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 March 31, 2000
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)
(262) 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, 1,479,428 shares outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
BURLINGTON, WISCONSIN
CONSOLIDATED BALANCE SHEET
March 31, 2000
vs
December 31, 1999
(Dollars in thousands)
<CAPTION>
ASSETS 3/31/00 12/31/99
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks $12,882 $19,123
Federal funds sold 0 4,242
Interest bearing deposits in banks 45 40
Available for sale securities - stated at fair value 62,646 54,952
Loans, less allowance for loan losses of $3,794 and
$3,581 in 2000 and 1999 respectively 296,497 295,143
Office buildings and equipment, net 9,678 9,429
Other assets 8,797 9,160
-----------------------------
TOTAL ASSETS $390,545 $392,089
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand $50,058 $51,610
Savings and NOW accounts 139,140 140,612
Time 115,315 113,922
-----------------------------
Total Deposits 304,513 306,144
Securities sold under repurchase agreements 20,417 21,131
U S Treasury note account 100 100
Other borrowings 27,768 27,768
Other liabilities 3,361 3,529
-----------------------------
TOTAL LIABILITIES $356,159 $358,672
-----------------------------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 par value 3,000,000 shares authorized; 1,489,380 and
1,489,380 shares issued as of March 31, 2000
and December 31, 1999 resceptively $1,489 $1,489
Surplus 4,229 4,236
Retained Earnings 29,789 28,717
-----------------------------
35,507 34,442
Common stock in treasury, at cost-9,952 and 9,822 shares
for March 31, 2000 and December 31, 1999, respectively ($347) ($342)
Accumulated other comprehensive loss (774) (683)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY $34,386 $33,417
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $390,545 $392,089
=============================
</TABLE>
<PAGE>
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
BURLINGTON, WISCONSIN
CONSOLIDATED STATEMENT OF INCOME
as of March 31, 2000 and 1999
(Dollars in thousands, except per share data)
(Unaudited)
<CAPTION>
Quarter-to-Date Year-to-Date
3/31/00 3/31/99 3/31/00 3/31/99
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $6,411 $5,715 $6,411 $5,715
Interest on securities
Taxable 511 659 511 659
Tax-exempt 321 296 321 296
Interest on federal funds sold 40 41 40 41
Interest on deposits in banks 1 1 1 1
-----------------------------------------------------------
TOTAL INTEREST INCOME 7,284 6,712 7,284 6,712
-----------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 2,797 2,435 2,797 2,435
Interest on fed funds purchased and securities
sold under reprchase agreements 261 338 261 338
Interest on U.S. Treasury Note Account 0 1 0 1
Interest on other borrowings 392 292 392 292
-----------------------------------------------------------
TOTAL INTEREST EXPENSE 3,450 3,066 3,450 3,066
-----------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 3,834 3,646 3,834 3,646
Provision for loan losses 90 83 90 83
-----------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 3,744 3,563 3,744 3,563
-----------------------------------------------------------
NONINTEREST INCOME
Trust department income 100 90 100 90
Service charges on deposit accounts 313 275 313 275
Investment securities gains (losses) (5) 0 (5) 0
Other income 282 241 282 241
-----------------------------------------------------------
TOTAL NONINTEREST INCOME 690 606 690 606
-----------------------------------------------------------
NONINTEREST EXPENSE
Salary and employee benefits 1,656 1,563 1,656 1,563
Occupancy expenses 218 223 218 223
Equipment expenses 317 281 317 281
Data Processing services 154 128 154 128
Other expenses 631 609 631 609
-----------------------------------------------------------
TOTAL NONINTEREST EXPENSE 2,976 2,804 2,976 2,804
-----------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,458 1,365 1,458 1,365
Income taxes 385 415 385 415
-----------------------------------------------------------
NET INCOME $1,073 $950 $1,073 $950
===========================================================
Basic earnings per share $0.73 $0.64 $0.73 $0.64
Diluted earnings per share $0.69 $0.61 $0.69 $0.61
Weighted average shares outstanding 1,479 1,489 1,479 1,489
</TABLE>
<PAGE>
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
BURLINGTON, WISCONSIN
CONSOLIDATED STATEMENT OF CHANGES
IN COMPONENTS OF STOCKHOLDERS' EQUITY
As of March 31, 2000
(Dollars in thousands, except for shares)
(Unaudited)
<CAPTION>
Accumulated
other
Common Retained Treasury comprehensive
Stock Surplus Earnings Stock income(loss) Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1998 $1,489 $4,312 $25,431 $0 $663 $31,895
Comprehensive income:
Net income - 1999 - - 950 - - 950
Change in net unrealized gain(loss)
on securities available for sale - - - - (274) (274)
Reclassification adjustment for gains
(losses) realized in net income - - - - - -
(167)
Income tax effect - - - - 107 107
--------------
Total comprehensive income 783
--------------
Purchased no shares of treasury stock - - - - - -
Cash dividend paid-$0.00 per share - - - - - -
Issued of 525 shares of stock under
stock option plan - 11 - - - 11
--------------------------------------------------------------------------------------
BALANCE - March 31, 1999 $1,489 $4,323 $26,381 $0 $496 $32,689
======================================================================================
BALANCE - December 31, 1999 $1,489 $4,236 $28,717 ($342) ($683) $33,417
Comprehensive income:
Net income - 2000 - - 1,073 - - 1,073
Change in net unrealized gain(loss)
on securities available for sale - - - - (144) (144)
Reclassification adjustment for gains
(losses) realized in net income - - - - (5) (5)
Income tax effect - - - - 58 58
--------------
Total comprehensive income 982
--------------
Purchased of 980 shares of treasury stock - - - (34) - (34)
Cash dividend paid-$0.00 per share - - - - - -
Reissuance of 850 shares of treasury stock
under stock option plan - (7) - 28 - 21
--------------------------------------------------------------------------------------
BALANCE - March 31, 2000 $1,489 $4,229 $29,789 ($347) ($774) $34,386
======================================================================================
</TABLE>
<PAGE>
<TABLE>
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON, WISCONSIN
Q-T-D ending March 31, 2000 and 1999
Increase (decrease) in Cash and Cash Equivalents
(Amounts in Thousands)
(Unaudited)
<CAPTION>
3/31/00 3/31/99
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,073 $950
-----------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 216 221
Provision for loan losses 90 83
Gain on sale of loans (9) 0
Gain on disposal of office building and equipment (4) 0
Amortization and accretion of bond
premiums and discounts - net 17 (27)
Amortization of excess cost over equity in
underlying net assets of subsidiary 26 26
Loss on sale of investment securities 5 0
(Increase)Decrease in other assets 264 (433)
Increase(Decrease) in accrued expenses and other liabilities (168) 382
-----------------------------
TOTAL ADJUSTMENTS 437 252
-----------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES $1,510 $1,202
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase)decrease in interest-bearing deposits ($5) $28
Net decrease in federal funds sold 4,242 4,065
Activity in available for sale securities
Proceeds from sales of available for sale securities 8,436 2,500
Proceeds from maturities of available for sale securities 3,763 44,851
Purchase of available for sale securities (19,933) (49,514)
Proceeds from sale of loans 464 0
Net increase in loans (1,899) (1,138)
Purchase of office buildings and equipment (464) (288)
Proceeds from disposal of office building and equipment 3 0
-----------------------------
NET CASH PROVIDED BY(USED IN INVESTING ACTIVITIES) ($5,393) $504
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits ($1,631) ($6,395)
Proceeds from other borrowings 3,045 (940)
Payments on other borrowings (3,045) 0
Net decrease in securities sold under
repurchase agreements (714) (792)
Proceeds from stock options exercised 0 11
Purchase of treasury stock (34) 0
Proceeds from reissuance of treaury under
stock option plan 21 0
-----------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,358) ($8,116)
-----------------------------
Net decrease in Cash and Due From Banks (6,241) (6,410)
Cash and Due From Banks-Beginning of year 19,123 18,013
-----------------------------
Cash and Due From Banks-End of Quarter $12,882 $11,603
=============================
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $3,572 $3,166
Income taxes ($119) ($95)
</TABLE>
<PAGE>
FIRST BANKING CENTER, INC AND SUBSIDIARY
BURLINGTON, WISCONSIN
NOTE TO CONSOLIDATE FINANCIAL STATEMENTS
As of March 31, 2000
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 1 to
the registrant's financial statements in the 1999 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 SUBSIDIARY
BURLINGTON, WISCONSIN
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of March 30, 2000
The following discussion provides additional analysis of the financial condition
and results of operations of the Company for the year-to-date ended March 31,
2000. This discussion focuses on the significant factors that affected the
Company's earnings so far in 2000, with comparisons to 1999. As of March 31,
2000, 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 March 31, 2000, total Company assets were $390.5 million decreasing .4%
from $392.1 million as of December 31, 1999. Total income for first quarter 2000
was $1.1 million or $0.73 per share, increasing 12.9% from $950 thousand or
$0.64 per share in first quarter 1999. The significant items resulting in the
above-mentioned results are discussed below.
Balance sheet analysis
Loans
As of March 31, 2000, loans outstanding were $300.3 million for an increase of
$1.6 million or .5% from December 31, 1999. During this three-month period,
Residential Real Estate loans increased $6.8 million, and Commercial Real Estate
loans increased $3.18 million or 6.2% and 3.72% respectively. At March 31, 2000,
Construction and Land Development loans were at $33.5 million or 11.1% of total
loans, Residential Real Estate loans were at $117.6 million or 39.2% of total
loans, Commercial loans were at $28.8 million or 9.6% of total loans, and
Commercial Real Estate loans were at $86.7 million or 28.9% of total loans.
Allowance for Loan Losses
The allowance for possible loan losses was $3.8 million or 1.26% of gross loans
on March 31, 2000, compared with $3.6 million or 1.21% of gross loans on
December 31, 1999. Net recoveries for the three-month period were $123 thousand
or .03% of gross loans, compared to net charge-offs of $170 thousand or .057% of
gross loans for 1999. As of March 31, 2000, loans on non-accrual status totaled
$784 thousand or .20% of gross loans compared to $1.3 million or .44% of gross
loans on December 31, 1999. The non-accrual loans consisted primarily of $628
thousand of residential real estate loans. On March 31, 2000, the ratio of
non-accrual loans to the allowance for loan losses was 20.7% compared to 36.1%
on December 31, 1999.
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 first quarter 2000, $90 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 increased $7.7 million or 14.0% from
December 31, 1999 to March 31, 2000. The majority of the increase came from the
purchase of short-term securities and will be invested in inter-company loan
participations within 30 days.
Deposits and Borrowed Funds
As of March 31, 2000, total deposits were $304.5 million, which is a decrease of
$1.6 million or .53% from December 31, 1999. Certificates of deposits increased
1.5 million or 1.3% to 115.4 million. Money market savings and regular savings
deposits increased $1.2 million or 1.0% to $116.6 million. Demand Deposits
decreased $1.5 million or 3.0% to $50.1 million. Securities sold under agreement
to repurchase decreased $714 thousand or 3.4%. Federal Home Loan Borrowings
decreased $500 thousand or 1.8% since December 31, 1999.
Capital resources
During the first quarter 2000, the Company's stockholders' equity increased $969
thousand or 2.9%. Net income of $1.1 million was the primary reasons for the
increase in equity. Unrealized gain/loss on available for sale securities
decreased $91 thousand to a negative $774 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 March
31, 2000, well above the 4% minimum required. Total capital to risk-adjusted
assets was 12.2%, 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 1 year time frame. The current percentage is negative 4% which compares
to negative 4% as of December 31, 1999.
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 $117.6 million. During this three-month period of March 31, 2000, the
Company's loan to deposit ratio increased from 96% to 97%. This increase was due
to an increase in loans of $1.6 million or .5% while deposits decreased $1.6
million or .53%. The additional funding for the increase in loans came from a
decrease in cash.
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 first quarter 2000 was $3.7 million, increasing
5.1% over the 1999 level of $3.6 million. Net interest income as a percentage of
average earning assets was 4.72% for first quarter 2000 versus 4.93% for first
quarter 1999.
Total interest income increased $572 thousand as average earning assets
increased from $338.8 million to $364.2 million or 7.5%. The yields on interest
earning asset increased from 8.15% to 8.22%.
The increase in interest income in 2000 is due primarily to an increase in
interest and fees on loans. Interest and fees on loans increased to $6.4 million
or 12.2% from $5.7. The increase in loan income was the result of a $38.3
million or 14.6% increase in average balances outstanding.
Total interest expense increased $384 thousand. This increase was due to an
increase in average interest bearing deposits of $19.5 million or 8.29% and an
increase in average Federal Home Loan Borrowings of $5.9 million or 27.2%. The
cost of all interest bearing liabilities increased from 3.82% to 4.20%.
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 first quarter 2000, $90 thousand was charged to current earnings and
added to the allowance for loan losses.
Non-interest income
Non-interest income, during the period ended March 31, 2000, increased $84
thousand or 13.9% from first quarter 1999. This increase is due primarily to
increased income from service charges on deposit accounts, which increased $38
thousand or 13.8%, Trust Department income which increased $10 thousand or
11.11%, and income from the Company's ATM and Visa network which increased $12
thousand or 11.5%.
Non-interest expense
Non-interest expense, during first quarter 2000, increased from $2.8 million to
$3.0 million an increase of $172 thousand or 6.1%. Salaries and benefits
increased $93 thousand or 6.0%, equipment expense increased $36 thousand or
12.8%, data processing services increased $26 thousand or 20.3%, occupancy
expense decreased $5 thousand or 2.2%, and stationary and office supplies
increased $3 thousand or 4.3%.
<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 SUBSIDIARY
BURLINGTON, WISCONSIN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999,1998, 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
A. 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 subsidiaries, 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.
B. 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.
C. USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, and the
valuation of foreclosed real estate and deferred tax assets.
D. 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.
E. 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.
F. 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 income is accrued
on the unpaid principal balance. 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.
G. 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.
H. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance 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.
I. 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 2 to 12 years for equipment.
J. 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.
K. 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.
L. 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, 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.
M. 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.
N. 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.
O. 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.
P. 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 Available for sale securities Accrued interest
receivable
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
Accrued interest payable
U.S. Treasury Note account
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
P. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
Q. RECLASSIFICATION
Certain 1997 and 1998 amounts have been reclassified to conform with the 1999
presentation. The reclassifications have no effect on reported amounts of net
income or equity.
<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.
May 12, 2000
--------------------------------------
Date Brantly Chappell
Chief Executive Officer
May 12, 2000
--------------------------------------
Date James Schuster
Chief Financial Officer
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