UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the Fiscal year ended December 31, 1997
Commission File Number 33-10149
SVB&T Corporation
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of incorporation or organization)
35-1539978
(Employer Identification (I.R.S.) No.)
College and Maple Streets, French Lick, Indiana 47432
(Address of principal executive offices, including Zip Code)
(812) 936-9961
(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: None
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 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_
The aggregate market value of the voting stock held by nonaffiliated
shareholders of the registrant computed by reference to the price at which the
stock was sold or the average bid and asked prices of such stock, as of March
15, 1998 was approximately $6,055,500.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 15, 1997 was 748,187.
Portions of the 1997 Annual Report to Shareholders for the year ended December
31, 1997 are incorporated by reference into Part II.
SVB&T Corporation 1997 Annual Report on Form 10-K
Table of Contents
Part I
Item 1. Business 3
Item 2. Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for Registrants Common Equity and Related Stockholder
Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 8. Financial Statement and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
Part III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 33
Signatures 33
Index to Exhibits 34
PART I
Item 1. Business
General. SVB&T Corporation (the "Company") is a registered bank holding
company under the Bank Holding Company Act with its principal office in French
Lick, Indiana. The Company has elected to be governed by the Indiana Business
Corporation Law (IBCL).
The Company's sole subsidiary is Springs Valley Bank & Trust Company (the
"Bank"), which operates two banking offices in Orange County, Indiana, two
offices in Dubois County, Indiana and a banking office in Clark County,
Indiana. The Company became a holding company for the Bank in early 1983. At
present, the business of the Company is the management of the operations of
the Bank. The Bank is engaged in the business of providing a wide range of
financial services which include:
(I) maintaining demand, savings, and time deposits of individuals,
partnerships, corporations, associations, and government entities;
(II) extension of credit through loans to individuals, and to small and
medium sized businesses;
(III) purchase of obligations of federal, state, county and municipal
authorities and agencies;
(IV) providing a wide range of fiduciary services for personal and
corporate trusts;
(V) providing collection and deposit services for businesses and
individuals as well as providing currency and change for check
cashing and business operations;
(VI) acting as an agent for credit life, health and disability
insurance, property and casualty insurance, and health insurance;
and
(VII) acting as a broker for residential and commercial real estate.
(VIII) Providing financial Services and access to products to meet the
clients needs.
The bank competes in the financial services industry in the counties of
Orange, Dubois and surrounding counties in Indiana. Competition includes
other financial institutions, credit unions, brokerage firms, acceptance
corporations and other organizations that offer banking related services in
our area.
The bank employees 107 full-time equivalents which are provided benefits and
with whom it enjoys excellent relations.
The bank serves as principal depository, and trust administrator for Kimball
International, Inc. ("Kimball") an interest of a majority of the Board of
Directors of the Company. The deposits of Kimball represent approximately 8%
of the certificates of deposit and money market deposits of the Bank. In
addition, the Bank has loans outstanding with individuals who are employees of
Kimball representing in excess of 14% of the Bank's total loans. Accordingly
the cash flow of Kimball can have a significant impact on the deposit
functions and earnings of the Bank.
At December 31, 1997, the Bank had total assets of $189 million, total
deposits of $166 million and total equity capital of $18 million.
REGULATORY CONSIDERATIONS
Regulation of the Company and Affiliates
The Company is registered as a bank holding company and is subject to the
regulations of the Board of Governors of the Federal Reserve System ("Federal
Reserve") under the Bank Holding Company Act of 1956, as amended ("BHC Act").
Bank holding companies are required to file periodic reports with and are
subject to periodic examination by the Federal Reserve. The Federal Reserve
has issued regulations under the BHC Act requiring a bank holding company to
serve as a source of financial and managerial strength to its subsidiary
banks. It is the policy of the Federal Reserve that, pursuant to this
requirement, a bank holding company should stand ready to use its resources to
provide adequate capital funds to its subsidiary banks during periods of
financial stress or adversity.
Additionally, under the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA), a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (I) an amount equal to 5% of the institution's
total assets at the time the institution became undercapitalized, or (ii) the
amount that is necessary (or would have been necessary) to bring the
institution into compliance with all applicable capital standards as of the
time the institution fails to comply with such capital restoration plan.
Under the BHC Act, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious
risk to the financial soundness and stability of any bank subsidiary of the
bank holding company.
The Bank, which is a bank chartered by the State of Indiana, is supervised,
regulated and examined by the Indiana Department of Financial Institutions and
by the Federal Deposit Insurance Corporation (FDIC). Each regulator has the
authority to issue cease-and-desist orders if it determines that activities of
the Bank represent an unsafe and unsound banking practice or a violation of
law. Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and truth-in-
savings disclosure, equal credit opportunity, fair credit reporting, community
reinvestment activities, trading in securities and other aspects of banking
operations. Current federal law also requires banks, among other things, to
make deposited funds available within specified time periods.
Under FDICIA, as implemented by final regulations adopted by the FDIC, FDIC-
insured state banks are prohibited, subject to certain exceptions, from
directly or indirectly acquiring or retaining any equity investments of a
type, or in an amount, that are not permissible for a national bank. FDICIA,
as implemented by FDIC regulations, also prohibits FDIC-insured state banks
and their subsidiaries, subject to certain exceptions, from engaging as
principal in any activity that is not permitted for a national bank or its
subsidiary, respectively, unless the bank meets, and continues to meet, its
minimum regulatory capital requirements and the FDIC determines the activity
would not pose a significant risk to the deposit insurance fund of which the
bank is a member. Impermissible investments and activities must be divested
or discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions are not currently expected to have a material
impact on the operations of the Bank.
The Company and the Bank are subject to Sections 22(h), 23A and 23B of the
Federal Reserve Act, which restricts financial transactions between banks and
their directors, executive officers, principal shareholders, and affiliated
companies. These statutes also limit credit transactions between a depository
institution and its executive officers and its affiliates, prescribe terms and
conditions for affiliate transactions deemed to be consistent with safe and
sound banking practice, and restrict the types of collateral security
permitted in connection with an institution's extension of credit to an
affiliate.
Capital Adequacy Guidelines
Bank holding companies with consolidated assets in excess of $150 million, or
bank holding companies with consolidated assets of less than $150 million
which are engaged in nonbank activity involving significant leverage or which
have a significant amount of outstanding debt held by the general public, are
required to comply with the Federal Reserve's risk-based capital guidelines
which require a minimum ratio of total capital to risk-weighted assets
(including certain off-balance sheet activities such as standby letters of
credit) of 8%. At least half of the total required capital, or 4%, must be
"Tier 1 capital," consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier
2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and
other debt securities, cumulative perpetual preferred stock, and a limited
amount of the general loan loss allowance. In addition to the risk-based
capital guidelines, the Federal Reserve has adopted a Tier 1 (leverage)
capital ratio under which the bank holding company must maintain a minimum
level of Tier 1 capital to average total consolidated assets of 3% in the case
of bank holding companies which have the highest regulatory examination
ratings and are not contemplating significant growth or expansion. All other
bank holding companies are expected to maintain a ratio of at least 1% to 2%
above the stated minimum.
The following are the Company's regulatory capital ratios as of December 31,
1997:
Tier 1 Capital: 14.75%
Total Capital: 15.83%
Leverage Ratio: 9.72%
The Bank is required to meet similar capital adequacy ratios. The FDIC has
adopted risk-based capital ratio guidelines to which depository institutions
under its supervision are subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments to four risk weighted categories, with higher levels of
capital being required for the categories perceived as representing greater
risk. Like the capital guidelines established by the Federal Reserve, these
guidelines divide an institution's capital into two tiers. Depository
institutions are required to maintain a total risk-based capital ratio of 8%,
of which 4% must be Tier 1 capital. The agencies may, however, set higher
capital requirements when an institution's particular circumstances warrant.
Depository institutions experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions,
well above the minimum levels. In addition, the agencies established
guidelines prescribing a minimum Tier 1 leverage ratio of 3% for depository
institutions that meet certain specified criteria, including that they have
the highest regulatory rating and are not experiencing or anticipating
significant growth. All other institutions are required to maintain a Tier 1
leverage ratio of 3% plus an additional 100 to 200 basis points.
The following are the Bank's regulatory capital ratios as of December 31,
1997:
Tier 1 Capital: 14.10%
Total Capital: 15.21%
Leverage Ratio: 9.27%
The FDIC includes, in its evaluations of a bank's capital adequacy, an
assessment of the bank's exposure to declines in the economic value of the
bank's capital due to changes in interest rates. In 1996, the FDIC, along
with the Office of the Comptroller of the Currency and the Federal Reserve,
issued a joint policy statement to provide guidance on sound practices for
managing interest rate risk. The statement sets forth the factors the federal
regulatory examiners will use to determine the adequacy of a bank's capital
for interest rate risk. These qualitative factors include the adequacy and
effectiveness of the bank's internal interest rate risk management process and
the level of interest rate exposure. Other qualitative factors that will be
considered include the size of the bank, the nature and complexity of its
activities, the adequacy of its capital and earnings in relation to the bank's
overall risk profile, and its earning exposure to interest rate movements.
The interagency supervisory policy statement describes the responsibilities of
a bank's board of directors in implementing a risk management process and the
requirements of the bank's senior management in ensuring the effective
management of interest rate risk. Further, the statement specifies the
elements that a risk management process must contain.
The Federal Reserve and the FDIC have issued final regulations further
revising their risk-based capital standards to include a supervisory framework
for measuring market risk. The effect of these regulations is that any bank
holding company or bank which has significant exposure to market risk must
measure such risk using its own internal model, subject to the requirements
contained in the regulations, and must maintain adequate capital to support
that exposure. These regulations apply to any bank holding company or bank
whose trading activity equals 10% or more of its total assets, or whose
trading activity equals $1 billion or more. Examiners may require a bank
holding company or bank that does not meet the applicability criteria to
comply with the capital requirements if necessary for safety and soundness
purposes. These regulations contain supplemental rules to determine qualifying
and excess capital, calculate risk-weighted assets, calculate market risk
equivalent assets and calculate risk-based capital ratios adjusted for market
risk.
Branching and Acquisitions
Branching by the Bank is subject to the jurisdiction, and requires the prior
approval, of the FDIC and the Indiana Department of Financial Institutions.
Under current law, banks chartered by the State of Indiana may establish
branches throughout the state and in other states. Congress authorized
interstate branching, with certain limitations, beginning in 1997. In 1996,
the Indiana General Assembly adopted statutes authorizing Indiana financial
institutions to establish one or more branches in states other than Indiana
through interstate merger transactions and to establish one or more interstate
branches through de novo branching or the acquisition of a branch.
Bank holding companies, such as the Company, are prohibited by the BHC Act
from acquiring direct or indirect control of more than 5% of the outstanding
shares of any class of voting stock or substantially all of the assets of any
bank or savings association or merging or consolidating with another bank
holding company without prior approval of the Federal Reserve. Additionally,
the Company is prohibited by the BHC Act from engaging in or from acquiring
ownership or control of more than 5% of the outstanding shares of any class of
voting stock of any company engaged in a nonbanking business unless such
business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto. The BHC Act does not place
territorial restrictions on the activities of such nonbanking-related
activities.
The BHC Act specifically authorizes a bank holding company, upon receipt of
appropriate approvals from the Federal Reserve and the Director of the Office
of Thrift Supervision (OTS), to acquire control of any savings association or
thrift holding company. Similarly, a thrift holding company may acquire
control of a bank. A savings association acquired by a bank holding company
cannot continue any non-banking activities not authorized for bank holding
companies.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows
bank holding companies to acquire banks anywhere in the United States subject
to certain state restrictions, and permits an insured bank to merge with an
insured bank in another state without regard to whether such merger is
prohibited by state law. Additionally, an out-of-state bank may acquire the
branches of an insured bank in another state without acquiring the entire
bank; provided, however, that the law of the state where the branch is located
permits such an acquisition. Bank holding companies also may merge existing
bank subsidiaries located in different states into one bank.
An insured bank subsidiary may act as an agent for an affiliated bank or
savings association in offering limited banking services (receive deposits,
renew time deposits, close loans, service loans and receive payments on loans
obligations) both within the same state and across state lines.
Prompt Corrective Action
Federal bank regulatory authorities are required to take "prompt corrective
action" with respect to banks which do not meet minimum capital requirements.
For these purposes, there are five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
provisions of FDICIA. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and is not subject to a regulatory order, agreement or
directive to meet and maintain a specific capital level for any capital
measure. An institution is deemed to be "adequately capitalized" if it has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater, and generally a leverage ratio 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8% or a Tier 1 risk-based capital ratio of 4% or
greater and generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%,
a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number
of requirements and restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cease receipt of deposits from correspondent banks,
and restrictions on compensation of executive officers."Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction
or enter into any transaction outside the ordinary course of business. In
addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.
Safety and Soundness Standards
The FDIC, the Office of Thrift Supervision, the Federal Reserve Board and the
Office of the Comptroller of the Currency have published final guidelines
implementing the FDICIA requirement that the federal banking agencies
establish operational and managerial standards to promote the safety and
soundness of federally insured depository institutions. The guidelines
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, asset quality, earnings, and compensation, fees and benefits,
and specifically prohibit, as an unsafe and unsound practice, excessive
compensation that could lead to a material loss to an institution. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance.
Failure to submit an acceptable compliance plan, or failure to adhere to a
compliance plan that has been accepted by the appropriate regulator, would
constitute grounds for further enforcement action.
Year 200 Safety and Soundness
Safety and soundness guidance on the risks posed to financial institutions by
the Year 2000 problem has been issued by the Federal Institutions Examination
Council. The guidance underscores that Year 2000 preparation is not only an
information systems issue, but also an enterprise-wide challenge that must be
addressed at the highest level of a financial institution. The guidance sets
out the responsibilities of senior management and boards of directors in
managing their Year 2000 projects. Among the responsibilities of institution
managers and directors is that of managing the internal and external risks
presented by providers of data-processing products and services, business
partners, counterparties and major loan customers. Under the guidance, senior
management must provide the board of directors with status reports, at least
quarterly, on efforts to reach Year 2000 goals both internally and by the
institution's major vendors. Senior managers and directors must allocate
sufficient resources to ensure that high priority is given to seeing that
remediation plans are fulfilled, and that the project receives the quality
personnel and timely support it requires. The guidance does not require
financial institutions to obtain Year 2000 certification from their vendors.
Rather, an institution must implement its own internal testing or verification
processes for vendor products and services to ensure that its different
computer systems function properly together.
Deposit Insurance
The deposits of the Bank are insured up to $100,000 per insured account, by
the Bank Insurance Fund ("BIF") administered by the FDIC. Accordingly, the
Bank pays deposit insurance premiums to BIF. FDIC regulations implement a
transitional risk-based assessment system whereby a base insurance premium
will be adjusted according to the capital category and supervisory category to
which an institution is assigned. The supervisory subgroup to which an
institution is assigned by the FDIC is confidential and may not be disclosed.
Deposit insurance assessments may increase depending upon the category and
subcategory, if any, to which the bank is assigned by the FDIC. If the FDIC
believes that an increase in the insurance rates is necessary, it may increase
the insurance premiums applicable to BIF. Any increase in insurance
assessments could have an adverse effect on the earnings of the Bank.
Additional Matters
In addition to the matters discussed above, the Company and the Bank are
subject to additional regulation of their activities, including a variety of
consumer protection regulations affecting their lending, deposit and
collection activities and regulations affecting secondary mortgage market
activities.
The extensive regulation, supervision and examination of financial
institutions by the bank regulatory agencies is intended primarily for the
protection of the insurance fund and depositors. Moreover, such regulation
imposes substantial restrictions on the operations and activities of such
institutions, and grants to regulators broad discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to classification of assets and establishment
of adequate loan loss reserves. Any changes in such regulations, whether by
legislation or regulatory action, could have a material impact on the Bank and
its operations. The Company cannot predict what, if any, future actions may
be taken by legislative or regulatory authorities or what impact any such
actions may have on the operations of the Bank.
The earnings of financial institutions are also affected by general economic
conditions and prevailing interest rates, both domestic and foreign and by the
monetary and fiscal policies of the United States Government and its various
agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry is often considered by Congress, state legislatures and various
regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation of administrative action
will be enacted or the extent to which the banking industry in general or the
Company and the Bank in particular would be affected thereby.
Item 2. Property
The Bank properties consist of the home office, located at 505 South Maple
Street in French Lick, Indiana, and branch offices located at Broadway Avenue
in West Baden Springs; 1500 Main Street in Jasper, Indiana; 865 3rd Avenue in
Jasper, Indiana; and 614 E Water Street in Borden, Indiana, as well as seven
automated teller machines, four in Jasper, one in West Baden, one in French
Lick, and one in Borden. The Company has no separate offices.
Item 3. Legal Proceedings
As a part of its ordinary course of business, the Bank is a party in law suits
involving claims to the ownership of funds in particular accounts and
involving the collection of delinquent accounts (such as garnishment
proceedings). All such litigation is incidental to the Bank's business.
Management believes that no litigation is threatened or pending in which the
Company or the Bank faces potential loss or exposure which will materially
affect the stockholders' equity or the Bank's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters
Shares of the common stock of the Company are not traded on any national or
regional exchange or in the over-the-counter market. Accordingly, there is no
established market for the common stock. These are occasional trades as a
result of private negotiations not involving a broker or a dealer.
According to the information available to the Company the following table
displays the high and low selling prices for each quarter for 1996 and 1997.
Other trades may have occurred at prices of which the Company was not aware.
Year Quarter High/Per Share Low/Per Share
1997 1 N/A N/A
2 $55 $55
3 N/A N/A
4 N/A N/A
1996 1 $50 $50
2 N/A N/A
3 N/A N/A
4 $50 $50
The company has 318 shareholders on record as of March 13, 1998. All share
price and dividend information has been restated based on a stock split of 2
for 1 on August 11, 1998.
The following table sets forth the cash dividends of the company for the two
most recent fiscal years:
Cash Dividends Per Share
1st 2nd 3rd 4th
Year Quarter Quarter Quarter Quarter
1997 $.12 $.12 $.15 $.15
1996 $.12 $.12 $.12 $.12
The holders of the Company's Common Stock are entitled to cash dividends when,
and if declared by its Board of Directors out of funds legally available
therefor. The Company intends to pay a reasonable dividend, while maintaining
capital adequacy. Funds for the payment of cash dividends by the Company are
obtained primarily from dividends paid to it by the Bank. The Bank is
restricted by Indiana law and regulations of the Department of Financial
Institutions, State of Indiana, and the Federal Deposit Insurance Corporation
as to the maximum amount of dividends it can pay without prior approval. At
December 31, 1997 approximately $3,221,000 of the Bank's retained earnings
were available for dividend payments to the Corporation. There is no
assurance as to future dividends since they are dependent upon earnings,
general economic conditions, financial condition, capital requirements,
regulatory limitations, and other factors as may be appropriate in determining
dividend policy.
PART II
Item 6. Selected Financial Data
(dollars in thousands except per share data)
Summary of Operations 1997 1996 1995 1994 1993
Interest and Fees on Loans $ 11,599 $ 10,317 $ 9,734 $ 8,757 $ 9,043
Interest on Investments 2,929 3,767 3,826 3,478 3,469
Total Interest Income 14,528 14,084 13,560 12,235 12,512
Interest on Deposits 7,475 7,468 7,625 5,894 5,747
Interest on Short-term
Borrowing 157 63 0 0 0
Interest on Long-term Debt 0 0 0 18 81
Total Interest Expense 7,632 7,531 7,625 5,912 5,828
Net Interest Income 6,896 6,553 5,935 6,323 6,684
Provision for Loan Losses 400 290 314 410 715
Net Interest Income after
Provision for Loan Loss 6,496 6,263 5,621 5,913 5,969
Service Charges on Deposit
Accounts 505 365 311 336 230
Other Income 1,254 1,241 1,199 1,260 1,454
Total Other Income 1,759 1,606 1,510 1,596 1,684
Salaries and Benefits 3,295 3,236 2,966 3,122 2,895
Other Expenses 2,343 2,322 2,502 2,544 2,644
Total Other Expenses 5,638 5,558 5,468 5,666 5,539
Income Before Income 2,617 2,311 1,663 1,843 2,114
Income Tax Expense 922 650 450 469 544
Net Income 1,695 1,661 1,213 1,374 1,570
Year-end Balances
Total Assets 190,404 184,362 189,877 183,201 185,929
Total Loans, Net 139,202 121,530 111,150 105,244 103,258
Total Long-term Debt 0 0 0 0 1,294
Total Deposits 165,871 151,595 171,765 168,113 168,093
Total Shareholders' Equity 18,715 17,330 16,372 14,034 14,851
Per Share Data
Net Income 2.27 2.23 1.63 1.85 2.11
Cash Dividends .54 .48 .46 .44 .47
Shareholders' Equity,
End of Year 25.09 23.24 21.95 18.82 19.92
Other Data at Year-end
Number of Employees 107 115 109 118 114
Weighted Average Number
of Shares 745,800 745,800 745,800 745,800 745,800
Return on Assets .89 .90 .64 .75 .84
Return on Shareholders' Equity 9.78 9.58 7.41 9.79 10.57
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE-YEAR AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (Taxable equivalent
basis, dollars in thousands)
1997 1996 1995
Avg. Int. Yield/ Avg. Int. Yield/ Avg. Int. Yield/
ASSETS Bal. & Fees Rate Bal. & Fees Rate Bal. & Fees Rate
Earning Assets:
Interest-bearing
deposits in other
banks 0 0 0.00% 0 0 0.00% 0 0 0.00%
Federal funds sold 2,378 131 5.51% 5,354 291 5.44% 9,026 534 5.92%
Investment securities:
U.S. Treasury and
Gov't Agencies &
mortgage backed 35,649 2,264 6.35% 44,333 2,831 6.39% 37,985 2,328 6.13%
States and political
subdivisions 9,018 670 7.43% 11,120 853 7.67% 18,382 1,416 7.70%
Other securities 1,075 76 7.07% 750 55 7.33% 0 0 0.00%
TOTAL INVESTMENT
SECURITIES 45,742 3,010 6.58% 56,203 3,739 6.65% 56,367 3,744 6.64%
Loans: (1) (2)
Commercial 27,520 2,522 9.16% 17,355 1,562 9.00% 13,026 1,261 9.68%
Installment, net of
unearned income 44,796 4,232 9.45% 43,917 4,001 9.11% 40,432 3,688 9.12%
Real Estate 56,753 4,732 8.34% 55,760 4,637 8.32% 55,092 4,676 8.49%
Credit Card
and Other 908 113 12.44% 897 118 13.15% 813 109 13.41%
TOTAL LOANS 129,977 11,599 8.92%117,929 10,318 8.75%109,363 9,734 8.90%
TOTAL EARNING
ASSETS 178,097 14,740 8.28%179,486 14,348 7.99%174,756 14,012 8.02%
Less: Allowance
for Losses (1,356) (1,337) (1,347)
Non-Earning Assets:
Cash and due
from banks 4,908 4,558 4,259
Other Assets 7,177 7,735 8,441
TOTAL ASSETS 188,826 190,442 186,109
LIABILITIES & SHAREHOLDERS EQUITY
Interest-bearing liabilities
Savings and daily interest
checking 45,203 1,412 3.12% 30,965 718 2.32% 32,229 864 2.68%
Money market
accounts 26,681 1,289 4.83% 28,465 1,326 4.66% 26,833 1,363 5.08%
Certificates of
deposit $100,000
and over 31,920 1,815 5.69% 33,107 1,850 5.59% 30,767 1,723 5.60%
Other time deposits51,665 2,959 5.73% 63,907 3,574 5.59% 65,138 3,675 5.64%
TOTAL INTEREST-
BEARING DEPOSITS 155,469 7,475 4.81% 156,444 7,468 4.77% 154,967 7,625 4.92%
Borrowing 2,715 157 5.78% 1,143 63 5.51% 0 0 0.00%
TOTAL INTEREST-BEARING
LIABILITIES 158,184 7,632 4.82% 157,587 7,531 4.78% 154,967 7,625 4.92%
Non-interest bearing
liabilities:
Demand deposits 12,534 14,351 14,332
Other liabilities 1,855 1,653 1,607
Shareholder's
equity 16,253 16,851 15,203
TOTAL LIABILITIES
AND SHAREHOLDERS
EQUITY 188,826 190,442 186,109
INTEREST MARGIN RECAP:
Interest income/
earning assets 14,740 8.28% 14,348 7.99% 14,012 8.02%
Interest expense/
earning assets 7,632 4.29% 7,531 4.20% 7,625 4.36%
New yield on interest
earning assets 7,108 3.99% 6,817 3.79% 6,387 3.66%
(1) Includes principal balances of nonaccural loans. Interest income relating
to nonaccrual loans is not included.
(2) The amount of loan fees is not material in any of the years presented.
Introduction
SVB&T Corporation is a registered bank holding company under the Bank Holding
Company Act. The Corporations principal office is located in French Lick,
Indiana. The Corporation's sole subsidiary is Springs Valley Bank and Trust
Company, which operate offices in French Lick and West Baden, in Orange County,
two offices in Jasper, located in Dubois County, and one office in Borden,
Indiana located in Clark County. The subsidiary offers a wide range of
banking, financial, insurance and realty services to individuals and businesses
in Orange, Dubois, Clark and surrounding counties in Southern Indiana. The
following managements' discussion and analysis provides information concerning
SVB&T Corporation's financial condition and results of operation. This
discussion and analysis should be read in conjunction with the holding
company's financial statements and related footnotes which are presented in
this document.
Results of Operation
Net Income
Net income for 1997 was $1,695,536.
The table below is a comparison of the net income for the years 1995 thru 1997.
This table also displays the percentage and dollar amount changes which
occurred during the last three years.
Increase/ %Increase/
Decrease from Decrease from
Year Net Income Prior Year Prior Year
1997 $1,695,536 $ 34,575 2.08%
1996 1,660,961 448,266 36.96%
1995 1,212,695 (161,504) (11.75%)
SVB&T Corporation's net income has increased during 1997 and 1996 after
experiencing a decline for 1995. The main contributing factor to this increase
is an increase of the net interest income in each year.
Total net income before tax for 1997 increased 306,175 over 1996. However,
total taxes increased $271,600 from 1996 to 1997 thus net income after taxes
increased only 2.08% from 1996 to 1997.
Net Interest Income
Net interest income is the difference between interest and fees earned on loans
and investments, and interest paid on interest bearing liabilities. This is
the Bank's primary source of income. In this discussion, net interest income
is presented on a tax equivalent basis.
All tax-exempt income earned on securities of state and political subdivision
has been increased to an amount that would have been earned on a taxable basis.
This places taxable and non-taxable income on a more comparable basis and makes
the comparisons more meaningful.
In 1997, tax equivalent net interest income of $7,109,000 increased by $292,000
or 4.28% from 1996 levels. In 1996, tax equivalent net interest income of
$6,817,000 increased by $430,000 or 6.73% from 1995 levels. However, since July
of 1995, rates have decreased or remained stable through 1997 and have
increased net interest income over that period.
CHANGES IN NET INTEREST INCOME (Table 1) (Tax equivalent basis, dollars in
thousands)
Change from Prior Year
1997 1996 1995 1997 1996
Interest income on:
Loans 11,599 10,318 9,734 12.42% 6.00%
Investment securities 3,010 3,739 3,744 -19.50% -.13%
Federal funds sold 131 291 534 -54.98% -45.51%
Total interest income 14,740 14,348 14,012 2.73% 2.40%
Interest expense on:
Savings and daily
interest checking 1,412 718 864 96.66% -16.90%
Money market deposits 1,289 1,326 1,363 -2.79% -2.71%
Certificates of
deposit of $100,000
& over 1,815 1,850 1,723 -1.89% 7.37%
Other time deposits 2,959 3,574 3,675 -17.21% -2.75%
All other borrowing 157 63 0 149.21% n/a
Total interest expense 7,632 7,531 7,625 1.34% 1.23%
Net interest income 7,108 6,817 6,387 4.27% 6.73%
Net interest margin 3.99% 3.79% 3.66%
RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME (Table 2) (Taxable
equivalent basis, dollars in thousands)
1997 vs 1996 1996 vs 1995
Dollar Attributed to Dollar Attributed to
Change Volume Rate Change Volume Rate
Interest income on:
Loans 1,281 1,065 216 584 756 (172)
Investment securities (729) (692) (37) (5) (11) 6
Federal funds sold (160) (163) 3 (243) (208) (35)
Total interest income 392 210 182 336 537 (235)
Interest expense on:
Savings and daily interest
checking 694 387 307 (146) (32) (114)
Money market deposits (37) (85) 48 (37) 79 (116)
Certificates of deposit of
$100,000 and over (35) (67) 32 127 131 (4)
Other time deposits (615) (693) 78 (101) (69) (32)
All other borrowing 94 89 5 63 32 31
Total interest expense 101 (369) 470 (94) 141 (235)
Net interest income 291 579 (288) 430 396 34
The variance not due solely to rate or volume is allocated equally between the
rate and volume variances.
Provision for Loan Losses
The provision for loan losses was $400,000 in 1997; $290,000 in 1996; and
$314,000 in 1995. As of December 31, 1997, the provision was 1.00% of loans
outstanding. The allowance for loan losses increased $73,205 to $1,402,500
during 1997. Management expects the percentage of loans charged off to remain
at approximately the same level as December 31, 1997.
Other Income
SVB&T Corporation experienced an increase in Other Income for 1997. Other
Income increased by $153,193. Stated as a percentage of net interest income,
Other Income was 25.51% for 1997, 24.50% for 1996, and 25.43% for 1995.
The primary source for Other Income is trust income. Other sources of non-
interest income consist of service charges on deposit accounts, insurance
income, service fees, ATM foreign service fees, rental income, and other
miscellaneous charges.
There has been a consistent decrease in insurance and claims processing income.
This is due largely to the complete elimination of the claims processing
department during 1995. The gross income for that department in 1995 was
$138,804. The decrease for 1996 for insurance income was $152,854.
The bank is aggressive on finding other sources for non-interest income. One
of which is alternative investments such as annuities, mutual funds and other
products. That will begin in 1998.
Other Expenses
Total Other Expenses increased slightly for 1997. The 1997 Other Expense total
was $5,637,598 compared to $5,557,901 and $5,467,944 for 1996 and 1995
respectively.
Salaries and employees benefits are the largest components of Other Expense.
Salaries and employee benefits totaled $3,294,708 for 1997. This was 58.44% of
total Other Expenses. This compares with 54.21% in 1996 and 54.24% in 1995.
The number of employees has decreased over the past several years. Increases
in the salaries and employee benefit expenses represent normal pay increases
for the Bank's employees.
Hospitalization expense decreased by $62,750 during 1997. This is a 25.79%
decrease for the year compared to a 43.20% increase in 1996 and 13.25% in 1995.
The Bank is self-insured in regard to hospitalization insurance. Expense level
depends on claims filed.
The Bank experienced a $45,872 23.04% increase in maintenance and service
contracts expense. This is due to updated trust software and other upgrades in
software contracts.
Loan expense increased by 35,107. This is caused due to several foreclosures.
The Bank continues its efforts to maintain control over its operational costs
and has implemented several cost saving programs to further improve operating
efficiencies.
Income Tax
SVB&T Corporation records income tax expense based on the transactions reported
in its financial statements, consisting of taxes currently payable and deferred
tax. Deferred taxes result because of the recognition of certain items of
income and expense in different years for financial statement and tax purposes.
These differences relate primarily to the gain or loss on available-for-sale
investment securities, loan losses, depreciation, and loan origination fees.
Differences between the effective tax rate on SVB&T Corporation's income before
income tax (as reported in the consolidated statement income) and the federal
statutory rate of 34% result from tax exempt interest income, state income
taxes, and alternative minimum taxes. Note 10 of the consolidated financial
statements contain additional information about SVB&T Corporation's income
taxes.
Income tax expense for 1997 was $921,600 compared to $650,000 in 1996 and
$450,000 in 1995. The effective tax rate was 35.21% in 1997, 28.1% in 1996,
and 27.1% in 1995. The effective rate increased in 1997 compared to 1996 and
in 1996 compared to 1995 because of reduced tax exempt interest income in each
year. Tax exempt income decreased 20% from 1996 to 1997 and 42% from 1995 to
1996. This was a planned decrease designed to get the company out of an
alternative minimum tax position. In 1997 and 1996, the company paid no
alternative minimum tax and utilized an alternative minimum tax credit
carryover from 1995 of $126,000 in 1996. No carryover remains at December 31,
1996.
Financial Condition
As of December 31, 1997 total assets increased to $190,404,381, a 3.28%
increase from December 31, 1996 total of $184,362,094. Average total assets in
1997 of $188,826,000 were $1,616,000 less than the 1996 average of
$190,442,000.
Total deposits increased to $165,871,403 at December 31, 1997 from $151,595,049
at December 31, 1996 an increase of $14,276,354 or 9.42%. Alternative funding
sources were replaced with deposits during 1997. Management projects a long-
term deposit growth of approximately 3%. The actual growth rate may vary due
to overall economic conditions in the markets served.
Net loans at year-end 1997 were $139,201,820 up $17,671,326 or 14.54% above the
1996 year-end total of $121,530,494. Average loans outstanding of $129,977,000
in 1997 increased by $12,048,000 or 10.2% over the 1996 average loans
outstanding of $117,929,000. Loan growth was funded primarily by a reduction
in investment securities.
Total investment securities at year-end 1997 were $38,042,422, and at year-end
1996 were $49,945,260. Investment securities have been stated at market value
since 1993, when the Bank adopted the FASB No. 115 accounting and classified
all securities as available for sale.
Uses of Funds
Money Market Investments
Money market investments (federal funds sold and certificates of deposits with
other banks) are used by the Corporation to meet lending and liquidity
requirements. At December 31, 1997, money market investments were 900,000 an
increase from no money market investment at December 31, 1996.
Investment Securities
The investment security portfolio is used as a means of investing funds over
and above those needed for lending and liquidity requirements. Investment
securities are purchased with the intent and ability to hold until maturity.
However, all securities are categorized as available for sale. Increases or
decreases in the market value of securities are charged directly to stockholder
equity.
During 1997, average investment securities decreased by $10,461,000 or 18.6% as
compared to $56,203,000 for 1996. Total average loans increased by $8,566,000
and average federal funds sold decreased $2,976,000.
In 1997, tax-free investments of state and political subdivision matured and
reinvested into taxable government securities. However, the Corporation is now
out of the alternative minimum tax position and will invest in tax-free
investments during 1998 when rates warrant it.
The following table presents an analysis of the investment securities portfolio
for 1996, 1995 and 1994.
Investment Securities Available for Sale
(Dollars in thousands) December 31
Investment securities available for sale: 1997 1996 1995
U.S. Treasury 0 0 0
U.S. Government agencies and corp. 28,516 39,693 42,707
Mortgage-backed pass-through securities 297 349 396
Collateralized mortgage obligations:
Agency 0 0 0
Corporate 0 0 0
State and Political subdivisions 8,796 9,624 13,448
Other Securities 1,078 1,067 0
Net unrealized gain (loss) (67) (221) 358
Total Carrying Value 38,620 50,512 56,909
Maturities and Average Yields of Investment Securities
Available for Sale at December 31, 1997
1yr or less 1-5 yrs 5-10 yrs Over 10 yrs Total
Amt Yield Amt Yield Amt Yield Amt Yield Amt Yield
U.S. Treasury 0 0 0 0 0 0 0 0 0 0
Federal Agencies:
Bonds and Notes10,000 4.59 10,842 6.44 6,676 7.01 1,000 6.20 28,516 5.92
Mtg-backed Sec. 0 0 0 0 98 11.00 199 10.75 297 10.86
State and
Municipal 1,550 5.09 4,543 5.06 1,257 5.33 1,446 5.14 8,796 5.12
Other Securities 0 0 0 0 500 5.98 0 0 500 5.98
TOTAL 11,550 4.66 15,385 6.03 8,531 6.75 2,645 5.96 38,109 5.77
Percent of Total 30% 40% 23% 7% 100%
Loans
Loans outstanding at December 31, 1997 were 140,604,320. This represents an
increase of $17,744,531 or 14.4% over the loans outstanding December 31, 1996.
Real estate loans remains the largest component of the loan portfolio at
$79,490,736. This is an increase of $11,631,517 or 17.1% over the previous
year. This growth is almost exclusively in loan participations purchased. The
residential mortgage portfolio in our primary markets is relatively stable in
size.
The Bank uses loan participation purchases as a means of supplementing volume
when local demand cannot provide quality loans at an adequate level. The Bank
places an emphasis on proven borrowers with a significant down payment and a
strong collateral position. On December 31, 1997 the Bank had total loan
participations purchased of $24,902,968 or 17.7% of the loans outstanding. The
Bank carefully monitors individual participation loans as well as
concentrations in a particular industry segment or geographic area.
Individual loans for household and other personal expenditures is the second
largest loan category for the Bank. This segment increased $2,407,100 or 6.3%.
Growth has not been as great as in previous years (8.8% in 1996 and 9.49% in
1995) due to the competivie situation in the Bank's primary market areas.
Traditional sources such as vehicle loans have become very price competitive.
The Bank continues to solicit direct and indirect contracts whenever rate and
underwriting goals can be met.
Commercial and industrial loans grew $2,229,710 or 14.7% over the previous
year. That increase represented opportunities both in our primary market areas
as well as the purchase of loan participations.
Construction lines of credit and agricultural loans continue to be a minor
factor in the portfolio. The Bank does not contemplate any significant growth
in either of these market segments.
Following is a schedule showing the breakdown of loans by type of loan and the
maturity schedule of the loan portfolio.
Loan Portfolio
1997 1996 1995 1994 1993
Percent Percent Percent Percent Percent
Amt of Total Amt of Total Amt of Total Amt of Total Amt of Total
Commercial,
financial &
agricultural 18,722 13.3 16,228 13.2 12,744 11.3 5,526 5.2 5,854 5.6
Real estate -
construction 1,322 0.9 64 0.1 131 0.1 299 0.3 355 0.3
Real estate -
mortgage 79,491 56.4 67,859 55.1 64,585 57.2 67,844 57.2 62,435 59.3
Consumer
installment 40,859 29.0 38,452 31.2 35,341 31.3 32,279 30.2 34,951 33.2
Banker
Acceptances 0 0 0 0 0 0 0 0 622 0.6
Economic dev.
rev. bonds 0 0 24 0 41 0.1 56 0.1 252 0.2
Repurchase
Agreement 0 0 0 0 0 0 775 0.7 770 0.8
Lease Financing 437 .31 538 .4 0 0 0 0 0 0
TOTAL 140,831 100 123,165 100 112,842 100 106,779 100 105,239 100
Less:
Unearned income 227 305 343 213 407
Allowance for
loan losses 1,402 1,329 1,349 1,322 1,304
Total loans 139,202 121,531 111,150 105,244 103,528
Selected Loan Maturity and Interest Rate Sensitivity
December 31, 1997 (dollars in thousands)
MATURITY Rate Structure For Loans
Maturing Over One Year
Over One Over Predetermined Floating or
One Year Yr through Five Interest Adjustable
or Less Five Yrs Years TOTAL Rate Rate
Commercial,
financial and
agricultural 7,763 4,847 6,112 18,722 3,720 15,002
Real Estate
Construction 1,280 18 24 1,322 814 508
TOTALS 9,043 4,865 6,136 20,044 4,534 15,510
Capital Resources
Stockholders' equity at December 31, 1997 increased to $18,715,461 from
December 31, 1996 equity of $17,329,516. The increase of $1,385,945 was a
result of earnings $1,695,536 less dividends of $402,732 less unrealized gains
on securities available for sale of $93,141. Capital ratios are used by
Federal bank regulators to measure a bank's strength. The Bank's ratios are
well above Federal requirements.
Source of Funds
Deposits
The main source of funding for earning assets are deposits. During 1997, the
average deposits of $168,003,000 funded over 94% of the average earning assets.
Average total deposits for 1997 decreased by $2,792,000, or 2% as compared to
1996 average deposit totals, which increased by $1,496,000 from 1995 or 1%.
There has been a movement in average deposits over the past two years. Many
customers are seeking higher rates of return on investments and have moved into
alternative investments such as stocks and mutual funds. Management has funded
reductions of deposits with advances from the Federal Home Loan Bank and
Federal Funds purchased. Management will seek to increase deposits at a time
when deposits can be lent or invested at a profitable spread.
Maturities of Time Deposits December 31, 1997
(dollars in thousands) Certificates Other Time
of Deposit Deposits Over
Over $100,000 $100,000 TOTAL
Three months or less 22,292 653 22,945
Over three months through one year 6,206 0 6,206
Over one year through three years 3,167 0 3,167
Over three years 625 0 625
TOTAL 32,290 653 32,943
Risk Management
Lending and Loan Administration
Loan administration for the Bank is the responsibility of the President and the
senior lending officer of the Bank. The board deems these officers have the
knowledge and experience necessary to satisfactorily manage the lending
activities of the Bank.
Lending authority is granted to individual officers as the board feels is
appropriate. For loans exceeding an individual officer's limit, a loan
committee structure is in place to allow the timely and prudent review of loan
requests. Loans above certain predetermined limits must be reviewed and
approved by two board members prior to approval of the loan.
A presentation is made at each board meeting regarding the operation of the
loan department. Topics discussed include current activities, watch list and
non-accrual loans, and any other loan-related issue that should be brought to
the board. Reports covering the activities of the loan department are prepared
for each board member.
A loan review committee reviews all loan review activities including the
calculation of the loan loss reserve necessary to accommodate loans that may be
charged off at some future time.
The loan loss reserve is calculated monthly. It is based on the historical
performance of the loan portfolio as well as current and projected conditions
for specific credits. The Bank's loan loss experience is summarized below:
Allowance for Loan Losses
(dollars in thousands)
1997 1996 1995 1994 1993
Balance as of January 1 1,330 1,349 1,322 1,304 1,276
Provision for Loan Losses 400 290 314 410 715
Recoveries of Prior Loan Losses 106 77 76 80 99
Loan Losses charged to the Allowance (433) (386) (363) (472) (786)
Balance as of December 31 1,403 1,330 1,349 1,322 1,304
Loans are placed on non-accrual status when a payment (principal and/or
interest) is more than 90 days past due. All income on these loans is then
recognized on a cash basis until the loan is paid off or management believes
that the quality of the loan has improved enough to warrant returning the loan
to accrual status.
Non-performing loans are loans on non-accrual and assets such as other real
estate and repossessions being held for sale. Following is a schedule of those
loan categories for the previous five years.
Non-performing Assets (dollars in thousands)
1997 1996 1995 1994 1993
Total Loans on non-accrual
(non-performing loans) 1,832 1,338 1,040 465 520
Other Real Estate 0 53 296 462 489
Total non-performing assets 1,832 1,391 1,336 927 1,009
Total non-performing loans as a
percentage of loans 1.30% 1.09% .94% .44% .50%
Total non-performing assets as
a percentage of loans and ORE 1.30% 1.13% 1.20% .88% .97%
Liquidity and Interest Rate Sensitivity
SVB&T Corporation considers management of liquidity and interest rate
sensitivity to be two of its most important responsibilities. Liquidity
requirements arise from loan demand and deposit withdrawals. The objective of
liquidity management is to match the availability of funds with anticipated
loan and withdrawal activity. Interest rate sensitivity management seeks to
match sufficient amounts of interest sensitive assets with interest sensitive
liabilities. A matching of the assets and liabilities results in more
consistent earnings and provides protection in case of sudden interest rate
changes.
Liquidity requirements are monitored on a daily basis. Main sources of short-
term liquidity are cash due from banks and federal funds sold. Longer term
liquidity planning includes funds available from normal maturities of
certificates of deposit with other bank maturities of investment securities,
loan principal payments income from operations and new deposits. These sources
of funds are sufficient to meet the company's liquidity needs.
In the management of interest rate sensitivity, a cumulative sensitivity ratio
of less than 100% is normal in the one year or less repricing time period.
Seventy-eight percent of the total interest bearing liabilities reprice in one
year or less. The Bank has more interest-bearing liabilities repricing during
this time period than it has interest-earning assets repricing. This will
benefit the Bank during an interest rate environment of lowering rates or
stable rates.
The Company realizes the potential for income reduction should interest rates
increase. At that time, restructuring of the investment portfolio would occur
to increase the sensitivity ratio to a manageable position.
The chart on this and the following page shows the Bank's interest rate
sensitivity position as of December 31, 1997.
INTEREST RATE SENSITIVITY ANALYSIS (dollars in thousands)
0 to 3 4 to 6 7 to 12 1 to 5 Over 5
Months Months Months Years Years Total
Interest Earning Assets
Federal funds sold 900 0 0 0 0 900
Interest bearing deposits
in banks 0 0 0 0 0 0
Investment securities 5,640 2,500 3,810 14,547 11,545 38,042
Loans 45,112 18,046 33,770 37,055 6,621 140,604
Total Interest Earning
Assets 51,652 20,546 37,580 51,602 18,166 179,546
Interest Bearing Liabilities
Interest bearing NOW, savings,
and money market deposits 40,629 7,158 5,729 4,416 0 57,932
Time deposits under
$100,000 17,496 5,018 17,679 21,440 72 61,705
Time deposits over $100,000 25,538 1,416 4,720 1,267 0 32,941
Borrowed funds 4,000 0 0 0 0 4,000
Total Interest Bearing
Liabilities 87,663 13,592 28,128 27,123 72 156,578
Interest Sensitivity Gap
Current (36,011) 6,954 9,452 24,479 18,094
Interest Sensitivity Gap
Cumulative (36,011) (29,057) (19,605) 4,874 22,968
Sensitivity Ratio
Cumulative 59% 71% 85% 103% 115%
Year 2000
A Year 2000 committee was established to address all internal and external
systems that may be affected by this date. Letters have been sent for vendors
and suppliers for their commitment to comply with the Year 2000. Priorities
have been assigned to each vendor or servicer according to risk. Time tables
have been established to review each vendors compliance. Letters have also
been sent to customers to alert them to the Year 2000 issues.
Testing has began. Vendors with high priority are being tested first, if
possible. Necessary programming, modifications and updates will continue
through 1998 and should largely be complete by December 31, 1998, so that
testing can be well under way.
The dollar cost that will be spent on Year 2000 issues will not have any major
impact on the institutions operatings, liquidity or capital resources. Senior
management is well aware of the importance of the completion of all Year 2000
issues and has and will give all necessary resources to complete the task.
Quarterly Results of Operations March 31 June 30 Sept 30 Dec 31
1997
Interest income 3,486,978 7,064,675 10,746,728 14,527,762
Interest expense 1,832,537 3,741,499 5,670,784 7,631,838
Net interest income 1,654,441 3,323,176 5,075,944 6,895,924
Provision for loan losses 90,000 180,000 280,000 400,000
Net securities gains 3,118 3,118 5,375 5,406
Non-interest income 388,715 736,647 1,202,230 1,753,404
Non-interest expense 1,402,805 2,779,256 4,187,584 5,637,598
Income before income taxes 553,469 1,103,685 1,815,965 2,617,136
Income taxes 144,000 288,000 473,447 921,600
Net income 409,469 815,685 1,342,518 1,695,536
Net income per share:
Primary net income per share .55 1.09 1.80 2.27
1996
Interest income 3,503,918 6,947,560 10,524,769 14,084,475
Interest expense 1,923,168 3,775,017 5,680,758 7,531,230
Net interest income 1,580,750 3,172,543 4,844,011 6,553,245
Provision for loan losses 75,000 150,000 225,000 290,000
Net securities gains 0 162 1,528 45,545
Non-interest income 324,309 680,956 1,055,296 1,560,072
Non-interest expense 1,309,900 2,661,035 4,043,216 5,557,901
Income before income taxes 520,159 1,042,626 1,632,619 2,310,961
Income taxes 112,000 248,760 396,500 650,000
Net income 408,159 793,866 1,236,119 1,660,961
Net income per share:
Primary net income per share .55 1.06 1.65 2.23
Item 8. Financial Statements and Supplementary Data
The Registrant's Annual Report to Shareholders for the year ended December 31,
1997 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table shows the earlier of the year the named individual became a
Director of the Corporation or the Bank. All Directors have been Directors of
the Corporation since its formation in 1982, except for Brian K. Habig, Hilbert
Lindsey, Ronald G. Seals and James C. Tucker, who became Directors of the
Corporation in the years indicated below.
Shares Beneficially Owned Foot
Name, Present Principal Director (Percentage of Outstanding Note
Occupation and Age Since Common Shares)
Arnold F. Habig 1958 86,184 1
Chairman of the Board, SVB&T (11.56%)
and Assistant to the Chief
Executive Officer, Kimball
International, Inc.
90
Brian K. Habig 1987 6,348 2
Executive Vice President, (.85%)
Sales and Marketing, Kimball
Office Group Kimball
International, Inc.
41
Douglas A. Habig 1973 23,356 3
Chairman of the Board & C.E.O. (3.43%)
Kimball International, Inc.
51
John B. Habig 1963 24,120 4
Senior Executive Vice (3.23%)
President and Operations
Officer, Electronics
Kimball International, Inc.
64
Thomas L. Habig 1959 19,976 5
Vice Chairman of the Board (2.68%)
Kimball International
Secretary, Springs Valley
Bank & Trust Company
69
Maurice R. Kuper 1977 3,600 6
Retired (.48%)
Kimball International, Inc.
73
Hilbert Lindsey 1988 3,200
President (.43%)
Lindsey Lumber Company
63
Ronald G. Seals 1989 320 7
President & C.E.O. (.04%)
Springs Valley Bank &
Trust Company
60
R. J. Sermersheim 1976 20,000 8
Vice President, Environment, (2.68%)
Health & Safety
Kimball International, Inc.
58
H. E. Thyen 1959 8,972 9
Assistant to the President, (1.20%)
Kimball International, Inc.
85
James C. Tucker 1989 14,400 10
Attorney at Law (1.93%)
Tucker & Tucker
Law Offices
51
Reita Nicholson 172 11
Assistant Secretary, SVB&T Corporation (0.02%)
51
David Rees NONE
Chief Financial Officer, SVB&T Corporation
39
All Directors and Officers as a group 215,646
(28.91%)
1 Mr. Arnold F. Habig is also chairman of the Board of Springs Valley Bank &
Trust Company. Total shares owned by Mr. Habig consist of 66,000 shares
owned by his Revocable Trust Accounts of which he maintains voting
privileges, 14,056 shares owned by the Arnold F. Habig Foundation of which
Mr. Habig is the President and holds voting rights, and 6,128 shares held by
Barbara T. Habig, wife of Mr. Habig.
2 The above amount includes 2,088 shares held by Kyle Thomas Habig, the son of
Mr. B. Habig.
3 The above amount includes 2,008 shares held by Nancy L. Habig, the wife of
Mr. D. Habig, 2,224 shares held by Joshua David Habig and 2,088 shares held
by Jill Ellen Habig, who are children of Mr. D. Habig.
4 The above amount includes 3,124 shares held by Carma Jane Habig, the wife of
Mr. J. Habig, 888 shares held by Baden-Baden for John B. Habig FBO Andrew
Zunk, the grandson of Mr. Habig and 2,048 shares held by Baden-Baden for
John B. Habig FBO Jon Hudson, which is the Grandson of Mr. J. Habig.
5 Mr. Thomas L. Habig is Secretary for SVB&T Corporation as well as Springs
Valley Bank & Trust Company. Total shares owned include 2,088 shares held
by Roberta Habig, the wife of Mr. Habig.
6 Mr. Kuper's 3,600 shares are held in a Trust for Mr. Kuper in which he and
Delores Kuper are trustees. Delores Kuper is Mr. Kuper's wife.
7 Mr. Seals is President and C.E.O. for Springs Valley Bank & Trust Company as
well as SVB&T Corporation. The above amount of shares include 200 shares
held jointly by Mr. Seals and his wife, Nancy E. Seals.
8 Mr. Sermersheim also serves as Vice President for SVB&T Corporation.
9 Mr.Thyen's above shares include 4,900 shares which are listed in his trust
account of which he maintains voting rights and also includes 800 shares
which are held by Maxine Thyen's Trust Account. Maxine is the wife of Mr.
Thyen.
10 The above shares include 14,176 shares held by James M. Tucker Trust of
which Mr. Tucker is Trustee.
Board Committees and Meetings
The Board of Directors of the Corporation and the Bank hold regular bimonthly
meetings and other special meetings. The Board of Directors of the Corporation
held six (6) meetings, and the Board of Directors of the Bank held seven (7)
meetings, during 1997. In addition to meeting as a group, all members of each
Board devote their time and talents to certain of the following standing
committees: Executive Committee, Audit Committee, Trust Committee, Executive
Compensation Committee, and Loan Committee. The Corporation does not have a
nomination committee; instead, nominations are made by the Board of Directors
as a whole.
The Audit Committee reviews significant audit and accounting principles,
policies, and practices, reviews the performance of the internal auditing
functions and reviews examination reports of the Federal and State regulatory
agencies. In carrying out its duties, the Committee meets with the independent
auditors, approves the services to be performed by the independent auditors and
reviews the degree of independence of the auditors. The members of the Audit
Committee are Messrs. H. E. Thyen, R. J. Sermersheim (Chairman of the
Committee), Brian K. Habig and J. C. Tucker. The Audit Committee met six (6)
times in 1997.
The Executive Compensation Committee is to review and recommend to the
directors salary and bonus programs for the Senior Bank Officers. The members
of the Executive Compensation Committee are Messrs. R. J. Sermersheim, Maurice
Kuper and J. C. Tucker (Chairman of the Committee).
Item 11. Executive Compensation
Compensation of Officers
Compensation Committee Report. Officers of the Corporation are not compensated
for their services in such capacity. All officers of the Corporation are also
officers of the Bank and are compensated in their capacity as Bank officers.
Decisions on compensation of the Bank's executives are made by the Board of
Directors of the Bank, upon the recommendation of the Executive Compensation
Committee of the Board. Each member of the Compensation Committee is a non-
employee director. Pursuant to rules designed to enhance disclosure of
corporation policies toward executive compensation, set forth below is a report
submitted by Messrs. J. C. Tucker (Chairman), R. J. Sermersheim and Maurice
Kuper in their capacity as the Board's Executive Compensation Committee
addressing the Bank's compensation policies for 1997 as they affected all
executive officers of the Bank and Mr. Seals who, for 1997, was the Bank's most
highly paid executive whose total annual salary and bonus exceeded $100,000.
Compensation Policies Toward Executive Officers. The Executive Compensation
Committee's executive compensation policies are designed to provide competitive
levels of compensation to the executive officers and to reward officers for
satisfactory performance of the Corporation and the Bank as a whole. There are
no established goals or standards relating to performance of the Corporation or
the Bank which have been utilized in setting the base salary portion of an
individual employee's compensation.
Base Salary. Each executive officer is reviewed individually by the Executive
Compensation Committee. The Executive Compensation Committee also reviews
various banking salary surveys provided by other entities which provide
information concerning average salary information within the banking industry.
The background data for this information is typically generated from over 100
banks located in the Midwest with approximately $100 million to $200 million in
assets. The salary portion of the executive officers' compensation is then
typically established at a level near the average salary compensation of
officers included in the survey with similar job responsibilities.
Annual Bonus Amounts. The Bank's Incentive Bonus Plan ("Bonus Plan") for
executive officers (those with titles of Senior Vice President and higher) for
1997 was based on the Bank's return on average assets (ROA) and the executives
officers base salary. The "Bonus Plan" payment to executive officers was
twenty-five percent of their base pay for 1996. Eighty percent was paid in
1997 and twenty percent was carried forward and paid in 1998. Other officers
receive bonuses based on net income of the Bank. Under the "Bonus Plan," a
bonus pool of seven percent of the Bank's net income is established and paid
bi-annually to these officers.
1996 Key Employees' Stock Option and Stock Appreciation Rights Plan
The Corporation has adopted a stock option and stock appreciation rights
program (the "Plan") for officers and key employees of the Corporation and the
Bank. The Board of Directors of the Corporation believes these programs
provide an important incentive to those who will be instrumental to the success
of the Corporation and of the Bank. The Corporation has reserved 20,000 shares
for issuance under the Plan. The Plan will expire on December 31, 2005.
The Plan provides for the grant of "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code, the grant of nonqualified stock
options, and the grant of stock appreciation rights ("SARs"). Options and SARs
may be granted under the Plan only to officers and other key employees who are
in positions to make significant contributions to the success of the
Corporation.
The Executive Compensation Committee of the Board of Directors of the Bank
administers the Plan. No member of this committee is eligible to receive
options or SARs under the Plan at any time such individual serves on this
committee.
Options are exercisable upon such terms and conditions as may be determined by
the Executive Compensation Committee, but in no event will any stock options be
exercisable later than ten years after date of grant. Options granted under
the Plan will vest and become exercisable at the times determined by the
Executive Compensation Committee. The exercise price for all options granted
under the Plan will not be less than the fair market value of the shares on the
date of grant.
The Executive Compensation Committee may also grant SARs in conjunction with
all or part of any option granted under the Plan at the time of the grant of
the option. Each SAR will (I) expire when the underlying option expires, and
(ii) become exercisable only when and to the extent that the underlying option
is eligible to be exercised. The "economic value" of a SAR may not exceed 100%
of the difference between the exercise price of the number of shares covered by
the underlying option and the fair market value of such shares. SARs may be
exercised by surrendering the underlying option, at which point the underlying
option shall no longer be exercisable (to the extent the options are
surrendered upon exercise of the related SAR). Upon exercise of a SAR, the
optionee is entitled to receive the economic value of such SAR, in cash, in
shares of common stock of the Corporation, or any combination thereof as
determined by the Executive Compensation Committee.
Option Grants In Last Fiscal Year
The following table provides details regarding stock options granted to Mr.
Seals in 1997. In addition, the table shows the number of shares covered by
both exercisable and non-exercisable stock options by Mr. Seals as of December
31, 1997. Also reported are the values for the "in-the-money" options, which
represent the positive spread between the exercise price of any such existing
stock options and the year-end assumed price of the Common Stock. For purposes
of the following table, the year-end price of the stock was assumed to be
$25.00. Because there is not an established trading market for the Common
Stock, the assumed price of $25.00 may not reflect the actual price which would
be paid for shares of the Common Stock in an active or established trading
market and should not necessarily be relied upon when determining the value of
a shareholder's investment. In addition, there are shown the hypothetical
gains or option spreads that would exist for respective options. These gains
are based on assumed rates of annual compound stock price appreciation of five
percent (5%) and ten percent (10%) from the date the options were granted over
the full option term. Gains are reported net of the option exercise price, but
before any effect of taxes. In assessing these values, it should be kept in
mind that no matter what value is placed on a stock option on the date of
grant, its ultimate value will be dependent on the market value of the
Corporation's stock at a future date, and that value would depend on the
efforts of such executive to foster the future success of the Corporation for
the benefit of all shareholders. The amounts reflected in this table may not
necessarily be achieved.
Individual Grants
Name Number of Shares Percent Exercise Market
Underlying of Total or Base Price
Options Options Price on Date
Granted Granted ($/Sh) of Grant
(#) in Fiscal ($/Sh)
Year
(%)
Ronald G. Seals 1,000 45% $25.00 $25.00
Potential Realizable
Value at Assumed Annual
Rates of Stock Appreciation
For Option Term
Name Expiration 0% 5% 10%
Date ($) ($) ($)
Ronald G. Seals 12-31-06 $0.00 $15,720.00 $39,843.56
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values Table
The following table shows the shares covered by the exercisable and non-
exercisable stock options by Mr. Seals as of December 31, 1997. Also reported
are the values for in-the-money options which represent the positive spread
between the exercise price of any such existing stock options and the year-end
price of the Corporation's Common Stock at December 31, 1997. For purposes of
the following table, the year-end price of the stock was assumed to be $27.50.
Because there is not an established trading market for the Common Stock, the
assumed price of $27.50 may not reflect the actual price which would be paid
for shares of the Common Stock in an active or established trading market and
should not necessarily be relied upon when determining the value of a
shareholder's investment.
Name Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End
(#) ($)
Exercisable Unexercisable Exercisable Unexercisable
Ronald G. Seals 200 800 $500 $2,000
Pursuant to the 1997 Directors Stock Compensation Plan, Directors of the
Corporation can elect to receive up to 100% of board fees for a calendar year
in common stock of the Corporation, determined by dividing the amount of fees
deferred by the fair market value of a share of the Common Stock of the
Corporation as of the last day of such calendar year. The Corporation has
reserved 16,000 shares for issuance under this Plan. Two thousand, three
hundred eighty-seven (2,387) shares were issued in the following amounts to the
following Directors for deferred fees in 1997.
The 1997 Directors Stock Option Plan, designed to work in connection with the
Directors Stock Compensation Plan, provides for the granting of non-qualified
stock options to Directors for Common Stock of the Corporation. Under the
terms of this Plan, each Director is granted the option to purchase 50% of the
number of shares received by the Director pursuant to such Director's elections
under the 1997 Directors Stock Compensation Plan discussed above. The exercise
price of the options will be no less than the fair market value on the last day
of the calendar year preceding grant. The options vest and become exercisable
on the second anniversary of the date of grant. The Corporation has reserved
8,000 shares for issuance under this Plan. The Corporation has grant options
for 1,192 shares for 1997 in the following amounts to the following Directors:
DIRECTOR 1997 Deferred 1997
Fees Options
Shares Issued Granted
Arnold F. Habig 131 65
Brian K. Habig 0 0
Douglas A. Habig 306 153
John B. Habig 306 153
Thomas L. Habig 145 72
Maurice R. Kuper 306 153
Ronald G. Seals 0 0
R. J. Sermersheim 306 153
H. E. Thyen 279 139
J. C. Tucker 302 151
Hilbert Lindsey 306 153
Totals: 2,387 1,192
Other Compensation Plans. At various times in the past the Bank has adopted
certain broad-based employee benefit plans in which the senior executives are
permitted to participate on the same terms as non-executive employees who meet
applicable eligibility criteria, subject to any legal limitations on the amount
that may be contributed or the benefits that may be payable under the plans.
Benefits. The Bank provides medical and pension benefits to the senior
executives that are generally available to other Bank employees. The amount of
perquisites, as determined in accordance with the rules of the Securities and
Exchange Commission relating to executive compensation, did not exceed 10% of
salary and bonus for fiscal 1997.
Mr. Seal's 1997 Compensation. Regulations of the Securities and Exchange
Commission require that the Compensation Committee disclose the Committee's
basis for compensation reported for the C.E.O. Mr. Seal's salary and bonus in
1997 were determined in the same manner as discussed above for other senior
executives. The Board of Directors and the Executive Compensation Committee
believes that Mr. Seals has managed the Bank well.
Compensation Committee Insider Participation
During the past fiscal year, Mr. Seals, the Bank's Chief Executive Officer,
served on the Board of Directors, but did not serve on the Executive
Compensation Committee. Mr. Seals did not participate in any discussion or
vote with respect to his salary or bonus as an executive officer and excused
himself from the room during the discussion by the Board of Directors of his
compensation.
Summary Compensation Table
The following table sets forth for the fiscal years ending December 31, 1997,
1996 and 1995 the cash compensation paid by the Bank, as well as certain other
compensation paid or awarded during those years, to the Chief Executive Officer
and any other executive officer whose total annual salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1997.
Name and Year Annual Compensation
Principal Position Salary (1) Bonus (2)
Ronald G. Seals 1997 $119,000 $29,750
President, C.E.O. 1996 $115,500 $23,100
and Director 1995 $108,000 $13,420
(1) While officers enjoy certain perquisites, such perquisites do not exceed
the lesser of $50,000 or 10% of such officer's salary and bonus and are
not required to be disclosed by applicable rules of the Securities and
Exchange Commission.
(2) The bonus amounts are payable pursuant to the Bank's Incentive Bonus Plan
of the Bank, as described in the "Compensation Committee Report."
Employee Benefit Plans
Profit Sharing Retirement Plan. The Bank sponsors a tax-qualified profit
sharing retirement plan which includes, effective as of January 1, 1996, a
qualified cash or deferred (i.e., "401(k)") arrangement and a provision for
voluntary after-tax contributions ("Profit Sharing Plan"). The Profit Sharing
Plan covers substantially all employees of the Bank; an employee becomes a
participant on the first January 1st or July 1st which coincides with or
immediately follows the date you became an employee. If you became an Employee
on or after January 1, 1996, you will be eligible to participate on the Plan
Entry Date which falls on or after the first twelve consecutive (12) month
period during which you have completed at least one thousand (1,000) hours of
service. The twelve (12) month period begins when you first commence
employment and on each Plan Year beginning on or after that date. The Bank
makes discretionary "profit sharing" contributions under the Profit Sharing
Plan and allows participants to make salary deferral and rollover
contributions. Participants' salary deferral contributions may be made, on
pre-income tax basis, in an amount ranging from 1% to 12% of the participant's
"compensation" (as defined). Participants' salary deferral and rollover
contributions are fully vested when made; discretionary profit sharing
contributions are subject to a vesting schedule pursuant to which participants
become vested on a graduated basis, at the rate of 10% per year for the first
four full years of service and at the rate of 20% per year thereafter so that a
participant will become fully vested in the Bank's profit sharing contributions
after completing seven full years of service. In addition, a participant will
attributable to the Bank's discretionary profit sharing contributions on death,
"disability" (as defined), upon attaining age 60 and completing 10 years of
service, and upon attaining age 65. All amounts contributed to the Profit
Sharing Plan are invested by the Bank, as Trustee, for the benefit of all
participants and their designated beneficiaries.
Upon termination of employment with the Bank or Corporation for reason, a
participant (or his or her designated beneficiary) will be entitled to receive
the vested balance of his or her account under the Profit Sharing Plan.
Participants may elect to receive the vested balance of their account in either
a single lump sum or in monthly, quarterly or annual installments over a fixed
period of time, not to exceed the life expectancy of the participant or the
joint life and last survivor expectancy of the participant and his or her
designated beneficiary. The Profit Sharing Plan also provides for the
distribution of the participant salary deferrals on account of "financial
hardship" (as defined) and authorizes the making of loans to participants from
that portion of their Profit Sharing Plan accounts attributable to salary
deferral contributions.
Director Fees
Directors of the Bank receive director's fees of $600 per month. In addition,
directors which hold committee positions may be compensated from $25 to $100
per meeting attended. No separate fees are paid for services as a director of
the Corporation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Shareholders
The following information is given as of March 15, 1998, for each person known
to the Corporation to be the beneficial owner of more than 5% of the common
stock of the Corporation.
Amount and Nature Percent
Name and Address of Beneficial Ownership of Class
Arnold F. Habig 86,184 11.56%*
1500 Main Street
Jasper, IN 47546
Springs Valley Bank & Trust Company
Trustee for Kimball International, Inc. 144,920 19.43%**
Retirement Trust
P.O. Box 830 Jasper, IN 47547-0830
* Total shares owned by Mr. Habig consist of 66,000 shares owned by his
Revocable Trust accounts, 14,056 shares owned by the Arnold F. Habig
Foundation and 6,128 shares held by his wife, Barbara T. Habig.
**Baden-Baden is nominee holder of beneficial shares owned by Springs Valley
Bank & Trust Company as Trustee for Kimball International, Inc. Retirement
Trust.
Item 13. Certain Relationships and Related Transactions
Certain Transactions
During 1997, certain directors and officers of the Corporation and their
associates were customers of and had transactions in the ordinary course of
business with the Bank; additional transactions may be expected to take place
in the future between such persons and the Bank. All transactions were made
and are expected to be made on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the time for comparable
transactions with other persons and did not involve and are not expected to
involve more than the normal risk of collectability or present other
unfavorable features.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements - (as referred to in Item 8)
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1997.
(c) Exhibits - The following exhibits are filed herewith:
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 13 - Annual Report to Shareholders for the year ended December
31, 1997 (incorporated in part into this form 10-K by
reference)
Exhibit 21 - Subsidiaries of the Registrant
Exhibit 23 - Consent of Independent Public Auditors
(d) Financial Statement Schedules - This information is omitted since the
required information is not applicable to the Registrant.
Exhibit 27 - Financial data schedule
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.
SVB&T Corporation
By:
Ronald G. Seals,
President & C.E.O. 3/27/98
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.
By: By:
Arnold F. Habig David Rees
Chairman of the Board 3/27/98 Principal Financial and Accounting 3/27/98
Officer
By: By:
Douglas A. Habig, Director 3/27/98 Ronald G. Seals,
Principal Executive Officer and 3/27/98
Director
By: By:
John B. Habig, Director 3/27/98 Brian K. Habig, Director 3/27/98
By: By:
Maurice Kuper, Director 3/27/98 Thomas L. Habig, Director 3/27/98
By: By:
Hilbert Lindsey, Director 3/27/98 James C. Tucker, Director 3/27/98
By: By:
Ronald J. Sermersheim, Director H. E. Thyen, Director 3/27/98
3/27/98
Index to Exhibits
Sequential
Page # Exhibit # Exhibit
54 11 Statement Re: Computation of Per Share Earnings
35 13 Annual Report to Shareholders for the year ended
December 31, 1997
54 21 Subsidiaries of the Registrant
54 23 Consent of Independent Auditors
27 Financial Data Schedule
Exhibit 13
Message to Our Shareholders
We are pleased to report that 1997 was another banner year for Springs Valley
Bank & Trust Company, with net income, assets, shareholders' equity and
dividends reaching record levels.
Highlights of the year:
Net income rose 2% to $1,695,536
Assets rose by over $6 million to $190.4 million
Shareholders' equity increased 8% to $18.7 million
A two-for-one stock split was approved effective August 11th
Cash dividends were increased 14% to $402,732
Book value per share rose 7.6% to $25.09, up from $23.24
Net income per share was $2.27, up from $2.23
Deposits grew $14 million to $165.8 million
Loans increased $18 million to $139 million
Trust assets at market value rose $37 million to $483.3 million
Details are contained in the following reports.
In 1997 management concentrated their efforts toward enhancement of our
electronic banking functions. Data processing upgrades of hardware and software
for both the commercial bank and the trust department were accomplished. These
improvements will permit more efficient electronic-based delivery of products
and services. Trust department customers now enjoy more thorough and faster
account reporting and analysis. Plans have been developed to provide on-line
(real time) account access through our expanding network of automated teller
machines and to introduce debit cards.
Improvement in our computer operations was necessary for regulatory compliance.
Bank regulatory agencies have issued strict guidelines to commercial banks
instructing them to prepare for and resolve any automation concerns connected
to the Year 2000 problem. SVB&T began work on the Year 2000 issue about one
year ago with an audit of our software providers to obtain certification of
Year 2000 compliance. A Year 2000 Committee was formed to search out and
provide solutions for all critical functions necessary to bring our processes
into compliance. We are confident that we will be prepared for the year 2000.
Springs Valley Bank, as a community bank, will continue to provide service,
offer competitive products, services and costs, and stay attuned with necessary
technological advances. To enhance future profitability, management continues
to seek additional income opportunities and ways to reduce expenses. A blending
of technology-based products such as ATMs and debit cards with traditional
products such as direct deposit of pay and convenient funds distribution will
result in better customer service and increased profit for the bank.
Although 1997 was a banner year for our bank, we do not plan to rest on our
past successes. Directors and management have adopted a Strategic Plan for
future direction and enhancement of the bank's operations. The objectives of
the Strategic Plan are as follows:
1.Price all products to achieve maximum profitability without compromising
market acceptability.
2.Increase core deposits and loan volume.
3.Increase fee income for the bank.
4.Increase productivity and efficiency; reduce operating expenses.
5.Protect our Shareholders' investments.
Management is pleased to provide you this most positive analysis of the past
year and report to you our future plans for the continued improvement of our
bank. Your continuing loyalty and confidence in our efforts are greatly
appreciated by all of us at Springs Valley Bank & Trust Company.
Sincerely,
ARNOLD F. HABIG RONALD G. SEALS
CHAIRMAN OF THE BOARD PRESIDENT & CEO
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31
1997 1996
ASSETS
Cash and cash equivalents
Cash and due from banks $ 4,567,927 $ 5,029,136
Federal funds sold 900,000 0
Total cash and cash equivalents 5,467,927 5,029,136
Investment securities, available for sale,
at market value 38,042,422 49,945,260
Investment securities, held to maturity,
at cost 578,300 567,400
Loans
Loans, net of unearned interest 140,604,320 122,859,789
Allowance for loan losses (1,402,500) (1,329,295)
Net loans 139,201,820 121,530,494
Buildings and equipment 5,033,224 5,040,585
Other real estate 0 53,200
Interest receivable 1,319,476 1,357,380
Other assets 761,212 838,639
Total assets $ 190,404,381 $ 184,362,094
LIABILITIES
Deposits
Non-interest bearing $ 13,292,875 $ 12,554,733
Interest bearing 152,578,528 139,040,316
Total deposits 165,871,403 151,595,049
Federal funds purchased 0 8,870,000
Other short-term borrowings 4,000,000 5,000,000
Interest payable 824,298 750,028
Deferred income taxes 305,132 241,324
Other liabilities 688,087 576,177
Total liabilities $ 171,688,920 $ 167,032,578
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common stock (No par value: 800,000 shares
authorized and issued) $ 200,000 $ 200,000
Surplus 6,094,233 6,094,233
Retained earnings 13,274,487 11,981,683
Net unrealized losses on investment
securities available for sale (40,259) (133,400)
Treasury stock at cost (54,200 shares) (813,000) (813,000)
Total shareholders' equity 18,715,461 17,329,516
Total liabilities and
shareholders' equity $ 190,404,381 $ 184,362,094
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1997 1996 1995
Interest Income
Loans and fees on loans $ 11,599,189 $ 10,317,553 $ 9,733,879
Investment securities:
Taxable 2,386,565 2,964,496 2,415,217
Tax exempt 411,263 511,312 876,999
Federal funds sold 130,745 291,114 534,109
Total interest income 14,527,762 14,084,475 13,560,204
Interest Expense
Deposits 7,475,407 7,468,253 7,625,144
Short-term borrowings 156,431 62,977 0
Total interest expense 7,631,838 7,531,230 7,625,144
Net Interest Income 6,895,924 6,553,245 5,935,060
Provision for loan losses 400,000 290,000 314,000
Net Interest Income After
Provision for Loan Losses 6,495,924 6,263,245 5,621,060
Non-Interest Income
Trust Department Income 816,328 747,664 680,484
Service charges on deposit
accounts 505,042 364,836 311,005
Insurance and claims processing 177,219 176,899 329,753
Other operating income 254,815 270,673 176,516
Realized security gains (losses) 5,406 45,545 11,821
Total non-interest income 1,758,810 1,605,617 1,509,579
Non-Interest Expense
Salaries and employee
benefits 3,294,708 3,235,503 2,965,692
Premises and equipment
expense 1,095,822 1,070,491 1,009,573
Deposit insurance expense 20,367 2,000 194,564
Other operating expenses 1,226,701 1,249,907 1,298,115
Total non-interest expenses 5,637,598 5,557,901 5,467,944
Income Before Income Taxes 2,617,136 2,310,961 1,662,695
Income taxes 921,600 650,000 450,000
Net Income $ 1,695,536 $ 1,660,961 $ 1,212,695
PER SHARE
Net Income $ 2.27 $ 2.23 $ 1.63
Cash Dividends $ .54 $ .48 $ .46
Average Shares Outstanding 745,800 745,800 745,800
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized Total
Common Capital Retained Gains Treasury Shareholders'
Stock Surplus Earnings (Losses) Stock Equity
BALANCE
JAN 1, 1995 $ 200,000 $6,094,233 $ 9,805,351 $(1,252,563)$(813,000)$14,034,021
Net income, 1995 1,212,695 1,212,695
Cash dividends (343,068) (343,068)
Net unrealized gains
on securities
available for sale 1,468,479 1,468,479
BALANCE
DEC 31, 1995 200,000 6,094,233 10,674,978 215,916 (813,000) 16,372,127
Net income, 1996 1,660,961 1,660,961
Cash dividends (354,256) (354,256)
Net unrealized losses
on securities
available for sale (349,316) (349,316)
BALANCE
DEC 31, 1996 200,000 6,094,233 11,981,683 (133,400) (813,000) 17,329,516
Net income, 1997 1,695,536 1,695,536
Cash dividends (402,732) (402,732)
Net unrealized gains
on securities
available for sale 93,141 93,141
BALANCE
DEC 31, 1997 $200,000 $6,094,233 $13,274,487 $ (40,259)$(813,000)$18,715,461
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31
1997 1996 1995
Operating Activities:
Net income $ 1,695,536 $ 1,660,961 $1,212,695
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 400,000 290,000 314,000
Depreciation 416,270 448,897 440,783
Investment securities amortization 18,927 4,872 39,902
Investment securities (gains) losses (5,406) (45,545) (11,821)
Gain on sale of building and equipment (19,700) 0 0
Deferred income taxes 2,716 36,002 56,371
(Increase) decrease in interest
receivable and other assets 115,331 611,800 (176,933)
Increase in interest payable
and other liabilities 186,180 20,572 252,020
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,809,854 3,027,559 2,127,017
Investing Activities:
Proceeds from sales and maturities
of investment securities available
for sale 15,743,865 13,622,651 18,515,148
Purchases of investment securities
available for sale (3,700,315) (7,196,798) (19,982,410)
Purchases of investment securities
held to maturity (10,900) (567,400) 0
Proceeds from the sale of buildings
and equipment 68,653 0 0
Proceeds from the sale of loans 2,670,447 112,771 0
Proceeds from the sale of
other real estate 68,950 242,520 166,093
Net increase in loans (20,757,523) (10,783,700) (6,219,464)
Additions to buildings and equipment (457,862) (412,342) (315,909)
NET CASH PROVIDED(USED) BY
INVESTING ACTIVITIES (6,374,685) (4,982,298) (7,836,542)
Financing Activities:
Net increase (decrease) in deposits 14,276,354 (20,169,527) 3,651,251
Net increase (decrease) in federal funds
purchased (8,870,000) 8,870,000 0
Net increase (decrease) in short-term
borrowings (1,000,000) 5,000,000 0
Cash dividends (402,732) (354,256) (343,068)
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 4,003,622 (6,653,783) 3,308,183
INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS 438,791 (8,608,522) (2,401,342)
Cash and cash equivalents beginning
of year 5,029,136 13,637,658 16,039,000
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 5,467,927 $ 5,029,136 13,637,658
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for
income taxes $ 865,260 $ 489,827 $ 335,379
Cash paid during the year for
interest $ 7,557,568 $ 7,646,554 $ 7,493,679
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of SVB&T Corporation and Subsidiary (the
Bank) are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. The more significant
of the principles used in preparing the financial statements are briefly
described below.
Principles of Consolidation
The consolidated financial statements include the accounts of SVB&T Corporation
and its wholly owned subsidiary, Springs Valley Bank & Trust Company. All
significant intercompany balances and transactions have been eliminated.
Nature of Operations
SVB&T Corporation operates under a charter from the State of Indiana and
provides full banking services, including trust services. As a state bank,
SVB&T Corporation is subject to regulation by the Department of Financial
Institutions of the State of Indiana and the Federal Deposit Insurance
Corporation. The area served by the Bank is primarily Orange, Clark, Dubois
and the surrounding counties in Southern Indiana.
Estimates
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 reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash, due from banks and federal funds sold.
Generally, federal funds are sold for one day periods.
Investment Securities Available for Sale
The Bank buys investment debt securities with the intent and ability to hold
these securities to maturity. However, management has determined that all debt
securities would be available for sale in response to certain situations, such
as changes in interest rates and prepayment risk, need for liquidity, changes
in availability and yield on alternative investments, and changes in funding
sources and terms. At December 31, 1997 and 1996, debt securities are reported
at estimated market values in the statement of financial condition. Unrealized
holding gains and losses are excluded from earnings and are reported as a net
amount in a separate component of shareholders' equity. Accreted discounts and
amortized premiums are included in earnings using the straight line method.
Gains or losses on dispositions are computed using the specific identification
method.
Investment Securities Held to Maturity
The Bank owns stock in the Federal Home Loan Bank of Indianapolis. This stock
is classified as held to maturity and is carried at cost.
Loans
Interest income on commercial loans, simple interest installment loans and real
estate mortgage loans is recognized based on the outstanding principal balances
at the stated rates. Real estate mortgage loan origination fees and costs are
amortized over the life of the loan. Interest income for add-on installment
loans is recognized by the rule of 78 method which approximates the interest
method. Accrual of interest income on loans and impaired loans is
discontinued when payments have become delinquent for 90 days. Upon
non-accrual status, all accrued interest receivable on a loan is written off.
Any subsequent payments are applied to interest until all interest due is
totally paid. Any remaining amounts are applied to principal.
As part of its interest rate risk management, the Bank sells fixed rate
mortgage loans into the secondary market. At December 31, 1997,
approximately $1,135,000 of fixed rate mortgage loans were available for sale.
These loans are carried at cost which approximates market value.
Allowance for Loan Losses
The allowances for loan losses is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of collectibility and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions and trends that may
affect the borrowers ability to pay. The allowance is established by a
provision for loan losses charged to expense. Loans are written off against
the allowance when management believes that the collectibility of the principal
is unlikely.
Buildings and Equipment
Buildings and equipment are stated at cost less accumulated depreciation.
Buildings are depreciated on the straight line method using lives ranging from
10 to 40 years. Equipment is depreciated on the straight line method using
lives ranging from 5 to 10 years.
Other Real Estate
Real estate acquired in foreclosures is carried at the lower of the outstanding
loan balance plus accrued interest or fair value of the property. Amounts
necessary to write loans down to fair value are charged to the allowance for
loan losses.
Income Tax
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes,
related primarily to differences between the basis of available-for-sale
investment securities, allowance for loan losses, accumulated depreciation and
loan origination fees. The deferred tax asset or liability represents the
future tax return consequences of those differences. SVB&T Corporation and
Springs Valley Bank & Trust file consolidated income tax returns.
Net Income Per Share
Net income per share of common stock is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period.
Trust Fees
Trust fees are recorded on the accrual basis.
Stock Split
A two for one stock split was declared on July 15, 1997 and distributed on
August 11, 1997. All per share amounts have been adjusted to retroactively
reflect this stock split.
Reclassifications
Certain amounts from 1996 and 1995 have been reclassified to conform to the
1997 presentation. These reclassifications had no effect on net income.
NOTE 2 EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective in 1997, the Bank adopted FASB Statement No. 128, "Earnings Per
Share". The adoption of this accounting standard did not have a material effect
on the Bank's financial condition or results of operations.
NOTE 3 RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain average funds in cash and on deposit with the
Federal Reserve Bank. The average balance required at December 31, 1997 was
$850,000.
Note 4 INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, 1997 and 1996 were as follows:
December 31, 1997
Unrealized Unrealized Estimated
Securities Available Amortized Holding Holding Market
for Sale Cost Gains Losses Value
U.S. Treasury securities $ 0 $ 0 $ 0 $ 0
U.S. Government
corporations and agencies 28,516,075 42,947 (164,177) 28,394,845
States and political
subdivisions 8,796,372 75,973 (35,734) 8,836,611
Mortgage-backed securities 296,639 14,327 0 310,966
Other securities 500,000 0 0 500,000
Total $38,109,086 $ 133,247 $ (199,911) $38,042,422
Unrealized Unrealized Estimated
Securities Held to Amortized Holding Holding Market
Maturity Cost Gains Losses Value
Equity securities $ 578,300 0 0 $ 578,300
December 31, 1996
Unrealized Unrealized Estimated
Securities Available for Amortized Holding Holding Market
Sale Cost Gains Losses Value
U.S. Treasury securities $ 0 $ 0 $ 0 $ 0
U.S. Government
corporations and
agencies 39,692,610 137,368 (361,652) 39,468,326
States and political
subdivisions 9,624,092 74,756 (88,575) 9,610,273
Mortgage-backed securities 349,456 17,205 0 366,661
Other securities 500,000 0 0 500,000
Total $50,166,158 229,329 $ (450,227) $ 49,945,260
Unrealized Unrealized Estimated
Securities Held to Amortized Holding Holding Market
Maturity Cost Gains Losses Value
Equity securities $ 567,400 0 0 $ 567,400
The amortized cost and estimated market values of investment securities at
December 31, 1997 and 1996 by contractual maturity follows. Expected
maturities may differ from contractual maturities because some borrowers have
the right to call or prepay certain obligations with or without call or
prepayment penalties.
1997 1996
Estimated Estimated
Amortized Market Amortized Market
Securities Available Cost Value Cost Value
For sale
Due in one year or less $ 13,651,674 $ 13,620,814 $ 4,839,718 $ 4,890,010
Due after one year but
within five years 12,033,011 11,998,228 24,215,609 24,046,886
Due after five years but
within ten years 9,458,468 9,416,124 17,538,998 17,438,739
Due after ten years 2,669,294 2,696,290 3,222,377 3,202,964
37,812,447 37,731,456 49,816,702 49,578,599
Mortgage-backed securities 296,639 310,966 349,456 366,661
Total $ 38,109,086 $ 38,042,422 $ 50,166,158 $49,945,260
Securities with amortized cost of $3,998,748 at December 31, 1997 and
$9,002,545 at December 31, 1996 were pledged as collateral on public and other
deposits held by the Bank.
Proceeds from sales of investment securities during 1997, 1996 and 1995 were
$3,986,890, $3,665,048 and $5,891,496. In 1997, gains of $6,834 and losses of
$1,428 were realized. In 1996, gains of $45,545 and losses of $-0- were
realized. In 1995, gains of $68,095 and losses of $56,274 were realized.
NOTE 5 LOANS
Loans at December 31, 1997 and 1996 are comprised of the following:
1997 1996
Commercial and industrial loans $ 17,636,115 $ 15,133,405
Real estate loans (including $1,087,000
and $1,429,000 secured by farm land) 79,490,736 67,859,219
Construction loans 1,322,533 64,737
Agricultural production financing and
other loans to farmers 1,085,795 1,094,039
Individuals' loans for household and
other personal expenditures 40,858,655 38,451,555
Economic development revenue bonds 0 23,909
Lease financing 437,150 538,007
140,830,984 123,164,871
Less: Unearned income on loans 226,664 305,082
Total loans $140,604,320 $122,859,789
At December 31, 1997 and 1996, the Bank had loans of $1,938,666 and $1,204,908
that were specifically classified as impaired. The average balance of these
loans during 1997 and 1996 was $1,996,569 and $1,121,300. The allowance for
loan losses contained specifically allocated amounts for these loans at
December 31, 1997 and 1996 of $569,490 and $218,000. The following is a
summary of cash receipts on the loans and how they were applied in 1997 and
1996.
1997 1996
Cash receipts applied to principal $ 100,939 $ 225,003
Cash receipts recognized as interest income 108,594 89,200
Total cash received $ 209,533 $ 314,203
NOTE 6 ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the years 1997, 1996 and 1995
are as follows:
1997 1996 1995
Balance, January 1 $ 1,329,295 $ 1,348,927 $ 1,322,163
Loans charged-off (433,234) (386,143) (363,159)
Recoveries 106,439 76,511 75,923
Net charged-off (326,795) (309,632) (287,236)
Provision for loan losses 400,000 290,000 314,000
Balance, December 31 $ 1,402,500 $ 1,329,295 $ 1,348,927
NOTE 7 BUILDINGS AND EQUIPMENT
Balances in the Bank premises, equipment, and related accumulated depreciation
accounts at December 31, 1997 and 1996 are as follows:
1997 1996
Land and Bank buildings $ 4,908,971 $ 4,978,822
Equipment, furniture and fixtures 5,159,371 4,861,398
Totals 10,068,342 9,840,220
Less accumulated depreciation 5,035,118 4,799,635
Net $ 5,033,224 $ 5,040,585
Depreciation expense was $416,270 for 1997, $448,897 for 1996 and $440,783 for
1995.
NOTE 8 DEPOSITS
Deposits at December 31, 1997 and 1996 are as follows:
1997 1996
Demand, non-interest bearing $ 13,292,875 $ 12,554,733
Demand, interest-bearing 12,739,696 14,110,658
Savings 59,265,970 51,630,185
Time deposits, $100,000 and over 32,940,981 29,584,642
Other time deposits 47,631,881 43,714,831
Total deposits $165,871,403 $151,595,049
As of December 31, 1997, the scheduled maturities of time deposits are as
follows:
1998 $ 55,779,949
1999 16,320,421
2000 5,576,170
2001 1,334,252
2002 and thereafter 1,562,070
$ 80,572,862
NOTE 9 OTHER SHORT-TERM BORROWINGS
Other short-term borrowings at December 31, 1997 and 1996 are as follows:
1997 1996
Federal Home Loan Bank advance,
due January 20, 1998,5.7% fixed,
collateralized by a blanket collateral
agreement on qualified mortgage
loans and securities $ 4,000,000 $ 5,000,000
NOTE 10 EMPLOYEE BENEFIT PLANS
The Bank has a trusteed, defined contribution, profit-sharing plan, which
covers substantially all employees. Contributions to the plan are based on a
percentage of eligible employees' yearly compensation and are subject to the
discretion of the Board of Directors. The Bank's expense for the years ended
December 31, 1997, 1996 and 1995 was $136,527, $140,143 and $115,920.
The Bank also has an employee benefit plan which includes a self-insured
medical plan, a wholly insured term life insurance plan and a long-term
disability plan, which covers most employees. The self-insured medical plan
carries an insurance override to protect the Bank against major increases in
claims. The Bank's contributions to the plan for the years ended December 31,
1997, 1996, and 1995 were $245,401 and $267,270 and $187,759.
Note 11 INCOME TAXES
The components of the provision for income taxes are:
1997 1996 1995
Federal income taxes currently payable $ 689,531 $ 412,740 $252,059
Deferred Federal income taxes 2,069 28,360 43,941
Provision for federal income taxes
for the year 691,600 441,100 296,000
State income taxes currently payable 229,353 201,258 141,570
Deferred state income taxes 647 7,642 12,430
Provision for state income taxes for
the year $ 230,000 $ 208,900 $ 154,000
Deferred income taxes in the statement of financial condition are carried as a
net amount. The deferred tax assets and deffered tax liabilities that are
combined to arrive at the net carrying amounts at December 31, 1997 and 1996
are as follows:
Deferred Tax Assets: 1997 1996
Allowance for loan losses $ 446,310 $ 412,495
Unrealized losses on securities
available for sale 26,406 87,498
Loan fees 52,218 43,394
Total asset 524,934 543,387
Deferred Tax Liabilities:
Depreciation (830,066) (784,711)
Net deferred tax (liability) $ (305,132) $ (241,324)
The difference between the Federal income tax rate and the Bank's effective tax
rate is as follows:
1997 1996
Income tax at federal tax rate of 34% $ 889,826 $ 785,727
Tax effect of:
Tax exempt interest (120,465) (148,402)
Alternative minimum tax, (tax credit) 0 (126,120)
Other 540 808
State income taxes, net of federal effect 151,699 137,987
Total income taxes $ 921,600 $ 650,000
Effective tax rate 35.21% 28.1%
NOTE 12 RELATED PARTY TRANSACTIONS
Officers and directors of Kimball International, Inc. of Jasper, Indiana, and
Kimball International, Inc. Retirement Trust own in excess of 50% of the
outstanding capital stock of SVB&T Corporation. The Bank is the principal
depository for Kimball International, Inc. and is also the trustee for the
Kimball International Retirement Trust. Amounts on deposit with the Bank by
Kimball International, Kimball International Retirement Plan and Employee
Benefit Plan were $8,894,855 at December 31, 1997 and $13,547,958 at December
31,1996.
The Bank serves as Trustee for Kimball International's retirement and employee
benefit plans and rents office space to Kimball. During 1995 the Bank also
processed insurance claims for Kimball's employee benefit plan. Fees paid to
the Bank for these services by Kimball International in 1997, 1996 and 1995
were $658,000, $578,000 and $669,000. Amounts receivable from Kimball
International for these services were $-0- at December 31, 1997, $168,950 at
December 31,1996 and $521,000 at December 31, 1995.
In the ordinary course of business, the Bank makes loans to executive officers,
directors, principal shareholders, their related companies and family members.
These loans are made on substantially the same terms as those with unrelated
parties and do not involve unusual risks of collectability. Total loans to
executive officers, directors and principal shareholders for 1997 were as
follows:
Balance, January 1, 1997 $1,868,809
New loans 591,122
Repayment (164,185)
Changes in persons included (158,187)
Balance, December 31, 1997 $2,137,559
Note 13 LEASE AND COMMITMENTS
Minimum lease payments at December 31, 1997, under operating lease commitments,
total $9,856 and are due as follows: $9,856 in 1998; and $0 thereafter.
Operating expenses include rental expense of $30,856 in 1997, $40,366 in 1996
and $38,058 in 1995.
Note 14 COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is party to financial transactions involving off-balance-sheet risk in
the normal course of business. These financial transactions include
commitments to extend credit and standby letters of credit. These transactions
involve, to varying degrees, elements of credit risk in excess of the amounts
recognized in the statement of condition. The contract amounts of these
transactions reflect the extent of involvement the Corporation has in the
particular financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies when entering into these off-balance-sheet transactions as
it does for on-balance-sheet transactions.
Financial transactions with off-balance-sheet credit risk at December 31, 1997
and 1996 were as follows:
1997 1996
Commitments to extend credit $ 9,700,719 $11,830,600
Standby letters of credit $ 730,600 $ 370,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of conditions established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension
of credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Letters of credit
are primarily issued to support private borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
The Bank is subject to claims and lawsuits which arise in the ordinary course
of business. Based on information presently available and advice received from
legal counsel representing the Bank in connection with such claims and
lawsuits, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits will not have a material adverse
effect on the consolidated financial position of the Company.
NOTE 15 REGULATORY MATTERS
SVB&T Corporation's principal source of funds for dividends is Springs Valley
Bank & Trust Company, its wholly owned subsidiary. The amount of dividends
that the Bank may pay SVB&T Corporation without regulatory approval is limited
by state law to defined net income for 1997, 1996 and 1995 less any dividends
paid in those years. In addition, Federal regulations require the Bank to
maintain certain capital levels based on risk-weighted assets. At December 31,
1997, approximately $3,221,000 of the Bank's retained earnings were available
for dividend payments to the SVB&T Corporation.
Required capital ratios and the Bank's capital ratios at December 31, 1997 are
as follows:
Required Bank's Ratio
Tier 1 capital ratio 4.0% 14.1%
Risk based capital ratio 8.0% 15.2%
Leverage ratio 3.0 to 5.0% 9.3%
Based on regulatory guidelines, the Bank is classified as well capitalized at
December 31, 1997. This is the highest classification of capital adequacy for
financial institutions.
NOTE 16 CONCENTRATIONS OF CREDIT
At December 31, 1997 the total amount of due from banks included $402,306, with
Dubois County Bank and $921,191 with PNC Bank, Kentucky, which is in excess of
the Federal Deposit Insurance Corporation's insured limit of $100,000 per
institution.
The majority of investments in state and municipal securities involve
governmental entities in the State of Indiana.
A majority of the Bank's loans, commitments and letters of credit have been
granted to customers in the Bank's market area of Clark, Orange, Dubois and
surrounding counties in Southern Indiana. The concentrations of credit by type
of loan are set forth in Note 5. Although the Bank has a diversified loan
portfolio, a substantial portion of its customers' ability to honor their loan
contracts is dependent on the strength of the manufacturing economic sectors in
this geographic area.
NOTE 17 FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values of financial instruments at December
31, 1997 and 1996 are as follows:
1997 1996
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
ASSETS
Cash and cash equivalents $ 5,467,927 $ 5,467,927 $ 5,029,136 $ 5,029,136
Investment securities 38,620,722 38,620,722 50,512,660 50,512,660
Loans 139,201,820 140,861,000 121,530,494 122,643,806
Interest receivable 1,319,476 1,319,476 1,357,380 1,357,380
LIABILITIES
Deposits $165,871,403 $166,646,000 $151,595,049 $152,017,861
Federal funds purchased 0 0 8,870,000 8,870,000
Other borrowed funds 4,000,000 4,000,000 5,000,000 5,000,000
Interest Payable 824,298 824,298 750,028 750,028
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
Cash and Cash Equivalents
The carrying amounts reported in the consolidated statements of financial
condition for cash and federal funds sold is a reasonable estimate of their
fair value.
Investment Securities
Fair values for investment securities are based on quoted market prices.
Loans
For variable rate loans and short-term fixed rate loans that adjust rates
frequently, fair values are based on the carrying value of those loans. For
long-term fixed rate loans, the fair values are estimated by discounting future
cash flows using current interest rates at which similar loans would be made to
borrowers of similar credit quality. For other financial instruments
classified as loans (bankers acceptances, economic development revenue bonds,
and securities purchased under reverse repurchase agreements), fair values are
based on the carrying value of those instruments. Anticipated future loan
losses have been deducted.
NOTE 17 FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Interest Receivable
The carrying amount of accrued interest receivable is a reasonable estimate of
its fair value.
Deposit Liabilities
The carrying values of demand deposit, NOW, savings and money market savings
accounts are equal to the amount payable on demand at the reporting date and
as such are the fair value. For variable rate time deposits (IRA deposits)
which reprice quarterly, fair values are based on the carrying value of the
accounts. The fair value of fixed rate certificates of deposit is estimated by
discounting the future cash flows using the current rates offered for deposits
of similar remaining maturities.
Federal Funds Purchased and Other Short-Term Borrowing
The carrying amounts of federal funds purchased and other short-term borrowings
are reasonable estimates of their fair values.
Interest Payable
The carrying amount of accrued interest payable is a reasonable estimate of its
fair value.
NOTE 18 PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are the condensed, parent company only, financial statements of
SVB&T Corporation:
December 31
Condensed Balance Sheet 1997 1996
ASSETS
Cash in bank with subsidiary $ 93,856 $ 22,625
Investment in subsidiary 17,753,928 16,508,258
Buildings and equipment 1,873,910 1,940,748
Other assets 106,500 80,940
Total assets $ 19,828,194 $ 18,552,571
LIABILITIES
Accrued Expenses $ 77,633 $ 61,821
Dividends payable 111,870 89,496
Long-term debt with subsidiary 652,067 821,537
Deferred income taxes 271,163 250,201
Total liabilities 1,112,733 1,223,055
.
SHAREHOLDERS' EQUITY
Common stock $ 200,000 $ 200,000
Surplus 6,094,233 6,094,233
Retained Earnings 13,274,487 11,981,683
Net unrealized gains (losses)
on investment securities
available for sale (40,259) (133,400)
Treasury stock (813,000) (813,000)
Total shareholders' equity 18,715,461 17,329,516
Total liabilities and shareholders'equity$19,828,194 $ 18,552,571
Long-term debt with subsidiary consisted of:
1997 1996
Mortgage payable to Springs Valley Bank & Trust
Company, Jasper, Indiana (the wholly owned
subsidiary of SVB&T Corporation), variable
interest rate, 8.50% at December 31, 1997
payable in monthly installments through 2000,
secured by branch bank building in Jasper, Indiana $ 652,067 $ 821,537
The scheduled principal reduction of long-term debt at December 31, 1997 is as
follows:
1998 $216,287, 1999 $218,812, 2000 $216,968 and thereafter $-0-.
Years Ended December 31
Condensed Statement of Income 1997 1996 1995
INCOME
Dividends from subsidiary $ 475,700 $ 380,560 $ 364,940
Rent from subsidiary 300,000 300,000 300,000
Total income 775,700 680,560 664,940
EXPENSE
Depreciation 66,834 100,027 110,855
Interest on long-term debt 61,535 76,143 94,842
Other expenses 58,223 63,580 54,287
Total expense 186,592 239,750 259,984
Income before income taxes and
equity in undistributed earnings
of subsidiary 589,108 440,810 404,956
Income tax expense 46,100 20,800 19,300
Income before equity in undistributed
earnings of subsidiary 543,008 420,010 385,656
Equity in undistributed earnings
of subsidiary 1,152,528 1,240,951 827,039
Net income $ 1,695,536 $1,660,961 $1,212,695
Years Ended December 31
Condensed Statement of Cash Flows 1997 1996 1995
Operating Activities:
Net income $ 1,695,536 $ 1,660,961 $1,212,695
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 66,834 100,027 110,855
Undistributed net income of
subsidiary (1,152,528) (1,240,951) (827,039)
Deferred income taxes 20,962 10,718 8,160
(Increase) decrease in other assets (25,560) (17,040) 14,200
(Increase) decrease in accrued expenses
and dividends payable 38,189 4,404 (659)
Net cash provided by operating
activities 643,433 518,119 518,212
Investing Activities:
Additions to buildings and equipment 0 0 (18,535)
Net cash used by investing activities 0 0 (18,535)
Financing Activities:
Dividends paid (402,732) (354,256) (343,068)
Principal payment on long-term debt (169,470) (170,371) (154,568)
Net cash used by financing activities (572,202) (524,627) (497,636)
Increase (decrease) in cash and cash
equivalents 71,231 (6,508) 2,041
Cash and cash equivalents beginning of
year 22,625 29,133 27,092
Cash and cash equivalents end of year $ 93,856 $ 22,625 $29,133
SUMMARIZED FINANCIAL DATA
(Dollars in thousands, except per share)
1997 1996 1995 1994 1993
EARNINGS FOR THE YEAR
Net interest income $ 6,896 $ 6,553 $ 5,935 $ 6,324 $ 6,684
Provision for loan losses 400 290 314 410 715
Non-interest income 1,759 1,606 1,510 1,596 1,684
Non-interest expenses 5,638 5,558 5,468 5,666 5,539
Net income 1,696 1,661 1,213 1,374 1,570
PER SHARE*
Shares outstanding 745,800 745,800 745,800 745,800 745,800
Net income 2.27 2.23 1.63 1.85 2.11
Cash dividends paid 0.54 0.48 0.46 0.44 0.42
Book value 25.09 23.24 21.95 18.82 19.92
FINANCIAL CONDITION AT YEAR END
LOANS
Real estate 79,491 67,859 64,585 67,844 62,434
Consumer 40,859 38,452 35,341 32,279 34,951
All other 20,254 16,548 12,573 6,443 7,447
Allowance for loan losses (1,403) (1,329) (1,349) (1,322 ) (1,304)
Net loans 139,201 121,530 111,150 105,244 103,528
INVESTMENTS AND FUNDS SOLD
U.S. and Agency 28,395 39,468 43,274 30,480 34,869
Municipal 8,837 9,610 13,635 21,629 23,113
Federal funds and other 1,710 867 9,550 12,656 12,872
Total investments and funds
sold 38,942 49,945 66,459 64,765 70,854
TOTAL ASSETS 190,404 184,362 189,877 183,201 185,929
DEPOSITS
Demand deposits 26,032 26,665 26,431 28,503 27,785
Certificates and IRAs 80,573 73,300 99,101 91,770 88,804
Savings and club 59,266 51,630 46,233 47,840 51,504
Total deposits 165,871 151,595 171,765 168,113 168,093
SHAREHOLDERS' EQUITY $ 18,716 $ 17,330 $ 16,372 $ 14,034 $ 14,851
*A Two-for-One Stock Split was declared on July 15, 1997 and distributed on
August 11, 1997.
All per share amounts have been adjusted to retroactively reflect this stock
split.
To the Shareholders and Board of Directors
SVB&T Corporation and Subsidiary
French Lick, Indiana
We have audited the accompanying consolidated statements of financial condition
of SVB&T Corporation and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 consolidated financial position of SVB&T
Corporation and Subsidiary at December 31, 1997 and 1996, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
NONTE & COMPANY LLC
Certified Public Accountants
Jasper, Indiana
February 3, 1998
"Upon written request, SVB&T Corporation will provide financial data as
reported on Securities and Exchange Commission Form 10K. Written requests are
to be addressed to David Rees, Sr. Vice President, Cashier and CFO, SVB&T
Corporation, P.O. Box 191, French Lick, IN 47432."
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Year Ended December 31,
1997 1996 1995
Primary
Weighted average shares
outstanding $ 745,800 $ 745,800 $ 745,800
Net Income 1,695,536 1,660,961 1,212,695
Net income per common share $ 2.27 $ 2.23 $ 1.63
SVB&T Corporation has no common stock equivalents
Exhibit 21 - Subsidiaries of the Registrant
State of
Subsidiary Incorporation
Springs Valley Bank & Trust Company Indiana
Exhibit 23 - Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SVB&T Corporation of our report dated February 3, 1998, included in the
1997 Annual Report to Shareholders of SVB&T Corporation.
NONTE & COMPANY LLC
Certified Public Accountant
Jasper, Indiana
March 25, 1998
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