UNITED STATES
SECURITIES AND EXCAHGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCAHNGE ACT 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11132
FIRST BANKING CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391327
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Milwaukee Ave., Burlington, WI 53105
(Address of principal executive offices) (Zip Code)
(414) 763-3581
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Common stock, $1.00 par
value, 1,489,380 shares outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
CONSOLIDATED BALANCE SHEET
June 30, 1999
vs
December 31, 1998
(Amounts in Thousands)
<CAPTION>
6/30/99 12/31/98
<S> <C> <C>
ASSETS:
Cash and due from banks $12,891 $18,013
Federal funds sold 644 6,885
Interest bearing deposits in banks 64 66
Available for sale securities - stated at fair value 56,361 65,263
Loans, less allowance for loan losses of $3,541,000 and
$3,421,000 in 1999 and 1998 respectively 279,595 261,379
Office buildings and equipment, net 9,583 9,602
Accrued interest receivable and other assets 8,506 7,923
-------------------------------
TOTAL ASSETS $367,644 $369,131
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $48,684 $50,056
Savings and NOW accounts 131,308 126,898
Time 107,341 105,845
-------------------------------
Total Deposits 287,333 282,799
Securities sold under repurchase agreements 22,957 28,750
U S Treasury note account 100 100
Other borrowings 21,053 22,143
Accrued interest and other liabilities 3,453 3,444
-------------------------------
TOTAL LIABILITIES $334,896 $337,236
-------------------------------
STOCKHOLDERS' EQUITY:
Common Stock, $1.00 par value 3,000,000 shares authorized; 1,489,380 and
1,488,631 shares issued and outstanding as
of June 30, 1999 and December 31, 1998 resceptively $1,489 $1,489
Surplus 4,328 4,312
Retained Earnings 27,078 25,431
-------------------------------
32,895 31,232
Accumulated other comprehensive income (147) 663
-------------------------------
TOTAL STOCKHOLDERS' EQUITY $32,748 $31,895
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $367,644 $369,131
===============================
</TABLE>
<PAGE>
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
CONSOLIDATED STATEMENT OF INCOME
as of June 30, 1999 and 1998
(Amounts in Thousands)
<CAPTION>
Quarter-to-Date Year-to-Date
6/30/99 6/30/98 6/30/99 6/30/98
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,999 $5,436 $11,714 $10,528
Interest on securities:
Taxable 485 497 1,144 1,113
Tax-exempt 302 306 598 650
Interest on federal funds sold 28 23 69 64
Interest on deposits in banks 2 10 3 22
----------------------------------------------------------------
TOTAL INTEREST INCOME 6,816 6,272 13,528 12,377
----------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 2,415 2,495 4,850 4,970
Int on fed funds purch. and securities
sold under agreements to repurchase 290 269 628 590
Int on U S Treasury Note Account 1 7 2 13
Int on other borrowings 278 230 570 427
----------------------------------------------------------------
TOTAL INTEREST EXPENSE 2,984 3,001 6,050 6,000
----------------------------------------------------------------
NET INTEREST INCOME 3,832 3,271 7,478 6,377
Provision for loan losses 82 82 165 165
----------------------------------------------------------------
NET INT. INC. AFTER PROVISION
FOR LOAN LOSSES 3,750 3,189 7,313 6,212
----------------------------------------------------------------
Noninterest income:
Trust department income 90 88 180 177
Service charges on deposits 301 219 576 480
Invest. security gains/(losses) 0 (1) 0 (1)
Other income 305 315 546 554
----------------------------------------------------------------
TOTAL NONINTEREST INCOME 696 621 1,302 1,210
----------------------------------------------------------------
Noninterest expense:
Salary and employee benefits 1,576 1,607 3,139 2,992
Occupancy expense 189 164 412 351
Equipment expense 317 283 598 550
Computer services 166 88 294 200
Other expense 553 618 1,162 1,224
----------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 2,801 2,760 5,605 5,317
----------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,645 1,050 3,010 2,105
Income taxes 515 282 930 576
----------------------------------------------------------------
NET INCOME $1,130 $768 $2,080 $1,529
================================================================
Earnings per share:
Basic $0.76 $0.52 $1.40 $1.03
Diluted $0.73 $0.51 $1.35 $0.51
Weighted average shares outstanding 1,489,138 1,485,695 1,489,138 1,485,695
</TABLE>
<PAGE>
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
CONSOLIDATED STATEMENT OF CHANGES
IN COMPONENTS OF STOCKHOLDERS' EQUITY
As of June 30, 1999
(Amounts in Thousands)
<CAPTION>
Accumulated
other
Common Retained Treasury comprehensive
Stock Surplus Earnings Stock income(loss) Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $1,485 $4,221 $22,845 $0 $369 $28,920
------------
Comprehensive income:
Net income - 1998 - - 1,529 - - 1,529
Change in net unrealized gain(loss)
on securities available for sale,
net of reclassification adjustment
and tax effects - - - - (19) (19)
------------
Total comprehensive income 1,510
------------
Cash dividend paid-$0.27 per share - - (402) - - (402)
Issuance of 2,980 new shares of stock
for the exercise of stock options 3 74 - - - 77
------------------------------------------------------------------------------------------
Balance June 30, 1998 $1,488 $4,295 $23,972 $0 $350 $30,105
==========================================================================================
Balance, December 31, 1998 $1,489 $4,312 $25,431 $0 $663 $31,895
Comprehensive income:
Net income - 1999 - - 2,080 - - 2,080
Change in net unrealized gain(loss)
on securities available for sale,
net of reclassification adjustment
and tax effects - - - - (810) (810)
------------
Total comprehensive income 1,270
------------
Cash dividend paid-$0.29 per share - - (432) - - (432)
Issuance of 224 new shares of stock
for the exercise of stock options - 15 - - - 15
------------------------------------------------------------------------------------------
Balance June 30, 1999 $1,489 $4,328 $27,078 $0 ($147) $32,748
==========================================================================================
</TABLE>
<PAGE>
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON, WISCONSIN
Y-T-D ending June 30, 1999 and 1998
Increase (decrease) in Cash and Cash Equivalents
(Amounts in Thousands)
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,080 $1,529
-------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 452 447
Provision for loan losses 165 165
Gain on sale of loans (8) (10)
Loss on disposal of office building and equipment 0 0
Gain on sale of other real estate owned 0 0
Provision for deferred taxes (1) 0
Amortization and accretion of bond
premiums and discounts - net (56) 31
Amortization of excess cost over equity in
underlying net assets of subsidiary 52 52
Investment securities (gains) losses 0 0
(Increase) decrease in assets:
Interest receivable (305) (49)
Other assets 86 (125)
Increase (decrease) in liabilities:
Taxes payable 52 (74)
Interest payable (65) 131
Other liabilities 22 101
-------------------------------
TOTAL ADJUSTMENTS 394 669
NET CASH PROVIDED FROM OPERATING ACTIVITIES $2,474 $2,198
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits $2 $442
Net (increase) decrease in federal funds sold 6,241 0
Proceeds from sales of available for sale securities 3,096 4,511
Proceeds from maturities of available for sale securities 55,361 64,419
Purchase of available for sale securities (50,724) (50,086)
Proceeds from sale of student loans 448 537
Net (increase) decrease in loans (18,821) (18,639)
Purchase of office buildings and equipment (433) (1,138)
Proceeds from sale of office building and equipment 0 0
Proceeds from sale of other real estate owned 0 0
-------------------------------
NET CASH USED IN INVESTING ACTIVITIES ($4,830) $46
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $4,534 $5,575
Dividends paid (432) (402)
Net increase (decrease) in other borrowings (1,090) 3,008
Net increase (decrease) in U S Treasury Note Account 0 (440)
Net increase (decrease) in securities sold under
repurchase agreements (5,793) (7,180)
Proceeds from stock options exercised 15 77
-------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ($2,766) $638
-------------------------------
Net increase (decrease) in cash (5,122) 2,882
Cash at beginning of year 18,013 16,286
-------------------------------
Cash at end of quarter $12,891 $19,168
===============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $6,184 $5,868
===============================
Income taxes $836 $659
===============================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Securities held for investment reclassified to
available for sale securities $0 $0
===============================
Net change in unrealized gain(loss) on available
for sale securities ($810) ($19)
===============================
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC AND SUBSIDIARIES
BURLINGTON, WISCONSIN
NOTE TO CONSOLIDATE FINANCIAL STATEMENTS
As of June 30, 1999
Note 1. Basis of Presentation
In the opinion of Management, the accompanying unaudited consolidated financial
statements reflect all adjustments which are necessary to present a fair
statement of the results for the interim periods.
The accounting policies followed by the registrant are set forth in Note A to
the registrant's financial statements in the 1998 First Banking Center, Inc.
(the "Company") annual report which is incorporated by reference herein (see
exhibit A).
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIRST BANKING CENTER, INC AND SUBSIDIARIES
BURLINGTON, WISCONSIN
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of June 30, 1999
The following discussion provides additional analysis of the financial condition
and results of operations of the Company for the year-to-date ended June 30,
1999. This discussion focuses on the significant factors that affected the
Company's earnings so far in 1999, with comparisons to 1998. As of June 30,
1999, 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 June 30, 1999, total Company assets were $367.6 million decreasing .4%from
$369.1 million as of December 31, 1998. Total income for the first half of 1999
was $2.1 million or $1.40 per share, increasing 26.5% from $1.5 million or $1.03
per share in the first half of 1998. The significant items resulting in the
above-mentioned results are discussed below.
Balance sheet analysis
Loans
As of June 30, 1999, loans outstanding were $283.1 million for an increase of
$18.3 million or 6.5% from December 31, 1998. During this six-month period,
Residential Real Estate loans decreased $1.6 million, and Commercial Real Estate
loans increased $3.5 million or 1.7% and 5.1% respectively. At June 30, 1999,
Construction and Land Development loans were at $34.7 million or 12.2% of total
loans, Residential Real Estate loans were at $93.2 million or 32.9% of total
loans, Commercial loans were at $45.5 million or 16.1% of total loans, and
Commercial Real Estate loans were at $67.7 million or 23.9% of total loans.
Allowance for Loan Losses
The allowance for possible loan losses was $3.5 million or 1.25% of gross loans
on June 30, 1999, compared with $3.4 million or 1.29% of gross loans on December
31, 1998. Net charge-offs for the six-month period were $54 thousand or .019% of
gross loans, compared to net recoveries of $9 thousand or .003% of gross loans
for 1999. As of June 30, 1999, loans on non-accrual status totaled $1.2 million
or .42% of gross loans compared to $1.5 million or .57% of gross loans on
December 31, 1998. The non-accrual loans consisted primarily of $1.1 million of
residential real estate loans. On June 30, 1999, the ratio of non-accrual loans
to the allowance for loan losses was 34.3% compared to 43.8% on December 31,
1998.
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 the six month period ended June 30, 1999, $165 thousand was charged to
current earnings and added to the allowance for loan losses.
Investments securities - Available for Sale
The securities available-for-sale portfolio decreased $8.9 million or 15.8%from
December 31, 1998 to June 30, 1999. The majority of the decrease came from the
maturities of U.S. Government Agencies.
Deposits and Borrowed Funds
As of June 30, 1999, total deposits were $287.3 million, which is an increase of
$4.5 million or 1.6% from December 31, 1998. Demand Deposits decreased $1.4
million or 2.8% to $48.7 million. Money Market and Savings Deposits increased
$10.7 million or 9.8% to $108.5 million. Now accounts decreased 6.2 million or
27.4% to 22.8 million. Securities sold under agreement to repurchase and
Certificates of Deposits decreased $4.3 million or 3.3%.
Capital resources
During the first half of 1999, the Company's stockholders' equity increased $853
thousand or 2.6%. Net income of $2.1 million was the primary reasons for the
increase in equity. Unrealized Gain/Loss for the company decreased $810 thousand
to a negative $147 thousand.
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 10.9% at June
30, l999, well above the 4% minimum required. Total capital to risk-adjusted
assets was 12.1%, also well above the 8% minimum requirement. The leverage ratio
was at 8.7% 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 one-year time frame. The current percentage is a negative 4.0% which
compares to negative 1% as of December 31, 1998.
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 $94.4 million. During the six-month period of June 30, 1999, the
Company's loan to deposit ratio increased from 92% to 97%. This increase was due
to an increase in loans of $18.4 million or 6.5% while deposits increased $4.5
million or 1.6%. The additional funding for the increase in loans came from a
decrease in cash and available for sale 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 the six-month period ended June 30, 1999, was
$7.5 million, increasing 14.7% over the 1998 level of $6.4 million. Net interest
income as a percentage of average earning assets was 4.61% for the first half of
1999, versus 4.45% for the firt half of 1998.
Total interest income increased $1.2 million as average earning assets increased
from $301.4 million to $338.4 million or 10.9%. The yields on interest earning
asset decreased from 8.43% to 8.19%.
The increase in interest income for the period ended June 30, 1999, was due
primarily to an increase in interest and fees on loans. Interest and fees on
loans increased to $11.7 million or 10.1% from $10.5. The increase in loan
income was the result of a $34.5 million or 12.8% increase in average balances
outstanding and an increase in fees collected on loans. Fees collected on loans
were $741 thousand, increasing 30% over 1998 fees of $519 thousand. Residential
real estate loans sold on the secondary market were the primary reason for the
increase in fees
Total interest expense increased $50 thousand. This increase was due to an
increase in average interest bearing deposits of $20 million or 8.5% and an
increase in average Federal Home Loan Borrowings of $6.5 million or 31.8%. The
cost of all interest bearing liabilities decreased from 4.73% to 4.27%.
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.
During the period ended June 30, 1999, $165 thousand was charged to current
earnings and added to the allowance for loan losses.
Non-interest income
Non-interest income increased $92 thousand or 7.1% from 1998. This increase is
due primarily to increased income from service charges on deposit accounts,
which increased $96 thousand or 16.7%.
Non-interest expense
Non-interest expense increased from $5.3 million to $5.6 million an increase of
$288 thousand or 5.1%. Salaries and benefits increased $147 thousand or 4.7%,
occupancy expense increased $61 thousand or 14.8%, equipment expense increased
$48 thousand or 8%, and computer services increased $94 thousand or 32%.
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, renovated and installed
compliant software.
The Company has developed contingency plans for all mission critical functions.
These contingency plans are in place. 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 have
been evaluated and tested. Those found not compliant have been modified or
replaced with a compliant product.
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 $21,000. 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.
<PAGE>
Part II-OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
Exhibit A:
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
BURLINGTON, WISCONSIN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996
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.
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.
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.
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 SUBSIDIARIES
BURLINGTON, WISCONSIN
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1943, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Banking Center, Inc.
August 11, 1999
--------------------------------------
Date Brantly Chappell
President & Chief Executive Officer
August 11, 1999
--------------------------------------
Date James Schuster
Chief Financial Officer
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