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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, 2003
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(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 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as define
in Rule 12b-2 of the Act).
Yes [ ] No [X]
The aggregate market value of the shares of common stock held by nonaffiliates
of the Registrant was approximately $55.2 million as of June 30, 2003. Solely
for the purpose of this computation, it has been assumed that executive officers
and directors of the Registrant are "affiliates". There were 1,497,271 shares of
the Registrant's common stock outstanding as of March 25, 2004.
Documents incorporated by reference: The Proxy Statement and Notice of 2004
Annual Meeting of Shareholders, to be held on April 20, 2004 is incorporated by
reference into Part III of the Form 10-K.
FIRST BANKING CENTER, INC AND SUBSIDIARY
INDEX
December 31, 2003
Part I Page
Item 1 Business 3
Item 2 Properties 15
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to Vote of Security
Part II Holders 15
Item 5 Market for Registrant's Common Equity And
Related Stockholder Matters 15
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 17-26
Item 7A Quantitative and Qualitative Disclosures About
Market Risk 27
Item 8 Financial Statements and Supplemental Data 28-58
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 59
Item 9A Controls and Procedures 59
Part III
Item 10 Directors and Executive Officers of the
Registrant 59
Item 11 Executive Compensation 59
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matter 59-60
Item 13 Certain Relationships and Related Transactions 60
Item 14 Principal Accountant Fees and Services 61
Part IV
Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 61
Signatures 62
PART 1
ITEM 1: BUSINESS
First Banking Center, Inc.
First Banking Center, Inc. (the "Company") 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.
In 1998, the name of the subsidiary was changed to First Banking Center (the
"Bank').
The Company's primary business activity is the ownership and control of First
Banking Center. The Company's operations department also provides administrative
and operational services for the Bank.
The Bank has three wholly owned subsidiaries, FBC Financial Services, Corp., a
brokerage and financial services subsidiary, FBC-Burlington, Inc., an investment
subsidiary located in Nevada and Burco Holdings, LLC, a real estate subsidiary
for the purpose of holding and liquidating property acquired as other real
estate.
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, Pleasant Prairie, Shullsburg, 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 Bank provides a wide variety of credit services to commercial and
individual consumers. 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. Consumer lending consists primarily of residential
mortgages, residential construction loans, installment loans, and home
equity loans.
Personal Banking
The Bank 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 Bank's 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
The Bank 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 in a
wide variety of communities across southern Wisconsin 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.
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 activities that are not financial in nature. Some of the activities
that the Board of Governors has determined by regulation to be closely related
to banking or financial are making or servicing loans, full payout property
leasing, investment advisory services, acting as a fiduciary, providing
financial data processing services and promoting community welfare projects.
The Company is also subject to the Securities Exchange Act of 1934 and has
reporting obligations to the Securities and Exchange Commission.
A subsidiary bank of a bank holding company, such as the bank, 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 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 Bank is a member of the Federal
Deposit Insurance Corporation.
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.
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 31, 2004, the Company and its
subsidiary had 247 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.
CORPORATE GOVERNANCE MATTERS
The Company makes available free of charge through its web site at
www.firstbankingcenter.com/about_fbc_fbcinc.htm its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, and its insiders' Section 16 reports and all
amendments to these reports as soon as reasonably practicable after these
materials are filed with or furnished to the Securities and Exchange Commission.
Shareholders also may obtain a copy of any of these documents free of charge by
calling the Corporate Secretary at 1-800-456-1500. Information contained on any
First Banking Center's web sites is not deemed to be a part of this Annual
Report.
SELECTED STATISTICAL INFORMATION ABOUT OUR OPERATIONS
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, 2003, 2002, and 2001. Also, where applicable, information is
presented for December 31, 2000 and 1999.
Section and Schedule references in this section refer to "Guide 3. Statistical
Disclosure by Bank Holding Companies", which are referenced to in the Securities
and Exchange Commission's Regulation S-K.
Section I, Schedule A - Average Balance Sheet
Years Ended December 31,
ASSETS 2003 2002 2001
---------- ---------- ----------
(Dollars in thousands)
Cash and due from banks $ 14,296 $ 13,199 $ 12,372
Fed funds sold 7,793 8,422 5,875
Interest-bearing deposits in banks 1,375 4,393 2,606
Available-for-sale securities 83,617 63,550 51,271
Loans, net 371,750 360,107 336,289
Office buildings and equipment, net 11,134 10,438 10,176
Other assets 20,524 12,572 10,680
---------- ---------- ----------
Total assets $ 510,489 $ 472,681 $ 429,269
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand $ 66,581 $ 61,641 $ 53,004
Savings and NOW accounts 170,170 168,713 152,947
Time 147,728 130,170 124,445
---------- ---------- ----------
Total Deposits 384,479 360,524 330,396
Short-term borrowings 25,298 23,048 20,861
Other borrowings 45,639 39,454 33,618
Other liabilities 3,365 3,548 3,840
---------- ---------- ----------
Total liabilities 458,781 426,574 388,715
Stockholders' Equity
Common stock 1,496 1,490 1,489
Surplus 4,440 4,200 4,176
Retained earnings 44,176 39,938 34,915
Accumulated other comprehensive income (loss) 1,605 1,062 682
Common stock in treasury, at cost (9) (583) (708)
---------- ---------- ----------
Total stockholders' equity 51,708 46,107 40,554
---------- ---------- ----------
Total liabilities and stockholders' equity $ 510,489 $ 472,681 $ 429,269
========== ========== ==========
Section I, Schedule B - Three Year Summary of Interest Rates and Interest Differential
Years ended December 31,
2003 2002 2001
------------------------ --------------------------- ----------------------------
Interest Average Interest Average Interest Average
Average Earned Yield Average Earned Yield Average Earned Yield
Balance or or Balance or or Balance or or
Paid Cost Paid Cost Paid Cost
------------------------ --------------------------- ----------------------------
------------------------ --------------------------- ----------------------------
(Dollars in thousands)
Interest earning assets:
Interest-bearing deposits $ 1,375 $ 16 1.16% $ 4,393 $ 85 1.93% $ 2,606 $ 121 4.65%
in banks
Available-for-sale securities:
Taxable 45,165 1,251 2.77% 27,665 1,005 3.63% 20,589 1,146 5.57%
Nontaxable (a) 38,452 2,494 6.49% 35,885 2,470 6.88% 30,683 2,154 7.02%
Fed funds sold 7,793 83 1.07% 8,422 122 1.45% 5,875 232 3.95%
Loans (a)(b)(c)(e) 376,685 22,565 5.99% 364,583 24,829 6.81% 340,328 28,664 8.42%
All other interest earning assets 11,390 878 7.71% 4,602 266 5.78% 2,440 153 6.27%
------- --------------- ------- ---------------- -------- ----------------
Total interest earning assets $ 480,860 $ 27,287 5.67% $ 445,550 $ 28,777 6.46% $ 402,521 $ 32,470 8.07%
======= =============== ======= ================ ======== ================
Interest bearing liabilities:
Savings and NOW accounts $ 170,170 $ 935 0.55% $ 168,713 $ 1,780 1.06% $ 152,947 $ 4,281 2.80%
Time deposits 147,728 4,351 2.95% 130,170 4,808 3.69% 124,445 6,965 5.60%
Short-term borrowings 25,298 244 0.96% 23,048 417 1.81% 20,861 829 3.97%
Other borrowings 45,639 1,802 3.95% 39,454 1,737 4.40% 33,618 1,742 5.18%
------- --------------- ------- ---------------- -------- ----------------
Total int.bearing liabilities $ 388,835 $ 7,332 1.89% $ 361,385 $ 8,742 2.42% $ 331,871 $ 13,817 4.16%
======= =============== ======= ================ ======== ================
Net interest income/margin(d) $ 19,955 4.15% $ 20,035 4.50% $ 18,653 4.63%
=============== ================ ================
Non Interest bearing Deposits $ 66,581 - - $ 61,641 $ - - $ 53,004 $ - -
======= =============== ======= ================ ======== ================
(a) The interest and average yield for nontaxable loans and investments are
presented on a federal taxable equivalent basis assuming a 35% tax rate.
(b) Loans placed on nonaccrual status have been included in average balances
used to determine average rates.
(c) Loan interest income includes net loan fees.
(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.
(e) Net interest income and fees on loans decreased for the years ended 2002
and 2001 in the amounts of $1 million and $528,000 respectively due to a
reclassification of gains on the sales of loans.
Section I, Schedule C - Two Year Summary of Rate and Volume Variances
Years ended December 31,
2003 2002
------------------------------------ --------------------------------
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 $ (69) $ (7) $ (62) $ (36) $ 57 $ (93)
Available-for-sale securities:
Taxable 246 527 (281) (141) 326 (467)
Nontaxable (b) 24 171 (147) 316 359 (43)
Fed funds sold (39) (10) (29) (110) 75 (185)
Loans (b) (c) (d) (e) (2,264) 803 (3,067) (4,362) 1,970 (6,332)
All other interest earning assets 612 562 50 113 126 (13)
---------- ---------- ---------- ---------- ---------- ----------
Total change in interest income (1,490) 2,046 (3,536) (4,220) 2,913 (7,133)
---------- ---------- ---------- ---------- ---------- ----------
Interest Expense
Savings and NOW accounts (845) 15 (860) (2,501) 402 (2,903)
Time deposits (457) 596 (1,053) (2,157) 307 (2,464)
Short-term borrowings (173) 38 (211) (411) 79 (490)
Other borrowings 65 255 (190) (6) 278 (284)
---------- ---------- ---------- ---------- ---------- ----------
Total change in interest expense (1,410) 904 (2,314) (5,075) 1,066 (6,141)
---------- ---------- ---------- ---------- ---------- ----------
Net change $ (80) $ 1,142 $ (1,222) $ 855 $ 1,847 $ (992)
========== ========== ========== ========== ========== ==========
(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.
(b) The interest and average yield for nontaxable loans and investments are
presented on a federal tax equivalent basis assuming a 35% tax rate.
(c) Loans placed on nonaccrual status have been included in average balances
used to determine average rates.
(d) Loan interest income includes net loan fees.
(e) The rate volume variance has been restated for loans in the years ended
2002 and 2001. Reference footnote (e) Section I, Schedule B.
Section II, Schedule A - Investment Portfolio
At December 31,
2003 2002 2001
---------- ---------- ----------
(Dollars in thousands)
Available for Sale:
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations $ 43,555 $ 48,288 $ 25,741
Obligations of states and
political subdivisions 39,117 39,342 33,602
Other 0 0 0
---------- ---------- ----------
Total $ 82,672 $ 87,630 $ 59,343
========== ========== ==========
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.
Section II, Schedule B - Investment Securities Maturities and Yield
The following table presents the maturity of securities held on December 31,
2003 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 $ 8,207 $ 34,789 $ 59 $ 500 $ 43,555
Weighted average yield 4.05% 3.00% 9.64% 6.00% 3.24%
States of the U.S. and Political $ 4,376 $ 14,387 $ 13,775 $ 6,579 $ 39,117
Subdivisions(b)
Weighted average yield 4.66% 6.58% 6.57% 7.24% 6.47%
--------- --------- --------- --------- ---------
TOTAL AVAILABLE FOR SALE $ 12,583 $ 49,176 $ 13,834 $ 7,079 $ 82,672
Weighted Ave. Yield of Total 4.26% 4.05% 6.58% 7.15% 4.77%
========= ========= ========= ========= =========
(a) Includes mortgage backed securities at average maturity dates.
(b) The interest and average yield for nontaxable securities are presented on
a federal taxable equivalent basis assuming a 35% tax rate.
Section III, Schedule A - Loan Portfolio
The composition of the loan portfolio at December 31 is presented as follows:
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Commercial $ 27,562 $ 26,163 $ 27,487 $ 26,219 $ 28,458
Agricultural production 24,970 22,175 23,013 11,326 14,965
Real Estate:
Construction 43,022 42,370 43,603 42,242 37,796
Commercial 101,101 91,769 90,685 85,192 83,592
Agriculture 25,886 18,691 12,604 8,732 9,705
Residential 178,525 163,888 160,713 135,696 110,793
Municipal 3,707 3,309 3,293 4,166 6,141
Consumer (including installment loans) 3,096 3,779 4,674 6,995 7,274
------------ ------------ ------------ ------------ ------------
TOTAL $ 407,869 $ 372,144 $ 366,072 $ 320,568 $ 298,724
============ ============ ============ ============ ============
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, 2003:
Comm'l and agricultural $ 35,959 $ 11,275 $ 5,298 $ 52,532 $ 16,551 $ 22 $ 16,573
Real estate - construction 38,170 4,852 - 43,022 4,852 - 4,852
-------- -------- ------- -------- ---------- ---------- --------
TOTAL $ 74,129 $ 16,127 $ 5,298 $ 95,554 $ 21,403 $ 22 $ 21,425
======== ======== ======== ======== ========== ========== ========
Section III, Schedule C - Risk Elements
Non-accrual, Past Due and Renegotiated Loans
2003 2002 2001 2000 1999
-------------------------------------------------------------------------
(Dollars in thousands)
Non-accrual Loans (a) $ 2,041 $ 2,016 $ 1,541 $ 827 $ 1,256
Past Due 90 days + - - - - 2
Restructured Loans - - - - -
(a) Interest which would have been recorded had the loans been on an accrual
basis, would have amounted to $45,000 in 2003, $23,000 in 2002, $26,000 in
2001, $12,000 in 2000, and $36,000 in 1999. Interest income on these loans,
which is recorded only when received, amounted to $30,000 in 2003, $23,000
in 2002, $14,000 in 2001, $12,000 in 2000, and $31,000 in 1999.
Non-accrual loans were relatively stable at year end 2003, as compared to 2002,
after reflecting charge-offs and non-accrual loans. The increase in non-accrual
loans in 2002 from 2001 was primarily due to a small number of new commercial
and industrial loans. Based on management's analysis of the loan portfolio there
is no specific loss currently anticipated on these loans, although actual
results will depend upon future developments and charge-offs are inherent in the
banking business.
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 judgment
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, 2003, the Company had loans totaling $18.4 million in
addition to those listed as non-accrual, past due or renegotiated that were
identified by the Bank's internal asset rating systems as classified assets.
This represents a decrease of $5.7 million or 23.7% from 2002. 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, 2003. 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
Years Ended December 31,
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Balance, beginning of fiscal year $ 4,988 $ 4,367 $ 3,927 $ 3,581 $ 3,421
Charge-offs:
Commercial 7 197 21 51 51
Agricultural production 62 0 27 0 0
Real Estate:
Construction 0 0 0 0 0
Commercial 257 150 27 48 0
Agriculture 0 0 0 0 0
Other Mortgages 132 87 25 40 42
Consumer (including instalmment loans) 12 23 35 30 104
---------- ---------- ---------- ---------- ----------
Total Charge-offs 470 457 135 169 197
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial 2 0 16 46 6
Agricultural production 0 1 7 0 0
Real Estate:
Construction 0 0 0 0 0
Commercial 0 0 40 0 0
Agriculture 0 0 0 0 0
Other Mortgages 0 1 5 100 0
Consumer (including installment loans) 7 14 7 9 21
---------- ---------- ---------- ---------- ----------
Total Recoveries 9 16 75 155 27
---------- ---------- ---------- ---------- ----------
Net Charge-offs 461 441 60 14 170
Provision charged to operations (a) 90 1,062 500 360 330
---------- ---------- ---------- ---------- ----------
Balance, end of fiscal year $ 4,617 $ 4,988 $ 4,367 $ 3,927 $ 3,581
========== ========== ========== ========== ==========
Average amount of loans outstanding
before allowance for estimated
losses on loans $ 376,685 $ 364,583 $ 340,328 $ 309,306 $ 283,151
========== ========== ========== ========== ==========
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.122% 0.121% 0.018% 0.005% 0.060%
(a) For each year ending December 31, the determination of the additions to
loan loss allowance charged to operating expenses was based on an
evaluation of the loan portfolio, current domestic economic conditions,
past loan losses and other factors.
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:
Year Ended December 31,
2003 2002 2001
------------------------------ ------------------------------ -----------------------------
Amount % of ALL % to Total Amount % of ALL % to Total Amount % of ALL % to Total
Loans Loans Loans
------------------------------ ------------------------------ -----------------------------
(Dollars in thousands)
Commercial Loans (a) $ 3,540 76.6% 44.9% $ 4,402 88.3% 55.0% $ 2,428 55.6% 54.8%
Construction and Land Development 151 3.3% 10.5% 0 0.0% 0.0% 0 0.0% 0.0%
Real Estate-Residential Loans 282 6.1% 43.8% 145 2.9% 44.0% 106 2.4% 43.9%
Consumer Loans 360 7.8% 0.8% 136 2.7% 1.0% 99 2.3% 1.3%
Unallocated 284 6.2% N/A 305 6.1% N/A 1,734 39.7% N/A
-------- -------- --------
Total $ 4,617 $ 4,988 $ 4,367
(a) Commercial Loans include commercial real estate, agricultural production and
municipal loans.
Section V, Schedule A - Deposits
The information called for herein is presented in Section I, Schedule B.
Section V, Schedule B - Maturity Schedule for Time Deposits of $100,000 or more
as of December 31, 2003
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 $ 8,908 13,650 10,774 24,603
=========== =========== =========== ===========
Section VI - Three Year Summary of Return on Equity and Assets for the years
ended December 31,
2003 2002 2001
-------------- --------------- ---------------
Return on average assets 1.19% 1.26% 1.22%
Return on average equity 11.74% 12.92% 12.96%
Dividend payout ratios on common stock 19.75% 18.43% 19.33%
Average equity to average assets 10.13% 9.75% 9.45%
Section VII - Short-term Borrowings
Years Ended December 31,
2003 2002 2001
-------------- --------------- ---------------
(Dollars in thousands)
Securities Sold Under Agreements
To Repurchase (a)
End of Year:
Balance $ 27,421 $ 24,977 $ 26,099
Weighted Ave. Rate 1.51% 1.13% 2.00%
For the Year:
Maximum Amount Outstanding $ 31,157 $ 24,977 $ 33,001
Average Amount Outstanding $ 24,283 $ 22,726 $ 20,395
Weighted Ave. Rate 0.96% 1.81% 3.96%
(a) Securities sold under repurchase agreements are on a short-term basis by
the subsidiary bank at prevailing rates for these funds. The approximate
average maturity was 11.0 months, 5.0 months, and 6.0 months for the years
2003, 2002, and 2001, respectively.
ITEM 2: PROPERTIES
The Company owns no properties; it currently occupies space in the buildings
that house the Bank's Lake Geneva and Kenosha branches.
First Banking Center
The Bank owns banking facilities in Albany, Burlington, Genoa City, Lake Geneva,
Lyons, Monroe, Pell Lake, Pleasant Prairie, Union Grove, Walworth, and Wind
Lake. The Bank leases facilities in Darlington, Kenosha and Shullsburg. Each of
the bank's offices is well maintained and adequately meets the needs of the
bank.
FBC-Burlington, Inc. shares leased office space in Las Vegas, Nevada to house
its investment operations.
ITEM 3: LEGAL PROCEEDINGS
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.
Information about Officers of the Company is incorporated in the Annual Proxy
Statement.
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, to the knowledge of the Company, 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. There may be other transactions of which the Company is not
aware.
2003 2002
Dividend Dividend
Low High Paid Low High Paid
------- ------- -------- ------- ------- --------
First quarter $ 44.00 $ 45.25 $ - $ 38.50 $ 43.00 $ -
Second quarter $ 44.00 $ 45.50 $ 0.39 $ 42.00 $ 45.00 $ 0.37
Third quarter $ 45.00 $ 46.50 $ - $ 42.00 $ 45.00 $ -
Fourth quarter $ 44.00 $ 46.50 $ 0.41 $ 43.00 $ 45.00 $ 0.37
There were 796 holders of record of the Company's $1.00 par value common stock
on December 31, 2003.
Cash Dividends for the last two years ending 2002 and 2001 are presented in ITEM
6: SELECTED FINANCIAL DATA. Regulations issued by the Federal Reserve Board
govern the capital requirements of the Company and the Bank, and thus may affect
the amount of dividends which the Company may pay. The applicable dividend
restrictions are further discussed in ITEM 8: FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA - Note 17 - Regulatory Capital Requirement and restrictions on
Dividends.
ITEM 6: SELECTED FINANCIAL DATA
FIRST BANKING CENTER, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands of except per share data)
December 31,
---------------------------------------------------------------
2003 2002 2001 2000 1999
---------------------------------------------------------------
Interest income $ 26,396 $ 28,873 $ 32,163 $ 31,286 $ 27,692
Interest expense 7,332 8,742 13,817 15,200 12,586
---------------------------------------------------------------
Net interest income 19,064 20,131 18,346 16,086 15,106
Provision for loan losses 90 1,062 500 360 330
---------------------------------------------------------------
Net interest income after
provision for loan loss 18,974 19,069 17,846 15,726 14,776
Noninterest Income 5,682 4,017 3,480 3,126 2,829
Noninterest Expense 16,235 15,058 14,292 12,187 11,583
---------------------------------------------------------------
Income before income taxes 8,421 8,028 7,034 6,665 6,022
Income taxes 2,349 2,069 1,777 1,879 1,860
---------------------------------------------------------------
Net income $ 6,072 $ 5,959 $ 5,257 $ 4,786 $ 4,162
===============================================================
Earnings per common share:
Basic earnings per share $ 4.06 $ 4.04 $ 3.57 $ 3.24 $ 2.80
Diluted earnings per share $ 3.98 $ 3.98 $ 3.52 $ 3.21 $ 2.78
Cash dividends per share $ 0.80 $ 0.74 $ 0.69 $ 0.64 $ 0.59
Book value per share (year end) $ 35.67 $ 32.61 $ 28.67 $ 25.69 $ 22.59
Year-end assets $ 543,917 $ 518,157 $ 475,780 $ 430,858 $ 392,089
Average assets 510,489 472,681 429,269 398,264 377,110
Year-end equity capital 53,540 48,720 42,239 37,948 33,417
Average equity capital 51,708 46,107 40,554 35,581 33,220
Return on average assets 1.19% 1.26% 1.22% 1.20% 1.10%
Return on average equity 11.74% 12.92% 12.96% 13.45% 12.53%
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 financial condition at year end 2003 and
2002, and its results and earnings in 2003, with comparisons to 2002 and 2001.
As of December 31, 2003, First Banking Center (the "Bank") was the only direct
subsidiary of the Company and its operations contributed nearly all of the
Company's 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 three wholly owned subsidiaries, FBC
Financial Services, Corp., a brokerage and financial services subsidiary,
FBC-Burlington, Inc., an investment subsidiary located in Nevada and Burco
Holdings, LLC, a real estate subsidiary for the purpose of holding and
liquidating property acquired as other real estate.
Overview
As of December 31, 2003, total Company assets were $543.9 million increasing
5.0% from $518.2 million as of December 31, 2002. Net income for 2003 was $6.1
million or $3.98 per diluted share, increasing 1.9% from $6.0 million or $3.98
per diluted share in 2002. The significant items resulting in the
above-mentioned results are discussed below.
Financial Condition
Loans
Loans outstanding were $407.9 million and $372.1 million on December 31, 2003
and December 31, 2002 respectively. This represents an increase of $35.8 million
or 9.6% during 2003. The most significant change was in Residential Real Estate
which grew by $14.6 million or 8.9%. This was primarily a result of lower
interest rates attracting a large volume of refinance consumers. Commercial Real
Estate and Agricultural Real Estate loans grew $9.3 million or 10.1% and $7.2
million or 38.5% primarily due to increased efforts by the Company to expand its
lending in these areas. The following table summarizes the changes during 2003
in the major loan classifications.
As a % of Total Loans
Balance December 31, Change in on December 31,
2003 2002 Balance 2003 2002
------------------------------------------ -----------------------------
(Dollars in millions)
Residential Real Estate $178.5 $163.9 $14.6 43.8% 44.0%
Commercial Real Estate 101.1 91.8 9.3 24.8% 24.7%
Construction and Land Development 43.0 42.4 0.6 10.5% 11.4%
Commercial 27.6 26.2 1.4 6.8% 7.0%
Agricultural Real Estate 25.9 18.7 7.2 6.4% 5.0%
Allowance for Loan Losses
The allowance for possible loan losses was $4.6 million or 1.13% of gross loans
on December 31, 2003, compared with $5.0 million or 1.34% of gross loans on
December 31, 2002. Net charge-offs for 2003 were $461,000 or .11% of gross
loans, compared to net charge-offs of $441,000 or .11% of gross loans for 2002.
As of December 31, 2003, loans on non-accrual status totaled $2.0 million or
..49% of gross loans compared to $2.0 million or .54% of gross loans on December
31, 2002. The non-accrual loans consisted primarily of $1.4 million of
residential real estate loans, $314,000 of nonresidential real estate, $194,000
of commercial loans, and $75,000 of farmland real estate. On December 31, 2003,
the ratio of non-accrual loans to the allowance for loan losses was 44.20%
compared to 40.41% on December 31, 2002.
The Company's allocation of its allowance for loan losses can be found in
"Allocation of the Allowance for Estimated Losses on Loans" Section IV, at the
table provided pursuant to Schedule B, in Part I, Item 1 of this Form 10-K,
which is incorporated by reference. A discussion of the changes in the
allocations for the last three years can be found in the following three
paragraphs.
During the second half of 2003, the Company began to see some signs of
improvement in the local commercial real estate market. In reviewing its
commercial loan portfolio, taking into to account improvements in the local
market, the Company decreased its loan loss reserve allocation for commercial
loans by $711,000 or 16.2% from December 31, 2002 to December 31, 2003. In view
of this determination, and the relatively large provision taken in 2002, the
Company also reduced the level of its provision for loan losses in 2003; the
amount of the allowance decreased because net charge offs for the year were
higher than the provision.
During 2002, the Company continued to refine its identification and allocation
process regarding possible loan losses. During the fourth quarter of 2002 the
Company increased its allocation for commercial loans due to weakness in
commercial real estate values in its markets, and this was reflected in the
provision in 2002.
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 and a detailed analysis of the loan portfolio.
The loan portfolio is analyzed quarterly. This quarterly analysis incorporates
the Bank'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, 2003 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 the Bank will not be required to make additional provisions for loan
losses in the future. Asset quality is a priority for the Bank and its
subsidiaries. The ability to grow profitably is in part dependent upon the
ability to maintain that quality.
Investments securities - Available for Sale
The fair value of the securities available-for-sale portfolio decreased $5.0
million or 5.7% from December 31, 2002. For the purposes of this discussion,
changes in investment security balances are based on amortized costs. The
decrease came from three areas of the portfolio. The Company purchased $56.0
million of U.S. Government Agency Notes and U.S. Government Agency
mortgage-backed securities, $5.3 million of municipal securities, $3.0 million
of Commercial Paper and $500,000 of Corporate Bonds. The company sold $9.1
million of U.S. Government Agency Notes and of U.S. Government Agency
mortgage-backed securities and $200,000 of municipal securities. There were
maturities and calls of $50.9 million of U.S. Government Agency Notes and U.S.
Government Agency mortgage-backed securities, $5.6 million of municipal
securities and $3.1 million of Commercial Paper and Certificates of Deposit.
Deposits
Total deposits were $470.5 million on December 31, 2003 compared to $393.8
million on December 31, 2002. This is an increase of $13.7 million or 3.5%. The
following table summarizes the changes during 2003 in the major classifications
of deposits and borrowed funds. Most of this change was the result of a new
interest bearing checking account which was offered in September, 2003.
Customers have been switching from a non-interest bearing checking account to
this new interest bearing account. In addition, a new premium money market
account was introduced in December, 2003. On April 11, 2003, the Company
purchased $10.3 million of deposits from North Shore Bank, FSB located in
Walworth, Wisconsin, at a premium of 8% and transferred the deposits to its
existing Walworth branch.
Dec. 31, Dec. 31, Change in
2003 2002 Balance
------------------------------- -----------
(Amounts in millions)
Money Market and Savings $ 149.2 $ 144.8 $ 4.4
NOW Accounts 45.2 29.6 15.6
Demand Deposits 68.0 73.0 (5.0)
Time Deposits less than $100,000 87.1 90.2 (3.1)
Time Deposits equal or greater than $100,000 57.9 56.2 1.7
Borrowed Funds
Total borrowed funds were $78.8 million on December 31, 2003 compared to $71.8
million on December 31, 2002. This is an increase of $7.0 million or 9.7%. The
Company increased its borrowings because demand for loans grew faster than
deposits during 2003. The following table summarizes the changes during 2003 in
the major classifications of deposits and borrowed funds.
Dec. 31, Dec. 31, Change in
2003 2002 Balance
------------------------------- -----------
(Amounts in millions)
Securities sold under agreement to repurchase $ 27.4 $ 25.0 $ 2.4
Federal Home Loan Borrowings 44.2 46.3 (2.1)
Federal Funds Borrowed 6.7 - 6.7
Further information regarding our FHLB borrowings is included in Note 9 of our
Consolidated Financial Statements.
Capital resources
During 2003, the Company's stockholders' equity increased $4.8 million or 9.9%.
Net income of $6.1 million was the primary reason for the increase in equity. In
addition, net unrealized gain/loss on available for sale securities decreased
$274,000 to $1.3 million and the Company raised $248,000 through the issuance of
stock under its incentive stock plan. These factors were offset by the Company's
purchase of $172,000 of treasury stock during 2003 and cash dividends paid in
2003 of $1.2 million or $.80 per share.
Under the Federal Reserve Board's risk-based 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 12.5% at December 31, 2003, well above the 4% minimum required. Total
capital to risk-adjusted assets was 13.6%, also well above the 8% minimum
requirement. The leverage ratio was at 9.7% compared to the 4% minimum
requirement. According to FDIC capital guidelines, the subsidiary bank 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 policy 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 20%, which
compares to a positive 20% as of December 31, 2002. Although a positive GAP of
20% is outside of the target range the Company feels the current positive
position is acceptable and will help to maximize income in the event interest
rates rise. However, if interest rates decline, this may have an adverse effect
on the Company's income.
Liquidity
Liquidity measures the ability of the Bank 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 $23.3 million at December 31, 2003,
compared with $33.7 million at December 31, 2002. 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. In 2003, the Company
increased its use of borrowings somewhat because deposit growth did not keep
pace with loan growth. First Banking Center also generates liquidity from the
regular principal payments and prepayments made on its portfolio of loans and
mortgage-backed securities. Although changes in interest rates could negatively
impact liquidity, the Company feels it has adequate sources to meet its
liquidity needs. Any effects changes in interest rates have on income would have
minimal effect on liquidity.
The cash position of the Bank is determined by activity in three primary
classifications: cash flows from operating activities, cash flows from investing
activities, and cash flows from financing activities. As a net result of these
activities, the Company's cash decreased slightly in 2003. Net cash provided by
operating activities was $8.0 million for fiscal 2003 compared to $7.1 million
for fiscal 2002. This was primarily a result of net secondary market loan
proceeds over originating secondary market loans and the acquisition of other
real estate in settlement of loans recorded in other assets. Net cash used in
investing activities, consisting principally of loan funding and the purchase of
securities, was $29.9 million for fiscal 2003 and $41.2 million for fiscal 2002.
Net cash provided by financing activities, consisting principally of deposit
growth and short term borrowings, was $19.7 million for fiscal 2003 and $35.6
million for fiscal 2002.
Total cash increased slightly in 2002. Net cash provided by operating activities
was $7.1 million for fiscal 2002 compared to $234,000 used in fiscal 2001,
primarily a result of an equivalent level of originating secondary market loans
to secondary market loan proceeds during 2002. Net cash used in investing
activities, consisting principally of loan funding and the purchase of
securities, was $41.2 million for fiscal 2002 and $48.2 million for fiscal 2001.
Net cash provided by financing activities, consisting principally of deposit
growth, was $35.6 million for fiscal 2002 and $39.9 million for fiscal 2001.
Contractual Commitments and Obligations
The Company's contractual obligations and commercial commitments are discussed
in various parts of this document. Information in the following table provides a
summary of the Company's other contractual obligations and commercial
commitments as of December 31, 2003, as well as that information for its
depository products:
Payments Due by Fiscal Period
(in thousands)
-----------------------------------------------------------------------------
Contractual Obligations (a) Remaining in 2005-2006 2007-2008 2009 and
Total 2004 thereafter
-----------------------------------------------------------------------------
Deposits, Certificates of Deposit $ 145,072 $ 82,174 $ 54,642 $ 7,964 $ 292
and similar products
Capital Lease Obligations - - - - -
Short-term Obligations (b) 34,176 34,176
Other Borrowings (c) 44,673 19,402 11,060 11,211 3,000
Operating leases 332 95 174 63 -
Unconditional purchase - - - - -
obligations
Other long-term obligations (d) 2,472 194 357 287 1,634
-----------------------------------------------------------------------------
Total contractual cash
obligations $ 226,725 $ 136,041 $ 66,233 $ 19,525 $ 4,926
=============================================================================
Notes
(a) Excluding the "off balance sheet" lending commitments discussed below.
(b) See Note 8 in the Notes to Consolidated Financial Statements for a
description of the Company's various short-term borrowings. Many short-term
borrowings such as fed funds purchased and security repurchase agreements
are expected to be reissued and, therefore, do not necessarily represent an
immediate need for cash.
(c) See Note 9 in the Notes to Consolidated Financial Statements for a
description of the Company's various other borrowings.
(d) As of December 31, 2003, other long-term obligations consisted primarily of
Salary continuation agreements and Benefit Plans. See Exhibits 10.1, 10.2,
10.3 and 10.4 for a detailed description of the Company's Salary
continuation agreements and Benefit Plans.
Off Balance Sheet Obligations
In the ordinary course of its banking business, the Bank regularly makes
commitments that are not included on the Company's balance sheet. These
commitments at December 31, 2003, which are most frequently commitments to lend
funds, are summarized below:
Commitments to extend credit
Unused revolving home equity, $ 18,507
consumer and credit card lines
of credit
Unused commercial lines of 65,467
of credit
Standby letters of credit 3,070
In the ordinary course of business, the Bank also makes commitments to extend
credit that are not reflected in the table above. However, the Bank does not
believe that there are any material unfunded loan commitments that are not
covered in the table above.
Management believes that the Bank has sufficient liquidity and capital resources
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. The Company 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 the Bank'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 the Bank'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.
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 interest income and rate are on a tax-equivalent
basis, which accounts for income earned on securities that are not fully subject
to federal taxes. Net interest margin/income was $20.0 million, $20.0 million
and $18.6 million for 2003, 2002 and 2001 respectively. Net interest
margin/income as a percentage of average earning assets was 4.2%, 4.5% and 4.6%
in 2003 and 2002 and 2001 respectively. The decrease in net interest
income/margin in 2003 was the result of declining interest rates which caused
net interest income to grow slower than average earning assets.
Years ended December 31,
2003 2002 2001
---------------------------- ----------------------------- ---------------------------
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
---------------------------- ----------------------------- ---------------------------
Interest earning assets:
Interest-bearing deposits in banks $ 1,375 $ 16 1.16% $ 4,393 $ 85 1.93% $ 2,606 $ 121 4.65%
Available-for-sale securities:
Taxable 45,165 1,251 2.77% 27,665 1,005 3.63% 20,589 1,146 5.57%
Nontaxable (a) 38,452 2,494 6.49% 35,885 2,470 6.88% 30,683 2,154 7.02%
Fed funds sold 7,793 83 1.07% 8,422 122 1.45% 5,875 232 3.95%
Loans (a)(b)(c)(e) 376,685 22,565 5.99% 364,583 24,829 6.81% 340,328 28,664 8.42%
All other interest earning assets 11,390 878 7.71% 4,602 266 5.78% 2,440 153 6.27%
---------------------------- ---------------------------- ---------------------------
Total interest earning assets $ 480,860 $ 27,287 5.67% $ 445,550 $ 28,777 6.46% $ 402,521 $ 32,470 8.07%
============================ ============================ ===========================
Interest bearing liabilities:
Savings and NOW accounts $ 170,170 935 0.55% $ 168,713 $ 1,780 1.06% $ 152,947 $ 4,281 2.80%
Time deposits 147,728 4,351 2.95% 130,170 4,808 3.69% 124,445 6,965 5.60%
Short-term borrowings 25,298 244 0.96% 23,048 417 1.81% 20,861 829 3.97%
Other borrowings 45,639 1,802 3.95% 39,454 1,737 4.40% 33,618 1,742 5.18%
---------------------------- ---------------------------- ---------------------------
Total int.bearing liabilities $ 388,835 7,332 1.89% $ 361,385 $ 8,742 2.42% $ 331,871 $ 13,817 4.16%
============================ ============================ ===========================
Net interest income/margin(d) $ 19,955 4.15% $ 20,035 4.50% $ 18,653 4.63%
================= ================= =================
Non Interest bearing Deposits $ 66,581 - - $ 61,641 $ - - $ 53,004 $ - -
============================ =========================== ===========================
(a) The interest and average yield for nontaxable loans and investments are
presented on a federal taxable equivalent basis assuming a 35% tax rate.
(b) Loans placed on nonaccrual status have been included in average balances
used to determine average rates.
(c) Loan interest income includes net loan fees.
(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.
(e) Net interest income and fees on loans decreased for the years ended 2002
and 2001 in the amounts of $1 million and $528,000 respectively due to a
reclassification of gains on the sales of loans.
The major component of interest income and fees on loans is the interest
generated by loans. Although the average balances for outstanding Loans
increased during 2003, interest rates declined significantly enough that
interest income and fees on Loans decreased $2.3 million.
The major components of interest expense are interest paid on Certificates of
Deposit (Time deposits) and on Money Market Deposits. Interest expense on
Savings and NOW Accounts and Time Deposits decreased $845,000 and $457,000
respectively primarily due to a decrease in interest rates paid on those
accounts.
Provision for loan losses
During 2003, $90,000 was charged to current earnings and added to the allowance
for loan losses. In 2002 and 2001, $1.1 million and $500,000, respectively, was
charged to earnings and added to the allowance for loan losses. The significant
differences in the provision for loan losses among the years 2003, 2002 and 2001
are based on management's analysis and perception of the Bank's loans are loan
markets, and developments in them, during those years. The 2001 provision was
somewhat increased from the range of provisions for the prior several years. In
2002, however, the Bank began to experience increasing concern with the loan
portfolio, in particular commercial loans. Net charge-offs increased from
$60,000 in 2001 to $441,000 in 2002, and non-accrual loans increased by
approximately $0.5 million during that period, after having increased more
significantly in 2001. As a result of these developments, management determined
to significantly increase the amount of the provision in 2002.
Although the Bank again experienced a relatively high amount of net charge-offs
in 2003, $461,000, management also perceived a significant stabilization, and
some respects improvement, in business conditions in the Bank's primary lending
area and improvement in the balance of its loan portfolio during 2003. The
result of this stabilization, and reflecting the increased level of the
allowance for loan losses at the end of 2002, management significantly reduced
the amount of the provision in 2003. Management continues to carefully monitor
the allowance, and will make provisions as appropriate to reflect its perception
of the Bank's loan portfolio.
See "Financial Condition-Allowance for Loan Losses" for a description of the
processes which the Company uses in determining the amount of the provision and
the allowance for loan losses.
Non-interest income
Non-interest income increased $658,000 or 13.1% during 2003. The increase was
primarily the result of $767,000 of increased gains from the sales of loans and
a $94,000 increase in securities gains. These gains were offset by $197,000
decrease in commissions and slightly decreased net fees and service charges on
deposit accounts. The significant increase in gains in the sale of loans results
from continuing significantly increased refinancing activity due to the decrease
in market interest rates. The Bank generally resells these loans on the market.
In late 2003 and continuing into 2004, however, interest rates stabilized and
this refinancing activity significantly diminished. The Company therefore
expects gains from the sales of the loans to decrease in 2004.
Non-interest income increased $1.0 million or 25.3% During 2002. The increase
came in primarily two area. Service charges on deposit accounts increased
$357,000 as the number of accounts grew and charges for some services were
increased. Commission Income from investment services increased $76,000 as sales
of annuities were strong during 2002.
Non-interest expense
Non-interest expense increased $1.2 million during 2003. Salaries and benefits
increased $362,000 due to normal wage increases. Data processing costs increased
$126,000 due to the inflation clause in the main service provider's contract as
well as increased volumes and additional services used. Occupancy expense
increased $113,000 primarily due to the addition of the Shullsburg branch and
renovation of the Wind Lake branch. Equipment expense decreased $100,000 due
primarily to a decrease in rental/lease equipment. Other expenses increased
$676,000 primarily due to increased Advertising, Business Development activities
and the opening of the Shullsburg branch.
Non-interest expense increased $766,000 or 5.4% during 2002. Salaries and
benefits increased $782,000 due to normal wage increases, increased commissions
and bonuses tied to loan fee income and annuity sales and increased health
insurance costs. Data processing costs increased $77,000 due to the inflation
clause in the main service provider's contract as well as increased volumes and
additional services used. Equipment expense increased $161,000 due primarily to
increases on maintenance contracts on equipment and software. Other operating
expenses decreased $293,000 due to expense controls put in place by the Company,
partially offsetting the increases.
Income Taxes
Income tax expense for the year ended December 31, 2003 was $2.3 million
compared to $2.1 million for 2002. The effective tax rate increased to 27.9% for
the year ended December 31, 2002 compared to 25.8% in 2002.
Income tax expense for the year ended December 31, 2002 was $2.1 million
compared to $1.8 million for 2001. The effective tax rate increased to 25.8% for
the year ended December 31, 2002 from 25.3% in 2001.
Like many Wisconsin financial institutions, the Bank has a non-Wisconsin
subsidiary which holds and manages investment assets, the income from which has
not yet been subject to Wisconsin tax. The Wisconsin Department of Revenue has
instituted an audit program, including an audit of the Bank, specifically aimed
at out of state bank subsidiaries and has indicated that it may withdraw
favorable rulings previously issued in connection with such subsidiaries. As a
result of these developments, the Department may take the position that the
income of the out of state subsidiaries is taxable in Wisconsin, which will
likely be challenged by financial institutions in state. If the Department is
successful in its efforts, it could result in a substantial negative impact on
the earnings of the Bank.
Critical Accounting Policies
Income Taxes
See Note 1 of the notes to our audited consolidated financial statements for our
income tax accounting policy. Income tax expense recorded in the consolidated
income statement involves interpretation and application of certain accounting
pronouncements and federal and state tax codes, and is, therefore, considered a
critical accounting policy. We undergo examinations by various regulatory taxing
authorities. Such agencies may require that changes in the amount of tax expense
or valuation allowance be recognized when their interpretations differ from
those of management, based on their judgments about information available to
them at the time of their examinations. See Note 11 of the notes to our audited
consolidated financial statements for more income tax information.
Allowance for Loan Losses
Management believes the allowance for loan losses accounting policy is critical
to the portrayal and understanding of our financial condition and results of
operations. As such, selection and application of this "critical accounting
policy" involves judgments, estimates, and uncertainties that are susceptible to
change. In the event that different assumptions or conditions were to prevail,
and depending upon the severity of such changes, the possibility of materially
different financial condition or results or operations is a reasonable
likelihood. For further detail, see the explanations under "Loans" above.
Recent changes in Accounting Policies, and their Effects
The company has established various accounting policies which govern the
application of accounting principles generally accepted in the United States in
the preparation of the Company's consolidated financial statements. The
significant accounting policies of the Company are described in the footnotes to
the consolidated financial statements contained herein and updated as necessary
in its Quarterly Reports on Form 10Q.
The information called for herein is incorporated by reference from Note 1
included in the "Notes to Consolidated Financial Statements".
Quarterly Results of Operations (Unaudited)
Quarterly results of operations are as follow:
Quarter Ended
MAR 2003 JUN 2003 SEP 2003 DEC 2003
-----------------------------------------------------------
(Amounts in thousands)
Total interest income $ 6,383 6,565 6,805 6,643
Total interest expense 1,994 1,892 1,729 1,717
-----------------------------------------------------------
Net interest income 4,389 4,673 5,076 4,926
Provision for loan losses 90 - - -
Other income 1,395 1,528 1,617 1,142
Other expense 3,816 3,928 4,044 4,447
-----------------------------------------------------------
Income before income taxes 1,878 2,273 2,649 1,621
Applicable income taxes 490 640 796 423
-----------------------------------------------------------
Net Income $ 1,388 1,633 1,853 1,198
===========================================================
Net income per share:
Basic $ 0.93 1.09 1.24 0.80
===========================================================
Diluted $ 0.91 1.07 1.21 0.79
===========================================================
Quarter Ended
MAR 2002 JUN 2002 SEP 2002 DEC 2002
-----------------------------------------------------------
(Amounts in thousands)
Total interest income $ 6,976 6,995 6,874 7,021
Total interest expense 2,246 2,128 2,188 2,180
-----------------------------------------------------------
Net interest income 4,730 4,867 4,686 4,841
Provision for loan losses 90 90 91 791
Other income 1,085 1,098 1,297 1,544
Other expense 3,564 3,526 3,716 4,252
-----------------------------------------------------------
Income before income taxes 2,161 2,349 2,176 1,342
Applicable income taxes 570 638 619 242
-----------------------------------------------------------
Net Income $ 1,591 1,711 1,557 1,100
===========================================================
Net income per share:
Basic $ 1.08 1.16 1.06 0.74
===========================================================
Diluted $ 1.06 1.14 1.03 0.75
===========================================================
Gain on the sale of loans for each of the quarters in 2002 and the first three
quarters in 2003 has been reclassified from interest income on loan and fees to
non-interest income. The reclassifications had no effect on reported amounts of
net income or stockholder's equity.
ITEM 7A: 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. The Bank'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 the Bank'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 the Bank's asset/liability position, the Board and management
attempt to manage the Bank'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 the Bank's interest rate risk position somewhat in order to increase
its net interest margin. The Bank'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, 2003 and December 31, 2002, an analysis of the Bank'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, 2003 December 31, 2002 December 31, 2003 December 31, 2002
- ----------------------------------------------------------------- ---------------------------------------------
+200 48,285 45,323 (1,041) (1,283)
+100 49,326 46,607 (1,192) (1,461)
- --- 50,518 48,068 - -
- -100 52,064 49,092 1,546 1,024
- -200 54,332 51,212 2,268 2,120
The Bank does not currently engage in trading activities or use derivative
instruments to control interest rate risk. Such activities may be permitted with
the approval of the Board of Directors. The Bank may engage in such activities
in the near future. Interest rate risk is the most significant market risk
affecting the bank. Other types of market risk, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of the Bank's business activities.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
FIRST BANKING CENTER, INC.
AND SUBSIDIARY
Burlington, Wisconsin
Consolidated Financial Statements
Including Independent Auditors' Report
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Independent Auditors' Report 29
Consolidated Balance Sheets
December 31, 2003 and 2002 30
Consolidated Statement of Income
Years Ended December 31, 2003, 2002 and 2001 31
Consolidated Statements of Change in Stockholders' Equity
Years Ended December 31, 2003, 2002 and 2001 32
Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001 33-34
Notes to Consolidated Financial Statements 35-58
Independent Auditor's Report
To the Stockholders and 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, 2003 and 2002, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2003. 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
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Banking
Center, Inc. and subsidiary as of December 31, 2003 and 2002, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
McGladrey & Pullen, LLP
Madison, Wisconsin
January 23, 2004
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2003 and 2002
ASSETS 2003 2002
- ----------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except
share and per share data)
Cash and due from banks $ 19,960 $ 22,203
Federal funds sold 3,047 11,058
Interest-bearing deposits in banks 274 441
Available-for-sale securities 82,672 87,630
Loans, less allowance for loan losses of $4,617
and $4,988 at 2003 and 2002, respectively 403,252 367,156
Office buildings and equipment, net 11,818 10,576
Other real estate owned 1,899 -
FHLB stock 11,755 10,488
Other assets 9,240 8,605
------------------------------
Total assets $ 543,917 $ 518,157
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 67,961 $ 72,957
Savings and NOW accounts 194,419 174,431
Time 145,072 146,413
-------------------------------
Total deposits 407,452 393,801
Short-term borrowings 34,176 25,077
Other borrowings 44,673 46,755
Other liabilities 4,076 3,804
-------------------------------
Total liabilities 490,377 469,437
-------------------------------
Stockholders' Equity:
Common stock, $1.00 par value, 3,000,000 shares authorized;
1,501,277 and 1,494,029 shares issued as of December 31, 2003
and 2002; 1,500,760 and 1,494,029 shares outstanding as of
December 31, 2003 and 2002; 1,501 1,494
Surplus 4,612 4,375
Retained earnings 46,161 41,287
Accumulated other comprehensive income 1,290 1,564
Common stock in treasury, at cost
517 shares 2003, none 2002 (24) -
-------------------------------
Total stockholders' equity 53,540 48,720
-------------------------------
Total liabilities and stockholders' equity $ 543,917 $ 518,157
===============================
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003, 2002, and 2001
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except
share and per share data)
Interest income:
Interest and fees on loans $ 22,522 $ 24,758 $ 28,562
Interest and dividends on securities:
Taxable 1,251 1,005 1,146
Nontaxable 1,646 1,630 1,421
Interest on federal funds sold 83 122 232
Interest on interest-bearing deposits in banks 16 85 121
Other interest 878 266 153
-------------------------------------------
Total interest income 26,396 27,866 31,635
-------------------------------------------
Interest expense:
Interest on deposits 5,286 6,588 11,246
Interest on short-term borrowings 244 417 825
Interest on other borrowings 1,802 1,737 1,746
-------------------------------------------
Total interest expense 7,332 8,742 13,817
-------------------------------------------
Net interest income 19,064 19,124 17,818
Provision for loan losses 90 1,062 500
-------------------------------------------
Net interest income after provision for loan losses 18,974 18,062 17,318
-------------------------------------------
Noninterest income:
Trust fees 493 485 513
Service charges on deposit accounts 1,856 1,934 1,577
Commissions 190 387 311
Automated banking fees 651 597 541
Securities gains, net 107 13 (1)
Loan gains, net 1,774 1,007 528
Other 611 601 539
-------------------------------------------
Total noninterest income 5,682 5,024 4,008
-------------------------------------------
Noninterest expenses:
Salaries and employee benefits 9,176 8,814 8,032
Occupancy 1,092 979 940
Equipment 1,443 1,543 1,382
Data processing services 1,027 901 824
Other 3,497 2,821 3,114
-------------------------------------------
Total noninterest expenses 16,235 15,058 14,292
-------------------------------------------
Income before income taxes 8,421 8,028 7,034
Income taxes 2,349 2,069 1,777
-------------------------------------------
Net income $ 6,072 $ 5,959 $ 5,257
===========================================
Basic earnings per share $ 4.06 $ 4.04 $ 3.57
===========================================
Diluted earnings per share $ 3.98 $ 3.98 $ 3.52
===========================================
Weighted average common shares outstanding 1,496,470 1,474,060 1,473,197
===========================================
Weighted average common and equivalent common
shares outstanding 1,524,323 1,498,485 1,491,878
===========================================
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2003, 2002, and 2001
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except for share and per share data)
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 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 - $0.69 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
Comprehensive income:
Net income - - 5,959 - - 5,959
Change in net unrealized gains on
available-for-sale securities - - - 1,536 - 1,536
Reclassification adjustment for gains
included in net income - - - 13 - 13
Income tax effect - - - (527) - (527)
----------
Comprehensive income 6,981
----------
Sale of 4,649 shares of common stock for
exercise of stock options 5 162 - - - 167
Purchase of 5,700 shares of treasury stock - - - - (252) (252)
Cash dividends paid - $0.74 per share - - (1,098) - - (1,098)
Tax benefit of nonqualified stock options
exercised - 29 - - - 29
Sale of 21,883 shares of treasury stock for
the exercise of stock options - - (223) - 877 654
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 1,494 4,375 41,287 1,564 - 48,720
----------
Comprehensive income:
Net income - - 6,072 - - 6,072
Change in net unrealized gains (losses)on
available-for-sale securities - - - (522) - (522)
Reclassification adjustment for gains included
in net income - - - 107 - 107
Income tax effect - - - 141 - 141
----------
Comprehensive income 5,798
----------
Sale of 7,248 shares of common stock for
exercise of stock options 7 248 - - - 255
Purchase of 3,773 shares of treasury stock - - - - (172) (172)
Cash dividends paid - $0.80 per share - - (1,198) - - (1,198)
Tax benefit of nonqualified stock options
exercised - 11 - - - 11
Sale of 3,256 shares of treasury stock
for the exercise of stock options - (22) - - 148 126
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 $ 1,501 $ 4,612 $ 46,161 $ 1,290 $ (24) $ 53,540
=====================================================================
See Notes to Consolidated Financial Statements.
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002, and 2001
2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
Cash Flows From Operating Activities
Net income $ 6,072 $ 5,959 $ 5,257
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 969 869 798
Provision for loan losses 90 1,062 500
Loan gains, net (1,774) (1,007) (528)
Deferred income taxes 378 (24) (9)
Amortization of premiums and accretion of
discounts on securities, net 472 115 59
Amortization 170 101 102
Investment securities (gains) losses (107) (13) 1
Tax benefit of nonqualified stock options exercised 11 29 6
Increase in other assets (4,910) (374) (2,000)
Increase (decrease) in other liabilities 270 (277) (193)
------------------------------------------
Net cash provided by operations before loan
origination and sales 1,641 6,440 3,993
Loans originated for sale (69,277) (82,908) (94,362)
Proceeds from sales of loans 75,639 83,547 90,135
------------------------------------------
Net cash provided by (used in) operating activities 8,003 7,079 (234)
------------------------------------------
Cash Flows From Investing Activities
Net (increase) decrease in interest-bearing deposits in banks 167 (174) 429
Net (increase) decrease in federal funds sold 8,011 952 (12,010)
Proceeds from sales of available-for-sale securities 9,370 7,615 21,241
Proceeds from maturities and calls of
available-for-sale securities 59,641 62,038 140,606
Purchase of available-for-sale securities (64,831) (96,493) (155,555)
Net increase in loans (38,805) (6,145) (40,809)
Purchase of office buildings and equipment (2,211) (924) (1,494)
Purchase of FHLB stock (1,267) (8,124) (597)
------------------------------------------
Net cash used in investing activities $ (29,925) $ (41,255) $ (48,189)
------------------------------------------
(Continued)
FIRST BANKING CENTER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2003, 2002, and 2001
2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
Cash Flows From Financing Activities
Net increase in deposits $ 13,651 $ 41,387 $ 17,474
Dividends paid (1,198) (1,098) (1,016)
Proceeds from other borrowings - 10,130 38,350
Payments on other borrowings (2,082) (11,222) (26,447)
Net increase (decrease) in short-term borrowings 9,099 (4,122) 11,800
Sale of common stock 255 167 -
Purchase of treasury stock (172) (252) (606)
Sale of treasury stock for the exercise of stock options 126 654 316
------------------------------------------
Net cash provided by financing activities 19,679 35,644 39,871
------------------------------------------
Net increase (decrease) in cash and due from banks (2,243) 1,468 (8,552)
Cash and due from banks:
Beginning 22,203 20,735 29,287
------------------------------------------
Ending $ 19,960 $ 22,203 $ 20,735
==========================================
Supplemental Disclosures of Cash Flow Information,
cash paid during the year for:
Interest $ 7,556 $ 8,823 $ 14,375
Income taxes 1,766 2,221 2,211
Supplemental Schedule of Noncash Investing Activities
Change in accumulated other comprehensive income,
unrealized gains (losses)on available-for-sale securities, net $ (274) $ 1,022 $ 334
Other real estate acquired in settlement of loans 1,969 - -
See 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 southcentral 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.
Consolidation: The consolidated financial statements of the Company include the
accounts of the Bank. The Bank includes the accounts of its wholly owned
subsidiaries, FBC-Burlington, Inc., FBC Financial Services Corp and Buroco
Holdings, LLC. 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.
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 other real
estate owned and deferred tax assets. The fair value disclosure of financial
instruments is an estimate that can be computed within a range.
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. Declines in the fair value of
available-for-sale securities below their cost that a deemed to be other than
temporary are reflected in earnings as realized losses. In estimating
other-then-temporary impairment losses, management considers (1) the length of
time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent
and ability of the Corporation to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair value.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
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 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. The balance of mortgage
loans held for sale is included in the loan balance on the financial statements.
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 or the ability to unilaterally cause the holder to return
specific assets.
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. Management periodically reviews the carrying value of its long-lived
assets to determine if an impairment has occurred or whether changes in
circumstances have occurred that would require a revision to the remaining
useful life. In making such determination, management evaluates the performance,
on an undiscounted basis, of the underlying operations or assets which give rise
to such amount.
Intangible Assets: The Company's intangible assets include the value of ongoing
customer relationships (core deposits), the excess of cost over the fair value
of net assets or liabilities acquired (goodwill) arising from the purchase of
certain assets and the assumption of certain liabilities from unrelated
entities. Core deposit intangibles are amortized over a 10-year period and
goodwill is evaluated on an annual basis to determine impairment, if any. Any
impairment in the intangibles would be recorded against income in the period of
impairment.
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 earnings.
Stock-Based Compensation Plan: At December 31, 2003, the Company had one
stock-based key officer and employee compensation plan, which is described more
fully in Note 10. The Company accounts for this plan under the recognitions and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in the income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of Financial Accounting Standards Board (FASB) Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Years Ended December 31,
----------------------------------------------------
2003 2002 2001
----------------------------------------------------
(Amounts in thousands, except for per share data)
Net income, as reported $ 6,072 $ 5,959 $ 5,257
Deduct total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (192) (169) (193)
----------------------------------------------------
Net income $ 5,880 $ 5,790 $ 5,064
====================================================
Earnings per share:
Basic:
As reported $ 4.06 $ 4.04 $ 3.57
Pro forma 3.93 3.93 3.44
Diluted:
As reported 3.98 3.98 3.52
Pro forma 3.86 3.86 3.39
Note 1. Summary of Significant Accounting Policies (Continued)
In determining compensation cost using the fair value method prescribed in
Statement No. 123, the value of each grant is estimated at the grant date with
the following weighted-average assumptions used for grants in 2003, 2002, and
2001, respectively: dividend rate of 1.7 percent, 1.7 percent, and 1.6 percent;
expected price volatility of 5.2 percent, 5.2 percent, and 5.2 percent, blended
risk-free interest rates of 4.1 percent, 3.9 percent, and 4.7 percent; and
expected lives of 10 years, respectively.
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. 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.
Segment Reporting: The Company is managed as one unit and does not have separate
operating segments. The Corporation's chief operating decision-makers used
consolidated results to make operating and strategic decisions.
Reclassifications: Certain 2002 and 2001 amounts have been reclassified to
conform with the 2003 presentation. The reclassifications had no effect on
reported amounts of net income or stockholder's equity.
Note 2. Cash and Due From Banks
The Bank is required to maintain vault cash and reserve balances with the
Federal Reserve Bank based upon a percentage of deposits. These requirements
approximated $6,452,000 and $5,320,000 at December 31, 2003 and 2002,
respectively.
Note 3. Available-for-Sale Securities
Amortized cost and fair value of available-for-sale securities are summarized as
follows:
December 31, 2003
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------------------------------------------------------
(Amounts in Thousands)
U.S. Treasury securities $ 353 $ 22 $ - $ 375
Obligations of other U.S. government
agencies and corporations 32,943 214 (35) 33,122
Obligations of states and
political subdivisions 37,358 1,764 (5) 39,117
--------------------------------------------------------------
70,654 2,000 (40) 72,614
Mortgage-backed securities 10,063 37 (42) 10,058
--------------------------------------------------------------
$ 80,717 $ 2,037 $ (82) $ 82,672
==============================================================
December 31, 2002
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------------------------------------------------------
(Amounts in Thousands)
U.S. Treasury securities $ 356 $ 34 $ - $ 390
Obligations of other U.S. government
agencies and corporations 23,142 456 - 23,598
Obligations of states and
political subdivisions 37,544 1,815 (17) 39,342
Commercial paper 1,000 - - 1,000
--------------------------------------------------------------
62,042 2,305 (17) 64,330
Mortgage-backed securities 23,218 107 (25) 23,300
--------------------------------------------------------------
$ 85,260 $ 2,412 $ (42) $ 87,630
==============================================================
Note 3. Available-for-Sale Securities (Continued)
Unrealized losses and fair value, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss
position, as of December 31, 2003 are summarized as follows:
Less than 12 Months 12 Months or More Total
-----------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
-----------------------------------------------------------------------
(Amounts in thousands)
Securities available for sale:
Obligations of other U.S. government
agencies and corporations $ 1,987 $ 35 $ - $ - $ 1,987 $ 35
Obligations of states and political
subdivisions 1,394 5 - - 1,394 5
Mortgage-backed securities 7,567 42 - - 7,567 42
-----------------------------------------------------------------------
$10,948 $ 82 $ - $ - $10,948 $ 82
=======================================================================
Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Management has determined that the declines in value summarized
above are considered to be temporary.
Securities with a carrying value of $29,461,000 and $27,165,000 as of
December 31, 2003 and 2002, respectively, were pledged as collateral on public
deposits and for other purposes as required or permitted by law.
The amortized cost and fair value of available-for-sale securities by
contractual maturity at December 31, 2003 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
--------------------------------
(Amounts in thousands)
Due in one year or less $ 10,361 $ 10,486
Due after one year through 5 years 41,030 41,775
Due after 5 years through 10 years 13,066 13,774
Due after 10 years 6,195 6,579
--------------------------------
70,652 72,614
Mortgage-backed securities 10,063 10,058
--------------------------------
$ 80,715 $ 82,672
================================
Note 3. Available-for-Sale Securities (Continued)
Following is a summary of the proceeds from the sales of available-for-sale
securities, as well as gross gains and losses for the years ended December 31:
2003 2002 2001
--------------------------------------------------
(Amounts in thousands)
Proceeds from sales of
available-for-sale securities $ 9,370 $ 7,615 $ 21,241
==================================================
Gross gains on sales $ 107 $ 20 $ 1
Gross losses on sales - (7) (2)
--------------------------------------------------
$ 107 $ 13 $ (1)
==================================================
Note 4. Loans
Major classifications of loans as of December 31 were as follows:
2003 2002
-----------------------------------
(Amounts in thousands)
Commercial $ 27,562 $ 26,163
Agricultural production 24,970 22,175
Real estate:
Construction 43,022 42,370
Commercial 101,101 91,769
Agricultural 25,886 18,691
Residential 178,525 163,888
Municipal loans 3,707 3,309
Consumer and other 3,096 3,779
-----------------------------------
407,869 372,144
Less allowance for loan losses 4,617 4,988
-----------------------------------
Net loans $ 403,252 $ 367,156
===================================
Note 4. Loans (Continued)
Changes in the allowance for loan losses for the years ended December 31, are
presented as follows:
2003 2002 2001
----------------------------------------------------
(Amounts in thousands)
Balance at beginning of year $ 4,988 $ 4,367 $ 3,927
Charge-offs (470) (457) (135)
Recoveries 9 16 75
Provision charged to expense 90 1,062 500
----------------------------------------------------
Balance at end of year $ 4,617 $ 4,988 $ 4,367
====================================================
The following is a summary of information pertaining to impaired loans as of
December 31:
2003 2002
----------------------------------
(Amounts in thousands)
Impaired loans for which an allowance has
been provided $ 2,041 $ 2,016
Impaired loans for which no allowance has
been provided - -
----------------------------------
Total loans determined to be impaired $ 2,041 $ 2,016
==================================
Allowance provided for impaired loans, included
in the allowance for loan losses $ 439 $ 209
==================================
2003 2002 2001
--------------------------------------------------
(Amounts in thousands)
Average investment in impaired loans $ 5,090 $ 1,856 $ 1,580
==================================================
Interest income recognized and collected on a
cash basis on impaired loans $ 30 $ 23 $ 14
==================================================
It is management's policy to place loans (commercial, residential, and or
installment) on nonaccrual when principal and interest is past due 90 days or
more. Nonaccruing loans may continue on accrual only when they are both well
secured and in the process of collection. Nonaccruing loans totaled $2,041,000
and $2,016,000 as of December 31, 2003 and 2002, respectively. Interest income
in the amount of $45,000 and $23,000 and $26,000 would have been earned on the
nonaccrual loads had they been performing in accordance with their original
terms during the years ended 2003, 2002, and 2001, respectively. The interest
collected on nonaccrual loans and included in income for years ended December
31, 2003, 2002, and 2001 was not significant. Loans past due 90 days or more and
still accruing interest were not material at December 31, 2003 and 2002.
Note 4. Loans (Continued)
Certain directors and executive officers of the Company, and their related
interests, had loans outstanding in the aggregate amounts of $4,478,000 and
$3,073,000 at December 31, 2003 and 2002, respectively. New loans of $2,420,000
and $3,276,000 were made during 2003 and 2002, respectively. Repayments on these
loans were $1,015,000 and $6,814,000 during 2003 and 2002, respectively. 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, and are summarized as follows:
2003 2002
----------------------------------
(Amounts in thousands)
Land $ 1,765 $ 1,762
Buildings and improvements 11,272 9,950
Furniture and equipment 8,432 7,556
----------------------------------
21,469 19,268
Less accumulated depreciation 9,651 8,692
----------------------------------
Total office buildings and equipment $ 11,818 $ 10,576
==================================
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, 2003,
2002, and 2001.
On April 11, 2003, the Bank purchased $10,293,000 of deposits from the North
Shore Bank, FSB branch located in Walworth, Wisconsin, The amount paid in excess
of cost in the underlying carrying amount of deposits from the North Shore
Branch at the date of the branch acquisition amounted to $792,000 and is
included in other assets. The amount is being amortized over a period of ten
years. Amortization expense amounted to $57,000 for the year ended December 31,
2003.
Note 7. Deposits
The aggregate amount of time deposits, each with a minimum denomination of
$100,000, was approximately $57,935,000 and $56,201,000 at December 31, 2003 and
2002, respectively.
Note 7. Deposits (Continued)
At December 31, 2003, the scheduled maturities of time deposits were as follows
(amounts in thousands):
Years Ending December 31,
- --------------------------------------
2004 $ 82,174
2005 41,580
2006 13,062
2007 5,857
2008 2,107
Thereafter 292
-----------
$ 145,072
===========
Note 8. Short-Term Borrowings
Short-term borrowings consisted of the following at December 31:
2003 2002
----------------------------------
(Amounts in thousands)
Securities sold under agreements to repurchase $ 27,421 $ 24,977
Federal funds purchased 6,655 -
Treasury, tax & loan note 100 100
----------------------------------
$ 34,176 $ 25,077
==================================
Securities sold under agreements to repurchase generally mature within one year.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
2003 2002
----------------------------------
(Amounts in thousands)
Average daily balance during the year $ 24,283 $ 22,726
Average daily interest rate during the year 0.96% 1.81%
Maximum month-end balance during the year $ 31,157 $ 24,977
Weighted average rate as of December 31 1.51% 1.30%
Securities underlying the agreements at year-end:
Carrying value $ 29,461 $ 27,165
Estimated fair value 29,461 27,165
Federal funds purchased and treasury tax and loan note generally are repaid
within 120 days from the transaction date.
Note 9. Other Borrowings
Other borrowings consisted of the following at December 31:
2003 2002
----------------------------------
(Amounts in thousands)
Federal Home Loan Bank (FHLB) advances $ 44,250 $ 46,256
Note payable 423 499
----------------------------------
$ 44,673 $ 46,755
==================================
The Bank has a master contract agreement with the 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 $111,839,000 and $102,755,000 at December
31, 2003 and 2002, respectively. The indebtedness is evidenced by a master
contract dated September 14, 1992. The 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. Certain FHLB borrowings
are subject to a call feature. Maturity and interest rate information on
advances from the FHLB as of December 31 is shown as follows:
2003 2002
----------------------------------
(Amounts in thousands)
Due during fiscal year ending December 31, 2003
with interest rates ranging from 5.78% to 5.86% $ - $ 2,006
Due during fiscal year ending December 31, 2004
with interest rates ranging from 1.12% to 6.88% 19,320 19,320
Due during fiscal year ending December 31, 2005
with interest rates ranging from 2.75% to 6.08% 5,880 5,880
Due during fiscal year ending December 31, 2006
with interest rates ranging from 1.58% to 1.61% 5,000 5,000
Due during fiscal year ending December 31, 2007
with interest rates ranging from 3.12% to 5.21% 11,000 11,000
Due during fiscal year ending December 31, 2008
with an interest rate of 6.14% 50 3,050
Thereafter with an interest rate of 3.8% 3,000 -
----------------------------------
$ 44,250 $ 46,256
==================================
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.
Future principal payments required to be made on the note are as follows
(amounts in thousands):
Years Ending December 31,
- ---------------------------------------
2004 $ 82
2005 87
2006 93
2007 99
Thereafter 62
---------------
$ 423
===============
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 ten-year period.
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, 2000 119,364 85,416 158,826 $ 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 87,214 106,785 179,141 35.41
Granted 7.16 (34,350) 34,350 44.50
Exercise of stock options - (26,532) 30.94
Canceled 1,575 (1,575) 32.18
----------- -----------
Balance - December 31, 2002 54,439 137,625 185,384 37.76
Granted 7.73 (40,775) 40,775 46.47
Exercise of stock options - (9,704) 35.51
Canceled 1,650 (1,650) 39.31
----------- -----------
Balance - December 31, 2003 15,314 214,805
=========== ===========
Note 10. Stock Based Compensation (Continued)
The following table summarizes information about stock options outstanding at
December 31, 2003:
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
- -------------------------------------------------------------- --------------------------------
$32.55-37.20 102,439 6.0 $ 34.71 102,439 $ 34.71
37.20-41.85 38,391 7.8 40.59 25,496 40.49
41.85-46.50 73,975 8.8 45.59 9,690 44.50
----------- -----------
214,805 137,625
=========== ===========
Note 11. Earnings Per Share
A reconciliation of the numerators and denominators of basic earnings per share
and diluted earning per share are:
Per Share
Income Shares Amount
-----------------------------------
(Amounts in thousands
except per share data)
2003
Earnings per share - basic $ 6,072 1,496 $ 4.06
Effect of options - 28 ==========
-------------------------
Earnings per share - diluted $ 6,072 1,524 $ 3.98
===================================
2002
Earnings per share - basic $ 5,959 1,474 $ 4.04
Effect of options - 24 ==========
-------------------------
Earnings per share - diluted $ 5,959 1,498 $ 3.98
==================================
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
===================================
Note 12. Income Taxes
The provision for income taxes included in the accompanying consolidated
financial statements for the years ended December 31, consisted of the
following:
2003 2002 2001
--------------------------------------------------
(Amounts in thousands)
Current $ 1,971 $ 2,093 $ 1,786
Deferred 378 (24) (9)
--------------------------------------------------
$ 2,349 $ 2,069 $ 1,777
==================================================
The net deferred tax asset included with other assets in the accompanying
consolidated balance sheets include the following amounts of deferred tax assets
and liabilities:
2003 2002
-----------------------------------
(Amounts in thousands)
Deferred tax assets:
Allowance for loan losses $ 1,642 $ 1,474
Deferred compensation 439 431
Other - 40
Deferred tax liabilities:
Office buildings and equipment (583) (433)
Stock dividends (464) (125)
Unrealized gains on available-for-sale securities (665) (806)
Other (25) -
-----------------------------------
Net deferred tax asset $ 344 $ 581
===================================
Note 12. Income Taxes (Continued)
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:
2003 2002 2001
% of % of % of
Pretax Pretax Pretax
---------------------------------------------------------------------------------
Amount Income Amount Income Amount Income
---------------------------------------------------------------------------------
(Amounts in thousands)
Computed "expected" tax
expense $ 2,947 35.0% $ 2,810 35.0% $ 2,462 35.0%
Effect of graduated tax rates (84) (1.0) (80) (1.0) (70) (1.0)
Tax-exempt interest, net (567) (6.7) (578) (7.2) (509) (7.2)
State income taxes, net
of federal benefit 71 0.8 - - - -
Other, net (18) (0.2) (83) (1.0) (106) (1.5)
---------------------------------------------------------------------------------
$ 2,329 27.9% $ 2,069 25.8% $ 1,777 25.3%
=================================================================================
Note 13. Profit-Sharing Plan
The Company has a 401(k) plan which substantially all eligible employees
participate. Employees may contribute to a percentage of their compensation
subject to certain limits based on federal tax laws. The Company makes matching
contributions equal to 100 percent not to exceed the first 6 percent of an
employee's compensation contributed to the 401(k) plan. Matching contributions
vest to the employee over a six-year period. For the years ended December 31,
2003, 2002, and 2001, contributions to the 401(k) plan amounted to $314,000,
$251,000, and $253,000, respectively.
Note 14. 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 $55,000, $55,000, and $56,000 during
2003, 2002, and 2001, respectively.
Although not part of the agreements, the Company purchased life insurance on the
officers which could provide funding for the payment of benefits. Included in
other assets are $1,813,000 and $1,739,000 of related cash surrender value of
the life insurance as of December 31, 2003 and 2002, respectively.
Note 15. Benefit Plans
The Bank has entered into pension and death benefit agreements with some of its
directors. Only directors who joined the 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 Bank is the owner and beneficiary of such life insurance policies
and is responsible for payment of the premium on such policies. Total expense
for the Directors' pension and death benefit agreements was $26,000, $34,000,
and $36,000, respectively, for 2003, 2002, and 2001.
The Bank has also established a deferred compensation plan for its directors.
Upon attaining the age of 65 or normal retirement, the Bank will pay monthly
benefits for a period of 15 years. The amount of such payment is based upon the
amount of fees deferred and length of participation in the deferred compensation
plan. The liability under this plan was $29,000 and $31,000, respectively, as of
December 31, 2003 and 2002. Deferred directors fees for the years ended
December 31, 2003, 2002, and 2001 were $1,750, $4,200, and $4,200.
Note 16. 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:
2003 2002
----------------------------------
(Amounts in thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 83,974 $ 68,889
Standby letters of credit 3,070 3,897
Note 16. 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 are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements and,
generally, have terms of one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral, which may include accounts
receivable, inventory, property, equipment, and income-producing properties,
supporting those commitments if deemed necessary. In the event the customer does
not perform in accordance with the terms of the agreement with the third-party,
the Bank would be required to fund the commitment. The maximum potential amount
of future payments the Bank could be required to make is represented by the
contractual amount shown in the summary on the previous page. If the commitment
is funded the Bank would be entitled to seek recovery from the customer. At
December 31, 2002 and 2001, no amounts have been recorded as liabilities for the
Bank's potential obligations under these guarantees.
Note 17. 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, 2003.
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.
A significant portion of the Bank's cash is maintained at Bank One. The total
amount of cash on deposit exceeded federal insured limits by $9,696,000 as of
December 31, 2003. In the opinion of management, no material risk of loss exists
due to the financial condition of Bank One.
Note 18. 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, 2003 and 2002, that the Company and the Bank met all capital
adequacy requirements to which they are subject.
As of December 31, 2003, 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 Bank's category.
Note 18. Regulatory Capital Requirements and Restrictions of Dividends
(Continued)
The Company's and the Bank's actual capital amounts and ratios as of
December 31, 2003 and 2002 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
-----------------------------------------------------------------------------------
(Amounts in thousands)
As of December 31, 2003:
Total capital
(to risk-weighted assets):
First Banking Center, Inc. $ 55,349 13.6% $ 32,578 8.0% N/A
First Banking Center 52,898 13.0 32,476 8.0 $ 40,595 10.0%
Tier I capital
(to risk-weighted assets):
First Banking Center, Inc. 50,732 12.5 16,289 4.0 N/A
First Banking Center 48,281 11.9 16,238 4.0 24,357 6.0
Tier I capital
(to average assets):
First Banking Center, Inc. 50,732 9.7 20,861 4.0 N/A
First Banking Center 48,281 11.9 16,238 4.0 20,298 5.0
As of December 31, 2002:
Total capital
(to risk-weighted assets):
First Banking Center, Inc. 50,953 13.6 30,103 8.0 N/A
First Banking Center 48,746 13.0 29,979 8.0 37,474 10.0
Tier I capital
(to risk-weighted assets):
First Banking Center, Inc. 46,273 12.3 15,052 4.0 N/A
First Banking Center 44,066 11.8 14,990 4.0 22,484 6.0
Tier I capital
(to average assets):
First Banking Center, Inc. 46,273 9.3 19,891 4.0 N/A
First Banking Center 44,066 8.9 14,990 4.0 18,737 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 $13,975,000 may be paid without prior regulatory approval.
Note 19. Fair Value of Financial Instruments
FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether recognized or not recognized in the balance sheet, for which it is
practicable to estimate that value. 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. Statement No. 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.
Note 19. Fair Value of Financial Instruments (Continued)
Off-balance-sheet instruments: The estimated fair value of fee income on letters
of credit at December 31, 2003 and 2002 was insignificant. Loan commitments on
which the committed interest rate is less than the current market rate are also
insignificant at December 31, 2003 and 2002.
The estimated fair values of the Company's financial instruments were as
follows:
2003 2002
--------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------
(Amounts in thousands)
Financial assets:
Cash and due from banks $ 19,960 $ 19,960 $ 22,203 $ 22,203
Federal funds sold 3,047 3,047 11,058 11,058
Interest-bearing deposits
in banks 274 274 441 441
Available-for-sale securities 82,672 82,672 87,630 87,630
Loans, net 403,252 403,494 367,156 366,362
Accrued interest receivable 3,340 3,340 3,344 3,344
Financial liabilities:
Deposits 407,452 407,651 393,801 393,889
Short-term borrowings 34,176 34,185 25,007 25,007
Other borrowings 44,673 44,451 46,755 47,403
Accrued interest payable 709 709 932 932
Note 20. Parent Company Only Condensed Financial Information
Balance Sheets
(Parent Company Only)
December 31,
---------------------------------
2003 2002
---------------------------------
(Amounts in thousands)
Assets
Cash $ 202 $ 191
Interest-bearing deposits in banks 1,278 1,096
Investment in subsidiary 51,089 46,513
Loans 898 945
Other assets 445 577
---------------------------------
Total assets $ 53,912 $ 49,322
=================================
Liabilities and Stockholders' Equity
Liabilities
Other liabilities $ 372 $ 602
---------------------------------
Stockholders' Equity
Common stock 1,501 1,494
Surplus 4,612 4,375
Retained earnings 46,161 41,287
Accumulated other comprehensive income 1,290 1,564
Common stock in treasury, at cost (24) -
---------------------------------
Total stockholders' equity 53,540 48,720
---------------------------------
Total liabilities and stockholders' equity $ 53,912 $ 49,322
=================================
Note 20. Parent Company Only Condensed Financial Information (Continued)
Statements of Income
(Parent Company Only)
December 31,
-----------------------------------------------------
2003 2002 2001
-----------------------------------------------------
(Amounts in thousands)
Income:
Interest and dividends from subsidiary $ 1,199 $ 1,094 $ 1,903
Management fees from subsidiary 5,039 5,013 4,786
Other 36 35 32
------------------------------------------------------
Total income 6,274 6,142 6,721
------------------------------------------------------
Expenses:
Salaries and employee benefits 3,121 3,015 2,717
Occupancy expenses 324 321 312
Equipment expense 452 658 636
Computer services 204 189 224
Other expenses 938 834 897
------------------------------------------------------
Total expenses 5,039 5,017 4,786
------------------------------------------------------
Income before income taxes and equity
in undistributed net income of subsidiary 1,235 1,125 1,935
Income taxes 12 11 11
------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 1,223 1,114 1,924
Equity in undistributed net income
of subsidiary 4,849 4,845 3,333
------------------------------------------------------
Net income $ 6,072 $ 5,959 $ 5,257
======================================================
Note 20. Parent Company Only Condensed Financial Information (Continued)
Statements of Cash Flows
(Parent Company Only)
December 31,
-----------------------------------------------
2003 2002 2001
-----------------------------------------------
(Amounts in thousands)
Cash Flows From Operating Activities
Net income $ 6,072 $ 5,959 $ 5,257
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit of non-qualified stock options exercised 11 29 6
(Increase) decrease in other assets 130 (29) (147)
Increase in other liabilities (229) 191 193
Equity in undistributed net income of subsidiary (4,849) (4,845) (3,333)
-----------------------------------------------
Net cash provided by operating activities 1,135 1,305 1,976
-----------------------------------------------
Cash Flows From Investing Activities
Net increase in interest-bearing
deposits in banks (182) (325) (501)
Net increase (decrease) in loans 47 (390) (219)
-----------------------------------------------
Net cash used in investing activities (135) (715) (720)
-----------------------------------------------
Cash Flows From Financing Activities
Sale of common stock 255 167 -
Purchase of treasury stock (172) (252) (606)
Sale of treasury stock for the exercise of stock options 126 654 316
Dividends paid (1,198) (1,098) (1,016)
-----------------------------------------------
Net cash used in financing activities (989) (529) (1,306)
-----------------------------------------------
Net increase (decrease) in cash 11 61 (50)
Cash:
Beginning 191 130 180
-----------------------------------------------
Ending $ 202 $ 191 $ 130
===============================================
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company had no reportable disagreement with the accountants regarding any
information presented.
ITEM 9A: CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
the information the must disclose in its filings with the Securities and
Exchange Commission is recorded, processed, summarized and reported on a timely
basis. The Company's principal executive officer and principal financial officer
have reviewed and evaluated the Company's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the securities and Exchange Act
of 1934, as amended (the "Exchange Act") as of the end of the period covered by
this report (the "Evaluation Date"). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are effective in bringing to their attention, on a
timely basis, material information relating to the Company required to be
included in the Company's periodic filings under the Exchange Act.
There have not been any changes in the Company's internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the Company's most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning our directors and executive officers, and various
related corporate governance matters, required by this item is incorporated
herein by reference from, "Election of Directors" in our definitive proxy
statement for our 2004 Annual Meeting of Stockholders, a copy of which was filed
with the Securities and Exchange Commission on March 15, 2004. (the "2003 Proxy
Statement").
The information concerning compliance with the reporting requirements of Section
16(a) of the Securities and Exchange Commission Act of 1934 by our directors,
officers and ten percent stockholders required by this item is incorporated
herein by reference from "Additional Information on Management - Section 16(a)
Beneficial Ownership Reporting Compliance" in the 2003 Proxy Statement.
ITEM 11: EXECUTIVE COMPENSATION
The information called for herein is incorporated herein by reference "Executive
Compensation" from the 2003 Proxy Statement.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information called for herein is incorporated by reference "Certain
Beneficial Owners" from the 2003 Proxy Statement. In addition, the following
table presents additional information about our stock compensation plans:
Equity Compensation Plan Information
Plan Category Number of securities to be Weighted-average exercise Number of securities remaining
issued upon exercise of price of outstanding options available for future issuance
outstanding under equity compensation plans
options (excluding securities reflected
in column (a))
(a) (b) (c)
---------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 214,805 $39.51 15,296
Equity compensation plans not ____ ____ ____
approved by security holders
---------------------------------------------------------------------------------------------
Total 214,805 $39.51 15,296
=============================================================================================
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others
None
(b) Certain business relationships
None
(c) Indebtedness of management
The information called for herein is incorporated by reference "Additional
Information on Management - Transactions with Directors and Officers" from
the 2003 Proxy Statement.
(d) Transactions with promoters
None
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for herein is incorporated by reference "Independent
Public Accountants" from the 2003 Proxy Statement.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of financial statements. Appears on page 28 of this report.
(b) Reports on Form 8-K. None
(c) Exhibits. See Exhibit Index following the signature page of this report,
which is incorporated herein by reference.
(d) Financial Statements required by Regulation S-X. Appear in Item 8 hereof.
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: March 30, 2004 By: /s/ Brantly Chappell
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.*
/s/ Brantly Chappell /s/ James Schuster
Brantly Chappell, James Schuster,
Chief Executive Officer, Director Chief Financial Officer
Principal Accounting Officer
/s/ Melvin Wendt /s/ Daniel Jacobson
Melvin Wendt, Director Daniel Jacobson, Director
/s/ John Smith /s/ John Ernster
John Smith, Director John Ernster, Director
/s/ David Boilini /s/ Robert Fait
David Boilini, Director Robert Fait, Director
/s/ Charles Wellington /s/ Keith Blumer
Charles Wellington, Director Keith Blumer, Director
/s/ Thomas Laken
Thomas Laken, Jr., Director
*Each of the above signatures is affixed as of March 30, 2004.
EXHIBIT INDEX
TO
2003 REPORT ON FORM 10-K
The following exhibits are filed with, or incorporated by reference in, this
Report on Form 10-K for the year ended December 31, 2003:
Incorporated By Filed
Exhibit No. Exhibit Reference To Herewith
3(i) Restated Articles of Incorporation of First Banking Center,
Inc. X
3(ii) Bylaws of First Banking Center, Inc. as restated May 2001 Exhibit 3.2 to First Banking Center,
Inc.'s Registration Statement No.
333-73622 to the ("2001 S-8")
10.1 Board Fee Deferral Agreement between First Banking Center,
Inc. and Melvin Wendt dated January 1, 1990 X
10.2 Directors Pension and Death Benefit Agreement between First
Banking Center, Inc. and Melvin Wendt dated April 10, 1990 X
10.3 Employment Agreement between First Banking Center, Inc. and
Brantly Chappel dated October 6, 1997 X
10.4 Salary Continuation Agreement between First Banking Center,
Inc. and Brantly Chappel dated October 6, 1997 X
10.5 First Banking Center, Inc. 1994 Incentive Stock Plan Exhibit 3.3 to the 2001 S-8
(Revised August 2000)
10.6 Amendment of the First Banking Center, Inc. 1994 Incentive Exhibit A to the Proxy Statement
Stock Plan dated April 17, 2001 dated April 17, 2001
21.1 Subsidiaries of First Banking Center, Inc. X
23.1 Consent of McGladrey & Pullen, LLC. X
31.1 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)/15(d)-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 X
31.2 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15(d)-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 X
32.1 Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 X
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 X