UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11132
FIRST BANKING CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391327
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Milwaukee Ave., Burlington, WI 53105
(Address of principal executive offices) (Zip Code)
(414) 763-3581
(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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Common Stock,
$1.00 par value, 1,472,948 shares outstanding.
PART I. FINANCIAL INFORMATION
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
CONSOLIDATED BALANCE SHEET
September, 1996
vs
December 31, 1995
(Amounts in Thousands)
ASSETS 9/30/96 12/31/95
Cash and due from banks $10,225 $17,638
Federal funds sold 610 4,550
Total Cash and Cash Equivalents 10,835 22,188
Interest bearing deposits in banks 2,073 4,303
Investment securities - Held to Maturity
(Market values $30,736; $28,759 respectively) 30,824 29,905
Investment securities - Available for Sale 30,243 30,092
Loans 177,131 170,355
Less:
Allowance for loan losses (2,600) (2,336)
Total Net Loans 174,531 168,019
Property and Equipment 5,854 5,071
Other Assets 5,508 4,990
TOTAL ASSETS $259,868 $264,568
LIABILITIES
Deposits
Non-interest bearing demand $30,786 $32,995
Interest bearing demand 18,769 25,007
Money market demand 37,137 36,167
Savings 26,664 25,425
Time 87,721 89,236
Total Deposits 201,077 208,830
Fed Funds Purchased and Securities sold
under agreements to repurchase 22,794 20,225
U S Treasury note account 540 91
Long-term borrowings 7,484 8,933
Accrued interest and other liabilities 2,457 2,605
TOTAL LIABILITIES $234,352 $240,684
STOCKHOLDERS' EQUITY
Common Stock, $1.00 par value 3,000,000
shares authorized 1,472,948 shares issued $1,473 $1,468
Surplus 4,051 3,995
Retained Earnings 20,328 18,570
Net unrealized loss on available
for sale securities (336) (148)
Subtotal 25,516 23,885
Treasury Stock 0 (1)
TOTAL STOCKHOLDERS' EQUITY $25,516 $23,884
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $259,868 $264,568
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
CONSOLIDATED STATEMENT OF INCOME
as of September 30, 1996 and 1995
(Amounts in Thousands)
Quarter-to-Date Year-to-Date
9/30/96 9/30/95 9/30/96 9/30/95
INTEREST INCOME
Interest and fees on loans $4,025 $3,914 $12,083 $11,055
Interest on deposits in banks 36 32 125 133
Interest on federal funds sold
and repurchase agreements 39 98 180 248
Interest on securities:
U.S. Government and other 686 718 2,089 2,094
Tax Exempt Securities 182 115 506 354
TOTAL INTEREST INCOME 4,968 4,877 14,983 13,884
INTEREST EXPENSE
Interest on deposits 1,967 1,935 5,986 5,485
Int on fed funds purch. and securities
sold under agreements to repurchase 283 253 834 681
Int on U S Treasury Note Account 5 11 15 28
Int on long-term borrowings 115 144 370 378
TOTAL INTEREST EXPENSE 2,370 2,343 7,205 6,572
Net interest Income 2,598 2,534 7,778 7,312
Provision for loan losses 49 68 247 203
NET INT. INC. AFTER PROVISION
FOR LOAN LOSSES 2,549 2,466 7,531 7,109
OTHER OPERATING INCOME
Trust department income 81 75 243 225
Service charges on deposits 219 191 603 534
Invest. security gains/(losses) 0 0 0 (11)
Other income 182 116 374 305
TOTAL OTHER OPERATING INCOME 482 382 1,220 1,053
OTHER OPERATING EXPENSE
Employee expense 1,039 831 3,148 2,509
Occupancy expense 179 159 498 428
Equipment expense 237 172 594 432
Computer services 103 75 295 231
Other expense 410 364 1,127 1,259
TOTAL OTHER OPERATING EXPENSE 1,968 1,601 5,662 4,859
Income before income taxes 1,063 1,247 3,089 3,303
Income taxes 315 427 992 1,116
NET INCOME $748 $820 $2,097 $2,187
Earnings per share $0.51 $0.56 $1.43 $1.49
Average shares outstanding 1,473 1,463 1,470 1,463
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON, WISCONSIN
Y-T-D ending September 30, 1996 and 1995
Increase (decrease) in Cash and Cash Equivalents
(Amounts in Thousands)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,097 $2,187
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 493 380
Provision for loan losses 247 203
Provision for deferred taxes 0 0
Amortization and accretion of bond
premiums and discounts - net 108 89
Amortization of excess cost over equity in
underlying net assets of subsidiary 2 2
Investment securities (gains) losses 0 11
(Increase) decrease in assets:
Interest receivable 102 (447)
Other assets (528) 363
Increase (decrease) in liabilities:
Taxes payable (217) (134)
Interest payable 37 258
Other liabilities 33 236
TOTAL ADJUSTMENTS 277 961
NET CASH PROVIDED FROM OPERATING ACTIVITIES $2,374 $3,148
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits $2,230 ($29)
Proceeds from sales of available for sale securities 0 1,000
Proceeds from maturities of available for sale securities 24,938 14,238
Purchase of available for sale securities (25,424) (26,079)
Proceeds from maturity of held to maturity securities 5,156 5,220
Purchase of held to maturity securities (6,131) (3,631)
Net (increase) decrease in loans (6,759) (9,134)
Purchase of office buildings and equipment (1,276) (813)
NET CASH USED IN INVESTING ACTIVITIES ($7,266) ($19,228)
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
BURLINGTON, WISCONSIN
Y-T-D ending September 30, 1996 and 1995
Increase (decrease) in Cash and Cash Equivalents
(Amounts in Thousands)
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ($7,753) $2,191
Dividends paid (339) (293)
Net increase (decrease) in Long-term Borrowings (1,449) 4,867
Net increase (decrease) in U S Treasury Note Account 449 (2,294)
Net increase (decrease) in fed funds purchased and
securities sold under repurchase agreements 2,569 4,337
Proceeds from stock options exercised 62 1
NET CASH PROVIDED BY FINANCING ACTIVITIES ($6,461) $8,809
Net increase (decrease) in cash and cash equivalents (11,353) (7,271)
Cash and cash equivalents at beginning of year 22,188 12,087
Cash and cash equivalents at end of quarter $10,835 $4,816
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest $7,168 $6,328
Income taxes (received) $1,210 $1,250
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
CONSOLIDATED STATEMENT OF CHANGES
IN COMPONENTS OF STOCKHOLDERS' EQUITY
As of September 30, 1996
(Amounts in Thousands)
COMMON RETAINED AVAILABLE TREASURY
STOCK SURPLUS EARNINGS FOR SALE STOCK
SECURITIES
Balances
December 31, 1994 $1,468 $3,986 $16,353 ($927) ($54)
Net income-YTD 1995 2,187
Cash dividend paid
$0.20 per share (293)
Exercise of
Stock options 1
Change in unrealized
loss on available
for sale securities 694
Balances
September 30, 1995 1,468 3,986 18,247 (233) (53)
Balances
December 31, 1995 $1,468 $3,995 $18,570 ($148) ($1)
Net income-YTD 1996 2,097
Cash dividend paid
$0.23 per share (339)
Exercise of
Stock options 5 56 1
Change in unrealized
loss on available
for sale securities (188)
Balances
September 30, 1996 $1,473 $4,051 $20,328 ($336) $0
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1996
Note 1. Basis of Presentation
In the opinion of Management, the accompanying unaudited consolidated financial
statements reflect all adjustments which are necessary to present a fair
statement of the results for the interim periods.
The accounting policies followed by the registrant are set forth in Note A to
the registrant's financial statements in the 1995 First Banking Center, Inc.
(the "Company") annual report which is incorporated by reference herein (see
exhibit A).
Item 2
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of September 30, 1996
The following is a discussion of the financial condition and results of
operations of the Company for the year-to-date ended September 30, 1996.
Financial condition
Loans
As of September 30, 1996, loans outstanding were $177.1 million an increase
of $6.8 million or 3.98% from December 31, 1996. During this nine month
period, Construction and Land Development loans increased by $4.4 million
and Commercial loans increased $4.9 million or 21.1% and 17.9%
respectively. At September 30, 1996, Construction and Land Development loans
were at $25 million or 14.1% of total loans, Residential Real Estate
loans were at $66.7 million or 37.6% of total loans, and Commercial
loans were at $32.5 million or 18.4% of total loans.
Allowance for Loan Losses
The allowance for possible loan losses was $2.6 million or 1.47% of gross
loans on September 30, 1996, compared with $2.3 million or 1.37% of gross loans
on December 31, 1995. Net charge offs for the nine month period ended
September 30, 1996, were -$17 thousand, or -.01% of gross loans, compared to
$41 thousand or .02% of gross loans for the same period in 1995. As of
September 30, 1996, loans on non-accrual status totaled $217 thousand or .12%
of gross loans compared to $881 thousand or .53% of gross loans on September
30, 1995, and $1.5 million or .88% of gross loans on December 31, 1995.
The non-accrual loans consisted primarily of real estate loans of which
$100 thousand or 46% were single family dwellings. On September 30, 1996,
the ratio of non-accrual loans to the allowance for loan losses was
8.2% compared to 64% on December 31, 1995.
The Banks evaluate the adequacy of the allowance for loan losses based
on an analysis of specific problem loans, as well as on an aggregate basis.
Management reviews a calculation of the allowance for loan losses on a
quarterly basis and feels that the allowance for loan losses is adequate.
The allowance for loan losses is maintained at a level considered adequate to
provide for potential future losses. The level of the allowance is based on
management's periodic and comprehensive evaluation of the loan portfolio,
including past loan loss experience; current and projected economic trends;
the volume, growth and composition of the loan portfolio; and other relevant
factors. Reports of examinations furnished by State and Federal banking
authorities are also considered by management in this regard.
During this nine month period ended September 30, 1996, $49 thousand was
charged to current earnings and added to the allowance for loan losses.
Investment securities - Held to Maturity
The securities held-to-maturity portfolio increased $919 thousand from
$30 to $30.8 million or 3.1% from December 31, 1995, to September 30, 1996.
Investment securities - Available for Sale
The securities available-for-sale portfolio remained constant at $30 million
from December 31, 1995, to September 30, 1996.
Deposits and Borrowed Funds
As of September 30, 1996, total deposits were $201 million, which is a de-
crease of $7.8 million or 3.9% from December 31, 1995. Interest Bearing Demand
Deposits decreased $6.2 million or 33.2%, Demand deposits decreased $2.2
million or 6.7% since December 31, 1995. Time deposits decreased $1.5
million or 1.7% since December 31, 1995. Securities sold under agreement
to repurchase increased $2.6 million or 12.7% and Federal Home Loan
Borrowings decreased $1.4 million or 16.2% since December 31, 1995.
Asset/Liability Management
The principal function of asset/liability management is to
manage the balance sheet mix, maturities, repricing characteristics
and pricing components to provide an adequate and stable net
interest margin with an acceptable level of risk over time and
through interest rate cycles.
Interest-sensitive assets and liabilities are those that are
subject to repricing within a specific relevant time horizon. The
Company measures interest-sensitive assets and liabilities, and
their relationship with each other at terms of immediate, quarterly
intervals up to 1 year, and over 1 year.
Changes in net interest income, other than volume-related,
arise when interest rates on assets reprice in a time frame or
interest rate environment that is different from the repricing
period for liabilities. Changes in net interest income also arise
from changes in the mix of interest-earning assets and interest-
bearing liabilities.
The Company's strategy with respect to asset/liability
management is to maximize net interest income while limiting our
exposure to a potential downward movement. Strategy is implemented
by the Bank's management, which takes action based upon its
analysis of the Bank's present positioning, its desired future
positioning, economic forecasts and its goals.
Liquidity
The liquidity position of the Company is managed to insure
that sufficient funds are available to meet customers' needs for
loans and deposit withdrawals. Liquidity to meet demand is
provided by maintaining marketable investment securities and money
market assets such as Interest Bearing Deposits in Banks and
Federal Funds Sold. The banks are members of the Federal Home
Loan Bank system which provides the company with an additional source
of liquidity. Total deposits declined $8.6 million during the first
six months of 1996. Liquidity for this deposit run off was funded by
Cash in Banks.
Management is unaware of any recommendations by regulatory
authorities, known trends, events or uncertainties that will have
or that are reasonably likely to have a material effect on the
Company's liquidity.
Results of Operations Overview
For the nine month period ended September 30, 1996 the Company reported
earnings of $2.1 million a decrease of $90 thousand or 4.1% over the
same period in 1995.
Net Interest Income
Net interest income for the nine months ended September 30, 1996, was
$7.8 million compared to $7.3 million for the same period in 1995. The
increase in net interest income is the result of a $1.1 million increase
in interest income and only a $633 thousand increase in interest expense.
The increase in interest income is a result of a 7% increase in average
loan balances. The increase in interest expense is due to increased rates
paid and increased average balances of 4.9%.
Provision for Loan Losses
The Banks have established the allowance for loan losses to reduce
the gross level of loans outstanding by an estimate of uncollectible
loans. As loans are deemed uncollectible, they are charged against
the allowance. A provision for loan losses is expensed against current
income on a monthly basis. This provision acts to replenish the
allowance for loan losses to accommodate charge-offs and growth in the
loan portfolio, thereby maintaining the allowance at an adequate level.
During the first nine months of 1996 provisions charged against
1996 income were $247,000 which was an increase of 21.7% as compared to
the same period in 1995.
Non-interest income and expense
Non-interest income for the first nine months of 1996 increased $167 thousand
or 15.9% from the same period in 1995. This increase is due primarily to
increased income from service charges on deposit, which increased $69
thousand or 12.9%.
Non-interest expense for the first nine months of 1996 as compared to the
same period during 1995 increased $803 thousand or 16.5%, occupancy
expense increased $70 thousand or 16.4%, and equipment expense increased
$162 thousand or 37.5%. Employee expense showed the largest increase,
$639 thousand or 25.5%. These increases are a result of an increase in
personnel and new locations.
PART II - OTHER INFORMATION
Item I. Legal Proceedings
none
Item II. Changes in Securities
none
Item III. Defaults Upon Senior Securities
none
Item IV. Submission of Matters to a Vote of Security Holders
none
Item V. Other Information
none
Item VI. Exhibits and Reports on Form 8-K
none
EXHIBIT A:
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994, 1993
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The consolidated financial statements of First Banking Center,
Inc. include the accounts of its wholly owned subsidiaries,
First Banking Center - Burlington and First Banking Center -
Albany. First Banking Center - Burlington includes the accounts
of its wholly owned subsidiary, First Banking Center Burlington
Investment Corporation. The consolidated financial statements
have been prepared in conformity with generally accepted
accounting principles and conform to predominate practice within
the banking industry. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial
statements.
Nature of banking activities:
The consolidated income of First Banking Center, Inc. is
principally from income of the two bank subsidiaries. The
subsidiary Banks grant agribusiness, commercial, residential
loans, deposit and trust services to customers primarily in
southeastern and south central Wisconsin. The Banks are subject
to competition from other financial institutions and
nonfinancial institutions providing financial products.
Additionally the Company and the Banks are subject to the
regulations of certain regulatory agencies and undergo periodic
examination by those regulatory agencies.
Basis of financial statement presentation:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, federal funds sold
and investments with an original maturity of three months or
less. Generally, federal funds are sold for one-day periods.
The Banks maintain amounts due from banks which, at times, may
exceed federally insured limits. The Banks have not experienced
any losses in such accounts.
Investment in debt and marketable equity securities:
As of January 1, 1994, the Company changed its method for
accounting for debt and equity securities in accordance with
FASB Statement No. 115. This statement requires that management
determine the appropriate classification of securities at the
date of adoption and thereafter as each individual security is
acquired. In addition, the appropriateness of such
classification should be reassessed at each balance sheet date.
The January 1, 1994 balance of stockholders' equity was
decreased by $71,000 net of the $37,000 related tax effect, to
recognize the net unrealized holding loss on securities at that
date. The classifications and related accounting policies under
FASB Statement No. 115 are as follows:
Available for sale securities:
Securities classified as available for sale are those debt
securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Available for
sale securities also includes equity securities. Any decision
to sell a security classified as available for sale would be
based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available
for sale are carried at fair value. Unrealized gains or losses
net of the related deferred tax effect are reported as increases
or decreases in stockholders' equity. Realized gains or losses,
determined on the basis of the cost of specific securities sold,
are included in earnings.
Held to maturity securities:
Securities classified as held to maturity are those debt
securities the Company has both the intent and ability to hold
to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization
of premium and accretion of discount, computed by the interest
method over their contractual lives.
Transfers of debt securities into the held to maturity
classification (if any) from the available for sale
classification are made at fair value on the date of transfer.
The unrealized holding gain or loss on the date of transfer is
retained in the separate component of stockholders' equity and
in the carrying value of the held to maturity securities. Such
amounts are amortized over the remaining contractual lives of
the securities by the interest method.
Held for investment securities:
At December 31, 1993, investment securities were stated at cost
adjusted for amortization of premiums and accretion of discounts
using a level yield method. Realized gains or losses on the
sale of securities were determined on the basis of the specific
security sold and were included in earnings.
Loans:
Loans are stated at the amount of unpaid principal reduced by
the allowance for loan losses. Interest on loans is calculated
by using the simple interest method on daily balances of the
principal amount outstanding. Accrual of interest on impaired
loans is discontinued when, in the opinion of management, there
is reasonable doubt as to the borrower's ability to meet
payments of interest or principal when they become due. Cash
collections on impaired loans that are on a non-accrual basis are
credited to the loan receivable balance and no interest income
is recognized on those loans until the principal balance is
current. Accrual of interest is generally resumed when the
customer is current on all principal and interest payments and
has been paying on a timely basis for a period of time.
On January 1, 1995, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," as
amended by FASB 118, which requires loans to be considered
impaired when, based on current information and events, it is
probable the Banks will be unable to collect all contractual
principal and interest payments due in accordance with the terms
of the loan agreement. The portion of the allowance for loan
losses applicable to impaired loans has been computed based on
the present value of the estimated future cash flows of interest
and principal discounted at the loan's effective interest rate
or on the fair value of the collateral for collateral dependent
loans.
Allowance for loan losses:
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans, and current economic conditions that may affect the
borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant
changes in economic conditions. Impaired loans are measured
based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or
the fair value of the collateral if the loan is collateral
dependent. A loan is impaired when it is probable the creditor
will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
In addition, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require the banks
to make additions to the allowance for loan losses based on
their judgments of collectibility based on information available
to them at the time of their examination.
Office buildings and equipment:
Depreciable assets are stated at cost less accumulated
depreciation. Provisions for depreciation are computed on
straight-line and accelerated methods over the estimated useful
lives of the assets, which range from 15 to 50 years for
buildings and 3 to 15 years for equipment.
Profit-sharing plan:
The Company has established a trusteed contributory 401(k)
profit-sharing plan for qualified employees. The Company's
policy is to fund contributions as accrued.
Income taxes:
The Company files a consolidated federal income tax return and
individual subsidiary state income tax returns. Accordingly,
amounts equal to tax benefits of those companies having taxable
federal losses or credits are reimbursed by the other companies
that incur federal tax liabilities.
Amounts provided for income tax expense are based on income
reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. The differences relate principally to
the reserve for loan losses, non-accrual loan income, deferred
compensation and pension, fixed assets and unrealized gains and
losses on available for sale securities. Valuation allowances
are established when necessary to reduce deferred tax assets to
the amount expected to be realized.
Off-balance-sheet financial instruments:
In the ordinary course of business the subsidiary Banks have
entered into off-balance-sheet financial instruments consisting
of commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are
incurred or received.
The Company enters into interest rate swap agreements to manage
interest rate exposure in its loan portfolio from changes in
market interest rates. The interest rate swap agreements
represent an exchange of interest payments with independent
parties to hedge forward interest rate exposure on certain fixed
rate loans. The interest differential to be paid or received on
interest rate swap agreements is accrued monthly and recognized
over the life of the agreement. The related amount payable to
or receivable from counterparties is included in other
liabilities or assets. The fair values of the swap agreements
are not recognized in the consolidated financial statements.
Gain or losses on the sale of any interest rate contract are
deferred and amortized as a yield adjustment to the underlying
assets or liabilities which were originally hedged. The Company
had no deferred gains or losses for interest rate contracts at
December 31, 1995 and 1994.
Trust assets and fees:
Property held for customers in fiduciary or agency capacities is
not included in the accompanying balance sheet, since such items
are not assets of the Company. In accordance with established
industry practice, income from trust fees is reported on the
cash basis. Reporting of trust fees on an accrual basis would
have no material effect on reported income.
Earnings per share:
Earnings per share are computed based upon the weighted average
number of common and common equivalent shares outstanding during
each year. In the computation of weighted average shares
outstanding all dilutive stock options are assumed to be
exercised at the beginning of each year and the proceeds are
used to purchase shares of the Company's common stock at the
average market price during the year. Fully diluted earnings
per share are computed in a similar manner except, to reflect
maximum potential dilution, the market price at the close of the
reported period is used if higher than the average market price
during the year.
Fair value of financial instruments:
FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, requires disclosure of fair value
information about financial instruments, both assets and
liabilities, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the
instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments:
Cash and cash equivalents:
The carrying amounts reported in the balance sheet for cash and
short-term instruments approximate their fair values.
Investment securities (including mortgage-backed securities):
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans receivable:
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for fixed rate loans are
estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to
borrowers with similar credit quality.
Deposit liabilities:
The fair values disclosed for demand deposits equal their
carrying amounts which represents the amount payable on demand.
The carrying amounts for variable-rate, fixed term money market
accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected
maturities on time deposits.
Short-term borrowings:
The carrying amounts of federal funds purchased, borrowings
under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-term borrowing:
The fair values for the fixed rate borrowings are estimated
using a discounted cash flow calculation that applies interest
rates currently being offered on the borrowings to a schedule of
aggregated expected maturities on the borrowings.
Off-balance-sheet instruments:
The estimated fair value of fee income on letters of credit is
insignificant. Loan commitments on which the committed interest
rate is different than the current market rate are also
insignificant.
The fair values of interest rate swap agreements are obtained
from dealer quotes. These values represent the estimated amount
the Company would receive or pay to terminate the contracts or
agreements taking into account current interest rates and, when
appropriate, the current creditworthiness of the counterparty.
Emerging Accounting Standards:
Accounting for Mortgage Servicing Rights:
FASB has issued Statement No. 122, Accounting for Mortgage
Servicing Rights. Statement No. 122 amends certain provisions
of Statement No. 65 to eliminate the accounting distinction
between rights to service mortgage loans for others that are
acquired through loan origination activities and those acquired
through purchase transactions. If the Company sells or
securitizes mortgage loans and retains the mortgage servicing
rights, the Company should allocate the total cost of mortgage
loans to the mortgage servicing rights and the loans (without
the mortgage servicing rights) based on their relative fair
values. Any costs allocated to mortgage servicing rights should
be recognized as a separate asset. This Statement is effective
for the Company's year ending December 31, 1996. The Company
has not early adopted FASB 122 as management believes the effect
would not be material.
Stock-Based Compensation:
The FASB has issued Statement No. 123, Accounting for
Stock-Based Compensation. FASB No. 123 encourages, but does not
require, the Company to account for stock-based compensation
awards on the basis of fair value at the date the awards are
granted. The fair value of the award would be shown as an
expense on the income statement. However, the FASB also allows
the Company to continue to measure compensation cost using the
intrinsic value as prescribed by APB No. 25. If the Company
elects to use the intrinsic value, they will not show an expense
in the income statement, however, they will be required to
provide new footnote disclosures about the stock-based
compensation and must make pro forma disclosures of net income
and earnings per share as if the fair value-based method of
accounting had been applied. This statement is effective for
the Company's year ending December 31, 1996. The Company has
not early adopted FASB No. 123 as management believes the effect
will not be material.
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1943, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
First Banking Center, Inc.
November 8, 1996 _______________________________________
Date Roman Borkovec, President & Chief
Executive Officer
November 8, 1996 _______________________________________
Date James Schuster, Chief Accounting Officer
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