan portfolio. As part of its loan policy and community banking
approach, Citizens Bank does not buy loan syndications with other lending
institutions. In connection with its credit relationships, Citizens Bank
encourages commercial and agricultural borrowers to maintain deposit accounts at
the Bank.
PERSONAL FINANCIAL SERVICES
The principal consumer services offered by Citizens Bank are demand,
savings and time deposit accounts, home mortgage loans, installment loans,
credit card loans, and brokerage services.
One of the strengths of Citizens Bank is the stability of its retail
deposit base. This stability is due primarily to the Bank's service oriented
competitive strategy and the economically diverse populations of the counties
encompassing the fourteen banking offices. These locations provide convenience
for customers and visibility for Citizens Bank. A variety of marketing
strategies are used to attract and retain stable depositors, the most important
of which is the officer call program. Nearly all officers of the Bank call on
customers and potential customers of the Bank to maintain and develop
relationships.
Citizens Bank is active in consumer and mortgage lending with
approximately $62.3 million in home mortgage loans, including loans available
for sale, (17.4 % of the Bank's total loan portfolio) and $35.9 million in
consumer installment loans (10.0 % of the Bank's total loan portfolio) as of
December 31, 2002. To better serve its retail customers, Citizens Bank is active
in the secondary residential mortgage market. As a matter of policy, Citizens
Bank does not hold, in portfolio, long term, fixed rate, single-family home
mortgage loans, however, the servicing of such loans is maintained. As of
December 31, 2002,
3
Citizens Bank had $94.7 million of loans that have been sold, but servicing has
been maintained. Management believes customers receive a higher level of quality
service with this arrangement.
Citizens Bank maintains nineteen automated teller machines. The Bank is
a member of NYCE as well as other major nationwide networks such as CIRRUS,
PLUS, and STAR. To enhance customer service and convenience, Citizens Bank
offers ATM & Check Card, which can be used anywhere VISA is accepted, and is
viewed as a tremendous benefit to our customers. Citizens Bank also offers an
entire host of Internet Banking services as an additional and convenient
alternative delivery mechanism for its product and service line.
Citizens Bank continues to maintain an intensive sales training
program, which includes team coaching, setting goals, measuring results, and
reward recognition. In 2002, Citizens Bank again achieved record levels of
product referrals and product sales.
TRUST DEPARTMENT AND FARM MANAGEMENT SERVICES
Gross revenue from Trust and Farm Management services in 2002 totaled
approximately $1,192,000, a slight increase from $1,177,000 in 2001. Trust
income increased from $977,000 in 2001, to $994,000 in 2002. Farm management
fees decreased from $200,000 in 2001 to $198,000 in 2002. The reduction in farm
management fees was due primarily to lower commodity prices.
Total trust assets as of December 31, 2002 were $196,190,000,
representing a decrease of approximately $1,960,000 from the total on December
31, 2001. This decrease was most significantly influenced by the widespread lack
of confidence and value in the domestic and International stock markets.
COMPETITION
PNBC is committed to community banking and to providing quality
products and services at competitive loan rates and deposit pricing in order to
remain competitive in its north central Illinois market. Citizens Bank competes
with both small, locally owned banks, as well as regional financial institutions
which have numerous offices. The Bank competes with these organizations, as well
as with savings and loan associations, credit unions, mortgage companies,
insurance companies and other local financial institutions for deposits, loans
and other business. The principal methods of competition include loan and
deposit pricing, the types and quality of services provided, and advertising and
marketing programs.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. The following information describes certain statutes and
regulations affecting PNBC and the Bank, and such discussion is qualified in its
entirety by reference to such statutes and regulations. Any change in applicable
law or regulations may have a material effect on the business of PNBC and the
Bank.
PNBC is registered as a bank holding company with the Board of
Governors of the Federal Reserve System (the "FRB"), and is subject to
supervision by the FRB under the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). PNBC is required to file with the FRB periodic reports and such
additional information as the FRB may require pursuant to the BHC Act. The FRB
examines PNBC, and may examine the Bank.
4
The BHC Act requires prior FRB approval for, among other things, the
acquisition by a bank holding company of direct or indirect ownership or control
of more than 5% of the voting shares or substantially all the assets of any
bank, or for a merger or consolidation of a bank holding company with another
bank holding company. With certain exceptions, the BHC Act prohibits a bank
holding company from acquiring direct or indirect ownership or control of voting
shares of any company which is not a bank or bank holding company and from
engaging directly or indirectly in any activity other than banking or managing
or controlling banks or performing services for its authorized subsidiaries. A
bank holding company may, however, engage in or acquire an interest in a company
that engages in activities which the FRB has determined by regulation or order
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
In November, 1999, the Gramm-Leach-Bliley Act ("GLB Act") was signed
into law. Under the GLB Act, bank holding companies that meet certain standards
and elect to become "financial holding companies" are permitted to engage in a
wider range of activities than those permitted for bank holding companies,
including securities and insurance activities. Specifically, a bank holding
company that elects to become a financial holding company may engage in any
activity that the Federal Reserve Board, in consultation with the Secretary of
the Treasury, determines is (i) financial in nature or incidental thereto, or
(ii) complementary to any such financial-in-nature activity, provided that such
complementary activity does not pose a substantial risk to the safety and
soundness of depository institutions or the financial system generally. A bank
holding company may elect to become a financial holding company only if each of
its depository institution subsidiaries is well-capitalized, well-managed, and
has a Community Reinvestment Act rating of "satisfactory" or better at their
most recent examination.
The GLB Act specifies many activities that are financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance; providing
financial, investment, or economic advisory services; underwriting, dealing in,
or making a market in securities; and those activities currently permitted for
bank holding companies that are so closely related to banking or managing or
controlling banks, as to be a proper incident thereto.
The GLB Act changed federal laws to facilitate affiliation between
banks and entities engaged in securities and insurance activities. The law also
established a system of functional regulation under which banking activities,
securities activities, and insurance activities conducted by financial holding
companies and their subsidiaries and affiliates will be separately regulated by
banking, securities, and insurance regulators, respectively.
PNBC is a legal entity separate and distinct from the Bank. The major
source of PNBC's revenue is dividends received from the Bank. The right of PNBC
to participate as a stockholder in any distribution of assets of the Bank upon
its liquidation or reorganization or otherwise is subject to the prior claims of
creditors of the Bank. The Bank is subject to claims by creditors for long-term
and short-term debt obligations, including obligations for federal funds
purchased and securities sold under repurchase agreements, as well as deposit
liabilities.
The Bank may declare dividends out of undivided profits, except that
until the surplus fund of the Bank is equal to its common capital, no dividend
can be declared until one-tenth of the Bank's net income for the applicable
period has been carried to the surplus fund. The Bank, however, cannot declare
or pay a dividend, if after making the dividend, the Bank would be
undercapitalized. In addition, prior approval of the Office of the Comptroller
of the Currency (the "OCC") is required if dividends declared by the Bank in any
calendar year will exceed its net income for that year combined with its
retained net income for the preceding two years. Under national banking
regulations and capital guidelines, as of December 31, 2002, the Bank was
authorized to distribute approximately $5,510,000 as dividends without prior
approval from the OCC. Additionally, according to the guidelines, at January 1,
2003, the Bank had approximately $3,392,000 plus any 2003 net income available
to pay as dividends. Future payments of dividends by the Bank will be dependent
on individual regulatory capital requirements and levels of profitability. The
ability of
5
the Bank to pay dividends may be further restricted as a result of regulatory
policies and guidelines relating to dividend payments and capital adequacy.
Federal laws limit certain transactions between the Bank and its
affiliates, including PNBC. Such transactions include loans or extensions of
credit by the Bank to PNBC, the purchase of assets or securities of PNBC, the
acceptance of PNBC's securities as collateral for loans, and the issuance of a
guaranty, acceptance or letter of credit on behalf of PNBC. Transactions of this
kind are limited to 10% of the Bank's capital and surplus for transactions with
one affiliate, and 20% of the Bank's capital and surplus for transactions with
all affiliates. Such transactions are also subject to certain collateral
requirements. These transactions, as well as other transactions between the Bank
and PNBC, must also be on terms substantially the same as, or at least as
favorable as, those prevailing at the time for comparable transactions with
nonaffiliated companies or, in the absence of comparable transactions, on terms,
or under circumstances, including credit standards, that would be offered to, or
would apply to, nonaffiliated companies.
FRB policy requires PNBC to act as a source of financial strength to
the Bank and commit resources to support the Bank. The FRB takes the position
that in implementing this policy, it may require PNBC to provide such support
when PNBC otherwise would not consider itself able to do so.
The various federal bank regulators, including the FRB and the OCC,
have adopted risk-based capital requirements for assessing bank holding company
and bank capital adequacy. These standards establish minimum capital standards
in relation to assets and off-balance sheet exposures, as adjusted for credit
risks. Capital is classified into two tiers. For bank holding companies, Tier 1
or "core" capital consists of common shareholders' equity, perpetual preferred
stock (subject to certain limitations) and minority interests in the equity
accounts of consolidated subsidiaries, and is reduced by goodwill and certain
other intangible assets ("Tier 1 Capital"). Tier 2 capital consists of (subject
to certain conditions and limitations) the allowance for possible credit losses,
perpetual preferred stock, "hybrid capital instruments," perpetual debt and
mandatory convertible debt securities, and term subordinated debt and
intermediate-term preferred stock ("Tier 2 Capital"). Total capital is the sum
of Tier 1 Capital and Tier 2 Capital (the latter being limited to 100% of Tier 1
Capital). Components of Tier 1 and Tier 2 Capital for national banks are
similar, but not identical, to those for holding companies.
Under the risk-adjusted capital standards, a minimum ratio of
qualifying total capital to risk-weighted assets of 8% and of Tier l Capital to
risk-weighted assets of 4% is required. The FRB and OCC also have adopted a
minimum leverage ratio of Tier 1 Capital to total assets of 3% for banks rated
"1" under the Uniform Financial Institutions Rating System or bank holding
companies rated "1" under the rating system of bank holding companies. All other
banks and bank holding companies must maintain a leverage ratio of 4%. In
addition, all banks and bank holding companies are expected to have capital
commensurate with the level and nature of all risks to which they are exposed.
At December 31, 2002, PNBC had a total capital to risk-weighted assets
ratio of 11.74%, a Tier 1 capital to risk-based assets ratio of 11.10%, and a
leverage ratio of 8.11%. At December 31, 2002, the Bank had a total capital to
risk-weighted assets ratio of 11.81%, a Tier 1 capital to risk-weighted assets
ratio of 11.17%, and a leverage ratio of 8.16%.
The FDIC has a risk-based assessment system for the deposit insurance
provided to depositors at depository institutions whereby assessments to each
institution are calculated upon the probability that the insurance fund will
incur a loss with respect to the institution, the likely amount of such loss,
and the revenue needs of the insurance fund. The system utilizes nine separate
assessment classifications based on an entity's capital level and supervisory
evaluation. The Bank's deposits are predominantly insured through the Bank
Insurance Fund (the "BIF") and certain deposits held by the Bank are insured
through the Savings Association Insurance Fund (the "SAIF"). The BIF and SAIF
are both administered by the FDIC.
6
The BIF and SAIF semi-annual assessment rates currently both range from
0 to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease
the assessments rates on a semi-annual basis. An increase in the rates assessed
on the Bank could have an adverse effect on the earnings of PNBC and the Bank
depending on the amount of the increase.
All FDIC-insured depository institutions must pay a quarterly
assessment to provide funds for the payment of interest on bonds issued by the
Financing Corporation, a federal corporation chartered under the authority of
the Federal Housing Finance Board. The bonds (commonly referred to as FICO
bonds) were issued to capitalize the Federal Savings and Loan Insurance
Corporation.
Since September 29, 1995, federal law has permitted adequately
capitalized and adequately managed bank holding companies to acquire banks
across state lines, without regard to whether the transaction is prohibited by
state law. Any state law relating to the minimum age of target banks (not to
exceed five years) or limits on the amount of deposits that may be controlled by
a single bank or bank holding company applies. The FRB is not permitted to
approve any acquisition if, after the acquisition, the bank holding company
would control more than 10% of the deposits of insured depository institutions
nationwide or 30% or more of the deposits in the state where the target bank is
located. The FRB could approve an acquisition, notwithstanding the 30% limit, if
the state waives the limit either by state regulation or order of the
appropriate state official.
Beginning on June 1, 1997, banks were permitted to merge with one
another across state lines and thereby create a main bank with branches in
separate states. After establishing branches in a state through an interstate
merger transaction, a bank can establish and acquire additional branches at any
location in the state where any bank involved in the merger could have
established or acquired branches under applicable federal or state law.
PNBC does not have current plans to acquire banking organizations
located outside the state of Illinois.
National banks may establish operating subsidiaries to engage in
activities in which the bank could engage directly.
National banks are also authorized by the GLB Act to engage, through
"financial subsidiaries," in activities that are permissible for financial
holding companies, and activities that the Secretary of the Treasury, in
consultation with the FRB, determines is financial in nature or incidental to
any such financial activity, except (i) insurance underwriting, (ii) real estate
development or real estate investment activities (unless otherwise permitted by
law), (iii) insurance company portfolio investments, and (iv) merchant banking.
A national bank's authority to invest in a financial subsidiary is subject to a
number of conditions, including, among other things, requirements that the bank
be well-managed and well-capitalized (after deducting from capital the bank's
outstanding investment in financial subsidiaries).
The GLB Act affected many other changes to federal law applicable to
PNBC and the Bank. One of these changes was a requirement that financial
institutions take steps to protect customers' "nonpublic personal information."
EMPLOYEES
PNBC presently has no employees. However, certain of the employees and
executive officers of Citizens Bank provide their services to PNBC. A monthly
fee for these services is paid by PNBC to Citizens Bank. This fee is computed
annually and is based upon an average of the number of hours worked during the
year.
7
As of December 31, 2002, Citizens Bank employed 191 full-time and 50
part-time employees. The Bank offers a variety of employee benefits. Citizens
Bank employees are not represented by a union or a collective bargaining
agreement, and employee relations are considered to be excellent.
Citizens Bank believes one of its strengths is its ability to attract
and retain experienced and well-trained personnel who are knowledgeable of the
market areas in which it operates. Management believes that PNBC generally has
an easier time attracting and retaining quality employees than other banks in
north central Illinois. This is due primarily to its size and management style,
which affords greater opportunities to employees for direct participation and
development of managerial and banking skills.
In order to implement PNBC's community banking philosophy and to
promote itself as a community oriented organization, the Bank has a formal
officer call program. Nearly every officer of the Bank calls on existing or
potential customers and is expected to become actively involved in leadership
positions in community organizations. As of December 31, 2002, employees of the
Bank participated in approximately 135 community organizations, providing over
10,000 hours of community service.
ITEM 2. PROPERTIES
PNBC's headquarters and Citizens Bank's principal offices are located
at 606 South Main Street, Princeton, Illinois. Also located at this address is
an annex completed in 1990 that contains, among others, the trust and farm
management departments. The two buildings at this location are owned by Citizens
Bank and contain approximately 36,000 square feet of space, all of which is
occupied by PNBC and Citizens Bank. Citizens Bank also has two drive-up
facilities in Princeton and branch offices in DePue, Genoa, Hampshire, Henry,
Huntley, Minooka, Oglesby, Peru, Sandwich and Spring Valley. Citizens Bank is
the owner of each of these facilities. None of the facilities owned by the Bank
are subject to a mortgage. For additional information regarding these
properties, see Footnote 6 of Item 8 of this report.
ITEM 3. LEGAL PROCEEDINGS
A ruling was received during the third quarter of 1998 on the
Corporation's subsidiary bank's lawsuit, stemming from the 1995 Trust Department
issue, against Cincinnati Insurance Company. The case was heard in the United
States District Court for the Northern District of Illinois, Eastern Division,
in Chicago, Illinois. The judge ruled in favor of the subsidiary bank on all
issues and awarded $4,900,000 in damages, pre-judgment interest, post-judgment
interest, and reasonable attorney fees and costs. Cincinnati Insurance Company
filed an appeal to the ruling.
In January, 2000, the Seventh Circuit Court of Appeals issued its
decision on the appeal, affirming the Federal District Court Award and
increasing the recovery under the policy by $100,000 though setting aside the
award of attorneys' fees. The subsidiary bank was therefore entitled to
$5,000,000 under the policy, prejudgment interest of approximately $730,000, and
post-judgment interest accruing at the statutory rate from the date of the
original judgment in the lower court of approximately $400,000.
On February 17, 2000, the subsidiary bank received the settlement from
Cincinnati Insurance Company in the amount of $6,235,000, bringing the matter to
a conclusion. This amount is reflected in the 2000 Consolidated Statement of
Income.
The Bank is subject to legal proceedings and claims that arise in the
ordinary course of business. Although management of the Corporation cannot
predict the ultimate outcome of such matters, it believes that the ultimate
resolution of these matters will not have a material adverse effect on the
Corporation, the Bank, or the Corporation's financial position, liquidity, and
results of operations.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter of 2002.
SUPPLEMENTAL ITEM - EXECUTIVE OFFICERS
The following table sets forth information regarding the executive
officers:
Name Age Position
---- --- --------
Tony J. Sorcic 49 President & Chief Executive Officer
James B. Miller 47 Executive Vice-President
Robert B. Schneider 62 Senior Vice-President & Trust Officer
Tony J. Sorcic has been President and Chief Executive Officer of PNBC
since January, 1997, and first became a director of PNBC in 1986. He joined
Citizens Bank in 1981 as Assistant Vice-President of Operations and became
Executive Vice-President in 1986. Mr. Sorcic was named President and Chief
Executive Officer of Citizens Bank in 1995.
James B. Miller joined Citizens Bank in 1979 as an agricultural loan
officer and has been the Executive Vice-President of PNBC since 1996. Mr. Miller
currently is the Executive Vice-President and Commercial Banking Manager of
Citizens Bank, and became a director of PNBC in 2000.
Robert B. Schneider joined Citizens Bank in 1995 as Senior
Vice-President and Trust Officer, and remains in that capacity.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Since May 15, 1992, PNBC's Common Stock has been listed on the NASDAQ
National Market, under the symbol PNBC.
The table below indicates the high and low bid prices, and the
dividends declared per share for the Common Stock during the periods indicated.
The prices shown reflect interdealer prices and do not include retail markups,
markdowns, or commissions which may not necessarily represent actual
transactions.
Cash
Prices Dividends
High Low Declared
------- ------- --------
2002
- ---------------
Fourth Quarter $ 22.00 $ 19.18 $ .45
Third Quarter 20.71 18.47 .14
Second Quarter 20.79 17.45 .13
First Quarter 17.98 16.15 .13
2001
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Fourth Quarter $ 15.75 $ 12.00 $ .12
Third Quarter 17.38 14.56 .11
Second Quarter 17.35 15.25 .40
First Quarter 16.80 14.95 .10
On March 17, 2003, PNBC had 552 registered holders of record of its
Common Stock.
The holders of the Common Stock are entitled to receive such dividends
as are declared by the Board of Directors of PNBC, which considers payment of
dividends quarterly. The ability of PNBC to pay dividends is dependent upon its
receipt of dividends from the Bank. In determining cash dividends, the Board of
Directors considers the earnings, capital requirements, debt servicing
requirements, financial ratio guidelines established by the Board, the financial
condition of PNBC, and other relevant factors. The Bank's ability to pay
dividends to PNBC is subject to regulatory restrictions. See "Supervision and
Regulation."
PNBC has paid regular cash dividends on the Common Stock since it
commenced operations in 1982. PNBC currently anticipates that cash dividends
comparable to those that have been paid in the past will continue to be paid in
the future. There can be no assurance, however, that any such dividends will be
paid by PNBC or that such dividends will not be reduced or eliminated in the
future. The timing and amount
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of dividends will depend upon the earnings, capital requirements, and financial
condition of PNBC and the Bank as well as the general economic conditions and
other relevant factors affecting PNBC and the Bank. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The information from the 2003 Proxy Statement under the caption
"Existing Equity Compensation Plans" on pages 4 through 5 is incorporated by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding the Corporation's selected financial data is
included on page 37 of the Corporation's Annual Report, which information is
incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding the Corporation's management's discussion and
analysis of financial condition and results of operations is included on pages
26-35 in the Corporation's Annual Report, which information is incorporated by
reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 305 of Regulation S-K is contained in
the Corporation's Annual Report on pages 33 and 34, under the headings "Asset
Liability Management" and "Contractual Obligations and Commercial Commitments",
which information is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information regarding the Corporation's consolidated financial
statements and supplementary data is included on pages 9-25 and page 36 in the
Corporation's Annual Report, which information is incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding executive officers of the Corporation is
included as a Supplementary Item at the end of Part I of this Form 10-K.
Information regarding executive officers and directors of the
Corporation is included in the Corporation's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be held April 29, 2003 (the "Proxy Statement")
under the caption "Proposal 1-Election of Directors", which information is
incorporated by reference herein.
Information regarding compliance with Section 16(a) of the Exchange Act
is included in the Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Compliance Reporting", which information is incorporated by reference
herein.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is included in the Proxy
Statement under the captions "Board of Directors' Meetings and Committees",
"Compensation of Directors", and "Executive Compensation -- Summary; -- Summary
Compensation Table; and Employment Agreements," which information is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership is included in the Proxy
Statement under the captions "Security Ownership of Directors, Nominees for
Director, Most Highly Compensated Executive Officers and All Directors and
Executive Officers as a Group" and "Security Ownership of Certain Beneficial
Owners," which information is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships and transactions is included in the
Proxy Statement under the caption "Certain Transactions," which information is
incorporated by reference herein.
ITEM 14. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Within 90 days before
filing this report, we evaluated the effectiveness of the
design and operation of our disclosure controls and
procedures. Our disclosure controls and procedures are the
controls and other procedures that we designed to ensure that
we record, process, summarize and report in a timely manner
the information we must disclose in reports that we file with
or submit to the SEC. Tony J. Sorcic, President and Chief
Executive Officer, and Todd D. Fanning, Vice-President and
Chief Financial Officer, reviewed and participated in this
evaluation. Based on this evaluation, Messrs. Sorcic and
Fanning concluded that, as of the date of their evaluation,
our disclosure controls were effective.
12
(b) Internal controls. Since the date of the evaluation described
above, there have not been any significant changes in our
internal accounting controls or in other factors that could
significantly affect those controls.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following is a list of the Financial Statements included in Part
II, Item 8 of this report:
Consolidated Balance Sheets as of December 31, 2002 and 2001.
Consolidated Statements of Income for the years ended December
31, 2002, 2001 and 2000.
Consolidated Statements of Comprehensive Income for the years
ended December 31, 2002, 2001, and 2000.
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 2002, 2001, and 2000.
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a)(2) Financial Statement Schedules
No consolidated financial statement schedules are required to
be included in this Report on Form 10-K.
(a)(3) Exhibits
The exhibits filed herewith are listed on the Exhibit Index
filed as part of this report on Form 10-K. Each management contract or
compensatory plan or arrangement of the Corporation listed on the
Exhibit Index is separately identified by an asterisk.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Corporation for the
quarter ended December 31, 2002.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registration has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PRINCETON NATIONAL BANCORP, INC.
By /s/ Tony J. Sorcic
-----------------------------
Tony J. Sorcic, President and
Chief Executive Officer
Date: March 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
/s/ Tony J. Sorcic President and Chief Executive Officer and March 26, 2003
- --------------------------- Director (Principal Executive Officer)
Tony J. Sorcic
/s/ Todd D. Fanning Vice-President & Chief Financial Officer March 26, 2003
- --------------------------- (Principal Accounting and Financial Officer)
Todd D. Fanning
/s/ Craig O. Wesner Chairman of the Board March 26, 2003
- --------------------------
Craig O. Wesner
/s/ Daryl Becker Director March 26, 2003
- --------------------------
Daryl Becker
/s/ Director
- --------------------------
Don S. Browning
/s/ Gary C. Bruce Director March 26, 2003
- --------------------------
Gary C. Bruce
/s/ Sharon L. Covert Director March 26, 2003
- --------------------------
Sharon L. Covert
/s/ Director
- --------------------------
John R. Ernat
/s/ Donald E. Grubb Director March 26, 2003
- --------------------------
Donald E. Grubb
/s/ Mark Janko Director March 26, 2003
- --------------------------
Mark Janko
/s/ Director
- --------------------------
Thomas M. Longman
/s/ James B. Miller Director March 26, 2003
- --------------------------
James B. Miller
/s/ Director
- --------------------------
Stephen W. Samet
/s/ Director
- --------------------------
Ervin I. Pietsch
14
CERTIFICATIONS
I, Tony J. Sorcic, certify that:
1. I have reviewed this annual report on Form 10-K of Princeton National
Bancorp, Inc;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition , results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and b) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 3/26/03 /s/ Tony J. Sorcic
---------------- -----------------------------
Principal Exectutive Officer
Signature-Title
15
I, Todd D. Fanning, certify that:
1. I have reviewed this annual report on Form 10-K of Princeton National
Bancorp, Inc;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition , results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and b) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 3/26/03 /s/ Todd D. Fanning
---------------- -----------------------
Chief Financial Officer
Signature-Title
16
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
3.1 Amended and Restated Certificate of Incorporation of Princeton National
Bancorp, Inc. ("PNBC") (incorporated by reference to Exhibit 3.1 to the
PNBC Registration Statement on Form S-1 (Registration No. 33-46362)
(the "S-1 Registration Statement")).
3.2 By-Laws of PNBC (as amended January 27, 2003).
10.1* Employment Agreement, dated as of January 8, 2003 between PNBC and
James B. Miller.
10.2* Employment Agreement, dated as of October 23, 2000, between PNBC and
Tony J. Sorcic (incorporated by reference to Exhibit 10.2 of the 2000
PNBC Annual Report on Form 10-K).
10.3* Citizens First National Bank Profit Sharing Plan, as amended and
restated January 1, 1989 (incorporated by reference to Exhibit 10.4 to
the S-1 Registration Statement).
10.4* Citizens First National Bank Defined Contribution Plan and Trust, as
amended and restated January 1, 1989 (incorporated by reference to
Exhibit 10.5 to the S-1 Registration Statement).
10.5* Princeton National Bancorp, Inc. Stock Option Plan (incorporated by
reference to the Proxy Statement for the Annual Meeting of Stockholders
held on April 14, 1998).
10.6* Princeton National Bancorp, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit 10.6 of the 2001 PNBC Annual
Report on Form 10-K).
10.7* Princeton National Bancorp, Inc. Management Incentive Compensation Plan
(incorporated by reference to Exhibit 10.7 of the 2001 PNBC Annual
Report on Form 10-K).
13 Portions of 2002 Annual Report to Shareholders.
21 Subsidiaries of PNBC.
23 Consent of KPMG LLP.
99.1 Section 906 Certification of Chief Executive Officer
99.2 Section 906 Certification of Chief Financial Officer
* Management contract or compensatory plan.
17