UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCAHNGE ACT 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11132
FIRST BANKING CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391327
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
400 Milwaukee Ave., Burlington, WI 53105
(Address of principal executive offices) (Zip Code)
(262) 763-3581
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 3, 2001. Common stock, $1.00 par value, 1,470,793
shares outstanding.
FIRST BANKING CENTER, INC AND SUBSIDIARY
INDEX
June 30, 2001
Part I Financial Information
Item 1 Consolidated Financial Statements
Unaudited Consolidated Balance Sheets,
June 30, 2001 and December 31, 2000
Unaudited Consolidated Statements of Income, For the
three months ended June 30, 2001 and 2000
Unaudited Consolidated Statements of Cash Flows, For
the three months ended June 30, 2001 and 2000
Notes to Unaudited Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Part II Other Information
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
FIRST BANKING CENTER, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 2001 2000
-----------------------------
(In thousands)
Cash and due from banks $12,742 $29,287
Federal funds sold 8,129 0
Interest-bearing deposits in banks 673 696
Available for sale securities 47,386 65,189
Loans, less allowance for loan losses of $4,003 and
$3,927 in 2001 and 2000, respectively 339,532 316,641
Office buildings and equipment, net 10,180 9,825
Other assets 10,301 9,220
-----------------------------
TOTAL ASSETS $428,943 $430,858
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand $52,417 $59,602
Savings and NOW accounts 154,338 150,438
Time 125,513 124,900
-----------------------------
Total Deposits 332,268 334,940
Securities sold under agreements to repurchase
and federal funds purchased 16,446 17,299
Short-term borrowings 15,640 26,168
Long-term borrowings 19,526 9,876
Other liabilities 4,754 4,627
-----------------------------
TOTAL LIABILITIES $388,634 $392,910
-----------------------------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 par value 3,000,000 shares authorized; 1,489,380 shares
issued as of June 30, 2001 and
December 31, 2000, respectively 1,489 1,489
Surplus 4,177 4,178
Retained Earnings 34,650 32,525
-----------------------------
40,316 38,192
Common stock in treasury, at cost-18,587 and 12,358 shares
for June 30, 2001 and December 31, 2000, respectively ($680) ($452)
Accumulated other comprehensive income 673 208
-----------------------------
TOTAL STOCKHOLDERS' EQUITY $40,309 $37,948
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $428,943 $430,858
=============================
"See accompanying notes to financial statements"
FIRST BANKING CENTER, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
----------------------------------------------------------
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans $7,443 $6,804 $14,820 $13,215
Interest and dividends on securities
Taxable 303 493 717 1,004
Non-taxable 348 332 674 653
Interest on federal funds sold 81 16 160 56
Interest on interest-bearing deposits in banks 60 0 71 1
----------------------------------------------------------
TOTAL INTEREST INCOME 8,235 7,645 16,442 14,929
----------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 3,040 2,982 6,330 5,779
Interest on securities sold under agreements to repurchase
and federal funds purchased 183 237 476 498
Interest on other borrowings 445 422 819 814
----------------------------------------------------------
TOTAL INTEREST EXPENSE 3,668 3,641 7,625 7,091
----------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 4,567 4,004 8,817 7,838
Provision for loan losses 90 90 180 180
----------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,477 3,914 8,637 7,658
----------------------------------------------------------
NON-INTEREST INCOME
Trust 137 125 275 225
Service charges on deposit accounts 398 334 719 647
Investment securities gains (losses) 0 0 0 (5)
Other income 289 372 586 654
----------------------------------------------------------
TOTAL NON-INTEREST INCOME 824 831 1,580 1,521
----------------------------------------------------------
NON-INTEREST EXPENSE
Salary and employee benefits 1,870 1,691 3,723 3,347
Occupancy 222 222 473 440
Equipment 345 372 673 689
Data Processing services 191 154 383 308
Goodwill amortization 26 25 51 51
Other 726 642 1,383 1,247
----------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 3,380 3,106 6,686 6,082
----------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,921 1,639 3,531 3,097
Income taxes 501 462 906 847
----------------------------------------------------------
NET INCOME $1,420 $1,177 $2,625 $2,250
==========================================================
Basic earnings per share $0.96 $0.79 $1.78 $1.52
Diluted earnings per share $0.96 $0.79 $1.77 $1.51
Dividends per share $0.34 $0.32 $0.34 $0.32
"See accompanying notes to financial statements"
FIRST BANKING CENTER, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
2001 2000
---------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,625 $2,250
Depreciation 411 434
Provision for loan losses 180 180
Loans originated for sale (52,080) (16,281)
Proceeds from sale of loans 50,126 18,095
Gain on sale of loans 0 (9)
Gain on disposal of office building and equipment 0 104
Amortization of premiums and accretion of discounts
on securities, net 23 28
Amortization 51 52
Loss on sale of investment securities 0 5
Decrease in other assets (1,372) (111)
Decrease in accrued expenses and other liabilities 127 216
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 91 4,963
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest-bearing deposits in banks 23 9
Net (increase) decrease in federal funds sold (8,129) 4,242
Activity in available for sale securities:
Proceeds from sales of available for sale securities 2,786 8,669
Proceeds from maturities of available for sale securities 61,116 8,471
Purchase of available for sale securities (45,417) (20,058)
Net increase in loans (21,117) (14,377)
Purchase of office buildings and equipment, net (766) (672)
---------------------------
NET CASH USED IN INVESTING ACTIVITIES (11,504) (13,716)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (2,672) 4,573
Dividends paid (500) (474)
Proceeds from other borrowings 10,000 2,000
Payments on other borrowings (10,878) (206)
Net decrease in securities sold under agreements
to repurchase and federal funds purchased (853) (2,667)
Purchase of treasury stock (231) (34)
Proceeds from reissuance of treasury stock under
stock option plan 2 38
---------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,132) 3,230
---------------------------
Net decrease in Cash and Due From Banks (16,545) (5,523)
Cash and Due From Banks-Beginning of Period 29,287 19,123
---------------------------
---------------------------
Cash and Due From Banks-End of Period $12,742 $13,600
===========================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $7,839 $7,117
Income taxes $1,060 $500
Supplemental schedule of non-cash investing and financing activities:
Net change in unrealized gain on available for sale securities $465 $11
"See accompanying notes to financial statements"
FIRST BANKING CENTER, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30,2001
NOTE 1 - Basis of Presentation
The unaudited consolidated financial statements include the accounts of First
Banking Center, Inc. and its subsidiary (the "Company"). In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operation and cash flows for the interim periods have been made. The results of
operations for the three and six months ended June 30, 2001 are not necessarily
indicative of the results to be expected for the entire fiscal year.
The unaudited interim financial statements have been prepared in conformity with
generally accepted accounting principles and industry practice. Certain
information in footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles and
industry practice has been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's December 31, 2000 audited
financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements, as
well as the reported amounts of income and expenses during the reported periods.
Actual results could differ from those estimates.
NOTE 2 - Earnings Per Share
The following information calculates the computation of earnings per share on a
basic and diluted basis.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------------------------------------------------------------
(In thousands, except per share data)
Basic
Net income $1,420 $1,177 $2,625 $2,250
Weighted average shares outstanding 1,471 1,480 1,471 1,480
Basic earnings per share $0.96 $0.79 $1.78 $1.52
====================================================================
Diluted
Net income $1,420 $1,177 $2,625 $2,250
Weighted average shares outstanding 1,471 1,480 1,471 1,480
Effect of dilutive stock options outstanding 16 12 16 12
--------------------------------------------------------------------
Diluted weighted average shares outstanding 1,487 1,492 1,487 1,492
Diluted earnings per share $0.96 $0.79 $1.77 $1.51
====================================================================
NOTE 3-Comprehensive Income
The following table presents our comprehensive income.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-----------------------------------------------------------
(In thousands) (In thousands)
Net income $1,420 $1,177 $2,625 $2,250
Other comprehensive income
Net change in unrealized gain (loss) on available for sale securities $2 $102 $465 $11
-----------------------------------------------------------
Total comprehensive income $1,422 $1,279 $3,090 $2,261
===========================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIRST BANKING CENTER, INC AND SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of June 30, 2001
The following discussion provides additional analysis of the financial condition
and results of operations of the Company for the six months ended June 30, 2001.
This discussion focuses on the significant factors that affected the Company's
earnings so far in 2001, with comparisons to 2000. As of June 30, 2001, First
Banking Center (the "Bank") was the only direct subsidiary of the Company and
its operations contributed nearly all of the revenue for the year. The Company
provides various support functions for the Bank and receives payment from the
Bank for these services. These intercompany payments are eliminated for the
purpose of these consolidated financial statements. The Bank has two wholly
owned subsidiaries, FBC Financial Services, Corp., a brokerage and financial
services subsidiary, and FBC-Burlington, Inc., an investment subsidiary located
in Nevada.
Overview
As of June 30, 2001, total Company assets were $428.9 million decreasing .44%
from $430.9 million as of December 31, 2000. Total income, as of June 30, 2001,
was $2.6 million or $1.78 per share, increasing 16.7% from $2.3 million or $1.52
per share in 2000. The significant items resulting in the above-mentioned
results are discussed below.
Financial Condition
Loans
Loans outstanding were $343.5 million and $320.6 million on June 30, 2001 and
December 31, 2000 respectively. This represents an increase of $23.0 million or
7.2%. The following table summarizes the changes to date in the major loan
classifications.
As a % of Total Loans
June 30, December 31, Change in June 30, December 31,
2001 2000 Balance 2001 2000
-------------------------------------------- ------------------------------
-------------------------------------------- ------------------------------
(Amounts in million)
Residential Real Estate $150.2 $135.7 $14.5 43.7% 42.3%
Commercial Real Estate $86.8 $85.2 $1.6 25.3% 26.6%
Construction and Land Development $38.5 $42.2 ($3.7) 11.2% 13.2%
Commercial $30.1 $26.2 $3.9 8.8% 8.2%
Allowance for Loan Losses
The allowance for possible loan losses was $4.0 million or 1.2% of gross loans
on June 30, 2001, compared with $3.9 million or 1.2% of gross loans on December
31, 2000. Net charge-offs were $104 thousand or .03% of gross loans, compared to
net charge-offs of $14 thousand or .004% of gross loans for December 31, 2000.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance for loan losses is adequate to cover probable credit losses relating
to specifically identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio. In accordance with FASB Statements 5 and 114,
the allowance is provided for losses that have been incurred as of the balance
sheet date. The allowance is based on past events and current economic
conditions, and does not include the effects of expected losses on specific
loans or groups of loans that are related to future events or expected changes
in economic conditions. Management reviews a calculation of the allowance for
loan losses on a quarterly basis. While management uses the best information
available to make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic conditions. Impaired
loans are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. A loan is impaired when it is probable the
creditor will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
In addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require the bank to make additions to the
allowance for loan losses based on their judgments of collectibility based on
information available to them at the time of their examination.
As of June 30, 2001, $180 thousand was charged to current earnings and added to
the allowance for loan losses.
Non-accrual, Past Due and Renegotiated Loans
June 30, December 31,
2001 2000
----------------------------------
(In thousands)
Non-accrual Loans (a) $1,416 $827
Past Due 90 days + 0 0
Restructured Loans 0 0
The policy of the Company is to place a loan on non-accrual status if: (a)
payment in full of interest and principal is not expected, or (b) principal or
interest has been in default for a period of 90 days or more unless the
obligation is both in the process of collection and well secured. Well secured
is defined as collateral with sufficient market value to repay principal and all
accrued interest. A debt is in the process of collection if collection of the
debt is proceeding in due course either through legal action, including
judgement enforcement procedures, or in appropriate circumstances, through
collection efforts not involving legal action which are reasonably expected to
result in repayment of the dept or in its restoration to current status. The
non-accrual loans consisted primarily of $789 thousand of residential real
estate loans, $377 thousand of commercial real estate, and $120 thousand of
construction and land development loans. On June 30, 2001, the ratio of
non-accrual loans to the allowance for loan losses was 35.4% compared to 21.1%
on December 31, 2000.
As of June 30, 2001, the Company had loans totaling $23,581,000 in addition to
those listed as non-accrual, past due or renegotiated that were identified by
the Banks' internal asset rating systems as classified assets and loans which
management has determined require additional monitoring. This represents an
increase of $5,669,000 or 31.6% from December 31, 2000. Management is not aware
of any significant loans, group of loans or segments of the loan portfolio not
included above, where full collectibility cannot reasonably be expected.
Management has committed resources and is focusing on efforts designed to
control the amount of classified assets. The company does not have a substantial
portion of its loans concentrated in one or a few industries nor does it have
any foreign loans outstanding as of June 30, 2001. The company's loans are
concentrated geographically in the Wisconsin counties of Racine, Walworth,
Kenosha, Lafayette and Green.
Investments securities - Available for Sale
The securities available-for-sale portfolio decreased $17.8 million or 27.3%, as
of June 30, 2001. The decrease came from four areas of the security portfolio.
Commercial paper had $2.6 million in maturities. $4.2 million of money market
mutual funds were transferred to Fed Funds. Due to regulatory reporting
purposes, $2.3 million of equity securities were transferred to other assets.
U.S. Government Agency Securities had $9.0 million in calls, due to a declining
rate environment, and $3.3 million in maturities.
Deposits and Borrowed Funds
Total deposits and borrowed funds were $383.9 million on June 30, 2001 compared
to $388.3 million on December 31, 2000. This is a decrease of $4.4 million or
1.1%. The decrease is due in part to normal seasonal decline in the collection
and distribution of tax funds by municipal customers. The following table
summarizes the changes in the major classifications of deposits and borrowed
funds.
June 30, December 31, Change in
2001 2000 Balance
-------------------------------- ------------
(Amounts in millions)
Money Market and Savings $132.9 $121.8 $11.1
Demand Deposits $52.4 $59.6 ($7.2)
Time Deposits less than $100,000 $91.2 $86.6 $4.6
Time Deposits equal or greater than $100,000 $34.3 $38.3 ($4.0)
Securities sold under agreement to repurchase $16.4 $17.3 ($0.9)
Federal Home Loan Borrowings $34.5 $35.3 ($0.9)
Capital resources
As of June 30, 2001, the Company's stockholders' equity increased $2.4 million
or 6.2%. Net income of $2.6 million was the primary reasons for the increase in
equity. The company purchased $231 thousand of treasury stock so far in 2001.
Unrealized gains on available for sale securities increased $465 thousand to
$673 thousand.
In December 1990, the Federal Reserve Board's risk-based guidelines became
effective. Under these guidelines capital is measured against the Company's
subsidiary bank's risk-weighted assets. The Company's tier 1 capital (common
stockholders' equity less goodwill) to risk-weighted assets was 11.5% at June
30, 2001, well above the 4% minimum required. Total capital to risk-adjusted
assets was 12.7%, also well above the 8% minimum requirement. The leverage ratio
was at 9.4% compared to the 4% minimum requirement. According to FDIC capital
guidelines, the Company's subsidiary bank is considered to be "well
capitalized."
Results of operations
Net Interest Income
Net interest income is the difference between interest income and fees on loans
and interest expense, and is the largest contributing factor to net income for
the Company. All discussions of rate are on a tax-equivalent basis, which
accounts for income earned on securities that are not fully subject to federal
taxes. Net interest income was $8.8 million and $7.8 million for June 30, 2001
and June 30, 2000 respectively. Net interest income as a percentage of average
earning assets (net interest margin) was 4.8% and 4.5% for the first six months
of 2001 and 2000 respectively.
The following table summarizes the changes and reasons for the changes in
interest income and fees on loans during 2001 and 2000. The increase in interest
income and fees on loans as of June 30, 2001 was due to both increased yields on
earning assets and increased average earning assets. The increase in interest
income and fees on loans as of June 30, 2000 was due primarily to increased
average earning assets.
Dollar/rate change
For the six months ended: June 30, For the six months ended: June 30,
2001 2000 2001 2000
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
(Amounts in millions)
Interest income $16.8 $15.3 $1.5 $1.8
Earning assets (Average balances) $384.3 $364.5 $19.8 $26.0
Yield on earning assets 8.77% 8.42% 0.35% 0.23%
The following table summarizes the changes and reasons for the changes in
interest expense for the six months ended June 30, 2001 and 2000. The increase
in interest expense as of June 30, 2001 was a result of average balances
outstanding increasing. The increase in interest expense as of June 30, 2000 was
due to increased rates paid for liabilities and increased average balances
outstanding.
Dollar/rate change
For the six months ended: June 30, For the six months ended: June 30,
2001 2000 2001 2000
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
(Amounts in millions)
Interest expense $7.6 $7.1 $0.5 $1.0
Interest bearing liabilities (Average balances) $320.7 $304.1 $16.7 $20.3
Cost of interest bearing liabilities 4.75% 4.66% 0.09% 0.39%
The major component of interest income and fees on loans is the income generated
by loans. The table below summarizes the income, average balance and yield on
loans for 2001 and 2000.
Dollar/rate change
For the six months ended: June 30, For the six months ended: June 30,
2001 2000 2001 2000
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
(Amounts in millions)
Interest income $14.8 $13.2 $1.6 $1.5
Loans (Average balances) $323.9 $303.9 $20.0 $34.5
Yield on loans 9.15% 8.70% 0.45% 0.04%
The major components of interest expense are interest paid on Certificates of
Deposit (Time Deposits) and on Money Market Deposits. The tables below summarize
the expense, average balance and rates on these components for 2001 and 2000.
The increase in interest expense on Time Deposits was a result of an increase in
both rate and average balance, as of June 30, 2001. The increase in Money Market
Deposits was a result of an increase in average balance, as of June 30, 2001.
Non-interest income
Dollar/rate change
For the six months ended: June 30, For the six months ended: June 30,
Time deposits 2001 2000 2001 2000
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
(Amounts in millions)
Interest expense $4.1 $3.7 $0.4 $0.3
Time deposits (Average balances) $172.4 $170.3 $2.1 $4.3
Cost of time deposits 4.76% 4.38% 0.38% 0.22%
Dollar/rate change
For the six months ended: June 30, For the six months ended: June 30,
Money Market deposits 2001 2000 2001 2000
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
(Amounts in millions)
Interest expense $2.2 $2.1 $0.2 $0.6
Money Market deposits (Average balances) $100.2 $85.5 $14.7 $15.2
Cost of Money Market deposits 4.45% 4.80% -0.35% 0.81%
Non-interest income increased $59 thousand or 3.9% as of June 30, 2001. The
increase came in primarily two areas. Service charges on deposit accounts
increased $72 thousand as the number of accounts grew and charges for some
services were increased. Trust income increased $50 thousand as that line of
business continues to grow.
Non-interest expense
Non-interest expense increased $604 thousand or 9.9% as of June 30, 2001.
Salaries and benefits accounted for $376 thousand of the increase due to normal
wage increases and increased health insurance costs. Data processing costs
increased $75 thousand due to increased volumes and additional services used.
Occupancy expense increased $33 thousand due primarily to increases in real
estate and personal property taxes.
Asset/liability management
The principal function of asset/liability management is to manage the balance
sheet mix, maturities, repricing characteristics and pricing components to
provide an adequate and stable net interest margin with an acceptable level of
risk over time and through interest rate cycles.
Interest-sensitive assets and liabilities are those that are subject to
repricing within a specific relevant time horizon. The Bank measures
interest-sensitive assets and liabilities, and their relationship with each
other at terms of immediate, quarterly intervals up to 1 year, and over 1 year.
Changes in net interest income, other than volume related, arise when interest
rates on assets reprice in a time frame or interest rate environment that is
different from the repricing period for liabilities. Changes in net interest
income also arise from changes in the mix of interest earning assets and
interest-bearing liabilities.
The Bank's strategy with respect to asset/liability management is to maximize
net interest income while limiting its exposure to a potential downward
movement. Strategy is implemented by the Bank's management, which takes action
based upon its analysis of the Bank's present positioning, its desired future
positioning, economic forecasts, and its goals. It is the Bank's desire to
maintain a cumulative GAP of positive or negative 15% of rate sensitive assets
at the 1-year time frame. The current percentage is a positive 7%, which
compares to a positive 2% as of December 31, 2000.
Liquidity
Liquidity measures the ability of First Banking Center to meet maturing
obligations and its existing commitments, to withstand fluctuations in deposit
levels, to fund its operations, and to provide for customers' credit needs. One
source of liquidity is cash and short-term assets, such as interest-bearing
deposits in other banks and federal funds sold, which totaled $21.5 million at
June 30, 2001, compared with $30.0 million at December 31, 2000. The Bank has a
variety of sources of short-term liquidity available to it, including federal
funds purchased from correspondent banks, sales of securities available for
sale, FHLB advances, lines of credit and loan participations or sales. First
Banking Center also generates liquidity from the regular principal payments and
prepayments made on its portfolio of loans and mortgage-backed securities.
The liquidity of First Banking Center is comprised of three primary
classifications: cash flows from operating activities, cash flows from investing
activities, and cash flows from financing activities. Net cash provided by
operating activities was $91 thousand. Net cash used in investing activities was
$11.5 million. Net cash used in financing activities was $5.1 million.
As of June 30, 2000, net cash provided by operating activities was $5.0 million.
Net cash used in investing activities was $13.7 million. Net cash provided by
financing activities was $3.2 million.
Impact of Inflation and Changing Prices
The consolidated financial statements and the accompanying notes have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollar amounts without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of First Banking Center's operations. Unlike
industrial companies, nearly all of the assets and liabilities of First Banking
Center are monetary in nature. As a result, interest rates have a greater impact
on First Banking Center's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
Forward Looking Statements- Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. First Banking Center intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe First Banking Center's future plans, strategies and expectations
are generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. First Banking
Center's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on First Banking Center's operations and future prospects include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
our market area, our implementation of new technologies, First Banking Center's
ability to develop and maintain secure and reliable electronic systems and
accounting principles, policies and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
Current Accounting Developments
The Financial Accounting Standards Board (FASB) issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is effective
for all fiscal quarters of fiscal years beginning after June 15, 2001. This
Statement, as amended by FASB Statement No. 137 and No. 138, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
Management believes adoption of this Statement will have no effect on the
consolidated financial statements.
The Financial Accounting Standards Board (FASB) has issued Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement replaces FASB Statement No. 125 in its entirety.
It revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but carries
over most of Statement No. 125's provisions without reconsideration. The
Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The adoption of
this Statement had no material effect on the consolidated financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, Business Combinations (SFAS No. 141) and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No.
141 addresses financial accounting and reporting for business combinations and
is effective for all business combinations initiated after June 30, 2001. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets and is effective for fiscal years beginning after
December 15, 2001. The Company has not yet completed its assessment of the
effects of these new pronouncements on its financial statements and so is
uncertain as to the impact. The standards generally are required to be
implemented by the Company in its 2002 financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The company has not experienced any material changes to its market risk position
since December 31, 2000, from that disclosed in the company's 2000 Form 10-K
Annual Report. First Banking Center, like other financial institutions, is
subject to direct and indirect market risk. Direct market risk exists from
changes in interest rates. First Banking Center's net income is dependent on its
net interest income. Net interest income is susceptible to interest rate risk to
the degree that interest-bearing liabilities mature or reprice on a different
basis than interest-earning assets. When interest-bearing liabilities mature or
reprice more quickly than interest-earning assets in a given period, a
significant increase in market rates of interest could adversely affect net
interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.
In an attempt to manage its exposure to changes in interest rates, management
monitors First Banking Center's interest rate risk. The Asset/Liability
Committee meets quarterly to review First Banking Center's interest rate risk
position and profitability, and to make or recommend adjustments for
consideration by the Board of Directors. Management also reviews the Bank's
securities portfolio, formulates investment strategies, and oversees the timing
and implementation of transactions to assure attainment of the Board's
objectives in the most effective manner. Notwithstanding First Banking Center's
interest rate risk management activities, the potential for changing interest
rates is an uncertainty that can have an adverse effect on net income.
In adjusting First Banking Center's asset/liability position, the Board and
management attempt to manage First Banking Center's interest rate risk while
maintaining or enhancing net interest margins. At times, depending on the level
of general interest rates, the relationship between long-term and short-term
interest rates, market conditions and competitive factors, the Board and
management may decide to increase First Banking Center's interest rate risk
position somewhat in order to increase its net interest margin. First Banking
Center's results of operations and net portfolio values remain vulnerable to
increases in interest rates and to fluctuations in the difference between
long-term and short-term interest rates.
One approach used to quantify interest rate risk is the net portfolio value
("NPV") analysis. In essence, this analysis calculates the difference between
the present value of liabilities and the present value of expected cash flows
from assets and off-balance-sheet contracts. The most recent NPV analysis, as of
June 30, 2001, projects that net portfolio value would decrease by approximately
10.3% if interest rates would rise 200 basis points and would decrease by
approximately 5.3% if interest rates would rise 100 basis points over the next
year. It projects an increase in net portfolio value of approximately 12.3% if
interest rates would drop 200 basis points and approximately 5.8% if interest
rates would drop 100 basis points. Both simulations are within board-established
policy limits. First Banking Center's policy is to limit the effect of a 200
basis point rate shock to plus or minus 20% of projected net interest income and
to minus 35% of the market value of portfolio equity.
First Banking Center does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors, First
Banking Center does not intend to engage in such activities in the immediate
future.
Interest rate risk is the most significant market risk affecting First Banking
Center. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of First Banking
Center's business activities.
Part II-OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
A. The Corporation held its Annual Meeting of Shareholders on April 17, 2001.
B. Votes cast for the election of three directors to serve until the 2004
Annual Meeting of Shareholders are as follow
Director For Withhold Against
David Boilini 886,746 1,117 0
Thomas Laken, Jr. 885,768 2,095 0
Daniel T. Jacobson 885,429 2,434 0
The continuing Directors of the Corporation are as follows:
John S. Smith
John M. Ernster
Richard McKinney
Keith Blumer
Brantly Chappell
Melvin W. Wendt
Charles R. Wellington
Robert Fait
Votes cast to amend the 1994 Incentive Stock Plan are as follows:
For Against Abstained
817,761 55,103 14,999
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
FIRST BANKING CENTER, INC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1943, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Banking Center, Inc.
August 14, 2001 __________________________
Date Brantly Chappell
Chief Executive Officer
August 14, 2001 __________________________
Date James Schuster
Chief Financial Officer