UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-32535
FIRST BANCTRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
37-1406661
(IRS EMPLOYER IDENTIFICATION NO.)
101 SOUTH CENTRAL AVENUE
PARIS, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
61944
(ZIP CODE)
217-465-6381
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. YES [X] NO [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER,
AN ACCELERATED FILER, OR A NON-ACCELERATED FILER. SEE DEFINITION OF "ACCELERATED
FILER AND LARGE ACCELERATED FILER" IN RULE 12b-2 OF THE EXCHANGE ACT.
[ ] LARGE ACCELERATED FILER [ ] ACCELERATED FILER [X] NON-ACCELERATED FILER
INDICATE BY CHECKMARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED
IN RULE 12b-2 OF THE EXCHANGE ACT) YES [ ] NO [X]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
AS OF NOVEMBER 09, 2006, THE REGISTRANT HAD OUTSTANDING 2,344,200 SHARES OF
COMMON STOCK.
First BancTrust Corporation
Form 10-Q Quarterly Report
Index Page
----- ----
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income - Nine Months
Ended 2
Condensed Consolidated Statements of Income - Three Months
Ended 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures About Market Risk. 27
Item 4 Controls and Procedures 28
PART II - Other Information
Item 1 Legal Proceedings 29
Item 1A Risk Factors 29
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3 Defaults Upon Senior Securities 30
Item 4 Submission of Matters to a Vote of Security Holders 30
Item 5 Other Information 30
Item 6 Exhibits 30
SIGNATURES 30
CERTIFICATIONS 31
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
SEPTEMBER 30, DECEMBER 31,
2006 2005
------------- ------------
(unaudited)
ASSETS
Cash and due from banks $ 6,131 $ 7,338
Interest-bearing demand deposits 4,490 5,109
-------- --------
Cash and cash equivalents 10,621 12,447
Available-for-sale securities 66,393 76,424
Held-to-maturity securities (fair value of $2,855 and $3,384) 2,979 3,437
Loans held for sale, net of unrealized loss of $2 and $5 882 642
Loans, net of allowance for loan losses of $2,504 and $2,662 183,187 156,885
Premises and equipment 11,220 6,386
Federal Home Loan Bank stock 4,724 6,608
Foreclosed assets held for sale, net 204 267
Interest receivable 2,892 2,416
Deferred income taxes 1,615 1,382
Loan servicing rights 387 462
Cash surrender value of life insurance 4,961 4,825
Goodwill 541 541
Core deposit intangibles 434 484
Other assets 477 659
-------- --------
Total assets $291,517 $273,865
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest bearing deposits $ 21,759 $ 21,529
Interest bearing deposits 201,955 172,446
-------- --------
Total deposits 223,714 193,975
Federal funds purchased -- 2,500
Federal Home Loan Bank advances 33,200 43,200
Junior subordinated debentures 6,186 6,186
Pass through payments received on loans sold 30 75
Advances from borrowers for taxes and insurance 31 189
Interest payable 608 245
Other 1,327 1,449
-------- --------
Total liabilities 265,096 247,819
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized
and unissued
Common stock, $.01 par value, 5,000,000 shares authorized;
3,041,750 shares issued; 2,344,200 and 2,367,450 shares outstanding 30 30
Additional paid-in capital 14,716 15,015
Retained earnings 19,429 19,062
Unearned incentive plan shares - 0 and 71,422 shares -- (589)
Unearned employee stock ownership plan shares - 76,096 and 98,902 shares (440) (572)
Accumulated other comprehensive loss (783) (665)
Treasury stock, at cost - 697,550 and 674,300 shares (6,531) (6,235)
-------- --------
Total stockholders' equity 26,421 26,046
-------- --------
Total liabilities and stockholders' equity $291,517 $273,865
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements.
-1-
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except share data)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30 2006 2005
------------------------------ ------- ------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $ 9,223 $6,613
Tax exempt 45 47
Securities
Taxable 2,059 2,019
Tax exempt 395 343
Dividends on Federal Home Loan Bank stock 150 171
Deposits with financial institutions and other 101 77
------- ------
Total interest and dividend income 11,973 9,270
------- ------
INTEREST EXPENSE
Deposits 4,448 2,349
Federal Home Loan Bank advances and other debt 1,568 1,311
------- ------
Total interest expense 6,016 3,660
------- ------
NET INTEREST INCOME 5,957 5,610
PROVISION FOR LOAN LOSSES 163 287
------- ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,794 5,323
------- ------
NONINTEREST INCOME
Customer service fees 806 681
Other service charges and fees 679 536
Net gains on loan sales 208 226
Net realized gains on sales of available-for-sale securities 0 118
Net loan servicing fees 332 374
Brokerage fees 66 55
Abstract and title fees 242 280
Increase in cash surrender value of life insurance 158 153
Other 122 77
------- ------
Total noninterest income 2,613 2,500
------- ------
NONINTEREST EXPENSE
Salaries and employee benefits 3,887 3,471
Net occupancy expense 501 310
Equipment expense 742 600
Data processing fees 466 360
Professional fees 366 331
Foreclosed assets expense, net 65 62
Marketing expense 178 222
Printing and office supplies 132 113
Amortization of loan servicing rights 183 380
Recovery of impairment of loan servicing rights 0 (24)
Other expenses 912 764
------- ------
Total noninterest expense 7,432 6,589
------- ------
INCOME BEFORE INCOME TAX 975 1,234
INCOME TAX EXPENSE 195 269
------- ------
NET INCOME $ 780 $ 965
======= ======
BASIC EARNINGS PER SHARE $ 0.35 $ 0.43
======= ======
DILUTED EARNINGS PER SHARE $ 0.34 $ 0.40
======= ======
DIVIDENDS PER SHARE $ 0.18 $ 0.18
======= ======
See Notes to Unaudited Condensed Consolidated Financial Statements.
-2-
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except share data)
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30 2006 2005
------------------------------- ------ -------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $3,320 $ 2,382
Tax exempt 15 16
Securities
Taxable 695 622
Tax exempt 133 122
Dividends on Federal Home Loan Bank stock 50 54
Deposits with financial institutions and other 43 24
------ -------
Total interest and dividend income 4,256 3,220
------ -------
INTEREST EXPENSE
Deposits 1,807 849
Federal Home Loan Bank advances and other debt 457 508
------ -------
Total interest expense 2,264 1,357
------ -------
NET INTEREST INCOME 1,992 1,863
PROVISION FOR LOAN LOSSES 68 99
------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,924 1,764
------ -------
NONINTEREST INCOME
Customer service fees 305 266
Other service charges and fees 225 184
Net gains on loan sales 85 86
Net realized gains on sales of available-for-sale securities 0 7
Net loan servicing fees 92 116
Brokerage fees 24 21
Abstract and title fees 82 92
Increase in cash surrender value of life insurance 54 50
Other 30 26
------ -------
Total noninterest income 897 848
------ -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,254 1,168
Net occupancy expense 185 108
Equipment expense 252 189
Data processing fees 167 128
Professional fees 82 122
Foreclosed assets expense, net 24 23
Marketing expense 72 75
Printing and office supplies 44 32
Amortization of loan servicing rights 61 124
Recovery of impairment of loan servicing rights 0 (2)
Other expenses 350 338
------ -------
Total noninterest expense 2,491 2,305
------ -------
INCOME BEFORE INCOME TAX 330 307
INCOME TAX EXPENSE 58 45
------ -------
NET INCOME $ 272 $ 262
====== =======
BASIC EARNINGS PER SHARE $ 0.12 $ 0.12
====== =======
DILUTED EARNINGS PER SHARE $ 0.12 $ 0.11
====== =======
DIVIDENDS PER SHARE $ 0.06 $ 0.06
====== =======
See Notes to Condensed Consolidated Financial Statements.
-3-
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30 2006 2005
------------------------------ -------- --------
OPERATING ACTIVITIES
Net income $ 780 $ 965
Items not requiring (providing) cash
Depreciation and amortization 449 296
Provision for loan losses 163 287
Loss on foreclosed assets, net 21 22
Loss on disposition of premises and equipment 93 --
Impairment of premises and equipment -- 62
Amortization of premiums and discounts on securities, net 37 58
Amortization of loan servicing rights 183 380
Recovery for impairment of loan servicing rights -- (24)
Deferred income taxes (159) (47)
Amortization of intangible assets 50 9
Net realized gains on available-for-sale securities -- (118)
Net gains on loan sales (208) (226)
Federal Home Loan Bank stock dividends -- (171)
Compensation expense related to ESOP and incentive plan 416 364
Loans originated for sale (11,679) (11,307)
Proceeds from sales of loans originated for sale 11,539 11,071
Changes in
Interest receivable (476) (55)
Cash surrender value of life insurance (136) (133)
Other assets 182 (192)
Interest payable 363 53
Other liabilities (122) 51
-------- --------
Net cash provided by operating activities 1,496 1,345
-------- --------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (5,984) (6,321)
Proceeds from maturities of available-for-sale securities 15,782 18,580
Proceeds from sales of available-for-sale securities -- 959
Proceeds from maturities of held-to-maturity securities 463 862
Net change in loans (26,718) (20,108)
Proceeds from sales of foreclosed assets 295 241
Purchases of premises and equipment (5,284) (1,261)
Proceeds from sales of premises and equipment 9 --
Capitalized interest (101) --
Redemption of Federal Home Loan Bank stock 1,884 --
-------- --------
Net cash used in investing activities (19,654) (7,048)
-------- --------
-4-
FINANCING ACTIVITIES
Net decrease in demand deposits, money market,
NOW and savings accounts $ (7,403) $ (4,670)
Net increase in certificates of deposit 37,142 3,603
Net increase (decrease) in short-term borrowings (2,500) 5,000
Proceeds from Federal Home Bank advances 29,500 --
Repayment of Federal Home Loan Bank advances (39,500) --
Proceeds from the issuance of junior subordinated debentures -- 6,186
Net change in pass through payments received on loans sold (45) 49
Net change in advances from borrowers for taxes and insurance (158) (88)
Proceeds from stock options exercised 99 41
Purchase of treasury stock (390) (1,541)
Escrow funds for acquisition of Rantoul First Bank, SB -- (4,220)
Dividends paid (413) (439)
-------- --------
Net cash provided by financing activities 16,332 3,921
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (1,826) (1,782)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,447 9,113
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,621 $ 7,331
======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid (net of capitalized interest) $ 5,653 $ 3,607
Income taxes paid (net of refunds) $ 460 $ 290
Real estate and other property acquired in settlement of loans $ 253 $ 162
See Notes to Unaudited Condensed Consolidated Financial Statements.
-5-
FIRST BANCTRUST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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-Q. 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-K 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, 2006. 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 nine months ended
September 30, 2006 are not necessarily indicative of the results to be expected
for the full year. The condensed consolidated balance sheet of the Company as of
December 31, 2005 has been derived from the audited consolidated balance sheet
of the Company as of that date.
Note 2 - Newly Adopted Accounting Pronouncement
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,
2005 Annual Report to shareholders. Prior to January 1, 2006, the Company
accounted for the 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 was 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. During December
2005, the Company accelerated the vesting of 182,504 options on shares of the
Company's stock. The exercise price and remaining terms of each of the
accelerated options remained the same. As of December 31, 2005, all of the
Company's stock options were vested.
In December, 2004, the Financial Accounting Standards board ("FASB") issued
Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which
requires the cost resulting from stock options be measured at fair value and
recognized in earnings. This statement replaces Statement No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123") and supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB No. 25") which permitted the recognition of compensation expense using the
intrinsic value method.
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123 (R), using the modified prospective application
method. Under this method, the Statement
-6-
applied to new awards and to awards modified, repurchased, or cancelled after
the effective date. Additionally, compensation cost for a portion of awards for
which requisite services has not been rendered that are outstanding as of the
effective date shall be recognized as the requisite service is rendered or after
the effective date. Since all of the Company's stock options were vested at
December 31, 2005, there is no effect on the financial statements for the three
and nine months ended September 30, 2006. 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
for the three and nine months ended September 30, 2005.
Three Months Nine Months
Ended Ended
September 30, 2005 September 30, 2005
------------------ ------------------
Net income, as reported $ 262 $ 965
Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes (33) (99)
----- -----
Pro forma net income $ 229 $ 866
===== =====
EARNINGS PER SHARE:
Basic - as reported $0.12 $0.43
Basic - pro forma $0.10 $0.38
Diluted - as reported $0.11 $0.40
Diluted - pro forma $0.10 $0.36
The Company also has a stock option award program or incentive plan which
provides for the award and issuance of up to 121,670 shares of the Company's
stock to members of the Board of Directors and management. At January 1, 2006,
119,576 shares had been awarded. In 2002, the Company awarded 65,576 shares
under the incentive plan which vest ratably over a five-year period, commencing
with the date of the award. An additional 54,000 shares were awarded in December
2005 to members of the Board of Directors and management which will vest
according to a defined schedule based on meeting defined financial performance
goals over the next five year period. Expense recognized under the incentive
plan totaled $143,000 and $82,000 for the nine month periods ending September
30, 2006 and 2005, and $45,000 and $27,000 for the three month periods ending
September 30, 2006 and 2005.
As a result of implementing the modified prospective application method, the
Company reclassified $589,000 and 71,422 unearned shares from a contra equity
account to additional paid-in capital as of January 1, 2006.
-7-
Note 3 - Junior Subordinated Debentures
Capital securities of $6.0 million were issued June 15, 2005 by a statutory
business trust, FBTC Statutory Trust I. The Company owns 100% of the common
equity of the trust, which is a wholly-owned subsidiary of the Company. The $6.0
million in proceeds from the trust preferred issuance and an additional $186,000
for the Company's investment in the common equity of the Trust, a total of
$6,186,000 was invested in the junior subordinated debentures of the Company. As
required by FIN 46R, the Company has not consolidated the investment in the
trust. The trust was formed with the purpose of issuing trust preferred
securities and investing the proceeds from the sale of such trust preferred
securities in the debentures. The debentures held by the trust are the sole
assets of the trust. Distributions of the trust preferred securities are payable
at a variable rate of interest, which is equal to the interest rate being earned
by the trust on the debentures, and are recorded as interest expense by the
Company. The trust preferred securities are subject to mandatory redemption, in
whole or in part, upon repayment of the debentures.
The debentures are included as Tier I capital for regulatory capital purposes.
On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the
continued limited inclusion of trust preferred securities in the calculation of
Tier 1 capital for regulatory purposes. The final rule provides a five-year
transition period, ending March 31, 2009, for application of the quantitative
limits to have an impact on its calculation of Tier 1 capital for regulatory
purposes or its classification as well-capitalized. The debentures issued are
first redeemable, in whole or part, by the Company, on June 15, 2010, and mature
on June 15, 2035. The funds were used for the acquisition of the common stock of
Rantoul First Bank and for the repurchase of First BancTrust Corporation common
stock. Interest is fixed at a rate of 5.80% for a period of five years, and then
converts to a floating rate after June 15, 2010. Interest payments are made
quarterly beginning in September, 2005. Interest expense generated by the
debentures for the nine months ended September 30, 2006 and 2005 totaled
$269,000 and $105,000, and totaled $90,000 for both of the three month periods
ended September 30, 2006 and 2005.
Note 4 - Employee Stock Ownership Plan
The Company 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 $273,000 and $282,000 for the
nine month periods ended September 30, 2006 and 2005, and $89,000 and $97,000
for the three month periods ended September 30, 2006 and 2005.
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.
-8-
Note 5 - Earnings per Share
Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the three month and nine month periods ended
September 30, 2006 and 2005. 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 (dollar amounts in thousands except
share data):
-9-
Weighted
Average Per Share
Income Shares Amount
------ --------- ---------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006:
Basic Earnings Per Share:
Income available to common stockholders $780 2,206,721 $0.35
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 69,857
Stock Options 40,758
---- --------- -----
Diluted Earnings per Share:
Income available to common stockholders and assumed conversions $780 2,317,336 $0.34
==== ========= =====
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005:
Basic Earnings Per Share:
Income available to common stockholders $965 2,250,875 $0.43
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 88,968
Stock Options 50,973
---- --------- -----
Diluted Earnings per Share:
Income available to common stockholders and assumed conversions $965 2,390,816 $0.40
==== ========= =====
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006:
Basic Earnings Per Share:
Income available to common stockholders $272 2,211,224 $0.12
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 63,941
Stock Options 36,638
---- --------- -----
Diluted Earnings per Share:
Income available to common stockholders and assumed conversions $272 2,311,803 $0.12
==== ========= =====
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005:
Basic Earnings Per Share:
Income available to common stockholders $262 2,205,758 $0.12
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 85,679
Stock options 57,549
---- --------- -----
Diluted Earnings per Share:
Income available to common stockholders and assumed conversions $262 2,348,986 $0.11
==== ========= =====
-10-
Note 6 - Comprehensive Income (Loss)
Comprehensive income (loss) for the three month and nine month periods ended
September 30, 2006 and 2005 is listed as follows:
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
2006 2005
----- -----
NET INCOME $ 780 $ 965
----- -----
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized depreciation on available-for-sale securities (118) (538)
Less: Reclassification adjustment for realized gains included
in net income -- 78
----- -----
(118) (616)
----- -----
COMPREHENSIVE INCOME $ 662 $ 349
===== =====
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
2006 2005
---- -----
NET INCOME $272 $ 262
---- -----
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on available-for-sale securities 567 (114)
Less: Reclassification adjustment for realized gains included
in net income -- 5
---- -----
567 (119)
---- -----
COMPREHENSIVE INCOME $839 $ 143
==== =====
Note 7 - Authorized Share Repurchase Program
On April 18, 2006, the Board of Directors authorized the repurchase in open
market transactions of 117,710 shares, or 5% or the Company's outstanding shares
prior to April 13, 2007. As of September 30, 2006, the Company had repurchased
20,000 shares under this program, leaving 97,710 shares available to be
repurchased. Previously, the Company had completed six other repurchase programs
for stock repurchases of 691,750 shares. The Company issued 4,200 shares of
treasury stock upon the exercise of stock options in 2005, and 10,000 shares of
treasury stock upon the exercise of stock options in May, 2006. As of November
09, 2006, the Company owned a cumulative total of 697,550 shares in treasury
stock. The repurchased shares are held as treasury stock and are available for
general corporate purposes.
-11-
Note 8 - Commitments
The Company expanded and renovated its Operations Center in Paris, Illinois to
house its entire banking operations in Paris, Illinois. As a result of the
renovation and expansion, the Company entered into an agreement with a building
contractor to design and construct the new facility for an amount not to exceed
$5.6 million. The project was completed in the third quarter of 2006, and the
Company's remaining commitment for the project is approximately $74,000.
In August, 2006, the Company entered into an agreement with Central Illinois
Bank ("CIB") to purchase assets and assume deposit liabilities related to the
Rantoul, Illinois branch of CIB. Assets to be purchased include books and
records relating to the purchased assets and deposit liabilities; certain
intangible assets, including goodwill relating to the branch, some furniture,
fixtures and equipment, and certain overdraft protection accounts. The Company
will assume liability for all deposits attributable to CIB, with some agreed
upon exclusions. The Bank will also assume the lease for the space in which the
Branch is located, but CIB will pay the Bank $3,600 per month through the end of
the current term of the lease which will expire in April, 2007. As part of the
agreement, the Bank will pay CIB a premium of 1.89% of the Deposit Liabilities
assumed, which is estimated to be $375,000. Applications have been filed with
the Bank's primary regulators, the Federal Deposit Insurance Corporation and the
Illinois Department of Financial and Professional Regulation. Pending regulatory
approval, the transaction is expected to occur in mid-December, 2006.
Note 9 - Recent Accounting Pronouncements
In September, 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R)," which requires recognition of a net liability or asset to report the
funded status of defined benefit pension and other postretirement plans on the
balance sheet and recognition (as a component of other comprehensive income) of
changes in the funded status in the year in which the changes occur.
Additionally, SFAS No. 158 requires measurement of a plan's assets and
obligations as of the balance sheet date and additional annual disclosures in
the notes to the financial statements. The recognition and disclosure provisions
of SFAS No. 158 are effective for fiscal years ending after December 15, 2006,
while the requirement to measure a plan's assets and obligations as of the
balance sheet date is effective for fiscal years ending after December 15, 2008.
We are currently evaluating the impact the adoption of SFAS No. 158 will have on
our financial reporting and disclosures.
In September, 2006, FASB issued SFAS No. 157, "Fair Value Measurements," which
provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 establishes a common definition of fair value,
provides a framework for measuring fair value under U.S. GAAP and expands
disclosure requirements about fair value measurements. SFAS No. 157 is effective
for financial statements issued in fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. We are currently evaluating
the impact, if any, the adoption of SFAS No. 157 will have on our financial
reporting and disclosures.
-12-
In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), "Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement 109,"
which provides guidance on the measurement, recognition, and disclosure of tax
positions taken or expected to be taken in a tax return. The Interpretation also
provides guidance on derecognition, classification, interest and penalties, and
disclosure. FIN 48 prescribes that a tax position should only be recognized if
it is more-likely-than-not that the position will be sustained upon examination
by the appropriate taxing authority. A tax position that meets this threshold is
measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. The cumulative effect of applying
the provisions of FIN 48 is to be reported as an adjustment to the beginning
balance of retained earnings in the period of adoption. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company is currently
assessing the impact, if any, that the adoption of this Interpretation will have
on its financial statements.
In March 2006, the FASB issued Statement of Financial Accounting Standards No.
156 (FAS 156), "Accounting for Servicing of Financial Assets: an amendment of
FASB Statement No. 140." FAS 140 establishes, among other things, the accounting
for all separately recognized servicing assets and servicing liabilities. This
Statement amends FAS 140 to require that all separately recognized servicing
assets and servicing liabilities be initially measured at fair value, if
practicable. This Statement permits, but does not require, the subsequent
measurement of separately recognized servicing assets and servicing liabilities
at fair value. Under this Statement, an entity can elect subsequent fair value
measurement to account for its separately recognized servicing assets and
servicing liabilities. Adoption of this Statement is required as of the
beginning of the first fiscal year that begins after September 15, 2006. The
Company does not expect the adoption of FAS 156 to have a material effect on the
results of operations or the statement of condition.
In February, 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 155 (FAS 155), "Accounting for
Certain Hybrid Financial Instruments: an amendment of FASB Statements No. 133
and 140." FAS 155 permits fair value re-measurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are
not subject to the requirements of Statement 133, establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends Statement 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. FAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity's first fiscal year that begins after
September 15, 2006. The Company does not expect the adoption of FAS 155 to have
a material effect on the results of operations or the statement of condition.
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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 statements. 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, and ECS Service Corporation at September 30, 2006 to its financial
condition at December 31, 2005 and the results of operations for the three month
and nine month periods ending September 30, 2006 to the same periods in 2005. In
May 2005, the Bank's wholly owned subsidiary, Community Finance Center, Inc.,
was dissolved as a corporation, and this activity was transferred to operate as
a division of the Bank. In prior years, First Charter Service Corporation
provided retail sales of uninsured investment products to customers of First
Bank & Trust. In late 2004, First Bank & Trust entered into an agreement with
First Advisors Financial Group LLC ("First Advisors") whereby First Advisors
provides investment advisory and asset management services to Bank customers
beginning in 2005. First Advisors rents office space from the Bank, and pays a
percentage of fees generated from transactions with Bank customers to the Bank.
As a result, First Charter Service Corporation became inactive in 2005. This
discussion should be read in conjunction with the interim financial statements
and notes included herein.
-14-
FINANCIAL CONDITION
Total assets of the Company increased by $17.7 million or 6.4%, to $291.5
million at September 30, 2006 from $273.9 million at December 31, 2005. The
increase in assets was primarily due to an increase in loans, net of allowance
for loan losses of $26.3 million and an increase in premises and equipment of
$4.8 million, partially offset by decreases in available-for-sale securities of
$10.0 million, and cash and cash equivalents of $1.8 million, and Federal Home
Loan Bank stock of $1.9 million. The increase in assets was primarily funded by
an increase in deposits.
The Company's cash and cash equivalents decreased by $1.8 million from $12.4
million at December 31, 2005 to $10.6 million at September 30, 2006, a 14.7%
decrease. Cash and due from banks decreased by $1.2 million or 16.4% to $6.1
million at September 30, 2006 from $7.3 million at December 31, 2005.
Interest-bearing demand deposits decreased by $619,000 or 12.1% to $4.5 million
at September 30, 2006 compared to $5.1 million at December 31, 2005.
Available-for-sale investment securities amounted to $66.4 million at September
30, 2006 compared to $76.4 million at December 31, 2005, a $10.0 million
decrease. The 13.1% decrease primarily resulted from $15.8 million in investment
calls and maturities, primarily from payments on mortgage-backed securities and
Federal Home Loan Bank bonds, and a $192,000 decrease in the market valuation of
the available-for-sale portfolio, partially offset by investment purchases of
$6.0 million. Held-to-maturity securities decreased by $458,000 from $3.4
million at December 31, 2005 to $3.0 million at September 30, 2006, due to
principal payments on mortgage-backed securities. Funds generated by the
decreases in investments were used to fund loan growth.
Loans held for sale, net of unrealized loss, increased by $240,000 from $642,000
at December 31, 2005 to $882,000 at September 30, 2006. Unrealized loss on loans
held for sale at September 30, 2006 was $2,000 compared to $5,000 at December
31, 2005. Loans held for sale are carried at the lower of cost or market. Single
family residential loans for qualified borrowers are originated and sold to
Federal Home Mortgage Corporation ("FHLMC") and to the Illinois Housing
Development Authority ("IHDA"). Loans held for sale at September 30, 2006
consisted of ten single-family residential loans to be sold to FHLMC and IHDA.
The Company's net loan portfolio increased by $26.3 million to $183.2 million at
September 30, 2006 from $156.9 million at December 31, 2005. Gross loans
increased by $26.1 million while the allowance for loan losses decreased by
$158,000. Loans secured by 1-4 family residences increased by $11.1 million,
primarily due to an increase in first mortgages on 1-4 family homes in the Savoy
market, and multi-family mortgage loans increased by $2.4 million primarily due
to a large multi-family complex loan. Loans secured by farmland increased by
$5.8 million primarily due to new originations in the Paris and Marshall
branches, and agricultural production loans increased by $5.6 million in the
normal cycle of crop production. Consumer loans increased by $1.2 million due to
new originations.
At September 30, 2006, the allowance for loan losses was $2.5 million or 1.35%
of the total loan portfolio compared to the allowance for loan losses at
December 31, 2005 of $2.7 million or 1.67% of the total loan portfolio. During
the first nine months of 2006, the Company charged off
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$407,000 of loan losses, which included $148,000 in consumer loan charge-offs,
$123,000 in two non-residential real estate loans, $66,000 from six loans
secured by one-to-four family residential properties, $52,000 in four commercial
loans, and $18,000 from an agricultural production loan. The chargeoffs of
$407,000 were partially offset by $86,000 in recoveries which included $77,000
from consumer loans, primarily vehicle loans. The net chargeoffs of $321,000 for
the first nine months of 2006 increased from the net chargeoffs of $191,000 for
the first nine months of 2005. The Company's nonperforming loans and troubled
debt restructurings were $1.7 million or 0.92% of total loans at September 30,
2006 compared to $1.5 million or 0.95% as a percentage of total loans at
December 31, 2005. The Company's loans delinquent 90 days and over and
nonaccrual loans total $1.6 million, and include $99,000 in 1-4 family
residential loans, $680,000 in nonresidential real estate loans, $378,000 in
commercial loans, $325,000 in agricultural production loans, and $128,000 in
consumer loans. The Company's troubled debt restructurings of $622,000 at
September 30, 2006 consist of restructured commercial and agricultural loans, of
which one commercial restructured loan is also 90 days delinquent. Management
reviews the adequacy of the allowance 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.
Premises and equipment have increased by $4.8 million from $6.4 million at
December 31, 2005 to $11.2 million at September 30, 2006, primarily due to
expenditures related to the major renovation and expansion project of the
current Operations Center which has resulted in an enlarged facility to house
the main office of the Bank. Additional progress payments made on the building
project since December 31, 2005 totaled $3.7 million, and the project is
complete, pending final corrections. Other disbursements for furniture and
fixtures, signage, phone system, and security systems for the new facility in
2006 totaled $1.2 million. Assets totaling $240,000 relating to the existing
building were removed during the construction, resulting in a loss on disposal
of $91,000. In May, 2006, the Company also completed construction on a branch
building located in Martinsville, Illinois. Disbursements related to this
building project during 2006 total $287,000.
Federal Home Loan Bank stock decreased by $1.9 million from $6.6 million at
December 31, 2005 to $4.7 million at September 30, 2006. This 28.5% reduction
was a result of the redemption of $1.9 million in stock by the Federal Home Loan
Bank in June, 2006.
Net foreclosed assets held for sale, totaling $204,000 at September 30, 2006
decreased by $63,000 compared to $267,000 at December 31, 2005. As of September
30, 2006, the Company had real estate properties totaling $170,000 consisting of
six singe-family residential properties, two small commercial buildings, and two
vacant lots, and other repossessed assets of $34,000. Foreclosed assets are
carried at lower of cost or net realizable value.
Interest receivable increased by $476,000 from $2.4 million at December 31, 2005
to $2.9 million at September 30, 2006, a 19.7% decrease. This increase primarily
a result of the $26.3 million in loan growth from December 31, 2005 to September
30, 2006. Deferred income taxes increased by $233,000 from $1.4 million at
December 31, 2005 to $1.6 million at September 30, 2006, primarily as a result
of the deferred income tax effect of the change in market valuation of
available-for-sale securities from December 31, 2005 to September 30, 2006 and
the deferred
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income tax effect of the redemption of Federal Home Loan Bank stock acquired
through stock dividends.
Cash surrender value of life insurance increased by $136,000 from $4.8 million
at December 31, 2005 to $5.0 million at September 30, 2006, primarily due to
increases in the cash surrender value of the life insurance policies, partially
offset by the mortality cost of the life insurance. Other assets declined by
$182,000 from $659,000 at December 31, 2005 to $477,000 at September 30, 2006, a
27.6% decrease. The primary reason for this decrease was a reduction of prepaid
expenses.
The Company's total deposits amounted to $223.7 million at September 30, 2006
compared to $194.0 million at December 31, 2005, an increase of $29.7 million.
The 15.3% increase in total deposits was due to a $230,000 increase in
non-interest bearing deposits, and a $29.5 million increase in interest bearing
deposits. The increase in interest bearing deposits was a result of a $37.1
million increase in certificates of deposit, partially offset by a $430,000
decrease in savings accounts and a $7.2 million decrease in interest-bearing
checking accounts. The $37.1 million increase in certificates of deposit was
primarily attributable to an increase in short-term certificates of deposit. The
Bank issued two brokered certificates of deposit for terms of 6 months for a
total of $22.8 million. Other short-term (for terms less than one year)
certificates of deposit increased by $21.8 million, while certificates for terms
greater than one year declined by $7.5 million.
Federal funds purchased declined by $2.5 million from a balance of $2.5 million
at December 31, 2005 to $0 at September 30, 2006. Federal Home Loan Bank
advances decreased by $10.0 million from $43.2 million at December 31, 2005 to
$33.2 million at September 30, 2006. Repayments on advances during 2006 totaled
$39.5 million, including payments on fixed term advances of $17.0 million, which
resulted from two advances that were called, and one advance that matured.
Additional borrowings in the form of Federal Home Bank advances during 2006 of
$29.5 million included a fixed term advance for $14.0 million which will mature
in September, 2016. This advance has a rate of 4.12% with a lockout period of
one year, after which the advance will be subject to a quarterly call provision.
The total average rate of all advances was 4.18% as of September 30, 2006. The
decrease in Federal Home Loan Bank borrowings was repaid with funds obtained
from the one of the brokered certificates of deposit.
Junior subordinated debentures remained constant at $6.2 million at September
30, 2006 compared to December 31, 2005. Capital securities of $6.0 million were
issued June 15, 2005 by a statutory business trust, FBTC Statutory Trust I
("Trust"). The Company owns 100% of the common equity of the Trust, which is a
wholly-owned subsidiary of the Company. The $6.0 million in proceeds from the
trust preferred issuance and an additional $186,000 for the Company's investment
in the common equity of the Trust, a total of $6,186,000, was invested in the
junior subordinated debentures of the Company. As required by FIN 46R, the
Company has not consolidated the investment in the Trust. The Trust was formed
with the purpose of issuing trust preferred securities and investing the
proceeds from the sale of such trust preferred securities in the debentures. The
debentures held by the Trust are the sole assets of the Trust. Distributions of
the trust preferred securities are payable at a variable rate of interest, which
is equal to the interest rate being earned by the trust on the debentures, and
are recorded as interest
-17-
expense by the Company. The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the debentures.
The debentures are included as Tier I capital for regulatory capital purposes.
The debentures issued are first redeemable, in whole or part, by the Company, on
June 15, 2010, and mature on June 15, 2035. Interest payments are made quarterly
beginning in September, 2005.
Advances from borrowers for taxes and insurance decreased by $158,000 from
$189,000 at December 31, 2005 to $31,000 at September 30, 2006. The $158,000
decrease is a normal trend, as escrows typically accumulate funds in the first
part of the year for the payment of real estate taxes generally in late summer,
and then begin accumulating again. Interest payable increased by $363,000 from
$245,000 at December 31, 2005 to $608,000 at September 30, 2006, primarily a
result of deposit growth.
Stockholders' equity at September 30, 2006 was $26.4 million compared to $26.0
million at December 31, 2005, an increase of $408,000. Retained earnings
increased by the amount of net income or $780,000, partially offset by $413,000
in dividends declared and paid. As shares from the employee stock ownership plan
vested to participants from December 31, 2005 to September 30, 2006,
stockholders' equity increased by $273,000, and as shares from the incentive
plan were earned by participants for the same period, stockholders' equity
increased by $143,000. Accumulated comprehensive loss decreased by $118,000 due
to an increase in the fair value of securities available for sale, net of
related tax effect. The Company reclassified $589,000 or 71,422 unearned
incentive plan shares to additional paid-in capital as of January 1, 2006 in
accordance with SFAS No. 123(R). Treasury stock increased from $6.2 million at
December 31, 2005 to $6.5 million at September 30, 2006 as a result of purchases
of 33,250 shares of stock in the open market for $390,000, partially offset by
the issuance of 10,000 shares as a result of stock option exercises.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005
Net income for the nine months ended September 30, 2006 decreased by $185,000 or
19.2% from $965,000 for the nine months ended September 30, 2005 to $780,000 for
the nine months ended September 30, 2006. The decrease in net income is
primarily due to an increase in noninterest expense partially offset by an
increase in net interest income and noninterest income, and decreases in the
provision for loan losses and income tax expense.
Net interest income increased $347,000 or 6.2% from $5.6 million for the nine
months ended September 30, 2005 to $6.0 million for the nine months ended
September 30, 2006. The primary reasons for the increase in net interest income
was an increase in total interest and dividend income of $2.7 million partially
offset by an increase of $2.4 million in interest expense. The Company's net
interest margin was 3.15% and 3.43% during the nine months ended September
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30, 2006 and 2005, respectively. The net interest margin decreased as a result
of a decrease in interest spread. Interest spread decreased by 20 basis points
from 3.06% for the nine months ended September 30, 2005 to 2.86% for the nine
months ended September 30, 2006. The average rate paid on interest bearing
liabilities increased by 86 basis points, while the average rate earned on
interest bearing assets increased by 67 basis points. The average balances of
interest bearing assets for the nine month period ending September 30, 2006
increased by $33.8 million to $251.8 million compared to $218.0 million in
average earning assets for the nine month period ending September 30, 2005.
Interest bearing liabilities increased by $43.8 million from $187.1 million for
the nine month period ended September 30, 2005 to $230.9 million for the nine
month period ended September 30, 2006. The increase in interest bearing assets
and liabilities was primarily due to the acquisition of Rantoul First Bank in
October, 2005.
Total interest and dividend income increased by $2.7 or 29.2% from $9.3 million
for the nine months ended September 30, 2005 to $12.0 million for the nine
months ended September 30, 2006. The increase of $2.7 million was primarily due
to increases in loan interest income and interest. The increase of $2.6 million
in loan interest income was primarily due to a $45.6 million increase in the
average loan balance and by an increase in the average loan rate of 18 basis
points. Interest and dividend income from securities increased by $92,000 due to
an increase of 86 basis points in the average rate, partially offset by a
decrease of $12.5 million in the average balance of investments. Interest income
from deposits with financial institutions increased by $24,000 primarily due to
an increase in average rate of 215 basis points, partially offset by a decrease
of $875,000 in the average balance of deposits with financial institutions.
Dividends on Federal Home Loan Bank stock decreased by $21,000 from the nine
months ended September 30, 2005 to the nine months ended September 30, 2006 due
to a decrease in average rate of 186 basis points, partially offset by an
increase in the average balance of $1.6 million.
Interest expense increased by $2.4 million or 64.4% from $3.7 million for the
nine months ended September 30, 2005 to $6.0 million for the nine months ended
September 30, 2006. This increase was primarily due to an increase of $2.1
million in interest on deposits, and by a $257,000 increase in interest on
Federal Home Loan Bank advances and other debt. The $2.1 million increase in
interest expense on deposits was primarily due to an increase of 110 basis
points in the average rate paid on deposits, and by an increase of $42.3 million
in the average balance of interest bearing deposits. The $257,000 increase in
interest on Federal Home Loan Bank advances and other debt was due to a $1.5
million increase in the average balance as well as a 61 basis point increase in
average interest rate.
For the nine months ended September 30, 2006 and 2005, the provision for losses
on loans was $163,000 and $287,000, respectively. The provision for the nine
months ended September 30, 2006 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 September 30, 2006, its allowance for loan losses was
adequate.
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Noninterest income increased $113,000 or 4.5% from $2.5 million for the nine
months ended September 30, 2005 to $2.6 million for the nine months ended
September 30, 2006. The increase was primarily a result of increases in customer
service fees, other service charges and fees, and other income, partially offset
by decreases in net realized gains on sales of available-for-sale securities,
net servicing income and abstract and title fees. Customer service fees
increased by $125,000 from $681,000 for the nine months ended September 30, 2005
to $806,000 for the nine months ended September 30, 2006, primarily due to
increased NSF and overdraft fees. Other service charges and fees increased by
$143,000 from $536,000 for the nine months ended September 30, 2005 to $679,000
for the nine months ended September 30, 2006 primarily due to increases in debit
card fees and loan-related fees, including fees earned from commissions on gap
insurance, which is an insurance product offered to auto loan customers to
provide coverage for the "gap" between insurance coverage and loan payoff in the
event of total loss on a vehicle. There were no net realized gains on sales of
available-for-sale securities for the nine months ended September 30, 2006
compared to $118,000 in gains generated from the sales of equity securities for
the nine months ended September 30, 2005. Net loan servicing fees declined by
$42,000 from $374,000 for the nine months ended September 30, 2005 to $332,000
for the nine months ended September 30, 2006 primarily due to a decline in the
agricultural servicing portfolio. Abstracting and title fees decreased by
$38,000 from $280,000 for the nine months ended September 30, 2005 to $242,000
for the nine months ended September 30, 2006, due to a reduced dollar volume of
business in 2006. Other noninterest income increased by $45,000 from $77,000 for
the nine months ended September 30, 2005 to $122,000 for the nine months ended
September 30, 2006 primarily due to increases in trust fees, ATM fees, and
safety deposit lock box fees and an increase in earnings in cash surrender value
of bank owned life insurance.
Total noninterest expenses were $7.4 million for the nine months ended September
30, 2006 as compared to $6.6 million for the nine months ended September 30,
2005. The primary reasons for the $843,000 increase were increases in salaries
and employee benefits, net occupancy expense, equipment expense, data processing
expense, and other expenses, partially offset by reductions in amortization of
loan servicing rights and marketing expense. Salaries and employee benefits
increased by $416,000 from $3.5 million for the nine months ended September 30,
2005 to $3.9 million for the nine months ended September 30, 2006, as a result
of an increase in salaries, director fees, health insurance expense, and
incentive plan expense. A $305,000 increase in salaries was primarily a result
of the addition of nine full-time employees and one part-time employee as a
result of the purchase of Rantoul First Bank in October, 2005, and from the
addition of three full-time employees and one part-time employee from the
addition of the Martinsville branch which opened in May, 2006. Director fees
increased primarily due to the addition of a director to the Board of Directors
as a result of the acquisition of Rantoul First Bank in October, 2005. Health
insurance expense increased as a result of an increase in premiums and the
addition of the employees from Rantoul and Martinsville. Incentive plan expense
increased as a result of accruals related to shares of Company stock awarded in
December, 2005 to members of the Board of Directors and management which will
vest according to a defined schedule based on meeting defined financial
performance goals over the next five year period.
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Net occupancy expense increased by $191,000 from $310,000 for the nine months
ended September 30, 2005 compared to $501,000 for the nine months ended
September 30, 2006. This increase can be attributed to an increase in real
estate taxes for the Savoy branch, additional occupancy expenses associated with
the addition of the Rantoul and Martinsville locations, as well as the expansion
of the Paris facility, and additional building rent expense in 2006. In late
2005, the Company completed a property exchange to acquire the adjoining
property to the current Operations Center for the building currently housing the
main office of the Bank in Paris, Illinois. This exchange of property provided
the area needed for the expansion and renovation to convert the Operations
Center into the new main bank office in Paris, Illinois. As part of the
agreement, the Company leased the building which formerly housed the main office
until completion of the construction project in early third quarter of 2006. The
move to the new facility was substantially complete at the end of July, 2006.
Equipment expense increased by $142,000 primarily as a result of upgrades in
equipment to the Company's ATM network, increased software usage fees associated
with loan processing systems, and an increase in depreciation expense. Data
processing fees increased by $106,000 primarily due to increases in the number
of accounts and transactions from the Rantoul acquisition, an increase in data
processing fees related to internet banking, and an increase in billings
associated with ATM processing.
Professional fees increased by $35,000 from $331,000 for the nine months ended
September 30, 2006 to $366,000 for the nine months ended September 30, 2006,
primarily due to increased legal and accounting fees in 2006, partially offset
by a reduction in consulting fees. Marketing expense declined by $44,000 from
$222,000 for the nine months ended September 30, 2005 to $178,000 for the nine
months ended September 30, 2006 due to the use of marketing consultants in 2005
to develop a product manual. Amortization of loan servicing rights decreased by
$197,000 from $380,000 for the nine months ended September 30, 2005 to $183,000
for the nine months ended September 30, 2006, as result of the reduction in
amortizable loan servicing assets. Other expenses increased by $148,000 from
$764,000 for the nine months ended September 30, 2005 to $912,000 for the nine
months ended September 30, 2006. This increase was primarily attributable to an
increase in loan origination expenses related to servicing released loans which
are sold into the secondary market, and increases in trust department expense,
corporate filing fees, and an increase in postage and telephone expense due to
the addition of the Rantoul and Martinsville branches. Bank fees assessed by the
Federal Reserve also increased in 2006 due to the conversion to web-based
processing which allows for electronic delivery of cash letters in image form.
Income tax expense was $195,000 for the nine months ended September 30, 2006 as
compared to $269,000 for the nine months ended September 30, 2005. The decrease
of $74,000 in income tax expense was primarily due to a reduction in income
before income taxes of $259,000 from $1.2 million for the nine months ended
September 30, 2005 compared to $975,000 for the nine months ended September 30,
2006.
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COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005
Net income for the three months ended September 30, 2006 increased by $10,000 or
3.8% from $262,000 for the three months ended September 30, 2005 to $272,000 for
the three months ended September 30, 2006. The increase in net income is
primarily due to increases in net interest income and noninterest income, and a
decrease in the provision for loan losses, partially offset by increases in
noninterest expense and income tax expense.
Net interest income increased $129,000 or 6.9% from $1.9 million for the three
months ended September 30, 2005 to $2.0 million for the three months ended
September 30, 2006. The primary reasons for the increase in net interest income
was an increase in total interest and dividend income of $1.0 million partially
offset by an increase of $907,000 in interest expense. The Company's net
interest margin was 3.08% and 3.38% during the three months ended September 30,
2006 and 2005, respectively. The net interest margin decreased as a result of a
decrease in interest spread. Interest spread decreased by 26 basis points from
3.04% for the three months ended September 30, 2005 to 2.78% for the three
months ended September 30, 2006. The average rate paid on interest bearing
liabilities increased by 100 basis points, while the average rate earned on
interest bearing assets increased by 74 basis points. The average balances of
interest bearing assets for the three month period ending September 30, 2006
increased by $37.9 million to $258.6 million compared to $220.7 million in
average earning assets for the three month period ending September 30, 2005.
Interest bearing liabilities increased by $44.3 million from $194.1 million for
the three month period ended September 30, 2005 to $238.4 million for the three
month period ended September 30, 2006. The increase in interest bearing assets
and liabilities was primarily due to the acquisition of Rantoul First Bank in
October, 2005, and to the issuance of $22.9 million in brokered certificates of
deposit.
Total interest and dividend income increased by $1.0 million or 32.2% from $3.2
million for the three months ended September 30, 2005 to $4.3 million for the
three months ended September 30, 2006. The increase of 1.0 million was primarily
due to an increase in loan interest income and interest and dividend income from
securities. The increase of $937,000 in loan interest income was primarily due
to a $48.3 million increase in the average loan balance and by an increase in
the average loan rate of 19 basis points. Interest and dividend income from
securities increased by $84,000 primarily due to an increase of 115 basis points
in the average rate, partially offset by a decrease of $11.0 million in the
average balance of investments. Interest income from deposits with financial
institutions increased by $19,000 primarily due to an increase in the average
rate of 108 basis points and by a slight increase of $357,000 in the average
balance of deposits with financial institutions. Dividends on Federal Home Loan
Bank stock decreased by $9,000 from the three months ended September 30, 2005 to
the three months ended September 30, 2006 due to a decrease in average rate of
68 basis points, offset by an increase in the average balance of $326,000.
Interest expense increased by $907,000 or 66.8% from $1.4 million for the three
months ended September 30, 2005 to $2.3 million for the three months ended
September 30, 2006. This increase was primarily due to an increase of $958,000
in interest on deposits, partially offset by a $51,000 decrease in interest on
Federal Home Loan Bank advances and other debt. The
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$958,000 increase in interest expense on deposits was primarily due to an
increase of 121 basis points in the average rate paid on deposits, and by an
increase of $58.9 million in the average balance of interest bearing deposits.
The $51,000 decrease in interest on Federal Home Loan Bank advances and other
debt was due to a decrease of $14.7 million in the average balance, offset by an
increase in average interest rate of 95 basis points.
For the three months ended September 30, 2006 and 2005, the provision for losses
on loans was $68,000 and $99,000, respectively. The provision for the three
months ended September 30, 2006 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 September 30, 2006, its allowance for loan losses was
adequate.
Noninterest income increased $49,000 or 5.8% from $848,000 for the three months
ended September 30, 2005 to $897,000 for the three months ended September 30,
2006. The increase was primarily a result of increases in customer service fees
and other service charges and fees, partially offset by decreases in net loan
servicing fees and abstract and title fees. Customer service fees increased by
$39,000 from $266,000 for the three months ended September 30, 2005 to $305,000
for the three months ended September 30, 2006, primarily due to increased NSF
and overdraft fees. Other service charges and fees increased by $41,000 from
$184,000 for the three months ended September 30, 2005 to $225,000 for the three
months ended September 30, 2006, primarily due to an increase in loan related
fees and debit card fees, and an increase in fees earned from commissions on gap
insurance, which is an insurance product offered to auto loan customers to
provide coverage for the "gap" between insurance coverage and loan payoff in the
event of total loss on a vehicle. Net loan servicing fees decreased by $24,000
from $116,000 for the three months ended September 30, 2005 to $92,000 for the
three months ended September 30, 2006 primarily due to a decrease in the
agriculture servicing portfolio from 2005 to 2006.
Total noninterest expenses were $2.5 million for the three months ended
September 30, 2006 as compared to $2.3 million for the three months ended
September 30, 2005. The primary reasons for the $186,000 increase were increases
in salaries and employee benefits, net occupancy expense, equipment expense, and
data processing expense, partially offset by a reduction in professional fees
and amortization of loan servicing rights. Salaries and employee benefits
increased by $86,000 from $1.2 million for the three months ended September 30,
2005 to $1.3 million for the three months ended September 30, 2006, as a result
of an increase in salaries, and incentive plan expense, partially offset by
decreases in health insurance, ESOP expense, and training expense. A $108,000
increase in salaries was primarily a result of the addition of nine full-time
and one part-time employees as a result of the purchase of Rantoul First Bank in
October, 2005, the addition of three full time and one part time employee with
the opening of the Martinsville branch, and the addition of three part-time
temporary employees to assist in the move associated with the main office
relocation in July, 2006. Incentive plan expense increased due to the accrual
associated with the award of shares in December, 2005 based on meeting
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defined financial performance goals over a five year vesting schedule. Training
expense declined from the quarter ended September 30, 2005 to the quarter ended
September 30, 2006.
Net occupancy expense increased by $77,000 from $108,000 for the three months
ended September 30, 2005 compared to $185,000 for the three months ended
September 30, 2006. This increase can be attributed to additional occupancy
expenses associated with the addition of the Rantoul and Martinsville locations,
as well as additional building rent expense in 2006, and a substantial increase
in real estate taxes for the Savoy branch. In late 2005, the Company completed a
property exchange to acquire the adjoining property to the current Operations
Center for the building currently housing the main office of the Bank in Paris,
Illinois. This exchange of property provided the area needed for the expansion
and renovation to convert the Operations Center into the new main bank office in
Paris, Illinois. As part of the agreement, the Company rented the building then
housing the main office until the move into the expanded facility in early third
quarter of 2006. Equipment expense increased by $63,000 primarily as a result of
upgrades in equipment to the Company's ATM network, and increased usage fees
associated with loan processing and origination software. Data processing fees
increased by $39,000 primarily due to the Rantoul acquisition and increased
internet banking processing fees.
Professional fees decreased by $40,000 from $122,000 for the three months ended
September 30, 2005 to $82,000 for the three months ended September 30, 2006,
primarily due to increased legal, accounting and audit, and consulting fees in
2005 related to the Rantoul acquisition. Amortization of loan servicing rights
decreased by $63,000 from $124,000 for the three months ended September 30, 2005
to $61,000 for the three months ended September 30, 2006, as result of the
reduction in loan servicing assets.
Income tax expense was $58,000 for the three months ended September 30, 2006 as
compared to $45,000 for the three months ended September 30, 2005. The increase
of $13,000 in income tax expense was primarily due to an increase in income
before income taxes of $23,000 from $307,000 for the three months ended
September 30, 2005 compared to $330,000 for the three months ended September 30,
2006.
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.
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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 on 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 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 September 30, 2006
and December 31, 2005, loan servicing rights had carrying values of $387,000 and
$462,000, 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 September 30, 2006, the Company had outstanding commitments to originate $5.0
million in loans, and $11.0 million available to be drawn upon for open-end
lines of credit. In addition,
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unfunded commitments include $1.1 million in checking accounts with specified
amounts of overdraft protection, and $531,000 in letters of credit. For more
information on the outstanding commitments, see the discussion below the caption
"Off-Balance Sheet Arrangements and Contractual Commitments". As of September
30, 2006, the total amount of certificates scheduled to mature in the following
12 months was $115.5 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 September 30, 2006
was $10.6 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 AND CONTRACTUAL COMMITMENTS
At September 30, 2006, the Company had outstanding commitments to originate
loans of $5.0 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 $2.5 million, with the remainder at floating
rates. In addition, the Company had outstanding unused lines of credit to
borrowers aggregating $5.8 million for commercial lines of credit, $5.2 million
for consumer lines of credit, and $1.1 million for unused overdraft protection
on checking accounts. Outstanding commitments for letters of credit at September
30, 2006 totaled $531,000. 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 September 30, 2006 which by their terms have contractual
maturity dates subsequent to September 30, 2006:
Next 12 13-36 37-60 More than
Months Months Months 60 Months Totals
------- ------ ------ --------- -------
(Dollars in thousands)
UNFUNDED COMMITMENTS:
Letters of credit $ 48 $483 $ -- $ -- $ 531
Lines of credit 7,084 201 289 3,412 10,986
Overdraft protection 1,053 -- -- -- 1,053
------ ---- ---- ------ -------
Totals $8,185 $684 $289 $3,412 $12,570
====== ==== ==== ====== =======
The Company has a building commitment of $5.6 million for its building expansion
in Paris, Illinois, of which $74,000 remains to be disbursed. The project is
virtually complete, and the final turnover of the building will occur in
November, 2006.
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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 September 30, 2006:
REQUIRED FOR ADEQUATE TO BE WELL
ACTUAL CAPITAL CAPITALIZED
--------------- --------------------- --------------
SEPTEMBER 30, 2006 Amount % Amount % Amount %
------------------ ------- ----- ------- --- ------- ----
(Dollars in thousands)
Total capital (to risk-weighted
assets) $32,805 17.74 $14,795 8.0 $18,494 10.0
Tier 1 capital (to risk-weighted
assets) 30,491 16.49 7,398 4.0 11,096 6.0
Tier 1 capital (to average assets) 30,491 10.69 11,406 4.0 14,257 5.0
On February 27, 2006, the Federal Reserve Board announced the approval of a
final rule that expands the definition of a small bank holding company (BHC)
under the Board's Small Bank Holding Company Policy Statement. Under the revised
regulatory financial reporting requirements, the Company will now qualify as a
small BHC, and as such, will only be required to file parent-only financial data
on a semi-annual basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Sources of market risk include interest rate risk, foreign currency exchange
risk, commodity price risk and equity price risk. The Company is only subject to
interest rate risk. The Company purchased no financial instruments for trading
purposes during the nine months ended September 30, 2006 and 2005.
The principal objectives of the Company's interest rate risk management function
are: (i) to evaluate the interest rate risk included in certain balance sheet
accounts; (ii) to determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements, and
performance objectives; (iii) to establish asset concentration guidelines; and
(iv) to manage the risk consistent with Board-approved guidelines. Through such
management, the Company seeks to reduce the vulnerability of its operations to
changes in interest rates and to manage the ratio of interest rate sensitive
assets to interest rate sensitive liabilities within specified maturity terms or
repricing dates. The Company's Board of Directors has established an
Asset/Liability Committee consisting of directors and senior management
officers, which is responsible for reviewing the Company's asset/liability
policies and
-27-
monitoring interest rate risk as such risk relates to its operating strategies.
The committee usually meets on a quarterly basis, and at other times as dictated
by market conditions, and reports to the Board of Directors. The committee is
responsible for reviewing Company activities and strategies, and the effect of
those strategies on the Company's net interest margin, the market value of the
portfolio and the effect that changes in the interest will have on the Company's
portfolio and exposure limits.
The Company's key interest rate risk management tactics consist primarily of:
(i) emphasizing the attraction and retention of core deposits, which tend to be
a more stable source of funding; (ii) emphasizing the origination of adjustable
rate mortgage loan products and short-term commercial and consumer loans for the
in-house portfolio, although this is dependent largely on the market for such
loans; (iii) selling longer-term fixed-rate one-to-four family mortgage loans in
the secondary market; and (iv) investing primarily in U.S. government agency
instruments and mortgage-backed securities.
The Company's interest rate and market risk profile has not materially changed
from the year ended December 31, 2005. Please refer to the Company's Form 10-K
for the year ended December 31, 2005 for further discussion of the Company's
market and interest risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation as of September 30, 2006, 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 September 30, 2006.
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.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and subsidiary are 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 1A. RISK FACTORS
There have been no material changes from the risk factors set forth in Part I,
Item 1A "Risk Factors" of the Company's Form 10-K for the year ended December
31, 2005. Please refer to that section of the Company's Form 10-K for
disclosures regarding risks and uncertainties related to the Company's business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) The following table provides information about purchases of the Company's
common stock by the Company during the quarter ended September 30, 2006.
ISSUER PURCHASES OF EQUITY SECURITIES
(d) Maximum
(c) Total Number Number of
of Shares Shares that May
Purchased as Yet Be
(a) Total Number (b) Average Part of Publicly Purchased Under
of Shares Price Paid Announced Plans the Plans
Period Purchased per Share or Programs or Programs
------ ---------------- ----------- ---------------- ---------------
7/1/2006
to -- -- -- 102,710
7/31/2006
8/1/2006
to -- -- -- 102,710
8/31/2006
9/1/2006
to 5,000 12.19 5,000 97,710
9/30/2006
----- ----- ----- -------
Total 5,000 12.19 5,000 97,710
===== ===== ===== =======
(1) The board of directors approved the repurchase by the Company of 117,710
shares over the one year period ending April 13, 2007.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(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).
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: November 9, 2006 /s/ Terry J. Howard
----------------------------------------
Terry J. Howard
President and Chief Executive Officer
Date: November 9, 2006 /s/ Ellen M. Litteral
----------------------------------------
Ellen M. Litteral
Treasurer and Chief Financial Officer
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