UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-32535
FIRST BANCTRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
37-1406661
(IRS EMPLOYER IDENTIFICATION NO.)
206 SOUTH CENTRAL AVENUE
PARIS, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
61944
(ZIP CODE)
217-465-6381
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER,
AN ACCELERATED FILER, OR A NON-ACCELERATED FILER. SEE DEFINITION OF "ACCELERATED
FILER AND LARGE ACCELERATED FILER" IN RULE 12B-2 OF THE EXCHANGE ACT.
[ ] LARGE ACCELERATED FILER [ ] ACCELERATED FILER [X] NON-ACCELERATED FILER
INDICATE BY CHECKMARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED
IN RULE 12B-2 OF THE EXCHANGE ACT) YES NO X
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
AS OF MAY 10, 2006 THE REGISTRANT HAD OUTSTANDING
2,350,200 SHARES OF COMMON STOCK.
First BancTrust Corporation
Form 10-Q Quarterly Report
Index
Page
----
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About
Market Risk. 19
Item 4 Controls and Procedures 20
PART II - Other Information
Item 1 Legal Proceedings 20
Item 1A Risk Factors 21
Item 2 Unregistered Sales of Equity Securities and
Use of Proceeds 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security
Holders 21
Item 5 Other Information 22
Item 6 Exhibits 22
SIGNATURES 22
CERTIFICATIONS 23
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
MARCH 31,
2006 DECEMBER 31,
(unaudited) 2005
----------- ------------
ASSETS
Cash and due from banks $ 5,125 $ 7,338
Interest-bearing demand deposits 2,577 5,109
-------- --------
Cash and cash equivalents 7,702 12,447
Available-for-sale securities 73,993 76,424
Held-to-maturity securities (fair value of $3,226 and $3,384) 3,332 3,437
Loans held for sale, net of unrealized loss of $7 and $5 415 642
Loans, net of allowance for loan losses of $2,674 and $2,662) 163,246 156,885
Premises and equipment 9,245 6,386
Federal Home Loan Bank stock 6,608 6,608
Foreclosed assets held for sale, net 187 267
Interest receivable 2,088 2,416
Deferred income taxes 1,517 1,382
Loan servicing rights 433 462
Cash surrender value of life insurance 4,870 4,825
Goodwill 541 541
Core deposit intangibles 468 484
Other assets 479 659
-------- --------
Total assets $275,124 $273,865
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest bearing deposits $ 21,164 $ 21,529
Interest bearing deposits 170,598 172,446
-------- --------
Total deposits 191,762 193,975
Federal funds purchased 4,000 2,500
Federal Home Loan Bank advances 44,700 43,200
Junior subordinated debentures 6,186 6,186
Pass through payments received on loans sold 98 75
Advances from borrowers for taxes and insurance 435 189
Interest payable 263 245
Other 1,577 1,449
-------- --------
Total liabilities 249,021 247,819
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized
and unissued Common stock, $.01 par value, 5,000,000
shares authorized; 3,041,750 shares issued; 2,367,450
shares outstanding 30 30
Additional paid-in capital 14,526 15,015
Retained earnings 19,147 19,062
Unearned incentive plan shares - 0 and 71,422 shares -- (589)
Unearned employee stock ownership plan shares -
91,300 and 98,902 shares (528) (572)
Accumulated other comprehensive loss (837) (665)
Treasury stock, at cost - 674,300 shares (6,235) (6,235)
-------- --------
Total stockholders' equity 26,103 26,046
-------- --------
Total liabilities and stockholders' equity $275,124 $273,865
======== ========
See Notes to Condensed Consolidated Financial Statements.
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FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except share data)
(unaudited)
THREE MONTHS ENDED MARCH 31 2006 2005
--------------------------- ------ ------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $2,818 $2,037
Tax exempt 15 16
Securities
Taxable 734 720
Tax exempt 130 104
Dividends on Federal Home Loan Bank stock 50 58
Deposits with financial institutions and other 27 24
------ ------
Total interest and dividend income 3,774 2,959
------ ------
INTEREST EXPENSE
Deposits 1,193 731
Federal Home Loan Bank advances and other debt 564 389
------ ------
Total interest expense 1,757 1,120
------ ------
NET INTEREST INCOME 2,017 1,839
PROVISION FOR LOAN LOSSES 45 94
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,972 1,745
------ ------
NONINTEREST INCOME
Customer service fees 229 192
Other service charges and fees 182 182
Net gains on loan sales 57 73
Net realized gains on sales of available-for-sale securities 0 32
Net loan servicing fees 128 140
Brokerage fees 21 15
Abstract and title fees 79 104
Increase in cash surrender value of life insurance 51 49
Other 38 23
------ ------
Total noninterest income 785 810
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 1,328 1,183
Net occupancy expense 145 103
Equipment expense 237 205
Data processing fees 148 115
Professional fees 159 111
Foreclosed assets expense, net 19 15
Marketing expense 61 71
Printing and office supplies 41 44
Amortization of loan servicing rights 60 124
Recovery of impairment of loan servicing rights 0 (18)
Other expenses 291 204
------ ------
Total noninterest expense 2,489 2,157
------ ------
INCOME BEFORE INCOME TAX 268 398
INCOME TAX EXPENSE 41 95
------ ------
NET INCOME $ 227 $ 303
====== ======
BASIC EARNINGS PER SHARE $ 0.10 $ 0.13
====== ======
DILUTED EARNINGS PER SHARE $ 0.10 $ 0.12
====== ======
DIVIDENDS PER SHARE $ 0.06 $ 0.06
====== ======
See Notes to Condensed Consolidated Financial Statements.
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FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
THREE MONTHS ENDED MARCH 31 2006 2005
--------------------------- ------- -------
OPERATING ACTIVITIES
Net income $ 227 $ 303
Items not requiring (providing) cash
Depreciation and amortization 127 97
Provision for loan losses 45 94
Loss on foreclosed assets, net 9 8
Amortization of premiums and discounts on securities, net 7 22
Amortization of loan servicing rights 60 124
Recovery for impairment of loan servicing rights -- (18)
Deferred income taxes (26) (21)
Amortization of intangible assets 16 3
Net realized gains on available-for-sale securities -- (32)
Net gains on loan sales (57) (73)
Federal Home Loan Bank stock dividends -- (58)
Compensation expense related to ESOP and incentive plan 143 119
Loans originated for sale (2,506) (3,440)
Proceeds from sales of loans originated for sale 2,759 3,164
Changes in
Interest receivable 328 430
Cash surrender value of life insurance (45) (43)
Other assets 180 46
Interest payable 18 18
Other liabilities 128 132
------- -------
Net cash provided by operating activities 1,413 875
------- -------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (1,745) (3,046)
Proceeds from maturities of available-for-sale securities 3,888 5,917
Proceeds from sales of available-for-sale securities -- 275
Proceeds from maturities of held-to-maturity securities 106 19
Net change in loans (6,421) (1,223)
Proceeds from sales of foreclosed assets 86 130
Purchases of premises and equipment (2,957) (50)
Capitalized interest (29) --
------- -------
Net cash used in investing activities (7,072) 2,022
------- -------
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FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market,
NOW and savings accounts $(2,793) $ 288
Net increase in certificates of deposit 580 249
Net increase (decrease) in short-term borrowings 1,500 (2,000)
Proceeds from Federal Home Bank advances 1,500 --
Net change in pass through payments received on loans sold 23 86
Net change in advances from borrowers for taxes and insurance 246 159
Proceeds from stock options exercised -- 22
Dividends paid (142) (150)
------- -------
Net cash provided by (used in) financing activities 914 (1,346)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,745) 1,551
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,447 9,113
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,702 $10,664
======= =======
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid (net of capitalized interest) $ 1,739 $ 1,102
Income taxes paid (net of refunds) $ 150 $ --
Real estate and other property acquired in settlement of loans $ 15 $ 67
See Notes to Condensed Consolidated Financial Statements.
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FIRST BANCTRUST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain disclosures required by accounting principles
generally accepted in the United States of America are not included herein.
These interim statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, included in the Company's
Form 10-K filed with the Securities and Exchange Commission.
Interim statements are subject to possible adjustments in connection with the
annual audit of the Company for the year ended December 31, 2006. In the opinion
of management of the Company, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial position and consolidated results of operations for the periods
presented. The results of operations for the three months ended March 31, 2006
are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated balance sheet of the Company as of December 31, 2005
has been derived from the audited consolidated balance sheet of the Company as
of that date.
Note 2 - Newly Adopted Accounting Pronouncement
The Company has a stock-based employee compensation plan, which is described
more fully in the Notes to Financial Statements included in the December 31,
2005 Annual Report to shareholders. Prior to January 1, 2006, the Company
accounted for the plan under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. No stock-based employee compensation cost was reflected in net
income, as all options granted under the plan had an exercise price equal to the
market value of the underlying common stock on the grant date. During December
2005, the Company accelerated the vesting of 182,504 options on shares of the
Company's stock. The exercise price and remaining terms of each of the
accelerated options remained the same. As of December 31, 2005, all of the
Company's stock options were vested.
In December, 2004, the Financial Accounting Standards board ("FASB") issued
Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which
requires the cost resulting from stock options be measured at fair value and
recognized in earnings. This statement replaces Statement No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123") and supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB No. 25") which permitted the recognition of compensation expense using the
intrinsic value method.
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Effective January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123 (R), using the modified prospective application
method. Under this method, the Statement applied to new awards and to awards
modified, repurchased, or cancelled after the effective date. Additionally,
compensation cost for a portion of awards for which requisite services has not
been rendered that are outstanding as of the effective date shall be recognized
as the requisite service is rendered or after the effective date. Since all of
the Company's stock options were vested at December 31, 2005, there is no effect
of the financial statements for the three months ended March 31, 2006. The
following table illustrates the effect of net income and earnings per share if
the Company had applied the fair value provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation for the three months ended March 31, 2005.
Three Months
Ended
March 31, 2005
--------------
Net income, as reported $ 303
Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes (33)
-----
Pro forma net income $ 270
=====
EARNINGS PER SHARE:
Basic - as reported $0.13
Basic - pro forma $0.12
Diluted - as reported $0.12
Diluted - pro forma $0.11
The Company also has a stock option award program or incentive plan which
provides for the award and issuance of up to 121,670 shares of the Company's
stock to members of the Board of Directors and management. At January 1, 2006,
119,576 shares had been awarded. In 2002, the Company awarded 65,576 shares
under the incentive plan which vests ratably over a five-year period, commencing
with the date of the award. An additional 54,000 shares were awarded in December
2005 to members of the Board of Directors and management which will vest
according to a defined schedule based on meeting defined financial performance
goals over the next five-year period. Expense recognized under the incentive
plan totaled $50,000 and $27,000 for the three month periods ending March 31,
2006 and 2005.
As a result of implementing the modified prospective application method, the
Company reclassified $589,000 and 71,422 unearned incentive plan shares from a
contra equity account to additional paid-in capital as of January 1, 2006.
Note 3 - Junior Subordinated Debentures
Capital securities of $6.0 million were issued June 15, 2005 by a statutory
business trust, FBTC Statutory Trust I. The Company owns 100% of the common
equity of the trust, which is a wholly-owned subsidiary of the Company. The $6.0
million in proceeds from the trust preferred issuance and an additional $186,000
for the Company's investment in the common equity of the Trust, a total of
$6,186,000 was invested in the junior subordinated debentures of the Company. As
required by FIN 46R, the Company has not consolidated the investment in the
Trust. The trust was formed with the purpose of issuing trust preferred
securities and investing the proceeds from the sale of such trust preferred
securities in the debentures. The debentures held by the trust are the sole
assets of the trust. Distributions of the trust preferred securities are payable
at a variable rate of interest, which is equal to the interest rate being earned
by the trust on the debentures, and are recorded as interest expense by the
Company. The trust preferred securities are subject to mandatory redemption, in
whole or in part, upon repayment of the debentures.
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The debentures are included as Tier I capital for regulatory capital purposes.
On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the
continued limited inclusion of trust preferred securities in the calculation of
Tier 1 capital for regulatory purposes. The final rule provides a five-year
transition period, ending March 31, 2009, for application of the quantitative
limits to have an impact on its calculation of Tier 1 capital for regulatory
purposes or its classification as well-capitalized. The debentures issued are
first redeemable, in whole or part, by the Company, on June 15, 2010, and mature
on June 15, 2035. The funds were used for the acquisition of the common stock of
Rantoul First Bank and for the repurchase of First BancTrust Corporation common
stock. Interest is fixed at a rate of 5.80% for a period of five years, and then
converts to a floating rate after June 15, 2010. Interest payments are made
quarterly beginning in September, 2005.
Note 4 - Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of its
employees. The ESOP purchased required shares in the open market with funds
borrowed from the Company. The ESOP expense was $94,000 and $92,000 for the
three-month periods ended March 31, 2006 and 2005.
Shares purchased by the ESOP are held in a suspense account and are allocated to
ESOP participants based on a pro rata basis as debt service payments are made to
the Company. The loan is secured by the shares purchased with the proceeds and
will be repaid by the ESOP with funds from the Company's discretionary
contributions to the ESOP and earnings on ESOP assets. Principal payments are
scheduled to occur over an eight-year period.
Note 5 - 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, 2006 and
2005. Diluted earnings per share reflect the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
Earnings per share were computed as follows (dollar amounts in thousands except
share data):
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Weighted
Average Per Share
Income Shares Amount
------ --------- ---------
FOR THE THREE MONTHS ENDED MARCH 31, 2006:
Basic Earnings Per Share:
Income available to common stockholders $227 2,205,681 $0.10
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 76,025
Stock Options 47,371
---- --------- -----
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $227 2,329,077 $0.10
==== ========= =====
FOR THE THREE MONTHS ENDED MARCH 31, 2005:
Basic Earnings Per Share:
Income available to common stockholders $303 2,289,236 $0.13
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 94,091
Stock Options 47,411
---- --------- -----
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $303 2,430,738 $0.12
==== ========= =====
Note 6 - Comprehensive Income (Loss)
Comprehensive income (loss) for the three month periods ended March 31, 2006 and
2005 is listed as follows:
THREE MONTHS ENDED MARCH 31
---------------------------
2006 2005
----- -----
NET INCOME $ 227 $ 303
----- -----
OTHER COMPREHENSIVE INCOME
Unrealized appreciation (depreciation) on
available-for-sale securities (172) (528)
Less: Reclassification adjustment for realized
gains included in net income -- 21
----- -----
(172) (549)
----- -----
COMPREHENSIVE INCOME $ 55 $(246)
===== =====
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Note 7 - Authorized Share Repurchase Program
On April 18, 2005, the Board of Directors authorized the open-market stock
repurchase of up to 5%, or 124,850 shares of the Company's outstanding stock
over the next one-year period ending April 18, 2006 as, in the opinion of
management, market conditions warrant. As of March 31, 2006, the Company had
repurchased 111,600 shares, leaving 13,250 shares available to be repurchased
under this program. Previously, the Company had completed five other repurchase
programs for stock repurchases of 566,900 shares. The Company issued 2,200
shares of treasury stock upon the exercise of stock options in February, 2005,
and 2,000 shares of treasury stock upon the exercise of stock options in
September, 2005. On April 18, 2006, the Board of Directors authorized the
repurchase in open market transactions of 117,710 shares, or 5% or the Company's
outstanding shares prior to April 13, 2007. As of May 10, 2006, the Company
owned a cumulative total of 691,550 shares in treasury stock. The repurchased
shares are held as treasury stock and are available for general corporate
purposes.
Note 8 - Commitments
The Company is expanding and renovating its Operations Center in Paris, Illinois
to house its entire banking operations in Paris, Illinois. As a result of the
renovation and expansion, the Company entered into an agreement with a building
contractor to design and construct the new facility for an amount not to exceed
$5.6 million. The project, scheduled to be completed by the third quarter of
2006, is proceeding on schedule, and is approximately 70% completed. The
Company's remaining commitment to complete the project is approximately $1.5
million.
The Company has also entered into an agreement with a building contractor to
design and build a branch bank building to be located in Martinsville, Illinois.
The cost of the building is not to exceed $213,000. The building is
approximately 90% completed and is scheduled to be fully completed and occupied
in May, 2006.
The Company has entered into an agreement with Elan Financial Services to
transfer the ownership of the credit card portfolio to Elan during the second
quarter of 2006. The balance in the credit card portfolio at March 31, 2006
totaled $259,000. Under the terms of the agreement, Elan will assume ownership
of the portfolio; however, the Company will repurchase any uncollectible account
which is designated as a "Delinquent Account" on the transfer date, for a period
of one year. A Delinquent Account is defined as any account which is two or more
payments past due on the transfer date, any account which has an outstanding
balance of 10% or more over the credit limit, or any account which has filed a
bankruptcy petition prior to or within 30 days of the acquisition date.
Note 9 - Recent Accounting Pronouncements
In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156 ("SFAS No. 156"), Accounting for
Servicing of Financial Assets, an amendment of FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which requires that all separately recognized servicing assets
and servicing liabilities be initially measured at fair value, if practicable,
and permits the
-9-
entities to elect either fair value measurement with changes in fair value
reflected in earnings or the amortization and impairment requirements of
Statement 140 for subsequent measurement. The subsequent measurement of
separately recognized servicing assets and servicing liabilities at fair value
eliminates the necessity for entities that manage the risks inherent in
servicing assets and servicing liabilities with derivatives to qualify for hedge
accounting treatment and eliminates the characterization of declines in fair
value as impairments or direct write-downs. Statement No. 156 is effective as of
the beginning of an entity's first fiscal year that begins after September 15,
2006. Earlier adoption is permitted as of the beginning of an entity's fiscal
year, provided the entity has not yet issued financial statements, including
interim financial statements for any period of that fiscal year. The Company
plans to adopt this statement on January 1, 2007 and is in the process of
assessing the impact, if any, of the adoption of this statement of accessing the
impact, if any, of the adoption of this statement on the financial results.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 as amended, and is including this statement for purposes of these
safe harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on the operations and future prospects of the Company and its
wholly-owned subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions; legislative/regulatory provisions; monetary
and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board; the quality of composition of the loan
or investment portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market area; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
The following discussion compares the financial condition of First BancTrust
Corporation (Company), First Bank & Trust, s.b. (Bank), First Charter Service
Corporation, and ECS Service Corporation at March 31, 2006 to its financial
condition at December 31, 2005 and the results of operations for the three-month
period ending March 31, 2006 to the same period in 2005. In May
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2005, the Bank's wholly owned subsidiary, Community Finance Center, Inc., was
dissolved as a corporation, and this activity was transferred to operate as a
division of the Bank. In prior years, First Charter Service Corporation provided
retail sales of uninsured investment products to customers of First Bank &
Trust. In late 2004, First Bank & Trust entered into an agreement with First
Advisors Financial Group LLC ("First Advisors") whereby First Advisors provides
investment advisory and asset management services to Bank customers beginning in
2005. First Advisors rents office space from the Bank, and pays a percentage of
fees generated from transactions with Bank customers to the Bank. As a result,
First Charter Service Corporation became inactive in 2005. This discussion
should be read in conjunction with the interim financial statements and notes
included herein.
FINANCIAL CONDITION
Total assets of the Company increased by $1.2 million or 0.47%, to $275.1
million at March 31, 2006 from $273.9 million at December 31, 2005. The increase
in assets was primarily due to an increase in loans, net of allowance for loan
losses of $6.4 million and an increase in premises and equipment of $2.9
million, partially offset by decreases in cash and cash equivalents of $4.7
million and available-for-sale securities of $2.4 million. The increase in
assets was primarily funded by an increase in borrowings.
The Company's cash and cash equivalents decreased by $4.7 million from $12.4
million at December 31, 2005 to $7.7 million at March 31, 2006, a 38.1%
decrease. Cash and due from banks decreased by $2.2 million or 30.2% to $5.1
million at March 31, 2006 from $7.3 million at December 31, 2005.
Interest-bearing demand deposits decreased by $2.5 million or 49.6% to $2.6
million at March 31, 2006 compared to $5.1 million at December 31, 2005.
Available-for-sale investment securities amounted to $74.0 million at March 31,
2006 compared to $76.4 million at December 31, 2005, a $2.4 million decrease.
The 3.2% decrease primarily resulted from $3.9 million in investment calls and
maturities, primarily from payments on mortgage-backed securities, and a
$280,000 decrease in the market valuation of the available-for-sale portfolio,
partially offset by investment purchases of $1.7 million. Held-to-maturity
securities decreased by $105,000 from $3.4 million at December 31, 2005 to $3.3
million at March 31, 2006, due to principal payments on mortgage-backed
securities. Funds generated by the decreases in investments were used to fund
loan growth.
Loans held for sale, net of unrealized loss, decreased by $227,000 from $642,000
at December 31, 2005 to $415,000 at March 31, 2006. Unrealized loss on loans
held for sale at March 31, 2006 were $7,000 compared to $5,000 at December 31,
2005. Loans held for sale are carried at the lower of cost or market. Single
family residential loans for qualified borrowers are originated and sold to
Federal Home Mortgage Corporation ("FHLMC") and to the Illinois Housing
Development Authority ("IHDA"). Loans held for sale at March 31, 2006 consisted
of four single-family residential loans to be sold to FHLMC and IHDA.
The Company's net loan portfolio increased by $6.3 million to $163.2 million at
March 31, 2006 from $156.9 million at December 31, 2005. Gross loans increased
by $6.4 million while the allowance for loan losses increased by $12,000.
Commercial nonresidential real estate loans
-11-
increased by $2.0 million with the majority of the loan originations generated
in the Savoy area. Loans secured by 1-4 family residences increased by $2.6
million, primarily due to an increase in first mortgages on 1-4 family homes in
the Savoy market, and construction loans increased by $441,000, primarily due to
new originations. Loans secured by farmland increased by $250,000 and
agricultural production loans increased by $282,000.
At March 31, 2006, the allowance for loan losses was $2.7 million or 1.61% of
the total loan portfolio compared to the allowance for loan losses at December
31, 2005 of $2.7 million or 1.67% of the total loan portfolio. During the first
three months of 2006, the Company charged off $58,000 of loan losses, of which
$40,000 were from consumer loan charge-offs. The chargeoffs of $58,000 were
partially offset by $24,000 in recoveries from consumer loans, primarily vehicle
loans. The net chargeoffs of $34,000 for the first three months of 2006
decreased by $36,000 when compared to net chargeoffs of $70,000 for the first
three months of 2005. The Company's nonperforming loans and troubled debt
restructurings remained at $1.5 million or 0.89% of total loans at March 31,
2006 compared to $1.5 million or 0.95% as a percentage of total loans at
December 31, 2005. The Company's loans delinquent 90 days and over total
$858,000, and include $251,000 in 1-4 family residential loans, $421,000 in
commercial loans, and $142,000 in consumer loans. The Company's troubled debt
restructurings of $625,000 at March 31, 2006 consist 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.
Premises and equipment have increased by $2.8 million from $6.4 million at
December 31, 2005 to $9.2 million at March 31, 2006, primarily due to
expenditures related to the major renovation and expansion project of the
current Operations Center which will result in an enlarged facility to house the
main office of the Bank. Additional progress payments made on the project since
December 31, 2005 total $2.2 million, and the project is approximately 70%
complete. The Company is also constructing a branch building located in
Martinsville, Illinois which is expected to be completed by May, 2006.
Disbursements related to this project to date total $191,000.
Net foreclosed assets held for sale, totaling $187,000 at March 31, 2006
decreased $80,000, or 30.0%, compared to $267,000 at December 31, 2005. As of
March 31, 2006, the Company had real estate properties totaling $146,000
consisting of approximately a dozen singe-family residential properties and
several vacant lots and other repossessed assets of $41,000. Foreclosed assets
are carried at lower of cost or net realizable value.
Interest receivable declined by $328,000 from $2.4 million at December 31, 2005
to $2.1 million at March 31, 2006, a 13.6% decrease. This reduction is seasonal,
as many agricultural loans are annual payment loans, with payments due at the
beginning of the year. Deferred income taxes increased by $135,000 from $1.4
million at December 31, 2005 to $1.5 million at March 31, 2006, primarily as a
result of the deferred income tax effect of the change in market valuation of
available-for-sale securities from December 31, 2005 to March 31, 2006.
-12-
The Company's total deposits amounted to $191.8 million at March 31, 2006
compared to $194.0 million at December 31, 2005, a decrease of $2.2 million. The
1.1% decrease in total deposits was due to a $365,000 decrease in non-interest
bearing deposits, and by a $1.8 million decrease in interest bearing deposits.
The decrease in interest bearing deposits was a result of a $3.6 million
decrease in interest-bearing checking accounts, offset by a $1.2 million
increase in savings accounts and a $580,000 increase in certificates of
deposits.
Federal funds purchased increased by $1.5 million from a balance of $2.5 million
at December 31, 2005 to $4.0 million at March 31, 2006. Federal Home Loan Bank
advances increased by $1.5 million from $43.2 million at December 31, 2005 to
$44.7 million at March 31, 2006. The total average rate of all advances was
4.68% as of March 31, 2006. The increase in borrowings was used to fund loan
growth.
Junior subordinated debentures remained constant at $6.2 million at March 31,
2006 compared to December 31, 2005. Capital securities of $6.0 million were
issued June 15, 2005 by a statutory business trust, FBTC Statutory Trust I. The
Company owns 100% of the common equity of the trust, which is a wholly-owned
subsidiary of the Company. The $6.0 million in proceeds from the trust preferred
issuance and an additional $186,000 for the Company's investment in the common
equity of the Trust, a total of $6,186,000, was invested in the junior
subordinated debentures of the Company. As required by FIN 46R, the Company has
not consolidated the investment in the Trust. The trust was formed with the
purpose of issuing trust preferred securities and investing the proceeds from
the sale of such trust preferred securities in the debentures. The debentures
held by the trust are the sole assets of the trust. Distributions of the trust
preferred securities are payable at a variable rate of interest, which is equal
to the interest rate being earned by the trust on the debentures, and are
recorded as interest expense by the Company. The trust preferred securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
debentures.
The debentures are included as Tier I capital for regulatory capital purposes.
The debentures issued are first redeemable, in whole or part, by the Company, on
June 15, 2010, and mature on June 15, 2035. Interest payments are made quarterly
beginning in September, 2005.
Advances from borrowers for taxes and insurance increased by $246,000 from
$189,000 at December 31, 2005 to $435,000 at March 31, 2006. The $246,000
increase is a normal trend, as escrows typically accumulate funds in the first
quarter of the year for the payment of real estate taxes later in the year.
Stockholders' equity at March 31, 2006 was $26.1 million compared to $26.0
million at December 31, 2005, a slight increase of $57,000. Retained earnings
increased by the amount of net income or $227,000, partially offset by $142,000
in dividends declared and paid. As shares from the employee stock ownership plan
vested to participants from December 31, 2005 to March 31, 2006, stockholders'
equity increased by $93,000, and as shares from the incentive plan were earned
by participants for the same period, stockholders' equity increased by $50,000.
Accumulated comprehensive income (loss) decreased by $172,000 due to a decrease
in the fair value of securities available for sale, net of related tax effect.
The Company reclassified $589,000 or 71,422 unearned incentive plan shares to
additional paid-in-capital as of January 1, 2006 in accordance with SFAS No.
123(R). Treasury stock remained constant from December 31, 2005 to March 31,
2006 at $6.2 million.
-13-
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005
Net income for the three months ended March 31, 2006 decreased by $76,000 or
25.1% from $303,000 for the three months ended March 31, 2005 to $227,000 for
the three months ended March 31, 2006. The decrease in net income is primarily
due to an increase in noninterest expense and a decrease in noninterest income,
partially offset by an increase in net interest income and decreases in the
provision for loan losses and income tax expense.
Net interest income increased $178,000 or 9.7% from $1.8 million for the three
months ended March 31, 2005 to $2.0 million for the three months ended March 31,
2006. The primary reasons for the increase in net interest income was an
increase in total interest and dividend income of $815,000 partially offset by
an increase of $637,000 in interest expense. The Company's net interest margin
was 3.31% and 3.51% during the three months ended March 31, 2006 and 2005,
respectively. The net interest margin decreased as a result of a decrease in
interest spread. Interest spread decreased by 17 basis points from 3.20% for the
three months ended March 31, 2005 to 3.03% for the three months ended March 31,
2005. The average rate paid on interest bearing liabilities increased by 71
basis points, while the average rate earned on interest bearing assets increased
by 54 basis points. The average balances of interest bearing assets for the
three month period ending March 31, 2006 increased by $34.5 million to $244.0
million compared to $209.5 million in average earning assets for the three month
period ending March 31, 2005. Interest bearing liabilities increased by $39.7
million from $182.7 million for the three month period ended March 31, 2005 to
$222.4 million for the three month period ended March 31, 2006. The increase in
interest bearing assets and liabilities was primarily due to the acquisition of
Rantoul First Bank in October, 2005.
Total interest and dividend income increased by $815,000 or 27.5% from $3.0
million for the three months ended March 31, 2005 to $3.8 million for the three
months ended March 31, 2006. The increase of $815,000 was primarily due to
increases in loan interest income and interest and dividend income from
securities. The increase of $780,000 in loan interest income was primarily due
to a $41.9 million increase in the average loan balance and by an increase in
the average loan rate of 15 basis points. Interest and dividend income from
securities increased by $40,000 primarily due to an increase of 68 basis points
in the average rate, partially offset by a decrease of $8.4 million in the
average balance of investments. Interest income from deposits with financial
institutions increased by $3,000 primarily due to an increase in average rate of
177 basis points, offset by a decrease of $1.3 million in the average balance of
deposits with financial institutions. Dividends on Federal Home Loan Bank stock
decreased by $8,000 from the three months ended 2005 to the three months ended
March 31, 2006 due to a decrease in average rate of 239 basis points, offset by
an increase in the average balance of $2.3 million.
Interest expense increased by $637,000 or 56.9% from $1.1 million for the three
months ended March 31, 2005 to $1.8 million for the three months ended March 31,
2006. This increase was primarily due to an increase of $462,000 in interest on
deposits, and by a $175,000 increase in interest on Federal Home Loan Bank
advances and other debt. The $462,000 increase in interest
-14-
expense on deposits was primarily due to an increase in the average rate paid on
deposits, and by an increase in the average balance of interest bearing
deposits. The $175,000 increase in interest on Federal Home Loan Bank advances
and other debt was due to an increase in the average balance as well as an
increase in average interest rate.
For the three months ended March 31, 2006 and 2005, the provision for losses on
loans was $45,000 and $94,000, respectively. The provision for the three months
ended March 31, 2006 was based on the Company's analysis of the allowance for
loan losses. Management meets on a quarterly basis to review the adequacy of the
allowance for loan losses by classifying loans in compliance with regulatory
classifications. Classified loans are individually reviewed to arrive at
specific reserve levels for those loans. Once the specific portion for each loan
is calculated, management calculates a historical portion for each category
based on a combination of loss history, current economic conditions, and trends
in the portfolio. While the Company cannot assure that future chargeoffs and/or
provisions will not be necessary, the Company's management believes that, as of
March 31, 2006, its allowance for loan losses was adequate.
Noninterest income decreased $25,000 or 3.1% from $810,000 for the three months
ended March 31, 2005 to $785,000 for the three months ended March 31, 2006. The
decrease was primarily a result of decreases in net realized gains on sales of
available-for-sale securities and abstract and title fees, partially offset by
an increase in customer service fees. Customer service fees increased by $37,000
from $192,000 for the three months ended March 31, 2005 to $229,000 for the
three months ended March 31, 2006, primarily due to increased NSF and overdraft
fees. There were no net realized gains on sales of available-for-sale securities
for the three months ended March 31, 2006 compared to $32,000 in gains generated
from the sales of equity securities for the three months ended March 31, 2005.
Abstracting and title fees decreased by $25,000 from $104,000 for the three
months ended March 31, 2005 to $79,000 for the three months ended March 31,
2006, due to reduced dollar volume of business during the first quarter of 2006.
Total noninterest expenses were $2.5 million for the three months ended March
31, 2006 as compared to $2.2 million for the three months ended March 31, 2005.
The primary reasons for the $332,000 increase were increases in salaries and
employee benefits, net occupancy expense, equipment expense, data processing
expense, professional expenses, and other expenses and a reduced amount of
recovery of a previously identified impairment of loan servicing rights,
partially offset by a reduction in amortization of loan servicing rights.
Salaries and employee benefits increased by $145,000 from $1.18 million for the
three months ended March 31, 2005 to $1.33 million for the three months ended
March 31, 2006, as a result of an increase in salaries, health insurance
expense, and director fees. An $86,000 increase in salaries was primarily a
result of the addition of nine full-time and one part-time employees as a result
of the purchase of Rantoul First Bank in October, 2005. Health insurance expense
increased as a result of a increase in premiums and the addition of the
employees from Rantoul.
Net occupancy expense increased by $42,000 from $103,000 for the three months
ended March 31, 2005 compared to $145,000 for the three months ended March 31,
2006. This increase can be attributed to additional occupancy expenses
associated with the addition of the Rantoul location, as well as additional
building rent expense in 2006. In late 2005, the Company completed a property
exchange to acquire the adjoining property to the current Operations
-15-
Center for the building currently housing the main office of the Bank in Paris,
Illinois. This exchange of property provided the area needed for the expansion
and renovation to convert the Operations Center into the new main bank office in
Paris, Illinois. As part of the agreement, the Company will rent the building
currently housing the main office until completion of the construction project
in early third quarter of 2006. Equipment expense increased by $32,000 primarily
as a result of upgrades in equipment to the Company's ATM network, and increased
software usage fees. Data processing fees increased by $33,000 primarily due to
increases in the number of accounts and transactions from the Rantoul
acquisition.
Professional fees increased by $48,000 from $111,000 for the three months ended
March 31, 2005 to $159,000 for the three months ended March 31, 2006, primarily
due to increased legal and consulting fees in 2006. Amortization of loan
servicing rights decreased by $64,000 from $124,000 for the three months ended
March 31, 2005 to $60,000 for the three months ended March 31, 2006, as result
of the reduction in loan servicing assets. Other expenses increased by $87,000
from $204,000 for the three months ended March 31, 2005 to $291,000 for the
three months ended March 31, 2006. This increase was primarily attributable to
an increase in loan origination expenses, increased supervisory fees from the
State of Illinois, an increase in postage, and an increase in telephone expense
due to the addition of the Rantoul branch.
Income tax expense was $41,000 for the three months ended March 31, 2006 as
compared to $95,000 for the three months ended March 31, 2005. The decrease of
$54,000 in income tax expense was primarily due to a reduction in income before
income taxes of $130,000 from $398,000 for the three months ended March 31, 2005
compared to $268,000 for the three months ended March 31, 2006.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting standards
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. Actual results could differ from those estimates under
different assumptions and conditions. Management believes that its critical
accounting policies and significant estimates include determining the allowance
for loan losses, the valuation of loan servicing rights, and the valuation of
foreclosed real estate.
Allowance for loan losses
The allowance for loan losses is a significant estimate that can and does change
based on management's assumptions about specific borrowers and current general
economic and business conditions, among other factors. Management reviews the
adequacy of the allowance for loan losses on at least a quarterly basis. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the loan portfolio, the current condition and amount of
loans outstanding, identified problem loans and the probability of collecting
all amounts due.
-16-
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. A worsening or protracted economic
decline would increase the likelihood of additional losses due to credit and
market risk and could create the need for additional loss reserves.
Loan Servicing Rights
The Company recognizes the rights to service loans as separate assets on the
consolidated balance sheet. The total cost of loans when sold is allocated
between loans and loan servicing rights based on the relative fair values of
each. Loan servicing rights are subsequently carried at the lower of the initial
carrying value, adjusted for amortization, or fair value. Loan servicing rights
are evaluated for impairment based on the fair value of those rights. Factors
included in the calculation of fair value of the loan servicing rights include
estimating the present value of future net cash flows, market loan prepayment
speeds for similar loans, discount rates, servicing costs, and other economic
factors. Servicing rights are amortized over the estimated period of net
servicing revenue. It is likely that these economic factors will change over the
life of the loan servicing rights, resulting in different valuations of the loan
servicing rights. The differing valuations will affect the carrying value of the
loan servicing rights on the consolidated balance sheet, as well as the income
recorded from loan servicing in the income statement. As of March 31, 2006 and
December 31, 2005, loan servicing rights had carrying values of $433,000 and
$462,000, respectively.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are carried at the lower of cost or fair value
less estimated selling costs. Management estimates the fair value of the
properties based on current appraisal information. Fair value estimates are
particularly susceptible to significant changes in the economic environment,
market conditions, and the real estate market. A worsening or protracted
economic decline would increase the likelihood of a decline in property values
and could create the need to write down the properties through current
operations.
LIQUIDITY
At March 31, 2006, the Company had outstanding commitments to originate $9.9
million in loans, and $15.2 million available to be drawn upon for open-end
lines of credit. For more information on the outstanding commitments, see the
discussion below the caption "Off-Balance Sheet Arrangements and Contractual
Commitments". As of March 31, 2006, the total amount of certificates scheduled
to mature in the following 12 months was $68.1 million. The Company believes
that it has adequate resources to fund all of its commitments. The Company's
most liquid assets are cash and cash equivalents. The level of cash and cash
equivalents is dependent on the Company's operating, financing, lending and
investing activities during any given period. The level of cash and cash
equivalents at March 31, 2006 was $7.7 million. The Company's future short-term
requirements for cash are not expected to significantly change. In the event
that the Company should require funds beyond its capability to generate them
internally, additional sources of funds are available such as Federal Home Loan
Bank advances.
-17-
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL COMMITMENTS
At March 31, 2006, the Company had outstanding commitments to originate loans of
$9.9 million. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period. Loan commitments at fixed
rates of interest amounted to $4.5 million, with the remainder at floating
rates. In addition, the Company had outstanding unused lines of credit to
borrowers aggregating $10.7 million for commercial lines of credit, $4.5 million
for consumer lines of credit, and $853,000 unused line of credit on credit
cards. Outstanding commitments for letters of credit at March 31, 2006 totaled
$149,000. Since these commitments have fixed expiration dates, and some will
expire without being drawn upon, the total commitment level may not necessarily
represent future cash requirements.
The following table presents additional information about our unfunded
commitments as of March 31, 2006, which by their terms have contractual maturity
dates subsequent to March 31, 2006:
Next 12 13-36 37-60 More than
Months Months Months 60 Months Totals
------- ------ ------ --------- -------
(Dollars in thousands)
UNFUNDED COMMITMENTS:
Letters of credit $ 130 $ 19 $ -- $ -- $ 149
Lines of credit 11,288 264 432 3,219 15,203
Credit cards 853 -- -- -- 853
------- ---- ---- ------ -------
Totals $12,271 $283 $432 $3,219 $16,205
======= ==== ==== ====== =======
The Company has a building commitment of $5.6 million for its building expansion
in Paris, Illinois, of which approximately $4.1 million has been expended as of
March 31, 2006. The Company also has a building commitment of $213,000 for a
branch building being constructed in Martinsville, Illinois. As of March 31,
2006, the building was 90% complete, and disbursements to March 31, 2006 totaled
$191,000.
-18-
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, 2006:
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL CAPITALIZED
--------------- ---------------- --------------
MARCH 31, 2006 Amount % Amount % Amount %
-------------- ------- ----- ------- --- ------- ----
(Dollars in thousands)
Total capital (to risk-weighted assets) $32,139 19.13 $13,440 8.0 $16,800 10.0
Tier 1 capital (to risk-weighted assets) 30,032 17.88 6,719 4.0 10,078 6.0
Tier 1 capital (to average assets) 30,032 11.14 10,783 4.0 13,479 5.0
On February 27, 2006, the Federal Reserve Board announced the approval of a
final rule that expands the definition of a small bank holding company (BHC)
under the Board's Small Bank Holding Company Policy Statement. Under the revised
regulatory financial reporting requirements, the Company will now qualify as a
small BHC, and as such, will only be required to file parent-only financial data
on a semi-annual basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Sources of market risk include interest rate risk, foreign currency exchange
risk, commodity price risk and equity price risk. The Company is only subject to
interest rate risk. The Company purchased no financial instruments for trading
purposes during the three months ended March 31, 2006 and 2005.
The principal objectives of the Company's interest rate risk management function
are: (i) to evaluate the interest rate risk included in certain balance sheet
accounts; (ii) to determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements, and
performance objectives; (iii) to establish asset concentration guidelines; and
(iv) to manage the risk consistent with Board-approved guidelines. Through such
management, the Company seeks to reduce the vulnerability of its operations to
changes in interest rates and to manage the ratio of interest rate sensitive
assets to interest rate sensitive liabilities within specified maturity terms or
repricing dates. The Company's Board of Directors has established an
Asset/Liability Committee consisting of directors and senior management
officers, which is responsible for reviewing the Company's asset/liability
policies and monitoring interest rate risk as such risk relates to its operating
strategies. The committee usually meets on a quarterly basis, and at other times
as dictated by market conditions, and reports to the Board of Directors. The
committee is responsible for reviewing Company activities
-19-
and strategies, and the effect of those strategies on the Company's net interest
margin, the market value of the portfolio and the effect that changes in the
interest will have on the Company's portfolio and exposure limits.
The Company's key interest rate risk management tactics consist primarily of:
(i) emphasizing the attraction and retention of core deposits, which tend to be
a more stable source of funding; (ii) emphasizing the origination of adjustable
rate mortgage loan products and short-term commercial and consumer loans for the
in-house portfolio, although this is dependent largely on the market for such
loans; (iii) selling longer-term fixed-rate one-to-four family mortgage loans in
the secondary market; and (iv) investing primarily in U.S. government agency
instruments and mortgage-backed securities.
The Company's interest rate and market risk profile has not materially changed
from the year ended December 31, 2005. Please refer to the Company's Form 10-K
for the year ended December 31, 2005 for further discussion of the Company's
market and interest risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation as of March 31, 2006, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls during the quarter ended March 31, 2006.
Disclosure controls and procedures are the controls and other procedures of the
Company that are designed to ensure that the information required to be
disclosed by the Company in its reports filed or submitted under the Securities
Exchange Act of 1934, as amended (Exchange Act) is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in its reports filed under
the Exchange Act is accumulated and communicated to the Company's management,
including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and subsidiary are subject to claims and lawsuits which arise
primarily in the ordinary course of business, such as claims to enforce liens
and claims involving the making and servicing of real property loans and other
issues. It is the opinion of management that the disposition or ultimate
determination of such possible claims or lawsuits will not have a material
adverse effect on the consolidated financial position of the Company.
-20-
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors set forth in Part I,
Item 1A "Risk Factors" of the Company's Form 10-K for the year ended December
31, 2005. Please refer to that section of the Company's Form 10-K for
disclosures regarding risks and uncertainties related to the Company's business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) The following table provides information about purchases of the Company's
common stock by the Company during the quarter ended March 31, 2006.
ISSUER PURCHASES OF EQUITY SECURITIES
(d) Maximum
(c) Total Number Number of
of Shares Shares that May
Purchased as Yet Be
(a) Total Number (b) Average Part of Publicly Purchased Under
of Shares Price Paid Announced Plans the Plans
Period Purchased per Share or Programs or Programs
--------- ---------------- ----------- ---------------- ---------------
1/1/2006
to -- -- -- 13,250
1/31/2006
2/1/2006
to -- -- -- 13,250
2/28/2006
3/1/2006
to -- -- -- 13,250
3/31/2006
(1) The board of directors approved the repurchase by the Company of 124,850
shares over the one year period ending April 18, 2006.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-21-
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Terry J. Howard required by Rule 13a-14(a).
31.2 Certification of Ellen M. Litteral required by Rule 13a-14(a).
32.1 Certification of Terry J. Howard, Chief Executive Officer
pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
32.2 Certification of Ellen M. Litteral, Chief Financial Officer
pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANCTRUST CORPORATION
Date: May 12, 2006 /s/ Terry J. Howard
----------------------------------------
Terry J. Howard
President and Chief Executive Officer
Date: May 12, 2006 /s/ Ellen M. Litteral
----------------------------------------
Ellen M. Litteral
Treasurer and Chief Financial Officer
-22-