UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-11132
FIRST BANKING CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391327
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
400 Milwaukee Ave. Burlington, WI 53105
(Address of principal executive offices)(Zip Code)
(262)763-3581
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.[X]
As of January 29, 2002 1,473,197 shares of common stock, par value $1.00 were
outstanding and the aggregate market value of the shares (based upon the most
recent trade known to the Corporation), all of which is held by nonbank
affiliates, was approximately $63,347,471.
Documents incorporated by references: The Notice of 2002 Annual Meeting and
Proxy Statement of March 15, 2002 is incorporated by reference into Parts II and
III of the Form 10-K.
PART 1
ITEM 1: BUSINESS
First Banking Center, Inc.
First Banking Center, Inc. (the "Corporation") is a one-bank holding company
incorporated as a business corporation under the laws of the State of Wisconsin
on August 24, 1981. In April 1982, the Corporation became the sole owner of
First Bank and Trust Company, Burlington, Wisconsin, a Wisconsin state-banking
corporation. On September 1, 1984, the Corporation acquired 100% of the capital
stock of the Bank of Albany, Albany, Wisconsin a Wisconsin state-banking
corporation. On April 6, 1998, First Banking Center-Albany was merged with First
Banking Center-Burlington.
On January 1, 1985, the name of the Corporation was changed from the First
Community Bank Group, Inc. to the First Banking Center, Inc., and the name of
the subsidiary companies were changed to First Banking Center - Burlington and
First Banking Center - Albany, respectively. As of May 11, 1998 First Banking
Center-Burlington changed its name to First Banking Center (the "Bank").
The Corporation's primary business activity is the ownership and control of
First Banking Center. The Corporation's operations department also provides
administrative and operational services for the Bank.
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.
First Banking Center
The Bank was organized in 1920 and is a full service commercial bank located in
the City of Burlington, Wisconsin. The Bank has branch offices located in
Albany, Burlington, Darlington, Genoa City, Kenosha, Lake Geneva, Lyons, Monroe,
Pell Lake, Union Grove, Walworth, and Wind Lake, Wisconsin. The Bank offers a
wide range of services, which includes Loans, Personal Banking, Trust and
Investment Services, and Insurance and Annuity Products.
Lending
The lending area provides a wide variety of credit services to
commercial and individual consumers. Consumer lending consists
primarily of residential mortgages, residential construction
loans, installment loans, home equity loans, and student loans.
Commercial lending consists of commercial property financing,
equipment and inventory financing, and real estate development,
as well as the financing of agricultural production, farm
equipment, and farmland. Commercial lending usually involves a
greater degree of credit risk than consumer lending. This
increased risk requires higher collateral value to loan amount
than may be necessary on some consumer loans. The collateral
value required on a commercial loan is determined by the degree
of risk associated with that particular loan.
Personal Banking
This area provides a wide variety of services to customers such
as savings plans, certificates of deposit, checking accounts,
individual retirement accounts, and other specialized services.
Trust and Investments
The Trust Department provides a full range of services to
individuals, corporations and charitable organizations. It
provides such specific services as investment advisory,
custodial, executor, trustee and employee benefit plans.
Insurance and Investment Products
This area provides a complete line of life insurance as well as
long-term health care, fixed and variable rate annuities, mutual
funds, securities services, and discount brokerage.
COMPETITION
The financial services industry is highly competitive. The Bank competes with
other commercial banks and with other financial institutions including savings
and loan associations, finance companies, mortgage banking companies, insurance
companies, brokerage firms, and credit unions.
SUPERVISION AND REGULATION
The Company is a bank holding company subject to the supervision of the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as amended. As a bank holding company, the Company is required to file an
annual report and such additional information with the Board of Governors as the
Board of Governors may require pursuant to the Act. The Board of Governors may
also make examinations of the Company and its subsidiary.
The Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Board of Governors before it may acquire substantially all
the assets of any bank, or ownership or control of any voting shares of any bank
if, after such acquisitions, it would own or control, directly or indirectly,
more than 5% of the voting shares of such bank. Under existing federal and state
laws, the Board of Governors may approve the acquisition by the Company of the
voting shares of, or substantially all the assets of, any bank located in states
specified in the Wisconsin Interstate Banking Bill which became effective
January 1, 1987.
In addition, a bank holding company is generally prohibited from itself engaging
in, or acquiring direct or indirect control of voting shares of any company
engaged in non-banking activities. One of the principal exceptions to this
prohibition is for activities found by the Board of Governors, by order or
regulation to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Board of
Governors has determined by regulation to be closely related to banking are
making or servicing loans, full payout property leasing, investment advisory
services, acting as a fiduciary, providing data processing services and
promoting community welfare projects.
A subsidiary bank of a bank holding company is subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to the bank
holding company or any of its subsidiaries, on investments in the stock or other
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. Further, under the Bank Holding Company Act and
regulations of the Board of Governors, a bank holding company and its subsidiary
is prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
The Company is also subject to the Securities Exchange Act of 1934 and has
reporting obligation to the Securities and Exchange Commission. The business of
banking is highly regulated and there are various requirements and restrictions
in the laws of the United States and the State of Wisconsin affecting the
Company's subsidiary bank and its operations, including the requirement to
maintain reserves against deposits, restrictions on the nature and amount of
loans which may be made by the bank and restrictions relating to investment,
branching and other activities of the bank.
The Company is supervised and examined by the Federal Reserve Board. The
Company's subsidiary bank, as a state chartered institution, is subject to the
supervision of, and is regularly examined by, Wisconsin state authorities. The
Bank is also a member of the Federal Reserve Bank and as such is subject to
regulation and examination by that agency.
The Company, under Federal Reserve Board policy, is expected to act as a source
of financial strength to the subsidiary bank and to commit resources to support
the subsidiary.
GOVERNMENTAL POLICIES
The earnings of the Company's subsidiary bank as a lender and depositor of money
are affected by legislative changes and by the policies of the various
regulatory authorities including the State of Wisconsin, the United States
Government, foreign governments and international agencies. The effect of this
regulation upon the future business and earnings of the Company cannot be
predicted. Such policies include, among others, statutory maximum lending rates,
domestic monetary policies of the Board of Governors of the Federal Reserve
System, United States fiscal policies and international currency regulations and
monetary policies. Governmental and Reserve Board policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to do so in the future. Management is not able to anticipate and
evaluate the future impact of such policies and practices on the growth and
profitability of the Company or its subsidiary bank.
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the "Act")
made significant changes in the laws governing financial institutions, including
changes which expand the permissible range of activities for bank holding
companies and their affiliates (including non-banking financial activities);
permit affiliations between banks, securities firms and insurance companies;
make substantial changes in the regulatory structure for financial institutions;
prohibit new unitary savings and loan holding companies; make changes to the
Community Reinvestment Act of 1977; and enact substantial new financial privacy
rules. The company is currently evaluating its options regarding expanded
activities under the Act. The company is currently in the process of
implementing the financial privacy rules imposed by the Act.
EMPLOYEES
The Company and its staff share a commitment to equal opportunity. All personnel
decisions are made without regard to race, color, religion, sex, age, national
origin, handicap, or veteran status. At January 29, 2002, the Company and its
subsidiary had 227 full and part-time employees.
MISCELLANEOUS
The business of the Company is not seasonal. To the best of management's
knowledge, there is no anticipated material effect upon the Company's capital
expenditures, earnings, and competitive position by reason of any laws
regulating or protecting the environment. The Company has no material patents,
trademarks, licenses, franchises or concessions. No material amounts have been
spent on research activities and no employees are engaged full time in research
activities.
NOTE: Subsections of Item I, to which no response has been made are inapplicable
to the business of the Company.
SELECTED FINANCIAL DATA
The Company, through the operations of its Bank, offers a wide range of
financial services. The following financial data provides a detailed review of
the Company's business activities.
The following information shows: the company's average assets, liabilities and
stockholder's equity; the interest earned and average yield on interest earning
assets; the interest paid and average rate on interest-bearing liabilities; and
the maturity schedules for investment and specific loans; for the years ended
December 31, 2001, 2000, and 1999. Also, where applicable, information is
presented for December 31, 1998 and 1997.
Section I, Schedule A - Average Balance Sheet
ASSETS 2001 2000 1999
------------- ------------- -------------
(Dollars in thousands)
Cash and due from banks $ 12,372 12,474 13,800
Fed funds sold 5,875 3,170 2,201
Interest-bearing deposits in banks 2,606 231 228
Available-for-sale securities 51,271 58,259 63,171
Loans, net 336,289 305,458 279,623
Office buildings and equipment, net 10,176 9,645 9,555
Other assets 10,680 9,027 8,532
------------- ------------- -------------
Total assets $ 429,269 398,264 377,110
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand $ 53,004 50,095 48,073
Savings and NOW accounts 152,947 141,999 132,348
Time 124,445 120,215 108,856
------------- ------------- -------------
Total Deposits 330,396 312,309 289,277
Short-term borrowings 20,861 18,460 27,011
Other borrowings 33,618 27,955 23,921
Other liabilities 3,840 3,959 3,681
------------- ------------- -------------
Total liabilities 388,715 362,683 343,890
Stockholders' Equity
Common stock 1,489 1,489 1,489
Surplus 4,176 4,223 4,316
Retained earnings 34,915 30,870 27,441
Accumulated other comprehensive income (loss) 682 (589) 108
Common stock in treasury, at cost (708) (412) (134)
------------- ------------- -------------
Total stockholders' equity 40,554 35,581 33,220
------------- ------------- -------------
Total liabilities and stockholders' equity $ 429,269 398,264 377,110
============= ============= =============
Section I, Schedule B - Three Year Summary of Interest Rates and Interest Differential
2001 2000 1999
-------------------------- -------------------------- ------------------------
Interest Average Interest Average Interest Average
Average Earned Yield Average Earned Yield Average Earned Yield
Balance or Paid or Cost Balance or Paid or Cost Balance or Paid or Cost
-------------------------- -------------------------- ------------------------
(Dollars in thousands)
Interest earning assets:
Interest-bearing deposits in banks $ 2,606 121 4.65% 231 15 6.29% 228 10 4.39%
Available-for-sale securities:
Taxable 23,029 1,299 5.64% 30,889 2,003 6.48% 37,326 2,161 5.79%
Nontaxable (a) 30,683 2,154 7.02% 27,370 2,001 7.31% 25,845 1,834 7.10%
Fed funds sold 5,875 232 3.95% 3,170 196 6.19% 2,201 105 4.77%
Loans (a)(b)(c) 340,328 29,192 8.58% 309,306 27,883 9.01% 283,151 24,358 8.60%
-------------------------- -------------------------- ------------------------
Total interest earnings assets $ 402,521 32,998 8.20% 370,966 32,098 8.65% 348,751 28,468 8.16%
========================== ========================== ========================
Interest bearing liabilities:
Savings and NOW accounts $ 152,947 4,281 2.80% 141,999 5,612 3.95% 132,348 4,281 3.23%
Time deposits 124,445 6,965 5.60% 120,215 6,997 5.82% 108,856 5,689 5.23%
Short-term borrowings 20,861 829 3.97% 18,460 1,011 5.48% 27,011 1,300 4.81%
Other borrowings 33,618 1,742 5.18% 27,955 1,580 5.65% 23,921 1,316 5.50%
-------------------------- -------------------------- ------------------------
Total int.bearing liabilities $ 331,871 13,817 4.16% 308,629 15,200 4.92% 292,136 12,586 4.31%
========================== ========================== ========================
Net interest margin(d) 19,181 4.77% 16,898 4.56% 15,882 4.55%
================ ================ ================
<FN>
<F1>
(a) The interest and average yield for nontaxable loans and investments are presented on a federal taxable equivalent
basis assuming a 34% tax rate.
<F2>
(b) Loans placed on nonaccrual status have been included in average balances used to determine average rates.
<F3>
(c) Loan interest income includes net loan fees.
<F4>
(d) Net interest earnings divided by total interest-earning assets, with net interest earnings equaling the difference
between total interest earned and total interest paid.
</FN>
Section I, Schedule C - Two Year Summary of Rate and Volume Variances
2001 2000
--------------------------------- ---------------------------------
Inc./(Dec.) Inc./(Dec.)
From Volume (a) Rate (a) From Volume (a) Rate (a)
Prior Year Variance Variance Prior Year Variance Variance
--------------------------------- ---------------------------------
(Dollars in thousands)
Interest Income
Interest-bearing deposits in banks $ 106 109 (3) 5 0 5
Available-for-sale securities:
Taxable (704) (466) (238) (158) (512) 354
Nontaxable (b) 153 228 (75) 167 111 56
Fed funds sold 36 62 (26) 91 54 37
Loans (b) (c) (d) 1,309 2,534 (1,225) 3,525 2,325 1,200
----------------------------------- ------------------------------
Total change in interest income 900 2,467 (1,567) 3,630 1,978 1,652
----------------------------------- ------------------------------
Interest Expense
Savings and NOW accounts (1,331) 478 (1,809) 1,331 31 1,300
Time deposits (32) 350 (382) 1,308 59 1,249
Short-term borrowings (182) 164 (346) (289) (41) (248)
Other borrowings 162 274 (112) 264 22 242
----------------------------------- ------------------------------
Total change in interest expense (1,383) 1,266 (2,649) 2,614 71 2,543
----------------------------------- ------------------------------
Net change $ 2,283 1,201 1,082 1,016 1,907 (891)
=================================== ==============================
<FN>
<F1>
(a) The change in interest due to both rate and volume has been allocated in proportion to the relationship of the
absolute dollar amounts of the change in each.
<F2>
(b) The interest and average yield for nontaxable loans and investments are presented on a federal tax equivalent
basis assuming a 34% tax rate.
<F3>
(c) Loans placed on nonaccrual status have been included in average balances used to determine average rates.
<F4>
(d) Loan interest income includes net loan fees.
</FN>
Section II, Schedule A - Investment Portfolio
2001 2000 1999
---------------------------------------
(Dollars in thousands)
Available for Sale:
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations $ 25,741 30,510 25,812
Obligations of states and
political subdivisions 33,602 28,279 26,361
Other 0 6,400 2,779
---------------------------------------
Total $ 59,343 65,189 54,952
=======================================
<FN>
NOTE:
The aggregate book value of securities from any single issuer does not exceed ten percent of stockholder's
equity; except for, securities issued by the U.S. Government and U.S. Government agencies and corporations.
</FN>
Section II, Schedule B - Investment Securities Maturities and Yield
The following table presents the maturity of securities held on December 31,2001 and the weighted average yield
by range of maturity.
-------- -------- -------- -------- --------
After After
1 Year 5 Years
1 Year Through Through After
or Less 5 Years 10 Years 10 Years Total
-------- -------- -------- -------- --------
(Dollars in thousands)
Available for Sale Securities
U.S. Treasury and U.S. Gov't agencies and corporati$ns(a) 9,034 16,600 107 0 25,741
Weighted average yield 4.47% 5.01% 9.65% 0.00% 4.84%
States of the U.S. and Political Subdivisions (b) 1,085 13,929 13,490 5,098 33,602
Weighted average yield 6.80% 7.23% 6.91% 7.62% 7.15%
--------- --------- --------- --------- ---------
TOTAL AVAILABLE FOR SALE $ 10,119 30,529 13,597 5,098 59,343
========= ========= ========= ========= =========
Weighted Ave. Yield of Total 4.72% 6.02% 6.93% 7.62% 6.15%
========= ========= ========= ========= =========
<FN>
<F1>
(a) Includes mortgage backed securities at average maturity dates.
<F2>
(b) The interest and average yield for nontaxable securities are presented on a federal taxable equivalent basis
assuming a 34% tax rate.
</FN>
Section III, Schedule A - Loan Portfolio
The composition of the loan portfolio at December 31 is presented as follows:
2001 2000 1999 1998 1997
------------ ------------ ----------- ------------ -----------
(Dollars in thousands)
Commercial $ 27,487 26,219 28,458 38,185 32,886
Agricultural production 23,013 11,326 14,965 9,985 6,857
Real Estate:
Construction 43,603 42,242 37,796 30,008 24,353
Commercial 90,685 85,192 83,592 67,761 52,540
Agriculture 12,604 8,732 9,705 7,754 8,177
Residential 160,713 135,696 110,793 96,139 86,015
Municipal 3,293 4,166 6,141 6,503 4,972
Consumer 4,674 6,995 7,274 8,465 8,308
------------ ------------ ----------- ------------ -----------
TOTAL $ 366,072 320,568 298,724 264,800 224,108
============ ============ =========== ============ ===========
Section III, Schedule B - Maturities and Sensitivity of Loans to Interest Rates
The following table presents consolidated loan maturities by yearly ranges. Also included for loans after
one year are the amounts that have predetermined interest rates and floating adjustable rates.
Loan Maturities Amount Over One Year With
--------------------------------------- --------------------------------------------
After 1 After Floating or
1 Year Through Five Predetermined Adj. Interest
or Less 5 Years Years Total Rates Rates Total
--------------------------------------- --------------------------------------------
(Dollars in thousands)
December 31, 2001:
Comm'l and agricultural $ 40,488 7,773 2,239 50,500 10,001 11 10,012
Real estate - construction 42,616 952 35 43,603 987 - 987
--------- -------- ------- --------- --------------- ---------------- ---------
TOTAL $ 83,104 8,725 2,274 94,103 10,988 11 10,999
========= ======== ======= ========= =============== ================ =========
December 31, 2000:
Comm'l and agricultural $ 26,559 9,909 1,077 37,545 10,986 - 10,986
Real estate - construction 37,679 4,527 36 42,242 1,561 3,002 4,563
--------- -------- ------- --------- --------------- ---------------- ---------
TOTAL $ 64,238 14,436 1,113 79,787 12,547 3,002 15,549
========= ======== ======= ========= =============== ================ =========
Section III, Schedule C - Risk Elements
Non-accrual, Past Due and Renegotiated Loans
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(Dollars in thousands)
Non-accrual Loans (a) 1,541 827 1,256 1,517 824
Past Due 90 days + - - 2 16 2
Restructured Loans - - - - -
<FN>
(a) Interest which would have been recorded had the loans been on an accrual basis, would have amounted to $26,000 in 2001,
$12,000 in 2000, $36,000 in 1999, $39,000 in 1998, and $21,000 in 1997. Interest income on these loans, which is recorded
only when received, amounted to $14,000 in 2001, $12,000 in 2000, $31,000 in 1999, $20,000 in 1998, and $14,000 in 1997.
</FN>
The increase in non-accrual loans from 2000 to 2001 consists of a number of 1-4
family residential properties. The bank is in the final stage of the collection
process on these loans. There is no loss anticipated on these loans.
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.
As of December 31, 2001, the Company had loans totaling $29,306,000 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. This represents
an increase of $11,393,000 or 63.6% from 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 December 31, 2001. Loan concentration by classification can be
found in the loan section of Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations. The company's loans are
concentrated geographically in the Wisconsin counties of Racine, Walworth,
Kenosha, Lafayette, and Green.
Section IV, Schedule A - Summary of Loan Loss Experience
Analysis of the Allowance for Estimated Losses on Loans
2001 2000 1999 1998 1997
------------ ----------- ----------- ----------- -----------
(Dollars in thousands)
Balance, beginning of fiscal year $ 3,927 3,581 3,421 3,132 2,897
Charge-offs:
Commercial 21 51 51 2 14
Agricultural production 27 0 0 0 0
Real Estate:
Construction 0 0 0 0 0
Commercial 27 48 0 0 0
Agriculture 0 0 0 0 2
Other Mortgages 25 40 42 35 3
Installment - consumer 35 30 104 51 43
Recoveries:
Commercial 16 46 6 9 0
Agricultural production 7 0 0 0 0
Real Estate:
Construction 0 0 0 0 0
Commercial 40 0 0 0 30
Agriculture 0 0 0 2 0
Other Mortgages 5 100 0 1 20
Installment - consumer 7 9 21 35 17
------------ ----------- ----------- ----------- -----------
Net Charge-offs/(Recoveries) 60 14 170 41 (5)
Provision charged to operations (a) 500 360 330 330 230
Additions related to
branch acquisitions 0 0 0 0 0
------------ ----------- ----------- ----------- -----------
Balance, end of fiscal year $ 4,367 3,927 3,581 3,421 3,132
============ =========== =========== =========== ===========
Average amount of loans outstanding
before allowance for estimated
losses on loans $ 340,328 309,306 283,151 244,578 207,519
============ =========== =========== =========== ===========
Ratio of net charge-offs/
recoveries during the period
to average loans outstanding
during the period 0.018% 0.005% 0.060% 0.017% -0.002%
<FN>
(a) For each year ending December 31, the determination of the additions to loan loss reserve charged to operating
expenses was based on an evaluation of the loan portfolio, current domestic economic conditions, past loan
losses and other factors.
</FN>
Section IV, Schedule B - Allocation of the Allowance for Estimated Losses on Loans
The following table presents the allowance for estimated losses on loans by type
of loans and percentage of loans in each category to total loans:
2001 2000 1999
------------------------------- -------------------------------- ------------------------------
% to Total % to Total % to Total
Amount % of ALL Loans Amount % of ALL Loan Amount % of ALL Loans
------------------------------- -------------------------------- ------------------------------
(Dollars in thousands)
Commercial Loans (a) $ 2,428 55.6% 54.8% $ 3,080 78.4% 55.5% $ 2,470 69.0% 60.5%
Real Estate-Residential Loans 106 2.4% 43.9% 136 3.5% 42.3% 169 4.7% 37.1%
Consumer Loans 99 2.3% 1.3% 56 1.4% 2.2% 127 3.5% 2.4%
Loan Commitments 77 1.8% N/A 63 1.6% N/A 53 1.5% N/A
Unallocated 1,657 37.9% N/A 592 15.1% N/A 762 21.3% N/A
------- ------- -------
Total $ 4,367 $ 3,927 $ 3,581
======= ======= =======
<FN>
(a) Commercial Loans include commercial real estate, agricultural production, municipal and construction loans.
</FN>
During the third quarter of 2001, the bank reviewed its allowance for possible
loan loss adequacy calculation. After studying historical losses and current
loan portfolio grading information, the calculations were adjusted to more
accurately reflect where management felt the loan losses lie. As a result of
this change, the amount of allowance for commercial loans decreased $652
thousand from 2000 to 2001. The allowance for unallocated increased $1.1 million
from 2000 to 2001. The unallocated portion of the allowance reflects
management's estimate of probable inherent but undetected losses within the
portfolio. These losses may be due to uncertainties in economic conditions,
delays in obtaining information, including unfavorable information about a
borrower's financial condition, the difficulty in identifying events that
correlate perfectly to subsequent loss rates, and risk factors that have not yet
manifested themselves in loss allocation factors. In addition, the unallocated
allowance includes a component that explicitly accounts for inherent imprecision
in loan loss migration models.
Section V, Schedule B - Maturity Schedule for Time Deposits of $100,000 or more as of December 31, 2001
Over Over
3 Months 6 Months
3 Months thru thru Over 12
or Less 6 Months 12 Months Months
-------------- -------------- ------------- --------------
(Dollars in thousands)
Certificates of Deposit $ 8,666 2,522 14,110 8,403
============== ============== ============= ==============
Section VI - Three Year Summary of Return on Equity and Assets for the years ended December 31,
2001 2000 1999
----------------------------------------------------
Return on average assets 1.22% 1.20% 1.10%
Return on average equity 12.96% 13.45% 12.53%
Dividend payout ratios on common stock 19.33% 19.77% 21.05%
Average equity to average assets 9.45% 8.93% 8.81%
Section VII - Short-term Borrowings
2001 2000 1999
-----------------------------------------------------
(Dollars in thousands)
Securities Sold Under Agreements
To Repurchase (a)
End of Year:
Balance $26,099 $17,299 $21,131
Weighted Ave. Rate 2.00% 4.88% 4.66%
For the Year:
Maximum Amount Outstanding $33,001 $21,553 $35,908
Average Amount Outstanding $20,395 $17,780 $26,216
Weighted Ave. Rate 3.96% 5.43% 4.79%
<FN>
(a) Securities sold under repurchase agreements are borrowed on a short-term basis by the subsidiary bank at
prevailing rates for these funds. The approximate average maturity was 6.0 months, 3.0 months, and 5.0
months for the years 2001, 2000, and 1999, respectively.
</FN>
ITEM 2: PROPERTIES
The Company owns no properties; it currently occupies space in the buildings
that house the Lake Geneva and Kenosha branches. Since January 1, 1995 the
company has been making rent payments to First Banking Center for the space that
it occupies and the equipment it uses.
First Banking Center
The Bank owns banking facilities in Albany, Burlington, Genoa City, Kenosha,
Lake Geneva, Lyons, Monroe, Pell Lake, Union Grove, Walworth, and Wind Lake.
Each of the bank's offices is well maintained and adequately meets the needs of
the bank.
ITEM 3: LEGAL PROCEEDING
Neither the Corporation nor its subsidiary is a party, nor is any of their
property, subject to any material existing or pending legal proceedings other
than ordinary routine litigation incidental to its business. No officer,
director, affiliate of the Corporation, or any of their associates is a party to
any material proceedings adverse to the Corporation or its subsidiary.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted during the fourth quarter of the fiscal year covered by
this report to a vote of the security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's stock is not actively traded. Robert W. Baird & Co. Incorporated
and A.G. Edwards & Sons, Inc., however, do make a market in the stock. The range
and sales prices, based on information given to the Company by Robert W. Baird &
Co. Incorporated, and A.G. Edwards & Sons, Inc., and by parties to sales, are
listed below for each quarterly period during the last two years.
2001 2000
Low High Low High
First quarter $ 34.75 $ 38.00 $ 34.50 $ 36.00
Second quarter $ 37.00 $ 38.25 $ 35.00 $ 37.00
Third quarter $ 37.50 $ 42.50 $ 35.50 $ 37.00
Fourth quarter $ 38.50 $ 43.00 $ 35.50 $ 37.75
There were 758 holders of record of the Company's $1.00 par value common
stock on December 31, 2001.
ITEM 6: SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands of except per share data)
December 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
Interest income $ 32,163 $ 31,286 $ 27,692 $ 25,474 $ 22,861
Interest expense 13,817 15,200 12,586 12,127 11,198
Net interest income 18,346 16,086 15,106 13,347 11,663
Provision for loan losses 500 360 330 330 230
Net interest income after
provision for loan loss 17,846 15,726 14,776 13,017 11,433
Noninterest Income 3,480 3,126 2,829 2,530 2,156
Noninterest Expense 14,292 12,187 11,583 10,772 9,590
Income before income taxes 7,034 6,665 6,022 4,775 3,999
Income taxes 1,777 1,879 1,860 1,387 1,115
Net income $ 5,257 $ 4,786 $ 4,162 $ 3,388 $ 2,884
Earnings per common share:
Basic earnings per share $ 3.57 $ 3.24 $ 2.80 $ 2.28 $ 1.95
Diluted earnings per share $ 3.52 $ 3.21 $ 2.78 $ 2.27 $ 1.94
Cash dividends per share $ 0.69 $ 0.64 $ 0.59 $ 0.54 $ 0.50
Book value per share $ 28.67 $ 25.69 $ 22.59 $ 21.43 $ 19.47
Year-end assets $ 475,780 $ 430,858 $ 392,089 $ 369,131 $ 327,833
Average assets 429,269 398,264 377,110 332,980 304,479
Year-end equity capital 42,239 37,948 33,417 31,895 28,920
Average equity capital 40,554 35,581 33,220 30,394 27,319
Return on average assets 1.22% 1.20% 1.10% 1.02% 0.95%
Return on average equity 12.96% 13.45% 12.53% 11.15% 10.56%
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides additional analysis of the financial
statements presented in the Company's annual report and should be read in
conjunction with this information. This discussion focuses on the significant
factors that affected the Company's earnings in 2001, with comparisons to 2000.
As of December 31, 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 inter-company
payments are eliminated for the purpose of these consolidated financial
statements. The Bank has two wholly owned subsidiaries, FBC Financial Services,
Corp., a brokerage and financial services subsidiary, and FBC-Burlington, Inc.,
an investment subsidiary located in Nevada.
Overview
As of December 31, 2001, total Company assets were $475.8 million increasing
10.4% from $430.9 million as of December 31, 2000. Total income for 2001 was
$5.3 million or $3.57 per share, increasing 9.8% from $4.8 million or $3.24 per
share in 2000. The significant items resulting in the above-mentioned results
are discussed below.
Financial Condition
Loans
Loans outstanding were $366.1 million and $320.6 million on December 31, 2001
and December 31, 2000 respectively. This represents an increase of $45.5 million
or 14.2% during 2001. Residential Real Estate loans grew by $25 million or 18.4%
due to increased activity in the residential real estate market, normal year
over year activity and the opening of two additional locations during 2001. The
following table summarizes the changes during 2001 in the major loan
classifications.
As a % of Total Loans
Balance December 31, Change in on December 31,
2001 2000 Balance 2001 2000
----------------------------------------- --------------------------
(Dollars in million)
Residential Real Estate $160.7 $135.7 $25.0 43.9% 43.9%
Commercial Real Estate $90.7 $85.2 $5.5 24.8% 26.3%
Construction and Land Development $43.6 $42.2 $1.4 11.9% 13.1%
Commercial $27.5 $26.2 $1.3 7.5% 8.2%
Allowance for Loan Losses
The allowance for possible loan losses was $4.4 million or 1.19% of gross loans
on December 31, 2001, compared with $3.9 million or 1.23% of gross loans on
December 31, 2000. Net charge-offs for 2001 were $60 thousand or .016% of gross
loans, compared to net charge-offs of $14 thousand or .004% of gross loans for
2000. As of December 31, 2001, loans on non-accrual status totaled $1.5 million
or .42% of gross loans compared to $827 thousand or .26% of gross loans on
December 31, 2000. The non-accrual loans consisted primarily of $1.3 million of
residential real estate loans, $120 thousand of construction and land
development, and $116 thousand of commercial loans. On December 31, 2001, the
ratio of non-accrual loans to the allowance for loan losses was 35.3% compared
to 21.1% on December 31, 2000.
The adequacy of the allowance for estimated losses on loans was determined by
management based on factors that included the overall composition of the loan
portfolio, types of loans, past loss experience, loan delinquencies, potential
substandard and doubtful credits, economic conditions and other factors that, in
management's judgment, deserved evaluation in estimating loan losses. To ensure
that an adequate allowance was maintained, provisions were made based on the
increase in loan balances, management's assessment of the possible impact that
economic conditions may have on the loan portfolio and a detailed analysis of
the loan portfolio.
The loan portfolio is analyzed quarterly. This quarterly analysis incorporates
First Banking Center's internal loan grading system. All loans identified as
having potential weaknesses that deserve management's close attention, loans
graded substandard and loans graded loss or doubtful are further reviewed to
assess the actual exposure present.
Although management believes that the allowance for estimated losses on loans at
December 31, 2001 was at a level adequate to absorb losses on existing loans,
there can be no assurance that such losses will not exceed the estimated amounts
or that First Banking Center will not be required to make additional provisions
for loan losses in the future. Asset quality is a priority for First Banking
Center and its subsidiaries. The ability to grow profitably is in part dependent
upon the ability to maintain that quality. Along with other financial
institutions, management shares a concern for the possible continued softening
of the economy in 2002. Should the economic climate continue to deteriorate,
borrowers may experience difficulty, and the level of non-performing loans,
charge-offs and delinquencies could rise and require further increases in the
provision.
During 2001 $500 thousand was charged to current earnings and added to the
allowance for loan losses.
Investments securities - Available for Sale
The securities available-for-sale portfolio decreased $5.8 million or 9.0%
during 2001. The decrease came in four areas of the portfolio. Commercial paper
decreased $2.6 million and mortgage-backed securities decreased $1.7 million due
to maturities. Money market mutual funds decreased $4.2 as the proceeds were
transferred to fed funds. Equity securities in the amount of $2.3 million were
transferred to other assets due to changes required for regulatory reporting.
Municipal securities increased $5.3 million due to purchases.
Deposits and Borrowed Funds
Total deposits and borrowed funds were $429.5 million on December 31, 2001
compared to $388.3 million on December 31, 2000. This is an increase of $41.2
million or 10.6%. The following table summarizes the changes during 2001 in the
major classifications of deposits and borrowed funds.
December 31, December 31, Change in
2001 2000 Balance
---------------------------------------- ------------
(Dollars in millions)
Money Market and Savings $134.6 $121.8 $12.8
Demand Deposits $66.6 $59.6 $7.0
Time Deposits less than $100,000 $87.2 $86.6 $0.6
Time Deposits equal or greater than $100,000 $33.7 $38.3 ($4.6)
Securities sold under agreement to repurchase $26.1 $17.3 $8.8
Federal Home Loan Borrowings $47.3 $35.3 $12.0
Capital resources
During 2001, the Company's stockholders' equity increased $4.3 million or 11.3%.
Net income of $5.3 million was the primary reasons for the increase in equity.
The company purchased $606 thousand and reissued $316 thousand of treasury
stock, during 2001. Net unrealized gain/loss on available for sale securities
increased $334 thousand to $542 thousand. Cash dividends paid in 2001 were $1.0
million or $.69 per share.
In December 1990, the Federal Reserve Board's risk-based guidelines became
effective. Under these guidelines capital is measured against the Company's
subsidiary bank's risk-weighted assets. The Company's tier 1 capital (common
stockholders' equity less goodwill) to risk-weighted assets was 11.2% at
December 31, 2001, well above the 4% minimum required. Total capital to
risk-adjusted assets was 12.5%, also well above the 8% minimum requirement. The
leverage ratio was at 9.1% compared to the 4% minimum requirement. According to
FDIC capital guidelines, the Company is considered to be "well capitalized."
Asset/liability management
The principal function of asset/liability management is to manage the balance
sheet mix, maturities, repricing characteristics and pricing components to
provide an adequate and stable net interest margin with an acceptable level of
risk over time and through interest rate cycles.
Interest-sensitive assets and liabilities are those that are subject to
repricing within a specific relevant time horizon. The Bank measures
interest-sensitive assets and liabilities, and their relationship with each
other at terms of immediate, quarterly intervals up to 1 year, and over 1 year.
Changes in net interest income, other than volume related, arise when interest
rates on assets reprice in a time frame or interest rate environment that is
different from the repricing period for liabilities. Changes in net interest
income also arise from changes in the mix of interest earning assets and
interest-bearing liabilities.
The Bank's strategy with respect to asset/liability management is to maximize
net interest income while limiting its exposure to a potential downward
movement. Strategy is implemented by the Bank's management, which takes action
based upon its analysis of the Bank's present positioning, its desired future
positioning, economic forecasts, and its goals. It is the Bank's desire to
maintain a cumulative GAP of positive or negative 15% of rate sensitive assets
at the 1-year time frame. The current percentage is a positive 17%, which
compares to a positive 2% as of December 31, 2000. Although a positive GAP of
17% is outside of the target range the company feels the current position is
desirable due to current and forecasted economic conditions.
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 $33.0 million at
December 31, 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 used in operating
activities was $831 thousand for fiscal 2001 compared to net cash provided by
operating activities of $8.5 million for fiscal 2000. Net cash used in investing
activities, consisting principally of loan funding and the purchase of
securities, was $47.6 million in 2001 and $30.3 million in 2000. Net cash
provided by financing activities, consisting primarily from the proceeds of
short-term borrowings and deposit growth, for fiscal 2001 was $39.9 million and
for fiscal 2000 was $32.0 million, consisting primarily of deposit growth and
proceeds from short-term borrowings.
Net cash provided by operating activities was $8.5 million for fiscal 2000
compared to $8.6 million for fiscal 1999. Net cash used in investing activities,
consisting principally of loan funding and the purchase of securities was $30.3
million for fiscal 2000 and $27.6 million for fiscal 1999. Net cash provided by
financing activities, consisting primarily of deposit growth, and proceeds from
short-term borrowings, for fiscal 2000 was $32.0 million and for fiscal 1999 was
$20.1 million, consisting principally of deposit growth and proceeds from
Federal Home Loan Bank advances.
Management believes that First Banking Center has sufficient liquidity and
capacity sources to meet presently known cash flow requirements arising from
ongoing business transactions.
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.
Quantitative and Qualitative Disclosures About Market Risk
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 determine 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 following table sets forth, at
December 31, 2001 and December 31, 2000, an analysis of First Banking Center's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+ or - 200 basis
points).
Change in
Interest Rates Estimated NPV Estimated Increase(Decrease) in NPV
- ----------------------------------------------------------------- ----------------------------------------------
(Basis points) December 31, 2001 December 31, 2000 December 31, 2001 December 31, 2000
- ----------------------------------------------------------------- ----------------------------------------------
+200 43,773 35,048 (965) (3,665)
+100 44,738 38,713 (814) (3,699)
- --- 45,552 42,412 - -
- -100 46,640 46,459 1,088 4,047
- -200 47,655 51,854 1,015 5,395
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.
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 $18.3 million, $16.1 million and $15.1 million
for 2001, 2000 and 1999 respectively. Net interest income as a percentage of
average earning assets (net interest margin) was 4.77%, 4.56% and 4.55% in 2001
and 2000 and 1999 respectively. The increase in net interest margin in 2001 was
due primarily to increased fees collected on loans sold to the secondary market.
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 during 2001 was due primarily to increased earning
assets. The increase in interest income and fees on loans during 2000 was due to
both an increase in earning assets and increased yields on earning assets.
For the year Dollar/rate change
2001 2000 1999 2001 2000
----------------------------- ---------------------
(Dollars in millions)
Interest income and fees on loans $33.0 $32.1 $28.5 $0.9 $3.6
Earning assets (Average balances) $402.5 $371.0 $348.8 $31.5 $22.2
Yield on earning assets 8.20% 8.65% 8.16% -0.45% 0.49%
The following table summarizes the changes and reasons for the changes in
interest expense during 2001 and 2000. The decrease in interest expense during
2001 was due primarily to decreased rates paid for liabilities. The increase in
interest expense during 2000 was the result of increased liabilities and
increased rates paid on liabilities.
For the year Dollar/rate change
2001 2000 1999 2001 2000
----------------------------- ---------------------
(Dollars in millions)
Interest expense $13.8 $15.2 $12.6 ($1.4) $2.6
Interest bearing liabilities (Average balances) $331.9 $308.6 $292.1 $23.3 $16.5
Cost of interest bearing liabilities 4.16% 4.93% 4.31% -0.77% 0.62%
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.
For the year Dollar/rate change
2001 2000 1999 2001 2000
----------------------------- ---------------------
(Dollars in millions)
Interest income $29.2 $27.8 $24.4 $1.4 $3.4
Loans (Average balances) $340.3 $309.3 $283.2 $31.0 $26.1
Yield on loans 8.58% 9.01% 8.60% -0.43% 0.41%
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 decrease during 2001 in interest expense on these two components was the
result of decreased rates paid on these liabilities. The increase in interest
expense for these two components during 2000 was a result of increased average
balances outstanding and increased rates paid on these balances.
Time and Money Market deposits
For the year Dollar/rate change
Time deposits 2001 2000 1999 2001 2000
----------------------------- ---------------------
(Dollars in millions)
Interest expense $7.0 $7.0 $5.7 $0.0 $1.3
Time deposits (Average balances) $124.4 $120.2 $108.9 $4.2 $11.3
Cost of time deposits 5.60% 5.82% 5.23% -0.22% 0.59%
For the year Dollar/rate change
Money Market deposits 2001 2000 1999 2001 2000
----------------------------- ---------------------
(Dollars in millions)
Interest expense $3.6 $4.5 $3.1 ($0.9) $1.4
Money Market deposits (Average balances) $102.1 $89.0 $74.9 $13.1 $14.1
Cost of Money Market deposits 3.53% 5.11% 4.14% -1.58% 0.97%
Provision for loan losses
During 2001, $500 thousand was charged to current earnings and added to the
allowance for loan losses. In 2000 and 1999, $360 and $330 thousand,
respectively, was charged to earnings and added to the allowance for loan
losses.
Non-interest income
Non-interest income increased $354 thousand or 11.3% during 2001. The increase
came in primarily in service charges on deposit accounts, which increased $260
thousand as the number of accounts grew and charges for some services were
increased.
Non-interest income increased $297 thousand or 10.5% during 2000. The increase
came in primarily three areas. Service charges on deposit accounts increased $91
thousand as the number of accounts grew and charges for some services were
increased. Investment services income increased $83 thousand as the bank added
an additional sales representative during the year. Trust income increased $57
thousand as that line of business continues to grow.
Non-interest expense
Non-interest expense increased $2.1 million or 17.3% during 2001. Salaries and
benefits accounted for $1.3 million of the increase due to normal wage
increases, increased personal due to opening of two new branches and increased
health insurance costs. Data processing costs increased $179 thousand due to the
inflation clause in the main service provider's contract as well as increased
volumes and additional services used. Occupancy expense increased $111 thousand
due to increases in real estate, personal property taxes and the addition of two
branch locations.
Non-interest expense increased $604 thousand or 5.2% during 2000. Salaries and
benefits accounted for $350 thousand of the increase due to normal wage
increases and increased health insurance costs. Data processing costs increased
$43 thousand due to the inflation clause in the main service provider's contract
as well as increased volumes and additional services used. Occupancy expense
increased $41 thousand due primarily to increases in real estate and personal
property taxes.
Quarterly Results of Operations (Unaudited)
Quarterly results of operations are as follows:
Quarter Ended
MAR 2001 JUN 2001 SEP 2001 DEC 2001
----------------------------------------------------
(Dollars in thousands)
Total interest income $ 8,207 8,235 8,095 7,626
Total interest expense 3,957 3,668 3,442 2,750
----------------------------------------------------
Net interest income 4,250 4,567 4,653 4,876
Provision for loan losses 90 90 90 230
Other income 756 824 919 981
Other expense 3,306 3,380 3,512 4,094
----------------------------------------------------
Income before income taxes 1,610 1,921 1,970 1,533
Applicable income taxes 405 501 507 364
----------------------------------------------------
$
Net Income 1,205 1,420 1,463 1,169
====================================================
Net income per share:
Basic $ 0.82 0.96 1.00 0.79
====================================================
Diluted $ 0.81 0.96 0.99 0.76
====================================================
Quarter Ended
MAR 2000 JUN 2000 SEP 2000 DEC 2000
----------------------------------------------------
(Dollars in thousands)
Total interest income $ 7,284 7,645 8,121 8,236
Total interest expense 3,450 3,641 4,024 4,085
----------------------------------------------------
Net interest income 3,834 4,004 4,097 4,151
Provision for loan losses 90 90 90 90
Other income 690 831 750 855
Other expense 2,976 3,106 3,051 3,054
----------------------------------------------------
Income before income taxes 1,458 1,639 1,706 1,862
Applicable income taxes 385 462 491 541
----------------------------------------------------
$
Net Income 1,073 1,177 1,215 1,321
====================================================
Net income per share:
Basic $ 0.73 0.80 0.83 0.88
====================================================
Diluted $ 0.69 0.78 0.82 0.88
====================================================
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
FIRST BANKING CENTER, INC.
AND SUBSIDIARY
Burlington, Wisconsin
Consolidated Financial Statements
Including Independent Auditors' Report
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Independent Auditors' Report 26-27
Consolidated Balance Sheets
December 31, 2001 and 2000 28
Consolidated Statement of Income
Years Ended December 31, 2001, 2000 and 1999 29
Consolidated Statements of Change in Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999 30
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999 31-32
Notes to Consolidated Financial Statements 33-56
Independent Auditors' Report
To the Board of Directors
First Banking Center, Inc. and Subsidiary
Burlington, Wisconsin
We have audited the accompanying consolidated balance sheets of First Banking
Center, Inc. and subsidiary as of December 31, 2001 and 2000, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Banking
Center, Inc. and subsidiary as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
McGladrey & Pullen, LLP
Madison, Wisconsin
January 29, 2002
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Banking Center, Inc. and Subsidiary
Burlington, Wisconsin
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of First Banking Center, Inc. and
subsidiary for the year ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
First Banking Center, Inc. and subsidiary for the year ended December 31, 1999
in conformity with accounting principles generally accepted in the United States
of America.
VIRCHOW, KRAUSE & CO., LLP
Milwaukee, Wisconsin
January 13, 2000
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
ASSETS 2001 2000
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Cash and due from banks $ 20,735 $ 29,287
Federal funds sold 12,010 -
Interest-bearing deposits in banks 267 696
Available-for-sale securities 59,343 65,189
Loans, less allowance for loan losses of $4,367
and $3,927 in 2001 and 2000, respectively 361,705 316,641
Office buildings and equipment, net 10,521 9,825
Other assets 11,199 9,220
-----------------------------------
Total assets $475,780 $ 430,858
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 66,612 $ 59,602
Savings and NOW accounts 164,904 150,438
Time 120,898 124,900
-----------------------------------
Total deposits 352,414 334,940
Short-term borrowings 29,199 17,399
Other borrowings 47,847 35,944
Other liabilities 4,081 4,627
-----------------------------------
Total liabilities 433,541 392,910
-----------------------------------
Stockholders' Equity:
Common stock, $1.00 par value, 3,000,000 shares authorized;
1,489,380 shares issued as of December 31, 2001 and 2000;
1,473,197 and 1,477,022 shares outstanding as of
December 31, 2001 and 2000; 1,489 1,489
Surplus 4,184 4,178
Retained earnings 36,649 32,525
Accumulated other comprehensive income 542 208
Common stock in treasury, at cost -16,183 and 12,358 shares
2001 and 2000, respectively (625) (452)
-----------------------------------
Total stockholders' equity 42,239 37,948
-----------------------------------
Total liabilities and stockholders' equity $475,780 $ 430,858
===================================
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
Interest Income:
Interest and fees on loans $ 29,090 $ 27,751 $ 24,205
Interest and dividends on securities:
Taxable 1,146 2,003 2,161
Nontaxable 1,421 1,321 1,211
Interest on federal funds sold 232 196 105
Interest on interest-bearing deposits in banks 121 15 10
Other interest 153 - -
---------------------------------------------
Total interest income 32,163 31,286 27,692
---------------------------------------------
Interest Expense:
Interest on deposits 11,246 12,609 9,970
Interest on federal funds purchased and securities
sold under agreements to repurchase 825 1,005 1,295
Interest on other borrowings 1,746 1,586 1,321
---------------------------------------------
Total interest expense 13,817 15,200 12,586
---------------------------------------------
Net interest income 18,346 16,086 15,106
Provision for loan losses 500 360 330
---------------------------------------------
Net interest income after provision for loan losses 17,846 15,726 14,776
---------------------------------------------
Noninterest Income:
Trust fees 513 499 442
Service charges on deposit accounts 1,577 1,317 1,226
Securities gains (losses), net (1) 12 (2)
Other 1,391 1,298 1,163
---------------------------------------------
Total noninterest income 3,480 3,126 2,829
---------------------------------------------
Noninterest Expenses:
Salaries and employee benefits 8,032 6,746 6,396
Occupancy 940 829 788
Equipment 1,382 1,362 1,347
Data processing services 824 645 602
Other 3,114 2,605 2,450
---------------------------------------------
Total noninterest expenses 14,292 12,187 11,583
---------------------------------------------
Income before income taxes 7,034 6,665 6,022
Income taxes 1,777 1,879 1,860
---------------------------------------------
Net income $ 5,257 $ 4,786 $ 4,162
=============================================
Basic earnings per share $ 3.57 $ 3.24 $ 2.80
Diluted earnings per share 3.52 3.21 2.78
Weighted average common shares outstanding $ 1,473 $ 1,477 $ 1,486
Weighted average common and equivalent common
shares outstanding 1,492 1,492 1,495
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income (Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except for share and per share data)
Balance, December 31, 1998 $ 1,489 $ 4,312 $ 25,431 $ 663 $ - $ 31,895
---------------------------------------------------------------------------
Comprehensive income:
Net income - - 4,162 - - 4,162
Change in net unrealized gains (losses)
on available-for-sale securities - - - (2,205) - (2,205)
Reclassification adjustment for
(losses) included in net income - - - (2) - (2)
Income tax effect - - - 861 - 861
--------------
Comprehensive income 2,816
--------------
Purchase of 16,356 shares of
treasury stock - - - - (561) (561)
Cash dividends paid - $.59 per share - - (876) - - (876)
Sale of 6,534 shares of treasury stock
for the exercise of stock options - (76) - - 219 143
---------------------------------------------------------------------------
Balance, December 31, 1999 1,489 4,236 28,717 (683) (342) 33,417
---------------------------------------------------------------------------
Comprehensive income:
Net income - - 4,786 - - 4,786
Change in net unrealized gains (losses)
on available-for-sale securities - - - 1,335 - 1,335
Reclassification adjustment for gains
included in net income - - - 12 - 12
Income tax effect - - - (456) - (456)
--------------
Comprehensive income 5,677
--------------
Purchase of 10,980 shares of
treasury stock - - - - (404) (404)
Cash dividends paid - $.64 per share - - (946) - - (946)
Tax benefit of nonqualified stock
options exercised - 10 - - - 10
Sale of 8,444 shares of treasury stock
for the exercise of stock options - (68) (32) - 294 194
---------------------------------------------------------------------------
Balance, December 31, 2000 1,489 4,178 32,525 208 (452) 37,948
---------------------------------------------------------------------------
Comprehensive income:
Net income - - 5,257 - - 5,257
Change in net unrealized gains (losses)
on available-for-sale securities - - - 506 - 506
Reclassification adjustment for (losses)
included in net income - - - (1) - (1)
Income tax effect - - - (171) - (171)
--------------
Comprehensive income 5,591
--------------
Purchase of 15,660 shares of
treasury stock - - - - (606) (606)
Cash dividends paid - $.69 per share - - (1,016) - - (1,016)
Tax benefit of nonqualified stock
options exercised - 6 - - - 6
Sale of 11,835 shares of treasury stock
for the exercise of stock options - - (117) - 433 316
---------------------------------------------------------------------------
Balance, December 31, 2001 $ 1,489 $ 4,184 $ 36,649 $ 542 $ (625) $ 42,239
===========================================================================
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Cash Flows From Operating Activities:
Net income $ 5,257 $ 4,786 $ 4,162
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 798 851 949
Provision for loan losses 500 360 330
Loans originated for sale (94,362) (30,125) (45,489)
Proceeds from sales of loans 89,607 31,960 49,056
Gain on sale of loans - (9) (8)
Deferred income taxes (9) 353 (19)
Amortization of premiums and accretion of
discounts on securities, net 59 46 102
Amortization 102 104 104
Investment securities (gains) losses 1 (12) 2
Tax benefit of nonqualified stock options exercised 6 10 -
Increase in other assets (2,597) (961) (628)
Increase (decrease) in other liabilities (193) 1,098 85
-------------------------------------------
Net cash provided by (used in) operating activities (831) 8,461 8,646
-------------------------------------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest-bearing deposits in banks 429 (656) 26
Net (increase) decrease in federal funds sold (12,010) 4,242 2,643
Proceeds from sales of available-for-sale securities 21,241 10,458 6,110
Proceeds from maturities and calls of
available-for-sale securities 140,606 10,925 69,470
Purchase of available-for-sale securities (155,555) (30,319) (67,413)
Net increase in loans (40,809) (23,684) (37,653)
Purchase of office buildings and equipment, net (1,494 (1,247) (776)
-------------------------------------------
Net cash used in investing activities $ (47,592) $ (30,281) $ (27,593)
-------------------------------------------
(Continued)
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
(Dolars in thousands)
Cash Flows From Financing Activities:
Net increase in deposits $ 17,474 $ 28,796 $ 23,345
Dividends paid (1,016) (946) (876)
Proceeds from other borrowings 38,350 10,000 8,670
Payments on other borrowings (26,447) (1,824) (3,045)
Net increase (decrease) in short term borrowings 11,800 (3,832) (7,619)
Purchase of treasury stock (606) (404) (561)
Sale of treasury stock for the exercise of stock options 316 194 143
-------------------------------------------
Net cash provided by financing activities 39,871 31,984 20,057
-------------------------------------------
Net increase (decrease) in cash and due from banks (8,552) 10,164 1,110
Cash and due from banks:
Beginning 29,287 19,123 18,013
-------------------------------------------
Ending $ 20,735 $ 29,287 $ 19,123
===========================================
Supplemental Disclosures of Cash Flow Information,
cash paid during the year for:
Interest $ 14,375 $ 14,944 $ 12,479
Income taxes 2,211 1,366 2,161
Supplemental Schedule of Noncash Investing Activities,
change in accumulated other comprehensive income,
unrealized gains (losses) on available-for-sale securities, net $ 334 $ 891 $ (1,346)
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of Banking Activities: The consolidated income of First Banking Center,
Inc. (the Company) is principally from the income of its wholly owned
subsidiary, First Banking Center (the Bank). The Bank grants agribusiness,
commercial, residential and consumer loans, accepts deposits and provides trust
services to customers primarily in southeastern and south central Wisconsin. The
Bank is subject to competition from other financial institutions and
nonfinancial institutions providing financial products. Additionally the Company
and the Bank are subject to the regulations of certain regulatory agencies and
undergo periodic examination by those regulatory agencies.
Use of Estimates: In preparing consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, and the valuation of foreclosed
real estate and deferred tax assets. The fair value disclosure of financial
instruments is an estimate that can be computed within a range.
Consolidation: The consolidated financial statements of the Company include the
accounts of the Bank. The Bank includes the accounts of its wholly owned
subsidiary, FBC-Burlington, Inc. and FBC Financial Services Corp. The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
conform to general practices within the banking industry. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
Presentation of Cash Flows: For purposes of reporting cash flows, cash and due
from banks include cash on hand and amounts due from banks. Cash flows from
federal funds sold, interest-bearing deposits in banks, loans, deposits, and
short-term borrowings are treated as net increases or decreases.
Cash and Due From Banks: The Bank maintains amounts due from banks which, at
times, may exceed federally insured limits. Management monitors these
correspondent relationships. The Bank has not experienced any losses in such
accounts.
Available-for-Sale Securities: Securities classified as available for sale are
those debt securities that the Bank intends to hold for an indefinite period of
time, but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Bank's assets and liabilities, liquidity needs, regulatory capital
consideration, and other similar factors. Securities classified as available for
sale are carried at fair value. Unrealized gains or losses are reported as
increases or decreases in accumulated other comprehensive income, net of the
related deferred tax effect. Realized gains or losses, determined on the basis
of the cost of specific securities sold, are included in earnings.
Note 1. Summary of Significant Accounting Policies (Continued)
Loans: Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. Interest income is accrued on the unpaid principal
balance. The accrual of interest income on impaired loans is discontinued when,
in the opinion of management, there is reasonable doubt as to the borrower's
ability to meet payment of interest or principal when they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Accrual of interest is generally resumed when the customer is current on all
principal and interest payments and has been paying on a timely basis for a
period of time.
Mortgage Loans Held for Sale: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. All sales are made without recourse.
Allowance for Loan Losses: The allowance for loan losses is established through
a provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. Subsequent recoveries, if any, are credited to the
allowance. 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. The allowance is based on
past events and current economic conditions, and does not include the effects of
expected losses on specific loans or groups of loans that are related to future
events or expected changes in economic conditions. While management uses the
best information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement. Cash
collections on impaired loans are credited to the loan receivable balance and no
interest income is recognized on those loans until the principal balance is
current.
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.
Credit Related Financial Instruments: In the ordinary course of business the
Bank has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded.
Transfers of Financial Assets: Transfers of financial assets are accounted for
as sales, only when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of the right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
Note 1. Summary of Significant Accounting Policies (Continued)
Office Buildings and Equipment: Office buildings and equipment are stated at
cost less accumulated depreciation. Provisions for depreciation are computed on
straight-line and accelerated methods over the estimated useful lives of the
assets.
Other Real Estate Owned: Other real estate owned, acquired through partial or
total satisfaction of loans, is carried at the lower of cost or fair value less
cost to sell. At the date of acquisition, losses are charged to the allowance
for loan losses. Revenue and expenses from operations and changes in the
valuation allowance are included in loss on foreclosed real estate.
Profit-Sharing Plan: The Company has established a 401(k) profit-sharing plan
for qualified employees. The Company's policy is to fund contributions as
accrued.
Income Taxes: The Company files a consolidated federal income tax return and
individual subsidiary state income tax returns. Accordingly, amounts equal to
tax benefits of those companies having taxable federal losses or credits are
reimbursed by the other companies that incur federal tax liabilities.
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The differences relate principally to the reserve
for loan losses, nonaccrual loan income, deferred compensation, pension, fixed
assets and unrealized gains and losses on available-for-sale securities.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Trust Assets: Property held for customers in fiduciary or agency capacities,
other than cash on deposit at the Bank, is not included in the accompanying
balance sheets, since such items are not assets of the Company.
Earnings Per Share: Earnings per share are computed based upon the weighted
average number of common shares outstanding during each year. In the computation
of diluted earnings per share, all dilutive stock options are assumed to be
exercised at the beginning of each year and the proceeds are used to purchase
shares of the Company's common stock at the average market price during the
year.
Comprehensive Income: Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.
Note 1. Summary of Significant Accounting Policies (Continued)
Current Accounting Developments: In July 2001, the Financial Accounting
Standards Board issued Statement 141, Business Combinations and Statement 142,
Goodwill and Other Intangible Assets. Statement 141 eliminates the pooling
method for accounting for business combinations; requires that intangible assets
that meet certain criteria be reported separately from goodwill; and requires
negative goodwill arising from a business combination to be recorded as an
extraordinary gain. Statement 142 eliminates the amortization of goodwill and
other intangibles that are determined to have an indefinite life; and requires,
at a minimum, annual impairment tests for goodwill and other intangible assets
that are determined to have an indefinite life. For the Company, the provisions
of Statement 142 are effective January 1, 2002 and are not expected to have a
material impact on the Company's financial statements.
The Financial Accounting Standards Board has issued Statement 143, Accounting
for Asset Retirement Obligations and Statement 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Statement 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. Statement 144 supersedes FASB Statement
121 and the accounting and reporting provisions of APB Opinion No. 30. Statement
144 establishes a single accounting model for long-lived assets to be disposed
of by sale which includes measuring a long-lived asset classified as held for
sale at the lower of its carrying amount or its fair value less costs to sell
and to cease depreciation/amortization. For the Company, the provisions of
Statement 143 and 144 are effective January 1, 2003, and January 1, 2002,
respectively. Implementation of the Statements is not expected to have a
material impact on the Company's financial statements.
Note 2. Cash and Due From Banks
The Bank is required to maintain vault cash and reserve balances with Federal
Reserve Bank based upon a percentage of deposits. These requirements
approximated $4,694,000 and $2,903,000 at December 31, 2001 and 2000,
respectively.
Note 3. Available-for-Sale Securities
Amortized costs and fair values of available-for-sale securities are summarized
as follows:
December 31, 2001
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury securities $ 358 $ 21 $ - $ 379
Obligations of other U.S. government
agencies and corporations 22,050 194 (55) 22,189
Obligations of states and
political subdivisions 33,026 732 (156) 33,602
----------------------------------------------------------------
55,434 947 (211) 56,170
Mortgage-backed securities 3,088 85 - 3,173
----------------------------------------------------------------
$ 58,522 $ 1,032 $ (211) $ 59,343
================================================================
December 31, 2000
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury securities $ 1,364 $ 11 $ - $ 1,375
Obligations of other U.S. government
agencies and corporations 21,675 60 (80) 21,655
Obligations of states and
political subdivisions 27,969 405 (95) 28,279
Commercial paper 2,600 - - 2,600
----------------------------------------------------------------
53,608 476 (175) 53,909
Mortgage-backed securities 4,866 25 (11) 4,880
Mutual funds 4,182 - - 4,182
Other 2,218 - - 2,218
----------------------------------------------------------------
$ 64,874 $ 501 $ (186) $ 65,189
================================================================
Note 3. Available-for-Sale Securities (Continued)
The amortized cost and fair value of available-for-sale securities by
contractual maturity at December 31, 2001 are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without any penalties.
Therefore, these securities are not included in the maturity categories in the
following summary.
Amortized Fair
Cost Value
--------------------------------
(Dollars in thousands)
Due in one year or less $ 9,066 $ 9,089
Due after one year through 5 years 27,943 28,493
Due after 5 years through 10 years 13,345 13,490
Due after 10 years 5,080 5,098
--------------------------------
55,434 56,170
Mortgage-backed securities 3,088 3,173
--------------------------------
$ 58,522 $ 59,343
================================
Following is a summary of the proceeds from sales of available-for-sale
securities, as well as gross gains and losses for the years ended December 31:
2001 2000 1999
---------------------------------------------------
(Dollars in thousands)
Proceeds from sales of
available-for-sale securities $ 21,241 $ 10,458 $ 6,110
===================================================
Gross gains on sales $ 1 $ 51 $ 8
Gross losses on sales (2) (39) (10)
---------------------------------------------------
$ (1) $ 12 $ (2)
===================================================
Securities with a carrying value of $28,220,000 and $19,366,000 as of December
31, 2001 and 2000 respectively, were pledged as collateral on public deposits
and for other purposes as required or permitted by law.
Note 4. Loans
Major classifications of loans as of December 31, are as follows:
2001 2000
-----------------------------------
(Dollars in thousands)
Commercial $ 27,487 $ 26,219
Agricultural production 23,013 11,326
Real estate:
Construction 43,603 42,242
Commercial 90,685 85,192
Agricultural 12,604 8,732
Residential 160,713 135,696
Municipal loans 3,293 4,166
Consumer and other 4,674 6,995
-----------------------------------
366,072 320,568
Less allowance for loan losses 4,367 3,927
-----------------------------------
Net loans $ 361,705 $ 316,641
===================================
Changes in the allowance for estimated losses on loans for the years ended
December 31, are presented as follows:
2001 2000 1999
---------------------------------------------------
(Dollars in thousands)
Balance at beginning of year $ 3,927 $ 3,581 $ 3,421
Charge-offs (135) (169) (197)
Recoveries 75 155 27
Provision charged to expense 500 360 330
---------------------------------------------------
Balance at end of year $ 4,367 $ 3,927 $ 3,581
===================================================
Note 4. Loans (Continued)
The following is a summary of information pertaining to impaired loans as of
December 31:
2001 2000
-------------------------------
(Dollars in thousands)
Impaired loans for which an allowance has been $ 93 $ 640
provided
Impaired loans for which no allowance has been
provided 1,448 187
-------------------------------
Total loans determined to be impaired $ 1,541 $ 827
===============================
Allowance provided for impaired loans, included
in the allowance for loan losses $ 5 $ 54
===============================
2001 2000 1999
-----------------------------------------------
(Dollars in thousands)
Average investment in impaired loans $ 1,580 $ 1,136 $ 1,875
===============================================
Interest income recognized and collected on a
cash basis on impaired loans $ 14 $ 12 $ 31
===============================================
Nonaccruing loans totaled $1,541,000 and $827,000 as of December 31, 2001 and
2000, respectively. Interest income in the amount of $26,000, $12,000, and
$36,000 would have been earned on the nonaccrual loans had they been performing
in accordance with their original terms during the years ended December 31,
2001, 2000, and 1999 respectively. The interest collected on nonaccrual loans
and included in income for years ended December 31, 2001, 2000, and 1999 was not
significant.
Certain directors and executive officers of the Company, and their related
interests, had loans outstanding in the aggregate amounts of $6,611,000 and
$4,086,000 at December 31, 2001 and 2000, respectively. During 2001, $3,555,000
of new loans were made and repayments totaled $1,030,000. These loans were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with other persons
and did not involve more than normal risks of collectibility or present other
unfavorable features.
Note 5. Office Buildings and Equipment
Office buildings and equipment are stated at cost less accumulated depreciation
as of December 31, are summarized as follows:
2001 2000
-----------------------------------
(Dollars in thousands)
Land $ 1,632 $ 1,632
Buildings and improvements 9,729 9,185
Furniture and equipment 7,006 6,078
-----------------------------------
18,367 16,895
Less accumulated depreciation 7,846 7,070
-----------------------------------
Total office buildings and equipment $ 10,521 $ 9,825
===================================
Note 6. Intangible Assets
The amount paid in excess of cost in the underlying carrying amount of net
assets of the Genoa City and Pell Lake branches of the Bank at the date of the
branch acquisition amounted to $1,509,000 and is included in other assets. The
amount is being amortized over a period of ten to fifteen years. Amortization
expense amounted to $102,000 for each of the years ended December 31, 2001, 2000
and 1999.
Note 7. Deposits
The aggregate amount of time deposits, each with a minimum denomination of
$100,000, was approximately $33,701,000 and $38,314,000 at December 31, 2001 and
2000, respectively.
At December 31, 2001, the scheduled maturities of time deposits were as follows
(dollars in thousands):
Years Ending December 31,
- ---------------------------------------
2002 $ 78,437
2003 30,413
2004 8,031
2005 2,940
2006 1,077
----------------
$120,898
================
Note 8. Short-Term Borrowings
Short-term borrowings consisted of the following at December 31:
2001 2000
-----------------------------------
(Dollars in thousands)
Securities sold under agreements to repurchase $ 26,099 $ 17,299
Federal funds purchased 3,000 -
Treasury, Tax & Loan note 100 100
-----------------------------------
$ 29,199 $ 17,399
===================================
Securities sold under agreements to repurchase generally mature within one year.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
2001 2000
-----------------------------------
(Dollars in thousands)
Average daily balance during the year $ 20,395 $ 17,780
Average daily interest rate during the year 3.96% 5.43%
Maximum month-end balance during the year $ 33,001 $ 21,553
Weighted average rate as of December 31 2.00% 4.88%
Securities underlying the agreements at year-end:
Carrying value $ 28,220 $ 19,366
Estimated fair value 28,220 19,366
Federal funds purchased and treasury tax and loan note generally are repaid
within one to 120 days from the transaction date.
Note 9. Other Borrowings
Other borrowings consisted of the following at December 31:
2001 2000
-----------------------------------
(Dollars in thousands)
Federal Home Loan Bank advances $ 47,276 $ 35,344
Note payable 571 600
-----------------------------------
$ 47,847 $ 35,944
===================================
The Bank has a master contract agreement with the Federal Home Loan Bank (FHLB)
which provides for borrowing up to the maximum of 60 percent of the book value
of the Bank's first lien 1-4 family real estate loans, or $102,569,000, at
December 31, 2001. The indebtedness is evidenced by a master contract dated
September 14, 1992. FHLB provides both fixed and floating rate advances.
Floating rates are tied to short-term market rates of interest, such as Federal
funds and Treasury Bill rates. Fixed rate advances are priced in reference to
market rates of interest at the time of the advance, namely the rates that FHLB
pays to borrowers at various maturities.
Maturity and interest rate information on advances from the FHLB as of December
31, is as follows:
2001 2000
-----------------------------------
(Dollars in thousands)
Due during fiscal year ending December 31, 2001
with interest rates ranging from 4.7% to 6.95% $ - $ 26,068
Due during fiscal year ending December 31, 2002
with interest rates ranging from 1.74% to 5.95% 18,350 3,350
Due during fiscal year ending December 31, 2003
with interest rates ranging from 5.78% to 5.86% 2,006 2,006
Due during fiscal year ending December 31, 2004
with interest rates ranging from 1.93% to 6.88% 18,820 3,820
Due during fiscal year ending December 31, 2005
with an interest rate of 6.08% 50 50
Due during fiscal year ending December 31, 2006
with interest rates ranging from 2.37% to 2.56% 5,000 -
Thereafter with rates ranging from 3.8% to 6.14% 3,050 50
-----------------------------------
$ 47,276 $ 35,344
===================================
The advances are secured by real estate mortgages with a carrying value of
$78,793,000 and $58,907,000 as of December 31, 2001 and 2000, respectively.
Note 9. Other Borrowings (Continued)
The Bank has a note payable with a third party bank used to acquire a permanent
facility for a branch that formerly occupied rented space. The note payable
bears an interest rate of 6.5 percent with monthly principal and interest
payments through July 2008 of $8,910. The outstanding balance as of December 31,
2001 and 2000 was $571,000 and $600,000, respectively.
Future principal payments required to be made on the note payment are as follows
(dollars in thousands):
Years Ending December 31,
- ---------------------------------------
2002 $ 72
2003 77
2004 82
2005 87
2006 93
Thereafter 160
----------------
$ 571
================
Note 10. Stock Based Compensation
The Company has an Incentive Stock Option Plan which provides for the granting
of options for up to 300,000 shares of common stock to key officers and
employees of the Company. The exercise price of each option equals the market
price of the Company's stock on the date of grant. Options may be exercised
33.33 percent per year beginning one year after the date of the grant and must
be exercised within a four-year period. During 1999, the plan was amended to
extend the time period for exercising grants to ten years.
Note 10. Stock Based Compensation (Continued)
Activity of the Incentive Stock Option Plan is summarized in the following
table:
Weighted-
Average Weighted-
Fair Value Average
of Option Options Options Exercise
Granted Available Exercisable Outstanding Price
----------------------------------------------------------------------
Balance - December 31, 1998 195,883 37,628 98,034 $ 28.89
Granted $ 7.57 (83,725) 83,725 34.01
Exercise of stock options - (7,283) 19.67
Canceled 45,700 (45,700) 32.29
-------------- -----------------
Balance - December 31, 1999 157,858 30,632 128,776 $ 31.53
Granted $ 9.31 (45,275) 45,275 36.14
Exercise of stock options - (8,444) 22.93
Canceled 6,781 (6,781) 31.88
-------------- -----------------
Balance - December 31, 2000 119,364 35,380 158,826 $ 33.28
Granted $ 8.43 (38,775) 38,775 40.73
Exercise of stock options - (11,835) 26.70
Canceled 6,625 (6,625) 30.94
-------------- -----------------
Balance - December 31, 2001 87,214 85,416 179,141 $ 35.41
============== =================
The following table summarizes information about stock options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- -------------------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
- --------------------------------------------------------------------------- -------------------------------------
$ 24.90-$29.05 17,125 1 year $ 28.38 17,125 $ 28.38
29.06-33.20 4,024 2 years 32.31 4,024 32.31
33.21-37.35 114,717 8 years 34.69 62,764 34.42
37.35-41.50 43,275 8 years 40.38 1,503 37.38
-------------- ----------------
179,141 85,416
============== ================
Note 10. Stock Based Compensation (Continued)
The Company applies APB Opinion 25 and related Interpretations in accounting for
the stock option plan. Accordingly, no compensation cost has been recognized.
Had compensation cost for the Company's stock option plan been determined based
upon the fair value at the grant dates for awards under the plan consistent with
the method prescribed by FASB Statement No. 123, the Company's net income and
earnings per share would have been adjusted to the pro forma amounts indicated
below:
2001 2000 1999
---------------------------------------------------
(Dollars in thousands except
per share data)
Net income - as reported $ 5,257 $ 4,786 $ 4,162
Pro forma 5,064 4,651 4,136
Basic earnings per share - as reported $ 3.57 $ 3.24 $ 2.80
Pro forma 3.44 3.15 2.78
Diluted earnings per share - as reported $ 3.52 $ 3.21 $ 2.78
Pro forma 3.39 3.12 2.77
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: dividend yield
of 1.6 percent, 1.8 percent and 1.7 percent; expected volatility of 5.2 percent,
5.2 percent and 5.3 percent, blended risk-free interest rates of 4.7 percent,
5.8 percent and 5.9 percent; and expected lives of 10 years, respectively.
Note 10. Stock Based Compensation (Continued)
A reconciliation of the numerators and the denominators of basic earnings per
share and diluted earnings per share are:
Per Share
Income Shares Amount
---------------------------------------------------
(Dollars in thousands
except per share data)
2001
Earnings per share - basic $ 5,257 1,473 $ 3.57
=================
Effect of options - 19
----------------------------------
Earnings per share - diluted $ 5,257 1,492 $ 3.52
===================================================
2000
Earnings per share - basic $ 4,786 1,477 $ 3.24
=================
Effect of options - 15
----------------------------------
Earnings per share - diluted $ 4,786 1,492 $ 3.21
===================================================
1999
Earnings per share - basic $ 4,162 1,486 $ 2.80
=================
Effect of options - 10
----------------------------------
Earnings per share - diluted $ 4,162 1,495 $ 2.78
===================================================
Note 11. Income Taxes
The provision for income taxes included in the accompanying consolidated
financial statements for the years ended December 31, consists of the following:
2001 2000 1999
-------------------------------------------------
(Dollars in thousands)
Current $ 1,786 $ 1,526 $ 1,879
Deferred (9) 353 (19)
-------------------------------------------------
$ 1,777 $ 1,879 $ 1,860
=================================================
Note 11. Income Taxes (Continued)
The net deferred tax assets included with other assets in the accompanying
consolidated balance sheets include the following amounts of deferred tax assets
and liabilities:
2001 2000
--------------------------------
(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses $ 1,273 $ 1,113
Deferred compensation 449 464
Other 35 5
Deferred tax liabilities:
Office buildings and equipment (311) (179)
Stock dividends (83) (40)
Unrealized gains on available for sale securities (279) (107)
Other - (9)
--------------------------------
Net deferred tax asset $ 1,084 $ 1,247
================================
A reconciliation of expected income tax expense to the income tax expense
included in the consolidated statements of income for the years ended December
31, was as follows:
2001 2000 1999
----------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
----------------------------------------------------------------------------------
(Dollars in thousands)
Computed "expected" tax
expense $2,462 35.0% $ 2,333 35.0% $2,108 35.0%
Effect of graduated tax rates (70) (1.0) (67) (1.0) (61) (1.0)
Tax-exempt interest, net (509) (7.2) (487) (7.3) (470) (7.8)
State income taxes, net
of federal benefit - - 34 0.5 230 3.8
Other, net (106) (1.5) 66 1.0 53 0.9
----------------------------------------------------------------------------------
$1,777 25.3% $ 1,879 28.2% $1,860 30.9%
==================================================================================
Note 12. Profit-Sharing Plan
The Company has a 401(k) Plan whereby substantially all eligible employees
participate in the Plan. Employees may contribute up to 15 percent of their
compensation subject to certain limits based on federal tax laws. The Company
makes matching contributions equal to 50 percent of the first 4 percent of an
employee's compensation contributed to the Plan. Matching contributions vest to
the employee over a six-year period. For the years ended December 31, 2001, 2000
and 1999, contributions to the Plan amounted to $253,000, $163,000 and $156,000,
respectively.
Note 13. Salary Continuation Agreement
The Company has entered into salary continuation agreements with various
executive officers. The agreements provide for the payment of specified amounts
upon the employee's retirement or death which is being accrued over the
anticipated remaining period of employment. Expenses recognized for future
benefits under these agreements totaled $56,000, $57,000 and $59,000 during
2001, 2000 and 1999, respectively.
Although not part of the agreement, the Company purchased life insurance on the
officers which could provide funding for the payment of benefits. Included in
other assets is $1,663,000 and $1,586,000 of related cash surrender value of the
life insurance as of December 31, 2001 and 2000, respectively.
Note 14. Commitments and Contingencies
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, financial guarantees
and standby letters of credit. They involve, to varying degrees, elements of
credit risk in excess of amounts recognized on the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and issuing letters of credit as they do for on-balance-sheet
instruments.
A summary of the contract or notional amount of the Company's exposure to
off-balance-sheet risk as of December 31 is as follows:
2001 2000
--------------------------------
(Dollars in thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 71,274 $ 56,489
Standby letters of credit 5,449 6,838
Note 14. Commitments and Contingencies (Continued)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional
commitments issued to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Credit card commitments are unsecured.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third-party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Note 15. Concentration of Credit Risk
The Company and the Bank do not engage in the use of interest rate swaps,
futures or option contracts as of December 31, 2001.
Practically all of the Bank's loans, commitments, and standby letters of credit
have been granted to customers in the Bank's market area. Although the Bank has
a diversified loan portfolio, the ability of their debtors to honor their
contracts is dependent on the economic conditions of the counties surrounding
the Bank. The concentration of credit by type of loan is set forth in Note 4.
Note 16. Regulatory Capital Requirements and Restrictions of Dividends
The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk-weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy
requires the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table on the following page) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and Tier 1
capital (as defined) to average assets (as defined). Management believes, as of
December 31, 2001 and 2000, that the Company and the Bank met all capital
adequacy requirements to which they are subject.
Note 16. Regulatory Capital Requirements and Restrictions of Dividends
(Continued)
As of December 31, 2001, the most recent notification from the regulatory
agencies categorized the Company as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
an institution must maintain minimum total risk-based, Tier I risk-based, and
Tier 1 leverage ratios as set forth in the following table. There are no
conditions or events since these notifications that management believes have
changed the Company's or Bank's category.
The Company's and the Bank's actual capital amounts and ratios as of December
31, 2001 and 2000 are presented in the following table:
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------
(Dollars in thousands)
As of December 31, 2001:
Total capital
(to risk-weighted assets):
First Banking Center, Inc. $ 45,080 12.5% $ 28,973 8.0% N/A
First Banking Center 43,487 12.0% 28,885 8.0% $ 36,106 10.0%
Tier I capital
(to risk-weighted assets):
First Banking Center, Inc. $ 40,713 11.2% $ 14,486 4.0% N/A
First Banking Center 39,120 10.8% 14,442 4.0% $ 21,664 6.0%
Tier I capital
(to average assets):
First Banking Center, Inc. $ 40,713 9.1% $ 17,871 4.0% N/A
First Banking Center 39,120 8.8% 17,839 4.0% $ 22,299 5.0%
As of December 31, 2000:
Total capital
(to risk-weighted assets):
First Banking Center, Inc. $ 40,571 12.3% $ 26,442 8.0% N/A
First Banking Center 39,612 12.0% 26,383 8.0% $ 32,978 10.0%
Tier I capital
(to risk-weighted assets):
First Banking Center, Inc. $ 36,644 11.1% $ 13,221 4.0% N/A
First Banking Center 35,685 10.8% 13,191 4.0% $ 19,787 6.0%
Tier I capital
(to average assets):
First Banking Center, Inc. $ 36,644 9.1% $ 16,197 4.0% N/A
First Banking Center 35,685 8.8% 16,173 4.0% $ 20,216 5.0%
A source of income and funds of the Company are dividends from the Bank.
Dividends declared by the Bank that exceed the retained net income for the most
current year plus retained net income for the preceding two years must be
approved by Federal and State regulatory agencies. Under this formula, dividends
of approximately $11,367,000 may be paid without prior regulatory approval.
Note 17. Fair Value of Financial Information
The fair value of a financial instrument is the current amount that would be
exchanged between willing parties, other than a forced liquidation. Fair value
is best-determined base upon quoted market prices. However, in many instances,
there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument. SFAS
107 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the
Company.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
Cash and due from banks: The carrying amounts of cash and due from
banks equal their fair values.
Federal funds sold: The carrying amounts of Federal funds sold equal
their fair values.
Interest-bearing deposits in banks: The carrying amounts of
interest-bearing deposits in banks equal their fair values.
Available-for-sale securities: Fair values for securities are based on
quoted market prices.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. Fair values for all other loans are estimated by discounting
contractual cash flows using estimated market discount rates, which
reflect the credit and interest rate risk inherent in the loan.
Accrued interest receivable and payable: The carrying amounts of
accrued interest receivable and payable equal their fair values.
Deposits: The fair values disclosed for demand deposits (interest and
non-interest checking, passbook savings and certain types of money
market accounts) are, by definition, equal to the amount payable on
demand at the reporting date. Fair values for fixed-rate certificates
of deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates within
the market place.
Short-term borrowings: The carrying amounts of short-term borrowings
equal their fair values.
Other borrowings: The fair values of other borrowings are estimated
using discounted cash flow analysis based on current interest rates
being offered by instruments with similar terms and credit quality.
Off-balance-sheet instruments: The estimated fair value of fee income
on letters of credit at December 31, 2001 and 2000 is insignificant.
Loan commitments on which the committed interest rate is less that the
current market rate are also insignificant at December 31, 2001 and
2000.
Note 17. Fair Value of Financial Information (Continued)
The estimated fair values of the Company's financial instruments are as follows:
2001 2000
----------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------------------------------
(Dollars in thousands)
Financial assets:
Cash and due from banks $ 20,735 $ 20,735 $ 29,287 $ 29,287
Federal funds sold 12,010 12,010 - -
Interest-bearing deposits
in banks 267 267 696 696
Available-for-sale securities 59,343 59,343 65,189 65,189
Loans, net 361,705 365,681 316,641 319,916
Accrued interest receivable 3,285 3,285 3,706 3,706
Financial liabilities:
Deposits 352,414 352,625 334,940 334,910
Short-term borrowings 29,199 29,199 17,399 17,399
Other borrowings 47,847 49,146 35,944 35,083
Accrued interest payable 1,010 1,010 1,546 1,546
Note 18. Parent Company Only Financial Information
BALANCE SHEETS
(Parent Company Only)
December 31,
--------------------------------------
2001 2000
--------------------------------------
(Dollars in thousands)
ASSETS
Cash $ 130 $ 180
Interest-bearing deposits in banks 771 270
Investment in subsidiary 40,646 36,979
Loans 555 336
Other assets 550 409
--------------------------------------
Total assets $ 42,652 $ 38,174
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Other liabilities $ 413 $ 226
--------------------------------------
Stockholders' Equity
Common stock 1,489 1,489
Surplus 4,178 4,178
Retained earnings 36,655 32,525
Accumulated other comprehensive income (loss) 542 208
Common stock in treasury at cost (625) (452)
--------------------------------------
Total stockholders' equity 42,239 37,948
--------------------------------------
Total liabilities and stockholders' equity $ 42,652 $ 38,174
======================================
Note 18. Parent Company Only Financial Information (Continued)
STATEMENTS OF INCOME
(Parent Company Only)
December 31,
---------------------------------------------------------
2001 2000 1999
---------------------------------------------------------
(Dollars in thousands)
Income
Dividends from subsidiary $ 1,903 $ 1,307 $ 1,226
Management fees from subsidiary 4,786 3,926 3,440
Other 32 24 20
---------------------------------------------------------
Total income 6,721 5,257 4,686
---------------------------------------------------------
Expenses
Salaries and employee benefits 2,717 2,242 2,079
Occupancy expenses 312 278 220
Equipment expense 636 577 477
Computer services 224 163 146
Other expenses 897 666 518
---------------------------------------------------------
Total expenses 4,786 3,926 3,440
---------------------------------------------------------
Income before income taxes and equity
in undistributed net income of subsidiary 1,935 1,331 1,246
Income taxes 11 8 6
---------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 1,924 1,323 1,240
Equity in undistributed
net income of subsidiary 3,333 3,463 2,922
---------------------------------------------------------
Net income $ 5,257 $ 4,786 $ 4,162
=========================================================
Note 18. Parent Company Only Financial Information (Continued)
STATEMENTS OF CASH FLOWS
(Parent Company Only)
December 31,
-------------------------------------------------
2001 2000 1999
-------------------------------------------------
(Dollars in thousands)
Cash Flows From Operating Activities:
Net income $ 5,257 $ 4,786 $ 4,162
Adjustments to reconcile net income to net
cash flows provided by operating activities:
(Increase) decrease in other assets (141) 120 (125)
Increase in other liabilities 193 9 67
Equity in undistributed net income of subsidiary (3,333) (3,463) (2,922)
-------------------------------------------------
Net cash provided by operating activities 1,976 1,452 1,182
-------------------------------------------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest-bearing
deposits in banks (501) (160) 290
Net increase in loans (219) (125) (94)
-------------------------------------------------
Net cash provided by (used in)
investing activities (720) (285) 196
-------------------------------------------------
Cash Flows From Financing Activities:
Purchase of treasury stock (606) (404) (561)
Sale of treasury stock for the exercise of stock options 316 194 143
Dividends paid (1,016) (946) (876)
-------------------------------------------------
Net cash flows (used in) financing activities (1,306) (1,156) (1,294)
-------------------------------------------------
Net increase (decrease) in cash (50) 11 84
Cash:
Beginning 180 169 85
-------------------------------------------------
Ending $ 130 $ 180 $ 169
=================================================
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company had no disagreement with the accountants regarding any
information presented.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for herein is presented in the proxy statement to be
furnished in connection with the solicitation of proxies on behalf of the Board
of Directors of the Registrant for use at its Annual Meeting to be held on
Tuesday, April 16, 2002, is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information called for herein is presented in the proxy statement to be
furnished in connection with the solicitation of proxies on behalf of the Board
of Directors of the Registrant for use at its Annual Meeting to be held on
Tuesday, April 16, 2002, is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for herein is presented in the proxy statement to be
furnished in connection with the solicitation of proxies on behalf of the Board
of Directors of the Registrant for use at its Annual Meeting to be held on
Tuesday, April 16, 2002, is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others
None
(b) Certain business relationships
None
(c) Indebtedness of management
This information is presented on page 14, Note 4 of the
Annual Report to Shareholders, and is incorporated herein by
reference.
(d) Transactions with promoters
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST BANKING CENTER, INC.
Registrant
Date____________________ By ___________________________
Brantly Chappell
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.*
- -------------------------------- -----------------------------
Brantly Chappell, James Schuster,
Chief Executive Officer, Director Chief Financial Officer
- -------------------------------- -----------------------------
Melvin Wendt, Director Richard McKinney, Director
- -------------------------------- -----------------------------
John Smith, Director John Ernster, Director
- -------------------------------- -----------------------------
David Boilini, Director Robert Fait, Director
- -------------------------------- -----------------------------
Charles Wellington, Director Keith Blumer, Director
- -------------------------------- -----------------------------
Thomas Laken, Jr., Director Daniel Jacobson, Director
*Each of the above signatures is affixed as of February 11, 2002.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
(a) Annual Report to Shareholders (Incorporated within the 10K).
(b) All proxy material in connection with the 2002 Annual Shareholders Meeting.
REFERENCE MATERIAL:
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 16, 2002
The Annual Meeting of Stockholders of First Banking Center, Inc. (the
"Corporation") will be held at 1:30 P.M. on April 16, 2002 (the "Annual
Meeting"), at First Banking Center, Inc., 400 Milwaukee Avenue, Burlington, for
the purposes set forth in the attached Notice of Annual Meeting. The
accompanying Proxy is solicited on behalf of the Board of Directors of the
Corporation in connection with such meeting or any adjournment(s) thereof. The
approximate date on which the Proxy Statement and form of Proxy are expected to
be sent to security holders is March 15, 2002.
VOTING OF PROXIES AND REVOCABILITY
When the Proxy is properly executed and returned to the Secretary of the
Corporation, it will be voted as directed by the Stockholder executing the Proxy
unless revoked. If no directions are given, the shares represented by the Proxy
will be voted FOR the election of the nominees listed in the Proxy Statement. If
additional matters are properly presented, the persons named in the Proxy will
have discretion to vote in accordance with their own judgment in such matters.
Any person giving a Proxy may revoke it at any time before it is exercised by
the execution of another Proxy bearing a later date, or by written notification
to the Secretary of the Corporation, Mr. John S. Smith, Secretary of First
Banking Center, Inc., 400 Milwaukee Avenue, Burlington, Wisconsin 53105.
Stockholders who are present at the Annual Meeting may revoke their Proxy and
vote in person if they so desire.
VOTING SECURITIES, PERSONS ENTITLED TO VOTE AND VOTES REQUIRED
As of January 29, 2002, there were 1,473,197 shares of Common Stock ($1.00 par
value) (the "Common Stock") of the Corporation outstanding. The Board of
Directors has fixed March 1, 2002 as the record date and only stockholders whose
names appear of record on the books of the Corporation at the close of business
on March 1, 2002, will be entitled to notice of and to vote at the Annual
Meeting or any adjournment(s) thereof. A stockholder is entitled to one vote for
each share of stock registered in his or her name. A majority of the outstanding
Common Stock will constitute a quorum for the transaction of business at the
Annual Meeting. Abstentions will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum, but as
unvoted for purposes of determining the approval of any matter submitted to the
shareholders for a vote. The four nominees for director who receive the largest
number of affirmative votes cast at the Annual Meeting will be elected as
directors.
THE COST OF SOLICITATION OF THE PROXIES WILL BE BORNE BY FIRST BANKING CENTER,
INC. IN ADDITION TO USE OF THE MAILS, PROXIES MAY BE SOLICITED PERSONALLY OR BY
TELEPHONE BY THE OFFICERS OF FIRST BANKING CENTER, INC. WITHOUT ADDITIONAL
COMPENSATION.
The complete mailing address of First Banking Center, Inc. is 400 Milwaukee
Avenue, P.O. Box 660, Burlington, Wisconsin, 53105.
PRINCIPAL HOLDERS OF SECURITIES
As of January 29, 2002, the Trust Department of a wholly owned subsidiary of the
Corporation owned in a fiduciary capacity 128,731 shares of Common Stock,
constituting 8.74% of the Corporation's outstanding shares entitled to vote.
Sole voting and investment power is held by the Trust Department with respect to
20,180 of such shares, representing 1.37% of the outstanding common stock. The
only shareholder known to the Corporation to own beneficially more than 5% of
the outstanding Common Stock is Mr. Roman Borkovec. Mr. Borkovec's address is
31008 Weiler Road, Burlington, WI 53105. Mr. Borkovec's holdings consist of
56,145 shares held directly; 18,947 shares held in joint tenancy with his wife;
and 8,151 shares held by his wife in which shares Mr. Borkovec disclaims voting
and investment powers. The total shares owned by Mr. Borkovec and his wife
represent 5.63% of the outstanding Common Stock. For information pertaining to
the directors, nominees and certain executive officers, see "CERTAIN BENEFICIAL
OWNERS."
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Corporation is divided in three classes designated
as Class I, II, and III, as nearly equal in size as possible, with each class of
directors serving staggered three-year terms. The term of office of directors in
Class III expires at the Annual Meeting. At the Annual Meeting, shareholders
will elect four Class III directors to serve until the Corporation's annual
meeting of shareholders in the year 2005 and until their successors are elected
and qualified.
It is the recommendation of the Board of Directors that the 4 nominees for Class
III director listed below be elected. Unless authority is withheld by your
proxy, it is intended that the shares represented by the proxy will be voted FOR
the 4 nominees listed below. All listed nominees are incumbent directors. All
listed nominees are also directors of First Banking Center, (the "Subsidiary
Bank") the wholly owned subsidiary of the Corporation whose main office is
located in Burlington, Wisconsin. If any nominee is unable to serve for any
reason, the proxies will be voted for such person as shall be designated by the
Board of Directors to replace such nominee. The Board has no reason to expect
that any nominee will be unable to serve.
Name and Background Director
Since
Nominees for Directors for Term Expiring in 2005
Class III Directors
Brantly Chappell, age 48, was hired as President and CEO of the Corporation in October 1997. At that time he was
also appointed to the Board of the Corporation and the Board of the Subsidiary Bank. In April of 1998 Mr. Chappell
was elected CEO of the Subsidiary Bank. From 1983 to 1997 Mr. Chappell held various senior management positions
with Bank One, most recently Executive Vice President/Market Manager of Madison Market. ................................1997
Melvin W. Wendt, age 63, was elected Chairman of the Board in November of 1998. He has owned and operated Mel Wendt
Realty, a real estate brokerage firm, since 1964. Mr. Wendt has also served as Chairman of the Board of the
Subsidiary Bank since November 1998 and has been a member of the Subsidiary Bank board since 1989. .....................1989
Charles R. Wellington, age 52, has been a partner in the law firm of Kittelsen, Barry, Wellington, Thompson and
Schluesche, Monroe, Wisconsin, since 1981. Mr. Wellington previously served on the Board of First Banking Center -
Albany, a subsidiary bank of the Corporation, from 1989 until it was merged with First Banking Center, Burlington
in April 1998. .........................................................................................................1996
Dr. Robert Fait, age 57, has been a Doctor of Optometry at Family Vision and Contact Lens Center Eye Clinic in
Burlington, Wisconsin since 1968. He founded and has served as president of WVA, a wholesale medical supply
distribution firm, since 1982. He also founded and has served as vice president of Pentech Pharmaceuticals, a
research and development drug company, since 1993. Dr. Fait has been a member of the Subsidiary Bank Board
since November 1998. ...................................................................................................2000
Continuing Directors
Director
Name and Background Since
Class I Directors (Term Expiring in 2003)
John S. Smith, age 42, has been President and Trust Officer of the Subsidiary Bank since April 1994. Mr. Smith has
been a director of the Subsidiary Bank since 1992. He was Executive Vice President of the Subsidiary Bank, from
1990 to 1994............................................................................................................1992
John M. Ernster, age 51, has been Manager of Distribution Operations for Wisconsin Electric Power Company since 1994
and has held various positions with Wisconsin Electric Power Company since 1972. He has been a director of the
Subsidiary Bank since 1991........ .....................................................................................1992
Richard McKinney, age 64, was elected Vice Chairman of the Board in November of 1998. He was president of Tobin
Drugs, Inc., Burlington, Wisconsin from 1981 to 2001 and has been owner of Sue's Hallmark, Lake Geneva, Wisconsin
since 1993. Mr. McKinney has been a director of the Subsidiary Bank since May 1988.....................................1988
Keith Blumer, age 53, has been President and owner of Plainview Stock Farms, a cattle and grain farm operation near
Albany, Wisconsin since 1979. Mr. Blumer was appointed to the Board in April 1998 and previously served on the
Board of First Banking Center - Albany, a subsidiary bank of the Corporation, from 1985 until it was merged with
First Banking Center, Burlington in April 1998. ........................................................................1998
Class II Directors (Term Expiring in 2004)
David Boilini, age 49, has been President of J. Boilini Farms, a diversified commercial operation involved in the
growing of vegetables and grain, as well as the production of mint for the flavoring industry since 1979. Mr.
Boilini has been a director of the Subsidiary Bank since February 1993..................................................1993
Thomas Laken, Jr., age 59, has been President and owner of Finishing and Plating Services, a commercial electroplating
job shop, located in Kenosha, Wisconsin since 1980. Mr. Laken was appointed to the Board in April of 1998. He has
been a director of the Subsidiary Bank since 1996. .....................................................................1998
Daniel T. Jacobson, age 44, is a CPA and partner in the firm of Reffue, Pas, Jacobson & Koster, LLP in Monroe,
Wisconsin. He has been with the accounting firm since 1979. Mr. Jacobson was appointed to the Board in April
1998 and previously served on the Board of First Banking Center - Albany, a subsidiary bank of the Corporation,
from 1994 until it was merged with First Banking Center, Burlington in April 1998.......................................1998
Information Regarding Board of Directors and Committees
The Board of Directors of First Banking Center, Inc., held five meetings during
the year of 2001.
All Directors attended at least 75% of the meetings of the Board of Directors
and committees of which they were a member.
The committees and committee assignments are set forth below. In addition,
Directors of the Corporation serve as Directors and committee members of the
Corporation's Subsidiary Bank.
The Compensation Committee, whose members in 2001 were Mr. Wendt, Mr. Ernster,
Mr. Jacobson and Mr. Laken, met five times during 2001. The committee's duties
are to define personnel needs, establish compensation and fringe benefit
guidelines, and evaluate senior management performance. The committee makes its
recommendations to the full Board for their approval.
The Audit Committee, whose members in 2001 were Mr. Ernster, Mr. McKinney, and
Mr. Jacobson met five times during 2001. The primary function is to verify and
evaluate operational systems in the Corporation and to determine that proper
accounting and audit procedures are being followed as established by company
policies. Additionally, the Audit Committee makes recommendations as to the
engagement of independent auditors.
The Nominating Committee whose members are Mr. Wendt, Mr. Smith, Mr. Ernster,
Mr. Chappell, and Mr. Wellington met once during 2001. The committee is
responsible for the selection of nominees to the Board of Directors. The
Nominating Committee will consider nominees to the Board submitted by
stockholders in writing to the Secretary of First Banking Center, Inc.
For additional information on the Compensation Committee, please refer to
"Compensation Committee Report on Executive Compensation." For additional
information on the Audit Committee, please refer to "Audit Committee
Disclosures" and "Audit Committee Report."
CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to the beneficial ownership of
shares of Common Stock of each continuing director, each nominee for director,
and each Named Executive Officer, individually, and all directors and executive
officers of the Corporation, as a group. Except as otherwise indicated in the
footnotes to the table, each individual has sole investment and voting power
with respect to the shares of Common Stock set forth.
. Common Stock directly,
Name and Other Position with indirectly or beneficially Percent of
First Banking Center, Inc. owned as of January 16, 2002 Outstanding
- -------------------------- ---------------------------- -----------
Brantly Chappell (President & CEO)...................................10,760 (1)(2) .73%
John S. Smith (Secretary)............................................22,711 (1)(3) 1.54%
Melvin W. Wendt (Chairman)...........................................14,849 (1)(4) 1.00%
Richard McKinney (Vice Chairman).....................................10,506 (1)(5) .71%
Keith Blumer..........................................................2,829 (1)(6) .19%
David Boilini........................................................16,120 (1)(7) 1.09%
John M. Ernster.......................................................2,954 (1)(8) .20%
Robert Fait..........................................................30,519 (1)(9) 2.07%
Daniel T. Jacobson....................................................2,425 (1)(10) .16%
Thomas Laken, Jr......................................................4,872 (1)(11) .33%
Charles R.Wellington..................................................4,067 (1)(12) .28%
All directors and named executive officers as a group...............122,612 8.30%
<FN>
<F1>
(1)......Includes shares issuable pursuant to incentive stock options exercisable within sixty days of January 16, 2002 as follows:
Mr. Chappell, 7,246 shares, Mr. Smith, 6,367 shares, Mr. Wendt, 867 shares, Mr. McKinney, 967 shares, Mr. Blumer,
967 shares, Mr. Boilini, 366 shares, Mr. Ernster, 967 shares, Dr. Fait, 867 shares, Mr. Jacobson, 967 shares, Mr. Laken,
366 shares, Mr. Wellington, 867 shares.
<F2>
(2)......Includes 1,008 shares held directly by Mr. Chappell, 1,388 shares held in joint tenancy with his wife in which shares Mr.
Chappell shares voting and investment powers, and 1,118 shares held by his wife in which Mr. Chappell disclaims voting and
investment powers.
<F3>
(3)......Includes 16,319 shares held directly by Mr. Smith and 25 shares, which Mr.Smith holds in custody for his daughter under the
Wisconsin Uniform Gift to Minors Act.
<F4>
(4)......Includes 3,025 shares held directly by Mr. Wendt and 10,957 shares held in joint tenancy with his wife in which shares Mr.
Wendt has shared voting and investment powers.
<F5>
(5)......Includes 4,764 shares held directly by Mr. McKinney, 2,452 s hares held in joint tenancy with his wife in which shares
Mr. McKinney shares voting and investment powers, and 2,323 shares held by his wife in which Mr. McKinney disclaims
voting and investment powers.
<F6>
(6)......Includes 1,762 shares held directly by Mr. Blumer and 100 shares held in joint tenancy with his wife in which Mr. Blumer
shares voting and investment powers.
<F7>
(7)......Includes 11,381 shares held directly by Mr. Boilini, and 1,878 shares owned by J. Boilini Farms in which Mr. Boilini has
shared voting and investment powers, and 2,495 shares held in a trust of which Mr. Boilini is trustee.
<F8>
(8)......Includes 1,817shares held directly by Mr. Ernster and 170 shares held by his wife in which shares Mr. Ernster disclaims
voting and investment powers.
<F9>
(9)......Includes 400 shares held directly by Dr. Fait and 29,194 shares held in a Trust of which Dr. Fait and his wife are trustees
and share voting and investment powers, and 5 8 shares held by his wife in which shares Dr. Fait disclaims voting and
investment powers.
<F10>
(10).....Includes 525 shares held directly by Mr. Jacobson, 733 shares held in joint tenancy with his wife in which shares Mr.
Jacobson shares voting and investment powers, and 200 shares which Mr. Jacobson holds in custody for his daughter under the
Wisconsin Uniform Gift to Minors Act.
<F11>
(11).....Includes 3,364 shares held directly by Mr. Laken, 896 shares held in joint tenancy with his wife in which shares Mr. Laken
shares voting and investment powers, and 246 shares held by his wife in which Mr. Laken disclaims voting and investment
powers.
<F12>
(12).....Includes 3,200 shares held directly by Mr. Wellington
</FN>
COMPENSATION OF DIRECTORS
Fees
Non-employee directors of the Corporation were paid the following fees for their
services in 2001: $525 per Subsidiary Bank board meeting, and $100 per
Subsidiary Bank committee meeting attended. If the Corporation's board meetings
are held in conjunction with the Subsidiary Bank meeting, the fee is $100 per
Corporation Board meeting attended. Otherwise, the fee for the Corporation's
Board meetings is $525 and $100 for Committee meetings.
Pension Plan
First Banking Center (the "Subsidiary Bank"), a wholly owned subsidiary of the
Corporation, has entered into pension and death benefit agreements with some of
its directors. Only directors who joined the Subsidiary Bank board before 1990
are eligible to participate. Pursuant to the agreement, pension benefits accrue
at the rate of $10,000 for each full year a director serves on the board for the
first six years of service. Upon completing six full years of service, the
director is entitled to ten annual payments of ten thousand dollars each.
Payments will commence in January of the year in which the director attains the
age of 65 years. Payments under the plan are funded through the purchase of life
insurance. The Subsidiary Bank is the owner and beneficiary of such life
insurance policies and is responsible for payment of the premium on such
policies. Total deferred expense for the Directors' pension and death benefit
agreements was $36,000, $37,000, and $64,000, respectively, for 2001, 2000, and
1999.
Deferred Compensation Plan
The Subsidiary Bank has also established a deferred compensation plan for its
directors pursuant to which a director may have a portion of his/her director's
fees deferred. Upon attaining the age of 65 or normal retirement, the Subsidiary
Bank will pay monthly benefits for a period of 15 years. The amount of such
payment is determined in each case by the amount of fees deferred and length of
participation in the deferred compensation plan. Total deferred liability
expense was $35,000, $36,000 and $37,000, respectively, for 2001, 2000, and
1999. Deferred directors' fees in each of the respective years were $4,200,
$4,200 and $4,200.
Incentive Stock Plan
Directors are eligible to participate in the Corporation's Incentive Stock Plan.
For a description of the Incentive Stock Plan see "EXECUTIVE COMPENSATION -
Incentive Stock Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning paid or accrued
compensation for services to the Corporation and its Subsidiary Bank for the
fiscal years ended December 31, 2001, 2000 and 1999 earned by or awarded or paid
to the persons who were chief executive officer and other executive officers of
the Corporation (the "Named Executive Officers") whose salary and bonus exceeded
$100,000 during 2001.
Summary Compensation Table
============================ =========================================================== =======================================
Long-Term
Annual Compensation Compensation
============================ =========================================================== =======================================
Securities
Name and Salary Bonus Other Underlying All Other
Principal Year ($) ($) Annual Options/SARs Comp.
Position Comp.(1) (#)
- ---------------------------- --------- -------------- ------------- -------------------- -------------------- ------------------
Brantly Chappell, 2001 $180,000 $ 30,785 2,800 $ 25,000(2)
President and CEO 2000 $175,000 $ 28,000 3,000 $ 28,000(3)
1999 $170,000 $ 21,000 7,000(8) $ 21,000(4)
John S. Smith
Secretary 2001 $103,000 $ 17,660 1,800 $ 6,000(5)
2000 $100,000 $ 16,000 2,600 $ 24,000(6)
1999 $103,000 $ 10,000 6,000(9) $ 6,000(7)
============================ ========= ============== ============= ==================== ==================== ==================
* Messrs. Chappell and Smith also serve in various capacities as directors and/or officers of the Subsidiary Bank.
<FN>
<F1>
(1) Aggregate amount of other annual compensation does not exceed the lesser of $50,000 or 10% of executive officer's salary and
bonus, and therefore no disclosure is made.
<F2>
(2) Contribution by the Corporation to the Corporation's Defined Contribution (401(k)) Plan for the benefit of the participant of
$10,500; accrued liability with respect to Salary Continuation Agreement of $14,500.
<F3>
(3) Contribution by the Corporation to the Corporation's Defined Contribution (401(k)) Plan for the benefit of the participant of
$14,000; accrued liability with respect to Salary Continuation Agreement of $14,000.
<F4>
(4) Contribution by the Corporation to the Corporation's Defined Contribution (401(k)) Plan for the benefit of the participant of
$8,000; accrued liability with respect to Salary Continuation Agreement of $13,000.
<F5>
(5) Contribution by the Corporation to the Corporation's Defined Contribution (401(k)) Plan for the benefit of the participant.
<F6>
(6) Contribution by the Corporation to the Corporation's Defined Contribution (401(k)) Plan for the benefit of the participant of
$6,000; $18,000 payment of accrued liability upon termination of the Directors' pension plan of Subsidiary Bank.
<F7>
(7) Contribution by the Corporation to the Corporation's Defined Contribution (401(k)) Plan for the benefit of the participant of
$4,800; accrued liability of $1,200 under the Directors' pension plan of Subsidiary Bank.
<F8>
(8) Includes replacement for 4,000 options granted in 1998 and cancelled in 1999.
<F9>
(9) Includes replacement for 4,000 options granted in 1998 and cancelled in 1999.
</FN>
Employment Agreement and Salary Continuation Agreement
Effective October 6, 1997, the Corporation and Mr. Brantly Chappell entered into
an employment agreement (the "Chappell Employment Agreement") pursuant to which
Mr. Chappell will serve as President and Chief Executive Officer of the
Corporation. The Chappell Employment Agreement has an initial term of two years,
and is automatically renewed for an additional year at each anniversary date
unless either party gives written notice that no such renewal shall occur. No
such non-renewal notice has been given.
Under the Chappell Employment Agreement, Mr. Chappell will perform the customary
duties of the Chief Executive Officer of the Corporation, as further set forth
in the Corporation's Bylaws and as may, from time to time, be determined by the
Corporation's Board of Directors. As compensation for such service, the
Corporation will pay Mr. Chappell the greater of $165,000 annually or
compensation as may be established from time to time during the employment
period by the Board of Directors of the Corporation. During the employment
period, Mr. Chappell is entitled to participate in such other benefits of
employment as are generally made available to executive officers of the
Corporation and its subsidiary.
The Chappell Employment Agreement further provides that on or before December
31, 1997, the Corporation shall grant Mr. Chappell an option to purchase 2,000
shares of the Corporation's common stock, and on or before December 31, 1998, an
additional option to purchase 4,000 shares of the Corporation's common stock
shall be granted to Mr. Chappell. Both options are granted pursuant to the terms
and conditions of the Corporation's 1994 Incentive Stock Plan. The exercise
price for each grant is 100% of the market price of the stock on the date of
grant.
If the Chappell Employment Agreement is terminated by the Corporation other than
for reasons of Mr. Chappell's death, disability or retirement, or without
"cause" as defined in the Chappell Employment Agreement; or if Mr. Chappell
terminates the Chappell Employment Agreement following a "change in control" as
defined in the Chappell Employment Agreement, then Mr. Chappell shall be
entitled to receive severance payments equal to $75,000 annually for a period of
two years from the termination date. In addition to the aforementioned severance
payments, Mr. Chappell will be entitled to fringe benefits for the two-year
period during which he is entitled to severance payments.
If Mr. Chappell is terminated due to disability, as defined in the Chappell
Employment Agreement, he will be entitled to payment of his salary for one year
at the rate in effect at the time notice of termination is given. Such
disability payments will be reduced by payments received under any disability
plan or Social Security or other governmental compensation program. If
termination occurs for any reason other than those enumerated, the Corporation
will be obligated to pay the compensation and benefits only through the date of
termination.
The Chappell Employment Agreement provides that during the employment period and
for one (1) year thereafter, Mr. Chappell shall not engage in any activity,
which will result in his competing with the Corporation or its subsidiary.
To further the objective of providing continued successful operation of the
Corporation and its subsidiary and to provide additional incentive for Mr.
Chappell to enter into the Chappell Employment Agreement, the Corporation and
Mr. Chappell have entered into a Salary Continuation Agreement (the
"Continuation Agreement") as of October 6, 1997. The Continuation Agreement
provides for monthly payments of $5,833.33 upon retirement at age 65 for the
remainder of Mr. Chappell's life, with a guarantee of 180 such monthly payments
to Mr. Chappell or his beneficiaries.
Upon Mr. Chappell's voluntary termination of employment prior to age 65 for
reasons other than death or disability or upon Mr. Chappell's discharge at any
time "for cause" as defined in the Chappell Employment Agreement, the
Corporation will not be obligated to pay any benefits pursuant to the
Continuation Agreement; however, if Mr. Chappell incurs voluntary or involuntary
termination of employment prior to age 65 for reasons other than death,
disability, or discharge for cause, but on or after a change in control as
defined in the Continuation Agreement, Mr. Chappell will be entitled to the
benefits payable under the Continuation Agreement.
The benefits provided in the Continuation Agreement are funded through the
purchase of single premium life insurance policies with cash value sufficient to
fund the payments required under the Continuation Agreement.
The Board of Directors believes that Mr. Chappell has substantially contributed
to the successful and profitable operation of the Corporation and its
subsidiary, and such contribution has and will continue to result in substantial
enhancement of shareholder value. For these reasons and to provide management
continuity, the Board of Directors has determined that the Chappell Employment
Agreement and Continuation Agreement are in the best interest of the
Corporation, its Subsidiary and its shareholders.
401(k) Profit Sharing Plan
The Corporation has a trusteed 401(k) profit sharing plan covering substantially
all employees of the Corporation and its subsidiary. The plan allows for
voluntary employee contributions. Total contributions to the 401(k) Plan by the
Corporation were $253,000 in 2001, $163,000 in 2000, and $156,000 in 1999.
Incentive Stock Plan
The following table presents information about stock options granted during 2001
to the executive officers named in the Summary Compensation Table.
Stock Option Grants in 2001
Individual Grants
================ ================== ===================== ================== ================ ===================
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Exercise Expiration Grant Date
Name Options Fiscal Year(1) Price Date resent Value(2)
Granted(1)
- ---------------- ------------------ --------------------- ------------------ ---------------- -------------------
Brantly 2,800 7.22% $41.50 11/2011 $26,335
Chappell
John Smith 1,800 4.64% $41.50 11/2011 $16,930
================ ================== ===================== ================== ================ ===================
<FN>
<F1>
(1) All options granted in 2001 were granted under the 1994 Incentive Stock Plan.
<F2>
(2) The grant date present values were determined using the Black-Scholes model with following assumptions:
a ten year expected period of time to exercise; a risk-free rate of return of 4.7%; an expected dividend
yield of 1.6%; and a volatility factor of 5.2%.
</FN>
The following table presents information concerning stock options exercised
during 2001. Also shown is information on unexercised options as of December 31,
2001.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
====================== ================ ================ =================================== ===================================
Number of Value of Unexercised,
Shares Value Unexercised In-the-Money Options(3)
Name Acquired Realized(1)(2) Options at FY End at FY End
On Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ---------------- ---------------- ----------------------------------- -----------------------------------
Brantly
Chappell 281 $1,500 7,246 7,273 $77,000 $40,000
John
Smith 1,400 $21,700 6,367 5,533 $64,500 $33,000
====================== ================ ================ =================================== ===================================
<FN>
<F1>
(1) The exercise price for each grant was 100% of the market value of the shares on the date of grant.
<F2>
(2) Represents market price at date of exercise, less option price, times number of shares.
<F3>
(3) For valuation purposes, a December 31, 2001, market price of $43.00 was used.
</FN>
On August 8, 1994, the Board of Directors of the Corporation adopted the First
Banking Center, Inc. 1994 Incentive Stock Plan (the "Plan") which was approved
by the shareholders on April 11, 1995.
The Plan replaced the 1984 Incentive Stock Plan, which terminated in April 1994.
The purpose of the Plan is to advance the interests of the Corporation and its
subsidiary by encouraging and providing for the acquisition of an equity
interest in the Corporation by key employees and by enabling the Corporation and
its subsidiary to attract and retain the services of employees upon whose skills
and efforts the success of the Corporation depends. In addition the Plan is
designed to promote the best interests of the Corporation and its shareholders
by providing a means to attract and retain competent directors who are not
employees of the Corporation or of its subsidiary. In 1999 and 2001, the Plan
was amended pursuant to ratification by the shareholders of the Corporation.
Summary Description
The following summary description of the Plan is qualified in its entirety by
reference to the full text of the amended Plan, a copy of which may be obtained
upon request directed to the Corporation's Secretary at First Banking Center,
Inc., 400 Milwaukee Avenue, Burlington, WI 53105.
The Plan is administered by the Compensation Committee of the Board, consisting
of not less than three (3) directors (the "Committee"). The Committee is
comprised of non-employee directors within the meaning of Rule 16b-3 as
promulgated by the Securities and Exchange Commission. Subject to the terms of
the Plan and applicable law, the Committee has the authority to: establish rules
for the administration of the Plan; select the individuals to whom options are
granted; determine the numbers of shares of Common Stock to be covered by such
options; and take any other action it deems necessary for the administration of
the Plan.
Participants in the Plan consist of all members of the Board of Directors of the
Corporation who are not employees of the Corporation or its subsidiary, and
individuals selected by the Committee. Those selected individuals may include
any executive officer or employee of the Corporation or its subsidiary and
non-employee directors of the subsidiary who, in the opinion of the Committee,
contribute to the Corporation's growth and development.
Subject to adjustment for dividends or other distributions, recapitalization,
stock splits or similar corporate transactions or events, the total number of
shares of Common Stock with respect to which options may be granted pursuant to
the Plan is 300,000. The shares of Common Stock to be delivered under the Plan
may consist of authorized but unissued stock or treasury stock.
The Committee may grant options to key employees and non-employee directors
(other than directors of the Corporation) as determined by the Committee. The
Committee has complete discretion in determining the number of options granted
to each such grantee. The Committee also determines whether an option is to be
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code or a nonqualified stock option. Following the amendment approved in
2001, and effective December 2000, each non-employee director of the Corporation
will automatically be granted a nonqualified stock option to purchase 800 shares
of Common Stock in December of each succeeding year.
The exercise price for all options granted pursuant to the Plan is the fair
market value of the Common Stock on the date of grant of the option; however, in
case of options granted to a person then owning more than 10% of the outstanding
Common Stock, the option price will not be less than 110% of the fair market
value on such date. The Committee will determine the method and the form of
payment of the exercise price. The payment may be in form of cash, Common Stock,
other securities or other property having a fair market value equal to the
exercise price.
Except for options granted to non-employee directors of the Corporation, options
granted pursuant to the Plan expire at such time as the Committee determines at
the time of grant, provided that no option may be exercised after the tenth
anniversary date of its grant. Options granted to directors of the Corporation
expire on the tenth anniversary of the date of grant. Options are exercisable in
increments of one-third on the first, second and third anniversaries of the date
of grant.
Stock acquired pursuant to the Plan may not be sold or otherwise disposed of
before the later of the expiration of the two-year period beginning on the date
of the grant of the option or the one-year period beginning on the date of the
exercise of the option, except by gift, bequest or inheritance or in case of
participant's disability or retirement. The Corporation also has a "right of
first refusal" pursuant to which any shares of Common Stock acquired by
exercising an option must first be offered to the Corporation before they may be
sold to a third party. The Corporation may then purchase the offered shares on
the same terms and conditions (including price) as applied to the potential
third-party purchaser.
The Board of Directors of the Corporation may terminate, amend or modify the
Plan at any time, provided that no such action of the Board, without approval of
the shareholders may: increase the number of shares which may be issued under
the Plan; materially increase the cost of the Plan or increase benefits to
participants; or change the class of individuals eligible to receive options.
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the Plan. The grant of an option is not
expected to result in any taxable income for the recipient. The holder of an
Incentive Stock Option generally will have no taxable income upon exercising the
Incentive Stock Option (except that a liability may arise pursuant to the
alternative minimum tax), and the Corporation will not be entitled to a tax
deduction when an Incentive Stock Option is exercised. Upon exercising a
nonqualified stock option, the optionee must recognize ordinary income equal to
the excess of the fair market value of the shares of Common Stock acquired on
the date of exercise over the exercise price, and the Corporation will be
entitled at that time to a tax deduction for the same amount. The tax
consequences to an optionee upon disposition of shares acquired through the
exercise of an option will depend on how long the shares have been held and upon
whether such shares were acquired by exercising an Incentive Stock Option or by
exercising a nonqualified stock option. Generally, there will be no tax
consequences to the Corporation in connection with the disposition of shares
acquired under an option.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
General Policy
The compensation objective of the Corporation and its subsidiary is to link
compensation with corporate and individual performance in a manner, which will
attract and retain competent personnel with leadership qualities. The process
gives recognition to the marketplace practices of other banking organizations.
Toward the end of achieving long-term goals of the shareholders, the
compensation program ties a significant portion of total compensation to the
financial performance of the Corporation in relation to its peer group. The
Compensation Committee makes recommendations on the compensation of the
Corporation's officers to the Board of Directors. The Compensation Committee's
recommendations reflect its assessment of the contributions to the long-term
profitability and financial performance made by individual officers. In this
connection, the Committee considers, among other things, the type of the
officer's responsibilities, the officer's long-term performance and tenure,
compensation relative to peer group and the officer's role in ensuring the
financial success of the Corporation in the future. Financial performance goals
considered by the Committee include earnings per share, return on assets, return
on equity, asset quality, growth and expense control.
In addition to measuring performance in light of these financial factors, the
Committee considers the subjective judgment of the Chief Executive Officer in
evaluating performance and establishing salary, bonus and long-term incentive
compensation for individual officers, other than the Chief Executive Officer.
The Committee independently evaluates the performance of the Chief Executive
Officer, taking into consideration such subjective factors as leadership,
innovation and entrepreneurship in addition to the described financial goals.
Base Salary
In determining salaries of officers, the Committee considers surveys and data
regarding compensation practices of financial institutions of similar size,
adjusted for differences in product lines, nature of geographic market and other
relevant factors. The Committee also considers the Chief Executive Officer's
assessment of the performance, the nature of the position and the contribution
and experience of individual officers (other than the Chief Executive Officer).
The Committee independently evaluates the Chief Executive Officer's performance
and compares his compensation to peer group data.
Annual Bonuses
Officers and employees of the Corporation and its subsidiary are awarded annual
bonuses at the end of each year at the discretion of the Committee. The amount
of the bonus, if any, for each officer (other than the Chief Executive Officer)
is recommended to the Committee by the Chief Executive Officer based upon his
evaluation of the achievement of corporate and individual goals and his
assessment of subjective factors such as leadership, innovation and commitment
to the corporate advancement. The Corporation's annual incentive bonus is based
on meeting specific financial performance targets pursuant to a bonus plan. The
plan provides for a range of bonus awards based, among other things, upon return
on equity.
Chief Executive Officer Compensation
The compensation for the Chief Executive Officer was established at a level
which the Committee believed would approximate the compensation of chief
executive officers of similar organizations and would reflect prevailing market
conditions. The Committee also took into consideration a variety of factors,
including the achievement of corporate financial goals and individual goals. The
financial goals included increased earnings, return on assets, return on equity
and asset quality. No formula assigning weights to particular goals was used,
and achievement of other corporate performance goals was considered in general.
The Chief Executive Officer was also awarded incentive stock options under the
Corporation's Incentive Stock Plan. Based upon its review of the Corporation's
performance, the Committee believes that the total compensation awarded to the
Chief Executive Officer for 2001 is fair and appropriate under the
circumstances.
Stock Options
The Committee administers the 1994 Incentive Stock Plan. Stock options are
designed to furnish long-term incentives to the officers of the Corporation to
build shareholder value and to provide a link between officer compensation and
shareholder interest. The Committee made awards under the Stock Option Plan to
the officers of the Corporation and its subsidiary in 2001. Awards were based
upon performance, responsibilities and the officer's relative position and
ability to contribute to future performance of the Corporation. In determining
the size of the option grants (except grants to the Chief Executive Officer),
the Committee considered information and evaluations provided by the Chief
Executive Officer. The award of option grants to the Chief Executive Officer was
based on the overall performance of the Corporation and on the Committee's
assessment of the Chief Executive Officer's contribution to the Corporation's
performance and his leadership.
The Committee
The Compensation Committee currently has five members. No member of the
Committee is an employee or officer of the Corporation or of its subsidiary.
None of the Committee members has interlocking relationships as defined by the
Securities and Exchange Commission, with the Corporation or its subsidiary. The
Committee is aware of the limitations imposed by Section 162(m) of the Internal
Revenue Code of 1986, as amended, on the deductibility of compensation paid to
certain senior executives to the extent it exceeds $1 million per executive. The
Committee's recommended compensation amounts meet the requirements for
deductibility.
The Compensation Committee: Melvin Wendt, John Ernster, Daniel Jacobson, Richard
McKinney, and Thomas Laken, Jr.
The following table shows the cumulative total stockholder return on the
Corporation's Common Stock over the last five fiscal years compared to the
returns of the Standard & Poor's 500 Stock Index and the NASDAQ Bank Index:
PERFORMANCE TABLE
(Insert Performance Graph)
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
First Banking Center, Inc 100 114 132 147 157 184
S&P 500 100 133 171 208 189 166
NASDAQ Bank Index 100 167 150 141 166 187
ADDITIONAL INFORMATION ON MANAGEMENT
Transactions With Directors and Officers
Certain directors and executive officers of the Corporation, and their related
interests had loans outstanding in the aggregate amounts of $6,611,000 and
$4,086,000 at December 31, 2001 and 2000, respectively. During 2001, $3,555,000
of new loans were made and repayments totaled $1,030,000. These loans were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with other persons
and did not involve more than normal risks of collectability or present other
unfavorable features. The loans to directors and executive officers and their
related business interests at December 31, 2001 represented 15.7% of
stockholders equity.
Section 16 Reports
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Corporation's directors and executive officers and shareholders holding more
than 10% of the outstanding stock of the Corporation (the "insiders") are
required to report their initial ownership of stock and any subsequent change in
such ownership to the Securities and Exchange Commission and the Corporation
(the "16(a) filing requirement"). Specific time deadlines for the 16(a) filing
requirements have been established by the Securities and Exchange Commission. To
the Corporation's knowledge, and based solely upon a review of the copies of
such reports furnished to the Corporation, all 16(a) filing requirements
applicable to Insiders during 2001 were satisfied on a timely basis.
AUDIT COMMITTEE DISCLOSURES
The Audit Committee currently consists of Messrs. Ernster, McKinney and
Jacobson. All members of the Audit Committee are independent, in accordance with
existing requirements applicable to the Corporation. The duties and
responsibilities of the Audit Committee include (i) recommending to the Board of
Directors the appointment of the Corporation's auditors and any termination of
engagement; (ii) reviewing the plan and scope of audits; (iii) reviewing the
Corporation's significant accounting policies and internal controls and (iv)
having general responsibility for all audit related matters. The Board of
Directors of the Corporation has not adopted an Audit Committee Charter.
AUDIT COMMITTEE REPORT
The Audit Committee has (i) reviewed and discussed the Corporation's audited
financial statements for the fiscal year ended December 31, 2001, with
management and with the Corporation's independent auditors; (ii) discussed with
the independent auditors the matters required to be discussed by SAS 61
(Codification for Statements on Auditing Standards); and (iii) received and
discussed the written disclosures and the letter from the Corporation's
independent auditors required by Independence Standards Board Statement No.1
(Independence Discussions With Audit Committees). Based on such review and
discussions, the Audit Committee recommended to the Board of Directors that the
audited financial statements of the Corporation be included in the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001, for
filing with the U.S. Securities and Exchange Commission.
Submitted by the Audit Committee: John M. Ernster, Richard McKinney, Daniel T.
Jacobson
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
In September, 2000, the Corporation's Board of Directors determined that the
audits of the Corporation's financial statements on the one hand, and the
continuing internal audit functions on the other hand should be performed by two
(2) separate providers to obtain maximum audit and internal controls benefits.
Accordingly, Virchow, Krause & Company, LLP, ("Virchow, Krause") which was
previously engaged to audit the Corporation's financial statements, ceased to
perform such financial statement auditing functions and was retained to perform
continuing periodic internal auditing and control functions.
Virchow, Krause's report on the Corporation's financial statements for the 1999
fiscal year did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles.
The decision to change accountants for auditing the Corporation's financial
statements was approved by the Board of Directors.
During the Corporation's two (2) most recent fiscal years and any subsequent
interim periods preceding the time at which Virchow, Krause ceased to audit the
Corporation's financial statements, there were no disagreements with Virchow,
Krause on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of Virchow, Krause, would have caused it to make reference
to the subject matter of the disagreement in connection with its report.
The Corporation engaged a new independent accountant, McGladrey and Pullen, LLP,
as of September 25, 2000, to audit the Corporation's financial statements.
McGladrey and Pullen, LLP performed a complete audit of First Banking Center,
Inc. during 2000 and 2001 and provided certified financial statements for the
years ended December 31, 2000 and 2001. Virchow, Krause & Company, LLP performed
a complete audit of First Banking Center, Inc. during 1999 and provided a
certified financial statement for the year ended December 31, 1999.
McGladrey and Pullen, LLP, also performed a non-audit function for the
Corporation consisting of the preparation of the Corporation's 2001 Income Tax
returns. No representative of McGladrey and Pullen, LLP, will be present at the
Annual Stockholders' Meeting on April 16, 2002. The Board of Directors has
selected McGladrey and Pullen, LLP as the Corporation's independent auditors for
the fiscal year ending December 31, 2002 to provide a certified financial
statement for 2002.
Audit Fees
The aggregate fees billed by McGladrey and Pullen, LLP, for professional
services rendered for the audit of the Corporation's annual financial statements
for the fiscal year ended December 31, 2001, and the reviews of the financial
statements included in the Corporation's Forms 10-Q for the 2001 fiscal year
amounted to $53,500. McGladrey and Pullen, LLP also performed an audit of the
Corporation's 401(k) plan for a fee of $6,000.
Financial Information Systems Design and Implementation Fees
The aggregate fees billed by McGladrey and Pullen, LLP, for professional
services rendered to the Corporation in fiscal year 2001 in connection with the
design and implementation of financial information systems amounted to $ -0-.
All Other Fees
The aggregate fees billed by McGladrey and Pullen, LLP, for the preparation of
the Corporation's income tax returns, personal property tax returns and review
of quarterly estimated tax payment calculations for the 2001 fiscal year
amounted to $12,000.
The Audit Committee has determined that the provision of non-audit services for
the 2001 fiscal year by McGladrey and Pullen, LLP, is compatible with
maintaining that firm's independence as an independent accountant.
PROPOSALS BY STOCKHOLDERS
Shareholders' proposals to be presented at the 2003 Annual Stockholders' Meeting
must be received by the Corporation at its principal office, 400 Milwaukee
Avenue, Burlington, Wisconsin, on or before November 16, 2002.
MISCELLANEOUS
Management does not intend to bring any other matters before the meeting and
knows of no matters to be brought before the meeting by others. If any other
matters properly come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote said proxy in accordance with their best
judgment.
A COPY OF THE FIRST BANKING CENTER, INC. ANNUAL REPORT ON FORM 10-K INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF 1934 WILL BE MADE AVAILABLE TO
STOCKHOLDERS UPON WRITTEN REQUEST AT NO CHARGE. REQUESTS SHOULD BE ADDRESSED TO:
Mr. John S. Smith, Secretary, First Banking Center, Inc., 400 Milwaukee Avenue,
P.O. Box 660, Burlington, Wisconsin, 53105.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John S Smith
JOHN S. SMITH, SECRETARY
Burlington, Wisconsin
March 15, 2002
SCHEDULE 14A
(RULE 14A-101)
INVORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
Filed by Registrant...............................|X|
Filed by a party other than the registrant........| |
Check appropriate box:
| | Preliminary proxy statement | | Soliciting material pursuant to Rule
14a-11(c) or Rule 14a_12.
| | Definitive proxy statement | | Confidential for use of the Commission
only (as permitted by Rule14a-6(e)(2)).
|X| Definitive additional material
First Banking Center, Inc.
--------------------------
(Name of Registrant as Specified in its Charter)
Payment of filing fee (check the appropriate box):
|X| No fee required
| | Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
FIRST BANKING CENTER, INC.
400 Milwaukee Avenue
Burlington, Wisconsin 53105
(262) 763-3581
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 16, 2002
To the Stockholders of First Banking Center, Inc.
Notice is hereby given that the Annual Meeting of Stockholders of First Banking
Center, Inc., Burlington, Wisconsin, pursuant to action of the Board of
Directors, will be held at the Banking House, 400 Milwaukee Avenue, Burlington,
Wisconsin, on the 16th day of April, 2002, at 1:30 P.M. for the purpose of
considering and voting upon the following matters:
I.) Election of 4 directors as described in the accompanying Proxy Statement.
II.) Such other business as may properly come before the meeting or any
adjournments thereof.
Only stockholders of record at the close of business on March 1, 2002 will be
entitled to notice of and to vote at the Annual Meeting of April 16, 2002, or
any adjournment(s) thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John S. Smith
John S. Smith
Secretary
Burlington, Wisconsin
March 15, 2002
YOU ARE REQUESTED TO PLEASE FILL IN, SIGN, DATE AND RETURN THE PROXY SUBMITTED
HEREWITH IN THE ENCLOSED ENVELOPE. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR
RIGHT TO REVOKE SUCH PROXY OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO
ATTEND THE MEETING.
REVOCABLE PROXY
FIRST BANKING CENTER, INC.
This Proxy is solicited by the Board of Directors of First Banking Center, Inc.
For The Annual Meeting of Stockholders April 16, 2002
The undersigned hereby constitutes and appoints Florence Chaulklin and Elmer
Scherrer, and each of them, with full power to act alone and with power of
substitution, to be the true and lawful attorney and proxy of the undersigned to
vote at the Annual Meeting of Shareholders of First Banking Center, Inc. to be
held at the Banking House, 400 Milwaukee Avenue, Burlington, Wisconsin on April
16, 2002 at 1:30 P.M., or at any adjournment(s) thereof, the shares of stock
which the undersigned would be entitled to vote at that meeting and at any
adjournment(s) thereof, as indicated below. The undersigned hereby revokes any
proxy heretofore given and ratifies all that said attorneys and proxies or their
substitutes may do by virtue hereof.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
1. ELECTION OF DIRECTORS
The four persons listed below have been nominated for election as directors as
discussed in the Proxy Statement dated March 15, 2002 attached hereto:
Brantly Chappell Robert Fait
Charles R. Wellington Melvin W. Wendt
With- For All
For hold Except
[ ] [ ] [ ]
INSTRUCTIONS: To withhold authority for any individual nominee, mark "For All
Except" and write that nominee's name in the space provided below.
- -----------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOUR PERSONS
LISTED ABOVE.
Please be sure to sign and date
this Proxy in the box below
-------------------------------
Date
-------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
If any additional matters are properly presented, the persons named in the proxy
will have the discretion to vote in accordance with their own judgment in such
matters. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE BY WRITTEN NOTICE TO THE SECRETARY OF THE
CORPORATION OR BY SUBMITTING A LATER-DATED PROXY, OR BY ATTENDING THE ANNUAL
MEETING. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS GIVEN BY THE
STOCKHOLDER, BUT IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED TO ELECT
THE 4 PERSONS LISTED ABOVE.
The above signed hereby acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement both dated March 15, 2002 and enclosed herein.
Please sign your name exactly as it appears on the Proxy. In signing as
Executor, Administrator, Personal Representative, Guardian, Trustee, or
Attorney, please add your title as such. All joint owners should sign.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY