PART 1
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's operations department
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, Genoa City, Kenosha, Lake
Geneva, Lyons, Pell Lake, Somers, Union Grove, Walworth, Whitewater,
and Wind Lake, 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. The Banks are
also members of the Federal Reserve Bank 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 in 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 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, 1997, the Company and its
subsidiaries had 196 full and part-time employees.
MISCELLANEOUS
The business of the Company is not seasonal. To the best of
management's knowledge, there is no 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 specific loans; for the years ended
December 31, 1996, 1995, and 1994. Also, where applicable,
information is presented for December 31, 1993 and 1992.
Section I
Schedule A
FIRST BANKING CENTER, INC.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Average Balance Sheet
(000's Omitted)
1996 1995 1994
Cash and due from banks $ 9,972 8,648 6,637
Fed funds sold and securities purchased
under agreement to resell 4,101 5,191 1,534
Interest bearing deposits in other banks 3,102 3,180 4,431
Investment securities:
U.S. Treasury agency and other 46,589 48,073 42,873
States and political subdivisions 14,691 8,829 10,192
Unrealized Gain/(Loss) on Securities (378) (672) (395)
Loans:
Real estate mortgages 64,848 68,019 63,394
Consumer - net 12,757 12,183 12,007
Commercial and other 98,709 82,742 71,578
Total 176,314 162,944 146,979
Less allowance for loan losses 2,568 2,200 1,989
Net loans 173,746 160,744 144,990
Goodwill 261 14 17
Other assets 11,078 9,695 7,581
Total assets $ 263,162 243,702 217,860
Interest bearing deposits:
NOW accounts $ 20,392 18,705 16,619
Savings deposits 27,531 26,163 26,850
Money Market deposit accounts 36,610 34,849 37,569
Time deposits 91,000 85,454 72,817
Total interest bearing deposits 175,533 165,171 153,855
Demand deposits 29,550 26,563 23,945
Total deposits 205,083 191,734 177,800
Short-term borrowings 490 766 1,418
Sec'ts. sold under agreements to repurchas 21,427 17,112 10,017
Other liabilities 2,861 2,443 1,566
Long-Term Borrowings 8,398 9,186 6,745
Total liabilities 238,259 221,241 197,546
Equity capital 24,903 22,461 20,314
Total liabilities and capital $ 263,162 243,702 217,860
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)
1996 1995 1994
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 $ 3,102 173 5.58% 3,180 183 5.75% 4,384 180 4.11%
Investments (taxable)(a) 46,589 2,887 6.20% 48,073 2,941 6.12% 42,873 2,401 5.60%
Investments (nontax.)(a)(b) 14,691 1,100 7.49% 8,829 749 8.48% 10,192 872 8.56%
Funds sold 4,101 248 6.05% 5,191 308 5.93% 1,534 55 3.59%
Loans (b)(c)(d) 173,746 16,317 9.39% 160,744 15,092 9.39% 144,990 12,243 8.44%
Total earnings assets $ 242,229 20,725 8.56% 226,017 19,273 8.53% 203,973 15,751 7.72%
Interest bearing liabilities:
NOW accounts $ 20,392 561 2.75% 18,705 519 2.77% 16,619 441 2.65%
Savings deposits 27,531 766 2.78% 26,163 771 2.95% 26,850 793 2.95%
Money Market deposit accounts 36,610 1,515 4.14% 34,849 1,389 3.99% 37,569 1,229 3.29%
Time deposits 91,000 5,245 5.76% 85,454 4,808 5.63% 72,817 3,352 4.60%
Short-term borrowings 490 20 4.08% 766 48 6.27% 1,418 51 3.60%
Sec'ts. sold under to
repurchase 21,427 1,143 5.33% 17,112 927 5.42% 10,017 417 4.16%
Long-term borrowings 8,398 514 6.12% 9,186 504 5.49% 6,745 352 5.22%
Total interest-bearing
liabilities $ 205,848 9,764 4.74% 192,235 8,966 4.66% 172,035 6,635 3.86%
Interest spread 10,961 3.82% 10,307 3.87% 9,116 3.86%
Interest margin 10,961 4.53% 10,307 4.56% 9,116 4.47%
<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 instruments 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 inclused 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 1996:
Time deposits in banks $ (10) (4) (6)
Investment (taxable) (b) (54) (91) 37
Investments (nontaxable) (b) (c) 351 497 (146)
Funds sold (60) (65) 5
Loans (c) (d) 1,225 1,221 4
Total interest income 1,452 1,558 (106)
NOW accounts 42 47 (5)
Savings deposits (5) 40 (45)
Money Market deposit accounts 126 75 51
Other time deposits 437 312 125
Short-term borrowings (28) (17) (11)
Sec. sold under Agreement to Repurchase 216 234 (18)
Long-term Borrowings 10 (43) 53
Total interest expense 798 648 150
Net change for 1996: $ 654 910 (256)
Increase (decrease) for 1995:
Time deposits in banks $ 3 (49) 52
Investment (taxable) 540 291 249
Investments (nontaxable) (123) (117) (6)
Funds sold 253 131 122
Loans 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
Sec. sold under Agreement to Repurchase 152 127 25
Total interest expense 2,331 926 1,405
Net change for 1995: $ 1,191 660 531
(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 instruments are presented on a
federal tax 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 (a)
(000's Omitted)
Available for Sale: 1996 1995
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations $ 42,437 25,762
Obligations of states and political subdivision 19,394 0
Other 3,531 4,330
Held to Maturity:
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations 0 17,284
Obligations of states and political subdivision 0 11,377
Other 0 1,244
Total $ 65,362 59,997
1994 (b)
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations $ 37,797
Obligations of states and political subdivision 8,914
Other 5,076
Total $ 51,787
(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 FASB 115, 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, 1996
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) $ 18,468 22,130 1,589 250 42,437
Weighted average yield 5.58% 6.33% 6.57% 8.69% 6.03%
Obligations of States and Political Subd. 3,501 5,825 9,567 501 19,394
Weighted average yield 7.41% 6.98% 7.24% 8.32% 7.22%
Other Securities (a) 3,531 0 0 0 3,531
Weighted average yield 6.20% 0.00% 0.00% 0.00% 6.20%
TOTAL AVAILABLE FOR SALE $ 25,500 27,955 11,156 751 65,362
Weighted Ave. Yield of Total 5.92% 6.46% 7.14% 8.45% 6.39%
<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,
1996 1995 1994 1993 1992
Commercial $ 30,808 27,659 27,713 24,908 16,887
Agricultural production 6,167 5,810 6,163 7,593 9,376
Real Estate:
Construction 25,164 20,652 14,437 13,213 10,463
Commercial 40,935 37,005 33,027 23,663 25,805
Agriculture 705 733 1,014 1,646 2,229
Residential 79,129 67,729 66,004 56,548 47,726
Municipal 4,254 3,806 2,341 2,815 2,682
Consumer 7,225 6,961 7,074 7,201 10,843
TOTAL $ 194,387 170,355 157,773 137,587 126,011
SECTION III
Schedule B
<TABLE>
FIRST BANKING CENTER, INC.
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE
(000's Omitted)
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> <C>
December 31, l996
Comm'l and agricultural $ 28,395 8,234 346 36,975 6,730 1,850 8,580
Real estate - constr. 22,404 2,760 0 25,164 1,961 799 2,760
TOTAL $ 50,799 10,994 346 62,139 8,691 2,649 11,340
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
December 31, l995
Comm'l and agricultural $ 29,454 3,052 963 33,469 1,505 2,510 4,015
Real estate - constr. 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
</TABLE>
Section III
Schedule C
First Banking Center, Inc.
Non-Performing Loans
(000's omitted)
1996 1995 1994 1993 1992
Nonaccrual Loans $260 $1,501 $778 $1,754 $551
Past Due 90 days + (1) 17 2 ----- ------ -----
Restructured Loans (2) ---- ------ ----- ------ -----
Notes:
(1) Loans are generally 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 an accrual basis, would have amounted to $6,000 in
1996, $25,000 in 1995, $12,000 in 1994, $95,000 in 1993, and
$11,000 in 1992. Interest income on these loans, which is
recorded only when received, amounted to $6,000 in 1996,
$7,000 in 1995, $4,000 in 1994, $2,000 in 1993, and $11,000 in
1992.
(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, 1996, 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)
1996 1995 1994 1993 1992
Beginning loan loss reserve $ 2,336 2,095 1,886 1,714 1,393
Charge-offs:
Commercial 0 22 4 167 58
Agricultural production 0 0 1 5 0
Real Estate:
Construction 0 0 0 114 0
Commercial 0 0 0 190 0
Agriculture 0 0 0 0 0
Other Mortgages 1 214 198 29 0
Installment - consumer 33 55 102 99 50
Recoveries:
Commercial 12 19 68 6 16
Agricultural production 0 0 3 10 0
Real Estate:
Construction 0 0 113 2 0
Commercial 0 0 0 0 0
Agriculture 0 0 0 17 0
Other Mortgages 5 2 13 2 2
Installment - consumer 31 41 47 29 33
Net Charge-offs/(Recoveries) (14) 231 61 538 57
Additions charged to operation 247 470 270 710 378
Additions related to branch
acquisitions 300 0 0 0 0
Balance at end of period $ 2,897 2,336 2,095 1,886 1,714
Ratio of net charge-offs/
(recoveries) during the
period to ave. loans
outstanding during the
period -0.01% 0.14% 0.04% 0.42% 0.05%
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 million or 36% of the
allowance to these loans. These loans comprise about 55% of the loan
portfolio. Residential mortgages carry a small element of risk and comprise
about 41% of the loan portfolio. Seventy-six thousand dollars of the
allowance or about 2.6% has been allocated to residential morgages. Consumer
loans comprise about 4% of the loan portfolio and $55 thousand or about 1.9%
of the allowance is allocated to consumer loans. The company has allocated
$36 thousand dollars of the allowance to unfunded loan commitments which
total approximately $34 thousand dollars. The balance of the allowance or
$1.69 million is unallocated.
SECTION V
Schedule A
FIRST BANKING CENTER, INC.
Three Year Summary of Average Deposits
(000's Ommitted)
RATE RATE RATE
1996 PAID 1995 PAID 1994 PAID
Deposit in domestic bank
offices:
Non-interest bearing demand $ 29,550 26,563 23,945
Interest-bearing demand 20,392 2.75% 18,705 2.77% 16,619 2.65%
Money Market demand 36,610 4.14% 34,849 3.99% 37,569 3.29%
Savings deposits 27,531 2.78% 26,163 2.95% 26,850 2.95%
Time deposits 91,000 5.76% 85,454 5.63% 72,817 4.60%
Total Deposits $ 205,083 3.94% 191,734 3.90% 177,800 3.27%
SECTION V
Schedule B
FIRST BANKING CENTER, INC.
Maturity Schedule for Time Deposits of $100,000 or More
(000's Omitted)
For Year Ending December 31, 1996:
3 MONTHS OVER 3 MOS. OVER 6 MOS. OVER
OR LESS THRU 6 MOS. THRU 12 MOS. 12 MOS.
Certificates of Deposit $ 1,188 2,023 3,636 3,184
Other Time Deposits 107 0 104 0
TOTAL $ 1,295 2,023 3,740 3,184
SECTION VI
FIRST BANKING CENTER, INC.
Three Year Summary of Return on Equity and Assets
1996 1995 1994
Return on average assets 1.07% 1.15% 1.09%
Return on average equity 11.29% 12.48% 11.64%
Dividend payout ratios on common stock 24.21% 20.94% 22.36%
Average equity to average assets 9.46% 9.22% 9.32%
SECTION VII
FIRST BANKING CENTER, INC.
Short-term Borrowings
(000's Omitted)
Securities sold under
agreements to repurchase (1)
End of Year: 1996 1995 1994
Balance $30,925 $20,225 13,755
Weighted Ave. Rate 5.42% 5.48% 4.18%
For the Year:
Maximum Amount
Outstanding $34,175 $20,225 13,755
Average Amount
Outstanding $21,427 $17,112 10,017
Weighted Ave. Rate 5.31% 5.39% 4.16%
(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 was 3.2 months, 3.6 months, and 3.75 months
for the years 1996, 1995, and 1994, 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, Genoa
City, Pell Lake, Somers, Walworth, 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 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 2 of the Annual Report to Shareholders for the
year ended December 31, 1996 and are incorporated herein by
reference.
(a) There were 787 holders of record of the Company's $1.00
par value common stock on March 1, 1997.
ITEM 6: SELECTED FINANCIAL DATA
Selected financial data is presented on page 24 of the
Annual Report to Shareholders for the year ended December 31,
1996 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 on pages 25-27 of the Annual
Report to Shareholders for the year ended December 31, 1996 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, 1996 are
incorporated herein by reference:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
December 31, 1996 and 1995
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
Consolidated Statements of Changes in Components of Stockholder's Equity
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
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 22, 1997,
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 22, 1997,
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 22, 1997,
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 on page 13, 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 (contained
herein).
(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
the Annual Report To Shareholders, Note W, Pages 22-23.
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, 1997
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 Chief Accounting Officer
MELVIN WENDT RICHARD MCKINNEY
Melvin Wendt, Director Richard McKinney, Director
JOHN SMITH JOHN ERNSTER
John Smith, Director John Ernster, Director
DAVID BOILINI PAT SEBRANEK
David Boilini, Director Pat Sebranek, Director
CHARLES WELLINGTON
Charles Wellington, Director
*Each of the above signatures is affixed as of March 25, 1997.
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 1996 Annual
Shareholders Meeting. Above items will be furnished to
shareholders subsequent to this filing.
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
(414) 763-3581
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1997
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 22nd day of April, 1997, at 1:30 P.M.
for the purpose of considering and voting upon the following matters:
1.) Election of 8 directors as described in the Proxy Statement dated
March 3, 1997.
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 3, 1997 will
be entitled to notice of and to vote at the Annual Meeting of April 22,
1997, or any adjournment(s) thereof.
John S. Smith
Secretary-Treasurer
Burlington, Wisconsin
March 3, 1997
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.
Burlington, Wisconsin
PROXY FOR ANNUAL MEETING
This Proxy is Solicited by the Board of Directors of First Banking Center, Inc.
For The Annual Meeting of Stockholders
April 22, 1997
The undersigned hereby constitutes and appoints Robert Winkler and
Jane Robers, and each of them, with full power to act alone and with power
of substitution, to be the true and lawful attorney and proxy of the
undersigned to vote at the Annual Meeting of Shareholders of First Banking
Center, Inc. to be held at the Banking House, 400 Milwaukee Avenue,
Burlington, Wisconsin on April 22, 1997 at 1:30 P.M., or at any
adjournment(s) thereof, the shares of stock which the undersigned would be
entitled to vote at that meeting and at any adjournment(s) thereof, as
indicated below. The undersigned hereby revokes any proxy heretofore given
and ratifies all that said attorneys and proxies or their substitutes may
do by virtue hereof.
1.) ELECTION OF DIRECTORS
The eight persons listed below have been nominated for
election as directors as discussed in the Proxy Statement dated
March 3, 1997 attached hereto:
David Boilini Roman Borkovec John Ernster Richard McKinney
Patrick Sebranek John S. Smith Charles Wellington Melvin Wendt
( ) ELECT AS DIRECTORS THE EIGHT NOMINEES LISTED ABOVE
( ) WITHHOLD AUTHORITY TO VOTE FOR THE EIGHT NOMINEES LISTED ABOVE
( ) WITHHOLD AUTHORITY TO VOTE FOR INDIVIDUAL NOMINEES (TO
WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CHECK
THIS BOX AND DRAW A LINE THROUGH THAT NOMINEE'S NAME ABOVE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE EIGHT
PERSONS LISTED ABOVE.
If any additional matters are properly presented, the persons named
in the proxy will have the discretion to vote in accordance with their own
judgment in such matters. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE BY WRITTEN NOTICE TO
THE SECRETARY OF THE CORPORATION OR BY SUBMITTING A LATER-DATED PROXY, OR
BY ATTENDING THE ANNUAL MEETING. THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH INSTRUCTIONS GIVEN BY THE STOCKHOLDER, BUT IF NO INSTRUCTIONS ARE
GIVEN, THIS PROXY WILL BE VOTED TO ELECT THE PERSONS LISTED ABOVE.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting dated March 3, 1997, and the Proxy Statement dated March 3, 1997
and enclosed herewith.
Dated _______________________, 1997
____________________________________________
____________________________________________
____________________________________________
Signature of Stockholder(s)
Number of Shares ________________________
(Please sign your name exactly as it appears
on the Proxy. In signing as Executor,
Administrator, Personal Representative,
Guardian, Trustee, or Attorney, please add your
title as such. All joint owners should sign.)
<PAGE>
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 22, 1997
The Annual Meeting of Stockholders of First Banking Center, Inc. (the
"Corporation") will be held at 1:30 P.M. on April 22, 1997, 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 17, 1997.
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, 1997, there were 1,476,198 shares of Common Stock ($1.00
par value) of the Corporation outstanding. The Board of Directors has fixed
March 3, 1997 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 3,
1997, 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 eight 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.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of January 28, 1997, the Trust Department of a wholly-owned subsidiary of
the Corporation owned in a fiduciary capacity 158,767 shares of Common Stock,
constituting 10.8% of the Corporation's outstanding shares entitled to vote.
Sole voting and investment power is held with respect to 59,806 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 8 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 8
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 four meetings
during the year of 1996.
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 1996, the Compensation Committee met three
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 1996, the Audit Committee met four
times.
<PAGE>
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 1996, the Nominating Committee met
once.
The following table sets forth information as of January 8, 1997 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 Other Period of beneficially
Position with Service as owned as of Percent of
First Banking Age Director 1/8/97 (1) Outstanding Committee
Center, Inc.
<S> <C> <C> <C> <C> <C>
Roman F. Borkovec 65 Aug. 1981 82,242 (2) 5.7% Building, Trust,
President, to date Loan, and
Chairman, Chief and Nominating
Executive Officer
John S. Smith 37 Dec. 1992 13,217 (3) .9% Trust, Loan,
Secretary/Treas. to date and Nominating
Richard McKinney 59 May 1988 7,232 (4) .5% Audit, CRA,
to date and Compensation
Melvin W. Wendt 58 Oct. 1989 9,482 (5) .6% Audit, Trust,
Vice Chairman of to date and Nominating
the Board
John M. Ernster 47 Apr. 1992 1,196 (6) .08% Audit, Nominating,
to date and Examination
David Boilini 44 Dec. 1993 8,871 (7) .6% Nominating, Loan,
to date and Compensation
Charles Wellington 47 Jun. 1996 2,000 (8) .1% Planning and
to date Audit
Patrick Sebranek 50 Dec, 1996 2,222 (9) .2% Trust and
to date Compensation
<PAGE>
<FN>
ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION AS A GROUP (8 IN
NUMBER INCLUDING THE ABOVE) OWN 126,462 SHARES OF COMMON STOCK OF THE
CORPORATION OR 8.57% 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. Beneficial ownership includes shares issuable within
60 days upon exercise of incentive stock options owned by certain
named individuals.
<F2>
(2) Consists of 74,091 shares held directly by Mr. Borkovec, and 8,151
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 1974 to 1994. He served
as Vice Chairman of the Board of First Banking Center - Burlington
and First Banking Center, Inc. from 1994 to 1996. 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 1989.
<F3>
(3) Consists of 13,217 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.
<F4>
(4) Consists of 2,452 shares held in joint tenancy with his wife in
which shares Mr. McKinney shares voting and investment powers,
3,682 shares held directly by Mr. McKinney, and 1,098 shares held
by his wife in which Mr. McKinney disclaims voting or investment
powers.
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.
<F5>
(5) Consists of 8,138 shares held in joint tenancy with his wife in
which shares Mr. Wendt has shared voting and investment powers and
1,344 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.
<PAGE>
<F6>
(6) Consists of 1,196 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 from 1994 to present.
<F7>
(7) Consists of 6,993 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.
<F8>
(8) Consists of 2,000 shares held directly by Mr. Wellington.
Mr. Wellington was appointed to the Board in June of 1996. He has
been a director of First Banking Center-Albany, Albany, Wisconsin,
since January 1989. Mr. Wellington has been a partner in the law
firm of Kittleson, Barry, Ross, Wellington, and Thompson since
1981.
<F9>
(9) Consists of 33 shares held directly by Mr. Sebranek and 2,189
shares held in joint tenancy with his wife in which shares Mr.
Sebranek shares voting and investment powers.
Mr. Sebranek was apointed to the Board in December of 1996. He has
been a director of First Banking Center-Burlington, Burlington,
Wisconsin, since September 1995. Since 1976 Mr. Sebranek has been
owner and editorial director of the Write Source, an educational
development house for English text books.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
<PAGE>
Fees
Directors of the Corporation are paid the following fees for their services:
$425.00 per directors meeting, and $75.00 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 $55,000, $104,000, and $95,000, respectively, for 1996, 1995,
and 1994.
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 $18,000, $43,000 and $41,000, respectively, for 1996, 1995, and
1994. Deferred directors' fees in each of the respective years were $12,000,
$21,000 and $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, 1996, 1995 and 1994 of the
person who was, on December 31, 1996, the Chief Executive Officer of the
Corporation.
No other executive officer received a total annual salary and bonus in excess
of $100,000 in 1996, and no disclosure is provided for such other executive
officers.
<PAGE>
<TABLE>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Awards
Securities
Name and Salary Bonus Other Underlying All Other
Principal Year ($) ($) Annual Options/SARs Comp.
Position Comp.(1) (#)
<S> <C> <C> <C> <C> <C>
Roman 1996 $176,000 $22,000 700 $26,000 (2)
Borkovec, 1995 $158,000 $14,000 1,400 $31,000 (3)
President, 1994 $158,000 $14,000 1,200 $29,000 (4)
CEO and
Chairman of
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; payments from the the deferred compensation plan of $7,000; and
accrued liability of $5,000 and $6,000, 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) 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.
<F4>
(4) 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.
</FN>
</TABLE>
<PAGE>
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.
<PAGE>
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 $98,000 in 1996, $92,000 in 1995 and
$94,000 in 1994.
<PAGE>
Incentive Stock Option Plan
The following table presents information about stock options granted during
1996 to the executive officer named in the Summary Compensation Table.
Stock Option Grants in 1996
Individual Grants
Number of Percent of Total
Securities Options Granted
Underlying to Employees in Exercise Expiration
Name Options(1) Fiscal Year (1) Price Date
Roman 700 4.7% $25.50 12/31/01
Borkovec
(1) All options granted in 1996 were granted under the 1994 Incentive
Stock Option Plan.
The following table presents information concerning stock options exercised
during 1996. Also shown is information on unexercised options as of December
31, 1996.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Value of Exercised,
Shares Value Unexercised In-the-Money Options
Name Acquired Realized Options at FY End at FY End
On Exercise (1)(2) Exercisable/ Exercisable/
Unexercisable Unexercisable
Roman
Borkovec 2,861 $28,000 867 / 2,033 $4,200 / $5,800
(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.
<PAGE>
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.
<PAGE>
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. Options 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.
<PAGE>
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.
<PAGE>
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 1996 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
1996. 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.
<PAGE>
The Compensation Committee:
David Boilini Patrick Sebranek 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
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
FBC, Inc. 100 111 138 183 205 243
S&P 500 100 108 118 120 165 203
NASDAQ Bank Index 100 146 166 165 245 316
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
$1,065,000 and $765,000 at December 31, 1996 and 1995, respectively. During
1996, $837,000 of new loans were made and repayments totaled $537,000. 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,
1996 represented 4.06% 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 1996 were satisfied on a timely basis.
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Conley, McDonald and Company performed a complete audit of First Banking
Center, Inc. during 1996 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 1996 Income
Tax returns. No representative of Conley, McDonald and Company will be
present at the Annual Stockholders' Meeting on April 22, 1997. The Board of
Directors will engage the services of a public accounting firm to provide a
certified financial statement for 1997. The Board will select such accounting
firm at its annual Directors Meeting.
PROPOSALS BY STOCKHOLDERS
Shareholders' proposals to be presented at the 1998 Annual Stockholders'
Meeting must be received by the Corporation at its principal office, 400
Milwaukee Avenue, Burlington, Wisconsin, on or before November 3, 1997.
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 3, 1997
FIRST BANKING CENTER, INC.
FINANCIAL HIGHLIGHTS
FOR THE YEAR 1996 1995
Net Income $2,811,000 $2,804,000
Cash Dividends 678,000 587,000
Net Income per share 1.90 1.91
Cash Dividend declared per share .46 .40
Return on Average Equity 11.29% 12.48%
Return on Average Assets 1.07% 1.15%
AVERAGES
Assets $263,162,000 $243,702,000
Total earning assets 242,029,000 225,345,000
Loans 173,746,000 160,744,000
Deposits 205,083,000 191,734,000
Stockholders' equity 24,903,000 22,461,000
AT YEAR END
Total Assets $304,720,000 $264,568,000
Stockholders' equity 26,240,000 23,884,000
Book value per share 17.78 16.26
FIRST BANKING CENTER, INC.
TRADING MARKET FOR THE COMPANY'S STOCK
The Company's stock is not actively traded. Robert W. Baird & Co. Incorporated
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
1996 by quarter 1st $22.00 $23.00
2nd 22.00 23.00
3rd 24.00 25.50
4th 25.00 26.25
1995 by quarter 1st 20.00 20.00
2nd 20.00 21.00
3rd 21.00 22.00
4th 22.00 22.00
Semi-annual dividends paid the last two fiscal years.
1996 1995
Dividends paid
June $.23 $ .20
December .23 .20
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
Cash and due from banks (Note B) $ 21,412,000 $17,638,000
Federal funds sold 7,905,000 4,550,000
---------- ----------
Cash and cash equivalents 29,317,000 22,188,000
Interest-bearing deposits in banks 4,869,000 4,303,000
Available for sale securities - stated at fair
value (Note C) 65,362,000 30,092,000
Held to maturity securities - fair value
of $-0- in 1996 and $30,167,000 in 1995 (Note D) 29,905,000
Loans, less allowance for loan losses of
$2,897,000 and $2,336,000 in 1996 and 1995
respectively (Notes E, F and R) 191,490,000 168,019,000
Office buildings and equipment, net (Note G) 6,595,000 5,071,000
Accrued interest receivable and other
assets (Notes H, I, N and P) 7,087,000 4,990,000
------------ ------------
Total assets $304,720,000 $264,568,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits: (Note J)
Demand $ 37,109,000 $ 32,995,000
Savings and NOW accounts 100,662,000 86,599,000
Time 97,088,000 89,236,000
----------- -----------
Total deposits 234,859,000 208,830,000
Securities sold under repurchase
agreements (Note K) 30,925,000 20,225,000
U.S. Treasury note account 540,000 91,000
Long-term borrowings (Note L) 9,489,000 8,933,000
Accrued interest payable and
other liabilities (Note N) 2,667,000 2,605,000
----------- -----------
Total liabilities 278,480,000 240,684,000
Commitments and contingencies (Note Q)
Stockholders' equity: (Note M)
Common stock, $1.00 par value, 3,000,000 shares
authorized; 1,476,198 and 1,468,464 shares issued
as of December 31, 1996 and 1995 respectively 1,476,000 1,468,000
Surplus 4,091,000 3,995,000
Retained earnings (Notes S and T) 20,703,000 18,570,000
---------- ----------
26,270,000 24,033,000
Treasury stock, -0- and 27 shares for
1996 and 1995 respectively, at cost (1,000)
Unrealized gain (loss) on available
for sale securities, net (30,000) (148,000)
---------- ----------
Total stockholders' equity 26,240,000 23,884,000
------------ ------------
Total liabilities and stockholders' equity $304,720,000 $264,568,000
============ ============
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
INCOME
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Interest income:
Interest and fees on loans (Note E) $16,234,000 $15,017,000 $12,170,000
Interest on securities:
Taxable 2,781,000 2,822,000 2,268,000
Non-exempt 712,000 480,000 557,000
Interest on federal funds sold 248,000 308,000 55,000
Interest on deposits in banks 173,000 183,000 182,000
---------- ---------- ----------
Total interest income 20,148,000 18,810,000 15,232,000
Interest expense:
Interest on deposits (Note J) 8,087,000 7,487,000 5,815,000
Interest on federal funds
purchased and securities sold
under repurchase agreements (Note K) 1,143,000 940,000 446,000
Interest on U.S. Treasury
note account 20,000 35,000 22,000
Interest on long-term
borrowings (Note L) 514,000 504,000 352,000
--------- --------- ---------
Total interest expense 9,764,000 8,966,000 6,635,000
---------- --------- ---------
Net interest income before
provision for loan losses 10,384,000 9,844,000 8,597,000
Provision for loan losses (Note F) 247,000 470,000 270,000
---------- --------- ---------
Net interest income after
provision for loan losses 10,137,000 9,374,000 8,327,000
Other operating income:
Trust Department income 355,000 345,000 326,000
Service charges on deposit accounts 733,000 632,000 539,000
Investment securities
gains (losses) (Note C) (13,000) (11,000) (13,000)
Other income 687,000 541,000 506,000
--------- --------- ---------
Total other operating income 1,762,000 1,507,000 1,358,000
Other operating expenses:
Salaries and employee
benefits (Note O) 4,290,000 3,501,000 3,123,000
Occupancy expenses 605,000 547,000 511,000
Equipment expenses 876,000 659,000 491,000
Computer services 418,000 328,000 292,000
FDIC assessment 4,000 214,000 391,000
Other expenses 1,577,000 1,421,000 1,399,000
--------- --------- ---------
Total other operating expenses 7,770,000 6,670,000 6,207,000
--------- --------- ---------
Income before income taxes 4,129,000 4,211,000 3,478,000
Income taxes (Note N) 1,318,000 1,407,000 1,114,000
--------- --------- ---------
Net income $2,811,000 $2,804,000 $2,364,000
========== ========== ==========
Earnings per share:
Primary $ 1.90 $ 1.91 $ 1.61
Fully diluted $ 1.90 $ 1.91 $ 1.61
Weighted average shares outstanding 1,471,230 1,470,162 1,463,998
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CHANGES IN COMPONENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
Unrealized
gain (loss)
on available
Common Retained Treasury for sale
stock Surplus earnings stock securities
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 11,000 56,000
options
Change in unrealized
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)
Net income - 1996 2,811,000
Cash dividends paid -
$.46 per share (678,000)
Exercise of stock
options 1,000
Issuance of 7,734 new
shares of stock for
the exercise of
stock options 8,000 96,000
Change in unrealized
gain (loss) on
available for sale
securities, net 118,000
--------- --------- ----------- -------- --------
Balances,
December 31, 1996 $ 1,476,000 4,091,000 20,703,000 0 (30,000)
See Notes to Consolidated Financial Statements.
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income $ 2,811,000 $ 2,804,000 $ 2,364,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 751,000 565,000 477,000
Provision for loan losses 247,000 470,000 270,000
Provision for deferred taxes (189,000) (189,000) (188,000)
Amortization and accretion of bond
premiums and discounts - net 134,000 121,000 171,000
Amortization of excess cost over equity
in underlying net assets of subsidiary 20,000 2,000 (1,000)
Investment securities (gains) losses 13,000 11,000 13,000
(Increase) decrease in assets:
Interest receivable 219,000 (468,000) (269,000)
Other assets (684,000) 238,000 (1,215,000)
Increase (decrease) in liabilities:
Taxes payable (140,000) (235,000) 204,000
Interest payable 209,000 350,000 26,000
Other liabilities (6,000) 598,000 288,000
------- --------- ---------
Total adjustments 574,000 1,463,000 (224,000)
--------- --------- ---------
Net cash provided by operating activities 3,385,000 4,267,000 2,140,000
Cash flows from investing activities:
Net (increase) decrease in
interest-bearing deposits in banks (566,000) (2,404,000) 9,110,000
Proceeds from sales of available for
sale securities 3,750,000 1,000,000 4,614,000
Proceeds from maturities of
available for sale securities 27,386,000 15,909,000 2,396,000
Purchase of available for
sale securities (34,738,000) (24,288,000) (7,841,000)
Proceeds from maturities of held to
maturity securities 6,190,000 7,370,000 9,655,000
Purchase of held to maturity securities (7,936,000) (7,200,000) (10,255,000)
Proceeds from sale of student loans 779,000
Net increase in loans (24,497,000) (12,811,000) (20,247,000)
Purchase of office buildings
and equipment (2,297,000) (929,000) (1,174,000)
Proceeds from disposal of office building
and equipment 21,000
Deposit premium paid in purchase
of branches (1,509,000)
---------- --------- ----------
Net cash used in investing activities (33,417,000) (23,353,000) (13,742,000)
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONCLUDED)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from financing activities:
Net increase in deposits $26,029,000 $21,720,000 $ 9,539,000
Dividends paid (678,000) (587,000) (526,000)
Proceeds from long-term borrowings 3,605,000 5,609,000 415,000
Payments on long-term borrowings (3,049,000) (3,481,000)
Net increase (decrease) in U.S. Treasury
note account 449,000 (606,000) (701,000)
Net increase in securities sold under
repurchase agreements 10,700,000 6,470,000 4,167,000
Proceeds from stock options exercised 105,000 62,000 67,000
Net cash provided by
financing activities 37,161,000 29,187,000 12,961,000
---------- ---------- ----------
Increase in cash and cash equivalents 7,129,000 10,101,000 1,359,000
Cash and cash equivalents
at beginning of year 22,188,000 12,087,000 10,728,000
Cash and cash equivalents at end of year $29,317,000 $22,188,000 $12,087,000
=========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 9,555,000 $ 8,616,000 $ 6,609,000
Income taxes $ 1,458,000 $ 1,642,000 $ 1,106,000
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 $31,587,000 $ - $22,269,000
Net change in unrealized gain (loss) on
available for sale securities $ 118,000 $ 779,000 $ (927,000)
Acquisitions:
Excess of cost over equity in underlying
net assets acquired $ 1,509,000 $ - $ -
Assets acquired:
Cash and cash equivalents 2,644,000
Loans 14,043,000
Office building and equipment, net 247,000
Other assets 1,000
Total assets $18,444,000 $ - $ -
Liabilities assumed:
Deposits $18,431,000 $ - $ -
Other liabilities 13,000
Total liabilities $18,444,000 $ - $ -
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 general practices 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 and consumer loans, accepts deposits
and provides trust services to customers primarily in southeastern and
south central Wisconsin. The subsidiary Banks are subject to competition
from other financial institutions and nonfinancial institutions providing
financial products. Additionally the Company and the subsidiary 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 subsidiary Banks maintain amounts due from banks which, at times, may
exceed federally insured limits. The subsidiary Banks have not experienced
any losses in such accounts.
5. Held to maturity securities:
Securities classified as held to maturity are those debt securities the
subsidiary Banks have 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. The sale of a security
within three months of its maturity date or after collection of at least 85
percent of the principal outstanding at the time the security was acquired
is considered a maturity for purposes of classification and disclosure.
<PAGE>
6. Available for sale securities:
Securities classified as available for sale are those debt securities that
the subsidiary Banks intend to hold for an indefinite period of time, but
not necessarily to maturity. 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 subsidiary
Banks' assets and liabilities, liquidity needs, regulatory capital
consideration, and other similar factors. Securities available for sale
are carried at fair value. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the related deferred
tax effect. Realized gains or losses, determined on the basis of the cost
of specific securities sold, are included in earnings.
7. Trading securities:
Trading securities, which are generally held for the short term, usually
under 90 days, in anticipation of market gains, are carried at fair value.
Realized and unrealized gains and losses on trading account assets are
included in interest income on trading account securities.
8. Loans:
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported 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. The accrual of interest income on
impaired loans is discontinued when, in the opinion of management, there
is reasonable doubt as to the borrower's ability to meet payment of
interest or principal when they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Cash collections on
impaired loans 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.
9. 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.
<PAGE>
10. 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.
11. 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.
12. Other real estate owned:
Other real estate owned, acquired through partial or total satisfaction of
loans is carried at the lower of cost or fair value less cost to sell. At
the date of acquisition losses are charged to the allowance for loan
losses. Revenue and expenses from operations and changes in the valuation
allowance are included in loss on foreclosed real estate.
13. 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. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes. 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.
14. 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.
15. 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.
<PAGE>
16. 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.
17. Fair value of financial instruments:
Financial Accounting Standards Board Statement No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, 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 No. 107 excludes certain financial
instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and cash equivalents
Federal funds sold
Short-term borrowing
Accrued interest receivable
Accrued interest payable
Variable rate loans that reprice frequently where no
significant change in credit risk has occurred
Demand deposits
Variable rate money market accounts
Variable rate certificate of deposit
Trading account securities
Available for sale securities
Quoted market prices:
Where available, or if not available, based on quoted market
prices of comparable instruments for the following instrument:
Held to maturity securities
<PAGE>
Discounted cash flows:
Using interest rates currently being offered on instruments
with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
Notes payable and other borrowing
Quoted fees currently being charged for similar instruments:
Taking into account the remaining terms of the agreements and
the counterparties' credit standing:
Off-balance-sheet instruments:
Guarantees
Letters of credit
Lending commitments
Since the majority of the Company's off-balance-sheet instruments consists
of nonfee-producing, variable rate commitments, the Company had determined
it does not have a distinguishable fair value.
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 $1,250,000 and $1,182,000 at
December 31, 1996 and 1995 respectively.
Note C. Available for Sale Securities
Amortized costs and fair values of available for sale securities as of
December 31, 1996 and 1995 are summarized as follows:
December 31, 1996
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
U.S. Treasury securities $ 6,657,000 $ 30,000 $ 15,000 $ 6,672,000
Obligations of other U.S.
government agencies
and corporations 13,890,000 11,000 27,000 13,874,000
Obligation of states and
political subdivisions 19,383,000 94,000 83,000 19,394,000
Other 140,000 1,000 141,000
---------- ------- ------- ----------
40,070,000 136,000 125,000 40,081,000
Mortgage-backed securities 21,920,000 140,000 169,000 21,891,000
Mutual funds 1,724,000 18,000 1,706,000
Federal Reserve Stock 450,000 450,000
Federal Home Loan Bank Stock 1,234,000 1,234,000
---------- ------- ------- ----------
$65,398,000 $276,000 $312,000 $65,362,000
=========== ======== ======== ===========
<PAGE>
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
=========== ========= ======== ===========
The amortized cost and fair value of available for sale securities as of
December 31, 1996, 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, 1996
Amortized Fair
cost value
Due in one year or less $15,503,000 $15,525,000
Due after one year through 5 years 12,974,000 12,984,000
Due after 5 years through 10 years 11,094,000 11,071,000
Due after 10 years 499,000 501,000
----------- -----------
$40,070,000 $40,081,000
=========== ===========
Following is a summary of the proceeds from sales of investment securities
available for sale, as well as gross gains and losses for the years ended
December 31:
1996 1995 1994
Proceeds from sales of investment
securities available for sale $3,750,000 $1,000,000 $4,614,000
========== ========== ==========
Gross gains on sales $ 6,000 $ $
Gross losses on sales (19,000) (11,000) (13,000)
-------- -------- --------
$ (13,000) $ (11,000) $ (13,000)
=========== =========== ===========
Related income taxes (benefit) $ $ $ (5,000)
=========== =========== ===========
Available for sale securities with a carrying amount of $32,056,000
and $19,244,000 as of December 31, 1996 and 1995 respectively, were
pledged as collateral on public deposits and for other purposes as
required or permitted by law.
<PAGE>
Note D. Held to Maturity Securities
During 1996, management reevaluated its investment goals and objectives and
determined it would be better served by classifying its entire investment
portfolio as available for sale. Accordingly, the Company reclassified all
of its held to maturity securities to available for sale effective December
31, 1996.
Amortized costs and fair values of held to maturity securities as of
December 31, 1995 is 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
========== ======= ======= ==========
Held to maturity securities with a carrying value of $5,771,000 as of
December 31, 1995 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,
1996 1995
Commercial $ 30,808,000 $27,659,000
Agricultural production 6,167,000 5,810,000
Real estate:
Construction 25,164,000 20,652,000
Commercial 40,935,000 37,005,000
Agricultural 705,000 733,000
Residential 79,129,000 67,729,000
Installment and consumer 7,225,000 6,961,000
Municipal loans 4,254,000 3,806,000
----------- -----------
194,387,000 170,355,000
Allowance for loan losses (2,897,000) (2,336,000)
----------- -----------
Total loans $191,490,000 $168,019,000
=========== ===========
<PAGE>
Impairment of loans having recorded investment at December 31, 1996 of
$260,000 and $1,501,000 at December 31, 1995 has been recognized in
conformity with FASB Statement No. 114 as amended by FASB Statement No.
118. The average recorded investment in impaired loans during 1996 and
1995 was $759,000 and $807,000 respectively. The total allowance for loan
losses related to these loans was $-0- for December 31, 1996 and 1995.
Interest income on impaired loans of $6,000 and $7,000 was recognized for
cash payments received in 1996 and 1995 respectively.
Certain directors and executive officers of the Company, and their related
interests, had loans outstanding in the aggregate amounts of $1,065,000 and
$765,000 at December 31, 1996 and 1995 respectively. During 1996,
$837,000 of new loans were made and repayments totaled $537,000. 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,
1996 1995 1994
Balance, beginning of year $2,336,000 $2,095,000 $1,886,000
Charge-offs (34,000) (291,000) (305,000)
Recoveries 48,000 62,000 244,000
Addition to allowance related to
branch acquisitions 300,000
Provision charged to operations 247,000 470,000 270,000
--------- --------- ---------
Balance, end of year $2,897,000 $2,336,000 $2,095,000
========= ========= =========
Note G. Office Buildings and Equipment
Office buildings and equipment are stated at cost less accumulated
depreciation and are summarized as follows:
December 31,
1996 1995
Land $ 1,283,000 $1,079,000
Buildings and improvements 4,999,000 4,170,000
Furniture and equipment 4,061,000 2,983,000
---------- ---------
10,343,000 8,232,000
Less accumulated depreciation 3,748,000 3,161,000
--------- ---------
Total office buildings and equipment $ 6,595,000 $5,071,000
========= =========
Depreciation expense as of December 31, 1996, 1995 and 1994 was
$751,000, $565,000 and $477,000 respectively. Excess of Cost Over
Equity in Underlying Net Assets of Subsidiaries
<PAGE>
Note H. Excess of cost over equity in underlying net assets of subsidiaries
The excess of cost over equity in underlying net assets of the Genoa City
and Pell Lake branches of the First Banking Center - Burlington at the date
of the branch acquisition amounted to $1,479,000. The amount is being
amortized over a period of fifteen years. Amortization expense amounted to
$16,000 for the year ended December 31, 1996. Accumulated amortization
amounted to $16,000 at December 31, 1996.
Note I. 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, 1996, 1995 and 1994 amounted to
$3,000, $3,000 and $3,000 respectively. Accumulated amortization amounted
to $301,000, $298,000 and $295,000 at December 31, 1996, 1995 and 1994
respectively.
The fair market value of core deposits of the Genoa City and Pell Lake
branches of First Banking Center - Burlington at the date of the branch
acquisition amounted to $30,000. The amount, net of amortization, has been
included as part of other assets and is being amortized over a period of
ten years. Amortization expense amounted to $1,000 for the year ended
December 31, 1996. Accumulated amortization amounted to $1,000 at December
31, 1996.
Note J. Deposits and Interest on Deposits
The aggregate amount of Time deposits, each with a minimum denomination of
$100,000, was approximately $10,242,000 and $7,734,000 in 1996 and 1995
respectively.
At December 31, 1996, the scheduled maturities of Time deposits are as
follows:
1997 $64,795,000
1998 23,420,000
1999 4,537,000
2000 3,930,000
2001 406,000
----------
$97,088,000
==========
<PAGE>
Interest expense on deposits for the years ended December 31, 1996, 1995
and 1994 is as follows:
December 31,
1996 1995 1994
Interest bearing demand $ 561,000 $ 519,000 $ 441,000
Money market demand accounts 1,515,000 1,389,000 1,229,000
Savings deposits 766,000 771,000 793,000
Time, $100,000 and over 455,000 611,000 219,000
Time, under $100,000 4,790,000 4,197,000 3,133,000
--------- --------- ---------
Total $8,087,000 $7,487,000 $5,815,000
========= ========= =========
Note K. Securities Sold Under Repurchase Agreements
Securities Sold Under Repurchase Agreements Generally Mature Within One To
120 Days From The Transaction Date.
Information Concerning Securities Sold Under Repurchase Agreements Is
Summarized As Follows:
1996 1995
Average Balance During The Year $21,427,000 $17,112,000
Average Interest Rate During The Year 5.31% 5.39%
Maximum Month-End Balance During The Year $34,175,000 $20,225,000
Securities Underlying The
Agreements At Year-End:
Carrying Value $31,516,000 $23,207,000
Estimated Fair Value $31,516,000 $23,106,000
Note L. 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 and 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 with total outstanding balances of
$9,489,000 and $8,933,000 at December 31, 1996 and 1995 respectively, with
applicable interest rates ranging from 4.85% to 6.83%. Interest is payable
monthly with principal payment due at maturity.
<PAGE>
The advances are secured by a security agreement pledging a portion of the
subsidiary Banks' real estate mortgages with a carrying value of
$14,150,000.
Future principal payments required to be made are as follows:
Years ending December 31
1997 $ 150,000
1998 5,263,000
1999 1,545,000
2000 206,000
2001 2,325,000
---------
$9,489,000
=========
Note M. 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 Options price
available outstanding per share
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
------- ------
Balance, December 31, 1995 278,625 37,936 12.67 - 22.00
Granted (14,800) 14,800 25.50
Exercise of stock option (7,761) 12.67 - 19.00
Canceled 4,383 (4,383) 12.67 - 22.00
------- ------
Exercisable, December 31, 1996 268,208 40,592 15.33 - 25.50
======= ======
<PAGE>
The Company applies APB Opinion 25 and related interpretation in
accounting for its plan. Accordingly, no compensation cost has been
recognized for its incentive stock option plan. The effect on net
income had the Company adopted FASB Statement No. 123 would be
immaterial.
Note N. Income Taxes
The provision for income taxes included in the accompanying consolidated
financial statements consists of the following:
December 31,
1996 1995 1994
Current taxes:
Federal $1,251,000 $1,326,000 $1,105,000
State 256,000 270,000 197,000
--------- --------- ---------
1,507,000 1,596,000 1,302,000
--------- --------- ---------
Deferred income
taxes (benefit):
Federal (163,000) (163,000) (162,000)
State (26,000) (26,000) (26,000)
--------- --------- ---------
(189,000) (189,000) (188,000)
--------- --------- ---------
Total provision for income taxes $1,318,000 $1,407,000 $1,114,000
========= ========= =========
The net deferred tax assets in the accompanying consolidated balance sheets
include the following amounts of deferred tax assets and liabilities:
December 31,
1996 1995 1994
Deferred tax assets:
Allowance for loan losses $ 832,000 $ 734,000 $ 637,000
Unrealized loss on available
for sale securities 5,000 41,000 405,000
Depreciation 14,000 19,000
Pension 207,000 199,000 158,000
Deferred compensation 310,000 225,000 126,000
Other 3,000 27,000 41,000
Deferred tax liabilities:
Depreciation (25,000)
Other (17,000) (10,000)
--------- --------- ---------
$1,354,000 $1,201,000 $1,376,000
========= ========= =========
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, 1996 or 1995.
<PAGE>
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,
1996 1995 1994
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
Reconciliation of statutory
to effective taxes:
Federal income taxes
at statutory rate $1,404,000 34.0% $1,432,000 34.0% $1,183,000 34.0%
Adjustments for:
Tax-exempt interest on
municipal obligations (256,000) (6.2) (188,000) (4.5) (216,000) (6.2)
Increases in taxes
resulting from state
income taxes 169,000 4.1 178,000 4.2 130,000 3.7
Other - net 1,000 (15,000) (0.3) 17,000 0.5
--------- ---- --------- ---- --------- ----
Effective income
taxes - operations $1,318,000 31.9% $1,407,000 33.4% $1,114,000 32.0%
Note O. Profit Sharing Plan
The Company has a 401(k) plan. Contributions in 1996 were $114,000,
$92,000 in 1995 and $94,000 in 1994.
Note P. 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 $217,161, $188,016 and $78,340 during
1996, 1995 and 1994 respectively.
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 $918,614 and $874,265 of related
cash surrender value as of December 31, 1996 and 1995 respectively.
Note Q. 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 Company's 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, financial guarantees and standby letters of credit. They involve,
to varying degrees, elements of credit risk in excess of amounts recognized
on the consolidated balance sheets.
<PAGE>
The Company's 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 Company 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 Company's exposure to
off-balance-sheet risk as of December 31, 1996 and 1995 is as follows:
1996 1995
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $29,270,000 $22,683,000
Credit card commitment $ 1,797,000 $ 1,381,000
Standby letters of credit $ 3,109,000 $ 4,387,000
Interest rate swaps $ - $ 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 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 Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company 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. Credit
card commitments are unsecured.
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 payments
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 expired on April 10, 1996, which coincides with the maturity of
the fixed rate loans.
The Company and the subsidiary Banks do not engage in the use of
interest rate swaps, futures or option contracts as of December 31,
1996.
<PAGE>
Note R. 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 S. 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
$4,452,000 may be paid without prior regulatory approval. Maintenance of
adequate capital at the subsidiary Banks effectively restricts potential
dividends to an amount less than $4,452,000.
Note T. Regulatory Capital Requirements
The Company is 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 Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines that
involve quantitative measures of the Company's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's 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 Company 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, 1996, the Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent notification from the regulatory
agencies categorized the Company as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-
capitalized, the Company 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.
<PAGE>
Following is a comparison of the Company and subsidiary Banks' 1996 and
1995 actual with the minimum requirements for well-capitalized and
adequately capitalized banks, as defined by the federal regulatory
agencies' Prompt Corrective Action Rules:
To be well
capitalized
For capital under prompt
adequacy corrective
Actual purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
Total capital
(to risk weighted assets):
First Banking Center, Inc. $27,241 13.69% $15,914 8.00% $19,892 10.00%
First Banking Center - Burlington $23,810 13.15 $14,483 8.00 $18,103 10.00
First Banking Center - Albany $ 2,952 16.73 $ 1,412 8.00 $ 1,765 10.00
Tier I capital
(to risk weighted assets):
First Banking Center, Inc. $24,750 12.44 $ 7,957 4.00 $11,935 6.00
First Banking Center - Burlington $21,543 11.90 $ 7,241 4.00 $10,862 6.00
First Banking Center - Albany $ 2,730 15.47 $ 706 4.00 $ 1,059 6.00
Tier I capital (to average assets):
First Banking Center, Inc. $24,750 9.31 $10,632 4.00 $13,290 5.00
First Banking Center - Burlington $21,543 9.04 $ 9,537 4.00 $11,921 5.00
First Banking Center - Albany $ 2,730 9.97 $ 1,095 4.00 $ 1,369 5.00
As of December 31, 1995:
Total capital (to risk weighted assets):
First Banking Center, Inc. $26,370 15.46 $13,648 8.00 $17,060 10.00
First Banking Center - Burlington $22,959 15.50 $11,850 8.00 $14,812 10.00
First Banking Center - Albany $ 2,785 16.28 $ 1,369 8.00 $ 1,711 10.00
Tier I capital (to risk weighted assets):
First Banking Center, Inc. $23,976 14.05 $ 6,824 4.00 $10,366 6.00
First Banking Center - Burlington $21,058 14.25 $ 5,924 4.00 $ 8,886 6.00
First Banking Center - Albany $ 2,564 15.02 $ 683 4.00 $ 1,024 6.00
Tier I capital (to average assets):
First Banking Center, Inc. $23,976 9.75 $ 9,836 4.00 $12,294 5.00
First Banking Center - Burlington $21,058 9.78 $ 8,766 4.00 $10,958 5.00
First Banking Center - Albany $ 2,564 9.78 $ 1,049 4.00 $ 1,311 5.00
Note U. Business Acquisition
In November 1996, First Banking Center - Burlington acquired the
branch offices in Genoa City and Pell Lake, Wisconsin. This
acquisition has been accounted for as a purchase and, accordingly,
the acquired assets and liabilities have been recorded at their
estimated fair value at the date of acquisition. The proforma
effect on net income is immaterial.
<PAGE>
Note V. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Financial assets:
Cash and cash
equivalents $ 29,317,000 $ 29,317,000 $ 22,188,000 $ 22,188,000
Securities $ 65,362,000 $ 65,362,000 $ 60,197,000 $ 60,259,000
Net loans $191,490,000 $191,009,000 $168,019,000 $168,199,000
Accrued interest
receivable $ 1,900,000 $ 1,900,000 $ 2,119,000 $ 2,119,000
Financial liabilities:
Deposits $234,859,000 $234,920,000 $208,830,000 $208,857,000
Repurchase agreements $ 30,925,000 $ 30,925,000 $ 20,225,000 $ 20,229,000
U.S. Treasury
note account $ 540,000 $ 540,000 $ 91,000 $ 91,000
Long-term borrowings $ 9,489,000 $ 9,549,000 $ 8,933,000 $ 8,974,000
Accrued interest
payable $ 1,086,000 $ 1,086,000 $ 877,000 $ 877,000
Off-balance-sheet instruments -
interest rate swaps $ - $ (25,000)
The estimated fair value of fee income on letters of credit at December 31,
1996 and 1995 is insignificant. Loan commitments on which the committed
interest rate is less than the current market rate are also insignificant
at December 31, 1996 and 1995.
<PAGE>
The Company assumes interest rate risk (the risk that general
interest rate levels will change) as a result of its normal
operations. As a result, fair values of the Company's financial
instruments will change when interest rate levels change and that
change may be either favorable or unfavorable to the Company.
Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk.
However, borrowers with fixed rate obligations are less likely to
prepay in a rising rate environment and more likely to repay in a
falling rate environment. Conversely, depositors who are receiving
fixed rates are more likely to withdraw funds before maturity in a
rising rate environment and less likely to do so in a falling rate
environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting
terms of new loans and deposits and by investing in securities with
terms that mitigate the Company's overall interest rate risk.
Note W. First Banking Center, Inc. (Parent Company only) Financial
Information
December 31,
CONDENSED BALANCE SHEETS 1996 1995
Assets:
Cash $ 161,000 $ 205,000
Investment in subsidiaries 25,754,000 23,521,000
Interest-bearing deposits in banks 125,000 120,000
Other assets 253,000 123,000
---------- ----------
Total assets $26,293,000 $23,969,000
========== ==========
Liabilities - other liabilities $ 53,000 $ 85,000
------ ------
Stockholders' equity:
Common stock, $1.00 par value, 3,000,000 shares
authorized; 1,476,000 and 1,468,000 shares
issued in 1996 and 1995 respectively 1,476,000 1,468,000
Surplus 4,091,000 3,995,000
Retained earnings 20,703,000 18,570,000
---------- ----------
26,270,000 24,033,000
Treasury stock - -0- and 27, shares for
1996 and 1995 respectively, at cost (1,000)
Unrealized gain (loss) on available for sale
securities, net (30,000) (148,000)
---------- ----------
Total stockholders' equity 26,240,000 23,884,000
---------- ----------
Total liabilities and stockholders' equity $26,293,000 $23,969,000
========== ==========
<PAGE>
December 31,
CONDENSED STATEMENTS OF INCOME
1996 1995 1994
Income:
Dividends from subsidiaries $ 750,000 $ 687,000 $ 603,000
Management fees from subsidiaries 1,714,000 1,293,000
Other 7,000 6,000 6,000
--------- --------- -------
Total income 2,471,000 1,986,000 609,000
--------- --------- -------
Expenses:
Salaries and employee benefits 1,167,000 912,000
Occupancy expenses 90,000 83,000
Equipment expense 220,000 185,000
Computer services 31,000 21,000
Other expenses 278,000 190,000 29,000
--------- --------- ------
Total expenses 1,786,000 1,391,000 29,000
--------- --------- ------
Income before income tax benefit
and equity in undistributed net
income of subsidiaries 685,000 595,000 580,000
Income tax benefit (11,000) (31,000) (9,000)
------- ------- -------
Income before equity in undistributed
net income of subsidiaries 696,000 626,000 589,000
Equity in undistributed net income
of subsidiaries 2,115,000 2,178,000 1,775,000
--------- --------- ---------
Net income $2,811,000 $2,804,000 $2,364,000
========= ========= =========
December 31,
CONDENSED STATEMENTS OF CASH FLOWS 1996 1995 1994
Cash flows from operating activities:
Net income $2,811,000 $2,804,000 $2,364,000
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of goodwill 3,000 2,000 2,000
(Increase) decrease in other assets (153,000) (54,000) (25,000)
(Increase) decrease in income
taxes receivable 20,000 (23,000) (2,000)
Increase (decrease) in other liabilities (32,000) 48,000
Equity in undistributed earnings (2,115,000) (2,178,000) (1,775,000)
--------- --------- ---------
Total adjustments (2,277,000) (2,205,000) (1,800,000)
--------- --------- ---------
Net cash provided by operating activities 534,000 599,000 564,000
--------- --------- ---------
<PAGE>
Cash flows from investing activities - net
(increase) decrease in interest-bearing
deposits in banks (5,000) (5,000) 21,000
----- ----- ------
Cash flows from financing activities:
Proceeds from stock options exercised 105,000 62,000 67,000
Dividends paid (678,000) (587,000) (526,000)
------- ------- -------
Net cash used in financing activities (573,000) (525,000) (459,000)
------- ------- -------
Increase (decrease) in cash
and cash equivalents (44,000) 69,000 126,000
Cash and cash equivalents at
beginning of year 205,000 136,000 10,000
------- ------- -------
Cash and cash equivalents at end of year $ 161,000 $ 205,000 $ 136,000
======= ======= =======
Supplemental disclosures of
cash flow information:
Cash received during year for income taxes $ (31,000) $ (9,000) $ (8,000)
====== ===== =====
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
SUMMARY OF OPERATIONS
COMPARATIVE FIVE-YEAR SUMMARY (000's Omitted)
Years Ended December 31,
1996 1995 1994 1993 1992
Summary of consolidated income:
Interest income $20,148 18,810 15,232 14,347 14,413
Interest expense 9,764 8,966 6,635 6,458 6,891
Net interest income 10,384 9,844 8,597 7,889 7,522
Provision for loan losses 247 470 270 710 378
Net interest income after
provision for loan loss 10,137 9,374 8,327 7,179 7,144
Other income 1,762 1,507 1,358 1,374 1,312
Sub-total 11,899 10,881 9,685 8,553 8,456
Other expense 7,770 6,670 6,207 5,454 5,121
Income before income taxes 4,129 4,211 3,478 3,099 3,335
Income taxes 1,318 1,407 1,114 918 1,077
Net income 2,811 2,804 2,304 2,181 2,258
Per share of common stock:
Earnings per common shares
outstanding:(Based on the
Company's weighted average
number of shares outstanding)
Net income $1.90 $1.91 $1.61 $1.50 $1.56
Dividends .46 0.40 0.36 0.33 0.31
Weighted average number of
common shares outstanding 1,471,230 1,470,162 1,463,998 1,457,415 1,443,060
Year-end assets $304,720 $264,379 $231,085 $216,169 $191,654
Average assets 263,162 243,702 217,860 197,059 173,549
Year-end equity capital 26,240 23,884 20,826 19,848 18,091
Average equity capital 24,903 22,572 20,314 19,062 17,226
<PAGE>
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, 1996 and 1995, and the
related consolidated statements of income, changes in components of
stockholders' equity, and cash flows for the years then ended December 31,
1996, 1995 and 1994. 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 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, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended December
31, 1996, 1995 and 1994, in conformity with generally accepted accounting
principles.
CONLEY MCDONALD LLP
Brookfield, Wisconsin
January 17, 1997
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition, changes
in financial condition, and results of operations of the Company for the
year end December 31, 1996.
On November 1, 1996, First Banking Center-Burlington purchased two
branches in southeastern Wisconsin. The combined deposits of the new branches
is approximately $18 million and total loans are approximately $14
million.
Financial condition
Loans
As of December 31, 1996, loans outstanding were $191.5 million an
increase of $23.5 million or 14% from December 31, 1995. During
1996 Residential Real Estate loans increased $11.4 million,
Construction and Land Development loans increased $4.5 million, and Commercial
Real Estate loans increased $3.9 million or 17%, 22% and 11% respectively.
At December 31, 1996, Construction and Land Development loans were at
$25.2 million or 13% of total loans, Residential Real Estate loans were at
$79.1 million or 41% of total loans, and Commercial loans were at $30.8
million or 16% of total loans, and Commercial Real Estate loans were at $40.9
million or 21% of total loans.
Allowance for Loan Losses
The allowance for possible loan losses was $2.9 million or 1.49% of gross
loans on December 31, 1996, compared with $2.3 million or 1.37% of gross loans
on December 31, 1995. Net recoveries for 1996 were $14 thousand, or .01% of
gross loans, compared to net chargeoffs of $229 thousand or .14% of gross loans
for 1995. As of December 31, 1996, loans on non-accrual status totaled $260
thousand or .13% of gross loans compared to $1.5 million or .88% of gross
loans on December 31, 1995. The non-accrual loans consisted primarily of $139
thousand of commercial loans. On December 31, 1996, the ratio of nonaccrual
loans to the allowance for loan losses was 9% compared to 64% on December 31,
1995.
The Banks evaluate the adequacy of the allowance for loan losses based on
an analysis of specific problem loans, as well as on an aggregate basis.
Management reviews a calculation of the allowance for loan losses on a
quarterly basis and feels that the allowance for loan losses is adequate. The
allowance for loan losses is maintained at a level management considers
adequate to provide for potential future losses. The level of the allowance
is based on management's periodicand comprehensive evaluation of the loan
portfolio,
including past loan loss experience; current and projected economic trends;
the volume, growth and composition of the loan portfolio, and other relevant
factors. Reports of examinations furnished by State and Federal banking
authorities are also considered by management in this regard.
During 1996 $247 thousand was charged to current earnings and added to
the allowance for loan losses. An additional $300 thousand was added to the
allowance in the transaction relating to the acquisition of two branches on
November 1, 1996.
<PAGE>
Investment securities - Held to Maturity
During 1996 management reevaluated its investment goals and
objectives and determined it would be better served by classifying its
entire portfolio as available for sale. Accordingly the Company reclassified
all its held to maturity securities to available for sale effective December
31, 1996.
Investments securities - Available for Sale
The securities available-for-sale portfolio increased 35.3 million
from $30 to $65.4 million or 118% during 1996. The majority of the increase
came from the transfer of $31.5 million of Held to Maturity securities to
Available for Sale. The balance of the increase was the result of
additional Tax Exempt securities with maturities in the 7-10 year range.
Deposits and Borrowed Funds
As of December 31, 1996, total deposits were $234.8 million, which is
an increase of $26 million or 12.5% from December 31, 1995. Savings and NOW
accounts increased $14.1 million or 16% since December 31, 1995. Time
deposits increased $7.8 million or 9% since December 31, 1995. Securities
sold under agreement to repurchase increased $10.7 million or 53% and
Federal Home Loan Borrowings increased $556 thousand or 6% since December
31, 1995. Approximately $18 million of the $26 million increase in total
deposits was from the purchase of two branches on November 1, 1996.
Capital resources
During 1996, the Company's stockholders' equity increased $2.4 million
or 10%. Net income of $2.8 million and change in unrealized loss on available
for sale securities of $118 thousand were the primary reasons for the
increase in equity. Cash dividends paid in 1996 were $678 thousand or $.46 per
share.
In December 1990, the Federal Reserve Board's risk-based guidelines
became effective. Under these guidelines capital is measured against the
Company's subsidiary banks risk-weighted assets. The Company's tier 1
capital (common stockholders' equity less goodwill) to risk-weighted assets
was 12.4% at December 31, l996, well above the 4% minimum required. Total
capital to risk-adjusted assets was 13.7%, also well above the 8% minimum
requirement. The
leverage ratio was at 9.3% compared to the 3% minimum requirement. According
to FDIC capital guidelines, the company is considered to be "well capitalized."
Asset/liability management
The principal function of asset/liability management is to manage
the balance sheet mix, maturities, repricing characteristics and pricing
components to provide an adequate and stable net interest margin with an
acceptable level of risk over time and through interest rate cycles.
Interest-sensitive assets and liabilities are those that are subject
to repricing within a specific relevant time horizon. The
Company measures interest-sensitive assets and liabilities, and their
relationship with each other at terms of immediate, quarterly intervals
up to 1 year, and over 1 year.
<PAGE>
Changes in net interest income, other than volume related, arise when
interest rates on assets reprice in a time frame or interest rate
environment that is different from the repricing period for liabilities.
Changes in net interest income also arise from changes in the mix of
interest earning assets and interest-bearing
liabilities.
The Company's strategy with respect to asset/liability management
is to maximize net interest income while limiting our exposure to a
potential downward movement. Strategy is implemented by the Bank's management,
which takes action based upon its analysis of the Bank's present positioning,
its desired future positioning, economic forecasts, and its goals. It is the
Company's desire to maintain a cumulative GAP of + or - 15% of rate sensitive
assets at the 0 to 359 day time frame.
The following table summarizes the repricing opportunities as of December
31, 1996, for each major category of interest-bearing assets and interest-
bearing liabilities:
0-89 90-179 180-359 +360
Days Days Days Days Total
Investments (1) $29 $3 $10 $36 $78
Loans 82 24 50 38 194
Total rate
sensitive assets 111 27 60 74 272
Rate sensitive
liabilities (2) 136 23 39 40 238
GAP (25) 4 21 34
Cumulative GAP (25) (21) (1) 34
GAP/Rate sensitive
assets -22% -20% -1% 12%
(1) Includes Federal Funds Sold and Interest-Bearing Deposits
in financial institutions.
(2) Bank management treats Savings, NOW, and Money Market Demand
Deposits as immediately repricable.
Liquidity
The liquidity position of the Company is managed to ensure that sufficient
funds are available to meet customers' needs for loans and deposit withdrawals.
Liquidity to meet demand is provided by maintaining marketable investment
securities, money market assets such as Interest Bearing Deposits in Banks,
Federal Funds Sold, as well as, maintaining a full line of competitively priced
deposit and short-term borrowing products. The banks are also members of
the Federal Home Loan Bank system which provides the company with an
additional source of liquidity. The banks are authorized to borrow up to $12.6
million secured by a security agreement pledging the bank's real estate
mortgages with a carrying value of $21 million. During 1996 the Company's
loan to deposit ratio increased from 80.5% to 81.5%. This increase was due to
an increase in loans of $23.5 million or 14% while deposits increased $26
million or 12%. Securities sold under repurchase
agreements increased $10.7 or 53% during 1996. In
addition, the Company reclassified all of its securities as Available for Sale.
<PAGE>
Management is unaware of any recommendations by regulatory
authorities, known trends, events or uncertainties that will have or that are
reasonably likely to have a material effect on the Company's liquidity, capital
resources, or operations.
Results of operations
Results of operations overview
During 1996 the Company reported earnings of $2.8 million which
is the same as 1995. Earnings were flat due to the fact the Company opened 3
new branches and moved an existing branch from a temporary location to a
permanent sight during 1996.
Net Interest Income
Net interest income for 1996 was $10.4 million compared to $9.8 million
for 1995 an increase of $540 thousand or 6%. The increase in net interest
income is due primarily to an increase in interest and fees on loan that
increased from $15 million to $16.2 million or 8%. The increase in loan income
is the result of a $13.4 million or 8.2%
increase in average balances outstanding. Total interest income increased
$1.4 million as the yield on interest earning asset decreased from 8.43%
to 8.21% and average earning assets increased from $227.7 million to $251.3
million. Total interest expense increased $800 thousand. This increase is
due primarily to increased average interest bearing deposits of $17.3
million or 8% and increased rates paid on deposit of .8%. The cost of all
interest bearing liabilities increased from 4.70% in 1995 to 4.74% in 1996.
The Company's 1996 net interest margin decreased from 4.49% to 4.33
%.
Provision for loan losses
The Banks have established the allowance for loan losses to reduce
the gross level of loans outstanding by an estimate of uncollectible
loans. As loans are deemed uncollectible, they are charged against the
allowance. A provision for loan losses is expensed against current income
on a monthly basis. This provision acts to replenish the allowance for loan
losses to accommodate chargeoffs and growth in the loan portfolio, thereby
maintaining the allowance at an adequate level.
During 1996 $247 thousand was charged to current earnings and added to
the allowance for loan losses. An additional $300 thousand was added directly
to the allowance through the acquisition of two branches on November 1, 1996.
Non-interest income and expense
Non-interest income during 1996 increased $255 thousand or 17% from
1995. This increase is due primarily to increased income from service charges
on deposit, which increased $101 thousand or 16%.
Non-interest expense during 1996 increased from $6.7 million to $7.8
million an increase of $1.1 million or 16%. Salaries and benefits
increased $789 thousand or 23%, equipment expense increase $217 thousand or
33%, and occupancy expense increased $58 thousand or 11%. The increase in non-
interest expense was due primarily to the growth the Company experienced.
During 1996 the Company opened 3 new branches, purchased 2 branches, and moved
one branch from a temporary site to a permanent site.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 21412
<INT-BEARING-DEPOSITS> 4869
<FED-FUNDS-SOLD> 7905
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65362
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 194387
<ALLOWANCE> 2897
<TOTAL-ASSETS> 304720
<DEPOSITS> 234859
<SHORT-TERM> 31465
<LIABILITIES-OTHER> 2667
<LONG-TERM> 9489
0
0
<COMMON> 1476
<OTHER-SE> 24794
<TOTAL-LIABILITIES-AND-EQUITY> 304720
<INTEREST-LOAN> 16234
<INTEREST-INVEST> 3914
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 20148
<INTEREST-DEPOSIT> 8087
<INTEREST-EXPENSE> 9764
<INTEREST-INCOME-NET> 10384
<LOAN-LOSSES> 247
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 1577
<INCOME-PRETAX> 4129
<INCOME-PRE-EXTRAORDINARY> 4129
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2811
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
<YIELD-ACTUAL> 4.53
<LOANS-NON> 260
<LOANS-PAST> 17
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2336
<CHARGE-OFFS> 34
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 2897
<ALLOWANCE-DOMESTIC> 2897
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1688
</TABLE>
