UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-11132
FIRST BANKING CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391327
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
400 Milwaukee Ave. Burlington, WI 53105
(Address of principal executive offices)(Zip Code)
(414)763-3581
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[X]
As of January 20, 1999 1,488,631 shares of common stock, par value $1.00
were outstanding and the aggregate market value of the shares (based upon the
most recent trade known to the Corporation), all of which is held by nonbank
affiliates, was approximately $49,869,139.
Documents incorporated by references: The Notice of 1999 Annual Meeting and
Proxy Statement of April 20, 1999 is incorporated by reference into Parts II and
III of the Form 10-K. The Annual Report to Stockholders for the year ended
December 31, 1998.
PART 1
ITEM 1: BUSINESS
First Banking Center, Inc.
First Banking Center, Inc. (the "Corporation") is a one-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 April 6, 1998, First Banking Center-Albany was
merged with First Banking Center-Burlington.
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. As of May 11, 1998 First
Banking Center-Burlington changed its name to First Banking Center (the "Bank").
The Corporation's primary business activity is the ownership and
control of First Banking Center. The Corporation's operations department also
provides administrative and operational services for the Bank.
First Banking Center
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 Albany, Burlington, Genoa City, Kenosha, Lake Geneva, Lyons, Monroe,
Pell Lake, Somers, Union Grove, Walworth, 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.
<PAGE>
COMPETITION
The financial services industry is highly competitive. The Bank
competes 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 subsidiary.
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.
A subsidiary bank of a bank holding company is 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
subsidiary is 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 bank and its operations, including
the requirement to maintain reserves against deposits, restrictions on the
nature and amount of loans which may be made by the bank and restrictions
relating to investment, branching and other activities of the bank.
The Company is supervised and examined by the Federal Reserve Board.
The Company's subsidiary bank, as a state chartered institution, is subject to
the supervision of, and is regularly examined by, Wisconsin state authorities.
The Bank is also a members of the Federal Reserve Bank and as such is 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 the subsidiary bank and to commit resources to
support the subsidiary.
GOVERNMENTAL POLICIES
The earnings of the Company's subsidiary bank as a lender and depositor
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 bank.
<PAGE>
MATERIAL DEPOSIT AND LOANS
No single borrower accounted for a material portion of the loans in the
subsidiary bank.
No single depositor accounted for a material portion of deposits in the
subsidiary bank.
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 January 22, 1999, the Company
and its subsidiary had 203 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.
SELECTED FINANCIAL DATA
The Company, through the operations of its Bank, 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, 1998, 1997, and 1996. Also, where applicable,
information is presented for December 31, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
Section I, Schedule A
Average Balance Sheet
(000's Omitted)
---------------- --------------- ---------------
1998 1997 1996
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash and due from banks $ 11,379 10,645 9,972
Fed funds sold and securities purchased
under agreement to resell 3,094 5,262 4,101
Interest bearing deposits in other banks 795 2,544 3,102
Investment securities:
U.S. Treasury agency and other 34,233 43,333 46,589
States and political subdivisions 25,423 23,595 14,691
Unrealized Gain/(Loss) on Securities 724 (15) (378)
Loans 244,578 207,519 176,314
Less allowance for loan losses (3,295) (3,035) (2,568)
---------------- --------------- ---------------
Net loans 241,283 204,484 173,746
Goodwill 1,345 1,450 261
Other assets 14,704 13,181 11,078
---------------- --------------- ---------------
Total assets $ 332,980 304,479 263,162
================ =============== ===============
Interest bearing deposits:
NOW accounts $ 23,259 22,609 20,392
Savings deposits 32,218 33,527 27,531
Money Market deposit accounts 57,236 45,554 36,610
Time deposits 107,655 107,672 91,000
---------------- --------------- ---------------
Total interest bearing deposits 220,368 209,362 175,533
Demand deposits 40,683 35,262 29,550
---------------- --------------- ---------------
Total deposits 261,051 244,624 205,083
Short-term borrowings 568 547 490
Securities sold under agreements
to repurchase 20,853 18,912 21,427
Other liabilities 3,583 3,096 2,861
Other borrowings 16,531 9,981 8,398
---------------- --------------- ---------------
Total liabilities 302,586 277,160 238,259
Equity capital 30,394 27,319 24,903
---------------- --------------- ---------------
Total liabilities and capital $ 332,980 304,479 263,162
================ =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section I, Schedule B
Three Year Summary of Interest Rates and Interest Differential
(000's Omitted)
1998 1997 1996
------------------------------ ----------------------------- ------------------------------
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 $ 795 43 5.41% 2,544 145 5.70% 3,102 173 5.58%
Investments (taxable)(a) 34,612 2,176 6.29% 43,278 2,769 6.40% 46,589 2,887 6.20%
Investments (nontax.)(a)(b) 25,769 1,879 7.29% 23,635 1,728 7.31% 14,691 1,100 7.49%
Funds sold 3,094 162 5.24% 5,262 286 5.44% 4,101 248 6.05%
Loans (b)(c)(d) 244,577 22,123 9.05% 207,519 18,704 9.01% 176,314 16,317 9.25%
------------------------------ ----------------------------- ------------------------------
Total earnings assets $ 308,847 26,383 8.54% 282,238 23,632 8.37% 244,497 20,725 8.48%
============================== ============================= ==============================
Interest bearing liabilities:
NOW accounts $ 23,259 557 2.39% 22,609 584 2.58% 20,392 561 2.75%
Savings deposits 32,218 861 2.67% 33,527 928 2.77% 27,531 766 2.78%
Money Market deposit accounts 57,236 2,538 4.43% 45,554 1,950 4.28% 36,610 1,515 4.14%
Time deposits 107,655 6,105 5.67% 107,673 6,094 5.66% 91,000 5,245 5.76%
Short-term borrowings 568 33 5.81% 548 29 5.29% 49 20 4.08%
Sec'ts. sold under to
repurchase 20,853 1,057 5.07% 18,912 990 5.23% 21,427 1,143 5.33%
Other borrowings 16,531 976 5.90% 9,981 637 6.38% 8,398 514 6.12%
------------------------------ ----------------------------- ------------------------------
Total int.bearing liabilities $ 258,320 12,127 4.69% 238,804 11,212 4.69% 205,848 9,764 4.74%
============================== ============================= ==============================
Interest spread 14,256 3.85% 12,420 3.68% 10,961 3.74%
==================== =================== ===================
Interest margin 14,256 4.62% 12,420 4.40% 10,961 4.48%
==================== =================== ===================
<FN>
<F1> <F3>
(a)Portions of investments both taxable and (c)Loans placed on nonaccrual status have been
nontaxable have beeen presented on state included in average balances used to determine
taxable equivalent basis assuming a 7.9% average rates.
tax rate.
<F2> <F4>
(b)The interest and average yield for (d)Loan interest income includes net loan fees.
nontaxable instruments are presented
on a federal taxable equivalent basis
assuming a 34% tax rate.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section I, Schedule C
Two Year Summary of Rate and Volume Variances
(000's Omitted)
---------------------------------------------
---------------------------------------------
$ AMOUNT VOLUME RATE (a)
OF CHANGE VARIANCE VARIANCE
---------------------------------------------
---------------------------------------------
<S> <C> <C> <C>
Increase (decrease) for 1998:
Time deposits in banks $ (102) (100) (2)
Investment (taxable) (b) (593) (555) (38)
Investments (nontaxable) (b) (c) 151 156 (5)
Funds sold (124) (118) (6)
Loans (c) (d) 3,419 3,339 80
---------------------------------------------
---------------------------------------------
Total interest income 2,751 2,722 29
---------------------------------------------
---------------------------------------------
NOW accounts (27) 17 (44)
Savings deposits (67) (36) (31)
Money Market deposit accounts 588 500 88
Other time deposits 11 (1) 12
Short-term borrowings 4 1 3
Sec. sold under Agreement to Repurchase 67 102 (35)
Other borrowings 339 418 (79)
---------------------------------------------
---------------------------------------------
Total interest expense 915 1,001 (86)
---------------------------------------------
---------------------------------------------
Net change for 1998: $ 1,836 1,721 115
=============================================
=============================================
Increase (decrease) for 1997:
Time deposits in banks $ (28) (31) 3
Investment (taxable) (b) (118) (205) 87
Investments (nontaxable) (b) (c) 628 670 (42)
Funds sold 38 70 (32)
Loans (c) (d) 2,387 3,171 (784)
---------------------------------------------
---------------------------------------------
Total interest income 2,907 3,675 (768)
---------------------------------------------
---------------------------------------------
NOW accounts 23 61 (38)
Savings deposits 162 167 (5)
Money Market deposit accounts 435 370 65
Other time deposits 849 960 (111)
Short-term borrowings 9 2 7
Sec. sold under Agreement to Repurchase (153) (134) (19)
Long-term Borrowings 123 97 26
---------------------------------------------
---------------------------------------------
Total interest expense 1,448 1,523 (75)
---------------------------------------------
---------------------------------------------
Net change for 1997: $ 1,459 2,152 (693)
=============================================
=============================================
<FN>
<F1>
(a)The application of the rate/volume variance has been allocated in full to
the rate variance.
<F2>
(b)Portions of investments both taxable and nontaxable have been presented on a
state taxable equivalent basis assuming a 7.9% tax rate.
<F3>
(c)The interest and average yield for nontaxable instruments are presented on a
federal tax equivalent basis assuming a 34% tax rate.
<F4>
(d)Loans placed on nonaccrual status have been included in average balances used
to determine average rates.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section II, Schedule A
Book Value of Investment Portfolio
(000's Omitted)
-------------------------------------------
-------------------------------------------
1998 1997 1996
-------------------------------------------
-------------------------------------------
<S> <C> <C> <C>
Available for Sale:
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations $ 37,400 43,212 42,437
Obligations of states and 25,260 27,389 19,394
political subdivisions
Other 2,603 4,000 3,531
Held to Maturity:
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations 0 0 0
Obligations of states and 0 0 0
political subdivisions
Other 0 0 0
-------------------------------------------
===========================================
Total $ 65,263 74,601 65,362
===========================================
===========================================
<FN>
NOTE:
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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Section II, Schedule B
Maturity Schedule of Investments by Book Value
December 31, 1998
(000's Omitted)
------------ ----------- ------------ ---------- -----------
------------ ----------- ------------ ---------- ----------
AFTER AFTER
1 YEAR 5 YEARS
1 YEAR THROUGH THROUGH AFTER
OR LESS 5 YEARS 10 YEARS 10 YEARS TOTAL
------------ ----------- ------------ ---------- ----------
------------ ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Available for Sale Securities
U.S. Treasury and U.S. Gov't agencies and corporations (a) $ 16,860 15,453 5,043 44 37,400
Weighted average yield 5.50% 6.29% 5.75% 6.12% 5.86%
States of the U.S. and Political Subdivisions (b) 1,300 8,998 14,961 0 25,260
Weighted average yield 6.47% 7.00% 7.26% 0.00% 7.13%
Other Securities (a) 2,604 0 0 0 2,604
Weighted average yield 6.88% 0.00% 0.00% 0.00% 6.88%
------------ ----------- ------------ ---------- ----------
============ =========== ============ ========== ==========
TOTAL AVAILABLE FOR SALE $ 20,764 24,451 20,004 44 65,263
============ =========== ============ ========== ==========
============ =========== ============ ========== ==========
Weighted Ave. Yield of Total 5.74% 6.55% 6.88% 6.12% 6.39%
============ =========== ============ ========== ==========
============ =========== ============ ========== ==========
<FN>
<F1>
(a) Portions of investments both taxable and nontaxable have been
presented on a state taxable equivalent basis assuming a 7.9% tax
rate.
<F2>
(b) The interest and average yield for nontaxable securities are
presented on a federal taxable equivalent basis assuming a 34% tax
rate.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section III, Schedule A
Loan Summarization
(000's Omitted)
December 31,
--------------- --------------- --------------- --------------- ---------------
1998 1997 1996 1995 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Commercial $ 38,185 32,886 30,808 27,659 27,713
Agricultural production 9,985 6,857 6,167 5,810 6,163
Real Estate:
Construction 30,008 24,353 25,164 20,652 14,437
Commercial 67,761 52,540 40,935 37,005 33,027
Agriculture 7,754 8,177 705 733 1,014
Residential 96,139 86,015 79,129 67,729 66,004
Municipal 6,503 4,972 4,254 3,806 2,341
Consumer 8,465 8,308 7,225 6,961 7,074
--------------- --------------- --------------- --------------- ---------------
TOTAL $ 264,800 224,108 194,387 170,355 157,773
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Section III, Schedule B
Loan Maturities and Sensitivity to Changes in Interest Rate
(000's Omitted)
LOAN MATURITIES AMOUNT OVER ONE YEAR WITH
------------------------------------ ---------------------------------------------------------
------------------------------------ ---------------------------------------------------------
AFTER 1 AFTER FLOATING OR
1 YEAR THROUGH FIVE PREDETERMINED ADJ. INTEREST
OR LESS 5 YEARS YEARS TOTAL RATES RATES TOTAL
------------------------------------ ---------------------------------------------------------
------------------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, l998
Comm'l and agricultural $ 36,722 10,194 1,254 48,170 11,448 0 11,448
Real estate - constr. 22,634 7,335 39 30,008 5,697 7,374 13,071
--------- --------- ------- -------- -------------------- -------------------- -----------
--------- --------- ------- -------- -------------------- -------------------- -----------
TOTAL $ 59,356 17,529 1,293 78,178 17,145 7,374 24,519
========= ========= ======= ======== ==================== ==================== ===========
========= ========= ======= ======== ==================== ==================== ===========
December 31, l997
Comm'l and agricultural $ 28,305 10,314 1,124 39,743 7,883 3,556 11,439
Real estate - constr. 18,573 5,734 46 24,353 2,828 2,952 5,780
--------- --------- ------- -------- -------------------- -------------------- -----------
--------- --------- ------- -------- -------------------- -------------------- -----------
TOTAL $ 46,878 16,048 1,170 64,096 10,711 6,508 17,219
========= ========= ======= ======== ==================== ==================== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section III, Schedule C
First Banking Center, Inc.
Non-Performing Loans
(000's omitted)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans $1,517 $824 $260 $1,501 $778
Past Due 90 days + (1) 16 2 17 2 -----
Restructured Loans (2) ----- ----- ----- ------ -----
<FN>
Notes:
<F1>
(1) Loans are generally placed in nonaccrual status when contractually past due 90 days or more.
<F2>
(2) There were no restructured loans for each of the presented years.
<F3>
(3) Interest which would have been recorded had the loans been on an accrual basis, would have amounted to $39,000 in 1998,
$21,000 in 1997, $6,000 in 1996, $25,000 in 1995, and $12,000 in 1994. Interest income on these loans, which is
recorded only when received, amounted to $20,000 in 1998, $14,000 in 1997, $6,000 in 1996, $7,000 in 1995, and $4,000 in
1994.
<F4>
(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 the Bank. These loans are then placed on a
nonaccrual basis.
(4) As of December 31, 1998, 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.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section IV, Schedule A
Analysis of the Allowance for Loan Losses
(000's Omitted)
------------------ ------------- ------------ ------------ ------------
------------------ ------------- ------------ ------------ ------------
1998 1997 1996 1995 1994
------------------ ------------- ------------ ------------ ------------
------------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Beginning loan loss reserve $ 3,132 2,897 2,336 2,095 1,886
Charge-offs:
Commercial 2 14 0 22 4
Agricultural production 0 0 0 0 1
Real Estate:
Construction 0 0 0 0 0
Commercial 0 0 0 0 0
Agriculture 0 2 0 0 0
Other Mortgages 35 3 1 214 198
Installment - consumer 51 43 33 55 102
Recoveries:
Commercial 9 0 12 19 68
Agricultural production 0 0 0 0 3
Real Estate:
Construction 0 0 0 0 113
Commercial 0 30 0 0 0
Agriculture 2 0 0 0 0
Other Mortgages 1 20 5 2 13
Installment - consumer 35 17 31 41 47
-------------- ------------- ------------ ------------ ------------
-------------- ------------- ------------ ------------ ------------
Net Charge-offs/(Recoveries) 41 (5) (14) 229 61
Additions charged to operations (1) 330 230 247 470 270
Additions related to
branch acquisitions 0 0 300 0 0
-------------- ------------- ------------ ------------ ------------
-------------- ------------- ------------ ------------ ------------
Balance at end of period $ 3,421 3,132 2,897 2,336 2,095
============== ============= ============ ============ ============
============== ============= ============ ============ ============
Ratio of net charge-offs/
recoveries during the period
to ave. loans outstanding
during the period 0.017% -0.002% -0.01% 0.14% 0.04%
<FN>
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.
</FN>
</TABLE>
<PAGE>
Section IV, Schedule B
Allocation of the Allowance for Loan Losses
The allowance for loan losses is based on an evaluation of risk in the
loan portfolio, current 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.
All loans past due greater than 90 days and all Commercial and Mortgage loans on
the watch list are individually evaluated. The rest of the loans are evaluated
as a group.
The allocated portion of the reserve is determined based on historical
losses, collateral values, and other factors identifiable to the loans evaluated
individually. The Company has allocated $2.3 million or 66% of the allowance to
these loans. These loans comprise about 61% of the loan portfolio. Residential
mortgages carry a smaller element of risk and comprise about 36% of the loan
portfolio. One hundred fifty thousand dollars of the allowance or about 4.4% has
been allocated to residential mortgages. Consumer loans comprise about 3.2% of
the loan portfolio and $77 thousand or about 2.3% of the allowance is allocated
to consumer loans. The company has allocated $45 thousand dollars of the
allowance to unfunded loan commitments, which total approximately $48 million
dollars.
The balance of the allowance or $885 thousand is unallocated. The
unallocated portion of the allowance is based on an attempt to quantify various
subjective factors such as quality of lending staff, policies, procedures,
economic conditions and trends, loan growth and loan portfolio mix.
<TABLE>
<CAPTION>
Section V, Schedule A
Three Year Summary of Average Deposits
(000's Omitted)
--------------------------- --------------------------- ---------------------------
RATE RATE RATE
1998 PAID 1997 PAID 1996 PAID
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Deposit in domestic bank offices:
Non-interest bearing demand $ 40,683 35,262 29,550
Interest-bearing demand 23,259 2.39% 22,609 2.58% 20,392 2.75%
Money Market demand 57,236 4.43% 45,554 4.28% 36,610 4.14%
Savings deposits 32,218 6.70% 33,527 2.77% 27,531 2.78%
Time deposits 107,655 5.67% 107,672 5.66% 91,000 5.76%
-------------- ---------- --------------- --------- --------------- ---------
Total Deposits $ 261,051 3.85% 244,624 3.91% 205,083 3.94%
============== ========== =============== ========= =============== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section VI
Three Year Summary of Return on Equity and Assets
----------------------------------------------------
----------------------------------------------------
1998 1997 1996
----------------------------------------------------
----------------------------------------------------
<S> <C> <C> <C>
Return on average assets 1.02% 0.95% 1.07%
Return on average equity 11.15% 10.56% 11.29%
Dividend payout ratios on common stock 23.70% 25.69% 24.21%
Average equity to average assets 9.13% 8.97% 9.46%
</TABLE>
<TABLE>
<CAPTION>
Section VII
Short-term Borrowing
(000's Omitted)
Securities Sold Under Agreements
To Repurchase (1)
-----------------------------------------------------
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
End of Year:
Balance $28,750 $30,286 $30,925
Weighted Ave. Rate 4.72% 5.14% 5.42%
For the Year:
Maximum Amount Outstanding $31,491 $30,286 $34,175
Average Amount Outstanding $20,880 $18,917 $21,427
Weighted Ave. Rate 5.05% 5.23% 5.31%
<FN>
(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 4.6 months, 1.6 months, and 3.2 months for the years 1998, 1997,
and 1996, respectively.
</FN>
</TABLE>
<PAGE>
ITEM 2: PROPERTIES
The Company owns no properties; it currently occupies space in the
buildings that house the Lake Geneva and Kenosha branches. Since January 1, 1995
the company has been making rent payments to First Banking Center for the space
that it occupies and the equipment it uses.
First Banking Center
The Bank owns banking facilities in Albany, Burlington, Genoa City,
Kenosha, Lake Geneva, Lyons, Monroe, Pell Lake, Somers, Union Grove, Walworth,
and Wind Lake. Each of the bank's offices is well maintained and adequately
meets the needs of the bank.
ITEM 3: LEGAL PROCEEDING
Neither the Corporation nor its subsidiary 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 subsidiary.
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 in page
the Annual Report to Shareholders for the year ended December 31, 1998 and are
incorporated herein by reference.
There were 751 holders of record of the Company's $1.00 par value
common stock on December 31, 1998.
ITEM 6: SELECTED FINANCIAL DATA
Selected financial data is presented on page 1 of the Annual Report to
Shareholders for the year ended December 31, 1998 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 28-31 of the Annual Report to Shareholders
for the year ended December 31, 1998 and is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Registrant and
its subsidiary included in the Annual Report to Shareholders for the year ended
December 31, 1998 are incorporated herein by reference:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
As of December 31, 1998 and 1997
Consolidated Statements of Income
Years ended December 31, 1998, 1997, and 1996 Consolidated
Statements of Changes in Components of Stockholder's Equity
Years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows
Years ended December 31, 1998 1997, and 1996
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 20, 1999, 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 20, 1999, 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 20, 1999, 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 14, Note D 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 previous10-K
reports.
(13) 1998 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 V, Pages 25-27.
<PAGE>
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____________________ By ___________________________
Brantly Chappell
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.*
- -------------------------------- -----------------------------
Brantly Chappell, James Schuster,
Chief Executive Officer, Director Chief Financial Officer
- -------------------------------- -----------------------------
Melvin Wendt, Director Richard McKinney, Director
- -------------------------------- -----------------------------
John Smith, Director John Ernster, Director
- -------------------------------- -----------------------------
David Boilini, Director Pat Sebranek, Director
- -------------------------------- -----------------------------
Charles Wellington, Director Keith Blumer, Director
- -------------------------------- -----------------------------
Thomas Laken, Jr., Director Daniel Jacobson, Director
*Each of the above signatures is affixed as of March 31, 1999.
<PAGE>
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 1999 Annual Shareholders Meeting.
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 20, 1999
The Annual Meeting of Stockholders of First Banking Center, Inc. (the
"Corporation") will be held at 1:30 P.M. on April 20, 1999, 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
19, 1999.
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,
and FOR Proposals II and III. 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 20, 1999, there were 1,488,631 shares of Common Stock ($1.00 par
value) (the "Common Stock") of the Corporation outstanding. The Board of
Directors has fixed March 5, 1999 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 5, 1999, 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 eleven nominees for director who receive the
largest number of affirmative votes cast at the Annual Meeting will be elected
as directors. Proposals II and III are adopted if the votes cast in favor of the
Proposals exceed the votes cast in opposition.
THE COST OF SOLICITATION OF THE PROXIES WILL BE BORNE BY FIRST BANKING CENTER,
INC. IN ADDITION TO USE OF THE MAILS, PROXIES MAY BE SOLICITED PERSONALLY BY THE
OFFICERS OF FIRST BANKING CENTER, INC., AND BY TELEPHONE.
The complete mailing address of First Banking Center, Inc. is 400 Milwaukee
Avenue, P.O. Box 660, Burlington, Wisconsin, 53105.
PRINCIPAL HOLDERS OF SECURITIES
As of January 20, 1999, the Trust Department of a wholly owned subsidiary of the
Corporation owned in a fiduciary capacity 178,024 shares of Common Stock,
constituting 11.9% of the Corporation's outstanding shares entitled to vote.
Sole voting and investment power is held with respect to 67,129 of such shares.
The only shareholder known to the Corporation to own beneficially more than 5%
of the outstanding Common Stock is Mr. Roman Borkovec. Mr. Borkovec's address is
31008 Weiler Road, Burlington, WI 53105. Mr. Borkovec's holdings consist of
57,325 shares held directly; 18,947 shares held in joint tenancy with his wife;
and 8,151 shares held by his wife in which shares Mr. Borkovec disclaims voting
and investment powers. The total shares owned by Mr. Borkovec and his wife
represent 5.67% of the outstanding Common Stock.
PROPOSAL 1
ELECTION OF DIRECTORS
It is the recommendation of the Board of Directors that 11 Directors be elected.
Unless authority is withheld by your proxy, it is intended that the shares
represented by the proxy will be voted FOR the 11 nominees listed below. All
listed nominees are incumbent directors. All listed nominees are also directors
of First Banking Center, (the "Subsidiary Bank") the wholly owned subsidiary
located in Burlington, Wisconsin. 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.
If Proposal II, as described below, is adopted, the Board will be divided into
three (3) classes and Directors will be elected to hold office for initial terms
of one (1), two (2) or three (3) years in accordance with the classification
indicated below and until their successors are elected and qualified. After such
terms of one (1), two (2) or three (3) years, as the case may be, each class of
Directors will be elected to terms of three (3) years and until their successors
are elected and qualified.
If Proposal II is not adopted, each of the eleven nominees will be elected for a
one (1) year term expiring in the year 2000 and until their successors are
elected and qualified.
<TABLE>
<CAPTION>
Director
Name and Background Since
Nominees for Directors for Term Expiring in 2000
(Class I Directors)
<S> <C>
John S. Smith, age 39, has been President and Trust Officer of the Subsidiary Bank, since April 1994. Mr. Smith
has been a director of the Subsidiary Bank, since 1992. He was Executive Vice President of the Subsidiary Bank,
from 1990 to 1994....................................................................................................1992
John M. Ernster, age 49, has been Manager of Business Development for Wisconsin Electric Power Company since 1994
and has held various positions with Wisconsin Electric Power Company since 1972. He has been a director of the
Subsidiary Bank, since 1991. ........................................................................................1992
Richard McKinney, age 61, was elected Vice Chairman of the Board in November of 1998. 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. Mr. McKinney has been a director of the
Subsidiary Bank, since May 1988......................................................................................1988
Keith Blumer, age 50, has been President and owner of Plainview Stock Farms, a cattle and grain farm operation
near Albany, Wisconsin since 1979. Mr. Blumer was appointed to the Board in April 1998 and previously served on
the Board of First Banking Center - Albany, a subsidiary bank of the Corporation, from 1985 until it was merged
with First Banking Center, Burlington in April 1998. ................................................................1998
</TABLE>
<TABLE>
<CAPTION>
Director
Name and Background Since
Nominees for Directors for Term Expiring in 2001
(Class II Directors)
<S> <C>
David Boilini, age 46, 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 since 1979. Mr.
Boilini has been a director of the Subsidiary Bank, since February 1993..............................................1993
Thomas Lakin, Jr., age 56, has been President and owner of Finishing and Plating Services, a commercial
electroplating job shop located in Kenosha, Wisconsin, since 1980. Mr. Laken was appointed to the Board in
April of 1998. He has been a director of the Subsidiary Bank, since 1996. ...........................................1998
Patrick Sebranek, age 52, has been owner and editorial director of the Write Source, an educational development
house for English textbooks since 1976. Mr. Sebranek has been a director of the Subsidiary Bank since September
1995. ...............................................................................................................1996
Daniel T. Jacobson, age 41, is a CPA and partner in the firm of Reffue, Pas, Jacobson, & Koster, LLP in Monroe,
Wisconsin. Mr. Jacobson has been with the accounting firm since 1979. Mr. Jacobson was appointed to the Board
in April 1998 and previously served on the Board of First Banking Center - Albany, a subsidiary bank of the
Corporation, from 1994 until it was merged with First Banking Center, Burlington in April 1998.......................1998
</TABLE>
<TABLE>
<CAPTION>
Director
Name and Background Since
Nominees for Directors for Term Expiring in 2002
(Class III Directors)
<S> <C>
Brantly Chappell, age 45, was hired as President and CEO of the Corporation in October 1997. At that time he was
also appointed to the Board of the Corporation and the Board of the Subsidiary Bank. In April of 1998 Mr.
Chappell was elected CEO of the Subsidiary Bank. From 1983 to 1997 Mr. Chappell held various senior management
positions with Bank One most recently Executive Vice President/Market Manager of Madison Market. ....................1997
Melvin W. Wendt, age 60, was elected Chairman of the Board in November of 1998, he has owned and operated Mel
Wendt Realty, a real estate brokerage firm, since 1964. Mr. Wendt has also served as Chairman of the Board of
the Subsidiary Bank, since November 1998 has been a member of the Subsidiary Bank board since 1989. .................1989
Charles R. Wellington, age 49, has been a partner in the law firm of Kittelsen, Barry, Ross, Wellington, and
Thompson since 1981. Mr. Wellington previously served on the Board of First Banking Center - Albany, a
subsidiary bank of the Corporation, from 1989 until it was merged with First Banking Center, Burlington in
April 1998. .........................................................................................................1996
</TABLE>
Information Regarding Board of Directors and Committees
The Board of Directors of First Banking Center, Inc., held three meetings during
the year of 1998.
All Directors attended at least 75% of the meetings of the Board of Directors
and committees of which they were a member.
The committee and committee assignments are set forth below. In addition,
Directors of the Corporation serve as Directors and committee members of the
Corporation's subsidiary.
The Compensation Committee, whose members are Mr. Sebranek, Mr. McKinney and Mr.
Laken, met two times during 1998. The committee's duties are 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. The Audit Committee, whose members are Mr. Boilini,
Mr. Sebranek, Mr. Lakin, and Mr. Jacobson met four times during 1998. The
primary 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.
The Nominating Committee whose members are Mr. Wendt, Mr. Smith, Mr. Ernster,
Mr. Chappell, and Mr. Wellington met once during 1998. The 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 of First Banking Center, Inc.
CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to the beneficial ownership of
shares of Common Stock of each director, each nominee for director, and each
Named Executive Officer, individually, and all directors and executive officers
of the Corporation, as a group. Except as otherwise indicated in the footnotes
to the table, each individual has sole investment and voting power with respect
to the shares of Common Stock set forth.
<TABLE>
<CAPTION>
. Common Stock directly,
Name and Other Position with indirectly or beneficially Percent of
First Banking Center, Inc. owned as of January 20, 1999 Outstanding
- -------------------------- ---------------------------- -----------
<S> <C> <C>
Brantly Chappell (President & CEO)....................................2,457 (1) (2) . 17%
John S. Smith (Secretary)............................................15,795 (1) 1.06%
Melvin W. Wendt (Chairman)...........................................11,763 (1)(3) . 79%
Richard McKinney (Vice Chairman)......................................8,653 (1)(4) . 58%
Keith Blumer..........................................................1,762 (1)(5) . 12%
David Boilini........................................................10,512 (1)(6) . 71%
John M. Ernster.......................................................1,666 (1)(7) . 11%
Daniel T. Jacobson......................................................900 (1)(8) . 06%
Thomas Lakin, Jr......................................................2,594 (1)(9) . 17%
Patrick Sebranek......................................................4,114 (1)(10) . 28%
Charles R.Wellington..................................................2,500 (1)(11) . 17%
All directors and named executive officers as a group................62,716 4.22%
<FN>
<F1>
(1)......Includes shares issuable pursuant to incentive stock options exercisable within sixty days of January 20, 1999
as follows Mr. Chappell, 667 shares, Mr. Smith, 3,133 shares, Mr. Wendt, 300 shares, Mr. McKinney, 300 shares,
Mr. Blumer, 300 shares, Mr. Boilini, 300 shares, Mr. Ernster, 300 shares, Mr. Jacobson, 300 shares, Mr. Lakin, 100
shares, Mr. Sebranek, 200 shares, Mr. Wellington, 200 shares.
<F2>
(2)......Includes 707 shares held directly by Mr. Chappell and 1,083 shares held by his wife in which Mr. Chappell disclaims voting
or investment powers.
<F3>
(3)......Includes 2,325 shares held directly by Mr. Wendt and 9,138 shares held in joint tenancy with his wife in which shares
Mr. Wendt has shared voting and investment powers.
<F4>
(4)......Includes, 3,803 shares held directly by Mr. McKinney, 2,452 shares held in joint tenancy with his wife in which shares
Mr. McKinney shares voting and investment powers, and 2,098 shares held by his wife in which Mr.McKinney disclaims
voting or investment powers.
<F5>
(5)......Includes 1,362 shares held directly by Mr. Blumer and 100 shares held in joint tenancy with his wife in which Mr. Blumer
shares voting and investment powers.
<F6>
(6)......Includes 8,334 shares held directly by Mr. Boilini, and 1,878 shares owned by J. Boilini Farms which Mr. Boilini has
shared voting and investment powers.
<F7>
(7)......Includes 1,196 shares held directly by Mr. Ernster and 170 shares held by his wife in which shares Mr. Ernster disclaims
voting or investment powers.
<F8>
(8)......Includes 400 shares held in joint tenancy with his wife in which shares Mr. Jacobson shares voting and investment powers,
200 shares which Mr. Jacobson holds in custody for his daughter under the Wisconsin Uniform Gift to Minors Act.
<F9>
(9)......Includes 1,552 shares held directly by Mr. Lakin, 696 shares held in joint tenancy with his wife in which shares Mr. Lakin
shares voting and investment powers, and 246 shares held by his wife in which Mr. Lakin disclaims voting or investment
powers.
<F10>
(10).....Includes 3,914 shares held in joint tenancy with his wife in which shares Mr. Sebranek shares voting, and investment
powers.
<F11>
(11).....Includes of 2,300 shares held directly by Mr. Wellington.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
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 the Subsidiary Bank
meeting, the fee is $100.00 per meeting attended.
Pension Plan
First Banking Center (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 $56,000, $55,000, and
$55,000, respectively, for 1998, 1997, and 1996.
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 $37,000, $40,000 and $18,000, respectively, for 1998, 1997, and
1996. Deferred directors' fees in each of the respective years were $4,200,
$4,200 and $12,000.
Stock Option Plan
For a description of the Stock Option Plan see "EXECUTIVE COMPENSATION Incentive
Stock Option Plan."
PROPOSAL II
Proposal to Amend the Corporation's Articles of Incorporation
to Provide for Classification of Directors
On February 24, 1999, the Corporation's Board of Directors unanimously approved
and recommended that the shareholders approve the adoption of Proposal II.
Description of Amendment
Proposal II if adopted, will amend Article VII of the Articles in its entirety
to divide the Board of Directors into three classes of Directors serving
staggered three-year terms after initial terms of one (1), two (2) and three (3)
years. Proposal II is discussed in greater detail below.
If Proposal II is adopted by the shareholders, the amendment will become
effective at the 1999 Annual Meeting of Shareholders of the Corporation. The
full text of Proposal II is attached to this Proxy Statement as Exhibit A. The
following summary of Proposal II is qualified in its entirety by reference to
Exhibit A.
Proposed Article VII would divide the Board of Directors into three classes and
provide that one class would be elected each year. Initially, however, members
of all three classes would be elected at the 1999 Annual Meeting. As explained
under "Election of Directors," the slate of eleven Directors nominated for
election at the 1999 Annual Meeting will be proposed to be elected for three
separate classes as follows: four Directors, constituting the "Class I
Directors," will be elected for a one-year term expiring at the 2000 Annual
Meeting; four Directors, constituting the "Class II Directors," will be elected
for a two-year term expiring at the 2001 Annual Meeting; and three Directors,
constituting the "Class III Directors," will be elected for a three-year term
expiring at the Annual Meeting in the year 2002, If Proposal II is adopted, at
each Annual Meeting after the 1999 Annual Meeting, Directors will be elected to
serve for a three-year term. At present, all Directors of the Corporation are
elected annually to serve one-year terms. The number of Directors to be elected
at the 1999 meeting is eleven. The Board of Directors is presently comprised of
eleven persons.
The number of Directors is presently established in the Corporation's Bylaws,
which provide that the Board of Directors shall consist of no less than 5, nor
more than 25 members, except that the Board may, by majority vote, increase the
number of Directors. The Board may also fill any vacancies occurring on the
Board.
Currently, any Director elected by the Board to fill a vacancy will serve only
until the next Annual Meeting of Shareholders. Under proposed Article VII, any
Director so elected to fill a vacancy will hold office for the same term as
other Directors of the same class, and additional Directors would be apportioned
among the three classes to make all classes as nearly equal as possible.
Reasons for and Effects of the Amendment
In recent years, there have been attempts by various individuals and entities to
acquire significant minority positions in certain companies with the intent of
obtaining actual control of the companies by electing their own slate of
Directors, or achieving some other goal, such as the repurchase of their shares
at a premium which would not be available to all shareholders. These individuals
or groups try to elect a company's entire Board of Directors through a proxy
contest or otherwise, even though they do not own a majority of its outstanding
shares entitled to vote. Such dissident shareholders frequently disrupt the
general business activity of a corporation solely for the purpose of causing it
to repurchase their shares at a premium which is not made available to other
shareholders, or causing the corporation to engage in a merger or other
corporate transaction which may not be in the best interest of all shareholders.
The Board of Directors believes that adoption of Proposal II is advantageous to
the Corporation and its shareholders because it will enhance the likelihood of
continuity and stability in the composition of the Corporation's Board of
Directors and in the policies formulated by the Board. The Board believes that
this, in turn, will permit it to represent more effectively the interests of all
shareholders in a variety of situations, including in particular, responding to
circumstances created by demands or actions by a minority shareholder or group
of shareholders. If Proposal II is adopted, the Board believes that it will be
in a stronger position to resist the personal demands of a shareholder or group
and would be able to act more effectively in the best interests of all
shareholders. The Board believes that, if adopted, Proposal II will enable the
Board to negotiate more effectively on behalf of, or to seek better alternatives
for, all shareholders in a variety of situations that may be presented, whether
or not related to attempts to effect a change in the ownership or control of the
Corporation.
Because the amendment would delay their ability to obtain control of the Board
and the Corporation the amendment set forth in Proposal II would discourage
persons or groups from pursuing actions which are not in the interest of all
shareholders. If Proposal II is adopted, it will generally take at least two
annual meetings of shareholders to elect a majority of Directors. Under the
Corporation's Articles and Bylaws as currently in effect, an entity controlling
a large block of the Corporation's Capital Stock could possibly replace the
entire Board at just one meeting of the Corporation's shareholders.
Disadvantages of the Proposed Amendment
Proposal II is designed to discourage certain hostile attempts to gain immediate
control of the Corporation without purchasing all of the outstanding Capital
Stock. However, Proposal II would apply to all shareholders, not just
shareholders intent on exacting a benefit from the Corporation without regard to
the interest of other shareholders. Under Proposal II, shareholders would have
to act at two annual meetings in order to change majority control on the Board.
Thus, Proposal II would make it impossible to effect an immediate change in the
Board. A classified Board could delay shareholders who do not agree with the
policies of the Board of Directors from removing a majority of the Board for up
to two years.
The Board has no knowledge of any specific current efforts to accumulate the
Corporation's Capital Stock or to obtain control of the Corporation by means of
merger, tender offer, proxy contest or otherwise.
Conclusion
Because Proposal II limits shareholders authority, it involves certain
disadvantages. Nonetheless, the Board believes that the advantages of adopting
Proposal II outweigh any disadvantages and that it is prudent and in the best
interest of all shareholders to adopt Proposal II. The Board believes that the
advantages which will result from the greater assurance of Board continuity and
Board review of acquisition proposals will outweigh any disadvantages which may
result from discouraging potential acquirers from making an effort to obtain
control of the Corporation.
Vote Required for the Adoption of Amendment and Board Recommendation
The amendment to the Articles of Incorporation is approved if the votes cast
favoring the amendment exceed the votes cast in opposition to the amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL II.
THE PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY TO THE CONTRARY IN THEIR PROXIES OR SPECIFICALLY ABSTAIN
FROM VOTING ON THIS MATTER.
If Proposal II is approved by the shareholders, the Corporation will amend its
Bylaws to conform the Bylaws with the provisions of the amended Articles.
EXECUTIVE COMPENSATION
The following table sets forth information concerning paid or accrued
compensation for services to the Corporation and its subsidiary for the fiscal
years ended December 31, 1998, 1997 and 1996 earned by or awarded or paid to the
persons who were chief executive officer and other executive officers of the
Corporation (the "Named Executive Officers") whose salary and bonus exceeded
$100,000 during 1998.
<TABLE>
Summary Compensation Table
============================ =========================================================== =======================================
Long-Term
Annual Compensation Compensation
Awards
============================ =========================================================== =======================================
============================ --------- -------------- ------------- -------------------- -------------------- ==================
<CAPTION>
Securities
Name and Salary Bonus Other Underlying All Other
Principal Year ($) ($) Annual Options/SARs Comp.
Position Comp.(1) (#)
============================ ========= ============== ============= ==================== ==================== ==================
<S> <C> <C> <C> <C> <C> <C>
Brantly Chappell, 1998 $165,000 2,000 $14,000(2)
President and CEO 1997 $ 19,000 4,000 $ -0-
1996 -0- (3)
John S. Smith 1998 $101,000 $7,000 4,000 $ 6,000(4)
Secretary 1997 (5)
1996 (5)
============================ ========= ============== ============= ==================== ==================== ==================
<FN>
* Messrs. Chappell and Smith also serve in various capacities as directors and/or officers of the Corporation's
subsidiary.
<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 $2,000; accrued liability with respect to
Salary Continuation Agreement of $12,000.
<F3>
(3) Mr. Chappell commenced employment with Corporation in 1997.
<F4>
(4) Contribution to the Corporation's Defined Contribution (401(k)) Plan of $5,000; accrued liability of $1,000 under the
Directors' pension plan of First Banking Center, the wholly owned subsidiary of the Corporation.
<F5>
(5) No disclosure is made because Mr. Smith did not meet the definition of "Named Executive Officer" in 1997 and 1996.
</FN>
</TABLE>
Employment Agreement and Salary Continuation Agreement
Effective October 6, 1997, the Corporation and Mr. Brantly Chappell entered into
an employment agreement (the "Chappell Employment Agreement") pursuant to which
Mr. Chappell will serve as President and Chief Executive Officer of the
Corporation. The Chappell Employment Agreement has an initial term of two years,
and is automatically renewed for an additional year at each anniversary date
unless either party gives written notice that no such renewal shall occur.
Under the Chappell Employment Agreement, Mr. Chappell 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. Chappell the greater of $165,000 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. Chappell is entitled to participate in such other benefits of
employment such as are generally made available to executive officers of the
Corporation and its subsidiary.
The Chappell Employment Agreement further provides that on or before December
31, 1997, the Corporation shall grant Mr. Chappell an option to purchase 2,000
shares of the Corporation's common stock, and on or before December 31, 1998, an
additional option to purchase 2,000 shares of the Corporation's common stock
shall be granted to Mr. Chappell. Both options are granted pursuant to the terms
and conditions of the Corporation's 1994 Incentive Stock Plan. The exercise
price for each grant is 100% of the market price of the stock on the date of
grant.
If the Chappell Employment Agreement is terminated by the Corporation other than
for reasons of Mr. Chappell's death, disability or retirement, or without
"cause" as defined in the Chappell Employment Agreement; or if Mr. Chappell
terminates the Chappell Employment Agreement following a "change in control" as
defined in the Chappell Employment Agreement, then Mr. Chappell shall be
entitled to receive severance payments equal to $75,000 annually for a period of
two years from the termination date. In addition to the aforementioned severance
payments, Mr. Chappell will be entitled to fringe benefits for the two-year
period during which he is entitled to severance payments.
If Mr. Chappell is terminated due to disability, as defined in the Chappell
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. Such
disability payments will be reduced by payments received under any disability
plan or Social Security or other governmental compensation program. If
termination occurs for any reason other than those enumerated, the Corporation
will be obligated to pay the compensation and benefits only through the date of
termination.
The Chappell Employment Agreement provides that during the employment period and
for one (1) year thereafter, Mr. Chappell shall not engage in any activity which
will result in his competing with the Corporation or its subsidiary.
To further the objective of providing continued successful operation of the
Corporation and its subsidiary and to provide additional incentive for Mr.
Chappell to enter into the Chappell Employment Agreement, the Corporation and
Mr. Chappell have entered into a Salary Continuation Agreement (the
"Continuation Agreement") as of October 6, 1997. The Continuation Agreement
provides for monthly payments of $5,833.33 upon retirement at age 65 for the
remainder of Mr. Chappell's life, with a guarantee of 180 such monthly payments
to Mr. Chappell or his beneficiaries.
Upon Mr. Chappell's voluntary termination of employment prior to age 65 for
reasons other than death or disability or upon Mr. Chappell's discharge at any
time "for cause" as defined in the Chappell Employment Agreement, the
Corporation will not be obligated to pay any benefits pursuant to the
Continuation Agreement; however, if Mr. Chappell incurs voluntary or involuntary
termination of employment prior to age 65 for reasons other that death,
disability, or discharge for cause, but on or after a change in control as
defined in the Continuation Agreement, Mr. Chappell will be entitled to the
benefits payable under the Continuation Agreement.
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 believes that Mr. Chappell will substantially contribute
to the successful and profitable operation of the Corporation and its
subsidiary, and such contribution will result in substantial enhancement of
shareholder value. For these reasons and to provide management continuity, the
Board of Directors has determined that the Chappell Employment Agreement and
Continuation Agreement are in the best interest of the Corporation, its
subsidiary and its shareholders.
401(k) Profit Sharing Plan
The Corporation has a trusteed 401(k) profit sharing plan covering substantially
all employees of the Corporation and its subsidiary. The plan allows for
voluntary employee contributions. Total contributions to the 401(k) Plan by the
Corporation were $149,000 in 1998, $132,000 in 1997 and $98,000 in 1996.
Incentive Stock Plan
The following table presents information about stock options granted during 1998
to the executive officers named in the Summary Compensation Table.
<TABLE>
Stock Option Grants in 1998
Individual Grants
========================== ------------------------- -------------------------- ------------------------- =========================
<CAPTION>
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Exercise Expiration
Name Options(1) Fiscal Year(1) Price Date
========================== ========================= ========================== ========================= =========================
<S> <C> <C> <C> <C>
Brantly Chappell 4,000 8.27% $32.50 11/09/03
John Smith 4,000 8.27% $32.50 11/09/03
========================== ========================= ========================== ========================= =========================
<FN>
<F1>
(1) All options granted in 1998 were granted under the 1994 Incentive Stock Plan.
</FN>
</TABLE>
The following table presents information concerning stock options exercised
during 1998. Also shown is information on unexercised options as of December 31,
1998.
<PAGE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
====================== ---------------- ---------------- ----------------------------------- ===================================
<CAPTION>
Value of Unexercised,
Number of In-the-Money Options(3)
Shares Value Unexercised at FY End
Name Acquired Realized(1)(2) Options at FY End Exercisable Unexercisable
On Exercise Exercisable Unexercisable
====================== ================ ================ =================================== ===================================
<S> <C> <C> <C> <C> <C> <C>
Brantly
Chappell -0- -0- 667 5,333 $3,000 $6,500
500 $6,750
John 3,133 4,967
Smith $28,000 $8,500
====================== ================ ================ =================================== ===================================
<FN>
<F1>
(1) The exercise price for each grant was 100% of the market value of the shares on the date of grant.
<F2>
(2) Represents market price at date of exercise, less option price, times number of shares.
<F3>
(3) For valuation purposes, a December 31, 1998, market price of $32.50.
</FN>
</TABLE>
On August 8, 1994, the Board of Directors of the Corporation adopted the First
Banking Center, Inc. 1994 Incentive Stock Plan (the "Plan") which was
approved by the shareholders on April 11, 1995.
The Plan replaced the 1984 Incentive Stock Plan, which terminated in
April 1994. The purpose of the Plan is to advance the interests of the
Corporation and its subsidiary by encouraging and providing for the acquisition
of an equity interest in the Corporation by key employees and by enabling the
Corporation and its subsidiary 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 of its subsidiary.
Summary Description
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. For recommended changes to the plan
please refer to Proposal III below.
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 subsidiary, and
individuals selected by the Committee. Those selected individuals may include
any executive officer or employee of the Corporation or its subsidiary and
non-employee directors of the subsidiary 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.
The Committee may grant options 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 non-employee director of the Corporation will
automatically be granted a nonqualified stock option to purchase 100 shares of
Common Stock in December of each succeeding year.
The exercise price for all options granted pursuant to the Plan is the fair
market value of the Common Stock on the date of grant of the option; however, in
case of options granted to a person then owning more than 10% of the outstanding
Common Stock, the option price will not be less than 110% of the fair market
value on such date. The Committee will determine the method and the form of
payment of the exercise price. The payment may be in form of cash, Common Stock,
other securities or other property having a fair market value equal to the
exercise price.
Except for options granted to non-employee 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.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
General Policy
The compensation objective of the Corporation and its subsidiary 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 subsidiary are awarded annual
bonuses at the end of each year at the discretion of the Committee. The amount
of the bonus, if any, for each officer (other than the Chief Executive Officer)
is recommended to the Committee by the Chief Executive Officer based upon his
evaluation of the achievement of corporate and individual goals and his
assessment of subjective factors such as leadership, innovation and commitment
to the corporate advancement. The Corporation's annual incentive bonus is based
on meeting specific financial performance targets pursuant to a bonus plan. The
plan provides for a range of bonus awards based, among other things, upon return
on assets. The minimum target goal for return on assets is 1%, which is required
for payment of a bonus.
Chief Executive Officer Compensation
The compensation for the Chief Executive Officer was established at a level
which the Committee believed would approximate the compensation of chief
executive officers of similar organizations and would reflect prevailing market
conditions. The Committee also took into consideration a variety of factors,
including the achievement of corporate financial goals and individual goals. The
financial goals included increased earnings, return on assets, return on equity
and asset quality. No formula assigning weights to particular goals was used,
and achievement of other corporate performance goals was considered in general.
The Chief Executive Officer was also awarded incentive stock options under the
Corporation's Incentive Stock Plan. Based upon its review of the
Corporation's performance, the Committee believes that the total compensation
awarded to the Chief Executive Officer for 1998 is fair and appropriate under
the circumstances.
Stock Options
The Committee administers the 1994 Incentive Stock 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 subsidiary in 1998. 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 of its subsidiary.
None of the Committee members has interlocking relationships as defined by the
Securities and Exchange Commission, with the Corporation or its subsidiary. The
Committee is aware of the limitations imposed by Section 162(m) of the Internal
Revenue Code of 1986, as amended, on the deductibility of compensation paid to
certain senior executives to the extent it exceeds $1 million per executive. The
Committee's recommended compensation amounts meet the requirements for
deductibility.
The Compensation Committee: Patrick Sebranek, Richard McKinney, Thomas Lakin,Jr.
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:
<TABLE>
<CAPTION>
PERFORMANCE TABLE
(INSERT PERFORMANCE GRAPH)
<S> <C> <C> <C> <C> <C> <C>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
First Banking Center, Inc. 100 133 149 176 200 232
S&P 500 100 101 140 171 228 294
NASDAQ Bank Index 100 100 148 191 318 285
</TABLE>
Proposal III
Proposal to Amend the First Banking Center, Inc.
1994 Incentive Stock Plan
Summary of Proposal
In 1995, the shareholders of the Corporation approved the 1994 Incentive
Stock Plan (the "Plan"). A summary description of the Plan is provided under
"EXECUTIVE COMPENSATION - Incentive Stock Plan" in this Proxy Statement.
On February 24, 1999, the Board of Directors of the Corporation adopted, subject
to shareholder approval, four amendments to the Plan. The full text of the
amendments is set forth in Exhibit B and the following summary discussion is
qualified by reference to Exhibit B.
Proposed Amendment 1:
Section 7.2 of the Plan currently provides for the annual grant to each
non-employee director of the Corporation a nonqualified stock option to purchase
100 shares of Common Stock. Such option is automatically granted in December of
each year. The option price is equal to the fair market value of the Common
Stock on the date of grant.
Under the proposed amendment, beginning in December of 1998, the nonqualified
stock option granted would provide for the purchase of 500 shares of Common
Stock at an option price equal to the fair market value of the Common Stock on
the date of grant. Section 7.2 would also be amended to provide for an
expiration date for exercising options of ten years, instead of the present five
years.
Proposed Amendment 2:
Section 7.5 of the Plan currently provides that each option shall expire at such
time as the Committee shall determine, provided, however, that no option shall
be exercisable later than the fifth anniversary date of grant.
Under the proposed amendment, such maximum exercise period would be extended to
the tenth anniversary date of its grant. However, options held by a person
owning more than 10% of the Common Stock would remain subject to the five-year
exercise period.
Proposed Amendment 3:
Section 8 of the Plan currently provides that except upon the occurrence of
certain events, Common Stock acquired upon the exercise on an option may not be
sold or otherwise disposed of within the five-year period following the date of
exercise.
Under the proposed amendment, the period within which the option stock could not
be sold would be reduced to the later of two years from the date of grant or one
year from the date of exercise of the option.
Proposed Amendment 4:
This amendment provides certain protections to option-holders in the event of a
"Change In Control" as defined in proposed Section 17 of the Plan. Section 17
would be added to the existing Plan and would provide for immediate vesting and
the ability to immediately exercise in full all options granted but unexercised
in the event of change in control of the Corporation.
Under the current provisions of the Plan, and under terms of outstanding option
agreements, options are exercisable as to one-third of the shares on the first
anniversary date of the date of grant, another one-third on the second
anniversary of the date of grant and as to the remaining shares on the third
anniversary of the date of grant. Added Section 17 would accelerate such
exercise dates and would enable holders of unexercised options to exercise such
options immediately upon the occurrence of an event which meets the definition
of a "Change In Control" under proposed Section 17 of the Plan.
Reasons for the Amendments:
As to proposed Amendment 1, the board believes that the success of the
Corporation depends to a large extent on its continued ability to attract and
retain directors with relevant and beneficial experience who are motivated to
exert their best efforts on behalf of the Corporation. The Board and management
have reviewed the Corporation's current arrangements for compensation of
directors and believe that an increase in option awards will promote the
long-term success of the Corporation by further aligning the interest of the
non-employee directors with the interests of the Corporation and its
stockholders.
Proposed Amendments 2 and 3 are designed to eliminate unnecessarily burdensome
restrictions on the right of option holders to exercise options and dispose of
the option shares when personal financial circumstances would dictate a
postponement in exercising options or would make an earlier sale of the option
shares advisable. The present requirements regarding exercising of options and
sale of option shares detract from the benefits the Plan was intended to provide
and are more restrictive than provisions found in the majority of option plans
maintained by the Corporation's competitors. The Corporation's Directors believe
that implementation of proposed Amendments 2 and 3 will provide further
incentives for key employees and non-employee directors to advance the interests
of the Corporation and its shareholders.
Proposed Amendment 4 is designed to protect the rights of holders of previously
granted options in case of a change in control of the Corporation. Many, if not
the majority of the companies with which the Corporation must compete for the
services of highly skilled employees and experienced and motivated non-employee
directors have provided for the protection of the option holders upon a change
in control. The Directors believe that the proposed change in control amendment
is appropriate to safeguard the rights of participants in the Plan and carry out
the intent and purpose of the Plan.
Voting Requirements and Recommendations:
The amendments of the 1994 Incentive Stock Plan are adopted if the votes cast in
favor of the amendments exceed the votes cast in opposition.
The Directors and management of the Corporation have a personal interest in the
ratification of the proposed amendments to the 1994 Incentive Stock Plan.
Nevertheless, the Board and management believe that the proposed amendments are
in the best interests of the Corporation and its shareholders. THEREFORE, THE
BOARD OF DIRECTORS AND MANAGEMENT OF THE CORPORATION RECOMMEND THAT THE
SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE PROPOSED AMENDMENTS.
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 $1,198,000 and
$1,210,000 at December 31, 1998 and 1997, respectively. During 1998, $1,178,000
of new loans were made to directors and executive officers and their interests
and repayments made by them totaled $1,190,000. 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, 1998 represented 3.76% 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 1998 were satisfied on a timely basis.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Virchow, Krause & Company, LLP performed a complete audit of First Banking
Center, Inc. during 1998 and provided a certified financial statement for the
years ended December 31, 1998 and 1997.
Virchow, Krause & Company, LLP also performed a non-audit function for the
Corporation consisting of the preparation of the Corporation's 1998 Income Tax
returns. No representative of Virchow, Krause & Company, LLP will be present at
the Annual Stockholders' Meeting on April 20, 1999. The Board of Directors will
engage the services of a public accounting firm to provide a certified financial
statement for 1999. The Board will select such accounting firm at its annual
Directors Meeting.
PROPOSALS BY STOCKHOLDERS
Shareholders' proposals to be presented at the 2000 Annual Stockholders' Meeting
must be received by the Corporation at its principal office, 400 Milwaukee
Avenue, Burlington, Wisconsin, on or before November 20, 1999.
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 19, 1999
<PAGE>
EXHIBIT A
PROPOSED ARTICLE VII OF THE ARTICLES OF INCORPORATION
OF FIRST BANKING CENTER, INC.
ARTICLE VII
The business and affairs of the Corporation shall be managed by a Board of
Directors. The number of directors shall be not less than five (5) nor more than
twenty-five (25), the exact number to be determined from time to time by
resolution adopted by affirmative vote of a majority of Directors then in
office. The directors shall be divided into three classes, designated Class I,
Class II and Class III, and the term of office of directors of each class shall
be three years following the initial term of one (1), year for Class I
Directors, two(2) years for Class II Directors and three (3) years for Class III
Directors. Each class shall consist, as nearly as possible, of one-third of the
total number of directors constituting the entire Board of Directors. If the
number of directors is changed by resolution of the Board of Directors pursuant
to this Article VII, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case shall a decrease in the number directors shorten
the term of any incumbent director.
A director shall hold office until the Annual Meeting for the year in which his
term expires and until his successor shall be elected and shall qualify. Any
newly created directorship resulting from an increase in the number of directors
and any other vacancy on the Board of Directors, however caused, shall be filled
by the vote of a majority of the directors then in office, provided, however,
that if the number of directors is increased, not more than two such newly
created directorships may be filled by the directors in any period between
Annual Meetings of shareholders. Any director so elected to fill any vacancy in
the Board of Directors, including a vacancy created by an increase in the number
of directors, shall hold office for the remaining term of directors of the class
to which he has been elected and until his successor shall be elected and shall
qualify.
<PAGE>
EXHIBIT B
AMEDMENTS OF THE 1994 INCENTIVE STOCK PLAN
The four proposed amendments would amend Section 7.2, Section 7.5 and Section 8
and would add a new Section 17, as follows:
1. Section 7.2 Grant of Options to Board of Directors reading as follows:
"Simultaneously with the first grant of Options under the Plan in
December 1994, each Board Director shall automatically be granted a
nonqualified stock option to purchase 100 shares of Stock. Thereafter,
simultaneously with the grant of Options under the Plan to other
Participants in each December beginning in 1995 (or, if no such grants
are made in a particular year, then on December 31 of such year), each
Board Director shall automatically be granted a nonqualified stock
option to purchase 100 shares of Stock. Each such option shall have an
Option price equal to the Fair Market Value of the Stock on the date of
grant, shall expire on the fifth (5th) anniversary of the date of
grant, and shall be first exercisable as to one-third (1/3) of the
shares on the first anniversary of the date of the grant, as to another
one-third (1/3) of the shares on the second anniversary of the date of
the grant as to the remaining shares on the third anniversary of the
date of the grant."
is deleted in its entirety and the following is inserted in lieu thereof:
Section 7.2 Grant of Options to Board of Directors
"Simultaneously with the first grant of Options under the Plan in
December, 1994, each Board Director shall automatically be granted a
nonqualified stock option to purchase 100 shares of Stock. Thereafter,
simultaneously with the grant of Options under the Plan to other
Participants in each December beginning in 1995 (or, if no such grants
are made in a particular year, then on December 31 of such year), each
Board Director shall automatically be granted a nonqualified stock
option to purchase 100 Shares of Stock. Beginning in December of 1998
and in each December thereafter, each Board Director shall
automatically be granted a nonqualified stock option to purchase 500
shares of Stock. Each such Option shall have an Option price equal to
the Fair Market Value of the Stock on the date of grant, shall expire
on the tenth (10th) anniversary of the date of grant, and subject to
Section 17 shall be first exercisable as to one-third (1/3) of the
shares on the first anniversary of the date of grant, as to another
one-third (1/3) of the shares on the second anniversary of the date of
grant and as to the remaining shares on the third anniversary of the
date of the grant."
2. Section 7.5: Duration of Options reading as follows:
"Subject to the provisions of Section 7.2 in the case of Options
granted to Board Directors, each Option shall expire at such time as
the Committee shall determine at the time it is granted, provided,
however, that no Option shall be exercisable later than the fifth (5th)
anniversary date of its grant."
is deleted in its entirety and the following is inserted in lieu thereof:
Section 7.5 Duration of Options
"Subject to the provisions of Section 7.2 in the case of Options
granted to the Board Directors, each Option shall expire at such time
as the Committee shall determine at the time it is granted, provided,
however, that no Option shall be exercisable later than the tenth
(10th) anniversary of its grant and provided further that in no event
shall any Option granted to a person then owning more than 10% of the
Corporation's outstanding stock be exercisable after the expiration of
five (5) years from the date of grant thereof."
3. Section 8 Additional Transfer Restrictions, reading as follows:
"No Participant may sell or otherwise dispose of Stock acquired upon
the exercise of an Option within the five (5) year period beginning on
the date of exercise, except that (a) subject to the provisions of
Section 10.4, the Participant may dispose of the Stock by gift, bequest
or inheritance at any time, and (b) in the case of a Participant's
total and permanent disability or early or normal retirement, the
Participant may sell, encumber of otherwise dispose of the stock at any
time after the expiration of one (1) year after the date of exercise of
the option and two (2) years after the date of grant of the Option
pursuant to which the Stock was acquired."
is deleted in its entirety and the following is inserted in lieu thereof:
"No participant may sell or otherwise dispose of Stock acquired upon
the exercise of an Option before the later of the expiration of the
two-year period beginning on the date of the grant of the Option or
the expiration of the one-year period beginning on the date of the
exercise of such Option, provided that a Participant may dispose of
the Stock by gift, bequest or inheritance at any time."
4. Section 17 - Change in Control is added as follows:
Section 17 - Change in Control
a) For purposes f this Plan, a "Change in Control" shall mean and
include any transaction or series of transactions pursuant to
which any person (as defined in Section 3(a) (9) and 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), acting
directly or indirectly, acquires or becomes the beneficial owner
(as defined in Rule 13(d)-3 promulgated pursuant to the Exchange
Act) of twenty-five percent (25%) or more of the outstanding
stock or substantially all of the assets of the Corporation or
any of its subsidiaries, or pursuant to which the Corporation or
any of its subsidiaries shall merge, consolidate or liquidate
with or into another corporation or business entity. For
purposes of this Section 17, a "Change in Control" shall occur
upon the earlier of i) the execution of any legally binding
agreement or other document of any nature (including without
limitation a stock purchase agreement, merger or consolidation
agreement, plan of liquidation, asset purchase agreement) which
will result in such acquisition, ownership, merger, consolidation
or liquidation or (ii) the consummation of the aforedescribed
events. "Change in Control" shall not refer to or include any
transaction involving only entities controlled directly or
indirectly by the Corporation.
b) Upon a Change in Control, the Options granted pursuant to this
Plan shall become fully vested and immediately exercisable in
full, the to extent that the Options had not theretofore
become exercisable, notwithstanding any other provisions of this
Plan.
<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INVORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
Filed by Registrant.........................|X|
Filed by a party other than the registrant..| |
Check appropriate box:
| |Preliminary proxy statement | | Soliciting material pursuant
to Rule 14a-11(c)or Rule 14a_12.
|X|Definitive proxy statement | | Confidential for use of the
Commission only(as permitted by
Rule 14a-6(e)(2)).
| |Definitive additional material
First Banking Center, Inc.
(Name of Registrant as Specified in its Charter)
Payment of filing fee (check the appropriate box):
|X| No fee required
| | Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
<PAGE>
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
(414) 763-3581
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 20, 1999
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 20th day of April, 1999, at 1:30 P.M. for the purpose of
considering and voting upon the following matters:
I.) Proposal I, election of 11 directors as described in the accompanying
Proxy Statement.
II.) Proposal II, to amend the Corporation's Articles of Incorporation
to provide for the classification of Directors, as described in the
accompanying Proxy Statement.
III.) Proposal III, ratification of four proposed amendments of the 1994
Incentive Stock Plan, as described in the accompanying proxy
statement.
IV.) 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 5, 1999 will be
entitled to notice of and to vote at the Annual Meeting of April 20, 1999, or
any adjournment(s) thereof.
John S. Smith
Secretary
Burlington, Wisconsin
March 19, 1999
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 20, 1999
The undersigned hereby constitutes and appoints Dr. Mary Jane Oestmann and John
Sorenson, 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
20, 1999 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.
I.) ELECTION OF DIRECTORS
The eleven persons listed below have been nominated for election as
directors as discussed in the Proxy Statement dated March 19, 1999
attached hereto:
Keith Blumer David Boilini Brantly Chappell
John M. Ernster Daniel T. Jacobson Thomas Laken Jr.
Richard McKinney Patrick Sebranek John S. Smith
Charles R. Wellington Melvin W. Wendt
( ) ELECT AS DIRECTORS THE ELEVEN NOMINEES LISTED ABOVE
( ) WITHHOLD AUTHORITY TO VOTE FOR THE ELEVEN 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)
II.) PROPOSAL TO AMEND THE CORPORATION'S ARTICLES OF INCORPORATION TO
PROVIDE FOR CLASSIFICATION OF BOARD OF DIRECTORS
( ) FOR ( ) AGAINST ( ) ABSTAIN
III.) AMENDMENTS OF THE 1994 INCENTIVE STOCK PLAN.
1. Proposed Amendment 1: Ratification of amendment of Section 7.2 of
the Plan, providing for annual grant to non-employee directors of
nonqualified stock options to purchase 500 shares of Common Stock
of the Corporation and to provide that options may be exercised
during a period of ten years from the date of grant.
( ) FOR ( ) AGAINST ( ) ABSTAIN
2. Proposed Amendment 2: Ratification of amendment of Section 7.5 of
the Plan, providing that options may be exercised during a
ten-year period from the date of grant.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. Proposed Amendment 3: Ratification of amendment of Section 8 of
the Plan, providing that shares of Common Stock acquired upon
exercising an option may be sold at the later of two years from
the date of grant or one year from the date of exercise of an
option.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. Proposed Amendment 4: Ratification of amending the plan by adding
Section 17, providing for accelerated vesting and immediate
exercise of outstanding options in the event of a change in
control of the Corporation.
( ) FOR ( ) AGAINST ( ) ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ELEVEN PERSONS
LISTED ABOVE AND FOR THE RATIFICATION OF PROPOSALS II AND III.
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 11 PERSONS LISTED ABOVE AND FOR ADOPTION OF PROPOSALS II AND III.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement both dated March 19, 1999 and enclosed herewith.
Dated _______________________, 1999
--------------------------------------------
--------------------------------------------
--------------------------------------------
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, Guardian, or Attorney, please add
your title as such. All joint owners should
sign).
<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INVORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
Filed by Registrant.........................|X|
Filed by a party other than the registrant..| |
Check appropriate box:
| |Preliminary proxy statement | | Soliciting material pursuant
to Rule 14a-11(c)or Rule 14a_12.
| |Definitive proxy statement | | Confidential for use of the
Commission only(as permitted by
Rule 14a-6(e)(2)).
|X|Definitive additional material
First Banking Center, Inc.
(Name of Registrant as Specified in its Charter)
Payment of filing fee (check the appropriate box):
|X| No fee required
| | Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
First Banking Center, Inc.
and Subsidiary
Burlington, Wisconsin
Consolidated Financial Statements and Independent Auditor's Report
Years ended December 31, 1998,
1997 and 1996
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Consolidated balance sheets -
December 31, 1998 and 1997
Consolidated statements of income -
Years ended December 31, 1998, 1997 and 1996
Consolidated statements of changes in stockholders' equity -
Years ended December 31, 1998, 1997 and 1996
Consolidated statements of cash flows -
Years ended December 31, 1998, 1997 and 1996
Notes to consolidated financial statements
<PAGE>
Independent Auditor's Report
Board of Directors
First Banking Center, Inc. and Subsidiary
Burlington, Wisconsin
We have audited the accompanying consolidated balance sheets of First Banking
Center, Inc. and Subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1998, 1997 and 1996. 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 Subsidiary as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for the years December 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles.
VIRCHOW, KRAUSE & COMPANY, LLP
Brookfield, Wisconsin
January 14, 1999
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(in thousands except for per share data)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------
--------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest income $ 25,474 $ 22,861 $ 20,148 $ 18,810 $ 15,232
Interest expense 12,127 11,198 9,764 8,966 6,635
--------------------------------------------------------------
--------------------------------------------------------------
Net interest income 13,347 11,663 10,384 9,844 8,597
Provision for loan losses 330 230 247 470 270
--------------------------------------------------------------
--------------------------------------------------------------
Net income after provision for loan loss 13,017 11,433 10,137 9,374 8,327
Non-interest Income 2,530 2,156 1,762 1,507 1,358
Non-interest Expense 10,772 9,590 7,770 6,670 6,207
--------------------------------------------------------------
--------------------------------------------------------------
Income before income taxes 4,775 3,999 4,129 4,211 3,478
Income taxes 1,387 1,115 1,318 1,407 1,114
--------------------------------------------------------------
--------------------------------------------------------------
Net income $ 3,388 $ 2,884 $ 2,811 $ 2,804 $ 2,364
--------------------------------------------------------------
--------------------------------------------------------------
Earnings per common share:
Basic earnings per share $ 2.28 $ 1.95 $ 1.91 $ 1.92 $ 1.62
Diluted earnings per share $ 2.27 $ 1.94 $ 1.90 $ 1.91 $ 1.61
Cash dividends per share $ 0.54 $ 0.50 $ 0.46 $ 0.40 $ 0.36
Book value per share $ 21.43 $ 19.47 $ 17.78 $ 16.26 $ 14.23
Year-end assets $369,131 $327,833 $304,720 $264,379 $231,085
Average assets 332,980 304,479 263,162 243,702 217,860
Year-end equity capital 31,895 28,920 26,240 23,884 20,826
Average equity capital 30,394 27,319 24,903 22,572 20,314
Return on assets 1.02% 0.95% 1.07% 1.15% 1.09%
Return on equity 11.15% 10.56% 11.29% 12.48% 11.64%
</TABLE>
The Company's stock is not actively traded. Robert W. Baird & Co. Incorporated
and A.G. Edwards & Sons, Inc., howerver, do make a market in the stock. The
range and sales prices, based information given to the Company by Robert W.
Baird & Co. Incorporated, and A.G. Edwards & Sons, Inc., and by by parties to
sales, are listed below for each quarterly period during the last two years.
<TABLE>
<CAPTION>
1998 1997
Low High Low High
<S> <C> <C> <C> <C>
First quarter $ 28.00 $ 29.00 $ 25.50 $ 26.50
Second quarter $ 28.50 $ 31.00 $ 26.75 $ 27.75
Third quarter $ 28.00 $ 31.50 $ 26.75 $ 27.75
Forth quarter $ 31.50 $ 33.00 $ 27.50 $ 28.50
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Years ended December 31, 1998 and 1997
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks (Note B) $ 18,013,000 $ 16,286,000
Federal funds sold 6,885,000 -
Interest-bearing deposits in banks 66,000 820,000
Available for sale securities - stated at fair value (Note C) 65,263,000 74,601,000
Loans, less allowance for loan losses of $3,421,000 and
$3,132,000 in 1998 and 1997 respectively (Notes D, E and Q) 261,379,000 220,976,000
Office buildings and equipment, net (Note F) 9,602,000 7,650,000
Accrued interest receivable and other assets (Notes G, H, M and O) 7,923,000 7,500,000
----------------------------------------
----------------------------------------
Total assets $369,131,000 $327,833,000
========================================
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits: (Note I)
Demand $ 50,056,000 $ 40,090,000
Savings and NOW accounts 126,898,000 106,493,000
Time 105,845,000 106,316,000
----------------------------------------
----------------------------------------
Total deposits 282,799,000 252,899,000
Securities sold under repurchase agreements (Note J) 28,750,000 30,286,000
U.S. Treasury note account 100,000 540,000
Other borrowings (Note K) 22,143,000 11,957,000
Accrued interest payable and other liabilities (Notes M and O) 3,444,000 3,231,000
----------------------------------------
----------------------------------------
Total liabilities 337,236,000 298,913,000
----------------------------------------
----------------------------------------
Commitments and contingencies (Note P)
Stockholders' equity: (Notes L and S)
Common stock, $1.00 par value, 3,000,000 shares authorized; 1,488,631 and
1,484,718 shares issued and outstanding
as of December 31, 1998 and 1997 respectively 1,489,000 1,485,000
Surplus 4,312,000 4,221,000
Retained earnings (Note R) 25,431,000 22,846,000
----------------------------------------
----------------------------------------
31,232,000 28,552,000
Accumulated other comprehensive income 663,000 368,000
----------------------------------------
----------------------------------------
Total stockholders' equity 31,895,000 28,920,000
----------------------------------------
----------------------------------------
Total liabilities and stockholders' equity $369,131,000 $327,833,000
========================================
========================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------
------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (Note D) $ 21,981,000 $ 18,658,000 $ 16,234,000
Interest on securities:
Taxable 2,086,000 2,666,000 2,781,000
Tax-exempt 1,202,000 1,107,000 712,000
Interest on federal funds sold 162,000 285,000 248,000
Interest on deposits in banks 43,000 145,000 173,000
------------------------------------------------
------------------------------------------------
Total interest income 25,474,000 22,861,000 20,148,000
------------------------------------------------
------------------------------------------------
Interest expense:
Interest on deposits (Note I) 10,061,000 9,543,000 8,087,000
Interest on federal funds purchased and securities
sold under repurchase agreements (Note J) 1,074,000 997,000 1,143,000
Interest on U.S. Treasury note account 16,000 22,000 20,000
Interest on other borrowings (Note K) 976,000 636,000 514,000
------------------------------------------------
------------------------------------------------
Total interest expense 12,127,000 11,198,000 9,764,000
------------------------------------------------
------------------------------------------------
Net interest income before provision for loan losses 13,347,000 11,663,000 10,384,000
Provision for loan losses (Note E) 330,000 230,000 247,000
------------------------------------------------
------------------------------------------------
Net interest income after provision for loan losses 13,017,000 11,433,000 10,137,000
------------------------------------------------
------------------------------------------------
Noninterest income:
Trust Department income 414,000 341,000 355,000
Service charges on deposit accounts 1,011,000 911,000 733,000
Investment securities gains (losses) (Note C) (3,000) 2,000 (13,000)
Other income 1,108,000 902,000 687,000
------------------------------------------------
------------------------------------------------
Total noninterest income 2,530,000 2,156,000 1,762,000
------------------------------------------------
------------------------------------------------
Noninterest expenses:
Salaries and employee benefits (Note N) 5,982,000 5,294,000 4,290,000
Occupancy expenses 715,000 642,000 605,000
Equipment expenses 1,145,000 1,085,000 876,000
Computer services 460,000 431,000 418,000
FDIC assessment 30,000 27,000 4,000
Other expenses (Note O) 2,440,000 2,111,000 1,577,000
------------------------------------------------
------------------------------------------------
Total noninterest expenses 10,772,000 9,590,000 7,770,000
------------------------------------------------
------------------------------------------------
Income before income taxes 4,775,000 3,999,000 4,129,000
Income taxes (Note M) 1,387,000 1,115,000 1,318,000
------------------------------------------------
------------------------------------------------
Net income $ 3,388,000 $ 2,884,000 $ 2,811,000
================================================
================================================
Earnings per share:
Basic $ 2.28 $ 1.95 $ 1.91
================================================
================================================
Diluted $ 2.27 $ 1.94 $ 1.90
================================================
================================================
Weighted average shares outstanding 1,486,819 1,477,257 1,471,230
================================================
================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common Retained Treasury comprehensive
stock Surplus earnings stock income (loss) Total
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $1,468,000 $3,995,000 $18,570,000 $(1,000) $(148,000) $23,884,000
----------------
----------------
Comprehensive income:
Net income - 1996 - - 2,811,000 - - 2,811,000
Change in net unrealized gain (loss)
on securities available for sale,
net of reclassification adjustment
and tax effects - - - - 118,000 118,000
----------------
----------------
Total comprehensive income 2,929,000
----------------
----------------
Cash dividends paid - $.46 per share - - (678,000) - - (678,000)
Exercise of stock options - - - 1,000 - 1,000
Issuance of 7,734 new shares of stock
for the exercise of stock options 8,000 96,000 - - - 104,000
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Balance, December 31, 1996 1,476,000 4,091,000 20,703,000 - (30,000) 26,240,000
----------------
----------------
Comprehensive income:
Net income - 1997 - - 2,884,000 - - 2,884,000
Change in net unrealized gain (loss)
on securities available for sale,
net of reclassification adjustment
and tax effects - - - - 398,000 398,000
----------------
----------------
Total comprehensive income 3,282,000
----------------
----------------
Cash dividends paid - $.50 per share - - (741,000) - - (741,000)
Issuance of 8,520 new shares of stock
for the exercise of stock options 9,000 130,000 - - - 139,000
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Balance, December 31, 1997 1,485,000 4,221,000 22,846,000 - 368,000 28,920,000
----------------
----------------
Comprehensive income:
Net income - 1998 - - 3,388,000 - - 3,388,000
Change in net unrealized gain (loss)
on securities available for sale,
net of reclassification adjustment
and tax effects - - - - 295,000 295,000
----------------
----------------
Total comprehensive income 3,683,000
----------------
----------------
Cash dividends paid - $.54 per share - - (803,000) - - (803,000)
Issuance of 3,933 new shares of stock
for the exercise of stock options 4,000 91,000 - - - 95,000
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Balance, December 31, 1998 $1,489,000 $4,312,000 $25,431,000 $ - $663,000 $31,895,000
====================================================================================
====================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------
-------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,388,000 $ 2,884,000 $ 2,811,000
-------------------------------------------------
-------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 895,000 904,000 751,000
Provision for loan losses 330,000 230,000 247,000
Gain on sale of loans (10,000) - -
Loss on disposal of office building and equipment 16,000 5,000 -
Gain on sale of other real estate owned (2,000) - -
Provision for deferred taxes (202,000) (137,000) (189,000)
Amortization and accretion of bond
premiums and discounts - net 62,000 76,000 134,000
Amortization of excess cost over equity
in underlying net assets of subsidiary 104,000 104,000 20,000
Investment securities (gains) losses 3,000 (2,000) 13,000
(Increase) decrease in assets:
Interest receivable (98,000) (455,000) 219,000
Other assets (415,000) (128,000) (684,000)
Increase (decrease) in liabilities:
Taxes payable (112,000) 331,000 (140,000)
Interest payable 83,000 15,000 209,000
Other liabilities 242,000 218,000 (6,000)
-------------------------------------------------
-------------------------------------------------
Total adjustments 896,000 1,161,000 574,000
-------------------------------------------------
-------------------------------------------------
Net cash provided by operating activities 4,284,000 4,045,000 3,385,000
-------------------------------------------------
-------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits in banks 754,000 4,049,000 (566,000)
Net (increase) decrease in federal funds sold (6,885,000) 7,905,000 (3,355,000)
Proceeds from sales of available for sale securities 6,265,000 4,322,000 3,750,000
Proceeds from maturities of available for sale securities 95,873,000 50,990,000 27,386,000
Purchase of available for sale securities (92,410,000) (64,022,000) (34,738,000)
Purchase of held to maturity securities - - 6,190,000
Proceeds from maturities of held to maturity securities - - (7,936,000)
Proceeds from sale of student loans 547,000 - 779,000
Net increase in loans (41,270,000) (29,717,000) (24,497,000)
Purchase of office buildings and equipment (3,014,000) (1,990,000) (2,297,000)
Proceeds from sale of other real estate owned 30,000 - -
Proceeds from disposal of office building and equipment 151,000 26,000 21,000
Deposit premium paid in purchase of branches - - (1,509,000)
-------------------------------------------------
-------------------------------------------------
Net cash used in investing activities (39,959,000) (28,437,000) (36,772,000)
-------------------------------------------------
-------------------------------------------------
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------
-------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 29,900,000 $ 18,040,000 $ 26,029,000
Dividends paid (803,000) (741,000) (678,000)
Proceeds from other borrowings 16,449,000 2,618,000 3,605,000
Payments on other borrowings (6,263,000) (150,000) (3,049,000)
Net increase (decrease) in U.S. Treasury note account (440,000) - 449,000
Net increase (decrease) in securities sold under repurchase agreements (1,536,000) (640,000) 10,700,000
Proceeds from stock options exercised 95,000 139,000 105,000
-------------------------------------------------
-------------------------------------------------
Net cash provided by financing activities 37,402,000 19,266,000 37,161,000
-------------------------------------------------
-------------------------------------------------
Increase (decrease) in cash 1,727,000 (5,126,000) 3,774,000
Cash at beginning of year 16,286,000 21,412,000 17,638,000
-------------------------------------------------
-------------------------------------------------
Cash at end of year $18,013,000 $16,286,000 $21,412,000
=================================================
=================================================
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $12,044,000 $11,184,000 $ 9,555,000
=================================================
=================================================
Income taxes $ 1,537,000 $ 917,000 $ 1,458,000
=================================================
=================================================
Supplemental schedule of non-cash investing and financing activities:
Securities held for investment reclassified to available for sale securities $ - $ - $31,587,000
=================================================
=================================================
Net change in unrealized gain (loss) on available for sale securities $ 295,000 $ 398,000 $ 118,000
=================================================
=================================================
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.
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
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 subsidiary, First Banking Center. First Banking
Center includes the accounts of its wholly owned subsidiary, FBC-Burlington,
Inc. and FBC Financial Services Corp. 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 the
income of its wholly owned subsidiary. The subsidiary Bank grants agribusiness,
commercial, residential and consumer loans, accepts deposits and provides trust
services to customers primarily in southeastern and south central Wisconsin. The
subsidiary Bank is subject to competition from other financial institutions and
nonfinancial institutions providing financial products. Additionally the Company
and the subsidiary Bank 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 are defined as
those amounts included in the balance sheet caption "cash and due from banks."
The subsidiary Bank maintains amounts due from banks which, at times, may exceed
federally insured limits. The subsidiary Bank has not experienced any losses in
such accounts.
5. Available for sale securities:
Securities classified as available for sale are those debt securities that the
subsidiary Bank intends 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 Bank's assets and
liabilities, liquidity needs, regulatory capital consideration, and other
similar factors. Securities classified as available for sale are carried at fair
value. Unrealized gains or losses are reported as increases or decreases in
comprehensive income, 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.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note A. Summary of Significant Accounting Policies (continued)
6. 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.
7. Mortgage loans held for sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income. All sales are made without recourse.
8. Allowance for loan loses:
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 for loan losses is adequate to cover probable credit losses relating
to specifically identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio. In accordance with FASB Statements 5 and 114,
the allowance is provided for losses that have been incurred as of the balance
sheet date. The allowance is based on past events and current economic
conditions, and does not include the effects of expected losses on specific
loans or groups of loans that are related to future events or expected changes
in economic conditions. 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 bank 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.
9. 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.
10. 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.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note A. Summary of Significant Accounting Policies (continued)
11. 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.
12. 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.
13. Off-balance-sheet financial instruments:
In the ordinary course of business the subsidiary Bank has 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.
14. 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.
15. Earnings per share:
Earnings per share are computed based upon the weighted average number of common
shares outstanding during each year. In the computation of diluted earnings per
share, 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.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note A. Summary of Significant Accounting Policies (continued)
16. 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 due from banks
Federal funds sold
Interest-bearing deposits in banks
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 certificates of deposit
Available for sale securities
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
Other borrowings
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 consist of
nonfee-producing, variable rate commitments, the Company had determined it does
not have a distinguishable fair value.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note B. Cash and Due from Banks
The Company's bank subsidiary is required to maintain vault cash and reserve
balances with Federal Reserve Banks based upon a percentage of deposits. These
requirements approximated $2,738,000 and $1,549,000 at December 31, 1998 and
1997 respectively.
Note C. Available for Sale Securities
Amortized costs and fair values of available for sale securities as of December
31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
---------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------------------------------------------------------------
---------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 4,004,000 $ 90,000 $ - $ 4,094,000
Obligations of other U.S. government
agencies and corporations 17,658,000 79,000 4,000 17,733,000
Obligations of states and
political subdivisions 24,493,000 767,000 - 25,260,000
Commercial paper 6,633,000 - - 6,633,000
---------------------------------------------------------------
---------------------------------------------------------------
52,788,000 936,000 4,000 53,720,000
Mortgage-backed securities 8,821,000 123,000 4,000 8,940,000
Mutual funds 1,041,000 - 31,000 1,010,000
Federal Reserve stock 451,000 - - 451,000
Federal Home Loan Bank stock 1,142,000 - - 1,142,000
---------------------------------------------------------------
---------------------------------------------------------------
$ 64,243,000 $ 1,059,000 $39,000 $ 65,263,000
===============================================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note C. Available for Sale Securities (continued)
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------
-----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-----------------------------------------------------------------
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,154,000 $ 56,000 $ 3,000 $ 6,207,000
Obligations of other U.S. government
agencies and corporations 17,088,000 21,000 5,000 17,104,000
Obligations of states and
political subdivisions 26,921,000 468,000 - 27,389,000
Commercial paper 1,400,000 - - 1,400,000
-----------------------------------------------------------------
-----------------------------------------------------------------
51,563,000 545,000 8,000 52,100,000
Mortgage-backed securities 18,453,000 112,000 64,000 18,501,000
Mutual funds 2,332,000 - 17,000 2,315,000
Federal Reserve stock 451,000 - - 451,000
Federal Home Loan Bank stock 1,234,000 - - 1,234,000
-----------------------------------------------------------------
-----------------------------------------------------------------
$ 74,033,000 $ 657,000 $ 89,000 $ 74,601,000
=================================================================
</TABLE>
December 31, 1998, 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 listed below:
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
-----------------------------------
Amortized Fair
cost value
-----------------------------------
-----------------------------------
<S> <C> <C>
Due in one year or less $ 15,688,000 $ 15,691,000
Due after one year through 5 years 17,793,000 18,173,000
Due after 5 years through 10 years 19,307,000 19,856,000
-----------------------------------
-----------------------------------
$ 52,788,000 $ 53,720,000
===================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note C. Available for Sale Securities (continued)
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:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Proceeds from sales of available for sale securities $6,265,000 $4,322,000 $3,750,000
===============================================
Gross gains on sales $ 27,000 $ 31,000 $ 6,000
Gross losses on sales (30,000) (29,000) (19,000)
-----------------------------------------------
$ (3,000) $ 2,000 $ (13,000)
===============================================
Related income taxes (benefit) $ (1,000) $ 1,000 $ (5,000)
===============================================
Available for sale securities with a carrying amount of $28,789,000 and
$31,026,000 as of December 31, 1998 and 1997 respectively, were pledged as
collateral on public deposits and for other purposes as required or permitted by
law.
</TABLE>
Note D. Loans
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
---------------------------------------
1998 1997
---------------------------------------
---------------------------------------
<S> <C> <C>
Commercial $ 38,185,000 $ 32,886,000
Agricultural production 9,985,000 6,857,000
Real estate:
Construction 30,008,000 24,353,000
Commercial 67,761,000 52,540,000
Agricultural 7,754,000 8,177,000
Residential 96,139,000 86,015,000
Consumer and other 8,465,000 8,308,000
Municipal loans 6,503,000 4,972,000
---------------------------------------
---------------------------------------
264,800,000 224,108,000
Allowance for loan losses (3,421,000) (3,132,000)
---------------------------------------
---------------------------------------
Net loans $ 261,379,000 $ 220,976,000
=======================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note D. Loans (continued)
Impairment of loans having recorded investment at December 31, 1998 of
$1,517,000 and $824,000 at December 31, 1997 have been recognized in conformity
with FASB Statement No. 114 as amended by FASB Statement No. 118. The average
recorded investment in impaired loans during 1998 and 1997 was $1,454,000 and
$1,457,000 respectively. There was no allowance for loan losses related to these
loans at December 31, 1998 and 1997. Interest income on impaired loans of
$20,000, $14,000 and $6,000 was recognized for cash payments received in 1998,
1997 and 1996 respectively.
Certain directors and executive officers of the Company, and their related
interests, had loans outstanding in the aggregate amounts of $1,198,000 and
$1,210,000 at December 31,1998 and 1997 respectively. During 1998, $1,178,000 of
new loans were made and repayments totaled $1,190,000. 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 E. 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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
-----------------------------------------------
1998 1997 1996
-----------------------------------------------
-----------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 3,132,000 $ 2,897,000 $ 2,336,000
Charge-offs (88,000) (62,000) (34,000)
Recoveries 47,000 67,000 48,000
Addition to allowance related to branch acquisitions - - 300,000
Provision charged to operations 330,000 230,000 247,000
-----------------------------------------------
-----------------------------------------------
Balance, end of year $ 3,421,000 $ 3,132,000 $ 2,897,000
===============================================
</TABLE>
Note F. Office Buildings and Equipment
Office buildings and equipment are stated at cost less accumulated depreciation
and are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
-----------------------------------
1998 1997
-----------------------------------
-----------------------------------
<S> <C> <C>
Land $ 1,470,000 $ 1,550,000
Buildings and improvements 8,484,000 6,180,000
Furniture and equipment 5,047,000 4,555,000
-----------------------------------
-----------------------------------
15,001,000 12,285,000
Less accumulated depreciation 5,399,000 4,635,000
-----------------------------------
-----------------------------------
Total office buildings and equipment $ 9,602,000 $ 7,650,000
===================================
</TABLE>
Depreciation expense as of
December 31, 1998, 1997 and 1996 was $895,000, $904,000 and $751,000
respectively.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note G. Excess of Cost Over Equity in Underlying Net Assets of Subsidiary
The excess of cost over equity in underlying net assets of the Genoa City and
Pell Lake branches of the First Banking Center 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 $99,000, $99,000 and $16,000
for the years ended December 31, 1998, 1997 and 1996 respectively. Accumulated
amortization amounted to $214,000, $115,000 and $16,000 at December 31, 1998,
1997 and 1996 respectively.
Note H. Valuation of Core Deposits
The fair market value of core deposits of the Albany branch of First Banking
Center 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, 1998, 1997 and 1996 amounted to $3,000, $3,000 and $3,000
respectively. Accumulated amortization amounted to $307,000 $304,000 and
$301,000 at December 31, 1998, 1997 and 1996 respectively.
The fair market value of core deposits of the Genoa City and Pell Lake branches
of First Banking Center 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 $3,000, $3,000 and $3,000 for the years ended December 31, 1998,
1997 and 1996 respectively. Accumulated amortization amounted to $7,000, $4,000
and $1,000 at December 31, 1998, 1997 and 1996 respectively.
Note I. Deposits and Interest on Deposits
The aggregate amount of Time deposits, each with a minimum denomination of
$100,000, was approximately $21,610,000 and $19,961,000 in 1998 and 1997
respectively.
At December 31, 1998, the scheduled maturities of Time deposits are as follows:
<TABLE>
<S> <C>
1999 $ 86,425,000
2000 13,188,000
2001 3,701,000
2002 2,028,000
2003 503,000
---------------------
$ 105,845,000
=====================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note I. Deposits and Interest on Deposits (continued)
Interest expense on deposits for the years ended December 31, 1998, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
-------------------------------------------------
1998 1997 1996
-------------------------------------------------
-------------------------------------------------
<S> <C> <C> <C>
Interest bearing transaction accounts $ 557,000 $ 585,000 $ 561,000
Money market demand accounts 2,538,000 1,950,000 1,515,000
Savings deposits 861,000 921,000 766,000
Time, $100,000 and over 1,265,000 993,000 455,000
Time, under $100,000 4,840,000 5,094,000 4,790,000
-------------------------------------------------
-------------------------------------------------
Total $ 10,061,000 $ 9,543,000 $ 8,087,000
=================================================
</TABLE>
Note J. Securities Sold Under Repurchase Agreements
Securities sold under agreements to repurchase generally mature within one year.
Information concerning securities sold under repurchase agreements is summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Average balance during the year $20,880,000 $18,917,000
Average interest rate during the year 5.05% 5.23%
Maximum month-end balance during the year $31,491,000 $30,286,000
Securities underlying the agreements at year-end:
Carrying value $28,789,000 $31,026,000
Estimated fair value $28,789,000 $31,026,000
</TABLE>
Note K. Other 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
60% of the book value of the Bank's first lien 1-4 family real estate loans,
$42,794,000 at December 31, 1998. 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 $21,543,000
and $11,957,000 at December 31, 1998 and 1997 respectively, with applicable
interest rates ranging from 4.70% to 6.83%. Interest is payable monthly with
principal payment due at maturity.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note K. Other Borrowings (continued)
The advances are secured by a security agreement pledging a portion of the
subsidiary Bank's real estate mortgages with a carrying value of $35,905,000.
Future principal payments required to be made are as follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
1999 $ 3,045,000
2000 324,000
2001 16,068,000
2002 -
2003 2,106,000
--------------------
$ 21,543,000
====================
</TABLE>
Term federal funds purchased and treasury tax and loan deposits generally are
repaid within one to 120 days from the transaction date.
Note L. Stockholders' Equity
The Company has an Incentive Stock Option Plan which provides 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.
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. During 1998, the
Board of Directors approved an amendment to the plan extending the time period
for exercising grants to ten years from grant date. The amendment is pending
final approval at the annual stockholder meeting in April 1999.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996 respectively: dividend yield
of 1.7%, 1.8% and 2.5%; expected volatility of 5.3%, 5.4% and 5.5%; risk-free
interest rates of 5.0%, 5.3% and 6.0%; and expected lives of 10, 5 and 5.
During 1998, the subsidiary Bank obtained a note payable with a third party bank
to acquire a permanent facility for a branch that formally occupied rented
space. The note payable bears an interest rate of 6.5% with monthly payments of
interest only through July 2001 and interest and principal payments of $8,910
through June 2008. Balance as of December 31, 1998 is $600,000.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note L. Stockholders' Equity (continued)
Activity of the Incentive Stock Option Plan is summarized in the following
table:
<TABLE>
<CAPTION>
Weighted-
average Weighted-
fair value average
of option Options Options exercise
granted available Exercisable outstanding price
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 278,625 16,908 37,936 $ 17.77
Granted 3.69 (14,800) 14,800 25.50
Exercise of stock option - - (7,761) 13.55
Canceled - 1,888 (4,383) 16.47
------------- ----------------
Balance, December 31, 1996 - 265,713 15,911 40,592 21.54
Granted 4.26 (23,800) 23,800 28.46
Exercise of stock option - - (8,520) 16.23
------------- ----------------
Balance, December 31, 1997 - 241,913 37,628 55,872 25.30
Granted 7.69 (49,350) 49,350 32.44
Exercise of stock option - - (3,913) 24.37
Canceled - 3,275 (3,275) 26.41
------------- ----------------
Exercisable, December 31, 1998 - 195,838 30,632 98,034 28.89
============= ================
</TABLE>
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. Had compensation cost for the Company's stock-based
compensation plan been determined based upon the fair value at the grant dates
for awards under the plan consistent with the method of FASB Statement 123, the
Company's net income and earnings per share would be reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Net income - as reported $ 3,388,000 $ 2,884,000 $ 2,811,000
Pro forma $ 3,364,651 $ 2,874,598 $ 2,811,000
Basic earnings per share - as reported $ 2.28 $ 1.95 $ 1.91
Pro forma $ 2.26 $ 1.95 $ 1.91
Diluted earnings per share - as reported $ 2.27 $ 1.94 $ 1.90
Pro forma $ 2.25 $ 1.94 $ 1.90
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note L. Stockholders' Equity (continued)
A reconciliation of the numerators and the denominators of earnings per share
and earnings per share assuming dilution are:
<TABLE>
<CAPTION>
Per share
Income Shares amount
-------------------------------------------
<S> <C> <C> <C>
1998:
Earnings per share $ 3,388,000 1,486,819 $ 2.28
=============
Effect of options - 7,060
------------------------------
Earnings per share - assuming dilution $ 3,388,000 1,493,879 $ 2.27
===========================================
1997:
Earnings per share $ 2,884,000 1,477,257 $ 1.95
=============
Effect of options - 7,911
------------------------------
Earnings per share - assuming dilution $ 2,884,000 1,485,168 $ 1.94
===========================================
1996:
Earnings per share $ 2,811,000 1,471,230 $ 1.91
=============
Effect of options - 8,124
------------------------------
Earnings per share - assuming dilution $ 2,811,000 1,479,354 $ 1.90
===========================================
</TABLE>
Note M. Income Taxes
The provision for income taxes included in the accompanying consolidated
financial statements consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
------------------------------------------------------
1998 1997 1996
------------------------------------------------------
------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $ 1,303,000 $ 1,022,000 $ 1,251,000
State 286,000 230,000 256,000
------------------------------------------------------
------------------------------------------------------
1,589,000 1,252,000 1,507,000
------------------------------------------------------
------------------------------------------------------
Deferred income taxes (benefit):
Federal (170,000) (121,000) (163,000)
State (32,000) (16,000) (26,000)
------------------------------------------------------
------------------------------------------------------
(202,000) (137,000) (189,000)
------------------------------------------------------
------------------------------------------------------
Total provision for income taxes $ 1,387,000 $ 1,115,000 $ 1,318,000
======================================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note M. Income Taxes (continued)
The net deferred tax assets in the accompanying consolidated balance sheets
include the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
---------------------------------
1998 1997
---------------------------------
---------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,040,000 $ 922,000
Depreciation 13,000 12,000
Pension 216,000 212,000
Deferred compensation 352,000 356,000
Other 67,000 9,000
Deferred tax liabilities:
Unrealized gain on available for sale securities (357,000) (199,000)
Other - (25,000)
---------------------------------
---------------------------------
Balance, end of year $ 1,331,000 $1,287,000
=================================
</TABLE>
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, 1998 or 1997.
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:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of statutory
to effective taxes:
Federal income taxes
at statutory rate $ 1,623,000 34.0% $ 1,360,000 34.0% $1,404,000 34.0%
Adjustments for:
Tax-exempt interest on
municipal obligations (395,000) (8.3) (422,000) (10.5) (256,000) (6.2)
Increases in taxes resulting
from state income taxes 189,000 3.9 152,000 3.8 169,000 4.1
Other - net (30,000) (0.6) 25,000 0.6 1,000 -
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Effective income
taxes - operations $ 1,387,000 29.0% $ 1,115,000 27.9% $1,318,000 31.9%
=================================================================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note N. Profit-Sharing Plan
The Company has a 401(k) plan. Contributions were $149,000, $149,000 and
$114,000 in 1998, 1997 and 1996 respectively.
Note O. Salary Continuation Agreement
The Company has entered into salary continuation agreements with various
executive officers. The agreements provide for the payment of specified amounts
upon the employee's retirement or death which is being accrued over the
anticipated remaining period of employment. Expenses recognized for future
benefits under these agreements totaled $59,000, $151,000 and $217,000 during
1998, 1997 and 1996 respectively.
Although not part of the agreement, the Company purchased paid-up life insurance
on the officers which could provide funding for the payment of benefits.
Included in other assets is $1,451,000 and $1,383,000 of related cash surrender
value as of December 31, 1998 and 1997 respectively.
Note P. 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 is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its 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.
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 uses 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, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Financial instruments whose contract amounts represent credit risk:
<S> <C> <C>
Commitments to extend credit $42,304,000 $27,745,000
Credit card commitments $ 2,460,000 $ 2,149,000
Standby letters of credit $ 3,537,000 $ 3,962,000
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note P. Commitments and Contingencies (continued)
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.
The Company and the subsidiary Bank do not engage in the use of interest rate
swaps, futures or option contracts as of December 31, 1998.
Note Q. Concentration of Credit Risk
Practically all of the subsidiary Bank's loans, commitments, and commercial and
standby letters of credit have been granted to customers in the subsidiary
Bank's market area. Although the subsidiary Bank 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 Bank. The
concentration of credit by type of loan is set forth in Note E.
Note R. Retained Earnings
A source of income and funds of First Banking Center, Inc. are dividends from
its subsidiary Bank. Dividends declared by the subsidiary Bank that exceed the
retained 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 $6,547,000 may be paid without
prior regulatory approval. Maintenance of adequate capital at the subsidiary
Bank effectively restricts potential dividends to an amount less than
$6,547,000.
Note S. 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 on the following page) 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,
1998, the Company meets all capital adequacy requirements to which it is
subject.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note S. Regulatory Capital Requirements (continued)
As of December 31, 1998, 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 following table. There are no conditions or
events since these notifications that management believes have changed the
institution's category.
Listed below is a comparison of the Company and its subsidiary Bank's 1998 and
1997 actual with the minimum requirements for well-capitalized and adequately
capitalized bank, as defined by the federal regulatory agencies' Prompt
Corrective Action Rules:
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
--------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital (to risk-weighted assets):
First Banking Center, Inc. $ 33,328,000 12.1% $ 22,041,000 8.0% N/A
First Banking Center $ 32,488,000 11.8% $ 22,002,000 8.0% $ 27,503,000 10.0%
Tier I capital (to risk-weighted assets):
First Banking Center, Inc. $ 29,910,000 10.9% $ 11,021,000 4.0% N/A
First Banking Center $ 29,066,000 10.6% $ 11,001,000 4.0% $ 16,502,000 6.0%
Tier I capital (to average assets):
First Banking Center, Inc. $ 29,910,000 8.6% $ 13,869,000 4.0% N/A
First Banking Center $ 29,066,000 8.4% $ 13,849,000 4.0% $ 17,311,000 5.0%
As of December 31, 1997:
Total capital (to risk-weighted assets):
First Banking Center, Inc. $ 30,286,000 13.2% $ 18,360,000 8.0% N/A
First Banking Center - Burlington $ 26,392,000 12.6% $ 16,688,000 8.0% $ 20,860,000 10.0%
First Banking Center - Albany $ 3,090,000 14.9% $ 1,656,000 8.0% $ 2,070,000 10.0%
Tier I capital (to risk-weighted assets):
First Banking Center, Inc. $ 27,153,000 11.8% $ 9,180,000 4.0% N/A
First Banking Center - Burlington $ 23,596,000 11.3% $ 8,344,000 4.0% $ 12,516,000 6.0%
First Banking Center - Albany $ 2,830,000 13.7% $ 828,000 4.0% $ 1,242,000 6.0%
Tier I capital (to average assets):
First Banking Center, Inc. $ 27,153,000 8.7% $ 12,434,000 4.0% N/A
First Banking Center - Burlington $ 23,596,000 8.3% $ 11,333,000 4.0% $ 14,167,000 5.0%
First Banking Center - Albany $ 2,830,000 10.4% $ 1,092,000 4.0% $ 1,365,000 5.0%
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note T. Business Acquisition
In November 1996, First Banking Center 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 pro forma effect on
net income is immaterial.
Effective April 6, 1998, First Banking Center - Albany was merged with First
Banking Center. This allowed the Company to deliver services more efficiently by
eliminating the duplicate costs associated with various management,
administrative and support services.
Note U. Fair Value of Financial Information
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 18,013,000 $ 18,013,000 $ 16,286,000 $ 16,286,000
============================================================================
============================================================================
Federal funds sold $ 6,885,000 $ 6,885,000 $ - $ -
============================================================================
============================================================================
Interest bearing deposits
in banks $ 66,000 $ 66,000 $ 820,000 $ 820,000
============================================================================
============================================================================
Securities $ 65,263,000 $ 65,263,000 $ 74,601,000 $ 74,601,000
============================================================================
============================================================================
Net loans $261,379,000 $ 260,821,085 $ 220,976,000 $220,771,000
============================================================================
============================================================================
Accrued interest receivable $ 2,453,000 $ 2,453,000 $ 2,355,000 $ 2,355,000
============================================================================
============================================================================
Financial liabilities:
Deposits $282,799,000 $ 283,072,000 $ 252,899,000 $252,882,000
============================================================================
============================================================================
Repurchase agreements $ 28,750,000 $ 28,750,000 $ 30,286,000 $ 30,286,000
============================================================================
============================================================================
U.S. Treasury note account $ 100,000 $ 100,000 $ 540,000 $ 540,000
============================================================================
============================================================================
Other borrowings $ 22,143,000 $ 22,132,153 $ 11,957,000 $ 12,022,000
============================================================================
============================================================================
Accrued interest payable $ 1,183,000 $ 1,183,000 $ 1,100,000 $ 1,100,000
============================================================================
============================================================================
</TABLE>
The estimated fair value of fee income on letters of credit at December 31, 1998
and 1997 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31, 1998
and 1997.
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note U. Fair Value of Financial Information (continued)
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 V. First Banking Center, Inc. (Parent Company only) Financial Information
<TABLE>
<CAPTION>
December 31,
-------------------------------------
-------------------------------------
CONDENSED BALANCE SHEETS 1998 1997
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 85,000 $ 371,000
Interest-bearing deposits in banks 400,000 131,000
Investment in subsidiaries 31,049,000 28,186,000
Loans 117,000 90,000
Other assets 417,000 217,000
-------------------------------------
-------------------------------------
Total assets $ 32,068,000 $ 28,995,000
=====================================
=====================================
Liabilities - other liabilities $ 173,000 $ 75,000
-------------------------------------
-------------------------------------
Stockholders' equity:
Common stock, $1.00 par value, 3,000,000 shares
authorized; 1,488,631 and 1,484,718 shares issued
and outstanding in 1998 and 1997 respectively 1,489,000 1,485,000
Surplus 4,312,000 4,221,000
Retained earnings 25,431,000 22,846,000
-------------------------------------
-------------------------------------
31,232,000 28,552,000
Accumulated other comprehensive income 663,000 368,000
-------------------------------------
-------------------------------------
Total stockholders' equity 31,895,000 28,920,000
-------------------------------------
-------------------------------------
Total liabilities and stockholders' equity $ 32,068,000 $ 28,995,000
=====================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note V. First Banking Center, Inc. (Parent Company only) Financial Information
(continued)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
------------------------------------------------
CONDENSED STATEMENTS OF INCOME 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 796,000 $ 951,000 $ 750,000
Management fees from subsidiaries 3,049,000 2,156,000 1,714,000
Other 27,000 7,000 7,000
------------------------------------------------
------------------------------------------------
Total income 3,872,000 3,114,000 2,471,000
------------------------------------------------
------------------------------------------------
Expenses:
Salaries and employee benefits 1,881,000 1,558,000 1,167,000
Occupancy expenses 191,000 127,000 90,000
Equipment expense 346,000 208,000 220,000
Computer services 58,000 37,000 31,000
Other expenses 573,000 385,000 278,000
------------------------------------------------
------------------------------------------------
Total expenses 3,049,000 2,315,000 1,786,000
------------------------------------------------
------------------------------------------------
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 823,000 799,000 685,000
Income tax provision (benefit) 4,000 (52,000) (11,000)
------------------------------------------------
------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 819,000 851,000 696,000
Equity in undistributed
net income of subsidiaries 2,569,000 2,033,000 2,115,000
------------------------------------------------
------------------------------------------------
Net income $ 3,388,000 $2,884,000 $2,811,000
================================================
================================================
</TABLE>
<PAGE>
First Banking Center, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note V. First Banking Center, Inc. (Parent Company only) Financial Information
(continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
-------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,388,000 $2,884,000 $2,811,000
-------------------------------------------------
-------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of goodwill 1,000 1,000 3,000
(Increase) decrease in other assets (192,000) 24,000 (153,000)
(Increase) decrease in income taxes receivable (10,000) 8,000 20,000
Increase (decrease) in other liabilities 100,000 23,000 (32,000)
Equity in undistributed earnings (2,569,000) (2,033,000) (2,115,000)
-------------------------------------------------
-------------------------------------------------
Total adjustments (2,670,000) (1,977,000) (2,277,000)
-------------------------------------------------
-------------------------------------------------
Net cash provided by operating activities 718,000 907,000 534,000
-------------------------------------------------
-------------------------------------------------
Cash flows from investing activities:
Net increase in interest bearing deposits in banks (269,000) (5,000) (5,000)
Net increase in loans (27,000) (90,000) -
-------------------------------------------------
-------------------------------------------------
Net cash used in investing activities (296,000) (95,000) (5,000)
-------------------------------------------------
-------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 95,000 139,000 105,000
Dividends paid (803,000) (741,000) (678,000)
-------------------------------------------------
-------------------------------------------------
Net cash used in financing activities (708,000) (602,000) (573,000)
-------------------------------------------------
-------------------------------------------------
Increase (decrease) in cash (286,000) 210,000 (44,000)
Cash at beginning of year 371,000 161,000 205,000
-------------------------------------------------
-------------------------------------------------
Cash at end of year $ 85,000 $ 371,000 $ 161,000
=================================================
=================================================
Supplemental disclosures of of cash flow information:
Cash paid (received) during year for income taxes $ 13,000 $ (60,000) $ (31,000)
=================================================
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion provides additional analysis of the financial
statements presented in the Company's annual report and should be read in
conjunction with this information. This discussion focuses on the significant
factors that affected the Company's earnings in 1998, with comparisons to 1997.
As of December 31, 1998, First Banking Center (the "Bank") was the only direct
subsidiary of the Company and its operations contributed nearly all of the
revenue for the year. The Company provides various support functions for the
Bank and receives payment from the Bank for these services. These inter-company
payments are eliminated for the purpose of these consolidated financial
statements. The Bank has two wholly owned subsidiaries, FBC Financial Services,
Corp., a brokerage and financial services subsidiary, and FBC Burlington, Inc.,
an investment subsidiary located in Nevada.
Overview
As of December 31, 1998, total Company assets were $369.1 million increasing
11.2% from $327.8 million as of December 31, 1997. Total income for 1998 was
$3.4 million or $2.28 per share, increasing 17.5% from $2.9 million or $1.95 per
share in 1997. The significant items resulting in the above-mentioned results
are discussed below.
Balance sheet analysis
Loans
As of December 31, 1998, loans outstanding were $264.7 million for an increase
of $40.6 million or 18.1% from December 31, 1997. During 1998 Residential Real
Estate loans increased $10.1 million, and Commercial Real Estate loans increased
$15.2 million or 11.8% and 29.0% respectively. At December 31, 1998,
Construction and Land Development loans were at $30.0 million or 11.3% of total
loans, Residential Real Estate loans were at $96.1 million or 36.3% of total
loans, and Commercial loans were at $38.1 million or 16.3% of total loans, and
Commercial Real Estate loans were at $67.7 million or 25.6% of total loans.
Allowance for Loan Losses
The allowance for possible loan losses was $3.4 million or 1.29% of gross loans
on December 31, 1998, compared with $3.1 million or 1.40% of gross loans on
December 31, 1997. Net charge-offs for 1998 were $41 thousand or .015% of gross
loans, compared to net recoveries of $5 thousand or .002% of gross loans for
1997. As of December 31, 1998, loans on non-accrual status totaled $1.5 million
or .57% of gross loans compared to $824 thousand or .37% of gross loans on
December 31, 1997. The non-accrual loans consisted primarily of $1.3 million of
residential real estate loans and $159 thousand of commercial loans. On December
31, 1998, the ratio of non-accrual loans to the allowance for loan losses was
43.8% compared to 26.3% on December 31, 1997.
The Bank evaluates 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
loss is maintained at a level management considers adequate to provide for
potential future losses. The level of the allowance is based on management's
periodic and comprehensive evaluation of the loan portfolio, including past loan
loss experience; current and projected economic trends; the volume, growth and
composition of the loan portfolio, and other relevant factors. Management also
considers reports of examinations furnished by State and Federal banking
authorities in this regard.
During 1998 $330 thousand was charged to current earnings and added to the
allowance for loan losses.
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Investments securities - Available for Sale
The securities available-for-sale portfolio decreased $9.3 million or 12.5%
during 1998. The majority of the decrease came from the sales and maturities of
Mortgage-backed securities and was used to fund loans.
Deposits and Borrowed Funds
As of December 31, 1998, total deposits were $282.7 million, which is an
increase of $29.9 million or 11.8% from December 31, 1997. Money Market and
Savings Deposits increased $16.9 million or 20.9% to $97.8 million. Demand
Deposits increased $9.9 million or 24.8% to $50.0 million. Securities sold under
agreement to repurchase and Certificates of Deposits decreased $3.6 million or
7.5%. Federal Home Loan Borrowings increased $9.0 million or 72.4% since
December 31, 1997.
Capital resources
During 1998, the Company's stockholders' equity increased $2.9 million or 10.3%.
Net income of $3.4 million and change in unrealized loss on available for sale
securities of $295 thousand were the primary reasons for the increase in equity.
Cash dividends paid in 1998 were $803 thousand or $.54 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 bank's risk-weighted assets. The Company's tier 1 capital (common
stockholders' equity less goodwill) to risk-weighted assets was 10.6% at
December 31, l998, well above the 4% minimum required. Total capital to
risk-adjusted assets was 11.8%, also well above the 8% minimum requirement. The
leverage ratio was at 8.4% compared to the 4% 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 Bank measures
interest-sensitive assets and liabilities, and their relationship with each
other at terms of immediate, quarterly intervals up to 1 year, and over 1 year.
Changes in net interest income, other than volume related, arise when interest
rates on assets reprice in a time frame or interest rate environment that is
different from the repricing period for liabilities. Changes in net interest
income also arise from changes in the mix of interest earning assets and
interest-bearing liabilities.
The Bank's strategy with respect to asset/liability management is to maximize
net interest income while limiting its 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 Bank's desire to
maintain a cumulative GAP of positive or negative 15% of rate sensitive assets
at the 1 year time frame. The current percentage is negative 1% which compares
to negative 10% as of December 31, 1997.
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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, Federal Funds Sold, as well as, maintaining a full line of
competitively priced deposit and short-term borrowing products. The Bank is also
a member of the Federal Home Loan Bank system, which provides the Company with
an additional source of liquidity. The Bank is authorized to borrow up to 60% of
the book value of its 1-4 family real estate mortgages secured by a security
agreement pledging the Bank's 1-4 family real estate mortgages with a carrying
value of $96.1 million. During 1998 the Company's loan to deposit ratio
increased from 87% to 92%. This increase was due to an increase in loans of
$40.6 million or 18.3% while deposits only increased $29.9 million or 11.8%. The
additional funding for the increase in loans came from increased borrowings from
the Federal Home Loan Bank and the sales and maturities of investment
securities.
While liquidity within the banking industry continues to tighten 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
Net Interest Income
Net interest income is the difference between interest income and fees on loans
and interest expense, and is the largest contributing factor to net income for
the Company. All discussions of rate are on a tax-equivalent basis, which
accounts for income earned on securities that are not fully subject to federal
taxes. Net interest income for 1998 was $13.3 million, increasing 13.6% over the
1997 level of $11.7 million. Net interest income as a percentage of average
earning assets was 4.58% in 1998 versus 4.40% in 1997.
Total interest income increased $2.6 million as average earning assets increased
from $282.2 million to $308.8 million or 9.43%. The yields on interest earning
asset increased from 8.37% to 8.51%.
The increase in interest income in 1998 was due primarily to an increase in
interest and fees on loans. Interest and fees on loans increased to $21.9
million or 17.3% from $18.7. The increase in loan income was the result of a
$37.1 million or 17.9% increase in average balances outstanding and an increase
in fees collected on loans. Fees collected on loans were $1.2 million,
increasing 89% over 1997 fees of $621 thousand. A record volume of residential
real estate loans, which were sold on the secondary market, primarily generated
the fees. This record volume of loan activity was due to low home mortgage
interest rates.
Total interest expense increased $1.0 million. This increase was due to an
increase in average interest bearing deposits of $11.0 million or 5.26% and an
increase in average Federal Home Loan Borrowings of $6.3 million or 63.5%. The
cost of all interest bearing liabilities decreased from 4.70% to 4.69%.
Provision for loan losses
The Bank has established the allowance for loan losses to reduce the gross level
of loans outstanding by an estimate of uncollectible loans. As loans are deemed
uncollectible, they are charged against the allowance. A provision for loan
losses is expensed against current income on a monthly basis. This provision
acts to replenish the allowance for loan losses to accommodate charge-offs and
growth in the loan portfolio, thereby maintaining the allowance at an adequate
level.
<PAGE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
During 1998 $330 thousand was charged to current earnings and added to the
allowance for loan losses.
Non-interest income
Non-interest income during 1998 increased $374 thousand or 17.3% from 1997. This
increase is due primarily to increased income from service charges on deposit
accounts, which increased $100 thousand or 10.9%, Trust Department income which
increased $73 thousand or 21.4%, and income from the Company's ATM network which
increased $76 thousand or 25.8%.
Non-interest expense
Non-interest expense during 1998 increased from $9.6 million to $10.8 million an
increase of $1.2 million or 12.3%. Salaries and benefits increased $688 thousand
or 12.9%, equipment expense increased $60 thousand or 5.5%, occupancy expense
increased $73 thousand or 11.4%, and stationary and office supplies increased
$77 thousand or 31.3%.
Year 2000 Assessment
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The data processing systems and software include those
developed and maintained by the Company's third-party data processing vendor and
purchased software which is run on personal computer networks. Any hardware and
software that recognize the date "00" as the year 1900 rather than the year 2000
could result in errors or system failures.
The Board of Directors oversees the Company's Year 2000 efforts and senior
management reports to the Board on at least a quarterly basis the Company's Year
2000 progress. Early in 1998, the Company completed an assessment and work plan
to assure that all hardware and software utilized by the Company will function
properly in the year 2000. The Company and its primary vendors have been testing
their computer systems to determine their ability to handle the Year 2000 issue.
To date, the Company and its vendors have identified and renovated of installed
compliant software. Test of compliant software is underway with estimated
completion of 75% with and estimated completion date of June 30, 1999.
The Company is in the process of developing contingency plans for all mission
critical functions. These contingency plans are scheduled to be in place by
March 31, 1999. However, we will continue to revise these plans as vendors
certify Year 2000 compliance throughout 1999.
Additionally, phone systems, alarms, elevators, heating and cooling systems and
other computer-controlled mechanical devices on which the Company relies are in
the process of being evaluated and tested. Those found not compliant will be
modified or replaced with a compliant product. It is estimated this phase is 75%
complete and the estimated completion date is June 30, 1999.
Costs associated with the Year 2000 project include internal staff time as well
as consulting, equipment upgrade and software enhancement expenses. At the
present time, management estimates equipment and software costs required to make
its current operation year 2000 compliant to be $57,500. The Year 2000 project
costs, which management continuously reviews, could vary significantly based
upon the results of testing and other factors.
Management is also aware of the potential adverse impact failures by borrowers
to adequately address their Year 2000 problems could have on the Company. To
raise awareness to the Year 2000 risks, substantially all key customers have
been contacted regarding this issue. Account officers continually assess
progress made by their key customers and increased provisions to the allowance
for loan and lease losses will reflect any additional exposure to the Company.
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<NAME> First Banking Center
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