PART I
ITEM 1: BUSINESS
First Banking Center, Inc.
First Banking Center, Inc. (the Corporation) is a multi-bank holding company
incorporated as a business corporation under the laws of the State of
Wisconsin on August 24, 1981. In April, 1982, the Corporation became the sole
owner of First Bank and Trust Company, Burlington, Wisconsin, a Wisconsin
state banking corporation. On September 1, 1984, the Corporation acquired
100% of the capital stock of the Bank of Albany, Albany, Wisconsin, a
Wisconsin state banking corporation.
On January 1, 1985, the name of the Corporation was changed from the First
Community Bank Group, Inc. to the First Banking Center, Inc., and the name of
the subsidiary companies were changed to First Banking Center - Burlington
and First Banking Center - Albany. respectively.
The Corporation's primary business activity is the ownership and control of
these banks. The Corporation also provides administrative and operational
services for the banks.
First Banking Center - Burlington
The Bank was organized in 1920 and is a full service commercial bank located
in the City of Burlington, Wisconsin. The Bank has branch offices located in
Burlington, Kenosha, Lake Geneva, Lyons, Union Grove, Walworth, Wind Lake,
and Whitewater, Wisconsin. The bank offers a wide range of services which
includes: Loans, Personal Banking, Trust and Investment Services, and
Insurance and Annuity Products.
Lending
The lending area provides a wide variety of credit services to commercial and
individual consumers. Consumer lending consists primarily of residential
mortgages, installment loans, home equity loans, and student loans.
Commercial lending consists of commercial property financing, equipment and
inventory financing, and real estate development, as well as the financing of
agricultural production, farm equipment, and farmland. Commercial lending
usually involves a greater degree of credit risk than consumer lending. This
increased risk requires higher collateral value to loan amount than may be
necessary on some consumer loans. The collateral value required on a
commercial loan is determined by the degree of risk associated with that
particular loan.
Personal Banking
This area provides a wide variety of services to customers such as savings
plans, certificates of deposit, checking accounts, individual retirement
accounts, securities services, discount brokerage, and other specialized
services.
Trust and Investments
The Trust Department provides a full range of services to individuals,
corporations and charitable organizations. It provides such specific services
as investment advisory, custodial, executor, trustee and employee benefit
plans.
Insurance and Annuity Products
This area provides a complete line of life insurance as well as long-term
health care, fixed and variable rate annuities, and mutual funds.
First Banking Center - Albany
The Bank was organized in 1892 and is a full service commercial bank located
in the Village of Albany, Green County, Wisconsin. The bank is located
approximately 65 miles west of Burlington. The bank has a branch office
located in Monroe, Wisconsin, which was established in December of 1992. The
bank offers credit services primarily to business and individual customers.
Credit services offered include lines of credit, term loans, automobile
financing, personal loans, and residential and commercial mortgages. The
bank's retail services include checking accounts, savings plans, certificates
of deposit, individual retirement accounts, and other specialized services.
COMPETITION
The financial services industry is highly competitive. The subsidiary banks
compete with other commercial banks and with other financial institutions
including savings and loan associations, finance companies, mortgage banking
companies, insurance companies, brokerage firms, and credit unions.
SUPERVISION AND REGULATION
The Company is a bank holding company subject to the supervision of the Board
of Governors of the Federal Reserve System under the Bank Holding Company Act
of 1956, as amended. As a bank holding company, the Company is required to
file an annual report and such additional information with the Board of
Governors as the Board of Governors may require pursuant to the Act. The
Board of Governors may also make examinations of the Company and its
subsidiaries.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Board of Governors before it may acquire
substantially all the assets of any bank, or ownership or control of any
voting shares of any bank if, after such acquisitions, it would own or
control, directly or indirectly, more than 5% of the voting shares of such
bank. Under existing federal and state laws, the Board of Governors may
approve the acquisition by the Company of the voting shares of, or
substantially all the assets of, any bank located in states specified in the
Wisconsin Interstate Banking Bill which became effective January 1, 1987.
In addition, a bank holding company is generally prohibited from itself
engaging in, or acquiring direct or indirect control of voting shares of any
company engaged in non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the Board of Governors, by order
or regulation to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Some of the activities that the
Board of Governors has determined by regulation to be closely related to
banking are making or servicing loans, full payout property leasing,
investment advisory services, acting as a fiduciary, providing data
processing services and promoting community welfare projects.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit
to the bank holding company or any of its subsidiaries, on investments in the
stock or other securities thereof, and on the taking of such stock or
securities as collateral for loans to any borrower. Further, under the Bank
Holding Company Act and regulations of the Board of Governors, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
The Company is also subject to the Securities Exchange Act of 1934 and has
reporting obligation to the Securities and Exchange Commission.
The business of banking is highly regulated and there are various
requirements and restrictions in the laws of the United States and the State
of Wisconsin affecting the Company's subsidiary banks and their operations,
including the requirement to maintain reserves against deposits, restrictions
on the nature and amount of loans which may be made by the banks and
restrictions relating to investment, branching and other activities of the
banks.
The Company is supervised and examined by the Federal Reserve Board. The
Company's subsidiary banks, as state chartered institutions, are subject to
the supervision of, and are regularly examined by, Wisconsin state
authorities. Banks are also members of the Federal Deposit Insurance
Corporation and as such are subject to regulation and examination by that
agency.
The Company, under Federal Reserve Board policy, is expected to act as a
source of financial strength to each subsidiary bank and to commit resources
to support each of the subsidiaries.
GOVERNMENTAL POLICIES
The earnings of the Company's subsidiary banks as lenders and depositors of
money are affected by legislative changes and by the policies of the various
regulatory authorities including the State of Wisconsin, the United States
Government, foreign governments and international agencies. The effect of
this regulation upon the future business and earnings of the Company cannot
be predicted. Such policies include, among others, statutory maximum lending
rates, domestic monetary policies of the Board of Governors of the Federal
Reserve System, United States fiscal policies and international currency
regulations and monetary policies. Governmental and Reserve Board policies
have had a significant effect on the operating results of commercial banks in
the past and are expected to do so int the future. Management is not able to
anticipate and evaluate the future impact of such policies and practices on
the growth and profitability of the Company or its subsidiary banks.
MATERIAL DEPOSIT AND LOANS
No single borrower accounted for a material portion for a material portion of
the loans in the subsidiary banks.
No single depositor accounted for a material portion of deposits in the
subsidiary banks.
EMPLOYEES
The Company and its staff share a commitment to equal opportunity. All
personnel decisions are made without regard to race, color, religion, sex,
age, national origin, handicap or veteran status. At March 15, 1996, the
Company and its subsidiaries had 158 full and part-time employees.
MISCELLANEOUS
The business of the Company is not seasonal. To the best of management's
knowledge, there is not anticipated material effect upon the Company's
capital expenditures, earnings, and competitive position by reason of any
laws regulating or protecting the environment. The Company has no material
patents, trademarks, licenses, franchises or concessions. No material amounts
have been spent on research activities and no employees are engaged full time
in research activities.
NOTE: Subsections of Item I, to which no response has been made are
inapplicable to the business of the Company.
FIRST BANKING CENTER, INC.
Burlington, Wisconsin
SELECTED FINANCIAL DATA
The Company, through the operations of its Banks, offers a wide range of
financial services. The following financial data provides a detailed review
of the Company's business activities.
The following information shows: the company's average assets, liabilities
and stockholder's equity; the interest earned and average yield on interest-
earning assets; the interest paid and average rate on interest-bearing
liabilities; and the maturity schedules for investment and specifies loans;
for the years ended December 31, 1995, 1994, and 1993. Also, where
applicable, information is presented for December 31, 1992 and 1991.
Section I
Schedule A
FIRST BANKING CENTER, INC.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Average Balance Sheet
(000's Omitted)
1995 1994 1993
Cash and due from banks $ 8,648 6,637 9,733
Fed. funds sold and securities purchased
under agreement to resell 5,191 1,534 3,839
Interest bearing deposits in other banks 3,180 4,431 8,955
Investment securities:
U.S. Treasury agency and other 48,073 42,873 26,629
States and political subdivisions 8,829 10,1921 3,013
Unrealized Gain/(Loss) on Securities (672) (395)
Loans:
Real estate mortgages 68,019 63,394 57,699
Consumer - net 12,183 12,007 8,712
Commercial and other 82,742 71,578 63,688
Total 162,944 146,979 130,099
Less allowance for loan losses 2,200 1,989 1,860
Net loans 160,744 144,990 128,239
Other assets 9,709 7,598 6,651
Total assets $ 243,702 217,860 197,059
Interest bearing deposits:
NOW accounts $ 18,705 16,619 13,774
Savings deposits 26,163 26,850 22,696
Money Market deposit accounts 34,849 37,569 34,892
Time deposits 85,454 72,817 72,204
Total interest bearing deposits 165,171 153,855 143,566
Demand deposits 26,563 23,945 20,061
Total deposits 191,734 177,800 163,627
Short-term borrowings 766 1,418 680
Sec. sold under agreements to repurchase 17,112 10,017 6,614
Other liabilities 2,443 1,566 1,951
Long-Term Borrowings 9,186 6,745 5,125
Total liabilities 221,241 197,546 177,997
Equity capital 22,461 20,314 19,062
Total liabilities and capital $ 243,702 217,860 197,059
SECTION I
Schedule B
<TABLE>
FIRST BANKING CENTER, INC.
INTEREST RATES AND INTEREST DIFFERENTIAL
Three Year Summary of Interest Rates and Interest Differential
(000's Omitted)
<CAPTION>
1995 1994 1993
AVERAGE RELATED YIELD AVERAGE RELATED YIELD AVERAGE RELATED YIELD
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time Deposits in banks $ 3,180 183 5.75% 4,384 180 4.11% 8,955 344 3.84%
Investments (taxable) 48,073 2,941 6.12% 42,873 2,401 5.60% 26,629 1,601 6.01%
Investments (nontaxable)(a)(b) 8,829 749 8.48% 10,192 872 8.56% 13,013 1,166 8.96%
Funds sold 5,191 308 5.93% 1,534 55 3.59% 3,839 113 2.95%
Loans(c) 160,744 15,092 9.39% 144,990 12,243 8.44% 128,240 11,614 9.06%
Total earnings assets $ 226,017 19,273 8.53% 203,973 15,751 7.72% 180,676 14,838 8.21%
Interest bearing liabilities:
NOW accounts $ 18,705 519 2.77% 16,619 441 2.65% 13,774 403 2.92%
Savings deposits 26,163 771 2.95% 26,850 793 2.95% 22,696 736 3.24%
Money Market deposit accounts 34,849 1,389 3.99% 37,569 1,229 3.29% 34,892 1,256 3.60%
Time deposits 85,454 4,808 5.63% 72,817 3,352 4.60% 72,204 3,493 4.84%
Short-term borrowings 766 48 6.27% 1,418 51 3.60% 680 15 2.24%
Securities sold under
agreements to repurchase 17,112 927 5.42% 10,017 417 4.16% 6,614 290 4.38%
Long-term borrowings 9,186 504 5.49% 6,745 352 5.22% 5,125 265 5.17%
Total int. bearing liabilities $ 192,235 8,966 4.66% 172,035 6,635 3.86% 155,985 6,458 4.14%
Interest spread $ 10,307 3.87% 9,116 3.86% 8,380 4.07%
Interest margin $ 10,307 4.56% 9,116 4.47% 8,380 4.64%
<FN>
(a) Portions of investments both taxable and nontaxable have been presented on
state taxable equivalent basis assuming a 7.9% tax rate.
(b) The interest and average yield for nontaxable securities are presented on a
federal taxable equivalent basis assuming a 34% tax rate.
(c) Loans placed on nonaccrual status have been included in average balances
used to determine average rates.
(d) Loan interest income includes net loan fees.
</FN>
</TABLE>
SECTION I
Schedule C
FIRST BANKING CENTER, INC.
Two Year Summary of Rate and Volume Variances
(000's Omitted)
$ AMOUNT VOLUME RATE (a)
OF CHANGE VARIANCE VARIANCE
Increase (decrease) for 1995:
Time deposits in banks $ 3 (49) 52
Investment (taxable) (b) 540 291 249
Investments (nontaxable) (b) (c) (123) (117) (6)
Funds sold 253 131 122
Loans (d) 2,849 1,330 1,519
Total interest income 3,522 1,586 1,936
NOW accounts 78 55 23
Savings deposits (22) (20) (2)
Money Market deposit accounts 160 (89) 249
Other time deposits 1,456 581 875
Short-term borrowings (3) (23) 20
Long-term Borrowings 510 295 215
Securities sold under Agreement
to Repurchase 152 127 25
Total interest expense 2,331 926 1,405
Net change for 1995 $ 1,191 660 531
Increase (decrease) for 1994:
Time deposits in banks $ (164) (175) 11
Investment (taxable) 800 976 (176)
Investments (nontaxable) (294) (253) (41)
Funds sold (58) (68) 10
Loans 629 1,518 (889)
Total interest income 913 1,998 (1,085)
NOW accounts 38 83 (45)
Savings deposits 57 135 (78)
Money Market deposit accounts (27) 96 (123)
Other time deposits (141) 30 (171)
Short-term borrowings 36 17 19
Long-term Borrowings 87 84 3
Securities sold under Agreement
to Repurchase 127 149 (22)
Total interest expense 177 594 (417)
Net change for 1994 $ 736 1,403 (666)
(a) The application of the rate/volume variance has been allocated in full to
the rate variance.
(b) Portions of investments both taxable and nontaxable have been presented on
a state taxable equivalent basis assuming a 7.9% tax rate.
(c) The interest and average yield for nontaxable securities are presented on a
federal taxable equivalent basis assuming a 34% tax rate.
(d) Loans placed on nonaccrual status have been included in average balances
used to determine average rates.
SECTION II
Schedule A
FIRST BANKING CENTER, INC.
Book Value of Investment Portfolio
(000's Omitted)
1995
Available for Sale:
U.S. Treasury and other U.S.
Gov't. Agencies and Corps. $ 25,762
Other 4,330
Held to Maturity:
U.S. Treasury and other U.S.
Gov't Agencies and Corporations 17,284
Obligs. of states and pol. subs. 11,377
Other 1,244
Total $ 59,997
1995 (b) 1993 (b)
U.S. Treasury and other U.S.
Gov't Agencies and Corporations $ 37,797 35,250
Obligs. of states and pol. subs. 8,914 13,551
Other 5,076 5,887
Total $ 51,787 54,688
(a) The aggregate book value of securities from any single issuer does not
exceed ten percent of stockholder's equity; except for, securities issued
by the U.S. Government and U.S. Government agencies and corporations.
(b) Prior to January 1, 1994 and the implementation of FASB115, all
securities were classified as securities held for investment.
SECTION II
Schedule B
<TABLE>
FIRST BANKING CENTER, INC.
Maturity Schedule of Investments by Book Value
(000's Omitted)
<CAPTION>
December 31, 1995
1 YEAR AFTER 1 YR. AFTER 5 YRS. AFTER 10
OR LESS THROUGH 5 YRS THROUGH 10 YRS. YEARS TOTAL
<S> <C> <C> <C> <C> <C>
Available for Sale Securities
U.S. Treasury and other U.S.
Gov. agencies and corporations (a) $ 9,870 14,402 1,016 474 25,762
Weighted average yield 5.88% 5.90% 5.98% 5.93% 5.90%
Other Securities (a) 4,330 0 0 0 4,330
Weighted average yield 5.79% 0.00% 0.00% 0.00% 5.79%
TOTAL AVAILABLE FOR SALE $ 14,200 14,403 1,016 475 30,092
Weighted Ave. Yield of Total 5.85% 5.90% 5.98% 5.93% 5.88%
Held to Maturity Securities
U.S. Treasury and other U.S.
Gov. agencies and corporations (a) $ 3,860 11,287 1,944 193 17,284
Weighted average yield 5.11% 6.23% 7.48% 9.58% 6.16%
Obligs. of states and pol. subdiv's (a)(b) 1,950 5,136 3,492 799 11,377
Weighted average yield 9.19% 7.58% 7.04% 7.41% 7.68%
Other Securities (b) 958 183 0 103 1,244
Weighted average yield 5.54% 7.45% 0.00% 6.12% 5.87%
TOTAL HELD TO MATURITY $ 6,768 16,606 5,436 1,095 29,905
Weighted Ave. Yield of Total 6.34% 6.66% 7.20% 7.67% 6.72%
TOTAL $ 20,968 31,008 6,452 1,569 59,997
Weighted Ave. Yield of Total 6.01% 6.31% 7.01% 7.14% 6.30%
<FN>
(a) Portions of investments both taxable and nontaxable have been presented on
a state taxable equivalent basis assuming a 7.9% tax rate.
(b) The interest and average yield for nontaxable securities are presented on a
federal taxable equivalent basis assuming a 34% tax rate.
</FN>
</TABLE>
SECTION III
Schedule A
FIRST BANKING CENTER, INC.
Loan Summarization
(000's Omitted)
December 31,
1995 1994 1993 1992 1991
Commercial $ 27,659 27,713 24,908 16,887 35,877
Agricultural production 5,810 6,163 7,593 9,376 7,235
Real Estate:
Construction 20,652 14,437 13,213 10,463 6,149
Commercial 37,005 33,027 23,663 25,805 3,466
Agriculture 733 1,014 1,646 2,229 3,658
Residential 67,729 66,004 56,548 47,726 44,079
Municipal 3,806 2,341 2,815 2,682 2,052
Consumer 6,961 7,074 7,201 10,843 10,876
TOTAL $ 170,355 157,773 137,587 126,011 113,392
SECTION III
Schedule B
<TABLE>
FIRST BANKING CENTER, INC.
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE
(000's Omitted)
<CAPTION>
LOAN MATURITIES AMOUNT OVER ONE YEAR WITH
1 YEAR AFTER 1 AFTER FIVE PREDETERMINED FLOATING OR ADJ.
OR LESS THROUGH 5 YRS. YEARS TOTAL RATES INTEREST RATES TOTAL
<S> <C> <C> <C> <C> <C> <C>
December 31, l995
Commercial and agricultural $ 29,454 3,052 963 33,469 1,505 2,510 4,015
Real estate - construction 19,009 1,536 107 20,652 1,556 87 1,643
TOTAL $ 48,463 4,588 1,070 54,121 3,061 2,597 5,658
December 31, l994
Commercial and agricultural $ 27,318 5,040 1,518 33,876 3,707 2,851 6,558
Real estate - construction 12,464 80 1,893 14,437 68 1,905 1,973
TOTAL $ 39,782 5,120 3,411 48,313 3,775 4,756 8,531
</TABLE>
SECTION III
Schedule C
FIRST BANKING CENTER, INC.
Summary of Nonperforming Loans
(000's Omitted)
DECEMBER 31,
1995 1994 1993 1992 1991
Nonaccrual Loans $ 1,501 778 1,754 551 444
Past Due 90 days + (1) 2 ---- ------ ---- ----
Restructured Loans (2) ------ ---- ------ ---- ----
Notes:
(1) Loans are placed in nonaccrual status when contractually past due 90
days or more.
(2) There were no restructured loans for each of the presented years.
(3) Interest which would have been recorded had the loans been on the
accrual basis, would have amounted to $25,000 in 1995, $12,000 in
1994, $95,000 in 1993, $11,000 in 1992, and $18,000 in 1991. Interest
income on these loans, which is recorded only when received, amounted
to $7,000 in 1995, $4,000 in 1994, $2,000 in 1993, $11,000 in 1992,
and $12,000 in 1991.
(4) Each of the loans which are contractually past due 90 days or more as
to principal or interest payments are reviewed by management and
reported to the Loan Committee of the Board of Directors of each Bank.
These loans are then placed on a nonaccrual basis.
(5) As of December 31, 1995, management, to the best of its knowledge, is
not aware of any significant loans, group of loans or segments of the
loan portfolio not included above, where there are serious doubts as
to the ability of the borrowers to comply with the present loan
payment terms.
SECTION IV
Schedule A
FIRST BANKING CENTER, INC.
Analysis of The Allowance for Loan Losses
(000's Omitted)
1995 1994 1993 1992 1991
Beginning loan loss reserve $ 2,095 1,886 1,714 1,393 1,147
Charge-offs:
Commercial 22 4 167 58 0
Agricultural prod 0 1 5 0 67
Real Estate:
Construction 0 0 114 0 0
Commercial 0 0 190 0 0
Agriculture 0 0 0 0 0
Other Mortgages 214 198 29 0 0
Installment - consumer 55 102 99 50 154
Recoveries:
Commercial 19 68 6 16 0
Agricultural prod 0 3 10 0 11
Real Estate:
Construction 0 113 2 0 0
Commercial 0 0 0 0 0
Agriculture 0 0 17 0 0
Other Mortgages 2 13 2 2 4
Installment - consumer 41 47 29 33 36
Net Charge-offs 231 61 538 57 170
Additions charged to
operations (1) 470 270 710 378 416
Balance at end of period $ 2,336 2,095 1,886 1,714 1,393
Ratio of net charge-offs
during the period to ave.
loans outstanding during
the period 0.14% 0.04% 0.42% 0.05% 0.16%
Note: (1) For each year ending December 31, the determination of the
additions to loan loss reserve charged to operating expenses
was based on an evaluation of the loan portfolio, current
domestic economic conditions, past loan losses and other factors.
SECTION IV
Schedule B
FIRST BANKING CENTER, INC.
The allowance for loan losses is based on an evaluation of risk in the
loan portfolio, current domestic economic conditions, past loan losses
and other factors. The majority of risk in the loan portfolio lies in
commercial loans, which include commercial real estate, agricultural
production, and construction loans. The Company has allocated $1.3 million
or 56% of the allowance to these loans. These loans comprise about 56% of
the loan portfolio. Residential mortgages carry a small element of risk and
comprise about 40% of the loan portfolio. One hundred seventy thousand
dollars of the allowance or about 7% has been allocated to residential
morgages. Consumer loans comprise about 4% of the loan portfolio and $90
thousand or about 4% of the allowance is allocated to consumer loans. The
company has allocted $25 thousand dollars of the allowance to unfunded loan
commitments which total approximately $24 million dollars. The balance of
the allowance or $741 thousand is unallocated.
SECTION V
Schedule A
FIRST BANKING CENTER, INC.
Three Year Summary of Average Deposits
(000's Omitted)
Rate Rate Rate
1995 Paid 1994 Paid 1993 Paid
Deposit in domestic bank
offices:
Non-interest bear. demand $ 26,563 23,945 20,061
Interest-bearing demand 18,705 2.77% 16,619 2.65% 13,774 2.93%
Money Market demand 34,849 3.99% 37,569 3.29% 34,892 3.60%
Savings deposits 26,163 2.95% 26,850 2.95% 22,696 3.24%
Time Deposits 85,454 5.63% 72,817 4.60% 72,204 4.84%
Total Deposits $ 191,734 3.90% 177,800 3.27% 163,627 3.60%
SECTION V
Schedule B
FIRST BANKING CENTER, INC.
Maturity Schedule for Time Deposits of $100,00 or More
(000's Omitted)
For Year Ending December 31, 1995:
Over Over Over
3 Mos. 3 Mos. 6 Mos. 12 Mos.
Certificates of Deposit $ 1,453 2,940 4,205 821
Other Time Deposits 0 108 0 107
TOTAL $ 1,453 3,048 4,205 928
SECTION VI
FIRST BANKING CENTER, INC.
Three Year Summary of Return on Equity and Assets
1995 1994 1993
Return on average assets 1.15% 1.09% 1.11%
Return on average equity 12.48% 11.64% 11.44%
Dividend payout ratios on
common stock 20.94% 22.36% 22.17%
Average equity to average
assets 9.22% 9.32% 9.67%
SECTION VII
FIRST BANKING CENTER, INC.
Short-term Borrowings
(000's Omitted)
Securities sold under
agreements to repurchase (1)
End of Year: 1995 1994 1993
Balance $ 20,225 13,755 9,588
Weighted Ave. Rate 5.48% 4.18% 3.75%
For the Year:
Maximum Amount Outstanding $ 20,225 13,755 9,588
Average Amount Outstanding $ 17,112 10,017 6,614
Weighted Average Rate 5.39% 4.16% 4.38%
(1) Securities sold under repurchase agreements are borrowed on a short-term
basis by the subsidiary banks at prevailing rates for these funds. The
approximate average maturity for these borrowings is 3.6 months, 3.7
months, and 4 months for the years 1995, 1994, and 1993 respectively.
ITEM 2: PROPERTIES
The Company owns no properties; it currently occupies space in the
building that houses the Lake Geneva branch. Since January 1, 1995 the
company has been making rent payments to First Banking Center - Burlington
for the space that it occupies and the equipment it uses.
Burlington
The Bank owns banking facilities in Burlington, Lyons, Wind Lake,
Kenosha and Lake Geneva. A portion of the building in Lake Geneva is owned
by a partnership of which the Bank is a 50% owner. The bank leases space
for its bookkeeping and loan operations departments in the portion of the
building owned by the partnership. Each of the banks offices is well
maintained and adequately meets the needs of the bank. The bank leases
office space in Walworth, Union Grove, and Whitewater.
Albany
The bank owns banking offices in Albany and Monroe. Both structures
are well maintained and adequately meet the needs of the bank.
ITEM 3: LEGAL PROCEEDING
Neither the Corporation nor it subsidiaries is a party, nor is
any of their property, subject to any material existing or pending legal
proceedings other than ordinary routine litigation incidental to its
business. No officer, director, affiliate of the Corporation, or any of
their associates is a party to any material proceedings adverse to the
Corporation or its subsidiaries.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market price of common stock and related matters are presented on page
10 of the Annual Report to Shareholders for the year ended December 31,
1995 and are incorporated herein by reference.
(a) There were 792 holders of record of the Company's $1.00
par value common stock on March 1, 1996.
ITEM 6: SELECTED FINANCIAL DATA
Selected financial data is presented in the Annual Report Shareholders
for the year ended December 31, 1995 and is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations is presented in the Annual Report to Shareholders
for the year ended December 31, 1995 and is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Registrant and
its subsidiaries included in the Annual Report to Shareholders for the year
ended December 31, 1995 are incorporated herein by reference:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
December 31, 1995 and 1994
Consolidated Statements of Income
Years ended December 31, 1995, 1994, and 1993
Consolidated Statements of Changes in Components of Stockholder's Equity
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company had no disagreement with the accountants regarding any
information presented.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for herein is presented in the proxy statement
to be furnished in connection with the solicitation of proxies on behalf of
the Board of Directors of the Registrant for use at its Annual Meeting to
be held on Tuesday, April 16, 1996, is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information called for herein is presented in the proxy statement
to be furnished in connection with the solicitation of proxies on behalf of
the Board of Directors of the Registrant for use at its Annual Meeting to
be held on Tuesday, April 16, 1996, is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for herein is presented in the proxy statement
to be furnished in connection with the solicitation of proxies on behalf of
the Board of Directors of the Registrant for use at its Annual Meeting to
be held on Tuesday, April 16, 1996, is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and other
None
(b) Certain business relationships
None
(c) Indebtedness of management
This information is presented in Note E of the Annual Report
to Shareholders, and is incorporated herein by reference.
(d) Transactions with promoters
None
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS AND FORM 8-K
(a) (1) Financial Statements (see ITEM 8 for listing).
(2) Financial Statement Schedules (all required schedules not
applicable).
(3) Exhibits
(3.1) Articles of Incorporation have been submitted
with previous 10-K reports.
(13) 1995 Annual Report to Shareholders
(22) Notice of Annual Meeting and Proxy
Statement.
(b) Reports on Form 8-K
None
(c) Financial Statements and Financial Statement Schedules required
to be filed as part of this report are included in Note T of the
Annual Report To Shareholders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 BANKING CENTER, INC.
Registrant
Date: March 25, 1995 By ROMAN BORKOVEC
Roman Borkovec
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.*
ROMAN BORKOVEC JAMES SCHUSTER
Roman Borkovec James Schuster
Chief Executive Officer Principal Accounting Officer
MELVIN WENDT RICHARD MCKINNEY
Melvin Wendt, Director Richard McKinney, Director
JOHN SMITH JOHN ERNSTER
John Smith, Director John Ernster, Director
DAVID BOILINI DEAN HOULBERG
David Boilini, Director Dean Houlberg, Director
*Each of the above signatures is affixed as of March 25, 1996.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
(a) Annual Report to shareholders
(b) All proxy material in connection with the 1995 Annual
Shareholders Meeting. Above items will be furnished to
shareholders subsequent to this filing.
FIRST BANING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
(414) 763-3581
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 16, 1996
To the Stockholders of First Banking Center, Inc.
Notice is hereby given that the Annual Meeting of Stockholders of First Banking
Center, Inc., Burlington, Wisconsin, pursuant to action of the Board of
Directors, will be held at the Banking House, 400 Milwaukee Avenue, Burlington,
Wisconsin, on the 16th day of April, 1996, at 1:30 P.M. for the purpose of
considering and voting upon the following matters:
1.) Election of 7 directors as described in the Proxy Statement
dated March 8, 1996.
2.) Such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on March 1, 1996 will be
entitled to notice of and to vote at the Annual Meeting of April 6, 1996, or
any adjournments(s) thereof.
John S. Smith
Secretary-Treasurer
Burlington, Wisconsin
March 8, 1996
YOU ARE REQUESTED TO PLEASE FILL IN, SIGN, DATE AND RETURN THE PROXY SUBMITTED
HEREWITH IN THE ENCLOSED ENVELOPE. THE GIVING OF SUCH PROXY WILL NOT AFFECT
YOUR RIGHT TO REVOKE SUCH PROXY OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE
TO ATTEND THE MEETING.
<PAGE>
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 16, 1996
The Annual Meeting of Stockholders of First Banking Center, Inc. (the
"Corporation") will be held at 1:30 P.M. on April 16, 1996, at First
Banking Center, Inc., 400 Milwaukee Avenue, Burlington, for the purposes
set forth in the attached Notice of Annual Meeting. The accompanying Proxy
is solicited on behalf of the Board of Directors of the Corporation in
connection with such meeting or any adjournment(s) thereof. The
approximate date on which the Proxy statement and form of Proxy are
expected to be sent to security holders is March 13, 1996.
VOTING OF PROXIES AND REVOCABILITY
When the Proxy is properly executed and returned to the Secretary of the
Corporation, it will be voted as directed by the Stockholder executing the
Proxy unless revoked. If no directions are given, the shares represented
by the Proxy will be voted FOR the election of the nominees listed in the
Proxy Statement. If additional matters are properly presented, the persons
named in the Proxy will have discretion to vote in accordance with their
own judgment in such matters. Any person giving a Proxy may revoke it at
any time before it is exercised by the execution of another Proxy bearing
a later date, or by written notification to the Secretary of the
Corporation, Mr. John S. Smith, Secretary of First Banking Center, Inc.,
400 Milwaukee Avenue, Burlington, Wisconsin 53105. Stockholders who are
present at the Annual Meeting may revoke their Proxy and vote in person if
they so desire.
VOTING SECURITIES, PERSONS ENTITLED TO VOTE AND VOTES REQUIRED
As of January 11, 1996, there were 1,468,437 shares of Common Stock ($1.00
par value) of the Corporation outstanding. The Board of Directors has
fixed March 1, 1996 as the record date and only stockholders whose names
appear of record on the books of the Corporation at the close of business
on March 1, 1996, will be entitled to notice of and to vote at the Annual
Meeting or any adjournment(s) thereof. A stockholder is entitled to one
vote for each share of stock registered in his or her name. A majority of
the outstanding Common Stock will constitute a quorum for the transaction
of business at the Annual Meeting. Abstentions will be treated as shares
that are present and entitled to vote for purposes of determining the
presence of a quorum, but as unvoted for purposes of determining the
approval of any matter submitted to the shareholders for a vote. The seven
nominees for director who receive the largest number of affirmative votes
cast at the Annual Meeting will be elected as directors.
THE COST OF SOLICITATION OF THE PROXIES WILL BE BORNE BY FIRST BANKING
CENTER, INC. IN ADDITION TO USE OF THE MAILS, PROXIES MAY BE SOLICITED
PERSONALLY BY THE OFFICERS OF FIRST BANKING CENTER, INC., AND BY
TELEPHONE.
The complete mailing address of First Banking Center, Inc. is 400
Milwaukee Avenue, P.O. Box 660, Burlington, Wisconsin, 53105.
PRINCIPAL HOLDERS OF SECURITIES
As of January 27, 1996, the Trust Department of a wholly-owned subsidiary
of the Corporation owned in a fiduciary capacity 151,905 shares of Common
Stock, constituting 10.3% of the Corporation's outstanding shares entitled
to vote. Sole voting and investment power is held with respect to 57,294
of such shares. With the exception of the persons named in Table I, no
person is known to the Corporation to own beneficially more than 5% of the
outstanding shares entitled to vote.
PROPOSAL 1
ELECTION OF DIRECTORS
It is the recommendation of the Board of Directors that 7 Directors be
elected to serve during the ensuing year and until their successors have
been duly elected and qualified. Unless authority is withheld by your
proxy, it is intended that the shares represented by the proxy will be
voted FOR the 7 nominees listed in Table I. All listed nominees are
incumbent directors. If any nominee is unable to serve for any reason, the
proxies will be voted for such person as shall be designated by the Board
of Directors to replace such nominee. The Board has no reason to expect
that any nominee will be unable to serve. There is no arrangement or
understanding between any nominee and any other person or persons (other
than officers or directors of First Banking Center, Inc., acting solely in
their capacities as such) pursuant to which such nominee has or is to be
elected as a director. No family relationship exists between any of the
nominees.
BOARD OF DIRECTORS AND COMMITTEES OF
FIRST BANKING CENTER, INC.
The Board of Directors of First Banking Center, Inc., held three meetings
during the year of 1995.
All Directors attended at least 75% of the meetings of the Board of
Directors and committees of which they were a member.
There are several committees of the Corporation's Board (membership
thereon is set forth in Table I). They meet periodically during the year,
and include the Compensation Committee, the Audit Committee, and the
Nominating Committee. In addition, Directors of the Corporation serve as
Directors and committee members of the Corporation's subsidiaries.
The Compensation Committee's function is to define personnel needs,
establish compensation and fringe benefit guidelines, and evaluate senior
management performance. The committee makes its recommendations to the
full Board for their approval. During the year 1995, the Compensation
Committee met two times.
The Audit Committee's function is to verify and evaluate operational
systems in the Corporation and to determine that proper accounting and
audit procedures are being followed as established by company policies.
Additionally, the Audit Committee makes recommendations as to the
engagement of independent auditors. During the year 1995, the Audit
Committee met two times.
The Nominating Committee is responsible for the selection of nominees to
the Board of Directors. The Nominating Committee will consider nominees to
the Board submitted by stockholders in writing to the Secretary-Treasurer
of First Banking Center, Inc. During the year 1995, the Nominating
Committee met once.
The following table sets forth information as of January 11, 1996 as to
the beneficial ownership of the Common Stock of the Corporation by all
nominees named in this Proxy Statement, along with their principal
occupation and history of service with the Corporation and its
subsidiaries.
<TABLE>
TABLE I
<CAPTION>
Capital Stock
directly, in-
directly, or
Name and Position Period of beneficially
with First Serv. as owned as of Percent of
Banking Center, Inc. Age Director 1/11/96 (1) Outstanding Committee
<S> <C> <C> <C> <C> <C>
Roman F. Borkovec 64 08/21/81 84,416 (2) 5.7% Building,
President, to date Trust,
Chairman Loan and
Chief Executive Officer Nominating
Dean A. Houlberg 43 Feb. 1988 10,266 (3) .7% Planning
to date
John S. Smith 36 Dec. 1992 11,705 (4) .8% Trust, Loan,
Secretary/Treas. to date Nominating
Richard McKinney 58 May 1988 5,665 (5) .4% Audit, CRA
to date and Loan
Melvin W. Wendt 57 Oct. 1989 7,615 (6) .5% Building and
Vice Chairman of to date Compensation
the Board
John M. Ernster 46 Apr. 1992 776 (7) .05% Trust, Comp.
to date and Examination
David Boilini 43 Dec. 1993 6,785 (8) .5% Nominating,
to date Loan, Audit
<FN>
ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION AS A GROUP (7 IN NUMBER
INCLUDING THE ABOVE) OWN 127,228 SHARES OF COMMON STOCK OF THE CORPORATION OR
8.66% OF THE TOTAL STOCK OUTSTANDING.
NOTES TO TABLE I
<F1>
(1) Except as stated in the following footnotes, each director has sole
voting and investment powers over the shares stated as beneficially
owned by him. Share ownership includes shares issuable within 60 days
upon exercise of incentive stock options owned by certain named
individuals.
<F2>
(2) Consists of 76,747 shares held directly by Mr. Borkovec, and 7,669
shares held by his wife in which shares Mr. Borkovec disclaims voting
or investment powers.
Mr. Borkovec has been CEO of First Banking Center - Burlington, and
Chairman of the Board of First Banking Center -Burlington and First
Banking Center, Inc. since 1995. Mr. Borkovec served as President of
First Banking Center - Burlington from 1973 to 1994. He served as
Vice Chairman of the Board of First Banking Center - Burlington and
First Banking Center, Inc. from 1994 to 1995. He has served as Trust
Officer of First Banking Center - Burlington since 1973. He has been
President and CEO of First Banking Center, Inc. since 1982. Mr.
Borkovec has been Chairman of the Board of First Banking Center -
Albany since 1984.
<F3>
(3) Consists of 9,816 shares held directly by Mr. Houlberg, and 450
shares held by his wife in which Mr. Houlberg disclaims voting or
investment powers.
Mr. Houlberg has been President of First Banking Center-Albany,
Albany, Wisconsin, since December 1989. He has been a director of
First Banking Center-Albany since October 1987.
<F4>
(4) Consists of 11,705 shares held directly by Mr. Smith.
Mr. Smith has been President and Trust Officer of First Banking
Center-Burlington, Burlington, Wisconsin, since April 1994. He has
been a director of First Banking Center-Burlington since August 1992
and was Executive Vice President of First Banking Center - Burlington
from 1990 to 1994.
<F5>
(5) Consists of 2,452 shares held in joint tenancy with his wife in which
shares Mr. McKinney shares voting and investment powers, and of 3,213
shares held directly by Mr. McKinney.
Mr. McKinney has been a director of First Banking Center-Burlington,
Burlington, Wisconsin, since May 1988. He has been president of Tobin
Drugs, Inc., Burlington, Wisconsin since 1981; President of Amy's
Hallmark, Burlington, Wisconsin, since 1985 and owner of Sue's
Hallmark, Lake Geneva, Wisconsin, since 1993.
<F6>
(6) Consists of 7,438 shares held in joint tenancy with his wife in which
shares Mr. Wendt has shared voting and investment powers and 177
shares held directly by Mr. Wendt.
Mr. Wendt has been a director of First Banking Center-Burlington,
Burlington, Wisconsin, since October 1, 1989. Mr. Wendt is also
Vice-Chairman of the Board of Directors of First Banking Center-
Burlington. He had previously served on the Wind Lake (a branch of
First Banking Center-Burlington) Advisory Board. He has been Owner of
Melvin Wendt Realty, a real estate brokerage firm, since 1964.
<F7>
(7) Consists of 776 shares held directly by Mr. Ernster.
Mr. Ernster has been a director of First Banking Center-Burlington,
Burlington, Wisconsin, since May 1991. He served as Southern Regional
Manager of Wisconsin Electric Power Company from 1990-1994 and has
been Manager of Customer Services from 1994 to present. He has been
on the Board of Directors of the Racine Area Manufacturers and
Commerce (RAMAC) from 1991 to present and Chairman of the
Manufacturer's Association of that group from 1994 to present.
<F8>
(8) Consists of 4,907 shares held directly by Mr. Boilini, and 1,878
shares owned by J. Boilini Farms in which Mr. Boilini has shared
voting and investment powers.
Mr. Boilini was appointed to the Board in December of 1993. He has
been a director of First Banking Center-Burlington, Burlington,
Wisconsin, since February 1993. Since 1979 Mr. Boilini has been
President of J. Boilini Farms, a diversified commercial operation
involved in the growing of vegetables and grain, as well as the
production of mint for the flavoring industry.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
Fees
Directors of the Corporation are paid the following fees for their services:
$400.00 per directors meeting, and $25.00 per committee meeting attended. If the
Corporation's Board meetings are held in conjunction with subsidiary Company
Board meetings, the fee is $100.00 per meeting attended.
Pension Plan
First Banking Center-Burlington (the "Bank"), a wholly-owned subsidiary of the
Corporation, has entered into pension and death benefit agreements with its
directors. Pursuant to the agreement, pension benefits accrue at the rate of
$10,000 for each full year a director serves on the board for the first six
years of service. Upon completing six full years of service, the director is
entitled to ten annual payments of ten thousand dollars each. Payments will
commence in January of the year in which the director attains the age of 65
years. Payments under the plan are funded through the purchase of life
insurance. The Bank is the owner and beneficiary of such life insurance policies
and is responsible for payment of the premium on such policies. Total deferred
liability expense for the Directors' pension and death benefit agreements was
$104,000, $95,000, and $89,000, respectively, for 1995, 1994, and 1993.
Deferred Compensation Plan
The Bank has also established a deferred compensation plan for its directors
pursuant to which a director may have a portion of his/her director's fees
deferred. Upon attaining the age of 65 or normal retirement, the Bank will pay
monthly benefits for a period of 15 years. The amount of such payment is
determined in each case by the amount of fees deferred and length of
participation in the deferred compensation plan. Total deferred liability
expense was $43,000, $41,000 and $37,000, respectively, for 1995, 1994, and
1993. Deferred directors' fees in each of the respective years were $21,000.
Stock Option Plan
For a description of the Stock Option Plan see "EXECUTIVE COMPENSATION -
Incentive Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid or
accrued for services rendered in all capacities to the Corporation and its
affiliates for the fiscal years ended December 31, 1995, 1994 and 1993 of the
person who was, on December 31, 1995, the Chief Executive Officer of the
Corporation.
No other executive officer received a total annual salary and bonus in excess
of $100,000 in 1995, and no disclosure is provided for such other executive
officers.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Long-Term
Compensation
Awards
Name and Securities All
Principal Salary Bonus Other Annual Underlying Other
Position Year ($) ($) Comp. (1) Options/SARs(#) Comp.
<S> <C> <C> <C> <C> <C>
Roman Borkovec, 1995 $159,000 $14,000 1,400 $31,000 (2)
President, CEO,* 1994 $154,000 $26,000 1,200 $29,000 (3)
and Chairman of 1993 $131,000 $26,000 -0- $27,000 (4)
the Board
<FN>
*Mr. Borkovec also serves in various capacities as an officer of the Corporation's
subsidiaries.
<F1>
(1) Aggregate amount of other annual compensation does not exceed the
lesser of $50,000 or 10% of executive officer's salary and bonus, and
therefore no disclosure is made.
<F2>
(2) Contribution to the Corporation's Defined Contribution (401(k)) Plan
of $8,000; accrued liability of $4,000 and $19,000, respectively,
under the Directors' Deferred Compensation Plan and Directors'
Pension Plan of First Banking Center-Burlington, a wholly owned
subsidiary of the Corporation.
<F3>
(3) Contributions to the Corporation's Defined Contribution (401(k)) Plan
of $7,000; accrued liability of $4,000 and $18,000, respectively,
under the Directors' Deferred Compensation Plan and Directors'
Pension Plan of First Banking Center-Burlington.
<F4>
(4) Contribution to the Corporation's Defined Contribution(401(k)) Plan
of $6,000; accrued liability of $4,000 and $17,000, respectively,
under the Directors' Deferred Compensation Plan and Directors'
Pension Plan of First Banking Center-Burlington.
</FN>
</TABLE>
Employment Agreement and Salary Continuation Agreement
Effective July 1, 1994, First Banking Center, Inc. ("Corporation") and Roman
Borkovec entered into an employment agreement ("Employment Agreement"). Mr.
Borkovec presently serves as President, Chief Executive Officer and Chairman of
the Corporation, and as a director and officer of the subsidiaries of the
Corporation. The Employment Agreement has a term of three years.
Under the Employment Agreement, Mr. Borkovec will perform the customary duties
of the chief executive officer of the Corporation, as further set forth in the
Corporation's bylaws and as may, from time to time, be determined by the
Corporation's Board of Directors. As compensation for such service, the
Corporation will pay Mr. Borkovec the greater of $150,000 annually or
compensation as may be established from time to time during the employment
period by the Board of Directors of the Corporation. During the employment
period, Mr. Borkovec is entitled to participate in such other benefits of
employment as are generally made available to executive officers of the
Corporation and its subsidiaries.
If the Employment Agreement is terminated by the Corporation other than for
reasons of Mr. Borkovec's death, disability or retirement, or without "cause"
as defined in the Employment Agreement; or if Mr. Borkovec terminates the
Employment Agreement for "cause" as defined in the Employment Agreement; or if
Mr. Borkovec terminates the Employment Agreement following a "change in control"
as defined in the Employment Agreement, then Mr. Borkovec shall be entitled to
receive severance payments equal to the salary at the time of termination for
the unexpired term of the employment period, except that, in case of termination
due to change in control, such unexpired term shall be extended to a date three
years from the last anniversary date preceding the effective date of the change
in control. In addition to the aforementioned severance payments, Mr. Borkovec
will be entitled to fringe benefits for the remaining term of the Agreement.
If Mr. Borkovec is terminated due to disability, as defined in the Employment
Agreement, he will be entitled to payment of his salary for one year at the rate
in effect at the time notice of termination is given. If termination occurs for
any reason other than those enumerated, the Corporation would be obligated to
pay the compensation and benefits only through the date of termination.
The Employment Agreement provides that during the employment period and for (1)
year thereafter, Mr. Borkovec shall not engage in any activity which will result
in his competing with the Corporation or its subsidiaries.
To further the objective of providing continued successful operation of the
Corporation and its subsidiaries and to provide additional incentive for Mr.
Borkovec to enter into the Employment Agreement, the Corporation and Mr.
Borkovec have entered into a Salary Continuation Agreement (the "Continuation
Agreement") as of September 12, 1994. The Continuation Agreement provides for
monthly payments of $5,850.00, commencing on August 1, 1997, one month after the
expiration of the Employment Agreement. In the event of Mr. Borkovec's
termination of employment after the expiration of the Employment Agreement
("late retirement"), the aforedescribed payments will be increased by a factor
of .00416 for each month that Mr. Borkovec's employment continues beyond the
expiration of the Employment Agreement. Following retirement, payments will
continue for the remainder of Mr. Borkovec's life with a guarantee of 180 such
monthly payments to Mr. Borkovec, his surviving wife or his estate. If Mr.
Borkovec dies before July 1, 1997, payment in the amount of $5,850.00 per month
to Mr. Borkovec's beneficiary will commence immediately and will continue for
a period of 180 months.
Upon Mr. Borkovec's voluntary termination of employment prior to the expiration
of the Employment Agreement for reasons other than death or disability or upon
Mr. Borkovec's discharge for cause as defined in the Employment Agreement at any
time, the Corporation will not be obligated to pay any benefits pursuant to the
Continuation Agreement; however, if Mr. Borkovec incurs voluntary or involuntary
termination of employment prior to the expiration of the Employment Agreement
for reasons other than death, disability, or discharge for cause, but on or
after a change in control, as defined in the Employment Agreement, Mr. Borkovec
will be entitled to the benefits payable under the Continuation Plan.
The benefits provided in the Continuation Agreement will be funded through the
purchase of single premium life insurance policies with cash value sufficient
to fund the payments required under the Continuation Agreement.
The Board of Directors of the Corporation has determined that the Employment
Agreement and Continuation Agreement are in the best interest of the
Corporation, its subsidiaries and its shareholders for the following reasons:
a) Mr. Borkovec has been employed by the Corporation and its subsidiaries in an
executive capacity for a number of years; b) during his employment with the
Corporation and its subsidiaries Mr. Borkovec has contributed to the successful
and profitable operation of the Corporation and its subsidiaries; c) such
contribution by Mr. Borkovec has resulted in substantial enhancement of
shareholder value; and d) the Corporation desires to provide for management
continuity and stability by retaining an individual with a proven record of
performance.
401(k) Profit Sharing Plan
The Corporation has a trusteed 401(k) profit sharing plan covering substantially
all employees of the Corporation and its subsidiaries. The plan allows for
voluntary employee contributions. Total contributions to the 401(k) Plan by the
Corporation were $92,000 in 1995, $94,000 in 1994 and $80,000 in 1993.
Incentive Stock Option Plan
The following table presents information about stock options granted during 1995
to the executive officer named in the Summary Compensation Table.
Stock Option Grants in 1995
Individual Grants
Number of Percent of Total
Securities Options
Underlying Granted to
Options(1) Employees in Exercise Expiration
Name Fiscal Year (1) Price Date
Roman
Borkovec 1,400 11.6% $22.00 12/31/99
(1) All options granted in 1995 were granted under the 1994 Incentive
Stock Option Plan.
The following table presents information concerning stock options exercised
during 1995. Also shown is information on unexercised options as of December 31,
1995.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Value of Exercised,
Number of In-the-Money Options
Name Shares Unexercised at FY End
Acquired Value Options at FY End Exercisable
On Exercise Realized(1)(2) Exercisable Unexercisable
Unexercisable
Roman
Borkovec 2,089 $20,965 2,861 $24,161
2,200 $2,400
(1) The exercise price for each grant was 100% of the market value of the
shares on the date of grant.
(2) Represents market price at date of exercise, less option price, times
number of shares.
On August 8, 1994, the Board of Directors of the Corporation adopted the First
Banking Center, Inc. 1994 Incentive Stock Option Plan (the "Plan"), which was
approved by the shareholders on April 11, 1995.
The Plan replaced the 1984 Incentive Stock Option Plan, which terminated in
April 1994. The purpose of the Plan is to advance the interests of the
Corporation and its subsidiaries by encouraging and providing for the
acquisition of an equity interest in the Corporation by key employees and by
enabling the Corporation and its subsidiaries to attract and retain the services
of employees upon whose skills and efforts the success of the Corporation
depends. In addition the Plan is designed to promote the best interests of the
Corporation and its shareholders by providing a means to attract and retain
competent directors who are not employees of the Corporation or any of its
subsidiaries.
The following summary description of the Plan is qualified in its entirety by
reference to the full text of the Plan, a copy of which may be obtained upon
request directed to the Corporation's Secretary at First Banking Center, Inc.,
400 Milwaukee Avenue, Burlington, WI 53105.
The Plan is administered by the Compensation Committee of the Board, consisting
of not less than three (3) directors (the "Committee"). The Committee is
comprised of directors who are disinterested persons within the meaning of Rule
16b-3 as promulgated by the Securities and Exchange Commission. Subject to the
terms of the Plan and applicable law, the Committee has the authority to:
establish rules for the administration of the Plan; select the individuals to
whom options are granted; determine the numbers of shares of Common Stock to be
covered by such options; and take any other action it deems necessary for
administration of the Plan.
Participants in the Plan consist of all members of the Board of Directors of the
Corporation who are not employees of the Corporation or its subsidiaries, and
individuals selected by the Committee. Those selected individuals may include
any executive officer or employee of the Corporation or its subsidiaries and
non-employee directors of the subsidiaries who, in the opinion of the Committee,
contribute to the Corporation's growth and development.
Subject to adjustment for dividends or other distributions, recapitalization,
stock splits or similar corporate transactions or events, the total number of
shares of Common Stock with respect to which options may be granted pursuant to
the Plan is 300,000. The shares of Common Stock to be delivered under the Plan
may consist of authorized but unissued stock or treasury stock.
Options may be granted by the Committee to key employees and non-employee
directors (other than directors of the Corporation) as determined by the
Committee. The Committee has complete discretion in determining the number of
options granted to each such grantee. The Committee also determines whether an
option is to be an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code or a nonqualified stock option. Following the first
grant of options in December 1994, each director of the Corporation will
automatically be granted a nonqualified stock option to purchase 100 shares of
Common Stock in December of each succeeding year.
The exercise price for all options granted pursuant to the Plan is the fair
market value of the Common Stock on the date of grant of the option; however,
in case of options granted to a person then owning more than 10% of the
outstanding Common Stock, the option price will not be less than 110% of the
fair market value on such date. The Committee will determine the method and the
form of payment of the exercise price. The payment may be in form of cash,
common Stock, other securities or other property having a fair market value
equal to the exercise price.
Except for options granted to directors of the Corporation, options granted
pursuant to the Plan expire at such time as the Committee determines at the time
of grant, provided that no option may be exercised after the fifth anniversary
date of its grant. Options granted to directors of the Corporation expire on the
fifth anniversary of the date of grant and are exercisable in increments of one-
third on the first, second and third anniversaries of the date of grant.
Stock acquired pursuant to the Plan may not be sold or otherwise disposed of
within 5 years from the date of exercise, except by gift, bequest or inheritance
or in case of participant's disability or retirement. The Corporation also has
a "right of first refusal" pursuant to which any shares of Common Stock acquired
by exercising an option must first be offered to the Corporation before they may
be sold to a third party. The Corporation may then purchase the offered shares
on the same terms and conditions (including price) as applied to the potential
third-party purchaser.
The Board of Directors of the Corporation may terminate, amend or modify the
Plan at any time, provided that no such action of the Board, without approval
of the shareholders may: increase the number of shares which may be issued under
the Plan; materially increase the cost of the Plan or increase benefits to
participants; or change the class of individuals eligible to receive options.
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the Plan. The grant of an option is not
expected to result in any taxable income for the recipient. The holder of an
Incentive Stock Option generally will have no taxable income upon exercising the
Incentive Stock Option (except that a liability may arise pursuant to the
alternative minimum tax), and the Corporation will not be entitled to a tax
deduction when an Incentive Stock Option is exercised. Upon exercising a
nonqualified stock option, the optionee must recognize ordinary income equal to
the excess of the fair market value of the shares of common stock acquired on
the date of exercise over the exercise price, and the Corporation will be
entitled at that time to a tax deduction for the same amount. The tax
consequences to an optionee upon disposition of shares acquired through the
exercise of an option will depend on how long the shares have been held and upon
whether such shares were acquired by exercising an Incentive Stock Option or by
exercising a nonqualified stock option. Generally, there will be no tax
consequences to the Corporation in connection with the disposition of shares
acquired under an option.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
General Policy
The compensation objective of the Corporation and its subsidiaries is to link
compensation with corporate and individual performance in a manner which will
attract and retain competent personnel with leadership qualities. The process
gives recognition to the marketplace practices of other banking organizations.
Toward the end of achieving long-term goals of the shareholders, the
compensation program ties a significant portion of total compensation to the
financial performance of the Corporation in relation to its peer group. The
Compensation Committee makes recommendations on the compensation of the
Corporation's officers to the Board of Directors. The Compensation Committee's
recommendations reflect its assessment of the contributions to the long-term
profitability and financial performance made by individual officers. In this
connection, the Committee considers, among other things, the type of the
officer's responsibilities, the officer's long-term performance and tenure,
compensation relative to peer group and the officer's role in ensuring the
financial success of the Corporation in the future. Financial performance goals
considered by the Committee include earnings per share, return on assets, return
on equity, asset quality, growth and expense control.
In addition to measuring performance in light of these financial factors, the
Committee considers the subjective judgment of the Chief Executive Officer in
evaluating performance and establishing salary, bonus and long-term incentive
compensation for individual officers, other than the Chief Executive Officer.
The Committee independently evaluates the performance of the Chief Executive
Officer, taking into consideration such subjective factors as leadership,
innovation and entrepreneurship in addition to the described financial goals.
Base Salary
In determining salaries of officers, the Committee considers surveys and data
regarding compensation practices of financial institutions of similar size,
adjusted for differences in product lines, nature of geographic market and other
relevant factors. The Committee also considers the Chief Executive Officer's
assessment of the performance, the nature of the position and the contribution
and experience of individual officers (other than the Chief Executive Officer).
The Committee independently evaluates the Chief Executive Officer's performance
and compares his compensation to peer group data.
Annual Bonuses
Officers and employees of the Corporation and its subsidiaries are awarded
annual bonuses at the end of each year at the discretion of the Committee. The
amount of the bonus, if any, for each officer (other than the Chief Executive
Officer) is recommended to the Committee by the Chief Executive Officer based
upon his evaluation of the achievement of corporate and individual goals and his
assessment of subjective factors such as leadership, innovation and commitment
to the corporate advancement. The Corporation's annual incentive bonus is based
on meeting specific financial performance targets pursuant to a bonus plan. The
plan provides for a range of bonus awards based, among other things, upon return
on assets. The minimum target goal for return on assets is 1%, which is required
for payment of a bonus.
Chief Executive Officer Compensation
The compensation for the Chief Executive Officer was established at a level
which the Committee believed would approximate the compensation of chief
executive officers of similar organizations and would reflect prevailing market
conditions. The Committee also took into consideration a variety of factors,
including the achievement of corporate financial goals and individual goals. The
financial goals included increased earnings, return on assets, return on equity
and asset quality. No formula assigning weights to particular goals was used,
and achievement of other corporate performance goals was considered in general.
The Committee also considered the Chief Executive Officer's years of service to
the Corporation and his past performance record. The Chief Executive Officer was
also awarded incentive stock options under the Corporation's Incentive Stock
Option Plan. Based upon its review of the Corporation's performance, the
Committee believes that the total compensation awarded to the Chief Executive
Officer for 1995 is fair and appropriate under the circumstances.
Stock Options
The Committee administers the 1994 Incentive Stock Option Plan. Stock options
are designed to furnish long-term incentives to the officers of the Corporation
to build shareholder value and to provide a link between officer compensation
and shareholder interest. The Committee made awards under the Stock Option Plan
to the officers of the Corporation and its subsidiaries in 1995. Awards were
based upon performance, responsibilities and the officer's relative position and
ability to contribute to future performance of the Corporation. In determining
the size of the option grants (except grants to the Chief Executive Officer),
the Committee considered information and evaluations provided by the Chief
Executive Officer. The award of option grants to the Chief Executive Officer was
based on the overall performance of the Corporation and on the Committee's
assessment of the Chief Executive Officer's contribution to the Corporation's
performance and his leadership.
The Committee
The Compensation Committee currently has three members. No member of the
Committee is an employee or officer of the Corporation or any of its
subsidiaries. None of the Committee members has interlocking relationships as
defined by the Securities and Exchange Commission, with the Corporation or its
subsidiaries. The Committee is aware of the limitations imposed by Section
162(m) of the Internal Revenue Code of 1986, as amended, on the deductibility
of compensation paid to certain senior executives to the extent it exceeds $1
million per executive. The Committee's recommended compensation amounts meet the
requirements for deductibility.
The Compensation Committee:
David Boilini John Ernster Richard McKinney
PERFORMANCE TABLE
The following table shows the cumulative total stockholder return on the
Company's Common Stock over the last five fiscal years compared to the returns
of the Standard & Poor's 500 Stock Index and the NASDAQ Bank Index:
Cumulative Total Return
Assumes Dividends & Capital Gains Reinvested
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
FBC, Inc. 100 118 131 162 216 242
S&P 500 100 130 140 154 157 216
NASDAQ Bank Ind. 100 164 239 272 271 402
ADDITIONAL INFORMATION ON MANAGEMENT
Transactions With Directors and Officers
Certain directors and executive officers of the Corporation, and their related
interests had loans outstanding in the aggregate amounts of $765,000 and
$1,299,000 at December 31, 1995 and 1994, respectively. During 1995, $536,000
of new loans were made and repayments totaled $1,070,000. These loans were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with other persons
and did not involve more than normal risks of collectability or present other
unfavorable features. The loans to directors and executive officers and their
related business interests at December 31, 1995 represented 3.20% of
stockholders equity.
Section 16 Reports
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Corporation's directors and executive officers and shareholders holding more
than 10% of the outstanding stock of the Corporation (the "insiders") are
required to report their initial ownership of stock and any subsequent change
in such ownership to the Securities and Exchange Commission and the Corporation
(the "16(a) filing requirement"). Specific time deadlines for the 16(a) filing
requirements have been established by the Securities and Exchange Commission.
To the Corporation's knowledge, and based solely upon a review of the copies of
such reports furnished to the Corporation, all 16(a) filing requirements
applicable to Insiders during 1995 were satisfied on a timely basis.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Conley, McDonald and Company performed a complete audit of First Banking Center,
Inc. during 1995 and provided a certified financial statement for the years
ended December 31, 1994 and 1995.
Conley, McDonald and Company also performed a non-audit function for the
Corporation consisting of the preparation of the Corporation's 1995 Income Tax
returns. No representative of Conley, McDonald and Company will be present at
the Annual Stockholders' Meeting on April 16, 1996. The Board of Directors will
engage the services of a public accounting firm to provide a certified financial
statement for 1996. The Board will select such accounting firm at its annual
Directors Meeting.
PROPOSALS BY STOCKHOLDERS
Shareholders' proposals to be presented at the 1997 Annual Stockholders' Meeting
must be received by the Corporation at its principal office, 400 Milwaukee
Avenue, Burlington, Wisconsin, on or before November 8, 1996.
MISCELLANEOUS
Management does not intend to bring any other matters before the meeting and
knows of no matters to be brought before the meeting by others. If any other
matters properly come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote said proxy in accordance with their best
judgment.
A COPY OF THE FIRST BANKING CENTER, INC. ANNUAL REPORT ON FORM 10-K INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF 1934 WILL BE MADE AVAILABLE TO
STOCKHOLDERS UPON WRITTEN REQUEST AT NO CHARGE. REQUESTS SHOULD BE ADDRESSED
TO: Mr. John S. Smith, Secretary, First Banking Center, Inc., 400 Milwaukee
Avenue, P.O. Box 660, Burlington, Wisconsin, 53105.
BY ORDER OF THE BOARD OF DIRECTORS
JOHN S. SMITH, SECRETARY
Burlington, Wisconsin
March 8, 1996
Independent Auditor's Report
Board of Directors
First Banking Center, Inc. and Subsidiaries
Burlington, Wisconsin
We have audited the accompanying consolidated balance sheets of First Banking
Center, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in components of stockholders'equity,
and cash flows for the years ended December 31, 1995, 1994 and 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Banking
Center, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years ended December 31, 1995, 1994
and 1993, in conformity with generally accepted accounting principles.
Conley McDonald LLP
Brookfield, Wisconsin
January 12, 1996
<PAGE>
First Banking Center, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1995 and 1994
ASSETS
1995 1994
Cash and due from banks (Note B) $ 17,638,000 11,521,000
Federal funds sold 4,550,000 566,000
Cash and cash equivalents 22,188,000 12,087,000
Interest-bearing deposits in banks 4,303,000 1,899,000
Available for sale securities
- stated at fair value (Note C) 30,092,000 21,655,000
Held to maturity securities
- fair value of $30,167,000 in 1995
and $29,505,000 in 1994 (Note D) 29,905,000 30,132,000
Loans, less allowance for loan losses
of $2,336,000 and $2,095,000 in 1995
and 1994 respectively (Notes E, F and P) 168,019,000 155,678,000
Office buildings and equipment, net (Note G) 5,071,000 4,707,000
Accrued interest receivable and other assets
(Notes H, L and N) 4,990,000 4,927,000
Total assets $ 264,568,000 $ 231,085,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non interest-bearing demand $ 32,995,000 $ 29,294,000
Interest-bearing demand 25,007,000 20,082,000
Money market demand accounts 36,167,000 37,063,000
Savings 25,425,000 27,237,000
Time (Note I) 89,236,000 73,434,000
Total deposits 208,830,000 187,110,000
Securities sold under repurchase agreements 20,225,000 13,755,000
U.S. Treasury note account 91,000 697,000
Long-term borrowings (Note J) 8,933,000 6,805,000
Accrued interest payable and other
liabilities (Note L) 2,605,000 1,892,000
Total liabilities 240,684,000 210,259,000
Commitments and contingencies (Note O)
Stockholders' equity (Note K)
Common stock, $1.00 par value,3,000,000 shares
authorized, 1,468,464 shares issued 1,468,000 1,468,000
Surplus 3,995,000 3,986,000
Retained earnings (Note Q and R) 18,570,000 16,353,000
Sub-total 24,033,000 21,807,000
Treasury stock, 27 and 5,316 shares for
1995 and 1994 respectively, at cost (1,000) (54,000)
Unrealized gain (loss) on available for
sale securities, net (148,000) (927,000)
Total stockholders' equity 23,884,000 20,826,000
Total liabilities and
stockholders' equity $ 264,568,000 $ 231,085,000
See Notes to Consolidated Financial Statements.
<PAGE>
First Banking Center, Inc. and Subsidiaries
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Interest income:
Interest and fees on loans (Note E) $ 15,017,000 12,170,000 11,758,000
Interest on securities:
Taxable 2,822,000 2,268,000 1,532,000
Non-exempt 480,000 557,000 604,000
Interest on federal funds sold 308,000 55,000 113,000
Interest on deposits in banks 183,000 182,000 340,000
Total interest income 18,810,000 15,232,000 14,347,000
Interest expense:
Interest on deposits (Note I ) 7,487,000 5,815,000 5,888,000
Interest on federal funds purchased
and securities sold under
repurchase agreements 940,000 446,000 90,000
Interest on U.S. Treasury note account 35,000 22,000 15,000
Interest on long-term borrowings(Note J) 504,000 352,000 265,000
Total interest expense 8,966,000 6,635,000 6,458,000
Net interest income 9,844,000 8,597,000 7,889,000
Provision for loan losses (Note F) 470,000 270,000 710,000
Net interest income after
provision for loan losses 9,374,000 8,327,000 7,179,000
Other operating income:
Trust Department income 345,000 326,000 318,000
Service charges on deposit accounts 632,000 539,000 593,000
Investment securities gains (losses)
(Note C) (11,000) (13,000) 5,000
Other income 541,000 506,000 458,000
Total other operating income 1,507,000 1,358,000 1,374,000
Other operating expenses:
Salaries and employee benefits
(Note M) 3,501,000 3,123,000 2,618,000
Occupancy expenses 547,000 511,000 473,000
Equipment expenses 659,000 491,000 424,000
Computer services 328,000 292,000 246,000
FDIC assessment 214,000 391,000 343,000
Other expenses 1,421,000 1,399,000 1,350,000
Total other operating expenses 6,670,000 6,207,000 5,454,000
Income before income taxes 4,211,000 3,478,000 3,099,000
Income taxes (Note L) 1,407,000 1,114,000 918,000
Net income $ 2,804,000 2,364,000 2,181,000
Earnings per share
Primary $ 1.91 1.61 1.50
Fully diluted $ 1.91 1.61 1.50
Weighted average shares outstanding 1,470,162 1,463,998 1,457,415
See Notes to Consolidated Financial Statements.
<PAGE>
First Banking Center, Inc. and Subsidiaries
Consolidated Statements of Changes
in Components of Stockholder's Equity
Years ended December 31, 1995, 1994 and 1993
Unrealized
gain (loss)
on available
Common Retained Treasury for sale
stock Surplus earnings stock securities
Balances,
December 31, 1992 $ 1,468,000 3,962,000 12,818,000 (157,000)
Net income - 1993 2,181,000
Cash dividends paid -
$0.33 per share (484,000)
Exercise of stock
options 13,000 47,000
Balances,
December 31, 1993 1,468,000 3,975,000 14,515,000 (110,000)
Net income - 1994 2,364,000
Cash dividends paid -
$0.36 per share (526,000)
Exercise of stock
options 11,000 56,000
Change in unrealized
gain (loss) on
available for sale
securities, net (927,000)
Balances,
December 31, 1994 1,468,000 3,986,000 16,353,000 (54,000) (927,000)
Net income - 1995 2,804,000
Cash dividends paid -
$.40 per share (587,000)
Exercise of stock
options 9,000 53,000
Change in unrealized
gain (loss) on
available for sale
securities, net 779,000
Balances,
December 31, 1995 $ 1,468,000 3,995,000 18,570,000 (1,000) (148,000)
See Notes to Consolidated Financial Statements.
<PAGE>
First Banking Center, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating activities:
Net income $ 2,804,000 2,364,000 2,181,000
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 565,000 477,000 340,000
Provision for loan losses 470,000 270,000 710,000
Provision for deferred taxes (189,000) (188,000) (203,000)
Amortization and accretion of
bond premiums and discounts -net 121,000 171,000 97,000
Amortization of excess cost over
equity in underlying net assets
of subsidiary 2,000 (1,000) 10,000
Investment securities (gains) losses 11,000 13,000 (5,000)
(Increase) decrease in assets:
Interest receivable (468,000) (269,000) (43,000)
Other assets 238,000 (1,215,000) (49,000)
Increase (decrease) in liabilities:
Taxes payable (235,000) 204,000 (205,000)
Interest payable 350,000 26,000 19,000
Other liabilities 598,000 288,000 81,000
Total adjustments 1,463,000 (224,000) 752,000
Net cash provided by operating
activities 4,267,000 2,140,000 2,933,000
Cash flows from investing activities:
Net (increase) decrease in interest-
bearing deposits in banks (2,404,000) 9,110,000 194,000
Proceeds from sales of available
for sale securities 1,000,000 4,614,000
Proceeds from maturities of
available for sale securities 15,909,000 2,396,000
Purchase of available for sale
securities (24,288,000) (7,841,000)
Proceeds from maturities of held
to maturity securities 7,370,000 9,655,000
Purchase of held to maturity
securities (7,200,000) (10,255,000)
Proceeds from sales of securities
held for investment 335,000
Proceeds from maturities of securities
held for investment 11,574,000
Purchase of securities held
for investment (31,857,000)
Net increase in loans (12,811,000) (20,247,000) (12,114,000)
Purchase of office buildings
and equipment (929,000) (1,174,000) (440,000)
Net cash used in investing
activities (23,353,000) (13,742,000) (32,308,000)
<PAGE>
First Banking Center, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(concluded)
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from financing activities:
Net increase in deposits $ 21,720,000 9,539,000 17,696,000
Dividends paid (587,000) (526,000) (484,000)
Proceeds from long-term borrowings 5,609,000 415,000 2,909,000
Payments on long-term borrowings (3,481,000)
Net increase (decrease) in
U.S. Treasury note account (606,000) (701,000) 167,000
Net increase in securities sold
under repurchase agreements 6,470,000 4,167,000 2,091,000
Proceeds from stock options exercised 62,000 67,000 60,000
Net cash provided by financing
activities 29,187,000 12,961,000 22,439,000
Net increase (decrease) in
cash and cash equivalents 10,101,000 1,359,000 (6,936,000)
Cash and cash equivalents
at beginning of year 12,087,000 10,728,000 17,664,000
Cash and cash equivalents
at end of year $ 22,188,000 12,087,000 10,728,000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,616,000 6,609,000 6,439,000
Income taxes $ 1,642,000 1,106,000 1,326,000
Supplemental schedule of non-cash investing and
financing activities:
Securities held for investment reclassified to:
Held to maturity securities $ 29,604,000
Available for sale securities $ 22,269,000
Net change in unrealized gain (loss) on
available for sale securities $ 779,000 (927,000)
See Notes to Consolidated Financial Statements.
<PAGE>
First Banking Center, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A.-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. 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.
2. 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.
3. 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.
4. 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.
5. 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:
<PAGE>
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.
6. 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 nonaccrual 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.
<PAGE>
7. 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.
8. 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.
9. 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.
10. 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, nonaccrual 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.
<PAGE>
11. 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.
12. 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.
13. 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.
14. 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.
<PAGE>
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.
<PAGE>
15. 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.
NOTE B.-CASH and DUE from BANKS
The Company's bank subsidiaries are required to maintain vault cash and reserve
balances with Federal Reserve Banks based upon a percentage of deposits. These
requirements approximated $1,182,000 and $1,033,000 at December 31, 1995 and
1994 respectively.
<PAGE>
NOTE C.-AVAILABLE for SALE SECURITIES
Amortized costs and fair values of available for sale securities as of December
31, 1995 and 1994 are summarized as follows:
December 31, 1995
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
U.S. Treasury securities $ 3,749,000 24,000 2,000 3,771,000
Obligations of other U.S.
government agencies
and corporations 8,963,000 20,000 4,000 8,979,000
12,712,000 44,000 6,000 12,750,000
Mortgage-backed securities 13,204,000 7,000 199,000 13,012,000
Mutual funds 3,146,000 46,000 3,100,000
Federal Home Loan Bank stock 1,230,000 1,230,000
$ 30,292,000 51,000 251,000 30,092,000
December 31, 1994
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
U.S. Treasury securities $ 6,325,000 106,000 6,219,000
Obligations of other U.S.
government agencies
and corporations 250,000 23,000 227,000
6,575,000 129,000 6,446,000
Mortgage-backed securities 12,741,000 1,085,000 11,656,000
Mutual funds 3,003,000 119,000 2,884,000
Federal Home Loan Bank stock 669,000 669,000
$ 22,988,000 1,333,000 21,655,000
The amortized cost and fair value of available for sale securities as of
December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities in mortgage-backed securities
equity securities, and mutual funds since the anticipated maturities are not
readily determinable. Therefore, these securities are not included in the
maturity categories in the following maturity summary:
December 31, 1995
Amortized Fair
cost value
Due in one year or less $ 7,424,000 7,428,000
Due after one year through 5 years 4,271,000 4,307,000
Due after 5 years through 10 years 1,017,000 1,015,000
$ 12,712,000 12,750,000
<PAGE>
Following is a summary of the proceeds from sales of investment securities,
available for sale and held for investment as well as gross gains and losses for
the years ended December 31:
December 31,
1995 1994 1993
Proceeds from sales of investment
securities, available for sale
and held for investment $ 1,000,000 4,614,000 335,000
Gross gains on sales 9,000
Gross losses on sales (11,000) (13,000) (4,000)
$ (11,000) (13,000) 5,000
Related income taxes (benefit) $ (5,000) 2,000
Available for sale securities with a carrying amount of $19,244,000 and
$12,827,000 as of December 31, 1995 and 1994 respectively, were pledged as
collateral on public deposits and for other purposes as required or permitted
by law.
NOTE D.-HELD TO MATURITY SECURITIES
Amortized costs and fair values of held to maturity securities as of December
31, 1995 and 1994 are summarized as follows:
December 31, 1995
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
U.S. Treasury securities $ 7,564,000 88,000 27,000 7,625,000
Obligations of other U.S.
government agencies
and corporations 1,783,000 22,000 2,000 1,803,000
Obligations of states and
political subdivisions 11,377,000 105,000 30,000 11,452,000
Other 1,095,000 6,000 3,000 1,098,000
21,819,000 221,000 62,000 21,978,000
Mortgage-backed securities 8,086,000 144,000 41,000 8,189,000
$ 29,905,000 365,000 103,000 30,167,000
<PAGE>
December 31, 1994
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
U.S. Treasury securities $ 7,582,000 295,000 7,287,000
Obligations of other U.S.
government agencies
and corporations 251,000 19,000 232,000
Obligations of states
and political subdivisions 8,914,000 91,000 163,000 8,842,000
Other 1,147,000 30,000 1,117,000
17,894,000 91,000 507,000 17,478,000
Mortgage-backed securities 12,238,000 83,000 294,000 12,027,000
$ 30,132,000 174,000 801,000 29,505,000
The amortized cost and fair value of securities held to maturity as of December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities in mortgage-backed securities since the
anticipated maturities are not readily determinable. Therefore, these
securities are not included in the maturity categories in the following maturity
summary:
December 31, 1995
Amortized Fair
cost value
Due in one year or less $ 5,060,000 5,083,000
Due after one year through 5 years 12,468,000 12,595,000
Due after 5 years through 10 years 3,492,000 3,504,000
Due after 10 years 799,000 796,000
$ 21,819,000 21,978,000
Held to maturity securities with a carrying value of $5,771,000 and $4,797,000
as of December 31, 1995 and 1994 respectively, were pledged as collateral on
public deposits and for other purposes as required or permitted by law.
NOTE E.-LOANS
Major classifications of loans are as follows:
December 31,
1995 1994
Commercial $ 27,659,000 $ 27,713,000
Agricultural production 5,810,000 6,163,000
Real estate:
Construction 20,652,000 14,437,000
Commercial 37,005,000 33,027,000
Agricultural 733,000 1,014,000
Residential 67,729,000 66,004,000
Installment and consumer 6,961,000 7,074,000
Municipal loans 3,806,000 2,341,000
170,355,000 157,773,000
Allowance for loan losses (2,336,000) (2,095,000)
Total loans $ 168,019,000 $ 155,678,000
<PAGE>
The following table presents data on impaired loans at December 31, 1995.
Impaired loans for which an allowance has been provided $
Impaired loans for which no allowance has been provided 1,501,000
Total loans determined to be impaired 1,501,000
Allowance for loan loss for impaired loans included in the
allowance for loan losses
Average recorded investment in impaired loans 807,000
Interest income recognized from impaired loans 7,000
Cash basis interest income recognized from impaired loans 7,000
The loan portfolio includes $778,000 at December 31, 1994 of loans which have
been placed on a nonaccrual status. Interest which would have been recorded,
had the loans been on the accrual basis, would have amounted to $12,000 in 1994.
Interest income on these loans, which is recorded only when received, amounted
to $4,000 in 1994. There were no restructured loans as of December 31, 1994.
Certain directors and executive officers of the Company, and their related
interests, had loans outstanding in the aggregate amounts of $765,000 and
$1,299,000 at December 31, 1995 and 1994 respectively. During 1995, $536,000
of new loans were made and repayments totaled $1,070,000. These loans were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with other persons
and did not involve more than normal risks of collectibility or present other
unfavorable features.
NOTE F.-ALLOWANCE for LOAN LOSSES
The allowance for loan losses reflected in the accompanying consolidated
financial statements represents the allowance available to absorb loan losses.
An analysis of changes in the allowance is presented in the following
tabulation:
December 31,
1995 1994 1993
Balance, beginning of year $ 2,095,000 1,886,000 1,714,000
Loan charge offs (291,000) (305,000) (604,000)
Recoveries 62,000 244,000 66,000
Provision charged to operations 470,000 270,000 710,000
Balance, end of year $ 2,336,000 2,095,000 1,886,000
NOTE G.-OFFICE BUILDINGS and EQUIPMENT
Office buildings and equipment are stated at cost less accumulated depreciation
and are summarized as follows:
December 31,
1995 1994
Land $ 1,079,000 1,063,000
Buildings and improvements 4,170,000 3,722,000
Furniture and equipment 2,983,000 2,769,000
8,232,000 7,554,000
Less accumulated depreciation 3,161,000 2,847,000
Total office buildings and equipment $ 5,071,000 4,707,000
Depreciation expense as of December 31, 1995, 1994, and 1993 was $565,000,
$477,000 and $340,000 respectively.
<PAGE>
NOTE H.-VALUATION of CORE DEPOSITS
The fair market value of core deposits of the First Banking Center - Albany at
the date of acquisition amounted to $310,000. The valuation was determined by
an independent appraisal firm. The amount, net of amortization, has been
included as part of other assets and is being amortized over the average
remaining life of the deposits. Amortization expense for the years ended
December 31, 1995, 1994 and 1993 amounted to $3,000, $3,000 and $12,000
respectively. Accumulated amortization amounted to $298,000, $295,000 and
$292,000 at December 31, 1995, 1994 and 1993 respectively.
NOTE I.-DEPOSITS and INTEREST on DEPOSITS
Time deposits in excess of $100,000 totaled $7,734,000 and $5,793,000 at
December 31, 1995 and 1994 respectively.
Interest expense on deposits for the years ended December 31, 1995, 1994 and
1993 is as follows:
December 31,
1995 1994 1993
Interest bearing demand $ 519,000 441,000 403,000
Money market demand accounts 1,389,000 1,229,000 1,256,000
Savings deposits 771,000 793,000 736,000
Time, $100,000 and over 611,000 219,000 242,000
Time, under $100,000 4,197,000 3,133,000 3,251,000
Total $ 7,487,000 5,815,000 5,888,000
NOTE J.-LONG-TERM BORROWINGS
During 1992, the Company entered into a master contract agreement with the
Federal Home Loan Bank (FHLB) which provides for borrowing up to the maximum of
$12,600,000. The indebtedness is evidenced by a master contract dated September
14, 1992. FHLB provides both fixed and floating rate advances. Floating rates
are tied to short-term market rates of interest, such as Federal Funds Treasury
Bill rates. Fixed rate advances are priced in reference to market rates of
interest at the time of the advance, namely the rates that FHLB pays to
borrowers at various maturities.
Various advances were obtained during prior years with total outstanding
balances of $8,933,000 and $6,805,000 at December 31, 1995 and 1994
respectively, with applicable interest rates ranging from 4.60% to 6.83%.
Interest is payable monthly with principal payment due at maturity.
The advances are secured by a security agreement pledging a portion of the
Subsidiary banks' real estate mortgages with a carrying value of $14,292.000.
Future principal payments required to be made are as follows:
Years ending December 31:
1996 $ 3,049,000
1997 150,000
1998 5,263,000
1999 265,000
2000 206,000
$ 8,933,000
<PAGE>
NOTE K.-STOCKHOLDERS' EQUITY
In 1994, the Board of Directors approved a three-for-one stock split to be
accomplished by a 200% stock dividend payable on September 6, 1994. All amounts
of per share data have been adjusted to reflect the stock split.
Transfers from retained earnings to surplus in the subsidiary banks have not
been reflected in the consolidated financial statements.
In 1994, the Company established a new Incentive Stock Option Plan which was
approved by the shareholders' at the 1995 annual meeting, providing for the
granting of options for up to 300,000 shares of common stock to key officers and
employees of the Company. Options are granted at the current market value
unless the stock is traded on a public market which it is then granted at the
average of the high and the low for the year, provided, however, if the
principal market is a national exchange, the grant price shall be the last
reported sales price. Options may be exercised 33.33% per year beginning one
year after the date of the grant and must be exercised within a four year
period.
Activity of the Incentive Stock Option Plan is summarized in the following
table:
Options Options Option price
available outstanding per share
Balance, December 31, 1992 $ 150,726 36,000 9.33-12.67
Granted (9,150) 9,150 15.33
Exercise of stock option (6,450) 9.33
Canceled 3,750 (3,750) 9.33-12.67
Balance, December 31, 1993 145,326 34,950 10.00-15.33
Stock options authorized
under new plan 300,000 -
Granted (9,600) 9,600 19.00
Exercise of stock option (6,600) 10.00-12.67
Canceled (145,326) (3,225) 10.00-15.33
Balance, December 31,1994 290,400 34,725 11.33-19.00
Granted (12,075) 12,075 22.00
Exercise of stock option (5,289) 11.33-12.67
Canceled 300 (3,575) 11.33-19.00
Exercisable, December 31, 1995 278,625 37,936 12.67-22.00
NOTE L.-INCOME TAXES
The provision for income taxes included in the accompanying consolidated
financial statements consists of the following:
December 31,
1995 1994 1993
Current provision:
Federal $ 1,326,000 1,105,000 961,000
State 270,000 197,000 160,000
Total current income taxes 1,596,000 1,302,000 1,121,000
Deferred income taxes (benefit) (189,000) (188,000) (203,000)
Total provision for income taxes $ 1,407,000 1,114,000 918,000
<PAGE>
The net deferred tax assets in the accompanying balance sheets include the
following amounts of deferred tax assets and liabilities:
December 31,
1995 1994 1993
Deferred tax assets:
Allowance for loan losses $ 734,000 637,000 556,000
Unrealized loss on available
for sale securities 41,000 405,000
Depreciation 19,000 16,000
Pension 199,000 158,000 139,000
Deferred compensation 225,000 126,000 89,000
Other 27,000 41,000 3,000
Deferred tax liabilities:
Depreciation (25,000)
Other (10,000) (20,000)
Balance, end of year $ 1,201,000 1,376,000 783,000
Management believes it is more likely than not, that the gross deferred tax
assets will be fully realized. Therefore, no valuation allowance has been
recorded as of December 31, 1995 or 1994.
A reconciliation of statutory Federal income taxes based upon income before
taxes, to the provision for federal and state income taxes, as summarized above,
is as follows:
December 31,
1995 1994 1993
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
Reconciliation of statutory
to effective taxes:
Federal income taxes at
statutory rate $ 1,432,000 34.0% 1,183,000 34.0% 1,054,000 34.0%
Adjustments for:
Tax-exempt interest on
municipal obligations (188,000) (4.5) (216,000) (6.2) (237,000) (7.6)
Increases in taxes
resulting from State
income taxes 178,000 4.2 130,000 3.7 106,000 3.4
Other - net (15,000) (0.3) 17,000 0.5 (5,000) (0.2)
Effective income taxes $ 1,407,000 33.4% 1,114,000 32.0% 918,000 29.6%
NOTE M.-PENSION PLAN
The Company has a 401(k) plan, contributions in 1995 were $92,000, $94,000
in 1994, and $80,000, in 1993.
NOTE N.-SALARY CONTINUATION AGREEMENT
During 1994, the Company entered into a salary continuation agreement with an
officer. The agreement provides for the payment of specified amounts upon the
employee's retirement or death which is being accrued over the anticipated
remaining period of employment. Expense recognized for future benefits under
this agreement totaled $188,016 and $78,340 during 1995 and 1994 respectively.
<PAGE>
Although not part of the agreement, the Company purchased paid-up life insurance
on the officer which could provide funding for the payment of benefits.
Included in other assets is $874,265 and $831,985 of related cash surrender
value as of December 31, 1995 and 1994 respectively.
NOTE O.-COMMITMENTS and CONTINGENCIES
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
The subsidiary Banks are party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit and
standby letters of credit. They involve, to varying degrees, elements of credit
risk in excess of amounts recognized on the consolidated balance sheets.
The subsidiary Banks' exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The subsidiary Banks use the same credit policies in making
commitments and issuing letters of credit as they do for on-balance-sheet
instruments.
A summary of the contract or notional amount of the Banks' exposure to
off-balance-sheet risk as of December 31, 1995 and 1994 is as follows:
1995 1994
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 24,064,000 26,364,000
Standby letters of credit 4,387,000 2,233,000
Notional amount of financial instruments -
Interest rate swap 2,000,000 2,000,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional
commitments issued by the subsidiary Banks to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The subsidiary Banks evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the subsidiary Banks upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
On April 10, 1991, the Company entered into a $2,000,000 interest rate swap
agreement with another company to manage interest rate exposure. The interest
rate swap agreement is structured as a hedge of specific fixed-rate loans whose
terms coincide with the term of the swap agreement. Under the terms of the swap
agreement, the parties exchange interest payment streams calculated on the
$2,000,000 notional principal amount. The swap agreement is structured so that
the Company pays a fixed interest rate of 8.27% and receives a variable rate
based on the 3 month LIBOR. The variable rate of this swap agreement at
December 31, 1995 was 5.94% and the weighted average for the year ended December
31, 1995 was 6.23%. The swap agreement expires on April 10, 1996, which
coincides with the maturity of the fixed rate loans.
<PAGE>
NOTE P.-Concentration of Credit Risk
Practically all of the subsidiary Banks' loans, commitments, and commercial and
standby letters of credit have been granted to customers in the subsidiary
Banks' market area. Although the subsidiary Banks have a diversified loan
portfolio, the ability of their debtors to honor their contracts is dependent
on the economic conditions of the counties surrounding the subsidiary Banks.
The concentration of credit by type loan are set forth in note E.
NOTE Q.-RETAINED EARNINGS
A source of income and funds of First Banking Center, Inc. are dividends from
its subsidiary Banks. Dividends declared by the subsidiary Banks that exceed
the net income for the most current year plus retained net income for the
preceding two years must be approved by Federal and State regulatory agencies.
Under this formula, dividends of approximately $5,021,000 may be paid without
prior regulatory approval. Maintenance of adequate capital at the subsidiary
Banks effectively restricts potential dividends to an amount less than
$5,021,000.
NOTE R.-REGULATORY CAPITAL REQUIREMENTS
The subsidiary Banks are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the subsidiary Banks' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary Banks must meet specific capital guidelines that involve
quantitative measures of the subsidiary Banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The subsidiary Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
requires the subsidiary Banks to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined) and Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1995, the
subsidiary Banks meet all capital adequacy requirements to which it is subject.
As of December 31, 1995, the most recent notification from the regulatory
agencies categorized the subsidiary Banks as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the subsidiary Banks must maintain minimum total risk-based,
Tier I risk- based, and leverage ratios as set forth in the table. There are
no conditions or events since these notifications that management believes have
changed the institution's category.
Following is a comparison of the subsidiary Banks' 1995 actual with the minimum
requirements for well-capitalized and adequately capitalized banks, as defined
by the federal regulatory agencies' Prompt Corrective Action Rules:
1995 Actual Minimum Requirements
First Banking First Banking
Center- Center- Well Adequately
Burlington Albany capitalized capitalized
Tier 1 risk-based
capital 14.25% 15.02% 6.00% 4.00%
Total risk-based
capital 15.50% 16.28% 10.00% 8.00%
Leverage ratio 9.63% 9.78% 5.00% 4.00%
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NOTE S.-Fair VALUES of FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
December 31, 1995 December 31, 1994
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
Financial assets:
Cash and cash equivalents $ 22,188,000 22,188,000 12,087,000 12,087,000
Interest bearing deposits
in banks 4,303,000 4,303,000 1,899,000 1,899,000
Securities 60,197,000 60,259,000 51,787,000 51,160,000
Loans 170,355,000 170,535,000 157,773,000 156,962,000
Less allowance for
loan losses 2,336,000 2,095,000
Net loans 168,019,000 170,535,000 155,678,000 156,962,000
Financial liabilities:
Deposits 208,830,000 208,857,000 187,110,000 186,858,000
Repurchase agreements 20,225,000 20,229,000 13,755,000 13,755,000
U.S. Treasury note account 91,000 91,000 697,000 697,000
Long-term borrowings 8,933,000 8,974,000 6,805,000 6,601,000
Off-balance-sheet instruments
interest rate swap (25,000) (35,000)
NOTE T.-FIRST BANKING CENTER, INC. (PARENT COMPANY only) FINANCIAL INFORMATION
December 31,
1995 1994
Condensed balance sheets:
Assets:
Cash $ 205,000 136,000
Investment in subsidiaries 23,521,000 20,564,000
Interest-bearing deposits in banks 120,000 115,000
Other assets 123,000 49,000
Total assets $ 23,969,000 20,864,000
Liabilities - other liabilities $ 85,000 38,000
Stockholders' equity:
Common stock, $1.00 par, 3,000,000 shares
authorized, 1,468,000 shares issued $ 1,468,000 1,468,000
Surplus 3,995,000 3,986,000
Retained earnings 18,570,000 16,353,000
24,033,000 21,807,000
Treasury stock - 27 and 5,316, shares
for 1995 and 1994 respectively, at cost (1,000) (54,000)
Unrealized gain (loss) on available
for sale securities, net (148,000) (927,000)
Total stockholders' equity 23,884,000 20,826,000
Total liabilities and
stockholders' equity $ 23,969,000 20,864,000
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December 31,
1995 1994 1993
Condensed statements of income:
Income:
Dividends from subsidiaries $ 687,000 603,000 515,000
Management fees from subsidiaries 1,293,000
Other 6,000 6,000 10,000
Total income 1,986,000 609,000 525,000
Expenses:
Salaries and employee benefits 912,000
Occupancy expenses 83,000
Equipment expense 185,000
Computer services 21,000
Other expenses 190,000 29,000 32,000
Total expenses 1,391,000 29,000 32,000
Income before income tax benefit
and equity in undistributed net
income of subsidiaries 595,000 580,000 493,000
Income tax benefit (31,000) (9,000) (8,000)
Income before equity in undistributed
net income of subsidiaries 626,000 589,000 501,000
Equity in undistributed net income
of subsidiaries 2,178,000 1,775,000 1,680,000
Net income $ 2,804,000 2,364,000 2,181,000
Condensed statements of cash flows:
Cash flows from operating activities:
Net income $ 2,804,000 2,364,000 2,181,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of goodwill 2,000 2,000 10,000
(Increase) decrease in other assets (54,000) (25,000)
(Increase) decrease in income taxes
receivable (23,000) (2,000) 2,000
Increase (decrease) other liabilities 48,000
Equity in undistributed earnings (2,178,000) (1,775,000) (1,680,000)
Total adjustments (2,205,000) (1,800,000) (1,668,000)
Net cash provided by operating activities 599,000 564,000 513,000
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Cash flows from investing activities:
Net (increase) decrease in interest-
bearing deposits in banks $ (5,000) 21,000 (8,000)
Cash flows from financing activities:
Payments to subsidiaries (170,000)
Proceeds from stock options exercised 62,000 67,000 60,000
Dividends paid (587,000) (526,000) (484,000)
Net cash used in financing
activities (525,000) (459,000) (594,000)
Net increase (decrease) in cash
and cash equivalents 69,000 126,000 (89,000)
Cash and cash equivalents
at beginning of year 136,000 10,000 99,000
Cash and cash equivalents
at end of year $ 205,000 136,000 10,000
Supplemental disclosures of cash flow information:
Cash paid (received) during year for:
Interest $
Income taxes (received) $ (9,000) (8,000) (10,000)
FIRST BANKING CENTER, INC.
TRADING MARKET FOR THE COMPANY'S STOCK
The Company's stock is not actively traded. Robert W. Baird & Co. and A. G.
Edwards & Sons, Inc., however, do make a market in the stock. The range and
sales prices, based upon information given to the Company by Robert W. Baird
& Co. Incorporated, A. G. Edwards & Sons, Inc. and by parties to sales, are
listed below for each quarterly period during the last two years.
Stock Prices
Low High
1995 by quarter 1st 20.00 20.00
2nd 20.00 21.00
3rd 21.00 22.00
4th 22.00 22.00
1994 by quarter 1st 15.67 15.67
2nd 15.67 17.16
3rd 16.63 19.00
4th 18.50 20.00
