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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the Fiscal year ended December 31, 1998
Commission File Number 33-10149
SVB&T Corporation
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of incorporation or organization)
35-1539978
(Employer Identification (I.R.S.) No.)
College and Maple Streets, French Lick, Indiana 47432
(Address of principal executive offices, including Zip Code)
(812) 936-9961
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes_X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. _X_
The aggregate market value of the voting stock held by nonaffiliated
shareholders of the registrant computed by reference to the price at which the
stock was sold or the average bid and asked prices of such stock, as of March
15, 1999 was approximately $15,320,954.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 15, 1999 was 747,884.
Portions of the 1998 Annual Report to Shareholders for the year ended December
31, 1998 are incorporated by reference into Part II.
SVB&T Corporation 1998 Annual Report on Form 10-K
Table of Contents
Part I
Item 1. Business 3
Item 2. Property 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Registrants Common Equity and Related Stockholder
Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 8. Financial Statement and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 22
Part III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management 31
Item 13. Certain Relationships and Related Transactions 31
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 31
Signatures 32
Index to Exhibits 33
PART I
Item 1. Business
General. SVB&T Corporation (the "Company") is a registered bank holding
company under the Bank Holding Company Act with its principal office in French
Lick, Indiana. The Company has elected to be governed by the Indiana Business
Corporation Law (IBCL).
The Company's sole subsidiary is Springs Valley Bank & Trust Company (the
"Bank"), which operates two banking offices in Orange County, Indiana, two
offices in Dubois County, Indiana and a banking office in Clark County,
Indiana. The Company became a holding company for the Bank in early 1983. At
present, the business of the Company is the management of the operations of
the Bank. The Bank is engaged in the business of providing a wide range of
financial services which include:
(I) maintaining demand, savings, and time deposits of individuals,
partnerships, corporations, associations, and government entities;
(II) extension of credit through loans to individuals, and to small and
medium sized businesses;
(III) purchase of obligations of federal, state, county and municipal
authorities and agencies;
(IV) providing a wide range of fiduciary services for personal and
corporate trusts;
(V) providing collection and deposit services for businesses and
individuals as well as providing currency and change for check
cashing and business operations;
(VI) acting as an agent for credit life, health and disability
insurance, property and casualty insurance, and health insurance;
and
(VII) acting as a broker for residential and commercial real estate.
(VIII) providing financial Services and access to products to meet the
clients needs.
The bank competes in the financial services industry in the counties of
Orange, Dubois, Clark and surrounding counties in Indiana. Competition
includes other financial institutions, credit unions, brokerage firms,
acceptance corporations and other organizations that offer banking related
services in our area.
The bank employees 104 full-time equivalents which are provided benefits and
with whom it enjoys excellent relations.
The bank serves as the local depository, and trust administrator for Kimball
International, Inc. ("Kimball") an interest of a majority of the Board of
Directors of the Company. The deposits of Kimball represent approximately 6%
of the certificates of deposit and money market deposits of the Bank. In
addition, the Bank has loans outstanding with individuals who are employees of
Kimball representing in excess of 16% of the Bank's total loans. Accordingly,
the cash flow of Kimball can have a significant impact on the deposit and loan
functions and earnings of the Bank.
At December 31, 1998, the company had total assets of $183 million, total
deposits of $159 million, and total equity capital of $20 million.
REGULATORY CONSIDERATIONS
Regulation of the Company and Affiliates
The Company is registered as a bank holding company and is subject to the
regulations of the Board of Governors of the Federal Reserve System ("Federal
Reserve") under the Bank Holding Company Act of 1956, as amended ("BHC Act").
Bank holding companies are required to file periodic reports with and are
subject to periodic examination by the Federal Reserve. The Federal Reserve
has issued regulations under the BHC Act requiring a bank holding company to
serve as a source of financial and managerial strength to its subsidiary
banks. It is the policy of the Federal Reserve that, pursuant to this
requirement, a bank holding company should stand ready to use its
resources to provide adequate capital funds to its subsidiary banks during
periods of financial stress or adversity.
Additionally, under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the institution's
total assets at the time the institution became undercapitalized, or (ii) the
amount that is necessary (or would have been necessary) to bring the
institution into compliance with all applicable capital standards as of the
time the institution fails to comply with such capital restoration plan.
Under the BHC Act, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious
risk to the financial soundness and stability of any bank subsidiary of the
bank holding company.
The Bank, which is a bank chartered by the State of Indiana, is supervised,
regulated and examined by the Indiana Department of Financial Institutions and
by the Federal Deposit Insurance Corporation ("FDIC"). Each regulator has the
authority to issue cease-and-desist orders if it determines that activities of
the Bank represent an unsafe and unsound banking practice or a violation of
law. Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
community reinvestment activities, trading in securities and other aspects of
banking operations. Current federal law also requires banks, among other
things, to make deposited funds available within specified time periods.
Under FDICIA, as implemented by final regulations adopted by the FDIC,
FDIC-insured state banks are prohibited, subject to certain exceptions, from
directly or indirectly acquiring or retaining any equity investments of a
type, or in an amount, that are not permissible for a national bank. FDICIA,
as implemented by FDIC regulations, also prohibits FDIC-insured state banks
and their subsidiaries, subject to certain exceptions, from engaging as
principal in any activity that is not permitted for a national bank or its
subsidiary, respectively, unless the bank meets, and continues to meet, its
minimum regulatory capital requirements and the FDIC determines the activity
would not pose a significant risk to the deposit insurance fund of which the
bank is a member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions are not currently expected to have a material
impact on the operations of the Bank.
The Company and the Bank are subject to Sections 22(h), 23A and 23B of the
Federal Reserve Act, which restricts financial transactions between banks and
their directors, executive officers, principal shareholders, and affiliated
companies. These statutes also limit credit transactions between a depository
institution and its executive officers and its affiliates, prescribe terms and
conditions for affiliate transactions deemed to be consistent with safe and
sound banking practice, and restrict the types of collateral security
permitted in connection with an institution's extension of credit to an
affiliate.
Capital Adequacy Guidelines
Bank holding companies with consolidated assets in excess of $150 million, or
bank holding companies with consolidated assets of less than $150 million
which are engaged in nonbank activity involving significant leverage or which
have a significant amount of outstanding debt held by the general public, are
required to comply with the Federal Reserve's risk-based capital guidelines
which require a minimum ratio of total capital to risk-weighted assets
(including certain off-balance sheet activities such as standby letters of
credit) of 8%. At least half of the total required capital, or 4%, must be
"Tier 1 capital," consisting principally of common shareholders' equity, non-
cumulative perpetual preferred stock, a limited amount of cumulative perpetual
preferred stock and minority interest in the equity accounts of consolidated
subsidiaries, less certain goodwill items. The remainder ("Tier 2 capital")
may consist of a limited amount of subordinated debt and intermediate-term
preferred stock, certain hybrid capital instruments and other debt securities,
cumulative perpetual preferred stock, and a limited amount of the general loan
loss allowance. In addition to the risk-based capital guidelines, the Federal
Reserve has adopted a Tier 1 (leverage) capital ratio under which the bank
holding company must maintain a minimum level of Tier 1 capital to average
total consolidated assets of 3% in the case of bank holding companies which
have the highest regulatory examination ratings and are not contemplating
significant growth or expansion. All other bank holding companies are
expected to maintain a ratio of at least 1% above the stated minimum.
The following are the Company's regulatory capital ratios as of December 31,
1998:
Tier 1 Capital: 15.35%
Total Capital: 16.19%
Leverage Ratio: 11.00%
The Bank is required to meet similar capital adequacy ratios. The FDIC has
adopted risk-based capital ratio guidelines to which depository institutions
under its supervision are subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments to four risk weighted categories, with higher levels of
capital being required for the categories perceived as representing greater
risk. Like the capital guidelines established by the Federal Reserve, these
guidelines divide an institution's capital into two tiers. Depository
institutions are required to maintain a total risk-based capital ratio of 8%,
of which 4% must be Tier 1 capital. The agencies may, however, set higher
capital requirements when an institution's particular circumstances warrant.
Depository institutions experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions,
well above the minimum levels. In addition, the agencies established
guidelines prescribing a minimum Tier 1 leverage ratio of 3% for depository
institutions that meet certain specified criteria, including that they have
the highest regulatory rating and are not experiencing or anticipating
significant growth. All other institutions are required to maintain a Tier 1
leverage ratio of 3% plus an additional 100 to 200 basis points.
The following are the Bank's regulatory capital ratios as of December 31,
1997:
Tier 1 Capital: 14.69%
Total Capital: 15.54%
Leverage Ratio: 10.50%
The FDIC includes, in its evaluations of a bank's capital adequacy, an
assessment of the bank's exposure to declines in the economic value of the
bank's capital due to changes in interest rates. In 1996, the FDIC, along
with the Office of the Comptroller of the Currency and the Federal Reserve,
issued a joint policy statement to provide guidance on sound practices for
managing interest rate risk. The statement sets forth the factors the federal
regulatory examiners will use to determine the adequacy of a bank's capital
for interest rate risk. These qualitative factors include the adequacy and
effectiveness of the bank's internal interest rate risk management process and
the level of interest rate exposure. Other qualitative factors that will be
considered include the size of the bank, the nature and complexity of its
activities, the adequacy of its capital and earnings in relation to the bank's
overall risk profile, and its earning exposure to interest rate movements.
The interagency supervisory policy statement describes the responsibilities of
a bank's board of directors in implementing a risk management process and the
requirements of the bank's senior management in ensuring the effective
management of interest rate risk. Further, the statement specifies the
elements that a risk management process must contain.
The Federal Reserve and the FDIC have issued final regulations further
revising their risk-based capital standards to include a supervisory framework
for measuring market risk. The effect of these regulations is that any bank
holding company or bank which has significant exposure to market risk must
measure such risk using its own internal model, subject to the requirements
contained in the regulations, and must maintain adequate capital to support
that exposure. These regulations apply to any bank holding company or bank
whose trading activity equals 10% or more of its total assets, or whose
trading activity equals $1 billion or more. Examiners may require a
bank holding company or bank that does not meet the applicability criteria to
comply with the capital requirements if necessary for safety and soundness
purposes. These regulations contain supplemental rules to determine qualifying
and excess capital, calculate risk-weighted assets, calculate market risk
equivalent assets and calculate risk-based capital ratios adjusted for market
risk.
Branching and Acquisitions
Branching by the Bank is subject to the jurisdiction, and requires the prior
approval, of the FDIC and the Indiana Department of Financial Institutions.
Under current law, banks chartered by the State of Indiana may establish
branches throughout the state and in other states. Congress authorized
interstate branching, with certain limitations, beginning in 1997. In 1996,
the Indiana General Assembly adopted statutes authorizing Indiana financial
institutions to establish one or more branches in states other than Indiana
through interstate merger transactions and to establish one or more interstate
branches through de novo branching or the acquisition of a branch.
Bank holding companies, such as the Company, are prohibited by the BHC Act
from acquiring direct or indirect control of more than 5% of the outstanding
shares of any class of voting stock or substantially all of the assets of any
bank or savings association or merging or consolidating with another bank
holding company without prior approval of the Federal Reserve. Additionally,
the Company is prohibited by the BHC Act from engaging in or from acquiring
ownership or control of more than 5% of the outstanding shares of any class of
voting stock of any company engaged in a non-banking business unless such
business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto. The BHC Act does not place
territorial restrictions on the activities of such non-banking-related
activities.
The BHC Act specifically authorizes a bank holding company, upon receipt of
appropriate approvals from the Federal Reserve and the Director of the Office
of Thrift Supervision ("OTS"), to acquire control of any savings association or
thrift holding company. Similarly, a thrift holding company may acquire
control of a bank. A savings association acquired by a bank holding company
cannot continue any non-banking activities not authorized for bank holding
companies.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
allows bank holding companies to acquire banks anywhere in the United States
subject to certain state restrictions, and permits an insured bank to merge
with an insured bank in another state without regard to whether such merger
is prohibited by state law. Additionally, an out-of-state bank may acquire
the branches of an insured bank in another state without acquiring the entire
bank; provided, however, that the law of the state where the branch is
located permits such an acquisition. Bank holding companies also may merge
existing bank subsidiaries located in different states into one bank.
An insured bank subsidiary may act as an agent for an affiliated bank or
savings association in offering limited banking services (receive deposits,
renew time deposits, close loans, service loans and receive payments on loans
obligations) both within the same state and across state lines.
Prompt Corrective Action
Federal bank regulatory authorities are required to take "prompt corrective
action" with respect to banks which do not meet minimum capital requirements.
For these purposes, there are five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
provisions of FDICIA. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and is not subject to a regulatory order, agreement or
directive to meet and maintain a specific capital level for any capital
measure. An institution is deemed to be "adequately capitalized" if it has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater, and generally a leverage ratio 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8% or a Tier 1 risk-based capital ratio of 4% or
greater and generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%,
a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number
of requirements and restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cease receipt of deposits from correspondent
banks, and restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject
to appointment of a receiver or conservator.
Safety and Soundness Standards
The FDIC, the Office of Thrift Supervision, the Federal Reserve Board and the
Office of the Comptroller of the Currency have published final guidelines
implementing the FDICIA requirement that the federal banking agencies
establish operational and managerial standards to promote the safety and
soundness of federally insured depository institutions. The guidelines
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, asset quality, earnings, compensation, fees and benefits, and
specifically prohibit, as an unsafe and unsound practice, excessive
compensation that could lead to a material loss to an institution. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance.
Failure to submit an acceptable compliance plan, or failure to adhere to a
compliance plan that has been accepted by the appropriate regulator, would
constitute grounds for further enforcement action.
Year 2000 Safety and Soundness
The FDIC, the Office of Thrift Supervision, the Federal Reserve Board and the
Office of the Comptroller of the Currency issued the "Interagency Guidelines
Establishing Year 2000 Standards for Safety and Soundness" in 1998, which are
consistent with the key principles contained in the safety and soundness
guidance on the risks posed to financial institutions by the Year 2000 problem
issued by the Federal Institutions Examination Council. The guidance
underscores that Year 2000 preparation is not only an information systems
issue, but also an enterprise-wide challenge that must be addressed at the
highest level of a financial institution. The guidance sets out the
responsibilities of senior management and boards of directors in managing
their Year 2000 projects. Among the responsibilities of institution managers
and directors is that of managing the internal and external risks presented by
providers of data-processing products and services, business partners,
counterparties and major loan customers. Under the guidance, senior
management must provide the board of directors with status reports, at least
quarterly, on efforts to reach Year 2000 goals both internally and by the
institution's major vendors. Senior managers and directors must allocate
sufficient resources to ensure that high priority is given to seeing that
remediation plans are fulfilled, and that the project receives the quality
personnel and timely support it requires. The guidance does not require
financial institutions to obtain Year 2000 certification from their vendors.
Rather, an institution must implement its own internal testing or verification
processes for vendor products and services to ensure that its different
computer systems function properly together.
Deposit Insurance
The deposits of the Bank are insured up to $100,000 per insured account, by
the Bank Insurance Fund ("BIF") administered by the FDIC. Accordingly, the
Bank pays deposit insurance premiums to BIF. FDIC regulations implement a
transitional risk-based assessment system whereby a base insurance premium
will be adjusted according to the capital category and supervisory category to
which an institution is assigned. The supervisory subgroup to which an
institution is assigned by the FDIC is confidential and may not be disclosed.
Deposit insurance assessments may increase depending upon the category and
subcategory, if any, to which the bank is assigned by the FDIC. If the FDIC
believes that an increase in the insurance rates is necessary, it may increase
the insurance premiums applicable to BIF. Any increase in insurance
assessments could have an adverse effect on the earnings of the Bank.
Additional Matters
In addition to the matters discussed above, the Company and the Bank are
subject to additional regulation of their activities, including a variety of
consumer protection regulations affecting their lending, deposit and
collection activities and regulations affecting secondary mortgage market
activities.
The extensive regulation, supervision and examination of financial
institutions by the bank regulatory agencies is intended primarily for the
protection of the insurance fund and depositors. Moreover, such regulation
imposes substantial restrictions on the operations and activities of such
institutions, and grants to regulators broad discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to classification of assets and establishment
of adequate loan loss reserves. Any changes in such regulations, whether
by legislation or regulatory action, could have a material impact on the Bank
and its operations. The Company cannot predict what, if any, future actions
may be taken by legislative or regulatory authorities or what impact any such
actions may have on the operations of the Bank.
The earnings of financial institutions are also affected by general economic
conditions and prevailing interest rates, both domestic and foreign and by the
monetary and fiscal policies of the United States Government and its various
agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry is often considered by Congress, state legislatures and various
regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation of administrative action
will be enacted or the extent to which the banking industry in general or the
Company and the Bank in particular would be affected thereby.
Item 2. Property
The Bank properties consist of the home office, located at 505 South Maple
Street in French Lick, Indiana, and branch offices located at Broadway Avenue
in West Baden Springs; 1500 Main Street in Jasper, Indiana; 865 3rd Avenue in
Jasper, Indiana; and 614 E Water Street in Borden, Indiana, as well as ten
automated teller machines, five in Jasper, one in West Baden, one in French
Lick, one in Borden, one in Salem and one in Santa Claus. All cities are
located in Indiana. The Company has no separate offices.
Item 3. Legal Proceedings
As a part of its ordinary course of business, the Bank is a party in law suits
involving claims to the ownership of funds in particular accounts and
involving the collection of delinquent accounts (such as garnishment
proceedings). All such litigation is incidental to the Bank's business.
Management believes that no litigation is threatened or pending in which the
Company or the Bank faces potential loss or exposure which will materially
affect the stockholders' equity or the Bank's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters
Shares of the common stock of the Company are not traded on any national or
regional exchange or in the over-the-counter market. Accordingly, there is no
established market for the common stock. These are occasional trades as a
result of private negotiations not involving a broker or a dealer.
According to the information available to the Company the following table
displays the high and low selling prices for each quarter for 1996 and 1997.
Other trades may have occurred at prices of which the Company was not aware.
Year Quarter High/Per Share Low/Per Share
1997 1 N/A N/A
2 $35 $35
3 $33 $33
4 $31 $31
1996 1 N/A N/A
2 $55 $55
3 N/A N/A
4 N/A N/A
The company has 309 shareholders on record as of March 2, 1998.
The following table sets forth the cash dividends of the company for the two
most recent fiscal years:
Cash Dividends Per Share
1st 2nd 3rd 4th
Year Quarter Quarter Quarter Quarter
1998 $.15 $.15 $.15 $.15
1997 $.12 $.12 $.15 $.15
The holders of the Company's Common Stock are entitled to cash dividends when,
and if declared by its Board of Directors out of funds legally available
therefor. The Company intends to pay a reasonable dividend, while maintaining
capital adequacy. Funds for the payment of cash dividends by the Company are
obtained primarily from dividends paid to it by the Bank. The Bank is
restricted by Indiana law and regulations of the Department of Financial
Institutions, State of Indiana, and the Federal Deposit Insurance Corporation
as to the maximum amount of dividends it can pay without prior approval. At
December 31, 1998 approximately $3,697,000 of the Bank's retained earnings
were available for dividend payments to the Corporation. There is no
assurance as to future dividends since they are dependent upon earnings,
general economic conditions, financial condition, capital requirements,
regulatory limitations, and other factors as may be appropriate in determining
dividend policy.
PART II
Item 6. Selected Financial Data
(dollars in thousands except per share data)
Summary of Operations 1998 1997 1996 1995 1994
Interest and Fees on Loans $ 12,480 $ 11,599 $ 10,317 $ 9,734 $ 8,757
Interest on Investments 2,055 2,929 3,767 3,826 3,478
Total Interest Income 14,535 14,528 14,084 13,560 12,235
Interest on Deposits 7,161 7,475 7,468 7,625 5,894
Interest on Short-term
Borrowing 43 157 63 0 0
Interest on Long-term Debt 12 0 0 0 18
Total Interest Expense 7,216 7,632 7,531 7,625 5,912
Net Interest Income 7,319 6,896 6,553 5,935 6,323
Provision for Loan Losses 580 400 290 314 410
Net Interest Income after
Provision for Loan Loss 6,739 6,496 6,263 5,621 5,913
Service Charges on Deposit
Accounts 615 505 365 311 336
Other Income 1,260 1,254 1,241 1,199 1,260
Total Other Income 1,875 1,759 1,606 1,510 1,596
Salaries and Benefits 3,381 3,295 3,236 2,966 3,122
Other Expenses 2,361 2,343 2,322 2,502 2,544
Total Other Expenses 5,742 5,638 5,558 5,468 5,666
Income Before Income 2,872 2,617 2,311 1,663 1,843
Income Tax Expense 1,043 922 650 450 469
Net Income 1,829 1,695 1,661 1,213 1,374
Year-end Balances
Total Assets 182,741 190,404 184,362 189,877 183,201
Total Loans, Net 142,563 139,202 121,530 111,150 105,244
Total Long-term Debt 1,000 0 0 0 0
Total Deposits 159,331 165,871 151,595 171,765 168,113
Total Shareholders' Equity 20,333 18,715 17,330 16,372 14,034
Per Share Data
Net Income 2.45 2.27 2.23 1.63 1.85
Cash Dividends .60 .54 .48 .46 .44
Shareholders' Equity,
End of Year 27.18 25.09 23.24 21.95 18.82
Other Data at Year-end
Number of Employees 104 107 115 109 118
Weighted Average Number
of Shares 748,006 745,800 745,800 745,800 745,800
Return on Assets .98 .90 .87 .64 .75
Return on Shareholders' Equity 9.66 10.43 9.86 7.41 9.79
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE-YEAR AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (Taxable equivalent
basis, dollars in thousands)
1998 1997 1996
Avg. Int. Yield/ Avg. Int. Yield/ Avg. Int. Yield/
ASSETS Bal. & Fees Rate Bal. & Fees Rate Bal. & Fees Rate
Earning Assets:
Interest-bearing
deposits in other
banks 0 0 0.00% 0 0 0.00% 0 0 0.00%
Federal funds sold 3,285 181 5.51% 2,378 131 5.51% 5,354 291 5.44%
Investment securities:
U.S. Treasury and
Gov't Agencies &
mortgage backed 22,772 1,371 6.02% 35,649 2,264 6.35% 44,333 2,831 6.39%
States and political
subdivisions 8,422 634 7.53% 9,018 670 7.43% 11,120 853 7.67%
Other securities 1,076 74 6.88% 1,075 76 7.07% 750 55 0.00%
TOTAL INVESTMENT
SECURITIES 32,270 2,079 6.44% 45,742 3,010 6.58% 56,203 3,739 6.65%
Loans: (1) (2)
Commercial 33,295 3,068 9.21% 27,520 2,522 9.16% 17,355 1,562 9.00%
Installment, net of
unearned income 46,602 4,292 9.21% 44,796 4,232 9.45% 43,917 4,001 9.11%
Real Estate 60,094 5,000 8.32% 56,753 4,732 8.34% 55,760 4,637 8.32%
Credit Card
and Other 837 11613.86% 908 11312.44% 897 118 13.15%
TOTAL LOANS 140,828 12,476 8.86%129,977 11,599 8.92%117,929 10,318 8.75%
TOTAL EARNING
ASSETS 176,383 14,736 8.35%178,097 14,740 8.28%179,486 14,348 7.99%
Less: Allowance
for Losses (1,254) (1,356) (1,337)
Non-Earning Assets:
Cash and due
from banks 4,949 4,908 4,558
Other Assets 7,183 7,177 7,735
TOTAL ASSETS 187,261 188,826 190,442
LIABILITIES & SHAREHOLDERS EQUITY
Interest-bearing liabilities
Savings and daily interest
checking 43,159 1,192 2.76% 45,203 1,412 3.12% 30,965 718 2.32%
Money market
accounts 30,482 1,468 4.82% 26,681 1,289 4.83% 28,465 1,326 4.66%
Certificates of
deposit $100,000
and over 22,120 1,222 5.52% 31,920 1,815 5.69% 33,107 1,850 5.59%
Other time deposits57,502 3,279 5.70% 51,665 2,959 5.73% 63,907 3,574 5.59%
TOTAL INTEREST-
BEARING DEPOSITS 153,263 7,161 4.67%155,469 7,475 4.81%156,444 7,468 4.77%
Borrowing 1,017 55 5.41% 2,715 157 5.78% 1,143 63 5.51%
TOTAL INTEREST-BEARING
LIABILITIES 154,280 7,216 4.68%158,184 7,632 4.82%157,587 7,531 4.78%
Non-interest bearing
liabilities:
Demand deposits 12,099 12,534 14,351
Other liabilities 1,946 1,855 1,653
Shareholder's
equity 18,936 16,253 16,851
TOTAL LIABILITIES
AND SHAREHOLDERS
EQUITY 187,261 188,826 190,442
INTEREST MARGIN RECAP:
Interest income/
earning assets 14,736 8.35% 14,740 8.28% 14,348 7.99%
Interest expense/
earning assets 7,216 4.09% 7,632 4.29% 7,531 4.20%
New yield on interest
earning assets 7,520 4.26% 7,108 3.99% 6,817 3.79%
(1) Includes principal balances of nonaccural loans. Interest income relating
to nonaccrual loans is not included.
(2) The amount of loan fees is not material in any of the years presented.
Introduction
SVB&T Corporation is a registered bank holding company under the Bank Holding
Company Act. The Corporations principal office is located in French Lick,
Indiana. The Corporation's sole subsidiary is Springs Valley Bank and Trust
Company, which operate offices in French Lick and West Baden, in Orange County,
two offices in Jasper, located in Dubois County, and one office in Borden,
Indiana located in Clark County. The subsidiary offers a wide range of
banking, financial, insurance and realty services to individuals and businesses
in Orange, Dubois, Clark and surrounding counties in Southern Indiana. The
following managements' discussion and analysis provides information concerning
SVB&T Corporation's financial condition and results of operation. This
discussion and analysis should be read in conjunction with the holding
company's financial statements and related footnotes which are presented in
this document.
Results of Operation
Net Income
Net income for 1998 was $1,829,182.
The table below is a comparison of the net income for the years 1996 thru 1998.
This table also displays the percentage and dollar amount changes which
occurred during the last three years.
Increase/ %Increase/
Decrease from Decrease from
Year Net Income Prior Year Prior Year
1998 $1,829,182 $133,646 7.88%
1997 1,695,536 34,575 2.08%
1996 1,660,961 448,266 36.96%
SVB&T Corporation's net income has increased during the past three years. The
main contributing factor to this increase is an increase of the net interest
income in each year.
Total net income before tax for 1998 increased $254,846 over 1997. Total taxes
increased $121,200 from 1997 to 1998 thus net income after taxes increased
7.88% from 1997 to 1998.
Net Interest Income
Net interest income is the difference between interest and fees earned on
loans and investments, and interest paid on interest bearing liabilities.
This is the Bank's primary source of income. In this discussion, net interest
income is presented on a tax equivalent basis.
All tax-exempt income earned on securities of state and political subdivision
has been increased to an amount that would have been earned on a taxable basis.
This places taxable and non-taxable income on a more comparable basis and
makes the comparisons more meaningful.
In 1998, tax equivalent net interest income of $7,520,000 increased by $412,000
or 5.80% from 1997 levels. In 1997, tax equivalent net interest income of
$7,108,000 increased by $291,000 or 4.27% from 1996 levels. Since 1996 rates
have decreased or remained stable through 1998 and have increased net interest
income over that period.
CHANGES IN NET INTEREST INCOME (Table 1) (Tax equivalent basis, dollars in
thousands)
Change from Prior Year
1998 1997 1996 1998 1997
Interest income on:
Loans 12,476 11,599 10,318 7.56% 12.42%
Investment securities 2,079 3,010 3,739 -30.93% -19.50%
Federal funds sold 181 131 291 38.17% -54.98%
Total interest income 14,736 14,740 14,348 -0.03% 2.73%
Interest expense on:
Savings and daily
interest checking 1,192 1,412 718 -15.58% 96.66%
Money market deposits 1,468 1,289 1,326 13.89% -2.79%
Certificates of
deposit of $100,000
& over 1,222 1,815 1,850 -32.67% -1.89%
Other time deposits 3,279 2,959 3,574 10.81% -17.21%
All other borrowing 55 157 63 -64.97% 149.21%
Total interest expense 7,216 7,632 7,531 -5.45% 1.34%
Net interest income 7,520 7,108 6,817 5.80% 4.27%
Net interest margin 4.26% 3.99% 3.79%
RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME (Table 2) (Taxable
equivalent basis, dollars in thousands)
1998 vs 1997 1997 vs 1996
Dollar Attributed to Dollar Attributed to
Change Volume Rate Change Volume Rate
Interest income on:
Loans 877 965 (88) 1,281 1,065 216
Investment securities (931) (877) (54) (729) (692) (37)
Federal funds sold 50 50 0 (160) (163) 3
Total interest income (4) 138 (142) 392 210 182
Interest expense on:
Savings and daily interest
checking (220) (60) (160) 694 387 307
Money market deposits 179 183 (4) (37) (85) 48
Certificates of deposit of
$100,000 and over (593) (549) (44) (35) (67) 32
Other time deposits 320 334 (14) (615) (693) 78
All other borrowing (102) (95) (7) 94 89 5
Total interest expense (416) (187) (229) 101 (369) 470
Net interest income 412 325 87 291 579 (288)
The variance not due solely to rate or volume is allocated equally between the
rate and volume variances.
Provision for Loan Losses
The provision for loan losses was $580,000 in 1998; $400,000 in 1997; and
$290,000 in 1996. As of December 31, 1998, the provision was .77% of loans
outstanding. The allowance for loan losses decreased $296,423 to $1,106,077 on
December 31, 1998. One extra-ordinary charge-off was the primary cause of the
decrease. Management analysis indicates the current allowance is adequate to
fund anticipated future needs.
Other Income
Total other income for 1998 was $1,875,093 compared to $1,758,809 for 1997.
This is a 6.61% increase.
During 1998 the Bank implemented an Alternative Investment Department through
which annuities, mutual funds, and other investment products are offered. This
accounted for the majority of the increase in other income for 1998.
The primary source for Other Income is trust income. Other sources of non-
interest income consist of service charges on deposit accounts, insurance
income, service fees, ATM foreign service fees, rental income, and other
miscellaneous charges.
Other Expenses
Total other expenses for 1998 were $5,899,814. This is up $87,274 or 1.50%
from 1997.
Salaries and employee benefits are the largest components of other expenses.
Salaries and Employee benefits totaled $3,368,338 for 1998. This was 57.09% of
total other expenses. This compares with 58.44% for 1997, and 54.21% for 1996.
Increases in the salaries and employee benefit expenses represent normal pay
increases of the bank's employees.
Hospitalization Expense increased $65,249 during 1998. This is a 36.13%
increase for the year. This compares to a 25.79% decrease for 1997, and 43.20%
increase in 1996. The Bank is self-insured in regard to hospitalization
insurance. Expense level depends on claims filed.
Software amortization expense and computer expense increased during 1998 by
$56,545. This is due largely to a system upgrade and the Y2K testing the Bank
has been conducting.
Loan expense is down 9.77% for 1998. This is down compared to 1997 due to
several foreclosures that occurred during 1997.
The Bank continues its efforts to maintain control over its operation costs and
is continually looking to implement cost saving programs.
Income Tax
SVB&T Corporation records income tax expense based on the transactions
reported in its financial statements, consisting of taxes currently payable
and deferred tax. Deferred taxes result because of the recognition of certain
items of income and expense in different years for financial statement and
tax purposes. These differences relate primarily to the gain or loss on
available-for-sale investment securities, loan losses, depreciation, and loan
origination fees.
Differences between the effective tax rate on SVB&T Corporation's income
before income tax (as reported in the consolidated statement income) and the
federal statutory rate of 34% result from tax exempt interest income, state
income taxes, and alternative minimum taxes. Note 10 of the consolidated
financial statements contain additional information about SVB&T Corporation's
income taxes.
Income tax expense for 1998 was $1,042,800 compared to $921,600 in 1997 and
$650,000 in 1996. The effective tax rate was 36.31% in 1998, 35.21% in 1997,
and 28.10% in 1996. The effective rate increased in 1998 compared to 1997 due
to increase income, and in 1997 compared to 1996 because of reduced tax exempt
interest income in each year. Tax exempt income decreased 20% from 1996 to
1997. This was a planned decrease designed to get the company out of an
alternative minimum tax position. In 1997 and 1996, the company paid no
alternative minimum tax and utilized an alternative minimum tax credit
carryover from 1995 of $126,000 in 1996. No carryover remained at December 31,
1996.
Financial Condition
As of December 31, 1998 total assets decreased to $182,741,046, a 4.02%
decrease from December 31, 1997 total of $190,404,381. Average total assets in
1998 of $187,261,000 were $1,565,000 less than the 1997 average of
$188,826,000.
Total deposits decreased to $159,331,492 at December 31, 1998 from $165,871,403
at December 31, 1997 a decrease of $6,539,911 or 3.94%. This reduction in
deposits was a controlled reduction by management. Management decreased the
amount of non-core deposits which are more costly to maintain. Management
projects a long-term deposit growth of approximately 3%. The actual growth
rate may vary due to overall economic conditions in the markets served.
Net loans at year-end 1998 were $142,562,922 up $3,361,102 or 24.00% above the
1997 year-end total of $139,201,820. Average loans outstanding of $139,574,000
in 1998 increased by $10,953,000 or 8.5% over the 1997 average loans
outstanding of $128,621,000. Loan growth was funded primarily by a reduction
in investment securities.
Total investment securities available for sale at year-end 1998 were
$25,474,919, and at year-end 1997 were $38,042,422. Investment securities have
been stated at market value since 1993, when the Bank adopted the FASB No. 115
accounting and classified all securities as available for sale.
Uses of Funds
Money Market Investments
Money market investments (federal funds sold and certificates of deposits with
other banks) are used by the Corporation to meet lending and liquidity
requirements. At December 31, 1998, money market investments were 2,860,000 an
increase of $1,960,000 over December 31, 1997 balance of $900,000.
Investment Securities
The investment security portfolio is used as a means of investing funds over
and above those needed for lending and liquidity requirements. Investment
securities are purchased with the intent and ability to hold until maturity.
However, all securities are categorized as available for sale. Increases or
decreases in the market value of securities are charged directly to stockholder
equity.
During 1998, average investment securities decreased by $13,472,000 or 29.45%
as compared to the $45,742,000 for 1997. This reduction funded loans and the
decrease is non-core deposits.
The following table presents an analysis of the investment securities portfolio
for 1998, 1997 and 1996.
Investment Securities Available for Sale
(Dollars in thousands) December 31
Investment securities available for sale: 1998 1997 1996
U.S. Treasury 0 0 0
U.S. Government agencies and corp. 15,208 28,516 39,693
Mortgage-backed pass-through securities 203 297 349
Collateralized mortgage obligations:
Agency 0 0 0
Corporate 0 0 0
State and Political subdivisions 8,803 8,796 9,624
Other Securities 1,537 1,078 1,067
Net unrealized gain (loss) 315 (67) (221)
Total Carrying Value 26,066 38,620 50,512
Maturities and Average Yields of Investment Securities
Available for Sale at December 31, 1998
1yr or less 1-5 yrs 5-10 yrs Over 10 yrs Total
Amt Yield Amt Yield Amt Yield Amt Yield Amt Yield
U.S. Treasury 0 0 0 0 0 0 0 0 0 0
Federal Agencies:
Bonds and Notes 0 0 8,036 5.72 7,172 6.31 0 0 15,208 6.00
Mtg-backed Sec. 0 0 0 0 47 11.00 156 10.75 203 10.81
State and
Municipal 1,074 5.20 3,007 5.03 2,013 5.09 2,709 5.15 8,803 5.10
Other Securities 0 0 859 5.35 0 0 87 5.98 946 5.41
TOTAL 1,074 5.20 12,217 5.60 9,232 6.07 2,952 5.47 25,475 5.70
Percent of Total 4% 48% 36% 12% 100%
Loans
Loans outstanding at December 31, 1998 were $143,668,999. This is an increase
of $3,064,679 or 2.2% over December 31, 1997.
Real estate loans continue to be the largest component of the loan portfolio at
$80,802,703. This is an increase of $1,311,967 over 1.7% over December 31,
1997.
Individual loans for household and other personal expenditures is the second
largest loan category for the bank. This category increased $5,611,198 to
$46,469,853 for a 13.7% increase over December 31, 1997. Traditional sources
of these loans such as vehicle loans have been increasingly difficult to book
while maintaining an acceptable underwriting and pricing structure.
The bank uses loan participations from other banks and brokers to supplement
volume when local demand cannot provide a sufficient volume of quality loans.
On December 31, 1998, and the bank had a total of loans purchased of
$22,986,619. That is down $1,916,349 or 7.7% from a year ago. The bank
carefully monitors individual loan participations as well as concentrations in
a particular industry segment or geographic area.
Commercial and industrial loans decreased 4,144,479 or 22.1% from December 31,
1997 to December 31, 1998. This is as a result of participations decreasing
and local loan payoffs. The bank continues to aggressively solicit profitable
new business that offers acceptable risk.
Construction lines of credit and agricultural loans continue to a minor part of
portfolio. The bank does not anticipate any significant growth in either of
these market segments.
Following is a schedule showing the breakdown of loans by type of loan and the
maturity schedule of the loan portfolio.
Loan Portfolio
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
Amt of Total Amt of Total Amt of Total Amt of Total Amt of Total
Commercial,
financial &
agricultural 14,577 10.20 18,722 13.3 16,228 13.2 12,744 11.3 5,526 5.2
Real estate -
construction 1,687 1.20 1,322 0.9 64 0.1 131 0.1 299 0.3
Real estate -
mortgage 80,803 56.70 79,491 56.4 67,859 55.1 64,585 57.2 67,844 57.2
Consumer
installment 46,470 32.60 40,859 29.0 38,452 31.2 35,341 31.3 32,279 30.2
Banker
Acceptances 0 0 0 0 0 0 0 0 0 0
Economic dev.
rev. bonds 0 0 0 0 24 0 41 0.1 56 .1
Repurchase
Agreement 0 0 0 0 0 0 0 0 775 0.7
Lease Financing 336 .24 437 .31 538 .4 0 0 0 0
TOTAL 143,873 100 140,831 100 123,165 100 112,842 100 106,779 100
Less:
Unearned income 204 227 305 343 213
Allowance for
loan losses 1,106 1,402 1,329 1,349 1,322
Total loans 142,563 139,202 121,531 111,150 105,244
Selected Loan Maturity and Interest Rate Sensitivity
December 31, 1998 (dollars in thousands)
MATURITY Rate Structure For Loans
Maturing Over One Year
Over One Over Predetermined Floating or
One Year Yr through Five Interest Adjustable
or Less Five Yrs Years TOTAL Rate Rate
Commercial,
financial and
agricultural 3,220 4,481 6,876 14,577 5,672 8,905
Real Estate
Construction 1,642 0 45 1,687 1,578 109
TOTALS 4,862 4,481 6,921 16,264 7,250 9,014
Capital Resources
Stockholders' equity at December 31, 1998 increased to $20,333,494 from
December 31, 1997 equity of $18,715,461. The increase of $1,618,033 was a
result of earnings $1,829,182 less dividends of $448,629 plus unrealized gains
on securities available for sale of $230,366. Capital ratios are used by
Federal bank regulators to measure a bank's strength. The Bank's ratios are
well above Federal requirements.
Source of Funds
Deposits
The main source of funding for earning assets are deposits. During 1998, the
average deposits of $165,362,000 funded 94% of the average earning assets.
Average total deposits for 1998 decreased by $1,624,000, or 1% as compared to
1997 average deposit totals, which decreased by $2,792,000 from 1996 or 2%.
There has been a movement in average deposits over the past two years. Many
customers are seeking higher rates of return on investments and have moved into
alternative investments such as stocks and mutual funds. Management has funded
reductions of deposits with advances from the Federal Home Loan Bank and
Federal Funds purchased. Management will seek to increase deposits at a time
when deposits can be lent or invested at a profitable spread.
Maturities of Time Deposits December 31, 1998
(dollars in thousands) Certificates Other Time
of Deposit Deposits Over
Over $100,000 $100,000 TOTAL
Three months or less 11,830 628 12,458
Over three months through one year 3,254 0 3,254
Over one year through three years 6,283 0 6,283
Over three years 125 0 125
TOTAL 21,492 628 22,120
Risk Management
Lending and Loan Administration
Loan administration for the Bank is the responsibility of the President and the
senior lending officer of the Bank. The board deems these officers have the
knowledge and experience necessary to satisfactorily manage the lending
activities of the Bank.
Lending authority is granted to individual officers as the board feels is
appropriate. For loans exceeding an individual officer's limit, a loan
committee structure is in place to allow the timely and prudent review of loan
requests. Loans above certain predetermined limits must be reviewed and
approved by two board members prior to approval of the loan.
A presentation is made at each board meeting regarding the operation of the
loan department. Topics discussed include current activities, watch list and
non-accrual loans, and any other loan-related issue that should be brought to
the board. Reports covering the activities of the loan department are prepared
for each board member.
A loan review committee reviews all loan review activities including the
calculation of the loan loss reserve necessary to accommodate loans that may be
charged off at some future time.
The loan loss reserve is calculated monthly. It is based on the historical
performance of the loan portfolio as well as current and projected conditions
for specific credits. The Bank's loan loss experience is summarized below:
Allowance for Loan Losses
(dollars in thousands)
1998 1997 1996 1995 1994
Balance as of January 1 1,403 1,330 1,349 1,322 1,304
Provision for Loan Losses 580 400 290 314 410
Recoveries of Prior Loan Losses 182 106 77 76 80
Loan Losses charged to the Allowance (1,059) (433) (386) (363) (472)
Balance as of December 31 1,106 1,403 1,330 1,349 1,322
Loans are placed on non-accrual status when a payment (principal and/or
interest) is more than 90 days past due. All income on these loans is then
recognized on a cash basis until the loan is paid off or management believes
that the quality of the loan has improved enough to warrant returning the loan
to accrual status.
Non-performing loans are loans on non-accrual and assets such as other real
estate and repossessions being held for sale. Following is a schedule of those
loan categories for the previous five years.
Non-performing Assets (dollars in thousands)
1998 1997 1996 1995 1994
Total Loans on non-accrual
(non-performing loans) 857 1,832 1,338 1,040 465
Other Real Estate 53 0 53 296 462
Total non-performing assets 910 1,832 1,391 1,336 927
Total non-performing loans as a
percentage of loans .60% 1.30% 1.09% .94% .44%
Total non-performing assets as
a percentage of loans and ORE .63% 1.30% 1.13% 1.20% .88%
Liquidity and Interest Rate Sensitivity
SVB&T Corporation considers management of liquidity and interest rate
sensitivity to be two of its most important responsibilities. Liquidity
requirements arise from loan demand and deposit withdrawals. The objective of
liquidity management is to match the availability of funds with anticipated
loan and withdrawal activity. Interest rate sensitivity management seeks to
match sufficient amounts of interest sensitive assets with interest sensitive
liabilities. A matching of the assets and liabilities results in more
consistent earnings and provides protection in case of sudden interest rate
changes.
Liquidity requirements are monitored on a daily basis. Main sources of short-
term liquidity are cash due from banks and federal funds sold. Longer term
liquidity planning includes funds available from normal maturities of
certificates of deposit with other bank maturities of investment securities,
loan principal payments income from operations, new deposits and alternative
funding sources. These sources of funds are sufficient to meet the company's
liquidity needs.
In the management of interest rate sensitivity, a cumulative sensitivity ratio
of less than 100% is normal in the one year or less repricing time period.
However, Total repricing earning assets is 101% of the repricing liabilities.
The Bank has more interest-earning assets repricing during this time period
than it has interest-bearing liabilities repricing.
The Company realizes the potential for income reduction should interest rates
increase. At that time, restructuring of the investment portfolio would occur
to increase the sensitivity ratio to a manageable position.
The chart on this and the following page shows the Bank's interest rate
sensitivity position as of December 31, 1998.
INTEREST RATE SENSITIVITY ANALYSIS (dollars in thousands)
0 to 3 4 to 6 7 to 12 1 to 5 Over 5
Months Months Months Years Years Total
Interest Earning Assets
Federal funds sold 2,860 0 0 0 0 2,860
Interest bearing deposits
in banks 0 0 0 0 0 0
Investment securities 387 75 612 11,982 12,419 25,475
Loans 51,254 18,712 35,921 31,002 6,780 143,669
Total Interest Earning
Assets 54,501 18,787 36,533 42,984 19,199 172,004
Interest Bearing Liabilities
Interest bearing NOW, savings,
and money market deposits 45,823 8,067 6,195 3,536 0 63,621
Time deposits under
$100,000 14,060 18,717 12,776 13,996 457 60,006
Time deposits over $100,000 11,175 500 2,233 7,586 626 22,120
Borrowed funds 0 0 0 0 1,000 1,000
Total Interest Bearing
Liabilities 71,058 27,284 21,204 25,118 2,083 146,747
Interest Sensitivity Gap
Current (16,557) (8,497) 15,329 17,866 17,116
Interest Sensitivity Gap
Cumulative (16,577) (25,054) (9,725) 8,141 25,257
Sensitivity Ratio
Cumulative 77% 75% 97% 116% 117%
Year 2000
The bank is working diligently to minimize the impact of any Year 2000 related
problems that might occur either within the bank or outside the bank and affect
the safe and sound operation of the bank.
A Year 2000 committee and several sub-committees are working to complete all
Y2K related activities according to the guidelines and recommendations of
FFIEC. All recommended deadlines have been met to this point.
The bank expects to spend a total of about $250,000 on Y2K related activities.
Approximately one-half of that expense will be for hardware and software that
can be capitalized and amortized over a period of time. The remainder is
primarily labor costs that will be taken as an operating expense. Management
does not expect this to have a substantial adverse effect on the bank's income.
The bank is working on both a remediation contingency plan and a business
resumption contingency plan. Management expects those to be completed no later
than the FFIEC recommended guidelines date.
It is impossible to assess the effect of Y2K related problems on the operation
and profitability of the bank. Management plans to be able to offer limited
essential banking services to its customers under even the most adverse
conditions. The severity and length of any Y2K problems will determine the
degree to which the contingency plans must be utilized and how much the
operation and profitability of the bank are impacted.
Quarterly Results of Operations March 31 June 30 Sept 30 Dec 31
1998
Interest income 3,672 7,310 11,003 14,535
Interest expense 1,881 3,707 5,555 7,216
Net interest income 1,791 3,603 5,448 7,319
Provision for loan losses 120 240 385 580
Net securities gains 0 0 0 2
Non-interest income 415 849 1,327 1,873
Non-interest expense 1,397 2,799 4,263 5,742
Income before income taxes 689 1,413 2,127 2,872
Income taxes 245 490 737 1,043
Net income 444 923 1,390 1,829
Net income per share:
Primary net income per share .59 1.23 1.86 2.45
1997
Interest income 3,487 7,065 10,747 14,528
Interest expense 1,833 3,742 5,671 7,632
Net interest income 1,654 3,323 5,076 6,869
Provision for loan losses 90 180 280 400
Net securities gains 3 3 5 5
Non-interest income 389 737 1,202 1,753
Non-interest expense 1,403 2,779 4,187 5,637
Income before income taxes 553 1,104 1,816 2,617
Income taxes 144 288 473 921
Net income 409 816 1,343 1,696
Net income per share:
Primary net income per share .55 1.09 1.80 2.27
Item 8. Financial Statements and Supplementary Data
The Registrant's Annual Report to Shareholders for the year ended December 31,
1998 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table shows the earlier of the year the named individual became a
Director of the Corporation or the Bank. All Directors have been Directors of
the Corporation since its formation in 1982, except for Brian K. Habig, Hilbert
Lindsey, Ronald G. Seals and James C. Tucker, who became Directors of the
Corporation in the years indicated below.
Shares Beneficially Owned Foot
Name, Present Principal Director (Percentage of Outstanding Note
Occupation and Age Since Common Shares)
Arnold F. Habig 1958 86,315 1
Chairman of the Board, SVB&T (11.57%)
and Assistant to the Chief
Executive Officer, Kimball
International, Inc.
90
Brian K. Habig 1987 6,348 2
Executive Vice President, (.85%)
Sales and Marketing, Kimball
Office Group Kimball
International, Inc.
41
Douglas A. Habig 1973 23,662 3
Chairman of the Board & C.E.O. (3.17%)
Kimball International, Inc.
51
John B. Habig 1963 24,426 4
Senior Executive Vice (3.27%)
President and Operations
Officer, Electronics
Kimball International, Inc.
64
Thomas L. Habig 1959 20,121 5
Vice Chairman of the Board (2.70%)
Kimball International
Secretary, Springs Valley
Bank & Trust Company
69
Maurice R. Kuper 1977 3,906 6
Retired (.52%)
Kimball International, Inc.
73
Hilbert Lindsey 1988 3,506
President (.47%)
Lindsey Lumber Company
63
Ronald G. Seals 1989 320 7
President & C.E.O. (.04%)
Springs Valley Bank &
Trust Company
60
R. J. Sermersheim 1976 20,306 8
Vice President, Environment, (2.72%)
Health & Safety
Kimball International, Inc.
58
H. E. Thyen 1959 9,251 9
Assistant to the President, (1.24%)
Kimball International, Inc.
85
James C. Tucker 1989 14,702 10
Attorney at Law (1.97%)
Tucker & Tucker
Law Offices
51
Reita Nicholson 172 11
Assistant Secretary, SVB&T Corporation (0.02%)
51
David Rees NONE
Chief Financial Officer, SVB&T Corporation
39
All Directors and Officers as a group 213,035
(28.55%)
1 Mr. Arnold F. Habig is also chairman of the Board of Springs Valley Bank &
Trust Company. Total shares owned by Mr. Habig consist of 66,000 shares
owned by his Revocable Trust Accounts of which he maintains voting
privileges, 14,056 shares owned by the Arnold F. Habig Foundation of which
Mr. Habig is the President and holds voting rights, and 6,128 shares held by
Barbara T. Habig, wife of Mr. Habig.
2 The above amount includes 2,088 shares held by Kyle Thomas Habig, the son of
Mr. B. Habig.
3 The above amount includes 2,008 shares held by Nancy L. Habig, the wife of
Mr. D. Habig, 2,224 shares held by Joshua David Habig and 2,088 shares held
by Jill Ellen Habig, who are children of Mr. D. Habig.
4 The above amount includes 3,124 shares held by Carma Jane Habig, the wife of
Mr. J. Habig, 888 shares held by Baden-Baden for John B. Habig FBO Andrew
Zunk, the grandson of Mr. Habig and 2,048 shares held by Baden-Baden for
John B. Habig FBO Jon Hudson, which is the Grandson of Mr. J. Habig.
5 Mr. Thomas L. Habig is Secretary for SVB&T Corporation as well as Springs
Valley Bank & Trust Company. Total shares owned include 2,088 shares held
by Roberta Habig, the wife of Mr. Habig.
6 Mr. Kuper's 3,600 shares are held in a Trust for Mr. Kuper in which he and
Delores Kuper are trustees. Delores Kuper is Mr. Kuper's wife.
7 Mr. Seals is President and C.E.O. for Springs Valley Bank & Trust Company as
well as SVB&T Corporation. The above amount of shares include 200 shares
held jointly by Mr. Seals and his wife, Nancy E. Seals.
8 Mr. Sermersheim also serves as Vice President for SVB&T Corporation.
9 Mr.Thyen's above shares include 4,900 shares which are listed in his trust
account of which he maintains voting rights and also includes 800 shares
which are held by Maxine Thyen's Trust Account. Maxine is the wife of Mr.
Thyen.
10 The above shares include 14,176 shares held by James M. Tucker Trust of
which Mr. Tucker is Trustee.
Board Committees and Meetings
The Board of Directors of the Corporation and the Bank hold regular bimonthly
meetings and other special meetings. The Board of Directors of the Corporation
held six (6) meetings, and the Board of Directors of the Bank held seven (7)
meetings, during 1998. In addition to meeting as a group, all members of each
Board devote their time and talents to certain of the following standing
committees: Executive Committee, Audit Committee, Trust Committee, Executive
Compensation Committee, Loan Committee and a nomination committee.
The Audit Committee reviews significant audit and accounting principles,
policies, and practices, reviews the performance of the internal auditing
functions and reviews examination reports of the Federal and State regulatory
agencies. In carrying out its duties, the Committee meets with the independent
auditors, approves the services to be performed by the independent auditors and
reviews the degree of independence of the auditors. The members of the Audit
Committee are Messrs. H. E. Thyen, R. J. Sermersheim (Chairman of the
Committee), Brian K. Habig and J. C. Tucker. The Audit Committee met six (6)
times in 1998.
The Executive Compensation Committee is to review and recommend to the
directors salary and bonus programs for the Senior Bank Officers. The members
of the Executive Compensation Committee are Messrs. R. J. Sermersheim, Randell
Catt and J. C. Tucker (Chairman of the Committee).
Item 11. Executive Compensation
Compensation of Officers
Compensation Committee Report. Officers of the Corporation are not compensated
for their services in such capacity. All officers of the Corporation are also
officers of the Bank and are compensated in their capacity as Bank officers.
Decisions on compensation of the Bank's executives are made by the Board of
Directors of the Bank, upon the recommendation of the Executive Compensation
Committee of the Board. Each member of the Compensation Committee is a non-
employee director except Mr Catt who is Human Resource director for Kimball
International. Pursuant to rules designed to enhance disclosure of corporation
policies toward executive compensation, set forth below is a report submitted
by Messrs. J. C. Tucker (Chairman), R. J. Sermersheim and Randell Catt in their
capacity as the Board's Executive Compensation Committee addressing the Bank's
compensation policies for 1998 as they affected all executive officers of the
Bank and Mr. Seals who, for 1998, was the Bank's most highly paid executive
whose total annual salary and bonus exceeded $100,000.
Compensation Policies Toward Executive Officers. The Executive Compensation
Committee's executive compensation policies are designed to provide competitive
levels of compensation to the executive officers and to reward officers for
satisfactory performance of the Corporation and the Bank as a whole. There are
no established goals or standards relating to performance of the Corporation or
the Bank which have been utilized in setting the base salary portion of an
individual employee's compensation.
Base Salary. Each executive officer is reviewed individually by the Executive
Compensation Committee. The Executive Compensation Committee also reviews
various banking salary surveys provided by other entities which provide
information concerning average salary information within the banking industry.
The background data for this information is typically generated from over 100
banks located in the Midwest with approximately $100 million to $200 million in
assets. The salary portion of the executive officers' compensation is then
typically established at a level near the average salary compensation of
officers included in the survey with similar job responsibilities.
Annual Bonus Amounts. The Bank's Incentive Bonus Plan ("Bonus Plan") for
executive officers (those with titles of Senior Vice President and higher) for
1998 was based on the Bank's return on average assets (ROA) and the executives
officers base salary. The "Bonus Plan" payment to executive officers was thirty
percent of their base pay for 1998. Other officers receive bonuses based on
net income of the Bank. Under the "Bonus Plan," a bonus pool of seven percent
of the Bank's net income is established and paid bi-annually to these officers.
1996 Key Employees' Stock Option and Stock Appreciation Rights Plan
The Corporation has adopted a stock option and stock appreciation rights
program (the "Plan") for officers and key employees of the Corporation and the
Bank. The Board of Directors of the Corporation believes these programs
provide an important incentive to those who will be instrumental to the success
of the Corporation and of the Bank. The Corporation has reserved 20,000 shares
for issuance under the Plan. The Plan will expire on December 31, 2005.
The Plan provides for the grant of "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code, the grant of nonqualified
stock options, and the grant of stock appreciation rights ("SARs"). Options
and SARs may be granted under the Plan only to officers and other key employees
who are in positions to make significant contributions to the success of the
Corporation.
The Executive Compensation Committee of the Board of Directors of the Bank
administers the Plan. No member of this committee is eligible to receive
options or SARs under the Plan at any time such individual serves on this
committee.
Options are exercisable upon such terms and conditions as may be determined by
the Executive Compensation Committee, but in no event will any stock options be
exercisable later than ten years after date of grant. Options granted under
the Plan will vest and become exercisable at the times determined by the
Executive Compensation Committee. The exercise price for all options granted
under the Plan will not be less than the fair market value of the shares on the
date of grant.
The Executive Compensation Committee may also grant SARs in conjunction with
all or part of any option granted under the Plan at the time of the grant of
the option. Each SAR will (I) expire when the underlying option expires, and
(ii) become exercisable only when and to the extent that the underlying option
is eligible to be exercised. The "economic value" of a SAR may not exceed 100%
of the difference between the exercise price of the number of shares covered by
the underlying option and the fair market value of such shares. SARs may be
exercised by surrendering the underlying option, at which point the underlying
option shall no longer be exercisable (to the extent the options are
surrendered upon exercise of the related SAR). Upon exercise of a SAR, the
optionee is entitled to receive the economic value of such SAR, in cash, in
shares of common stock of the Corporation, or any combination thereof as
determined by the Executive Compensation Committee.
Option Grants In Last Fiscal Year
The following table provides details regarding stock options granted to Mr.
Seals in 1998. In addition, the table shows the number of shares covered by
both exercisable and non-exercisable stock options by Mr. Seals as of December
31, 1998. Also reported are the values for the "in-the-money" options, which
represent the positive spread between the exercise price of any such existing
stock options and the year-end assumed price of the Common Stock. For purposes
of the following table, the year-end price of the stock was assumed to be
$38.00. Because there is not an established trading market for the Common
Stock, the assumed price of $38.00 may not reflect the actual price which would
be paid for shares of the Common Stock in an active or established trading
market and should not necessarily be relied upon when determining the value of
a shareholder's investment. In addition, there are shown the hypothetical
gains or option spreads that would exist for respective options. These gains
are based on assumed rates of annual compound stock price appreciation of five
percent (5%) and ten percent (10%) from the date the options were granted over
the full option term. Gains are reported net of the option exercise price, but
before any effect of taxes. In assessing these values, it should be kept in
mind that no matter what value is placed on a stock option on the date of
grant, its ultimate value will be dependent on the market value of the
Corporation's stock at a future date, and that value would depend on the
efforts of such executive to foster the future success of the Corporation for
the benefit of all shareholders. The amounts reflected in this table may not
necessarily be achieved.
Individual Grants
Name Number of Shares Percent Exercise Market
Underlying of Total or Base Price
Options Options Price on Date
Granted Granted ($/Sh) of Grant
(#) in Fiscal ($/Sh)
Year
(%)
Ronald G. Seals 1,400 44% $27.50 $27.50
Potential Realizable
Value at Assumed Annual
Rates of Stock Appreciation
For Option Term
Name Expiration 0% 5% 10%
Date ($) ($) ($)
Ronald G. Seals 12-31-06 $0.00 $33,488.00 $84,798.00
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values Table
The following table shows the shares covered by the exercisable and non-
exercisable stock options by Mr. Seals as of December 31, 1998. Also reported
are the values for in-the-money options which represent the positive spread
between the exercise price of any such existing stock options and the year-end
price of the Corporation's Common Stock at December 31, 1998. For purposes of
the following table, the year-end price of the stock was assumed to be $38.00.
Because there is not an established trading market for the Common Stock, the
assumed price of $38.00 may not reflect the actual price which would be paid
for shares of the Common Stock in an active or established trading market and
should not necessarily be relied upon when determining the value of a
shareholder's investment.
Name Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End
(#) ($)
Exercisable Unexercisable Exercisable Unexercisable
Ronald G. Seals 280 1,120 $2,940 $11,760
Pursuant to the 1997 Directors Stock Compensation Plan, Directors of the
Corporation can elect to receive up to 100% of board fees for a calendar year
in common stock of the Corporation, determined by dividing the amount of fees
deferred by the fair market value of a share of the Common Stock of the
Corporation as of the last day of such calendar year. The Corporation has
reserved 16,000 shares for issuance under this Plan. One thousand, five hundred
eighty-five (1,585) shares were issued in the following amounts to the
following Directors for deferred fees in 1997.
The 1997 Directors Stock Option Plan, designed to work in connection with the
Directors Stock Compensation Plan, provides for the granting of non-qualified
stock options to Directors for Common Stock of the Corporation. Under the
terms of this Plan, each Director is granted the option to purchase 50% of the
number of shares received by the Director pursuant to such Director's elections
under the 1997 Directors Stock Compensation Plan discussed above. The exercise
price of the options will be no less than the fair market value on the last day
of the calendar year preceding grant. The options vest and become exercisable
on the second anniversary of the date of grant. The Corporation has reserved
8,000 shares for issuance under this Plan. The Corporation has grant options
for 792 shares for 1998 in the following amounts to the following Directors:
DIRECTOR 1998 Deferred 1998
Fees Options
Shares Issued Granted
Arnold F. Habig 75 37
Brian K. Habig 0 0
Douglas A. Habig 193 96
John B. Habig 193 96
Thomas L. Habig 92 46
Maurice R. Kuper 193 96
Ronald G. Seals 100 50
R. J. Sermersheim 202 101
H. E. Thyen 151 75
J. C. Tucker 193 96
Hilbert Lindsey 193 96
Totals: 1,585 789
Other Compensation Plans. At various times in the past the Bank has adopted
certain broad-based employee benefit plans in which the senior executives are
permitted to participate on the same terms as non-executive employees who meet
applicable eligibility criteria, subject to any legal limitations on the amount
that may be contributed or the benefits that may be payable under the plans.
Benefits. The Bank provides medical and pension benefits to the senior
executives that are generally available to other Bank employees. The amount of
perquisites, as determined in accordance with the rules of the Securities and
Exchange Commission relating to executive compensation, did not exceed 10% of
salary and bonus for fiscal 1997.
Mr. Seal's 1998 Compensation. Regulations of the Securities and Exchange
Commission require that the Compensation Committee disclose the Committee's
basis for compensation reported for the C.E.O. Mr. Seal's salary and bonus in
1998 were determined in the same manner as discussed above for other senior
executives. The Board of Directors and the Executive Compensation Committee
believes that Mr. Seals has managed the Bank well.
Compensation Committee Insider Participation
During the past fiscal year, Mr. Seals, the Bank's Chief Executive Officer,
served on the Board of Directors, but did not serve on the Executive
Compensation Committee. Mr. Seals did not participate in any discussion or
vote with respect to his salary or bonus as an executive officer and excused
himself from the room during the discussion by the Board of Directors of his
compensation.
Summary Compensation Table
The following table sets forth for the fiscal years ending December 31, 1998,
1997 and 1996 the cash compensation paid by the Bank, as well as certain other
compensation paid or awarded during those years, to the Chief Executive Officer
and any other executive officer whose total annual salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1998.
Name and Year Annual Compensation
Principal Position Salary (1) Bonus (2)
Ronald G. Seals 1998 $121,000 $42,250
President, C.E.O. 1997 $119,000 $29,750
and Director 1996 $115,500 $23,100
(1) While officers enjoy certain perquisites, such perquisites do not exceed
the lesser of $50,000 or 10% of such officer's salary and bonus and are
not required to be disclosed by applicable rules of the Securities and
Exchange Commission.
(2) The bonus amounts are payable pursuant to the Bank's Incentive Bonus Plan
of the Bank, as described in the "Compensation Committee Report."
Employee Benefit Plans
Profit Sharing Retirement Plan. The Bank sponsors a tax-qualified profit
sharing retirement plan which includes, effective as of January 1, 1996, a
qualified cash or deferred (i.e., "401(k)") arrangement and a provision for
voluntary after-tax contributions ("Profit Sharing Plan"). The Profit Sharing
Plan covers substantially all employees of the Bank; an employee becomes a
participant on the first January 1st or July 1st which coincides with or
immediately follows the date you became an employee. If you became an Employee
on or after January 1, 1996, you will be eligible to participate on the Plan
Entry Date which falls on or after the first twelve consecutive (12) month
period during which you have completed at least one thousand (1,000) hours of
service. The twelve (12) month period begins when you first commence
employment and on each Plan Year beginning on or after that date. The Bank
makes discretionary "profit sharing" contributions under the Profit Sharing
Plan and allows participants to make salary deferral and rollover
contributions. Participants' salary deferral contributions may be made, on
pre-income tax basis, in an amount ranging from 1% to 12% of the participant's
"compensation" (as defined). Participants' salary deferral and rollover
contributions are fully vested when made; discretionary profit sharing
contributions are subject to a vesting schedule pursuant to which participants
become vested on a graduated basis, at the rate of 10% per year for the first
four full years of service and at the rate of 20% per year thereafter so that a
participant will become fully vested in the Bank's profit sharing
contributions after completing seven full years of service. In addition, a
participant will attributable to the Bank's discretionary profit sharing
contributions on death, "disability" (as defined), upon attaining age 60 and
completing 10 years of service, and upon attaining age 65. All amounts
contributed to the Profit Sharing Plan are invested by the Bank, as Trustee,
for the benefit of all participants and their designated beneficiaries.
Upon termination of employment with the Bank or Corporation for reason, a
participant (or his or her designated beneficiary) will be entitled to receive
the vested balance of his or her account under the Profit Sharing Plan.
Participants may elect to receive the vested balance of their account in either
a single lump sum or in monthly, quarterly or annual installments over a fixed
period of time, not to exceed the life expectancy of the participant or the
joint life and last survivor expectancy of the participant and his or her
designated beneficiary. The Profit Sharing Plan also provides for the
distribution of the participant salary deferrals on account of "financial
hardship" (as defined) and authorizes the making of loans to participants from
that portion of their Profit Sharing Plan accounts attributable to salary
deferral contributions.
Director Fees
Directors of the Bank receive director's fees of $600 per month. In addition,
directors which hold committee positions may be compensated from $25 to $100
per meeting attended. No separate fees are paid for services as a director of
the Corporation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Shareholders
The following information is given as of March 4, 1999, for each person known
to the Corporation to be the beneficial owner of more than 5% of the common
stock of the Corporation.
Amount and Nature Percent
Name and Address of Beneficial Ownership of Class
Arnold F. Habig 86,390 11.55%*
1500 Main Street
Jasper, IN 47546
Springs Valley Bank & Trust Company
Trustee for Kimball International, Inc. 144,920 19.38%**
Retirement Trust
P.O. Box 830 Jasper, IN 47547-0830
* Total shares owned by Mr. Habig consist of 66,206 shares owned by his
Revocable Trust accounts, 14,056 shares owned by the Arnold F. Habig
Foundation and 6,128 shares held by his wife, Barbara T. Habig.
**Baden-Baden is nominee holder of beneficial shares owned by Springs Valley
Bank & Trust Company as Trustee for Kimball International, Inc. Retirement
Trust.
Item 13. Certain Relationships and Related Transactions
Certain Transactions
During 1998, certain directors and officers of the Corporation and their
associates were customers of and had transactions in the ordinary course of
business with the Bank; additional transactions may be expected to take place
in the future between such persons and the Bank. All transactions were made
and are expected to be made on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the time for comparable
transactions with other persons and did not involve and are not expected to
involve more than the normal risk of collectability or present other
unfavorable features.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements - (as referred to in Item 8)
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1998.
(c) Exhibits - The following exhibits are filed herewith:
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 13 - Annual Report to Shareholders for the year ended December
31, 1998 (incorporated in part into this form 10-K by
reference)
Exhibit 21 - Subsidiaries of the Registrant
Exhibit 23 - Consent of Independent Public Auditors
(d) Financial Statement Schedules - This information is omitted since the
required information is not applicable to the Registrant.
Exhibit 27 - Financial data schedule
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SVB&T Corporation
By:
Ronald G. Seals,
President & C.E.O. 3/19/99
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: By:
Arnold F. Habig David Rees
Chairman of the Board 3/19/99 Principal Financial and Accounting 3/19/99
Officer
By: By:
Douglas A. Habig, Director 3/19/99 Ronald G. Seals,
Principal Executive Officer and 3/19/99
Director
By: By:
John B. Habig, Director 3/19/99 Brian K. Habig, Director 3/19/99
By: By:
Maurice Kuper, Director 3/19/99 Thomas L. Habig, Director 3/19/99
By: By:
Hilbert Lindsey, Director 3/19/99 James C. Tucker, Director 3/19/99
By: By:
Ronald J. Sermersheim, Director H. E. Thyen, Director 3/19/99
3/19/99
Index to Exhibits
Sequential
Page # Exhibit # Exhibit
54 11 Statement Re: Computation of Per Share Earnings
35 13 Annual Report to Shareholders for the year ended
December 31, 1998
54 21 Subsidiaries of the Registrant
54 23 Consent of Independent Auditors
27 Financial Data Schedule
Exhibit 13
During the past year SVB&T Corporation was able to achieve all of managements
established goals and attain record earnings.
Financial Highlights of the year:
Net income rose 7.9% to $1,829,182.
Net income per share was $2.45, up from $2.27.
Cash dividends were increased 11% to $448,629.
Shareholders equity increased 8.6% to $20.3 million.
Book value per share rose $27.18, up from $25.09.
Deposits decreased by $6.5 million to total $159.3 million*.
Loans increased by $3.3 million to total $142.5 million.
*The decrease in deposits was a planned reduction of high cost liabilities.
Financial Highlights details are contained in the following reports.
Operational Highlights of the year:
Automatic Teller Machines (ATMs) were placed in three Kimball plants.
Alternative Investment Department was established.
Year 2000 (Y2K) operations now meet all Federal requirements.
Electronic Banking - Web page was established at www.svbt.com.
Stock repurchase program was adopted.
Automatic Teller Machines
In 1998 Springs Valley Bank installed Automatic Teller Machines in three
Kimball plants; Heritage Hills, Salem and Jasper Electronics. These new ATMs
provide expanded banking service to existing customers, and provides us access
to new prospects that may use a variety of our services.
Alternative Investments
In 1998 we established our Alternative Investment Department. This department
sells annuities, mutual funds, stocks, bonds, life insurance and counsels
clients regarding their personal finances. We serviced over 50 clients this
year and sold over $2.3 million in investment products.
Y2K
As suggested by regulators, the year 2000 problems and solutions have been
reported to depositors of the Bank. We expect to spend about $250,000 on Y2K
related activities. Approximately one-half of the expense will be for computer
hardware and software, and the remainder will be labor costs.
Springs Valley Bank has been able to meet and comply with all Federal
regulations and guidelines established for efficient data processing transition
to the year 2000.
Electronic Banking
The Bank's 5-year strategic plan includes the application of new technology to
a variety of electronic delivery systems for our products and services. This is
necessary to stay abreast of competition and provide what our customers want.
Within five years, 79% of all community banks will offer home banking via PC.
With the introduction of our informational and e-mail Web site in 1997, we took
the first step in that direction, gaining valuable experience in the design,
maintenance and operation of the site. SVB&T will be ready for the explosive
growth projected for home banking when we offer it to our customers.
Integration of new and existing systems also will increase efficiency, reduce
transaction costs, expand our marketing/service area and enable us to provide
even more off-premise banking services for our customers. With electronic
delivery systems, location and number of branches also become less important.
SVB&T can be accessed on line at www.svbt.com.
Stock Repurchase
Stock ownership in small community banks does not generally provide easily
accessed liquidity for investors. The absence of an active market for shares
often means that shareholders wishing to sell anything more than a very modest
number of shares will have to wait substantially longer to sell than
shareholders of more widely traded companies. Stock repurchase is a means of
improving the liquidity of SVB&T Corporation shares. Not only will the
repurchase of shares benefit those choosing to sell, but the action of the
repurchase itself and its somewhat higher price may encourage other potential
investors, both existing shareholders and new investors, to take a more active
interest in the stock.
The Directors join us in recognizing Maurice Kuper upon his retirement. We are
very grateful for his 21 years of dedicated service to the Bank. Mr. Kuper's
wise and professional counsel will be missed.
The Staff, Management, and Directors are pleased to report the very positive
results of our 1998 operations. We appreciate your continued support.
Sincerely,
ARNOLD F. HABIG RONALD G. SEALS
CHAIRMAN OF THE BOARD PRESIDENT & CEO
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31
1998 1997
ASSETS
Cash and cash equivalents
Cash and due from banks $ 4,195,084 $ 4,567,927
Interest-bearing deposits with banks 79,396 0
Federal funds sold 2,860,000 900,000
Total cash and cash equivalents 7,134,480 5,467,927
Investment securities, available for sale,
at market value 25,474,919 38,042,422
Investment securities, held to maturity,
at cost 590,700 578,300
Loans
Loans, net of unearned interest 143,668,999 140,604,320
Allowance for loan losses (1,106,077) (1,402,500)
Net loans 142,562,922 139,201,820
Buildings and equipment 4,820,650 5,033,224
Interest receivable 1,195,693 1,319,476
Other assets 961,682 761,212
Total assets $182,741,046 $190,404,381
LIABILITIES
Deposits
Non-interest bearing $ 12,747,399 $ 13,292,875
Interest bearing 146,584,093 152,578,528
Total deposits 159,331,492 165,871,403
Short-term borrowings 0 4,000,000
Interest payable 712,651 824,298
Deferred income taxes 549,999 305,132
Other liabilities 813,410 688,087
Long-term borrowings 1,000,000 0
Total liabilities $162,407,552 $171,688,920
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS EQUITY
Common stock (No par value: 800,000 shares
authorized and issued) 200,000 200,000
Surplus 6,124,070 6,094,233
Retained earnings 14,655,040 13,274,487
Accumulated other comprehensive income:
Net unrealized gains (losses) on investment
securities available for sale 190,107 (40,259)
Treasury stock at cost (53,701 shares 1998, 54,200
shares 1997) (835,723) (813,000)
Total shareholders' equity 20,333,494 18,715,461
Total liabilities and shareholders' equity $182,741,046 $190,404,381
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1998 1997 1996
Interest Income
Loans and fees on loans $ 12,479,514 $11,599,189 $10,317,553
Investment securities:
Taxable 1,441,684 2,386,565 2,964,496
Tax exempt 432,465 411,263 511,312
Federal funds sold 180,856 130,745 291,114
Total interest income 14,534,519 14,527,762 14,084,475
Interest Expense
Deposits 7,160,680 7,475,407 7,468,253
Short-term borrowings 42,804 156,431 62,977
Long-term borrowings 12,550 0 0
Total interest expense 7,216,034 7,631,838 7,531,230
Net Interest Income 7,318,485 6,895,924 6,553,245
Provision for loan losses 580,000 400,000 290,000
Net Interest Income After Provision
for Loan Losses 6,738,485 6,495,924 6,263,245
Non-interest income
Trust Department income 836,653 816,328 747,664
Service charges on deposit accounts 615,274 505,042 364,836
Insurance and claims processing 172,448 177,219 176,899
Other operating income 248,664 254,815 270,673
Realized security gains 2,055 5,406 45,545
Total non-interest income 1,875,094 1,758,810 1,605,617
NON-INTEREST EXPENSE
Salaries and employee benefits 3,381,270 3,294,708 3,235,503
Premises and equipment expense 1,167,626 1,095,822 1,070,491
Deposit insurance expense 19,921 20,367 2,000
Other operating expenses 1,172,780 1,226,701 1,249,907
Total non-interest expenses 5,741,597 5,637,598 5,557,901
Income Before Income Taxes 2,871,982 2,617,136 2,310,961
Income taxes 1,042,800 921,600 650,000
Net Income $1,829,182 $1,695,536 $1,660,961
PER SHARE
Net Income $ 2.45 $ 2.27 $ 2.23
Cash Dividends $ .60 $ .54 $ .48
Average Shares Outstanding 748,006 745,800 745,800
See notes to consolidated financial statements.
Consolidated statements of Comprehensive Income
Year Ended December 31
1998 1997 1996
Net income $ 1,829,182 $ 1,695,536 $ 1,660,961
Other comprehensive net income
Unrealized gains (losses) on securities
available for sale 383,519 159,639 (623,978)
Less reclassification for gains included
in net income (2,055) (5,406) 45,545
Income tax related to other comprehensive
income (151,098) (61,092) 229,117
Other comprehensive income, net of tax 230,366 93,141 (349,316)
Total comprehensive Income $ 2,059,548 $ 1,788,677 $ 1,311,645
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other Total
Common Capital Retained Comprehensive Treasury Shareholders'
Stock Surplus Earnings Income Stock Equity
BALANCE
JAN. 1,1996 $200,000 $6,094,233 $10,674,978 $215,916 $(813,000) $16,372,127
Total comprehensive
income, 1996 1,660,961 (349,316) 1,311,645
Cash dividends (354,256) (354,256)
BALANCE
DEC. 31, 1996 200,000 6,094,233 11,981,683 (133,400) (813,000) 17,329,516
Total comprehensive
income, 1997 1,695,536 93,141 1,788,677
Cash dividends (402,732) (402,732)
BALANCE
DEC. 31, 1997 200,000 6,094,233 13,274,487 (40,259) (813,000) 18,715,461
Total comprehensive
income, 1998 1,829,182 230,366 2,059,548
Cash dividends (448,629) (448,629)
Sold 2,387 shares
of treasury stock 29,837 35,805 65,642
Purchased 1,888 shares
of treasury stock (58,528) (58,528)
BALANCE
DEC. 31,1998 $200,000 $6,124,070 $14,655,040 $190,107 $(835,723) $20,333,494
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Year Ended December 31
1998 1997 1996
Operating Activities:
Net income $1,829,182 $1,695,536 $1,660,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 580,000 400,000 290,000
Depreciation 468,307 416,270 448,897
Investment securities amortization 41,291 18,927 4,872
Investment securities (gains) (2,155) (5,406) (45,545)
Gain on sale of building 0 (19,700) 0
Deferred income taxes 93,769 2,716 36,002
(Increase) decrease in interest
receivable and other assets (76,687) 115,331 611,800
Increase in interest payable
and other liabilities 13,676 186,180 20,572
Net Cash Provided by
Operating Activities 2,947,383 2,809,854 3,027,559
Investing Activities:
Proceeds from sales and maturities of
investment securities available for
sale 30,330,259 15,743,865 13,622,651
Purchases of investment securities
available for sale (17,420,427) (3,700,315) (7,196,798)
Purchases of investment securities
held to maturity (12,400) (10,900) (567,400)
Proceeds from the sale of buildings 0 68,653 0
Proceeds-sale of loans 4,236,717 2,670,447 112,771
Proceeds-sale of other real estate 0 68,950 242,520
Net (increase) decrease in loans (8,177,819)(20,757,523) (10,783,700)
Additions to buildings and equipment (255,734) (457,862) (412,342)
Net cash Provided (used) by
Investing Activities 8,700,596 (6,374,685) (4,982,298)
Financing Activities:
Net increase (decrease) in deposits (6,539,911) 14,276,354 (20,169,527)
Net increase (decrease) in federal funds
purchased 0 (8,870,000) 8,870,000
Net increase (decrease) in short-term
borrowings (4,000,000) (1,000,000) 5,000,000
Net increase in long-term borrowings 1,000,000 0 0
Sale of treasury stock 65,642 0 0
Purchase of treasury stock (58,528) 0 0
Cash dividends (448,629) (402,732) (354,256)
Net Cash Provided (used) by
Financing Activities 9,981,426 4,003,622 (6,653,783)
Increase (Decrease) in Cash and
Cash Equivalents 1,666,553 438,791 (8,608,522)
Cash and cash equivalents beginning of year 5,467,927 5,029,136 13,637,658
Cash and Cash Equivalents At
End of Year $7,134,480 $5,467,927 $5,029,136
Supplemental Disclosures:
Cash paid during the year for income taxes $ 822,317 $ 865,260 $ 489,827
Cash paid during the year for interest $7,327,681 $7,557,568 $7,646,554
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation - The accounting and reporting policies of SVB&T
Corporation and Subsidiary (the Bank) are in accordance with generally
accepted accounting principles and conform to general practices within the
banking industry. The more significant of the principles used in preparing the
financial statements are briefly described below.
Principles of Consolidation - The consolidated financial statements include the
accounts of SVB&T Corporation and its wholly owned subsidiary, Springs Valley
Bank & Trust Company. All significant intercompany balances and transactions
have been eliminated.
Nature of Operations - SVB&T Corporation operates under a charter from the
State of Indiana and provides full banking services, including trust services.
As a state bank, SVB&T Corporation is subject to regulation by the Department
of Financial Institutions of the State of Indiana and the Federal Deposit
Insurance Corporation. The area served by the Bank is primarily Orange, Clark,
Dubois and the surrounding counties in Southern Indiana.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents include cash, due from
banks, interest-bearing deposits with banks and federal funds sold. Generally,
federal funds are sold for one day periods.
Investment Securities Available for Sale - The Bank buys investment debt
securities with the intent and ability to hold these securities to maturity.
However, management has determined that all debt securities would be available
for sale in response to certain situations, such as changes in interest rates
and prepayment risk, need for liquidity, changes in availability and yield on
alternative investments, and changes in funding sources and terms. At December
31, 1998 and 1997, debt securities are reported at estimated market values in
the statement of financial condition. Unrealized holding gains and losses are
excluded from earnings and are reported as a net amount in the statement of
comprehensive income. Accreted discounts and amortized premiums are included
in earnings using the straight line method. Gains or losses on dispositions
are computed using the specific identification method.
Investment Securities Held to Maturity - The Bank owns stock in the Federal
Home Loan Bank of Indianapolis. This stock is classified as held to maturity
and is carried at cost.
Loans - Loans that management has both the intent and ability to hold for the
foreseeable future or until maturity or pay off are reported at their
outstanding unpaid principal balances, adjusted for charge-offs, the allowance
for loan losses and any deferred fees or costs on originated loans. Interest
income on commercial loans, simple interest installment loans and real estate
mortgage loans is recognized based on the outstanding principal balances at the
stated rates. Real estate mortgage loan origination fees and costs are
amortized over the life of the loan. Interest income for add-on installment
loans is recognized by the rule of 78's method which approximates the interest
method. Accrual of interest income on loans and impaired loans is
discontinued when payments have become delinquent for 90 days. Upon
non-accrual status, all accrued interest receivable on a loan is written off.
Any subsequent payments are applied to interest until all interest due is
totally paid. Any remaining amounts are applied to principal.
As part of its interest rate risk management, the Bank sells fixed rate
mortgage loans into the secondary market. At December 31, 1998, there were no
mortgage loans available for sale.
Allowance for Loan Losses - The allowance for loan losses is an amount that
management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluations of collectibility and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions and trends that may affect the borrowers ability to pay. The
allowance is established by a provision for loan losses charged to expense.
Loans are written off against the allowance when management believes that the
collectibility of the principal is unlikely.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies(Continued)
Buildings and Equipment - Buildings and equipment are stated at cost less
accumulated depreciation. Buildings are depreciated on the straight line
method using lives ranging from 10 to 40 years. Equipment is depreciated on
the straight line method using lives ranging from 5 to 10 years.
Other Real Estate - Real estate acquired in foreclosures is carried at the
lower of the outstanding loan balance plus accrued interest or fair value of
the property. Amounts necessary to write loans down to fair value are charged
to the allowance for loan losses.
Income Tax - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes, related primarily to differences between the basis of
available-for-sale investment securities, allowance for loan losses,
accumulated depreciation and loan origination fees. The deferred tax asset or
liability represents the future tax return consequences of those differences.
SVB&T Corporation and Springs Valley Bank & Trust file consolidated income tax
returns. Income tax expense is allocated to each according to actual earnings
prior to consolidation.
Net Income Per Share - Net income per share of common stock is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period.
Trust Fees - Trust fees are recorded on the accrual basis.
Stock Split - A two-for-one stock split was declared on July 15, 1997 and
distributed on August 11, 1997. All per share amounts have been adjusted to
retroactively reflect this stock split.
Note 2 - Effect of Changes in Accounting Principles
Effective in 1998, the Bank adopted FASB Statement No. 130, "Reporting
Comprehensive Income". The adoption of this accounting standard did not effect
the Bank's financial condition or results of operations. It established new
rules for reporting comprehensive income which have been reflected in these
financial statements.
Note 3- Restriction on Cash and Due From Banks
The Bank is required to maintain average funds in cash and on deposit with the
Federal Reserve Bank. The average balance required at December 31, 1998 was
$918,000.
Notes To Consolidated Financial Statements
Note 4 - Investment Securities
The amortized cost and estimated market values of investment securities at
December 31, 1998 and 1997 were as follows:
December 31, 1998
Unrealized Unrealized Estimated
Amortized Holding Holding Market
Securities Available for Sale Cost Gains Losses Value
U.S. Government corporations and
agencies $15,208,346 $117,771 $0 $15,326,117
States and political subdivisions $ 8,803,457 209,396 (13,934) 8,998,919
Mortgage-backed securities $ 202,817 8,061 0 210,878
Other securities $ 945,499 0 (6,494) 939,005
Total $25,160,119 $335,228 $(20,428)$25,474,919
Unrealized Unrealized Estimated
Amortized Holding Holding Market
Securities Held to Maturity Cost Gains Losses Value
Equity securities $590,700 $ 0 $ 0 $590,700
December 31, 1997
Unrealized Unrealized Estimated
Amortized Holding Holding Market
Securities Available for Sale Cost Gains Losses Value
U.S. Government corporations and
agencies $28,516,075 $42,947 $(164,177)$28,394,845
States and political subdivisions $ 8,796,372 75,973 (35,734) 8,836,611
Mortgage-backed securities $ 296,639 14,327 0 310,966
Other securities $ 500,000 0 0 500,000
Total $38,109,086 $133,247 $(199,911)$38,042,422
Unrealized Unrealized Estimated
Amortized Holding Holding Market
Securities Held to Maturity Cost Gains Losses Value
Equity securities $578,300 $ 0 $ 0 $ 578,300
The amortized cost and estimated market values of available for sale securities
at December 31, 1998 and 1997 by contractual maturity follows. Expected
maturities may differ from contractual maturities because some borrowers have
the right to call or prepay certain obligations with or without call or payment
penalties.
1998 1997
Estimated Estimated
Amortized Market Amortized Market
Securities Available for Sale Cost Value Cost Value
Due in one year or less $1,193,090 $1,198,897 $13,651,674 $13,620,814
Due after one year but within
five years 13,078,961 13,196,491 12,033,011 11,998,228
Due after five years but within
ten years $ 8,818,517 8,953,616 9,458,468 9,416,124
Due after ten years $ 1,866,734 1,915,037 2,669,294 2,696,290
24,957,302 25,264,041 37,812,447 37,731,456
Mortgage-backed securities 202,817 210,878 296,639 310,966
Total $25,160,119$25,474,919 $38,109,086 $38,042,422
Securities with amortized cost of $1,000,000 at December 31,1998 and $3,998,748
at December 31,1997 were pledged as collateral on public and other deposits
held by the Bank.
Proceeds from sales of investment securities during 1998, 1997 and 1996 were
$1,500,000, $3,986,890 and $3,665,048. In 1998, gains of $2,055 and losses of
$-0- were realized. In 1997, gains of $6,834 and losses of $1,428 were
realized. In 1996, gains of $45,545 and losses of $-0- were realized.
Notes Consolidated Financial Statements
Note 5 - LOANS
Loans at December 31, 1998 and 1997 are comprised of the following:
1998 1997
Commercial and industrial loans $ 13,288,770 $ 17,636,115
Real estate loans
(including $1,087,000 and $1,429,000 secured
by farm land) 80,802,703 79,490,736
Construction loans 1,686,781 1,322,533
Agricultural production financing and other
loans to farmers 1,288,661 1,085,795
Individuals' loans for household and other
personal expenditures 46,469,853 40,858,655
Lease financing 336,293 437,150
143,873,061 140,830,984
Less: Unearned income on loans 204,062 226,664
Total loans $143,668,999 $140,604,320
At December 31, 1998 and 1997, the Bank had loans of $1,448,563 and $1,938,666
that were specifically classified as impaired. The average balance of these
loans during 1998, 1997 and 1996 was $1,454,157, $1,996,569 and $1,121,300.
The allowance for loan losses contained specifically allocated amounts for
these loans at December 31, 1998 and 1997 of $271,403 and $569,490. The
following is a summary of cash receipts on the loans and how they were applied
in 1998, 1997 and 1996.
1998 1997 1996
Cash receipts applied to principal $ 74,529 $ 100,939 $ 225,003
Cash receipts recognized as interest income 136,502 108,594 89,200
Total cash received $ 211,031 $ 209,533 $ 314,203
All 1 to 4 family residential, first mortgage loans have been pledged as
collateral for debt with the Federal Home Loan Bank of Indianapolis. The
amounts pledged at December 31, 1998 and 1997 are as follows:
1998 1997
Loans pledged as collateral $ 59,063,000$ 52,076,000
Note 6 - Allowance for Loan Losses
The changes in the allowance for loan losses for the years 1998, 1997 and 1996
are as follows:
1998 1997 1996
Balance, January 1 $ 1,402,500 $ 1,329,295 $ 1,348,927
Loans charged-off (1,059,108) (433,234) (386,143)
Recoveries 182,685 106,439 76,511
Net charged-off (876,423) (326,795) (309,632)
Provision for loan losses 580,000 400,000 290,000
Balance, December 31 $ 1,106,077 $ 1,402,500 $ 1,329,295
Note 7 - Buildings and Equipment
Balances in the buildings, equipment, and related accumulated depreciation
accounts at December 31, 1998 and 1997 are as follows:
1998 1997
Land and bank buildings $ 4,932,467 $ 4,908,971
Equipment, furniture and fixtures 5,336,523 5,159,371
Totals 10,268,990 10,068,342
Less accumulated depreciation 5,448,340 5,035,118
Net $ 4,820,650 $ 5,033,224
Depreciation expense was $468,307 for 1998, $416,270 for 1997 and $448,897 for
1996.
Note 8- Deposits
Deposits at December 31, 1998 and 1997 are as follows:
1998 1997
Demand, non-interest bearing $ 12,583,858 $ 13,292,875
Demand, interest-bearing 18,201,030 12,739,696
Savings 60,204,853 59,265,970
Time deposits, $100,000 and over 22,120,000 32,940,981
Other time deposits 46,221,751 47,631,881
Total deposits $ 159,331,492 $ 165,871,403
Notes To Consolidated Financial Statements
Note 8 - Deposits (Continued)
As of December 31, 1998, the scheduled maturities of time deposits are as
follows:
1999 $ 33,062,033
2000 27,438,747
2001 2,501,574
2002 1,846,950
2003 and thereafter 3,492,447
$ 68,341,751
Note 9 - Other Short-Term Borrowings
Other short-term borrowings at December 31, 1998 and 1997 are as follows:
1998 1997
Federal Home Loan Bank advance,
paid January 20, 1998, 5.7% fixed,
collateralized by a blanket collateral
agreement on qualified mortgage loans
and securities $ 0 $ 4,000,000
Note 10 - Long-Term Borrowings
Long-term borrowings at December 31,1998 and 1997 are as follows:
1998 1997
Federal Home Loan advance,
principal due October 5, 2005,
interest payable monthly, 5.02%
fixed collateralized by a blanket
collateral agreement on qualified
mortgage loans and securities $1,000,000 $ 0
At December 31, 1998, the Bank has $9,814,000 available under a line of credit
with the Federal Home Loan Bank of Indianapolis.
Note 11 - Employee Benefit Plans
The Bank has a trusteed, defined contribution, profit-sharing plan, which
covers substantially all employees. Contributions to the plan are based on a
percentage of eligible employees' yearly compensation and are subject to the
discretion of the Board of Directors. The Bank's expense for the years ended
December 31, 1998, 1997 and 1996 was $142,483, $136,527 and $140,143.
The Bank also has an employee benefit plan which includes a self-insured
medical plan, a wholly insured term life insurance plan and a long-term
disability plan, which covers most employees. The self-insured medical plan
carries an insurance override to protect the Bank against major increases in
claims. The Bank's contributions to the plan for the years ended December 31,
1998, 1997, and 1996 were $278,876 and $245,401 and $267,270.
Note 12 - Income Taxes
The components of the provision for income taxes are:
1998 1997 1996
Federal income taxes currently payable $708,424 $689,531 $412,740
Deferred Federal income taxes 73,776 2,069 28,360
Provision for Federal income taxes for
the year $782,200 $691,600 $441,100
State income taxes currently payable $240,607 $229,353 $201,258
Deferred state income taxes 19,993 647 7,642
Provision for state income taxes for
the year $260,600 $230,000 $208,900
Deferred income taxes in the statement of financial condition are carried as a
net amount. The deferred tax assets and deferred tax liabilities that are
combined to arrive at the net carrying amounts at December 31, 1998 and 1997
are as follows:
Deferred Tax Assets: 1998 1997
Allowance for loan losses $298,434 $446,310
Unrealized losses on securities available for sale 0 26,406
Loan fees 67,306 52,218
Other 36,525 0
Total asset 402,265 524,934
Deferred Tax Liabilities:
Unrealized gains on securities available for sale (124,692) 0
Depreciation (827,572) (830,066)
Net deferred tax (liability) $(549,999) $(305,132)
Note 12 - Income Taxes (Continued)
The difference between the Federal income tax rate and the Bank's effective tax
rate is as follows:
1998 1997
Income tax at Federal tax rate of 34% $976,474 $889,826
Tax effect of:
Tax exempt interest (116,312) (120,465)
Other 10,642 540
State income taxes, net of Federal effect 171,996 151,699
Total income taxes $1,042,800 $ 921,600
Effective tax rate 36.31% 35.21%
Note 13 - Related Party Transactions
Officers and directors of Kimball International, Inc. of Jasper, Indiana, and
Kimball International, Inc. Retirement Trust own in excess of 50% of the
outstanding capital stock of SVB&T Corporation. The Bank is the principal
depository for Kimball International, Inc. and is also the trustee for the
Kimball International Retirement Trust. Amounts on deposit with the Bank by
Kimball International, Kimball International Retirement Plan and Employee
Benefit Plan were $2,475,521 at December 31, 1998 and $8,894,855 at December
31,1997.
The Bank serves as Trustee for Kimball International's retirement and employee
benefit plans and rents office space to Kimball. Fees paid to the Bank for
these services by Kimball International in 1998, 1997 and 1996 were $547,704,
$658,000 and $578,000. Amounts receivable from Kimball International for these
services were $-0- at December 31, 1998, $-0- at December 31,1997 and $168,950
at December 31, 1996.
In the ordinary course of business, the Bank makes loans to executive officers,
directors, principal shareholders, their related companies and family members.
These loans are made on substantially the same terms as those with unrelated
parties and do not involve unusual risks of collectibility. Total loans to
executive officers, directors and principal shareholders for 1998 were as
follows:
Balance, January 1, 1998 $2,137,559
New loans 235,213
Repayments (116,745)
Changes in persons included 281,276
Balance, December 31, 1998 $2,537,303
Note 14 - Lease Commitments
Minimum lease payments at December 31, 1998, under operating lease commitments,
total $-0-. Operating expenses include rental expense of $600 in 1998, $30,856
in 1997 and $40,366 in 1996.
Note 15 - Commitments and Contingent Liabilities
The Bank is party to financial transactions involving off-balance-sheet risk in
the normal course of business. These financial transactions include
commitments to extend credit and standby letters of credit. These transactions
involve, to varying degrees, elements of credit risk in excess of the amounts
recognized in the statement of condition. The contract amounts of these
transactions reflect the extent of involvement the Corporation has in the
particular financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies when entering into these off-balance-sheet transactions as
it does for on-balance-sheet transactions.
Financial transactions with off-balance-sheet credit risk at December 31, 1998
and 1997 were as follows:
1998 1997
Commitments to extend credit $16,118,386 $ 9,700,719
Standby letters of credit $ 611,300 $ 730,600
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of conditions established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension
of credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Letters of credit
are primarily issued to support private borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
The Bank is subject to claims and lawsuits which arise in the ordinary course
of business. Based on information presently available and advice received from
legal counsel representing the Bank in connection with such claims and
lawsuits, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits will not have a material adverse
effect on the consolidated financial position of the Company.
Notes to Consolidated Financial Statements
Note 16 - Restrictions on Retained Earnings
SVB&T Corporation's principal source of funds for dividends is Springs Valley
Bank & Trust Company, its wholly owned subsidiary. The amount of dividends
that the Bank may pay SVB&T Corporation without regulatory approval is limited
by state law to defined net income for 1998, 1997 and 1996 less any dividends
paid in those years. In addition, Federal regulations require the Bank to
maintain certain capital levels based on risk-weighted assets. At December
31, 1998, approximately $3,697,000 of the Bank's retained earnings were
available for dividend payments to the SVB&T Corporation.
Note 17 - Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possible additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Banks financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Banks assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total Capital and Tier 1 Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 Capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998 and 1997 the Bank has been categorized as well-
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well-capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since the notification that
management believes have changed the institutions category.
The Bank's actual capital amounts and ratios are also presented in the table
below.
Banks Amounts Required for Required to be
As of December 31, 1998: and Ratio Regulatory Purposes Well Capitalized
Tier 1 Capital to Risk-Weighted
Assets $19,065,698 $ 5,191,229 $ 6,489,037
14.7% 4.0% 5% or higher
Total Capital to Risk-Weighted
Assets $20,171,775 $10,382,459 $12,978,074
15.5% 8.0% 10% or higher
Tier 1 Capital to Average
Assets $19,065,698 $ 7,264,712 $ 9,080,890
10.5% 4.0% 5% or higher
As of December 31, 1997:
Tier 1 Capital to Risk-Weighted
Assets $17,776,386 $ 5,042,767 $ 7,564,150
14.1% 4.0% 5% or higher
Total Capital to Risk-Weighted
Assets $19,173,386 $10,085,533 $12,606,917
15.2% 8.0% 10% or higher
Tier 1 Capital to Average
Assets $17,776,386 $ 7,666,424 $ 9,583,030
9.3% 4.0% 5% or higher
Note 18 - Concentrations of Credit
At December 31, 1998 the total amount of due from banks included $1,109,122
with Bank One Kentucky and $181,936 with Dubois County Bank which is in excess
of the Federal Deposit Insurance Corporation's insured limit of $100,000 per
institution.
The majority of investments in state and municipal securities involve
governmental entities in the State of Indiana.
A majority of the Bank's loans, commitments and letters of credit have been
granted to customers in the Bank's market area of Orange, Clark, Dubois and
surrounding counties in Southern Indiana. The concentrations of credit by type
of loan are set forth in Note 5. Although the Bank has a diversified loan
portfolio, a substantial portion of its customers' ability to honor their loan
contracts is dependent on the strength of the manufacturing economic sectors in
this geographic area.
Note 19 - Fair Values of Financial Instruments
Carrying amounts and estimated fair values of financial instruments at December
31, 1998 and 1997 are as follows:
1998 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
ASSETS
Cash and cash equivalents $ 7,134,480 $ 7,134,480 $ 5,467,927 $5,467,927
Investment securities 26,065,619 26,065,619 38,620,722 38,620,722
Loans 142,562,922 144,740,788 139,201,820 140,861,000
Interest receivable 1,195,693 1,195,693 1,319,476 1,319,476
LIABILITIES
Deposits $159,331,492 $160,449,268 $165,871,403 $166,646,000
Short-term borrowings 0 0 4,000,000 4,000,000
Long-term borrowings 1,000,000 967,461 0 0
Interest Payable 712,651 712,651 824,298 824,298
Consolidated Statements Of Financial Condition
Note 19 - Fair Values of Financial Instruments (Continued)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
Cash and Cash Equivalents
The carrying amounts reported in the consolidated statements of financial
condition for cash and federal funds sold is a reasonable estimate of their
fair value.
Investment Securities
Fair values for investment securities are based on quoted market prices.
Loans
For variable rate loans and short-term fixed rate loans that adjust rates
frequently, fair values are based on the carrying value of those loans. For
long-term fixed rate loans, the fair values are estimated by discounting future
cash flows using current interest rates at which similar loans would be made to
borrowers of similar credit quality. For other financial instruments
classified as loans (bankers acceptances, economic development revenue bonds,
and securities purchased under reverse repurchase agreements), fair values are
based on the carrying value of those instruments. Anticipated future loan
losses have been deducted.
Interest Receivable
The carrying amount of accrued interest receivable is a reasonable estimate of
its fair value.
Deposit Liabilities
The carrying values of demand deposit, NOW, savings and money market savings
accounts are equal to the amount payable on demand at the reporting date and as
such are the fair value. For variable rate time deposits (IRA deposits) which
reprice quarterly, fair values are based on the carrying value of the accounts.
The fair value of fixed rate certificates of deposit is estimated by
discounting the future cash flows using the current rates offered for deposits
of similar remaining maturities.
Short-Term Borrowings
The carrying amounts short-term borrowings are reasonable estimates of their
fair values.
Interest Payable
The carrying amount of accrued interest payable is a reasonable estimate of its
fair value.
Long-Term Borrowings
The fair value of fixed rate, long-term borrowings is estimated by discounting
the future cash flows using current rates for borrowings of similar maturities.
Note 20 - Parent Company Only Financial Statements
Presented below are the condensed, parent company only, financial statements of
SVB&T Corporation:
December 31
Condensed Balance Sheet
1998 1997
ASSETS
Cash in bank with subsidiary $ 21,541 $ 93,856
Investment in subsidiary 19,272,405 17,753,928
Buildings and equipment 1,812,395 1,873,910
Other assets 142,000 106,500
Total assets $21,248,341 $19,828,194
LIABILITIES
Accrued Expenses $ 74,999 $ 77,633
Dividends payable 111,945 111,870
Long-term debt with subsidiary 435,839 652,067
Deferred income taxes 292,064 271,163
Total Liabilities 914,847 1,112,733
SHAREHOLDERS' EQUITY
Common stock 200,000 200,000
Surplus 6,124,070 6,094,233
Retained Earnings 14,655,040 13,274,487
Accumulated other comprehensive income 190,107 (40,259)
Treasury stock C (835,723) (813,000)
Total shareholders' equity 20,333,494 18,715,461
Total liabilities and shareholders'
equity $21,248,341 $19,828,194
Consolidated Statements Of Financial Condition
Note 20 - Parent Company Only Financial Statements (Continued)
Long-term debt with subsidiary consisted of:
1998 1997
Mortgage payable to Springs
Valley Bank & Trust Company,
Jasper, Indiana (the wholly owned
subsidiary of SVB&T
Corporation), variable interest rate, 7.75%
at December 31, 1998 payable in monthly
installments through 2000, secured by
branch bank building in Jasper, Indiana $ 435,839 $ 652,067
The scheduled principal reduction of long-term debt at December 31, 1998 is as
follows:
1999 $218,812, 2000 $217,027, and thereafter $-0-.
Years Ended December 31
Condensed Statement of Income
1998 1997 1996
INCOME
Dividends from subsidiary $ 475,700 $ 475,700 $ 380,560
Rent from subsidiary 300,000 300,000 300,000
Total income 775,700 775,700 680,560
EXPENSE
Depreciation 65,584 66,834 100,027
Interest on long-term debt 46,947 61,535 76,143
Other expenses 76,198 58,223 63,580
Total expense 188,729 186,592 239,750
Income before income taxes and
equity in undistributed earnings
of subsidiary 586,971 589,108 440,810
Income tax expense 45,900 46,100 20,800
Income before equity in undistributed
earnings of subsidiary 541,071 543,008 420,010
Equity in undistributed earnings
of subsidiary 1,288,111 1,152,528 1,240,951
Net income $ 1,829,182 $ 1,695,536 $1,660,961
Years Ended December 31
Condensed Statement of Cash Flows 1998 1997 1996
Operating Activities:
Net income $1,829,182 $1,695,536 $1,660,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 65,584 66,834 100,027
Undistributed net income of subsidiary (1,288,111)(1,152,528) (1,240,951)
Deferred income taxes 20,901 20,962 10,718
(Increase) decrease in other assets (35,500) (25,560) (17,040)
Increase (decrease) in accrued expenses
and dividends payable (2,559) 38,189 4,404
Net cash provided by operating activities 589,497 643,433 518,119
Investing Activities:
Additions to buildings and equipment (4,069) 0 0
Net cash used by investing activities (4,069) 0 0
Financing Activities:
Net treasury stock activity 7,114 0 0
Dividends paid (448,629) (402,732) (354,256)
Principal payment on long-term debt (216,228) (169,470) (170,371)
Net cash used by financing activities (657,743) (572,202) (524,627)
Increase (decrease) in cash and cash
equivalents (72,315) 71,231 (6,508)
Cash and cash equivalents beginning of year 93,856 22,625 29,133
Cash and cash equivalents end of year $ 21,541 $ 93,856 $ 22,625
To the Shareholders and Board of Directors
SVB&T Corporation and Subsidiary
French Lick, Indiana
We have audited the accompanying consolidated statements of financial condition
of SVB&T Corporation and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SVB&T
Corporation and Subsidiary at December 31, 1998 and 1997, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
NONTE & COMPANY LLC
Certified Public Accountants
Jasper, Indiana
February 1, 1999
"Upon written request, SVB&T Corporation will provide financial data as
reported on Securities and Exchange Commission Form 10K. Written requests are
to be addressed to David Rees, Sr. Vice President, Cashier and CFO, SVB&T
Corporation, P.O. Box 191, French Lick, IN 47432."
Summarized Financial Data
(Dollars in thousands, except per share)
1998 1997 1996 1995 1994
EARNINGS FOR THE YEAR
Net interest income $ 7,318 $ 6,896 $ 6,553 $5,935 $6,324
Provision for loan loss es 580 400 290 314 410
Non-interest income 1,875 1,759 1,606 1,510 1,596
Non-interest expenses 5,742 5,638 5,558 5,468 5,666
Net income 1,829 1,696 1,661 1,213 1,374
PER SHARE
Shares outstanding 748,006 745,800 745,800 745,800 745,800
Net income 2.45 2.27 2.23 1.63 1.85
Cash dividends paid 0.60 0.54 0.48 0.46 0.44
Book value 27.18 25.09 23.24 21.95 18.82
FINANCIAL CONDITION AT YEAR END
LOANS
Real estate 80,803 79,491 67,859 64,585 67,844
Consumer 46,470 40,859 38,452 35,341 32,279
All other 16,396 20,254 16,548 12,573 6,443
Allowance for loan losses (1,106) (1,403) (1,329) (1,349) (1,322)
Net loans 142,563 139,201 121,530 111,150 105,244
INVESTMENTS AND FUNDS SOLD
U.S. and Agency 15,326 28,395 39,468 43,274 30,480
Municipal 8,999 8,837 9,610 13,635 21,629
Federal funds and other 4,010 1,710 867 9,550 12,656
Total investments and funds sold 28,335 38,942 49,945 66,459 64,765
TOTAL ASSETS 182,741 190,404 184,362 189,877 183,201
DEPOSITS
Demand deposits 30,785 26,032 26,665 26,431 28,503
Certificates and IRAs 68,341 80,573 73,300 99,101 91,770
Savings and club 60,205 59,266 51,630 46,233 47,840
Total deposits 159,331 165,871 151,595 171,765 168,113
SHAREHOLDERS' EQUITY $ 20,333$ 18,716 $ 17,330$ 16,372$ 14,034
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Year Ended December 31,
1998 1997 1996
Primary
Weighted average shares
outstanding $ 745,806 $ 745,800 $ 745,800
Net Income 1,829,182 1,695,536 1,660,961
Net income per common share $ 2.45 $ 2.27 $ 2.23
SVB&T Corporation has no common stock equivalents
Exhibit 21 - Subsidiaries of the Registrant
State of
Subsidiary Incorporation
Springs Valley Bank & Trust Company Indiana
Exhibit 23 - Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SVB&T Corporation of our report dated February 1, 1999, included in the
1998 Annual Report to Shareholders of SVB&T Corporation.
NONTE & COMPANY LLC
Certified Public Accountant
Jasper, Indiana
March 26, 1999
LOOKING TO THE FUTURE . . .
Electronic Banking...
Advances in bank technology and a growing customer demand for more electronic
banking has spawned a growing list of products and services that we must
provide in order to remain competitive. It includes the 1997 creation of our
Internet Web site and plans for the introduction of our new VISA CHECK CARD in
1999. These will be followed at some future date by telephone banking and, even
later, Internet home banking.
The Springs Valley Bank & Trust Company VISA CHECK CARD looks like a credit
card but works like a check. It can be used as an ATM card at any ATM
displaying the MONEY-STATION, JEANIE, PLUS and VISA logos. When used to make
purchases, the funds are automatically deducted from the users checking account
balance. It's accepted wherever the VISA symbol is displayed.
Year 2000 Readiness Disclosure...
Many computers and programs were not designed to handle dates beyond 1999. And
since so many elements of our lives depend on computers, this could be a
potential problem for anyone who does not adequately prepare for the date
change.
We have been working on the Year 2000 issue for quite sometime now. We have a
committee made up of personnel from all areas of the bank that is focused on
preparing Springs Valley Bank & Trust for the Year 2000. All of our computers
and programs are being evaluated and tested for Year 2000 readiness.
Experts rank the financial services industry Number One in Year 2000 Readiness.
Our banks federal and state regulators are also monitoring our progress. So
far, we have met all of the guidelines and deadlines set by those regulators.
Springs Valley Bank will continue to face the Year 2000 computer challenges
head-on to ensure "business as usual" as we approach the new millennium. We
look forward to providing you with Personal Service well into the next century.
As always, our customers deposits are protected by FDIC Insurance up to
$100,000.