PART I
Item 1. Business
Princeton National Bancorp, Inc. ("PNBC", the "Corporation", or the “Company”) is a single-bank holding company which operates in one business segment conducting a full-service banking and trust business through its subsidiary bank, Citizens First National Bank ("Citizens Bank", "the Bank", or the “subsidiary bank”). PNBC was incorporated as a Delaware corporation in 1981 in contemplation of the acquisition of all of the outstanding common stock of Citizens Bank and other future acquisitions. At December 31, 2011, the Corporation had consolidated total assets of $1,014,316,000 and stockholders' equity of $4,935,000.
PNBC operates the Bank as a community bank with offices located for convenience and with professional, highly-motivated, progressive employees who know the Bank's customers and provide individualized, quality service. As part of its community banking approach, officers of the Bank actively participate in community organizations. In addition, within certain credit and rate of return parameters, the subsidiary bank strives to meet the lending needs of the communities in which offices are located and invests in local municipal securities.
Corporate policy, strategy and goals are established by the Board of Directors of PNBC. Pursuant to PNBC's holding company philosophy, operational and administrative policies for the Bank are also established at the holding company level. Within this framework, the Bank focuses on providing personalized services and quality products to its customers to meet the needs of the communities in which its offices are located. In 2011, the majority of the directors of PNBC also served as the directors of Citizens Bank, which further assists PNBC to directly implement its policies at Citizens Bank.
Capital Enhancement Strategies
As a result of the effects of the economic downturn and the record losses generated by the Corporation, the capital of the Corporation and the subsidiary bank has been significantly depleted. The subsidiary bank has experienced significant increases in non-performing assets, impaired loans and loan loss provisions, resulting in the imposition of a Consent Order at the subsidiary bank and a Written Agreement at the Corporation. For further discussion of these regulatory enforcements, see the "Supervision and Regulation" section of this filing. Management is currently attempting to raise additional capital that will return the subsidiary bank to compliance with regulatory capital requirements of the Consent Order. The Corporation's ability to raise capital is contingent on the current capital markets and the Corporation's financial performance. Available capital markets are not currently favorable and the Corporation cannot be certain
of its ability to raise capital on any terms.
The Corporation is in the process of evaluating several capital enhancement alternatives including a public offering of common shares, a shareholder rights offering, the sale of branch locations and other asset sales. The Board of Directors and management continue to evaluate these potential alternatives with advisors, independent parties and the Corporation's and the Bank's regulators.
Though distinct financial challenges exist in the current environment that have enhanced the need to raise capital, PNBC continues to evaluate opportunities to diversify its market area and asset base and positively impact capital ratios through diversified revenues and increased profitability.
Citizens First National Bank
Citizens Bank was organized in 1865 as a national banking association under the National Bank Act. Currently in its one hundred and forty-seventh year, Citizens Bank has twenty-one offices in seventeen different communities in north central Illinois: Aurora, DePue, Genoa, Hampshire, Henry, Huntley, Millbrook, Minooka, Newark, Oglesby, Peru, Plainfield, Plano, Princeton, Sandwich, Somonauk, and Spring Valley.
Citizens Bank serves individuals, businesses and governmental bodies in Bureau, DeKalb, Grundy, Kane, Kendall, LaSalle, Marshall, McHenry, Will and contiguous counties. Citizens Bank operates a full-service community commercial bank and trust business that offers a broad range of financial services to customers. Citizens Bank’s services consist primarily of commercial, real estate and agricultural lending, consumer deposit and financial services, and trust, brokerage, insurance, and farm management services.
Commercial, Real Estate, and Agricultural Lending
Citizens Bank's commercial loan department provides secured and to a much lesser extent unsecured loans, including real estate loans, to companies and individuals for business purposes and to governmental units within the Bank's market area. As of December 31, 2011, Citizens Bank had commercial loans of $62.6 million (10.1% of the Bank's total loan portfolio) and commercial real estate loans of $235.1 million (37.9% of the Bank's total loan portfolio). Citizens Bank has a concentration of commercial loans to the agricultural industry as more fully disclosed below.
Agricultural and agricultural real estate loans are primarily related to ventures within 30 miles of branch locations. As of December 31, 2011, Citizens Bank had agricultural loans of $61.3 million and agricultural real estate loans of $60.5 million, which represent approximately 9.9% and 9.8%, respectively, of the Bank's total loan portfolio.
Agricultural loans, many of which are secured by crops, machinery, and real estate, are provided to finance capital improvements and farm operations as well as acquisitions of livestock and machinery. The agricultural loan department, which has the equivalent of five lending officers, works closely with all agricultural customers (including companies and individual farmers) and assists in the preparation of budgets and cash flow projections for the ensuing crop year. These budgets and cash flow projections are monitored closely by the bank during the year. In addition, Citizens Bank works closely with governmental agencies, including the Farm Service Agency, to assist agricultural customers in obtaining credit enhancement products, such as loan guaranties.
In accordance with its loan policy, Citizens Bank maintains a diversified loan portfolio. Citizens Bank had syndicated loans with other lending institutions totaling $26.7 million at December 31, 2011 (4.3% of the Bank’s total loan portfolio). Citizens Bank does buy and sell loan participations with other community banks. In connection with its credit relationships, Citizens Bank encourages commercial and agricultural borrowers to maintain deposit accounts at the Bank.
Personal Financial Services
The principal consumer services offered by Citizens Bank are demand, savings and time deposit accounts, home mortgage loans, installment loans, and brokerage services.
One of the strengths of Citizens Bank is the stability of its retail deposit base. This stability is due primarily to the Bank’s service oriented competitive strategy and the economically diverse populations of the counties encompassing the twenty-one banking offices. These locations provide convenience for customers and visibility for Citizens Bank. A variety of marketing strategies are used to attract and retain stable depositors, the most important of which is the officer call program. Nearly all officers of the Bank call on customers and potential customers of the Bank to maintain and develop relationships.
Citizens Bank is active in consumer and mortgage lending with approximately $97.2 million in home mortgage loans (15.5% of the Bank’s total loan portfolio) and $46.1 million in consumer installment loans (7.4% of the Bank’s total loan portfolio) as of December 31, 2011. To better serve its retail customers, Citizens Bank is active in the secondary residential mortgage market. As a matter of policy, Citizens Bank does not hold in portfolio, long term, fixed rate, single-family home mortgage loans, however, the servicing of such loans is maintained. As of December 31, 2011, Citizens Bank had $403.5 million of loans that have been sold, but servicing has been maintained. Citizens Bank does not originate sub-prime loans.
To enhance customer service and convenience, Citizens Bank offers customized ATM & Debit Cards, which can be used anywhere VISA is accepted, and is viewed as a tremendous benefit to our customers. In late 2011, we began offering debit cards with the local school logo on them, with a portion of the fee for the card being donated back to the schools. Citizens Bank also offers an entire host of Internet Banking services including Online Banking, Remote Deposit Capture, Mobile Banking and Bill Pay as an additional and convenient alternative delivery mechanism for its product and service line. Other services offered are merchant services and credit cards.
Citizens Bank continues to maintain an intensive sales training program, which includes team coaching, setting goals, measuring results, and reward recognition. In 2011, Citizens Bank continues to focus on making quality product referrals and sales.
Citizens Financial Advisors (“CFA”)
CFA advisors are dedicated to providing comprehensive wealth management solutions to clients utilizing a full platform of brokerage and fiduciary products and services.
In 2011, CFA was re-organized under the leadership of Kim Larson, who was hired as SVP, Wealth Management in late August, 2011. In the Trust and Investment Group, individuals, institutions, and corporate retirement plan clients are served by a team that includes Wealth Advisors, a Retirement Plan Officer, and Investment Officer, and support staff that are responsible for building, maintaining and enhancing client relationships. Staff was re-allocated and job functions were modified to better serve clients and broaden business development efforts throughout the Citizens market area. Continued refinements were made to the investment management process in an effort to improve consistency and enhance long-term performance. The mutual fund selection process was upgraded through a partnership with Prima Capital, an investment consultant that provides product research and in-depth fund due diligence. At the end of 2011, the
Trust and Investment Group managed or administered 905 trust accounts with assets totalling approximately $167 million compared to 907 trust accounts with assets totaling approximately $176 million at December 31, 2010.
The Investment Services team features six client advisors that are distributed geographically with the Citizens branch network. This group takes a financial planning approach with clients and offers product and service solutions through Prime Vest Financial Services, Inc., an independent, registered broker-dealer and a registered investment adviser that is a member of FINRA/SIPC. Total assets supervised by this group increased from $131 million at the end of 2010 to $140 million at the end of 2011.
Competition
PNBC is committed to community banking and to providing quality products and services at competitive loan rates and deposit pricing in order to remain competitive in its North Central Illinois market. Citizens Bank competes with both small, locally owned banks, as well as regional financial institutions which have numerous offices. The Bank competes with these organizations, as well as with savings and loan associations, credit unions, mortgage companies, insurance companies and other local financial institutions for deposits, loans and other business. The principal methods of competition include loan and deposit pricing, the types and quality of services provided, as well as advertising and marketing programs.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under federal and state law. Any change in applicable law or regulations may have a material effect on the business of PNBC and the Bank.
PNBC is registered as a bank holding company with the Board of Governors of the Federal Reserve System (the “FRB”), and is subject to supervision by the FRB under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). PNBC is required to file with the FRB periodic reports and such additional information as the FRB may require pursuant to the BHC Act. The FRB examines PNBC.
The BHC Act requires prior FRB approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all the assets of any bank or bank holding company, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may, however, engage in or acquire an
interest in a company that engages in activities which the FRB has determined by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
In November 1999, the Gramm-Leach-Bliley Act (“GLB Act”) was signed into law. Under the GLB Act, bank holding companies that meet certain standards and elect to become “financial holding companies” are permitted to engage in a wider range of activities than those permitted for bank holding companies, including securities and insurance activities. Specifically, a bank holding company that elects to become a financial holding company may engage in any activity that the FRB, in consultation with the Secretary of the Treasury, determines is (i) financial in nature or incidental thereto, or (ii) complementary to any such financial-in-nature activity, provided that such complementary activity does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. A bank holding company may elect to
become a financial holding company only if each of its depository institution subsidiaries is well-capitalized, well-managed, and has a Community Reinvestment Act rating of “satisfactory” or better at their most recent examination.
The GLB Act specifies many activities that are financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services; underwriting, dealing in, or making a market in securities; and those activities currently permitted for bank holding companies that are so closely related to banking or managing or controlling banks, as to be a proper incident thereto. PNBC has not elected to be treated as a financial holding company.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law on July 21, 2010. The Dodd-Frank Act constitutes one of the most significant efforts in recent history to comprehensively overhaul the financial services industry and will affect large and small financial institutions alike. While some of the provisions of the Dodd-Frank Act take effect immediately, many of the provisions have delayed effective dates and their implementation will require the issuance of numerous new regulations.
The Dodd-Frank Act deals with a wide range of regulatory issues including, but not limited to: mandating new capital requirements that would require certain bank holding companies to be subject to the same capital requirements as their depository institutions; eliminating (with certain exceptions) trust preferred securities; codifying the Federal Reserve’s Source of Strength doctrine; creating a Bureau of Consumer Financial Protection which will have the power to exercise broad regulatory, supervisory and enforcement authority concerning both existing and new consumer financial protection laws; permanently increasing federal deposit insurance protection to $250,000 per depositor; extending the unlimited coverage for qualifying non-interest bearing transactional accounts until December 31, 2012; increasing the
ratio of reserves to deposits minimum to 1.35 percent; assessing premiums for deposit insurance coverage on average consolidated total assets less average tangible equity, rather than on a deposit base; authorizing the assessment of examination fees; establishing new standards and restrictions on the origination of mortgages; permitting financial institutions to pay interest on business checking accounts; limiting interchange fees payable on debit card transactions; and implementing requirements on boards, corporate governance and executive compensation for public companies.
The complete impact of the Dodd-Frank Act is unknown since many of the substantive requirements will be contained in the many rules and regulations to be implemented. However, the Dodd-Frank Act will have significant and immediate effects on banks and bank holding companies in many areas.
The GLB Act changed federal laws to facilitate affiliation between banks and entities engaged in securities and insurance activities. The law also established a system of functional regulation under which banking activities, securities activities, and insurance activities conducted by financial holding companies and their subsidiaries and affiliates will be separately regulated by banking, securities, and insurance regulators, respectively.
PNBC is a legal entity separate and distinct from the Bank. The major source of PNBC's revenue is dividends received from the Bank. The right of PNBC to participate as a stockholder in any distribution of assets of the Bank upon its liquidation or reorganization or otherwise is subject to the prior claims of creditors of the Bank. The Bank is subject to claims by creditors for long-term and short-term debt obligations, including obligations for federal funds purchased and securities sold under repurchase agreements, as well as deposit liabilities. The Bank is subject to regulation and examinations by the Office of the Comptroller of the Currency (the “OCC”).
The Bank may declare dividends out of undivided profits, except that until the surplus fund of the Bank is equal to its common capital, no dividend can be declared until one-tenth of the Bank’s net income for the applicable period has been carried to the surplus fund. The Bank, however, cannot declare or pay a dividend, if after making the dividend, the Bank would be undercapitalized. In addition, prior approval of the OCC is required if dividends declared by the Bank in any calendar year will exceed its net income for that year combined with its retained net income for the preceding two years. Under national banking regulations and capital guidelines, as of December 31, 2011, the Bank was authorized to distribute $0 as dividends without prior approval from the OCC, based on net income for 2011 and retained
net income for 2009 and 2010. As of January 1, 2012, retained net income for the prior two years was $0 and during 2012 the Bank will need prior approval from the OCC to pay dividends. Future payments of dividends by the Bank will be dependent on individual regulatory capital requirements and levels of profitability. The ability of the Bank to pay dividends may be further restricted as a result of regulatory policies and guidelines relating to dividend payments and capital adequacy.
In February, 2011, as required by PNBC’s primary regulator, the Federal Reserve Bank, a resolution of PNBC’s Board of Directors was passed requiring that PNBC obtain written approval from the Federal Reserve Bank prior to any of the following:
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the declaration or payment of corporate dividends;
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any distribution of interest, principal, or other sum associated with subordinated debentures or trust preferred securities; and,
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the redemption of holding company stock.
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Federal laws limit certain transactions between the Bank and its affiliates, including PNBC. Such transactions include loans or extensions of credit by the Bank to PNBC, the purchase of assets or securities of PNBC, the acceptance of PNBC’s securities as collateral for loans, and the issuance of a guaranty, acceptance or letter of credit on behalf of PNBC. Transactions of this kind are limited to 10% of the Bank's capital and surplus for transactions with one affiliate, and 20% of the Bank’s capital and surplus for transactions with all affiliates. Such transactions are also subject to certain collateral requirements. These transactions, as well as other transactions between the Bank and PNBC, must also be on terms substantially the same as, or at least as favorable as, those prevailing at the time for comparable transactions with nonaffiliated companies
or, in the absence of comparable transactions, on terms, or under circumstances, including credit standards, that would be offered to, or would apply to, nonaffiliated companies.
FRB policy requires PNBC to act as a source of financial strength to the Bank and commit resources to support the Bank. The FRB takes the position that in implementing this policy, it may require PNBC to provide such support when PNBC otherwise would not consider itself able to do so.
The various federal bank regulators, including the FRB and the OCC, have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards establish minimum capital standards in relation to assets and off-balance sheet exposures, as adjusted for credit risks. Capital is classified into two tiers. For bank holding companies, Tier 1 or "core" capital consists of common shareholders' equity, perpetual preferred stock (subject to certain limitations) and minority interests in the equity accounts of consolidated subsidiaries, and is reduced by goodwill and certain other intangible assets ("Tier 1 Capital"). Tier 2 capital consists of (subject to certain conditions and limitations) the allowance for possible
credit losses, perpetual preferred stock, "hybrid capital instruments," perpetual debt and mandatory convertible debt securities, and term subordinated debt and intermediate-term preferred stock ("Tier 2 Capital"). Total capital is the sum of Tier 1 Capital and Tier 2 Capital (the latter being limited to 100% of Tier 1 Capital). Components of Tier 1 and Tier 2 Capital for national banks are similar, but not identical, to those for holding companies.
Under the risk-adjusted capital standards, a minimum ratio of qualifying total capital to risk-weighted assets of 8% and of Tier l Capital to risk-weighted assets of 4% is required. The FRB and OCC also have adopted a minimum leverage ratio of Tier 1 Capital to total assets of 3% for banks rated “1" under the Uniform Financial Institutions Rating System or bank holding companies rated “1" under the rating system of bank holding companies. All other banks and bank holding companies must maintain a leverage ratio of 4%. In addition, all banks and bank holding companies are expected to have capital commensurate with the level and nature of all risks to which they are exposed.
At December 31, 2011, PNBC had a total capital to risk-weighted assets ratio of (0.50)%, a Tier 1 capital to risk-based assets ratio of (0.50)%, and a leverage ratio of (0.32)%. PNBC is classified as significantly under- capitalized for all three ratios. At December 31, 2011, the Bank had a total capital to risk-weighted assets ratio of 4.60%, a Tier 1 capital to risk-weighted assets ratio of 3.31%, and a leverage ratio of 2.14%. The Bank is classified as significantly under-capitalized for all three ratios.
The Bank’s deposits are insured by the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation (the “FDIC”). As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the Deposit Insurance Fund pursuant to a risk-based assessment system. Pursuant to the Dodd-Frank Act, the basic limit on federal deposit insurance coverage was raised from $100,000 to $250,000 per depositor. In addition, in November 2010, pursuant to the Dodd-Frank Act, the FDIC issued a final rule to provide temporary unlimited deposit insurance coverage for non-interest bearing accounts from December 31, 2010 through December 31, 2012, at no additional surcharge.
Under the FDIC’s risk-based assessment regulations there are four risk categories, and each insured institution is assigned to a risk category based on capital levels and supervisory ratings. Well-capitalized institutions with CAMELS composite ratings of 1 or 2 are placed in Risk Category I while other institutions are placed in Risk Categories II, III or IV depending on their capital levels and CAMELS composite ratings. The assessment rates may be changed by the FDIC as necessary to maintain the insurance fund at the reserve ratio designated by the FDIC. The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of insured deposits. Deposit insurance assessments are collected for a quarter at the end of the next quarter. Assessments are based on deposit balances at the end of the quarter, except institutions with $1 billion or more in assets
and institutions that become insured on or after January 1, 2007 will have their assessment base determined using average daily balances of insured deposits.
Due to a decrease in the reserve ratio of the Deposit Insurance Fund, in October 2008, the FDIC established a restoration plan to restore the reserve ratio to at least 1.15% within five years (the FDIC has extended this time to eight years). The reserve ratio has now been increased to 1.35% by the Dodd-Frank Act. The FDIC has been directed to offset the effects of increased assessments on depository institutions with less than $10 billion in assets. To achieve these levels, the FDIC is authorized by the Dodd-Frank Act to make special assessments and charge examination fees.
On December 16, 2008, the FDIC adopted and issued a final rule increasing the rates banks pay for deposit insurance uniformly by 7 basis points (annualized) effective January 1, 2009. Under the final rule, risk-based rates for the first quarter 2009 varied between 12 and 50 basis points depending on an institution’s risk category. On February 27, 2009, the FDIC adopted a final rule amending the way that the assessment system differentiates for risk and setting new assessment rates beginning with the second quarter of 2009. As of April 1, 2009, for the highest rated institutions, those in Risk Category I, the initial base assessment rate was between 12 and 16
basis points and for the lowest rated institutions, those in Risk Category IV, the initial base assessment rate was 45 basis points. The final rule modified the means to determine a Risk Category I institution’s initial base assessment rate. It also provided for the following adjustments to an institution’s assessment rate: (1) a decrease for long-term unsecured debt, including most senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) an increase for secured liabilities above a threshold amount; and (3) for institutions in risk categories other than Risk Category I, an increase for brokered deposits above a threshold amount. After applying these adjustments, for the highest rated institutions, those in Risk Category I, the total base assessment rate is between 7 and 24 basis points and for the lowest rated institutions, those in Risk Category IV, the total base assessment rate is between 40 and 77.5 basis points.
On May 22, 2009, the FDIC imposed a special assessment of five basis points on each FDIC-insured depository institution’s assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment was collected on September 30, 2009, and the Bank paid an additional assessment of $588,000.
On November 12, 2009, the FDIC adopted a final rule that required insured institutions to prepay on December 31, 2009, estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. For purposes of calculating the prepayment amount, the institution’s third quarter 2009 assessment base was increased quarterly at a five percent annual growth rate through the end of 2012. On September 29, 2009, the FDIC also increased annual assessment rates uniformly by three basis points beginning January 1, 2011. On December 31, 2009, the Bank prepaid estimated assessments of $6.3
million.
As required by the Dodd-Frank Act, on February 7, 2011, the FDIC adopted a final rule that redefines its deposit insurance premium assessment base to be an insured depository institution’s average consolidated total assets minus average tangible equity. In addition, the FDIC has revised its deposit insurance rate schedules as a consequence of the changes to the assessment base. The proposed rate schedule and other revisions became effective on April 1, 2011.
On November 21, 2008, the FDIC adopted final regulations implementing the Temporary Liquidity Guarantee Program (“TLGP”) pursuant to which depository institutions could elect to participate. Pursuant to the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before October 31, 2009 (the “Debt Guarantee”), and (ii) provide full FDIC deposit insurance coverage for non-interest bearing deposit transaction accounts regardless of dollar amount for an additional fee assessment by the FDIC (the “Transaction
Account Guarantee”). The Bank opted out of the Transaction Account Guarantee portion of the TLGP. PNBC and the Bank did not opt out of the Debt Guarantee program, but did not issue any debt under the Debt Guarantee program. The Transaction Account Guarantee was to expire on December 31, 2009; however, it was extended to December 31, 2010 for those participating institutions that did not opt out.
The Dodd-Frank Act extended unlimited federal deposit insurance until January 1, 2013 to non-interest bearing transaction deposit accounts at all insured depository institutions. This coverage is applicable to all qualifying accounts at any FDIC-insured institution. There is no additional surcharge related to this coverage.
All FDIC-insured depository institutions must pay a quarterly assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance Corporation.
Federal law permits adequately capitalized and adequately managed bank holding companies to acquire banks across state lines, without regard to whether the transaction is prohibited by state law. Any state law relating to the minimum age of target banks (not to exceed five years) or limits on the amount of deposits that may be controlled by a single bank or bank holding company applies. The FRB is not permitted to approve any acquisition if, after the acquisition, the bank holding company would control more than 10% of the deposits of insured depository institutions nationwide or 30% or more of the deposits in the state where the target bank is located. The FRB could approve an acquisition, notwithstanding the 30% limit, if the state waives the limit either by state regulation or order of the appropriate state official.
Banks are permitted to merge with one another across state lines and thereby create a main bank with branches in separate states. After establishing branches in a state through an interstate merger transaction, a bank can establish and acquire additional branches at any location in the state where any bank involved in the merger could have established or acquired branches under applicable federal or state law. Some states prohibited de novo branching or had reciprocity requirements; however, the Dodd-Frank Act removed such restrictions on interstate branching. As a result of the Dodd-Frank Act, interstate branching authority has been expanded and a state or national bank may open a de novo branch in another state if the law of the state where the branch is to be located would permit a state bank chartered by that state to open the branch. PNBC does not have
current plans to acquire banking organizations located outside the state of Illinois.
National banks may establish operating subsidiaries to engage in activities in which the bank could engage directly.
National banks are also authorized by the GLB Act to engage, through “financial subsidiaries,” in activities that are permissible for financial holding companies and activities that the Secretary of the Treasury, in consultation with the FRB, determines are financial in nature or incidental to any such financial activity, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments, and (iv) merchant banking. A national bank’s authority to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank be well-managed and well-capitalized (after deducting from capital the bank’s
outstanding investment in financial subsidiaries).
The GLB Act affected many other changes to federal law applicable to PNBC and the Bank. One of these changes was a requirement that financial institutions take steps to protect customers’ “nonpublic personal information.”
Pursuant to EESA, the U.S. Department of the Treasury (the “Treasury”) has the authority to among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to its authority under EESA, the Treasury created the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”) under which the Treasury was authorized to invest in non-voting, senior preferred stock of U.S. banks and savings associations or their holding companies.
PNBC elected to participate in the CPP and on January 23, 2009, PNBC completed the sale of $25.1 million of preferred stock to the Treasury. PNBC issued and sold (1) 25,083 shares of Fixed Rate Cumulative Perpetual Preferred Stock Series B, with a liquidation preference of $1,000 per share (the “Series B Preferred Shares”), and (2) a ten-year warrant (the “Warrant”) to purchase up to 155,025 shares of the PNBC’s common stock (“Common Stock”) at an exercise price of $24.27 per share, or an aggregate purchase price of $3.8 million in cash. Cumulative dividends on the Series B Preferred Shares will accrue at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter.
The securities purchase agreement, dated January 23, 2009 (the “Purchase Agreement”), between PNBC and the Treasury, pursuant to which the Series B Preferred Shares and the Warrant were sold, limits the payment of dividends on the Common Stock to the current quarterly cash dividend of $0.28 per share, limits PNBC’s ability to repurchase its Common Stock, and subjects PNBC to certain of the executive compensation limitations included in the EESA.
The restrictions on stock repurchases were in effect until the earlier to occur of January 23, 2012 (the third anniversary of the issuance of the Series B Preferred Shares to the Treasury) or the date on which the Company redeemed all of the Series B Preferred Shares issued or the date on which the Treasury has transferred all of the Series B Preferred Shares to third parties not affiliated with the Treasury The terms of the Series B Preferred Shares, as amended by the American Recovery and Reinvestment Act of 2009 (“ARRA”), provide that the Series B Preferred Shares, may be redeemed by PNBC, in whole or in part, upon approval of the Treasury and PNBC’s primary banking regulators.
As a condition to the closing of the transaction, each of PNBC’s senior executive officers (as defined in the Purchase Agreement) executed a waiver voluntarily waiving any claim against the Treasury or PNBC for any changes to their compensation or benefits, as required to comply with the regulations issued by the Treasury under the TARP CPP. The senior executive officers also acknowledged that the regulations may require modification of the compensation, bonus, incentive and other benefit plans, arrangements and policies and agreements (including so-called “golden parachute” agreements) as they relate to the period the Treasury holds any securities of PNBC acquired through the CPP.
ARRA was enacted on February 17, 2009. Among other things, ARRA sets forth additional limits on executive compensation at all financial institutions receiving federal funds under any program, including the TARP CPP, both retroactively and prospectively. The executive compensation restrictions in ARRA include, among others: limits on compensation incentives, prohibitions on “Golden Parachute Payments” to certain employees, the establishment by publicly registered TARP CPP recipients of a board compensation committee comprised entirely of independent directors for the purpose of reviewing employee compensation plans, and the requirement of a non-binding vote on executive pay packages at each annual shareholder meeting until the government funds are repaid.
On January 24, 2011, PNBC notified the U.S. Treasury that it will defer regularly scheduled dividend payments on PNBC’s $25.1 million in Series B Preferred Shares and PNBC provided notice to Bank of America, N.A., as successor Trustee by merger, of PNBC’s $25 million in junior subordinated debt securities due 2035 (PNBC Capital Trust I) that PNBC is exercising its right to defer interest payments for a period of twenty (20) consecutive quarterly interest payment periods beginning with the next interest payment period of March 15, 2011, unless PNBC subsequently gives notice that it has elected to shorten such deferral period. By taking these actions, PNBC expects to save approximately $1.8 million in annual cash payments, based on current rates. As of December
31, 2011, dividends in arrears on the Series B Preferred Shares, which must be paid prior to the payment of common shares total approximately $1,254,000. Deferred interest payments on the junior subordinated debt securities, which continue to be accrued to the Corporation's Statement of Operations, total approximately $493,000.
In June 2010, the Federal Reserve issued final guidance to ensure that incentive compensation arrangements at financial institutions take into account risk and are consistent with safe and sound practices. The guidance does not set forth any formulas or pay caps, but sets forth certain principles which companies would be required to follow with respect to employees and groups of certain employees that may expose the institution to material amounts of risk.
On March 15, 2010 the Bank entered into a written agreement (the “Agreement”) with the OCC. The Agreement sets forth the Bank’s commitments to: (i) review and take action as necessary regarding its allowance for loan and lease losses; (ii) improve the Bank’s asset quality through the development of workout plans for criticized assets and the assessment of credit risk; and (iii) revise the Bank’s credit risk rating management information system. The Bank has taken steps to address the issues raised in the Agreement and intends to fully comply with the requirements set forth in the Agreement.
Pursuant to the Agreement, the Bank’s Board of Director’s has reviewed on a monthly basis the adequacy of the Bank’s allowance for loan losses and established a program for the maintenance of an adequate allowance. The Bank also took immediate action to protect its interest in criticized assets and to adopt individual written workout plans with respect to such assets. A copy of the workout plans is provided to the OCC on a quarterly basis for any criticized asset equal to or exceeding $100,000. Under the agreement, the board ensures that the Bank’s internal ratings of loan relationships are timely, accurate, and consistent with the regulatory credit classification criteria established by the OCC.
The Bank’s risk management loan review staff reports independently to the Directors’ Loan Committee. The Directors’ Loan Committee reports further to the Bank’s Board of Directors. Management furnishes its reports and additional documentation to these committees on a regular basis. The internal loan review staff has been expanded, as has the scope of their loan reviews. The Directors’ Loan Committee has directed risk management to refine its loan review grading methodology to ensure that loans with a probability of payment default or well-defined weaknesses are graded substandard regardless of mitigating controls which might reduce the credit risk. The Directors’ Loan Committee monitors this process through bi-monthly meetings and reviews loan review reports to ensure compliance with the terms of the Agreement.
In the fourth quarter of 2010, the Bank filled a newly created role of Chief Credit Officer and established a credit administration division and a special assets group. The primary responsibility of the credit administration division is to oversee the development, maintenance, and monitoring of loan policies & procedures. Other responsibilities include credit analysis, credit risk management, loan servicing and administration, and collections, as well as loan portfolio analysis and the allowance for loan losses. The functions of the special assets group include loss mitigation and workout of non-performing loans, liquidation of non-performing assets, and other responsibilities to accelerate and maximize loan recoveries. As part of establishing the new credit administration division, the Bank’s Chief Credit Officer identified and engaged experienced personnel to fill key roles within credit administration in continuing
to address the Bank’s commitments relative to the Agreement.
On September 20, 2011, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (the “Consent Order”) with the Office of the Comptroller of the Currency (the “OCC”). Pursuant to the Consent Order, the Bank has agreed to take certain actions and operate in compliance with the Consent Order’s provisions during its term.
Under the terms of the Consent Order, the Bank is required to, among other things: (i) adopt and adhere to a three-year written strategic plan that establishes objectives for the Bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital adequacy, reduction in non-performing assets and its product development; (ii) adopt and maintain a capital plan; (iii) by December 19, 2011, achieve and thereafter maintain a Tier 1 capital ratio of at least 8% and a total risk-based capital ratio of at least 12%; (iv) seek approval of the OCC prior to paying dividends on its capital stock; (v) develop a program to reduce the Bank’s credit risk; (vi) take certain actions related to credit and collateral exceptions; (vii) reaffirm the Bank’s liquidity risk management program; and (viii) appoint a compliance committee
of the Board of Directors to help ensure the Bank’s compliance with the Consent Order. The Bank is also required to submit certain regular reports with respect to the foregoing requirements.
On October 27, 2011, the Corporation entered into a Written Agreement with the Federal Reserve Bank (the “FRB”). Pursuant to the Written Agreement, the Corporation has agreed to take certain actions and operate in compliance with the Written Agreement’s provisions during its term.
Under the terms of the Written Agreement, the Corporation is required to, among other things: (i) serve as a source of strength to the Bank, including taking steps to ensure that the Bank complies with the Consent Order it entered into with the OCC on September 20, 2011, and any other supervisory action taken by the Bank’s federal regulator; (ii) refrain from declaring or paying any dividend, or taking dividends or other payments representing a reduction in the Bank’s capital, each without the prior written consent of the FRB and the Director of the Division of Banking Supervision and Regulation (the “Director”) of the Board of Governors of the Federal Reserve System; (iii) refrain from making any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior approval of the FRB and the Director; (iv) refrain
from incurring, increasing, or guaranteeing any debt, and from purchasing or redeeming any shares of its capital stock, each without the prior approval of the FRB; (v) provide the FRB with a written plan to maintain sufficient capital at the Corporation on a consolidated basis; (vi) provide the FRB with a projection of the Corporation’s planned sources and uses of cash; (vii) comply with certain regulatory notice provisions pertaining to the appointment of any new director or senior executive officer, or the changing of responsibilities of any senior executive officer; and (viii) comply with certain regulatory restrictions on indemnification and severance payments. The Corporation is also required to submit certain reports to the FRB with respect to the foregoing requirements.
The Consent Order replaced the previously disclosed formal written agreement entered into by the Bank with the OCC on March 15, 2010. The formal written agreement had set forth the Bank’s commitment to; (i) review and take action as necessary regarding its allowance for loan losses; (ii) improve the Bank’s asset quality through the development of workout plans for criticized assets and the assessment of credit risk; and (iii) revise the Bank’s credit risk rating management information system.
The Bank and the Corporation have taken steps to address the issues raised in the Consent Order, the Written Agreement and the previously disclosed formal written agreement, and intend to continue to fully comply with the requirements set forth in each.
On December 19, 2011, the Bank submitted to the OCC a three year strategic plan and capital plan designed to strengthen PNBC and the Bank's operations and capital position. The plans reflected the current challenges with respect to capital and difficulties in projecting the impact of economic weakness in PNBC's markets on its loan portfolio, as well as strategies to maintain the financial strength of PNBC and the Bank. A significant part of the plan was the initiative by PNBC to evaluate the sale of branch locations of the Bank in order to improve capital ratios of the Bank.
On March 29, 2012, the subsidiary bank's Board of Directors received a Prompt Corrective Action (“PCA”) Notice under 12 U.S.C. 1831o and 12 C.F.R. Part 6 due to its amended Call Report filed with the OCC on March 22, 2012 reflecting capital ratios in the Significantly Undercapitalized PCA capital category. This Notice places the Bank under certain mandatory PCA restrictions regarding the payment of capital distributions and management fees, as well as restrictions on asset growth, on certain expansion activities, including acquisitions, new branches, and new lines of business, and on payment of bonuses and compensation to senior executive officers. These mandatory requirements also include a requirement that the Bank submit an acceptable Capital Restoration Plan (“CRP”) to the OCC no later than May
7, 2012, addressing the steps the Bank will take to become adequately capitalized, the levels of capital to be attained during each quarter of each year of the CRP, the types and level of activities in which the Bank will engage; and how management will comply with the restrictions against asset growth, acquisitions, branching and new lines of business. The Bank's capital category is determined solely for the purposes of applying PCA and may not constitute an accurate representation of the Bank's overall financial condition or prospects.
Employees
Because PNBC’s principal activity is its ownership of Citizens Bank, it has a limited number of employees, generally the President and Chief Executive Officer, the Chief Financial Officer, the Corporate Secretary, and certain other officers who are necessary to fulfill the corporate requirements of PNBC. Each of these employees is dually-employed by Citizens Bank which is responsible for payroll.
As of December 31, 2011, Citizens Bank employed 260 full-time and 92 part-time employees. The Bank offers a variety of employee benefits. Citizens Bank employees are not represented by a union or a collective bargaining agreement, and employee relations are considered to be excellent.
Citizens Bank believes one of its strengths is its ability to attract and retain experienced and well-trained personnel who are knowledgeable of the market areas in which it operates. Management believes that PNBC generally has an easier time attracting and retaining quality employees than other banks in North Central Illinois. This is due primarily to its size and management style, which affords greater opportunities to employees for direct participation and development of managerial and banking skills.
In order to implement PNBC's community banking philosophy and to promote itself as a community oriented organization, the Bank has a formal officer call program. Nearly every officer of the Bank calls on existing or potential customers and is expected to become actively involved in leadership positions in community organizations. As of December 31, 2011, officers and employees of the Bank participated in approximately 650 community organizations, providing over 15,366 hours of community service.
Available Information
Our Internet address is www.pnbc-inc.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report
we file with or furnish to the SEC.
You may also read and copy materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site (www.sec.gov) that contains reports, proxy statements and other information that we electronically file with the SEC.
Item 1A. Risk Factors
As a smaller reporting company under the SEC’s scaled reporting requirements, the Company is not required to include the information required by Item 1A of Forms 10-Q and 10-K, respectively. Accordingly, this information is omitted from this 10-K filing.
Item 1B. Unresolved Staff Comments
Item 2. Properties
PNBC's headquarters and Citizens Bank's principal offices are located at 606 South Main Street, Princeton, Illinois. Also located at this address is an annex building completed in 1990. The two buildings at this location are owned by Citizens Bank and contain approximately 36,000 square feet of space, all of which is occupied by PNBC and Citizens Bank. Citizens Bank also has two drive-up facilities in Princeton and branch offices in Aurora, DePue, Genoa, Hampshire, Henry, Huntley, Millbrook, Minooka, Newark, Oglesby, Peru, Plainfield, Plano, Sandwich, Somonauk and Spring Valley. Citizens Bank is the owner of each of these facilities. None of the facilities owned by the Bank are subject to a mortgage. Additionally, the mortgage banking department of the Bank is located in Spring Valley in a separate location from the branch office. This location is not
owned by the Bank and is rented by lease agreement. For additional information regarding these properties, see Note 6 of Item 8 of this report. The Company believes that its properties are adequate for its current and expected operations.
Item 3. Legal Proceedings
The Corporation and the Bank are subject to legal proceedings and claims that arise in the ordinary course of business. Although management of the Corporation and the Bank cannot predict the ultimate outcome of such matters, they believe that the ultimate resolution of these matters will not have a material adverse effect on the Corporation, the Bank, or the Corporation’s financial position, liquidity, and results of operations.
Item 4. Reserved
Supplemental Item - Executive Officers
The following table sets forth information regarding the executive officers:
|
Name
|
|
Age
|
|
Position
|
| Thomas D. Ogaard |
|
55 |
|
President & Chief Executive Officer |
|
|
|
49
|
|
Executive Vice President & COO
|
|
Kenneth W. Grams
|
|
47
|
|
Executive Vice President & Chief Credit Officer
|
|
Jacqualyn L. Karlosky
|
|
51
|
|
Senior Vice President – Consumer Banking
|
|
Rodney D. Stickle
|
|
50
|
|
Senior Vice President – Chief Financial Officer
|
Thomas D. Ogaard has been President and Chief Executive Officer of PNBC since February 2, 2010, and was appointed to the Board of Directors of PNBC and Citizens Bank on September 25, 2009. He joined Citizens Bank on August 31, 2009. Mr. Ogaard started his career in banking in 1978 and most recently was employed by State Bank of Park Rapids, Minnesota as Executive Vice President and Chief Loan Officer.
Todd D. Fanning joined Citizens Bank in 1990 as Assistant Vice President & Controller and was the Chief Financial Officer of PNBC from 1997 to 2010. He was appointed to the Board of Directors of PNBC and Citizens Bank on February 2, 2010. Mr. Fanning currently is the Executive Vice-President & Chief Operating Officer of Citizens Bank.
Jacqualyn L. Karlosky joined Citizens Bank in 1994 as Assistant Vice President & Branch Manager. Ms. Karlosky became Senior Vice President – Consumer Banking in 2002 and remains in that capacity.
Kenneth W. Grams joined Citizens Bank in 2010 as Executive Vice President & Chief Credit Officer and remains in that capacity. Prior to joining Citizens Bank, Mr. Grams served as Senior Vice President and Chief Administration Officer for Loan Star National Bank, McAllen, Texas from 2009 to 2010 and as Senior Vice President of Credit Administration for Viewpoint Bank, Plano, Texas from 2004 to 2009.
Rodney D. Stickle joined Citizens Bank in 2010 as Senior Vice President - Senior Accounting Officer and was appointed Chief Financial Officer in April 2011. Prior to joining Citizens Bank, Mr. Stickle served as Executive Vice President for Palos Bank and Trust Co., Palos Heights, IL from 1998 to 2010 and as Chief Financial Officer from 1991 to 1998.
PART II
Item 5. Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Since May 15, 1992, PNBC's Common Stock has been listed on the NASDAQ Stock Market, under the symbol PNBC.
The table below indicates the high and low sales prices, and the dividends declared per share for PNBC Common Stock during the periods indicated.
| |
|
|
|
|
|
|
|
Cash
|
|
| |
|
Prices |
|
|
Dividends
|
|
| |
|
High
|
|
|
Low |
|
|
Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$ |
3.10 |
|
|
$ |
0.86 |
|
|
$ |
.00 |
|
|
Third Quarter
|
|
|
5.39 |
|
|
|
2.71 |
|
|
|
.00 |
|
|
Second Quarter
|
|
|
7.24 |
|
|
|
4.85 |
|
|
|
.00 |
|
|
First Quarter
|
|
|
7.32 |
|
|
|
3.75 |
|
|
|
.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$ |
5.50 |
|
|
$ |
2.73 |
|
|
$ |
.00 |
|
|
Third Quarter
|
|
|
6.50 |
|
|
|
4.65 |
|
|
|
.00 |
|
|
Second Quarter
|
|
|
10.00 |
|
|
|
5.50 |
|
|
|
.00 |
|
|
First Quarter
|
|
|
11.50 |
|
|
|
8.01 |
|
|
|
.00 |
|
The holders of the Common Stock are entitled to receive such dividends as are declared by the Board of Directors of PNBC, which considers payment of dividends quarterly. The ability of PNBC to pay dividends is dependent upon receipt of dividends from the Bank. In determining cash dividends, the Board of Directors considers the earnings, capital requirements, debt servicing requirements, financial ratio guidelines established by the Board, the financial condition of PNBC and other relevant factors. The Bank's ability to pay dividends to PNBC is subject to regulatory restrictions. See "Supervision and Regulation."
PNBC paid regular cash dividends on the Common Stock since it commenced operations in 1982 through 2009. The Company suspended its dividend in the first quarter of 2010. There can be no assurance when dividends will be resumed by PNBC. The timing and amount of dividends will depend upon the earnings, capital requirements, and financial condition of PNBC and the Bank as well as the general economic conditions and other relevant factors affecting PNBC and the Bank. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
|
Period
|
|
(a) Total number of shares purchased
|
|
|
(b) Average price paid per share
|
|
|
(c) Total number of shares purchased as part of a publicly announced plans or programs (1)
|
|
|
(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
10/1/11 – 10/31/11
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
0 |
|
|
11/1/11 – 11/30/11
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
0 |
|
|
12/1/11 – 12/31/11
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(1)
|
The Company does not currently have a stock repurchase plan in place.
|
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Information regarding the Company’s management’s discussion and analysis of financial condition and results of operations is included on pages 38-55 in the Company’s Annual Report, which information is incorporated by reference herein.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information required by Item 305 of Regulation S-K is contained in the Company’s Annual Report on pages 51-52, under the headings “Asset Liability Management” and “Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements”, which information is incorporated herein by reference.
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
|
|
(a)
|
Disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Thomas D. Ogaard, President and Chief Executive Officer, and Rodney D. Stickle, Senior Vice President - Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Ogaard and Stickle concluded that, as of the date of their evaluation, our disclosure controls were effective.
|
|
|
(b)
|
Internal controls. The report required by Item 308 of Regulation S-K is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Included in Exhibit 99.1 is a discussion of changes in our internal controls over financial reporting during the quarter ended December 31, 2011 that materially affected or are reasonably likely to materially affect those controls.
|
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Certain information regarding executive officers of the Company is included as a Supplementary Item at the end of Part I of this Form 10-K.
Information regarding executive officers and directors of the Company and the Company’s Audit Committee is included in the Corporation's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 17, 2012 (the "Proxy Statement") under the captions "Proposal 1-Election of Directors" and “Board of Directors’ Meetings and Committees”, which information is incorporated by reference herein.
Information regarding compliance with Section 16(a) of the Exchange Act is included in the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Compliance Reporting", which information is incorporated by reference herein.
Information regarding the Corporation’s Code of Ethics is included in the Proxy Statement under the caption “Code of Ethics”, which information is incorporated by reference herein.
Information regarding an Audit Committee Financial Expert is included in the Proxy Statement under the caption “Audit Committee Financial Expert”, which information is incorporated by reference herein.
Item 11. Executive Compensation
Information regarding executive compensation is included in the Proxy Statement under the captions "Board of Directors’ Meetings and Committees", “Compensation of Directors”, and “Executive Compensation Discussion”, which information is incorporated by reference herein.
The information called for by items 407(e)(4) and (5) is not required for smaller reporting companies.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Information regarding security ownership is included in the Proxy Statement under the captions "Security Ownership of Directors, Nominees for Director, Most Highly Compensated Executive Officers and All Directors and Executive Officers as a Group" and "Security Ownership of Certain Beneficial Owners," which information is incorporated by reference herein.
Equity Compensation Plan Information
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
|
|
Weighted-average exercise price of outstanding options, warrants and rights
(b)
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
(c)
|
|
| |
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
360,308 |
|
|
$ |
17.51 |
|
|
|
24,548 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
N/A |
|
|
|
N/A |
|
|
|
30,270 |
(1) |
|
Total
|
|
|
360,308 |
|
|
$ |
17.51 |
|
|
|
64,818 |
|
|
|
(1)
|
Represents shares issuable under the Company’s Amended and Restated Employee Stock Purchase Plan (the “ESPP”). The ESPP is a broad-based plan which was originally adopted by the Company in October, 1994 and has been amended and restated to increase the number of shares issuable under the ESPP to the current maximum of 140,000 shares. Under the ESPP, eligible employees and directors may purchase PNBC common stock without incurring any brokerage commissions or service charges using lump sum contributions and/or payroll deductions, in the case of employees.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding relationships and transactions is included in the Proxy Statement under the captions "Certain Transactions” and “Board of Directors’ Meetings and Committees," which information is incorporated by reference herein.
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services is included in the Proxy Statement under the caption “Audit Committee Report”, which information is incorporated by reference herein.
Item 15. Exhibits and Financial Statement Schedules
(a)(1) The following is a list of the Financial Statements included in Part II, Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
No consolidated financial statement schedules are required to be included in this Report on Form 10-K.
(a)(3) Exhibits
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registration has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
Signature
|
|
Title
|
Date
|
| |
|
|
4/12/12 |
|
|
|
President & Chief Executive Officer & Director
|
|
|
|
|
(Principal Executive Officer)
|
|
| |
|
|
|
|
|
|
Executive Vice-President & Chief Operating Officer |
4/12/12 |
|
|
|
& Director
|
|
| |
|
|
|
|
|
|
Chairman of the Board
|
4/12/12 |
|
|
|
|
|
| |
|
|
|
|
|
|
Director
|
|
|
Gretta E. Bieber
|
|
|
|
| |
|
|
|
|
|
|
Director
|
4/12/12 |
|
|
|
|
|
| |
|
|
|
|
|
|
Director
|
4/12/12 |
|
|
|
|
|
| |
|
|
|
|
|
|
Director
|
|
|
John R. Ernat
|
|
|
|
| |
|
|
|
|
|
|
Director
|
|
|
Mark Janko
|
|
|
|
| |
|
|
|
|
|
|
Director
|
|
| Cynthia L. Kurkowski |
|
|
|
| |
|
|
|
|
|
|
Director
|
4/12/12 |
|
|
|
|
|
Exhibit
Number Exhibit
|
3.1
|
|
| |
|
|
3.2
|
|
| |
|
|
4.1
|
|
| |
|
|
4.2
|
|
| |
|
|
4.3
|
|
| |
|
|
4.4
|
|
| |
|
|
10.1*
|
|
| |
|
|
10.2*
|
Citizens First National Bank Profit Sharing Plan, as amended and restated January 1, 1989 (incorporated by reference from Exhibit 10.4 to the S-1 Registration Statement (33-46362)).
|
| |
|
|
10.3*
|
Citizens First National Bank Defined Contribution Plan and Trust, as amended and restated January 1, 1989 (incorporated by reference from Exhibit 10.5 to the S-1 Registration Statement). (33-46362)
|
| |
|
|
10.4*
|
|
| |
|
|
10.5*
|
Princeton National Bancorp, Inc. Management Incentive Compensation Plan (incorporated by reference from Exhibit 10.7 of the 2001 PNBC Annual Report on Form 10-K).
|
| |
|
|
10.6*
|
Princeton National Bancorp, Inc. 2003 Stock Option Plan (incorporated by reference from Schedule 14A filed by PNBC on March 19, 2003). |
| |
|
|
10.7*
|
|
| |
|
|
10.8*
|
Amendment to Stock Option Agreement (incorporated by reference from Exhibit 10.10 to the 2005 PNBC Annual Report on Form 10-K). |
| |
|
|
10.9
|
Trust Preferred Securities Purchase Agreement (incorporated by reference from Exhibit 10.1 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). |
| |
|
|
10.10
|
Trust Preferred Securities Declaration of Trust (incorporated by reference from Exhibit 10.2 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). |
| |
|
|
10.11
|
Trust Preferred Securities Guarantee Agreement (incorporated by reference from Exhibit 10.3 to PNBC Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). |
| |
|
|
10.12*
|
2007 Stock Compensation Plan (incorporated by reference from Schedule 14A filed by PNBC on March 14, 2007). |
| |
|
|
10.13
|
Letter Agreement with U.S. Treasury dated January 23, 2009 including Securities Purchase Agreement (incorporated by reference from Form 8-K filed on January 29, 2009). |
|
10.14
|
Form of Waiver of Senior Executive Officers (incorporated by reference from Exhibit 10.2 to Form 8-K filed on January 29, 2009). |
| |
|
|
10.15
|
Form of Omnibus Amendment Agreement (incorporated by reference from Exhibit 10.3 to Form 8-K filed on January 29, 2009). |
| |
|
|
13
|
Portions of 2011 Annual Report to Shareholders. **
|
| |
|
|
14
|
|
| |
|
|
21
|
|
| |
|
|
23.1
|
Consent of BKD, LLP. **
|
| |
|
|
31.1
|
|
| |
|
|
31.2
|
Certification of Rodney D. Stickle required by Rule 13a-14(a). **
|
| |
|
|
32.1
|
Certification of Thomas D. Ogaard required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. **
|
| |
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Certification of Rodney D. Stickle required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. ** |
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99.1
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Report of Management on Internal Control over Financial Reporting. ** |
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99.2
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31 C.F.R. Section 30.15 Certification of Thomas D. Ogaard. ** |
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99.3
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31 C.F.R. Section 30.15 Certification of Rodney D. Stickle. **
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| 101.INS |
XBRL Instance ***
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| 101.SCH |
XBRL Taxonomy Extension Schema *** |
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| 101.CAL |
XBRL Taxonomy Extension Calculation *** |
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| 101.DEF |
XBRL Taxonomy Extension Definition *** |
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| 101.LAB |
XBRL Taxonomy Extension Labels *** |
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| 101.PRE |
XBRL Taxonomy Extension Presentation *** |
* Management contract or compensatory plan.
*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
24
