UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-32535
FIRST BANCTRUST CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
37-1406661
(IRS EMPLOYER IDENTIFICATION NO.)
206 SOUTH CENTRAL AVENUE
PARIS, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
61944
(ZIP CODE)
217-465-6381
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY AS OF THE LATEST PRACTICABLE DATE.
AS OF MAY 12, 2003 THE REGISTRANT HAD OUTSTANDING 1,281,610 SHARES OF COMMON
STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
First BancTrust Corporation
Form 10-QSB Quarterly Report
Index Page
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 1
(As of March 31, 2003 and December 31, 2002)
Condensed Consolidated Statements of Income 2
(For the three months ended March 31, 2003 and 2002)
Condensed Consolidated Statements of Cash Flows 3
(For the three months ended March 31, 2003 and 2002)
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3 Controls and Procedures 16
PART II - Other Information
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security
Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 17
CERTIFICATIONS 18
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
MARCH 31, DECEMBER 31,
2003 2002
(unaudited)
--------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 4,573 $ 6,996
Interest-bearing deposits with financial institutions 5,190 3,457
---------- ----------
Cash and cash equivalents 9,763 10,453
Available-for-sale securities 85,843 72,747
Loans held for sale 1,256 597
Loans, net of allowance for loans losses of $1,840 and $1,963 102,977 105,182
Premises and equipment 2,749 2,772
Foreclosed assets held for sale, net 271 185
Interest receivable 1,793 2,357
Loan servicing rights, net of valuation allowance of $599 and $683 879 949
Cash surrender value of life insurance 3,711 3,667
Federal Home Loan Bank stock 3,814 3,712
Deferred income taxes 12 --
Other assets 198 104
---------- ----------
Total assets $ 213,266 $ 202,725
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest bearing deposits $ 15,672 $ 17,296
Interest bearing deposits 131,844 130,039
---------- ----------
Total deposits 147,516 147,335
Federal Home Loan Bank advances and other debt 38,500 26,501
Pass through payments received on loans sold 146 261
Advances from borrowers for taxes and insurance 266 133
Deferred income taxes -- 268
Interest payable 153 106
Other 735 815
---------- ----------
Total liabilities 187,316 175,419
---------- ----------
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; 1,520,875 shares issued and outstanding 15 15
Additional paid-in capital 14,464 14,445
Retained earnings 16,687 16,243
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, net of
income taxes of $421 and $695 599 993
---------- ----------
31,765 31,696
Unallocated employee stock ownership plan shares -
91,262 and 95,063 shares (1,055) (1,099)
Unearned incentive plan shares - 54,554 and 56,267 shares (900) (928)
Treasury stock, at cost - 239,265 and 155,165 shares (3,860) (2,363)
---------- ----------
Total stockholders' equity 25,950 27,306
---------- ----------
Total liabilities and stockholders' equity $ 213,266 $ 202,725
========== ==========
See notes to condensed financial statements.
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FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars)
(unaudited)
THREE MONTHS ENDED MARCH 31 2003 2002
------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $ 2,232 $ 2,235
Tax exempt 9 11
Available-for-sale securities
Taxable 714 864
Tax exempt 75 72
Deposits with financial institutions 17 35
Dividends on Federal Home Loan Bank stock and other 56 20
--------- ----------
Total interest and dividend income 3,103 3,237
--------- ----------
INTEREST EXPENSE
Deposits 847 1,160
Federal Home Loan Bank advances and other debt 315 289
--------- ----------
Total interest expense 1,162 1,449
--------- ----------
NET INTEREST INCOME 1,941 1,788
Provision for loan losses 164 199
--------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,777 1,589
--------- ----------
NONINTEREST INCOME
Customer service fees 165 95
Other service charges and fees 212 191
Net gains on loan sales 166 164
Net loan servicing fees (cost) (42) (144)
Brokerage fees 35 2
Abstract and title fees 105 104
Other 71 69
--------- ----------
Total noninterest income 712 481
--------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 1,029 917
Net occupancy expense 54 45
Equipment expense 174 155
Data processing fees 101 113
Advertising and promotion expense 50 40
Professional fees 75 92
Foreclosed assets expense, net 25 41
Other expenses 234 197
--------- ----------
Total noninterest expense 1,742 1,600
--------- ----------
INCOME BEFORE INCOME TAX 747 470
Income tax expense 235 192
--------- ----------
NET INCOME 512 278
--------- ----------
OTHER COMPREHENSIVE LOSS
Unrealized depreciation on available-for-sale securities (394) (371)
--------- ----------
COMPREHENSIVE INCOME (LOSS) $ 118 $ (93)
========= ==========
BASIC EARNINGS PER SHARE $ 0.43 $ 0.21
========= ==========
DILUTED EARNINGS PER SHARE $ 0.41 $ 0.21
========= ==========
See notes to condensed financial statements.
-2-
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
THREE MONTHS ENDED MARCH 31 2003 2002
----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 512 $ 278
Items not requiring (providing) cash
Depreciation and amortization 70 70
Provision for loan losses 164 199
Investment securities amortization (accretion), net 106 6
Amortization of loan servicing rights 262 269
Recovery of impairment of loan servicing rights (84) --
Deferred income taxes (6) 5
Net loss (gain) on sales of foreclosed assets 7 (4)
Net gains on loan sales (166) (164)
Loans originated for sale (11,852) (10,169)
Proceeds from sales of loans originated for resale 11,251 6,936
Federal Home Loan Bank stock dividends (47) (23)
Compensation expense related to employee stock ownership plan 65 56
Compensation expense related to incentive plan 27 --
Changes in
Interest receivable 564 253
Cash surrender value (44) (42)
Other assets (149) 5
Interest payable 47 35
Other liabilities (80) (33)
--------- ---------
Net cash provided (used) by operating activities 647 (2,323)
--------- ---------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (28,228) (8,897)
Proceeds from maturities of available-for-sale securities 14,358 4,534
Proceeds from sales of available-for-sale securities -- 85
Net collections in loans 1,869 591
Proceeds from sales of foreclosed assets 79 190
Purchases of premises and equipment (47) (7)
--------- ---------
Net cash used by investing activities (11,969) (3,504)
--------- ---------
FINANCING ACTIVITIES
Net decrease in demand deposits, money market,
NOW and savings deposits (111) (1,221)
Net increase in certificates of deposit 292 1,359
Proceeds from the issuance of Federal Home Loan Bank advances 18,000 --
Repayment of Federal Home Loan Bank advances and other debt (6,001) (4)
Pass through payments received on loans sold (115) (134)
See notes to condensed financial statements.
-3-
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
THREE MONTHS ENDED MARCH 31 2003 2002
----------------------------------------------------------------------------------------
Net increases in advances by borrowers for taxes and insurance $ 133 $ 146
Dividends paid (68) (73)
Purchase of treasury stock (1,498) (74)
--------- ---------
Net cash provided (used) by financing activities 10,632 (1)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (690) (5,828)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,453 16,746
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,763 $ 10,918
========= =========
SUPPLEMENTAL CASH FLOWS INFORMATION
Real estate acquired in settlement of loans $ 172 $ 206
Interest paid $ 1,115 $ 1,414
Income tax paid $ 290 $ 193
See notes to condensed financial statements.
-4-
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-QSB. Accordingly, certain disclosures required by accounting principles
generally accepted in the United States of America are not included herein.
These interim statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, dated January 17, 2003,
included in the Company's Form 10-KSB filed with the Securities and Exchange
Commission.
Interim statements are subject to possible adjustments in connection with the
annual audit of the Company for the year ended December 31, 2003. 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 months ended March 31, 2003
and 2002 are not necessarily indicative of the results to be expected for the
full year.
Note 2 - Conversion to Stock Form of Ownership
On October 16, 2000 the Board of Directors of First Bank & Trust, sb (the
"Bank") adopted a Plan of Conversion to convert from an Illinois mutual savings
bank to an Illinois stock savings bank with the concurrent formation of a
holding company. First BancTrust Corporation (the "Company") was incorporated in
November 2000. A subscription offering of the shares of common stock, $0.01 par
value per share ("Common Stock"), of the Company was offered initially to
eligible deposit account holders of First Bank & Trust, sb. The Bank's
conversion from an Illinois mutual savings bank to an Illinois stock savings
bank was completed on April 18, 2001 (the "Conversion").
In connection with the conversion, the Company issued 1,520,875 shares of common
stock to the public for gross proceeds of $15.2 million, $14.4 million net of
conversion costs. The Bank issued all of its outstanding capital stock to the
Company in exchange for one-half of the net proceeds of the offering, which
amounted to $7.2 million. The Company accounted for the purchase in a manner
similar to a pooling of interests, whereby assets and liabilities of the Bank
maintain their historical cost basis in the consolidated company.
Note 3 - Employee Stock Ownership Plan
In connection with the conversion, the Bank established an Employee Stock
Ownership Plan ("ESOP") for the benefit of its employees. In the initial
stock offering, deposit account owners purchased all available shares. The
ESOP purchased required shares in the open market subsequent to the conversion
date for $1.4 million with funds borrowed from the Company. The
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ESOP expense was $65,000 and $56,000 for the three-month periods ended March 31,
2003 and 2002, respectively.
Shares purchased by the ESOP with the loan proceeds are held in a suspense
account and are allocated to ESOP participants based on a pro rata basis as debt
service payments are made to the Company. The loan is secured by the shares
purchased with the proceeds and will be repaid by the ESOP with funds from the
Company's discretionary contributions to the ESOP and earnings on ESOP assets.
Principal payments are scheduled to occur over an eight-year period.
Note 4 - Earnings per Share
Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the three month periods ended March 31, 2003 and
2002. 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):
Weighted
Average Per Share
Income Shares Amount
--------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2003:
-------------------------------------------
Basic Earnings Per Share:
Income available to common stockholders $ 512 1,186,356 $ 0.43
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 56,269
--------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 512 1,242,625 $ 0.41
==========================
FOR THE THREE MONTHS ENDED MARCH 31, 2002:
-------------------------------------------
Basic Earnings Per Share:
Income available to common stockholders $ 278 1,347,209 $ 0.21
==========================
Note 5 - Authorized Share Repurchase Program
On December 4, 2002 the Company announced that the Board of Directors authorized
the open-market stock repurchases of up to 6.1%, or 85,477 shares of the
Company's outstanding stock over the one-year period ending October 23, 2003. On
March 13, 2003 the Board of Directors authorized the additional open-market
stock repurchases of up to 3.9%, or 46,500 shares of the Company's outstanding
stock over the next one-year period ending March 13, 2004, as in the
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opinion of management, market conditions warrant. Previously, the Company had
completed two repurchase programs for stock repurchases of 143,451 shares
representing 10% of the outstanding shares. As of May 12, 2003, the Company had
repurchased a cumulative total of 239,265 shares.
Note 6 - Recent Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). FIN 45 will change current practice in the
accounting for and disclosure of guarantees. Guarantees meeting the
characteristics described in FIN 45 are required to be initially recorded at
fair value, which is different from the general current practice of recording a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also
requires a guarantor to make new disclosures for virtually all guarantees even
if the likelihood of the guarantor's having to make payments under the guarantee
is remote.
In general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying asset, liability, or an equity security of the
guaranteed party such as financial standby letters of credit.
Disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 31, 2002. The initial
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The guarantor's previous accounting for guarantees
issued prior to the date of FIN 45 initial applications should not be revised or
restated to reflect the provisions of FIN 45.
The Company adopted FIN 45 on January 1, 2003. The adoption of FIN 45 does not
currently have a material impact on the Company's consolidated financial
statements.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 as amended, and is including this statement for purposes of these
safe harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on the operations and future prospects of the Company and its
wholly-owned subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions; legislative/regulatory provisions; monetary
and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board; the quality of composition of the loan
or investment portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market area; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statement. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
The following discussion compares the financial condition of First BancTrust
Corporation (Company), First Bank & Trust, s.b. (Bank), First Charter Service
Corporation, ECS Service Corporation, and the Bank's wholly owned subsidiary,
Community Finance Center, Inc. at March 31, 2003 to its financial condition at
December 31, 2002 and the results of operations for the three-month period
ending March 31, 2003 to the same period in 2002. In February 2002, the Company
filed a declaration to become a financial holding company which became effective
March 16, 2002. Ownership of First Charter Service Corporation and ECS Service
Corporation was transferred from the Bank to the Company in 2002. This
discussion should be read in conjunction with the interim financial statements
and notes included herein.
FINANCIAL CONDITION
Total assets of the Company increased by $10.5 million or 5.2%, to $213.3
million at March 31, 2003 from $202.7 million at December 31, 2002. The increase
in assets was primarily due to increases in available-for-sale securities of
$13.1 million and loans held for sale of $659,000, offset by decreases in loans,
net of allowance for loan losses, of $2.2 million, a decrease in cash and cash
equivalents of $690,000 and a decrease in interest receivable of $564,000. The
increase in assets was funded by Federal Home Loan Bank borrowings.
-8-
The Company's cash and due from banks decreased by $2.4 million or 34.6% to $4.6
million at March 31, 2003 from $7.0 million at December 31, 2002. This decrease
was partially offset by an increase in interest-bearing demand deposits of $1.7
million or 50.1% to $5.2 million at March 31, 2003 compared to $3.5 million at
December 31, 2002. The net decrease in cash and cash equivalents of $690,000 was
primarily used to partially fund investment purchases. Available-for-sale
investment securities amounted to $85.8 million at March 31, 2003 compared to
$72.7 million at December 31, 2002, a $13.1 million or 18.0% increase. The
increase resulted from $28.2 million in investment purchases, primarily in
mortgage-backed securities and Federal Home Loan Bank ("FHLB") agency bonds,
offset by calls and maturities of $14.4 million, and a net decrease in market
value of $670,000. The increase in available-for-sale investments was primarily
funded by Federal Home Loan Bank advances.
Loans held for sale increased by $659,000 from $597,000 at December 31, 2002 to
$1.3 million at March 31, 2003. This increase is primarily due to continued
refinancing activity at lower fixed interest rates on loans to be sold in the
secondary market. Loans held for sale at March 31, 2003 consisted entirely of
single-family residential loans.
The Company's net loan portfolio decreased by $2.2 million to $103.0 million at
March 31, 2003 from $105.2 million at December 31, 2002. Gross loans decreased
by $2.3 million while the allowance for loan losses decreased by $123,000. Loans
secured by 1-4 family residences decreased by $1.8 million as borrowers
continued to refinance existing loans to fixed-rate loans to take advantage of
the lower interest rates. These loans were then sold into the secondary market.
During the first quarter of 2003, residential loans originated for resale into
the secondary market totaled $11.9 million compared to $10.2 million in the
first quarter of 2002. Agricultural production loans decreased by $926,000 and
consumer loans decreased $782,000 while loans secured by farmland increased by
$934,000 and loans secured by nonfarm nonresidential real estate grew by
$642,000.
At March 31, 2003 the allowance for loan losses was $1.8 million or 1.76% of the
total loan portfolio compared to $2.0 million, or 1.83% at December 31, 2002.
During the first quarter of 2003, the Company charged off $320,000 of loan
losses, of which $233,000 pertained to one agricultural credit secured by farm
equipment. The chargeoffs of $320,000 were partially offset by $34,000 in
recoveries. The Company's nonperforming loans and troubled debt restructurings
as a percentage of total loans decreased from 2.25% or $2.4 million at December
31, 2002 compared to 1.31% or $1.4 million at March 31, 2003. This decrease was
primarily a result of reduced delinquencies 90 days and over from $1.5 million
at December 31, 2002 compared to $788,000 at March 31, 2003. The Company's
troubled debt restructurings of $601,000 at March 31, 2003 consists primarily of
restructured commercial and agricultural loans. 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.
Net foreclosed assets held for sale, totalling $271,000 at March 31, 2003
increased $86,000, compared to $185,000 at December 31, 2002. As of March 31,
2003 the Company had four real estate properties totaling $193,000 consisting of
three single-family dwellings and one
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commercial building, and other repossessed assets of $78,000. Foreclosed
assets are carried at lower of cost or net realizable value.
Loan servicing rights declined by $70,000 from $949,000 at December 31, 2002 to
$879,000 at March 31, 2003. Gross loan servicing rights decreased by $154,000
from $1.6 million at December 31, 2002 to $1.5 million at March 31, 2003 due to
accelerated amortization of loan servicing rights of $262,000 offset by newly
capitalized assets of $107,000. The valuation allowance decreased from $683,000
at December 31, 2002 to $599,000 at March 31, 2003, an $84,000 recovery of a
previous impairment as a result of current valuations.
Interest receivable declined by $564,000 or 24.0% from $2.4 million to $1.8
million primarily due to annual payments received on agricultural loans. Federal
Home Loan Bank stock increased due to the receipt of dividends in the form of
stock.
The Company's total deposits amounted to $147.5 million at March 31, 2003
compared to $147.3 million at December 31, 2002, an increase of $181,000. The
slight increase in total deposits was due to a $1.8 million increase in interest
bearing deposits, partially offset by a $1.6 million decrease in non-interest
bearing deposits. The increase in interest bearing deposits was a result of an
increase of $638,000 in interest-bearing checking accounts, an $885,000 increase
in savings accounts, and a $292,000 increase in certificates of deposit, mostly
IRA accounts.
Federal Home Loan Bank advances and other debt increased by $12.0 million from
$26.5 million at December 31, 2002 to $38.5 million at March 31, 2003, to fund
investment purchases. The $12.0 million net increase was primarily a result of
two fixed rate Federal Home Loan Bank advances totaling $10.0 million for an
average rate of 2.77% for maturities of three and five years. The remaining $2.0
million increase was a result of the Company's use of the open end line of
credit, which reprices daily. The total average rate of all advances was 3.85%
as of March 31, 2003.
Pass through payments received on loans sold declined by $115,000 from $261,000
at December 31, 2002 to $146,000 at March 31, 2003. Advances by borrowers for
taxes and insurance increased by $133,000 from $133,000 at December 31, 2002 to
$266,000 at March 31, 2003. Adjustments to deferred income taxes for the tax
effect of the decline in market value of investment securities available for
sale resulted in a deferred tax asset of $12,000 at March 31, 2003 compared to a
liability of $268,000 at December 31, 2002.
Stockholders' equity at March 31, 2003 was $26.0 million compared to $27.3
million at December 31, 2002, a decrease of $1.4 million. Retained earnings
increased by the amount of net income or $512,000, partially offset by $68,000
in dividends declared and paid. Accumulated comprehensive income decreased by
the decline in the fair value of securities available for sale, net of tax, or
$394,000. Treasury stock increased from $2.4 million at December 31, 2002 to
$3.9 million at March 31, 2003 due to purchases of 84,100 shares of common stock
for $1.5 million.
-10-
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002
Net income for the three months ended March 31, 2003 increased by $234,000 or
84.2% from $278,000 for the three months ended March 31, 2002 to $512,000 for
the three months ended March 31, 2003. The increase in net income is primarily
due to an increase in net interest income and an increase in noninterest income,
partially offset by an increase in noninterest expense.
Net interest income increased $153,000 or 8.6% from $1.79 million for the three
months ended March 31, 2002 to $1.94 million for the three months ended March
31, 2003. The primary reason for the increase in net interest income was a
decrease in interest expense of $287,000 partially offset by a decrease of
$134,000 in interest and dividend income. The Company's net interest margin was
4.14% and 4.08% during the three months ended March 31, 2003 and 2002,
respectively. The net interest margin increased slightly as a result of a
decrease in interest rates on interest-bearing liabilities, partially offset by
a decrease in interest rates on interest-bearing assets.
Total interest and dividend income decreased by $134,000 or 4.1% from $3.24
million for the three months ended March 31, 2002 to $3.10 million for the three
months ended March 31, 2003. The decrease was primarily due to a decrease in
interest income from available-for-sale securities, partially offset by
increased dividends on Federal Home Loan Bank stock. Interest expense declined
by $287,000 or 19.8% from $1.45 million for the three months ended March 31,
2002 to $1.16 million for the three months ended March 31, 2003. This decline
was primarily due to a decrease of $313,000 in interest on deposits, partially
offset by $26,000 increase in interest on Federal Home Loan Bank advances.
For the three months ended March 31, 2003 and 2002 the provision for losses on
loans was $164,000 and $199,000, respectively. The provision for the three
months ended March 31, 2003 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
March 31, 2003, its allowance for loan losses was adequate.
Noninterest income increased $231,000 or 48.0% from $481,000 for the three
months ended March 31, 2002 to $712,000 for the three months ended March 31,
2003. The increase was primarily a result of decreased net loan servicing cost,
increased customer service fees, and increased brokerage fees. Net loan
servicing cost declined from $144,000 for the three months ended March 31, 2002
to $42,000 for the three months ended March 31, 2003, a decrease of $102,000.
This decrease was primarily a result of the recovery of a previously identified
impairment of $84,000. Customer service fees increased $70,000 from $95,000 for
the three
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months ended March 31, 2002 to $165,000 for the three months ended March 31,
2003. The increase of $70,000 was primarily attributable to increased
non-sufficient funds and overdraft fees. The increase in non-sufficient funds
and overdraft fees is primarily attributable to the "Safety-Net Checking"
product which provides a pre-approved amount of overdrafts, most often $500. At
March 31, 2003 there were 1,017 "Safety Net Checking" accounts compared to 738
at March 31, 2002. Other service charges and fees increased slightly from
$191,000 for the three months ended March 31, 2002 to $212,000 for the three
months ended March 31, 2003.
Total noninterest expenses were $1.74 million for the three months ended March
31, 2003 as compared to $1.60 million for the three months ended March 31, 2002.
The primary reason for the $142,000 increase was an increase in salaries and
employee benefits of $112,000 and an increase in other expenses of $37,000.
Salaries and employee benefits increased by $112,000 from $917,000 for the three
months ended March 31, 2002 to $1.03 million for the three months ended March
31, 2003. The salary increase was $72,000 which was primarily due to normal pay
increases, the addition of three full-time employees, and increased commissions.
The increase in employee benefits was due to increased FICA expenses, and
employee recognition and retention expense. The Recognition and Retention Plan
received shareholder approval in April, 2002, and the expense for the three
months ended March 31, 2003 was $27,000. Other expenses increased by $37,000
from $197,000 for the three months ended March 31, 2002 to $234,000 for the
three months ended March 31, 2003. The increase in other expense was primarily
due to loan related expenses such as filing fees, blanket insurance on vehicle
loans and fees associated with secondary market loans, and postage and
scholarship foundation expense.
Income tax expense was $235,000 for the three months ended March 31, 2003 as
compared to $192,000 for the three months ended March 31, 2002. The effective
tax rates were 31.5% and 40.8%, respectively, for the three months ended March
31, 2003 and 2002. The decrease in the effective tax rate from 2002 to 2003 was
due to a increase in permanent tax differences in 2003.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting standards
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. Actual results could differ from those estimates under
different assumptions and conditions. Management believes that its critical
accounting policies and significant estimates include determining the allowance
for loan losses, the valuation of loan servicing rights, and the valuation of
foreclosed real estate.
Allowance for loan losses
The allowance for loan losses is a significant estimate that can and does change
based on management's assumptions about specific borrowers and current general
economic and business conditions, among other factors. Management reviews the
adequacy of the allowance for loan losses on at least a quarterly basis. The
evaluation by management includes consideration of past
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loss experience, changes in the composition of the loan portfolio, the current
condition and amount of loans outstanding, identified problem loans and the
probability of collecting all amounts due.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. A worsening or protracted economic
decline would increase the likelihood of additional losses due to credit and
market risk and could create the need for additional loss reserves.
Loan Servicing Rights
The Company recognizes the rights to service loans as separate assets in the
consolidated balance sheet. The total cost of loans when sold is allocated
between loans and loan servicing rights based on the relative fair values of
each. Loan servicing rights are subsequently carried at the lower of the initial
carrying value, adjusted for amortization, or fair value. Loan servicing rights
are evaluated for impairment based on the fair value of those rights. Factors
included in the calculation of fair value of the loan servicing rights include
estimating the present value of future net cash flows, market loan prepayment
speeds for similar loans, discount rates, servicing costs, and other economic
factors. Servicing rights are amortized over the estimated period of net
servicing revenue. It is likely that these economic factors will change over the
life of the loan 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 March 31, 2003 and
December 31, 2002, mortgage servicing rights had carrying values of $879,000 and
$949,000, 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 March 31, 2003, the Company had outstanding commitments to originate $3.7
million in loans. In addition, open-end line of credit loans had $6.3 million
available to be drawn upon. As of March 31, 2003, the total amount of
certificates scheduled to mature in the following 12 months was $45.9 million.
The Company believes that it has adequate resources to fund all of its
commitments and that it can adjust the rate on certificates of deposit to retain
deposits in changed interest environments. If the Company requires funds beyond
its internal funding capabilities, advances from the Federal Home Loan Bank of
Chicago are available as an additional source of funds.
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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 March 31, 2003:
REQUIRED FOR TO BE WELL
MARCH 31, 2003 ACTUAL ADEQUATE CAPITAL CAPITALIZED
-------------- ---------------- --------------
Amount % Amount % Amount %
------ ----- ------ --- ------ ----
(Dollars in thousands)
Total capital (to $23,690 20.74 $9,138 8.0 $11,422 10.0
risk-weighted assets)
Tier 1 capital (to 22,258 19.49 4,569 4.0 6,853 6.0
risk-weighted assets)
Tier 1 capital (to 22,258 11.01 8,085 4.0 10,106 5.0
average assets)
The Company's consolidated capital-to-asset requirements and actual capital as
of March 31, 2003 are summarized in the following table:
REQUIRED FOR TO BE WELL
MARCH 31, 2003 ACTUAL ADEQUATE CAPITAL CAPITALIZED
-------------- ---------------- --------------
Amount % Amount % Amount %
------ ----- ------ --- ------ ----
(Dollars in thousands)
Total capital (to $26,568 23.02 $9,231 8.0 --- N/A
risk-weighted assets)
Tier 1 capital (to 25,121 21.77 4,617 4.0 --- N/A
risk-weighted assets)
Tier 1 capital (to 25,121 12.35 8,137 4.0 --- N/A
average assets)
CURRENT ACCOUNTING ISSUES
The Financial Accounting Standards Board ("FASB") adopted Statement of
Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure. This Statement amends FASB
Statement No. 123, Accounting for Stock-Based Compensation. SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require more prominent and more frequent disclosures in financial statements
about the effects of stock-based compensation.
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Under the provisions of SFAS No. 123, companies that adopted the fair value
based method were required to apply that method prospectively for new stock
option awards. This contributed to a "ramp-up" effect on stock-based
compensation expense in the first few years following adoption, which caused
concern for companies and investors because of the lack of consistency in
reported results. To address that concern, SFAS No. 148 provides two additional
methods of transition that reflect an entity's full complement of stock-based
compensation expense immediately upon adoption, thereby eliminating the ramp-up
effect.
SFAS No. 148 also improves the clarity and prominence of disclosures about the
proforma effects of using the fair value based method of accounting for
stock-based compensation for all companies - regardless of the accounting method
used -- by requiring that the data be presented more prominently and in a more
user-friendly format in the footnotes to the financial statements. In addition,
SFAS No. 148 improves the timeliness of those disclosures by requiring that this
information be included in interim as well as annual financial statements. In
the past, companies were required to make proforma disclosures only in annual
financial statements.
The transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The Company's
shareholders have approved the issuance of stock options; however, none of these
have stock options have yet been granted.
The FASB has stated it intends to issue a new statement on accounting for
stock-based compensation and will require companies to expense stock options
using a fair value based method at date of grant. The effective date for this
proposed statement is not known.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). FIN 45 will change current practice in the
accounting for and disclosure of guarantees. Guarantees meeting the
characteristics described in FIN 45 are required to be initially recorded at
fair value, which is different from the general current practice of recording a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also
requires a guarantor to make new disclosures for virtually all guarantees even
if the likelihood of the guarantor's having to make payments under the guarantee
is remote.
In general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying asset, liability, or an equity security of the
guaranteed party such as financial standby letters of credit.
Disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 31, 2002. The initial
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The guarantor's previous accounting for
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guarantees issued prior to the date of FIN 45 initial applications should not be
revised or restated to reflect the provisions of FIN 45.
The Company adopted FIN 45 on January 1, 2003. The adoption of FIN 45 does not
currently have a material impact on the Company's consolidated financial
statements.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this quarterly report, the Company carried
out an evaluation, 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 subsequent to the date of their evaluation.
Disclosure controls and procedures are the controls and other procedures of the
Company that are designed to ensure that the information required to be
disclosed by the Company in its reports filed or submitted under the Securities
Exchange Act of 1934, as amended (Exchange Act) is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in its reports filed under
the Exchange Act is accumulated and communicated to the Company's management,
including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business, such as claims to enforce liens
and claims involving the making and servicing of real property loans and other
issues. It is the opinion of management that the disposition or ultimate
determination of such possible claims or lawsuits will not have a material
adverse effect on the consolidated financial position of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99.1 Certification of Terry J. Howard, Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
99.2 Certification of Ellen M. Litteral, Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
(b) No Form 8-K reports were filed during the quarter.
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: May 12, 2003 /s/ Terry J. Howard
---------------------------------------
Terry J. Howard
President and Chief Executive Officer
Date: May 12, 2003 /s/ Ellen M. Litteral
---------------------------------------
Ellen M. Litteral
Treasurer
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CERTIFICATIONS
SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Terry J. Howard, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of FIRST BANCTRUST
CORPORATION (the "Registrant");
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 functions):
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
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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
quarterly 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: May 12, 2003 /s/ Terry J. Howard
------------------------------ --------------------------------------
TERRY J. HOWARD
Chief Executive Officer and President
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Ellen M. Litteral, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of FIRST BANCTRUST
CORPORATION (the "Registrant");
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly 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 quarterly report (the "Evaluation Date"); and
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c) presented in this quarterly 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 functions):
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
quarterly 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: May 12, 2003 /s/ Ellen M. Litteral
------------------------------ -------------------------------------
ELLEN M. LITTERAL
Chief Financial Officer and Treasurer
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