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, three 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, property and casualty insurance, and health insurance; and owning a interest in a Reinsurance Company For credit insurance products
(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 111 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 4% of the certificates of deposit and money market deposits of the Bank. In addition, the Bank has loans outstanding with individuals who are employees of Kimball representing in excess of 14% of the Bank's total loans. Accordingly, the cash flow of Kimball can have a significant impact on the deposit and loan functions and earnings of the Bank.
At December 31, 2000, the company had total assets of $247 million, total deposits of $186 million, and total equity capital of $22 million.
SUPERVISION AND REGULATION
Both the Company and the Bank operate in highly regulated environments and are subject to supervision and regulation by several governmental regulatory agencies, including the Federal Reserve Board, the FDIC, and the Indiana Department of Financial Institutions. The laws and regulations established by these agencies are generally intended to protect depositors, not shareholders. Changes in applicable laws, regulations, governmental policies, income tax laws and accounting principles may have a material effect on our business and prospects. The following summary is qualified by reference to the statutory and regulatory provisions discussed.
SVB&T Corporation
The Bank Holding Company Act. Because the Company owns all of the outstanding capital stock of the Bank, it is registered as a bank holding company under the federal Bank Holding Company Act of 1956 and is subject to periodic examination by the Federal Reserve and required to file periodic reports of its operations and any additional information that the Federal Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before acquiring another bank holding company or acquiring more than 5% of the voting shares of a bank (unless it already owns or controls the majority of such shares).
Bank holding companies are prohibited, with certain limited exceptions, from engaging in activities other than those of banking or of managing or controlling banks. They are also prohibited from acquiring or retaining direct or indirect ownership or control of voting shares or assets of any company which is not a bank or bank holding company, other than subsidiary companies furnishing services to or performing services for their subsidiaries, and other subsidiaries engaged in activities which the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be incidental to these operations. The Bank Holding Company Act does not place territorial restrictions on the activities of such nonbanking- related activities.
The Company does not currently plan to engage in any activity other than owning the stock of the Bank.
Dividends. The Federal Reserve's policy is that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weakened the bank holding company=s financial health, such as by borrowing. Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
Source of Strength. In accordance with Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances in which the Company might not otherwise do so.
Springs Valley Bank & Trust Company
General Regulatory Supervision. The Bank is an Indiana-chartered banking corporation subject to examination by the Indiana Department of Financial Institutions. The Indiana Department of Financial Institutions and the FDIC regulate or monitor virtually all areas of the Bank=s operations. The Bank must undergo regular on site examinations by the FDIC and DFI and must submit annual reports to the FDIC and the DFI.
Lending Limits. Under Indiana law, the total loans and extensions of credit by an Indiana-chartered bank to a borrower outstanding at one time and not fully secured may not exceed 15% of the bank's capital and unimpaired surplus.
Deposit Insurance. Deposits in the Bank are insured by the FDIC up to a maximum amount, which is generally $100,000 per depositor subject to aggregation rules. The Bank is subject to deposit insurance assessment by the FDIC pursuant to its regulations establishing a risk-related deposit insurance assessment system, based upon the institution=s capital levels and risk profile. The Bank is also subject to assessment for the Financial Corporation (FICO) to service the interest on its bond obligations. The amount assessed on individual institutions, including the Bank, by FICO is in addition to the amount paid for deposit insurance according to the risk-related assessment rate schedule. Increases in deposit insurance premiums or changes in risk classification will increase the Bank's cost of funds, and we may not be able to pass these costs on to our customers.
Transactions with Affiliates and Insiders. The Bank is subject to limitations on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements. Compliance is also required with certain provisions designed to avoid the taking of low quality assets. The Bank is also prohibited from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.
Extensions of credit by the Bank to its executive officers, directors, certain principal shareholders, and their related interests must:
be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties; and
not involve more than the normal risk of repayment or present other unfavorable features.
Dividends. Under Indiana law, the Bank may pay dividends from its undivided profits in an amount declared by its board of directors, subject to prior approval of the Indiana Department of Financial Institutions if the proposed dividend, when added to all prior dividends declared during the current calendar year, would be greater than the current year's "net profits" and retained "net profits" for the previous two calendar years. Federal law generally prohibits the Bank from paying a dividend to its holding company if the depository institution would thereafter be undercapitalized. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice.
Branching and Acquisitions. Branching by the Bank requires the prior approval of the FDIC and the DFI. Under current law, Indiana chartered banks may establish branches throughout the state and in other states. Congress authorized interstate branching, with certain limitations, beginning in 1997. Indiana law authorizes an Indiana bank 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.
Community Reinvestment Act. The Community Reinvestment Act requires that the FDIC evaluate the record of the Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could result in the imposition of additional requirements and limitations on the Bank.
Capital Regulations. The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and account for off-balance sheet items. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk weighted categories of 0%, 20%, 50%, or 100%, with higher levels of capital being required for the categories perceived as representing greater risk. The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios in excess of the minimums. Neither the Company nor the Bank has received any notice indicating that either is subject to higher capital requirements.
The federal bank regulatory authorities have also implemented a leverage ratio to supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base.
The following are the Company's regulatory capital ratios as of December 31, 2000:
Tier 1 Capital: 12.40% Total Capital: 13.30% Leverage Ratio: 9.70%
The following are the Bank's regulatory capital ratios as of December 31, 2000:
Tier 1 Capital: 11.60% Total Capital: 12.52% Leverage Ratio: 9.10%
The Bank is also subject to the FDIC's "prompt corrective action" regulations, which implement a capital-based regulatory scheme designed to promote early intervention for troubled banks. This framework contains five categories of compliance with regulatory capital requirements, including "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." As of December 31, 2000, the Bank was qualified as "well capitalized." It should be noted that a bank's capital category is determined solely for the purpose of applying the FDIC's "prompt corrective action" regulations and that the capital category may not constitute an accurate representation of the bank's overall financial condition or prospects. The degree of regulatory scrutiny of a financial institution increases, and the permissible activities of the institution decreases, as it moves downward through the capital categories. Bank holding companies controlling financial institutions can be required to boost the institutions' capital and to partially guarantee the institutions' performance.
Other Regulations. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank's loan operations are also subject to federal laws applicable to credit transactions, such as the:
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and
rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The deposit operations of the Bank also are subject to the:
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and
Electronic Funds Transfer Act, and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit accounts and customers= rights and liabilities arising from the use of automated teller machines and other electronic banking service.
Enforcement Powers. Federal regulatory agencies may assess civil and criminal penalties against depository institutions and certain "institution-affiliated parties," including management, employees, and agents of a financial institution, as well as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution=s affairs. In addition, regulators may commence enforcement actions against institutions and institution-affiliated parties. Possible enforcement actions include the termination of deposit insurance. Furthermore, regulators may issue cease-and-desist orders to, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the regulator to be appropriate.
Recent Legislative Developments. On November 12, 1999, the President of the United States signed into law the Financial Services Modernization Act of 1999, which for the first time allow banks, securities firms and insurance companies to affiliate in a new financial holding company structure. Neither the Company nor the Bank can predict what impact the Financial Services Modernization Act will have on financial institutions. One consequence may be increased competition from large financial services companies that, under this new law, will be permitted to provide many types of financial services to customers.
Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Bank's monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.
Item 2.
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; and a leased office at 241 US 231 South in Jasper, as well as eleven automated teller machines, six 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.
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.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5.
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 1998 and 1999. Other trades may have occurred at prices of which the Company was not aware.
Year Quarter High/Per Share Low/Per Share 2000 1 $40 $38 2 $40 $38 3 N/A N/A 4 $40 $39
1999 1 $38 $35 2 $35 $35 3 $35 $35 4 $38 $38
The company has 328 shareholders on record as of March 10, 2000.
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 1999 $.15 $.18 $.18 $.18 2000 $.18 $.18 $.18 $.18
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, 2000 approximately $3,129,000 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.
Item 6. Selected Financial Data (dollars in thousands except per share data) Summary of Operations 2000 1999 1998 1997 1996
Interest and Fees on Loans $ 16,933 $ 13,341 $ 12,480 $ 11,599 $ 10,317 Interest on Investments 1,778 1,666 2,055 2,929 3,767 Total Interest Income 18,711 15,007 14,535 14,528 14,084 Interest on Deposits 8,135 6,781 7,161 7,475 7,468 Interest on Short-term Borrowing 148 8 43 157 63 Interest on Long-term Debt 1,766 540 12 0 0 Total Interest Expense 10,049 7,329 7,216 7,632 7,531 Net Interest Income 8,662 7,678 7,319 6,896 6,553 Provision for Loan Losses 300 850 580 400 290 Net Interest Income after Provision for Loan Loss 8,362 6,828 6,739 6,496 6,263 Service Charges on Deposit Accounts 534 533 615 505 365 Other Income 1,209 1,172 1,260 1,254 1,241 Total Other Income 1,743 1,705 1,875 1,759 1,606 Salaries and Benefits 3,870 3,614 3,381 3,295 3,236 Other Expenses 3,108 2,811 2,361 2,343 2,322 Total Other Expenses 6,978 6,452 5,742 5,638 5,558 Income Before Income Tax 3,127 2,108 2,872 2,617 2,311 Income Tax Expense 1,088 703 1,043 922 650 Net Income 2,039 1,405 1,829 1,695 1,661
Year-end Balances Total Assets 247,759 217,394 182,741 190,404 184,362 Total Loans, Net 203,001 173,492 142,563 139,202 121,530 Total Long-term Debt 31,100 9,100 1,000 0 0 Total Deposits 186,360 181,276 159,331 165,871 151,595
Total Shareholders' Equity 22,469 20,369 20,333 18,715 17,330 Per Share Data Net Income 2.74 1.88 2.45 2.27 2.23 Cash Dividends .72 .69 .60 .54 .48
Shareholders' Equity, End of Year 30.16 27.30 27.18 25.09 23.24
Other Data at Year-end Number of Employees 111 106 104 107 115 Weighted Average Number of Shares 745,017 745,994 745,806 745,800 745,800
Return on Assets .86% .70% .98% .90% .87% Return on Shareholders' Equity 10.01% 6.90% 9.66% 10.43% 9.86%
Item 7.
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)
2000 1999 1998 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 69 3 4.35% 67 3 4.48% 82 4 4.88% Federal funds sold 1,309 73 5.58% 3,323 167 5.03% 3,285 181 5.51% Investment securities: U.S. Treasury and Gov't Agencies & mortgage backed 14,828 927 6.25% 14,748 885 6.00% 22,772 1,371 6.02% States and political subdivisions 11,321 849 7.50% 9,887 723 7.31% 8,422 634 7.53% Other securities 2,445 194 7.93% 1,774 115 6.48% 1,076 74 6.88% TOTAL INVESTMENT SECURITIES 28,594 1,970 6.89% 26,409 1,723 6.52% 32,270 2,079 6.44% Loans: (1) (2) Commercial 53,966 5,004 9.27% 39,196 3,451 8.80% 33,295 3,068 9.21% Installment, net of unearned income 48,437 4,612 9.52% 44,519 4,090 9.19% 46,602 4,292 9.21% Real Estate 87,707 7,182 8.19% 74,459 5,662 7.60% 60,094 5,000 8.32% Credit Card and Other 1,059 13512.75% 1,033 13813.36% 837 11613.86% TOTAL LOANS 191,169 16,933 8.86%159,207 13,341 8.38%140,828 12,476 8.86% TOTAL EARNING ASSETS 221,141 18,979 8.58%189,006 15,234 8.06%176,465 14,740 8.35% Less: Allowance for Losses (1,671) (1,394) (1,254) Non-Earning Assets: Cash and due from banks 4,806 4,904 4,867 Other Assets 7,470 7,055 7,183 TOTAL ASSETS 231,746 199,571 187,261
LIABILITIES & SHAREHOLDERS EQUITY Interest-bearing liabilities Savings and daily interest checking 40,167 959 2.38% 43,248 1,029 2.38% 43,159 1,192 2.76% Money market accounts 37,194 2,078 4.42% 32,266 1,426 4.42% 30,482 1,468 4.82% Certificates of deposit $100,000 and over 31,498 1,859 5.46% 26,864 1,467 5.46% 22,120 1,222 5.52% Other time deposits55,621 3,239 5.39% 53,019 2,859 5.39% 57,502 3,279 5.70% TOTAL INTEREST- BEARING DEPOSITS 164,480 8,135 4.36%155,397 6,781 4.36%153,263 7,161 4.67% Borrowing 30,815 1,914 5.66% 9,690 548 5.66% 1,017 55 5.41% TOTAL INTEREST-BEARING LIABILITIES 195,29510,049 4.44%165,087 7,329 4.44%154,280 7,216 4.68% Non-interest bearing liabilities: Demand deposits 13,362 12,594 12,099 Other liabilities 1,670 1,540 1,946 Shareholder's equity 21,419 20,350 18,936 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 231,746 199,571 187,261 INTEREST MARGIN RECAP: Interest income/ earning assets 18,979 8.58% 15,234 8.06% 14,740 8.35% Interest expense/ earning assets 10,049 4.54% 7,329 3.88% 7,216 4.09% New yield on interest earning assets 8,930 4.04% 7,905 4.18% 7,524 4.26%
(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, three 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 2000 was $2,039,000.
The table below is a comparison of the net income for the years 1998 thru 2000. 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 2000 $2,039,000 $ 635,000 45.23% 1999 1,404,000 (425,000) (23.24%) 1998 1,829,000 134,000 7.88%
SVB&T Corporation's net income has increased during the last year. The main contributing factors to this increase is an increase in Loan and Loan fees income, and a decrease in provision loan loss expense.
Total net income before tax for 2000 increased $1,019,675 which results in a 48.38% increase.
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 2000, tax equivalent net interest income of $8,930,000 increased by $1,025,000, which resulted in a 12.97% increase. The net interest income from 1999 was $7,905,000 which was a $381,000 over the 1998 net interest income of 7,524,000.
CHANGES IN NET INTEREST INCOME (Table 1) (Tax equivalent basis, dollars in thousands) Change from Prior Year 2000 1999 1998 2000 1999 Interest income on: Loans 16,933 13,341 12,476 26.92% 6.93% Investment securities 1,970 1,723 2,079 14.34% -17.12% Federal funds sold 73 167 181 -56.29% -7.73% Due from FHLB 3 3 4 0.00% -25.00% Total interest income 18,979 15,234 14,740 24.58% -3.35%
Interest expense on: Savings and daily interest checking 959 1,029 1,192 -6.80% -13.67% Money market deposits 2,078 1,426 1,468 45.72% -2.86% Certificates of deposit of $100,000 & over 1,859 1,467 1,222 26.72% 20.05% Other time deposits 3,239 2,859 3,279 13.29% -12.81% All other borrowing 1,914 548 55 249.27% 896.36% Total interest expense 10,049 7,329 7,216 37.11% 1.57% Net interest income 8,930 7,905 7,524 12.97% 5.06% Net interest margin 4.04% 4.18% 4.26%
RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME (Table 2) (Taxable equivalent basis, dollars in thousands) 1999 vs 1998 1998 vs 1997 Dollar Attributed to Dollar Attributed to Change Volume Rate Change Volume Rate Interest income on: Loans 3,592 2,755 837 865 1,584 (719) Investment securities 247 147 100 (356) (380) 24 Federal funds sold (94) (107) 13 (14) 2 (16) Due from FHLB 0 0 (0) (1) (1) (0) Total interest income 3,745 2,795 950 494 1,205 (711) Interest expense on: Savings and daily interest checking (70) (73) 3 (163) 2 (165) Money market deposits 652 247 405 (42) 82 (124) Certificates of deposit of $100,000 and over 392 263 129 245 261 (16) Other time deposits 380 146 234 (420) (249) (171) All other borrowing 1,366 1,253 113 493 480 13 Total interest expense 2,720 1,836 884 113 576 (463) Net interest income 1,025 959 66 381 629 (248)
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 $300,000 in 2000; $850,000 in 1999; and $580,000 in 1998. As of December 31, 2000, the provision was .82% of loans outstanding. The allowance for loan losses increased $43,800 during 2000. Management's analysis indicates the current allowance is adequate to fund anticipated future needs.
Other Income
Total other income for 2000 was $1,742,788, which is a 2.21% increase from 1999's total other income of $1,705,123.00.
The primary source of other income is Trust Income. Trust Income for 2000 was $760,159, which is a $34,736 increase over 1999.
Service Charges, Insurance Income, Other Operating Income, and Realized Gains/Losses make up the remainder of Total Other Income category. As a total these accounts resulted in $982,629 of income for 2000. This is a .30% increase over 1999's total other income of 979,700.
Other Expenses
Total other expenses for 2000 were $6,977,488. This is an 8.59% increase over the 1999 total of $6,425,547.
Salaries and Employee Benefits are the two largest expense categories. Salaries and employee benefits were $3,869,000 for 2000. This is a 7.08% increase over 1999's expense. The number of employees has remained consistent over the past several years. Increase in salaries and employee benefits expenses represent normal pay increases for the bank's employees.
Hospitalization and Disability expense decreased by 22.33% for 2000. The bank is self-insured in regard to hospitalization insurance. Expense level depends on claims filed.
Computer and Operating Supplies expenses both show an increase for 2000. Computer expense increased by 40.30% and operating supplies increased by 31.12%. During 2000 upgrades were made to both the computer and communication equipment areas. The bank went to statement imaging for our customers, and is readying our communication equipment in preparations to make internet banking available to our customers. The results of both these upgrades will be more efficient and improved customer service and employee productivity. Along with these upgrades came the need for the purchasing of several new and different supplies such as the binders that were given to each customer for their convenient recordkeeping of their new statements, and the special paper required for imaging. This resulted in a significant increase in operating supplies.
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 contains additional information about SVB&T Corporation's income taxes.
Income tax expense for 2000 was $1,088,000 compared to $703,000 in 1999 and $1,042,800 in 1998. The effective tax rate was 34.80% in 2000, 33.46% in 1999, and 36.81% in 1998. The effective rate increased in 2000 compared to 1999 due to increased net interest income and decreased allowance for loan losses. In 1999 compared to 1998, the effective rate was down due to increased overhead expenses.
Financial Condition
As of December 31, 2000 total assets increased to $247,227,000, a 13.72% increase from December 31, 1999 total of $217,394,000. Average total assets in 2000 of $231,746,000 were $32,175,000 greater than the 1999 average of $199,571,000.
Total deposits increased to $186,360,000 at December 31, 2000 from $181,276,000 at December 31, 1999 an increase of $5,084,000 or 2.80%.
Net loans at year-end 2000 were $203,001,000 up $29,509,000 or 17.01% above the 1999 year-end total of $159,207,000. Average loans outstanding of $191,169,000 in 2000 increased by $31,962,000 or 20.08% over the 1999 average loans outstanding of $159,207,000. Loan growth was funded primarily by Federal Home Loan Bank Advances and the increase in deposits.
Total investment securities available for sale at year-end 2000 were $28,592,000 and at year-end 1999 were $24,898,000. 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, 2000, money market investments were $0 a decrease of $5,275,000 over December 31, 1999 balance of $5,275,000.
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 2000, average investment securities increased by $3,694,000 or 14.84% as compared to the $24,898,000 for 1999. This increase came from money market instruments.
The following table presents an analysis of the investment securities portfolio for 2000, 1999 and 1998.
Investment Securities Available for Sale (Dollars in thousands) December 31 Investment securities available for sale: 2000 1999 1998 U.S. Treasury 0 0 0 U.S. Government agencies and corp. 15,052 14,087 15,208 Mortgage-backed pass-through securities 73 125 203 Collateralized mortgage obligations: Agency 0 0 0 Corporate 0 0 0 State and Political subdivisions 12,619 10,705 8,803 Other Securities 873 882 1,537 Net unrealized gain (loss) (25) (901) 315 Total Carrying Value 28,592 24,898 26,066
Maturities and Average Yields of Investment Securities Available for Sale at December 31, 1999
2000 1999 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Securities Available for Sale Due in 1 yr or less 2,489,936 2,465,658 2,879,693 2,837,746 Due after 1 yr but with in 5 yrs 13,383,583 13,330,572 12,680,155 12,317,083 Due after 5 yrs but within 10 yrs 8,640,040 8,659,174 7,431,806 7,143,173 Due after 10 yrs 4,030,085 4,061,211 2,683,163 2,468,392 Total Securities 28,543,644 28,516,615 25,674,817 24,766,394 Mortgage backed securities 72,644 75,114 124,837 131,827 Total 28,616,288 28,591,729 25,799,654 24,898,221
Loans
Loans outstanding at December 31, 2000 were $204,796,345. This is an increase of $29,536,006 or 16.9% over December 31, 1999.
Real Estate loans continue to be the largest component of the loan portfolio at $103,100,274. This an increase of $4,248,857 or 4.3%.
Individual loans for household and other personal purposes was the next largest loan category at $41,318,635. This is a decrease of $4,975,905 or 10.7% from December 31, 1999. The bank continues to experience severe competitive pressures in the retail loan sector. The bank does not desire to make loans that are not profitable or do not meet its underwriting standards.
Commercial and industrial loans were $40,867,419 at December 31, 2000. This is an $18,922,314 increase over December 31, 1999. This increase and the $10,683,745 increase in construction loans are due primarily to loan participation activity.
The bank uses loan participations with other banks and brokers to supplement loan volume when local demand does not provide sufficient volume. On December 31, 2000 the bank had $53,713,390 in purchased loans. That represents a 39.0% increase from December 31, 1999. The bank carefully monitors each participation and reviews concentrations either by geographic area or industry segment.
Agricultural lending and leasing activities continue to be minor parts of the portfolio. The bank does not anticipate any significant growth in either of these areas.
Following is a schedule showing the breakdown of loans by type of loan and the maturity schedule of the loan portfolio. Loan Portfolio 2000 1999 1998 1997 1996 Percent Percent Percent Percent Percent Amt of Total Amt of Total Amt of Total Amt of Total Amt of Total Commercial, financial & agricultural 42,618 20.81 23,261 10.20 18,722 13.3 16,228 13.2 Real estate - construction 17,174 8.39 6,490 3.70 1,687 1.20 1,322 0.9 64 0.1 Real estate - mortgage 103,100 50.34 98,851 56.4 80,803 56.7 79,491 56.4 67,859 55.1 Consumer installment 41,319 20.18 46,295 26.42 46,470 32.6 40,859 29.0 38,452 31.2 Banker Acceptances 0 0 0 0 0 0 0 0 0 0 Economic dev. rev. bonds 0 0 0 0 0 0 0 0 24 0 Repurchase Agreement 0 0 0 0 0 0 0 0 0 0 Lease Financing 585 .29 363 .21 336 .24 437 .31 538 .4 TOTAL 204,796 100 175,260 100143,873 100140,831 100 123,165 100 Less: Unearned income 124 141 204 227 305 Allowance for loan losses 1,671 1,627 1,106 1,402 1,329 Total loans 203,001 173,492 142,563 139,202 121,531
Selected Loan Maturity and Interest Rate Sensitivity December 31, 1999 (dollars in thousands)
MATURITY Rate Structure For Loans Maturing
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 10,700 26,683 5,235 42,618 11,718 30,900 Real Estate Construction 6,334 10,593 247 17,174 2,290 14,884 TOTALS 17,034 37,276 5,482 59,792 13,008 46,784
Capital Resources
Stockholders' equity at December 31, 2000 increased to $22,469,000 from December 31, 1999 equity of $20,369,000. The increase of $2,100,000 was a result of earnings increasing and the unrealized loss on securities decreasing considerably. 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 2000, the average deposits of $177,842,000 funded 80% of the average earning assets. Average total deposits for 2000 increased by $9,851,000, or 5.86% as compared to 1999 average deposit totals.
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, 2000 (dollars in thousands) Certificates of Deposit Over $100,000 Three months or less 12,249 Over three months through one year 11,651 Over one year through three years 4,636 Over three years 635 TOTAL 29,171
Risk Management
Lending and Loan Administration
Loan administration for the Bank is the responsibility of the President and the senior officers 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) 2000 1999 1998 1997 1996 Balance as of January 1 1,627 1,106 1,403 1,330 1,349 Provision for Loan Losses 300 850 580 400 290 Recoveries of Prior Loan Losses 321 114 182 106 77 Loan Losses charged to the Allowance (577) (443) 1,059) (433) (386) Balance as of December 31 1,671 1,627 1,106 1,403 1,330
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) 2000 1999 1998 1997 1996 Total Loans on non-accrual (non-performing loans) 2,002 1,406 857 1,832 1,338 Other Real Estate 133 44 53 0 53 Total non-performing assets 2,135 1,450 910 1,832 1,391 Total non-performing loans as a percentage of loans 1.04% .81% .60% 1.30% 1.09% Total non-performing assets as a percentage of loans and ORE 1.04% .81% .63% 1.30% 1.13%
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.
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, 1999.
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 0 0 0 0 0 0 Interest bearing deposits in banks 0 0 0 0 0 0 Investment securities 157 0 157 6,723 21,555 28,592 Loans 59,180 20,713 38,445 38,293 46,370 203,001 Total Interest Earning Assets 59,337 20,713 38,602 45,016 67,925 231,593
Interest Bearing Liabilities
Interest bearing NOW, savings, and money market deposits 55,608 7,918 4,813 3,659 0 71,998 Time deposits under $100,000 10,749 10,515 31,860 6,662 0 59,786 Time deposits over $100,000 12,249 4,230 7,421 5,271 0 29,171 Borrowed funds 17,265 5,000 0 7,500 4,100 33,865 Total Interest Bearing Liabilities 95,871 27,663 44,094 23,092 4,100 194,820
Interest Sensitivity Gap Current (36,534) (6,950) (5,492) 21,924 63,825 Interest Sensitivity Gap Cumulative (36,534) (43,484) (48,976) (27,052) 36,773 Sensitivity Ratio Cumulative 62% 65% 71% 86% 119%
Quarterly Results of Operations March 31 June 30 Sept 30 Dec 31
Interest income 3,407 3,646 3,943 4,011 Interest expense 1,605 1,747 1,947 2,030 Net interest income 1,802 1,899 1,996 1,981 Provision for loan losses 135 565 75 75 Net securities gains 0 (3) 0 0 Non-interest income 383 389 425 508 Non-interest expense 1,458 1,724 1,641 1,603 Income before income taxes 592 (1) 705 811 Income taxes 195 (43) 235 316 Net income 397 42 470 495 Net income per share: Primary net income per share .53 .06 .63 .66
Interest income 4,336 4,522 4,784 5,069 Interest expense 2,174 2,398 2,670 2,807 Net interest income 2,162 2,124 2,114 2,262 Provision for loan losses 75 75 75 75 Net securities gains 0 0 0 0 Non-interest income 381 412 407 543 Non-interest expense 1,709 1,598 1,744 1,927 Income before income taxes 759 863 702 803 Income taxes 284 265 224 315 Net income 475 598 478 488 Net income per share: Primary net income per share .64 .80 .64 .66
Item 8.
Item 8. Financial Statements and Supplementary Data
The Registrant's Annual Report to Shareholders for the year ended December 31, 1999 are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10.
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 Gary R. Critser, Brian K. Habig, Hilbert Lindsey, Ronald G. Seals, Ronald J. Thyen and James C. Tucker, who became Directors of the Corporation in the years indicated below.
Shares beneficially Owned Name, Present Principal (Percentage of Outstanding Foot Occupation and Age Year Common Shares) Note Elected
Gary P. Critser 1999 959 Retired Kimball International, Inc. (.13%)
Brian K. Habig 1987 7,913 1 Proposal Center Manager (1.06%) Kimball Electronics Group Kimball International, Inc.
Douglas A. Habig 1973 99,955 2 Chairman of the Board & CEO (13.42%) Kimball International, Inc.
John B. Habig 1959 90,267 3 Chairman of the Board (12.12%) Springs Valley Bank & Trust Company
Thomas L. Habig 1959 82,534 4 Vice Chairman of the Board (11.08%) Kimball International, Inc. Secretary, SVB&T Corporation
Hilbert Lindsey 1988 3,959 Vice President (.53%) Lindsey Lumber & Builders Supply, Inc.
Ronald G. Seals 1989 546 5 President & CEO (.07%) Springs Valley Bank & Trust Company
Ronald J. Sermersheim 1976 20,768 6 Vice President, Environment, (2.79%) Health & Safety Kimball International, Inc.
Ronald J. Thyen 1999 11,023 7 Senior Executive Vice President (1.48%) Operations Officer, Furniture & Cabinets Kimball International, Inc.
James C. Tucker 1989 15,147 8 Attorney-at-Law (2.03%) Tucker & Tucker, P.C.
1 The above amount includes 526 shares held by Kimberly A. Habig, the wife of Mr. Brian K. Habig and 2,601 shares held by Kyle Thomas Habig, the son of Mr. Brian K. Habig.
2 The above amount includes 66,356 shares held in the Revocable Trust Account of Arnold F. Habig, over which Mr. Douglas A. Habig has shared voting authority with Mr. John B. Habig and Mr. Thomas L. Habig. Also includes 14,056 share held by the Kimball Habig Foundation, over which Mr. Douglas A. Habig exercises voting authority. The above amount includes 2,008 shares held by Nancy L. Habig, the wife of Mr. Douglas A. Habig.
3 The above amount includes 66,356 shares held in the Revocable Trust Account of Arnold F. Habig, over which Mr. John B. Habig has shared voting authority with Mr. Douglas A. Habig and Mr. Thomas L. Habig. The above amount includes 3,124 shares held by Carma Jane Habig, the wife of Mr. John B. Habig, 1,080 shares held by Baden-Baden for John B. Habig FBO Hannah Zunk and 888 shares held by Baden-Baden for John B. Habig FBO Andrew Zunk, who are the grandchildren of Mr. John B. Habig.
4 Mr. Thomas L. Habig is Secretary for SVB&T Corporation as well as Springs Valley Bank & Trust Company. The above amount includes 66,356 shares held in the Revocable Trust Account of Arnold F. Habig, over which Mr. Thomas L. Habig has shared voting authority with Mr. Douglas A. Habig and Mr. John B. Habig. The above amount includes 2,088 shares held in the Roberta Habig Revocable Trust, the wife of Mr. Thomas L. Habig and 14,090 shares held in the Thomas L. Habig Revocable Trust.
5 Mr. Ronald G. Seals is President and CEO for Springs Valley Bank & Trust Company as well as SVB&T Corporation. The above amount includes 200 shares held jointly by Mr. Ronald G. Seals and his wife, Nancy E. Seals.
6 Mr. Ronald J. Sermersheim serves as Vice President for SVB&T Corporation.
7 The above shares include 8,864 shares held in the Herbert E. Thyen Revocable Trust, over which Mr. Ronald J. Thyen has shared voting authority with other Trustees, including Springs Valley Bank & Trust Company.
8 The above shares include 14,176 shares held by the James M. Tucker Trust, of which Mr. James C. 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) regular meetings, and the Board of Directors of the Bank held six (6) regular meetings and one (1) special meeting during 2000. 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 & Compliance Committee, Trust Committee, Executive Compensation Committee, Nomination Committee, Executive Loan Committee and the Retirement Profit Sharing Trust Advisory 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. Ronald J. Sermersheim (Chairman), Brian K. Habig and James C. Tucker. The Audit Committee met six (6) times in 2000.
The Bank has an Executive Compensation Committee 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. James C. Tucker (Chairman), Randall Catt, Ronald J. Sermersheim and Gary P. Critser. The of the Nomination Committee include Messrs. Thomas L. Habig (Chairman), John B. Habig and Ronald J. Thyen. The Nomination Committee met one (1) time in 2000.
Director Compensation
Directors of the Bank receive compensation of $1,700 per meeting attended. In addition, directors holding committee positions are compensated $200 per meeting attended, if such committee meeting does not take place on a board meeting date. No separate fees are paid for services as a director of the Corporation.
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 elected to be received in stock by the fair market value of a share of the Common Stock of the Corporation as of the last day of such calendar year. The Corporation has reserved 16,000 shares for issuance under this Plan. Two thousand, seventy two (2,072) shares were issued for year 2000 in the following amounts to the following Directors for fees which would have otherwise been paid.
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 an 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 of a share of common stock on the last day of the calendar year preceding the date on which the options are granted. 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 granted options for, one thousand thirty five (1,035) shares for 2000 in the following amounts to the following Directors:
DIRECTOR 1999 1999 STOCK OPTIONS ISSUED GRANTED Gary P. Critser 254 127 Brian K. Habig 258 129 Douglas A. Habig 0 0 John B. Habig 262 131 Thomas L. Habig 127 63 Hilbert Lindsey 262 131 Ronald G. Seals 131 65 Ronald J. Sermersheim 254 127 Ronald J. Thyen 262 131 James C. Tucker 262 131 TOTALS: 2,072 1,035
Item 11.
Item 11. Executive Compensation
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. Set forth below is a report submitted by Messrs. Randall Catt, Gary P. Critser, Ronald J. Sermersheim and James C. Tucker (Chairman) in their capacity as the Board s Executive Compensation Committee addressing the Bank s compensation policies for 2000 as they affected all executive officers of the Bank and Mr. Ronald G. Seals and Mr. R. Michael Ahern who, for 2000, were the Bank s most highly paid executives 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 $200 million to $500 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 2000 was based upon the banks Return on Assets (ROA) and the officers base salary. The Incentive Bonus Plan provided cash bonuses for Executive Officers equal to twenty-five percent (25%) of their base pay.
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 2000.
Mr. Ronald G. Seals' 2000 Compensation
Regulations of the Securities and Exchange Commission require that the Compensation Committee disclose the Committee's basis for compensation reported for the CEO. Mr. Ronald G. Seals' salary and bonus in 2000 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. Ronald G. 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, 2000, 1999, and 1998 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, 2000.
Name and Principal Position Year Annual Compensation Salary(1) Bonus (2) Ronald G. Seals President, CEO and Director 2000 $132,000 $33,000 1999 $126,000 $13,300 1998 $121,000 $42,250 (3)
R. Michael Ahern 2000 $82,000 $20,500
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."
3 Includes $5,950 from 1997 bonus which was paid in 1998.
Potential Realizable Value at Assumed Annual Rates of Stock Appreciation For Option Term
Name Expiration 0% 5% 10% Date ($) (%) (%)
Ronald G. Seals 1-18-10 $0.00 $37,740 $95,635
R. Michael Ahern 1-18-10 $0.00 $17,612 $44,625
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 (1) expire when the underlying option expires, and (2) 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. Ronald G. Seals and Mr. R. Michael Ahern in 2000. 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 1,500 44% $38.00 $38.00
R. Michael Ahern 700 21% $38.00 $38.00
Fiscal Year-End Option Values Table
The following table shows the shares covered by the exercisable and non- exercisable stock options by Mr. Ronald G. Seals and Mr. R. Michael Ahern as of December 31, 2000. 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, 2000. For purposes of the following table, the year-end price of the stock was assumed to be $40.00. Because there is not an established trading market for the Common Stock, the assumed price of $40.00 may not reflect the actual price which would be paid for shares of the Common Stock in an active or established trading market and should not necessarily be relied upon when determining the value of a shareholder's investment.
Name Number of Shares Value of Unexercised Underling Unexercised In-the-Money Options Options at Fiscal Year End At Fiscal Year End (#) ($) Exercisable Unexercisable Exercisable Unexercisable Ronald G. Seals 3,050 2,725 $34,620 $13,930
R. Michael Ahern 1,080 2,470 $10,100 $6,100
Employee Benefit Plan
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 discretionary company contribution ("Profit Sharing Plan"). The Profit Sharing Plan covers substantially all employees of the Bank; an employee becomes a participant under the plan on the first January 1st or July 1st which coincides with or next follows after twelve (12) consecutive months during which the employee completed at least one thousand (1,000) hours of employment for the Corporation or the Bank. 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 15% 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 become fully vested in the balance of his or her account attributable to the Bank's discretionary profit sharing contributions on death, "disability" (as defined), attaining age 65 and termination of the plan. 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 any reason, a participant (or his or her designated beneficiary) will be entitled to receive the vested balance of his accounts under the Profit Sharing Plan. Participants may elect to receive the vested balance of their accounts 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.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL SHAREHOLDERS
The following information is given as of April 13, 2001, 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 Beneficial Ownership of Class
Douglas A. Habig 99,955 13.42%* Jasper, IN
John B. Habig 90,529 12.12%** Jasper, IN
Thomas A. Habig 82,661 11.06%*** Jasper, IN
Springs Valley Bank & Trust Company 144,920 19.40%**** Trustee for Kimball International, Inc. Retirement Trust P.O. Box 830 Jasper, IN 47547-0830
* The above amount includes 66,356 shares held in the Revocable Trust Account of Arnold F. Habig, over which Mr. Douglas A. Habig has shared voting authority with Mr. John B. Habig and Mr. Thomas L. Habig. Also includes 14,056 shares held by the Kimball Habig Foundation, over which Mr. Douglas A. Habig exercises voting authority. The above amount includes 2,008 shares held by Nancy L. Habig, the wife of Mr. Douglas A. Habig.
** The above amount includes 66,356 shares held in the Revocable Trust Account of Arnold F. Habig, over which Mr. John B. Habig has shared voting authority with Mr. Douglas A. Habig and Mr. Thomas L. Habig. The above amount includes 3,124 shares held by Carma Jane Habig, the wife of Mr. John B. Habig, 1,080 shares held by Baden-Baden for John B. Habig FBO Hannah Zunk and 888 shares held by Baden-Baden for John B. Habig FBO Andrew Zunk, who are the grandchildren of Mr. John B. Habig.
*** Mr. Thomas L. Habig is Secretary for SVB&T Corporation as well as Springs Valley Bank & Trust Company. The above amount includes 66,356 shares held in the Revocable Trust Account of Arnold F. Habig, over which Mr. Thomas L. Habig has shared voting authority with Mr. Douglas A. Habig and Mr. John B. Habig. The above amount includes 2,088 shares held in the Roberta Habig Revocable Trust, the wife of Mr. Thomas L. Habig and 14,090 shares held in the Thomas L. Habig Revocable Trust, over which Mr. Thomas Habig has voting rights.
**** Shares owned by the Kimball International Retirement Plan are voted by An independent third party.
Item 13.
Item 13. Certain Relationships and Related Transactions
Certain Transactions
During 2000, 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.
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 1999. (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, 1999 (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. 3/22/01
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: John B. Habig David Rees Chairman of the Board 3/22/01 Principal Financial and Accounting 3/22/01 Officer
By: By: Douglas A. Habig, Director 3/22/01 Ronald G. Seals, Principal Executive Officer and 3/22/01 Director
By: By: Gary P. Critser, Director 3/22/01 Brian K. Habig, Director 3/22/01
By: By: Thomas L. Habig, Director 3/22/01 James C. Tucker, Director 3/22/01
By: By: Ronald J. Sermersheim, Director Hilbert Lindsey, Director 3/22/01 3/22/01
By: Ronald J. Thyen, Director 3/22/01 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
By any measure, 2000 was the most successful year in the 99 year history of Springs Balley Bank and Trust Company. The year was highlighted by extraordinary growth in loans, deposits and earnings. These outstanding achievements are a direct result of the fact that our staff, management and directors understand and follow the Mission Statement of our Corporation
Mission Statement:
Springs Valley Bank & Trust Company is a community oriented financial institution whose purpose is to provide superior financial services and value to the customers and communities it serves. Our goal is to operate in a culture of honesty and trust, to consistently serve beyond customer expectations, and to generate an excellent rate of return to our shareholders. Our organization will provide a high quality of life for our employees an be responsible citizens in the communities we serve.
Financial Highlights of the Year:
Net income; $2,039,032, up 45.2% Income per share: $2.74, up from $1.88; 45.7% Book Value per share: $30.15, up $2.74; 10.00% Total assets: $247,000,000, up 16.9% Deposits: $186,000,000, up 2.8%
Technology continues to play a critical role in the future success of any financial institution. Modern delivery systems, although very costly in the short term, are vital if we expect to grow and remain competitive in our markets.
This past year we have successfully installed a new imaging system, added new on-line ATM functions, upgraded our main frame computer system and installed new loan accounting software. During the fist six months of 2001, we will open our active Website on the internet to provide online banking for our customers. You will find us at www.svbt.com.
In 1998, your bank established our Alternate Investment Department and allied with Great American Advisers (GAR), a national full-service brokerage company serving financial institutions. We are able to provide stocks, bonds, annuities, mutual funds and financial counseling through this department. In 2000, we placed in excess of $5,ooo,ooo in investments for bank customers, and provide financial counseling for numerous individuals.
In 1992, your bank started a stock repurchase program for the benefit of all shareholders. This provided a market for those share owners who wished to sell their bank shares. The shares purchased by the bank are placed in treasury stock and used for option programs or are resold to new shareholders. We have purchased over 61,000 shares and currently hold over 51,ooo shares as treasury stock. SVB&T Corporation has an authorized total of 800,000 shares and currently has 747,1000 shares outstanding. As repurchase program, although not increasing earnings, does produce greater earnings per share. This provides remaining shareholders with a greater income per share and increased price per share.
It has always been the philosophy of Springs Valley Bank & Trust to manage its balance sheet to safely maximize return to shareholders. About five years ago we began to pursue selective loan participations to supplement local loan demand. This has been a successful endeavor and the bank has experienced significant asset growth. Some of that growth has been funded by deposits. The $31,000,000 currently borrowed is as leveraged as management desires. With current totals, key ratios have been achieved. We are very close to our self-imposed 110% loan-to-deposit ratio cap. We are also very close to our 85% loans-to-total assets cap. To achieve these ratios, the bank has taken advantage of a market opportunity. We feel, however, that further expansion of this opportunity would not be in the banks' best interest.
Your bank will remain a highly capitalized bank. Stress testing of our balance sheet for interest rate changes shows a reasonable balanced position with no significant asset or liability sensitivity.
During the last quarter of 2000, we opened our sixth banking office. Located in the Jasper Southgate Shopping Center, this new facility allows us to provide convenient banking offices for the entire Jasper community. Business in this office started ona brisk note and continues to remain strong.
Springs Valley Bank & Trust Company has enjoyed a most outstanding year. The year ahead will be challenging but we are dedicated to continuing our reputation of being among the best independent community banks. With your support and the continued hard work of our dedicated staff, we will meet our goals for 2001. We are looking forward to 2002 to the celebration of the Centennial of Springs Valley Bank & Trust a milestone very few financial institutions reach. WE plan to make this a very special year for our bank and for the communities we serve.
We again express our warm appreciation for the friendship and helpfulness of our stockholders and other friends during the past year. They brought us business and they referred business to us actions we view as special compliments. We remain dedicated to the kind of effort needed to justify your continued goodwill and support.
Cordially,
John B. Habig Ronald G. Seals Chairman of the Board President & CEO
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Financial Condition December 31, 2000 1999 ASSETS Cash and cash equivalents Cash and due from banks $5,824,159 $5,472,105 Interest-bearing deposits with banks 49,263 18,461 Federal funds sold 0 5,275,000 Total cash and cash equivalents 5,873,422 10,765,566 Investment securities, available for sale, at market value 28,591,729 24,898,221 Investment securities, held to maturity, at cost 1,855,000 1,205,000
Loans Loans, net of unearned interest 204,672,215 175,119,328 Allowance for loan losses (1,670,912) (1,627,141) Net loans 203,001,303 173,492,187
Buildings and equipment 4,607,584 4,522,625 Interest receivable 1,886,009 1,463,745 Deferred income taxes 0 165,121 Other assets 1,412,280 881,926 Total assets $247,227,327 $217,394,391
LIABILITIES Deposits Non-interest bearing $13,800,356 $22,101,790 Interest bearing 172,559,814 159,174,275 Total deposits 186,360,170 181,276,065
Federal funds purchased 2,765,000 0 Short-term borrowings 2,500,000 5,000,000 Interest payable 964,086 783,971 Deferred income taxes 133,931 0 Other liabilities 935,428 865,326 Long-term borrowings 31,100,000 9,100,000 Total liabilities 224,758,615 197,025,362
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY Common stock (No par value: 800,000 shares authorized and issued) 200,000 200,000 Surplus 6,210,711 6,170,109 Retained earnings 17,047,543 15,544,930 Accumulated other comprehensive income: Net unrealized gains (losses) on investment securities available for sale (14,832) (544,375) Treasury stock at cost (54,972 shares 2000, 56,767 shares 1999) (974,710) (1,001,635) Total shareholders' equity 22,468,712 20,369,029 Total liabilities and shareholders' equity $247,227,327 $217,394,391
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Income Year Ended December 31, 2000 1999 1998 INTEREST INCOME Loans and fees on loans $16,932,878 $13,340,512 $12,479,514 Investment securities Taxable 1,120,653 999,481 1,441,684 Tax exempt 581,318 500,291 432,465 Federal funds sold 76,564 166,728 180,856 Total interest income 18,711,413 15,007,012 14,534,519
INTEREST EXPENSE Deposits 8,134,830 6,781,089 7,160,680 Short-term borrowings 148,231 7,834 42,804 Long-term borrowings 1,766,420 540,108 12,550 Total interest expense 10,049,481 7,329,031 7,216,034
NET INTEREST INCOME 8,661,932 7,677,981 7,318,485 Provision for loan losses 300,000 850,000 580,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,361,932 6,827,981 6,738,485
NON-INTEREST INCOME Trust Department income 760,159 725,423 836,653 Service charges on deposit accounts 533,539 533,290 615,274 Insurance income 160,645 157,290 172,448 Other operating income 298,272 292,293 248,664 Realized security gains (losses) (9,827) (3,173) 2,055 Total non-interest income 1,742,788 1,705,123 1,875,094 NON-INTEREST EXPENSE Salaries and employee benefits 3,869,650 3,613,674 3,381,270 Premises and equipment expense 1,392,219 1,135,080 1,167,626 Deposit insurance expense 35,597 18,970 19,921 Other operating expenses 1,680,022 1,657,823 1,172,780 Total non-interest expense 6,977,488 6,425,547 5,741,597
INCOME BEFORE INCOME TAXES 3,127,232 2,107,557 2,871,982 Income taxes 1,088,200 703,000 1,042,800 NET INCOME $2,039,032 $1,404,557 $1,829,182
EARNINGS PER SHARE Basic $2.74 $1.88 $2.45 Diluted $2.73 $1.88 $2.44
AVERAGE SHARES OUTSTANDING Basic 745,017 745,994 748,006 Diluted 746,429 747,949 750,458
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Cash Flows Year Ended December 31, 2000 1999 1998 OPERATING ACTIVITIES: Net income $2,039,033 $1,404,557 $1,829,182 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 300,000 850,000 580,000 Depreciation 511,215 461,119 468,307 Investment securities amortization 23,740 50,786 41,291 Investment securities (gains) lossses 24,263 3,173 (2,155) Loss on sale of equipment 14,636 0 0 Loss on abandoned equipment 0 87,314 0 Gain on sale of other real estate (43,100) 0 0 Deferred income taxes (40,623) (233,370) 93,769 (Increase) decrease in interest receivable and other assets (863,118) (228,296) (76,687) Increase in interest payable and other liabilities 242,561 123,236 13,676
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,208,607 2,518,519 2,947,383
INVESTING ACTIVITIES; Proceeds from sales and maturities of investment securities available for sale 2,386,071 7,220,309 30,330,259 Purchases of investment available for sale (5,250,709) (7,913,802) (17,420,427)
Purchases of investment securities held to maturity (650,000) (614,300) (12,400)
Proceeds from the sale of equipment 33,030 0 0
Proceeds - sale of loans 0 84,000 4,236,717
Proceeds - sale of other real estate 126,500 40,000 0
Net increase in loans (29,982,016) (31,863,265) (8,177,819)
Additions to buildings and equipment (643,839) (250,408) (255,734)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (33,980,963) (33,297,466) 8,700,596
FINANCING ACTIVITIES; Net increase (decrease) in deposits 5,084,105 21,944,573 (6,539,911)
Net increase in federal funds purchased2,765,000 0 0 Net increase (decrease) in short-term borrowings (5,000,000) 5,000,000 (4,000,000)
Increase in long-term borrowings 24,500,000 8,100,000 1,000,000 Sale of treasury stock 67,527 78,259 65,642 Purchase of treasury stock 0 (198,132) (58,528) Cash dividends (536,420) (514,667) (448,629)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 26,880,212 34,410,033 (9,981,426)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,892,144) 3,631,086 1,666,553
Cash and cash equivalents beginning of year 10,765,566 7,134,480 5,467,927
CASH AND CASH EQUIVALENTS AT END OF YEAR $5,873,422 $10,765,566 $7,134,480
SUPPLEMENTAL DISCLOSURES; Cash paid during the year for: Income taxes $1,172,783 $876,673 $822,317
Interest $9,869,366 $7,257,711 $7,327,681
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Changes in Shareholders' Equity
Accumulated Other Total Common Capital Retained Comprehensive Treasury Shareholders' Stock Surplus Earnings Income Stock Equity BALANCE, JANUARY 1,1998$200,000$6,094,233$13,274,487$(40,259) $(813,000) $18,715,461 COMPREHENSIVE INCOME 1998 Net income 1,829,182 1,829,182 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $151,098 232,521 232,521 Less reclassifications for gain included in net income (2,155) (2,155) TOTAL COMPREHENSIVE INCOME 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, DECEMBER 31, 1998200,0006,124,07014,655,040 190,107 (835,723) 20,333,494 COMPREHENSIVE INCOME 1999 Net income 1,404,557 1,404,557 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $481,757 (737,655) (737,655) Less reclassifications for losses included in net income 3,173 3,173 TOTAL COMPREHENSIVE INCOME 670,075 Cash dividends (514,667) (514,667) Sold 2,148 shares of treasury stock 46,039 32,220 78,259 Purchased 5,214 shares of treasury stock (198,132) (198,132) BALANCE, DECEMBER 31, 1999200,0006,170,109 15,544,930(544,375)(1,001,635) 20,369,029 COMPREHENSIVE INCOME 2000 Net income 2,039,033 2,039,033 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $347,329 505,280 505,280 Plus reclassifications for losses included in net income 24,263 24,263 TOTAL COMPREHENSIVE INCOME 2,568,576 Cash dividends (536,420) (536,420) Sold 1,795 shares of treasury stock 40,602 26,925 67,527 BALANCE, DECEMBER 31, 2000$200,000$6,210,711$17,047,543 $(14,832) $(974,710)$22,468,712 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, Springs Valley Bank & Trust Company 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, 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, 2000 and 1999, 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 net of tax as a separate component of shareholders' equity 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.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. 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 some fixed rate mortgage loans into the secondary market. At December 31, 2000, 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.
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.
Stock Option Plans - The Bank grants stock options to certain employees and directors. The options are granted at the market price on the grant date. No compensation expense is recorded in the financial statements for the options. Pro forma disclosures as required by FASB Statement No. 123 "Accounting for Stock-Based Compensation" are included in Note 16.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Income Per Share - Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed as above and assumes the dilative effect of additional common shares issuable under stock option plans. The following table reconciles the amounts reported in the financial statements:
2000 1999 1998 BASIC EARNINGS PER SHARE: Net income $2,039,032 $1,404,557 $1,829,182 Average shares outstanding 745,017 745,994 748,006 Basic earnings per share $ 2.74 $ 1.88 $ 2.45
DILUTED EARNINGS PER SHARE: Net income $ 2,039,032 $1,404,557 $ 1,829,182 Average shares outstanding 745,017 745,994 748,006 Stock options, net 1,363 1,912 2,386 Diluted average shares outstanding 746,380 747,906 750,392 Diluted earnings per share $ 2.73 $1.88 $ 2.44
NOTE 2 EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective in 2000, the Company adopted FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The adoption of this statement had no effect on the results of operations or financial position of the Company because it does not retain servicing rights when transferring financial assets.
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, 2000 was $916,000.
Notes to Consolidated Financial Statements
NOTE 4 INVESTMENT SECURITIES
The amortized costs and estimated market values of investment securities at December 31, 2000 and 1999 were as follows:
December 31, 2000
Unrealized Unrealized Estimated Amortized Holding Holding Market Securities Available Cost Gains Losses Value For Sale U.S. Government corporations and agencies $15,051,788 $633 $(130,255) $14,922,166
States and political subdivisions 12,619,004 240,958 (117,945) 12,742,017 Mortgage-backed securities 72,644 2,470 0 75,114 Other securities 872,852 0 (20,420) 852,432 Total $28,616,288 $244,061 $(268,620) $28,591,729
Unrealized Unrealized Estimated Amortized Holding Holding Market Cost Gains Losses Value
Securities Held to Maturity Equity securities $ 1,855,000 $ 0 $ 0 $ 1,855,000
December 31, 1999
Unrealized Unrealized Estimated Amortized Holding Holding Market Cost Gains Losses Value Securities Available for Sale U.S. Government corporations and agencies $14,087,359 $1,286 $(562,264) $13,526,381 States and political subdivisions 10,705,421 40,691 (340,799) 10,405,313 Mortgage-backed securities 124,837 6,990 0 131,827 Other securities 882,037 0 (47,337) 834,700 Total $25,799,654 $ 48,967 $(950,400) $24,898,221
Unrealized Unrealized Estimated Amortized Holding Holding Market Cost Gains Losses Value
Securities Held to Maturity Equity securities $1,205,000 $0 $0 $1,205,000
Notes to Consolidated Financial Statements
NOTE 4 INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market values of securities available for sale at December 31, 2000 and 1999, by contractual maturity follows. Expected maturities may differ from contractual maturities because some borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.
2000 1999 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Securities Available for Sale Due in one year or less $2,489,936 $2,465,658 $2,879,693 $ 2,837,746 Due after one year but within five years 13,383,583 13,330,572 12,680,155 12,317,083 Due after five years but within ten years 8,640,040 8,659,174 7,431,806 7,143,173 Due after ten years 4,030,085 4,061,211 2,683,163 2,468,392 28,543,644 28,516,615 25,674,817 24,766,394
Mortgage backed securities 72,644 75,114 124,837 131,827 Total $28,616,288 $28,591,729 $25,799,654 $24,898,221
Securities available for sale with amortized cost of $15,051,788 at December 31, 2000 and $14,087,359 at December 31, 1999 were pledged as collateral on debt of the Bank.
Proceeds from sales of securities available for sale during 2000, 1999 and 1998 were $1,153,842, $2,000,888 and $1,500,000. In 2000, gains of $-0- and losses of $9,826 were realized. In 1999, gains of $-0- and losses of $3,173 were realized. In 1998, gains of $2,055 and losses of $-0- were realized.
NOTE 5 LOANS
Loans at December 31, 2000 and 1999 are comprised of the following:
2000 1999 Commercial and industrial loans $40,867,419 $21,945,285 Real estate loans (including $2,137,752 and $1,702,613 secured by farm land) 103,100,274 98,851,417 Construction loans 17,173,625 6,489,880 Agricultural production financing and other loans to farmers 1,751,194 1,316,334 Individuals' loans for household and other personal expenditures 41,318,635 46,294,540 Lease financing 585,198 362,883 204,796,345 175,260,339 Less: Unearned income on loans 124,130 141,011 Total loans $204,672,215 $175,119,328
Notes to Consolidated Financial Statements
NOTE 5 LOANS (Continued)
Information concerning impaired loans at December 31, 2000 and 1999 is as follows:
2000 1999 Impaired loans with a related allowance for loss $1,098,513 $1,301,967 Impaired loans without a related allowance for loss 981,884 939,940 Total impaired loans 2,080,397 2,241,907
Average balance of impaired loans 2,259,799 1,274,676
Allocated allowance for loan losses on impaired losses 525,043 532,151
Cash receipts applied to principal 322,952 66,234 Cash receipts applied as interest income 203,664 102,885 Total cash received $ 526,616 $ 169,119
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, 2000 and 1999 are as follows:
2000 1999 Loans pledged as collateral $78,129,312 $73,252,093
NOTE 6 ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the year 2000, 1999 and 1998 are as follows:
2000 1999 1998 Balance, January 1 $1,627,141 $1,106,077 $1,402,500 Loans charged-off (576,981) (442,969) (1,059,108) Recoveries 320,752 114,033 182,685 Net charged-off (256,229) (328,936) (876,423) Provision for loan losses 300,000 850,000 580,000 Balance, December 31 $1,670,912 $1,627,141 $1,106,077
NOTE 7 BUILDINGS AND EQUIPMENT
Balances in the buildings, equipment, and related accumulated depreciation accounts at December 31, 2000 and 1999 are as follows: 2000 1999 Land and bank buildings $4,996,301 $4,957,677 Equipment, furniture and fixtures 4,558,533 4,022,806 Totals 9,554,834 8,980,483 Less accumulated depreciation 4,947,250 4,457,858 Net $4,607,584 $4,522,625
Depreciation expense was $511,215 for 2000, $461,119 for 1999 and $468,307 for 1998. Notes to Consolidated Financial Statements
NOTE 8 DEPOSITS Deposits at December 31, 2000 and 1999 are as follows:
2000 1999 Demand, non-interest bearing $ 18,752,398 $ 22,101,790 Demand, interest-bearing 12,028,056 18,974,856 Savings 66,622,544 60,200,400 Time deposits, $100,000 and over 29,170,918 28,300,000 Other time deposits 59,786,254 51,699,019 $186,360,170 $181,276,065 As of December 31, 2000 the scheduled maturities of time deposits are as follows:
2001 $59,020,415 2002 11,616,917 2003 3,994,158 2004 3,645,484 2005 and thereafter 10,680,198 $88,957,172 NOTE 9 OTHER SHORT-TERM BORROWINGS
Other short-term borrowings at December 31, 2000 and 1999 are as follows:
2000 1999 Federal Funds purchased from Bank One, Indiana, 6.875%, unsecured, due January 2, 2001 $2,765,000 $ 0
Federal Home Loan Bank Indianapolis advance, due January 23, 2001, 6.3% adjustable, collateralized by a blanket collateral agreement on qualified mortgage loans and securities $2,500,000 $5,000,000
Notes to Consolidated Financial Statements
NOTE 10 LONG-TERM BORROWINGS
Long-term borrowings at December 31, 2000 and 1999 are as follows:
Federal Home Loan Bank Indianapolis advances, payable monthly, collateralized by a blanket collateral agreement on qualified mortgage loans and securities:
Maturity Date Fixed Rate 2000 1999 February 24, 2004 5.19 $ 5,000,000 $ 5,000,000 March 15, 2005 6.32 7,000,000 0 October 15, 2005 5.02 1,000,000 1,000,000 July 17, 2006 6.69 3,100,000 3,100,000 April 19, 2010 6.18 10,000,000 0 June 7, 2010 6.53 5,000,000 0 Total long-term borrowings $31,100,000 $ 9,100,000
As of December 31, 2000 long-term borrowings are scheduled to mature as follows:
2001 $ 0 2002 0 2003 0 2004 5,000,000 2005 8,000,000 Thereafter 18,100,000 $ 31,100,000 At December 31, 2000, the Bank has the following lines of credit available:
Bank One Indianapolis $ 8,500,000 Federal Reserve Bank of St. Louis $ 3,500,000
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 plan for the years ended December 31, 2000, 1999 and 1998 was $183,691, $154,203 and $142,483.
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, 2000, 1999 and 1998 were $296,159, $347,940 and $278,876.
Notes to Consolidated Financial Statements
NOTE 12 INCOME TAXES
The components of the provision for income taxes are:
2000 1999 1998 Federal income taxes currently payable $ 843,703 $ 695,375 $ 708,424 Deferred Federal income taxes (31,703) (183,375) 73,776 Provision for Federal income taxes for the year $ 812,000 $ 512,000 $ 782,200
State income taxes currently payable $ 285,120 $ 240,995 $ 240,607 Deferred state income taxes (8,920) (49,995) 19,993 Provision for state income taxes for the year $ 276,200 $ 191,000 $ 260,600
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, 2000 and 1999 are as follows:
2000 1999 Deferred Tax Assets: Allowance for loan losses $ 511,220 $ 505,352 Unrealized losses on securities available for sale 9,728 357,058 Loan fees 56,343 63,659 Other 16,541 32,143 Total asset 593,832 958,212
Deferred Tax Liabilities: Depreciation (727,763) (793,091) Net deferred tax (liability) asset $(133,931) $ 165,121
The difference between the Federal income tax rate and the Bank's effective tax rate is as follows:
2000 1999 Income tax at Federal tax rate of 34% $1,063,259 $ 714,385 Tax effect of: Tax exempt interest (156,386) (140,656) Other (1,852) 3,211 State income taxes, net of Federal effect 183,179 126,060 Total income taxes $1,088,200 $ 703,000 Effective tax rate 34.80% 33.46%
Notes to Consolidated Financial Statements
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 local 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 $9,209,359 at December 31, 2000 and $4,119,644 at December 31, 1999.
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 2000, 1999 and 1998 were $426,574, $446,207 and $547,704. Amounts receivable from Kimball International for these services were $124,500 at December 31, 2000, $75,000 at December 31, 1999 and $-0- at December 31, 1998. Kimball International, Inc. has notified the Bank that it will change retirement plan trustees in April 2001. The Bank expects that fees from the Kimball Retirement Plan will decrease by $150,000 in 2001 and $300,000 thereafter.
In the ordinary course of business, the Bank makes loans to executive officers, directors, principal shareholders, their related companies and family members. These loans are made on substantially the same terms as those with unrelated parties and do not involve unusual risks of collectability. Total loans to executive officers, directors and principal shareholders for 2000 were as follows:
Balance, January 1, 2000 $ 5,789,615 New loans 475,272 Repayments (1,121,033) Changes in persons included 0 Balance, December 31, 2000 $ 5,143,854
NOTE 14 - LEASE COMMITMENTS
Minimum lease payments at December 31, 2000, under operating lease commitments, total $-0-. Operating expenses include rental expense of $22,935 in 2000, $21,260 in 1999 and $600 in 1998.
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, 2000 and 1999 were as follows:
2000 1999 Commitments to extend credit $12,960,000 $25,006,059 Standby letters of credit $ 360,355 $ 471,300
Notes to Consolidated Financial Statements
NOTE 15-COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
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 and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
The Bank is subject to claims and lawsuits which arise in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Bank in connection with such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.
NOTE 16 - STOCK OPTION PLANS
SVB & T Corporation maintains two stock option plans for certain employees and directors. 28,000 shares of stock were reserved for these plans and 12,765 remain available. Options are granted annually with an exercise price equal to the fair market value on the date the options are granted. The options vary in length from 5 to 10 years.
Options granted and exercised are as follows:
Number Average Exercise Price Balance, January 1, 1998 2,800 $24.46 Granted 4,392 $27.50 Exercised 0 $ .00 Balance, December 31, 1998 7,192 $26.32 Granted 3,814 $38.00 Exercised (463) $29.90 Balance, December 31, 1999 10,543 $30.96 Granted 4,229 $38.00 Exercised (134) $38.00 Balance, December 31, 2000 14,638 $32.46
Pro forma information required of companies not adopting FASB No. 123 is as follows:
2000 1999 1998 Pro forma net income $ 2,024,214 $1,393,481 $ 1,820,038 Pro forma basic earning per share $ 2.72 $ 1.87 $ 2.43 Pro forma diluted $ 2.71 $ 1.86 $ 2.42
Notes to Consolidated Financial Statements
NOTE 17-STOCKHOLDERS' EQUITY
The Company is currently considering the purchase of approximately 19% of its outstanding common stock from a related party shareholder. The ultimate decision to purchase this stock is contingent on the price and approval of various regulatory agencies. However, the Company will not purchase the stock if it results in capital ratios which are less than well capitalized.
NOTE 18-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 2000, 1999 and 1998 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, 2000, approximately $3,129,000 of the Bank's retained earnings were available for dividend payments to the SVB & T Corporation.
NOTE 19-REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's 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 Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's 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, 2000, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2000, the Bank was categorized by the FDIC as well capitalized under the regulatory framework for prompt corrective action. To remain 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 below. There are no conditions or events since the notification that management believes have changed the institution's category.
Notes to Consolidated Financial Statements
NOTE 19-REGULATORY MATTERS (Continued)
The Bank's consolidated actual capital amounts and ratios are presented in the table below. Consolidated Required for Required to be Amounts and Regulatory Well Ratio Purposes Capitalized As of December 31, 2000 Tier 1 Capital to Risk- Weighted Assets $ 22,469,344 $ 7,278,142 $ 10,917,213 12.4% 4.0% 6.0% Total Capital to Risk- Weighted Assets $ 24,140,256 $14,556,284 $ 18,195,355 13.3% 8.0% 10.0% Tier 1 Capital to Average Assets $ 22,469,344 $ 9,251,506 $ 11,564,382
9.7% 4.0% 5.0%
As of December 31, 1999 Tier 1 Capital to Risk- Weighted Assets $ 20,898,004 $ 6,528,360 $ 9,792,540
12.8% 4.0% 6.0% Total Capital to Risk- Weighted Assets $ 22,525,145 $13,056,720 $ 16,320,900
13.8% 8.0% 10% Tier 1 Capital to Average Assets $ 20,898,004 $ 7,992,828 $ 9,991,035
10.5% 4.0% 5% NOTE 20-CONCENTRATIONS OF CREDIT
At December 31, 2000, the total amount of due from banks included $2,460,903 with Bank One Kentucky and $315,944 with German American 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.
Approximately 72% of the Bank's loans, commitments and letters of credit have been granted to customers in the Bank's market area of Orange, Dubois and surrounding counties in Southern Indiana. The remaining 28% of the Bank's loans have been made to a diversified mix of customers in central Indiana, in participation with financial institutions in that area. These loans account for a majority of the Bank's commercial and commercial real estate lending activities 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 sector in the Southern Indiana area.
Notes to Consolidated Financial Statements
NOTE 21-FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values of financial instruments at December 31, 2000 and 1999 are as follows:
2000 1999 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ASSETS Cash and cash equivalents $ 5,873,422 $5,873,422 $5,472,105 $ 5,472,105 Investment securities 30,446,729 30,446,729 26,103,221 26,103,221 Loans 203,001,303 204,816,648 173,492,187 172,525,979 Interest receivable 1,886,009 1,886,009 1,463,745 1,463,745
LIABILITIES Deposits $186,360,170 $186,365,074 $181,276,065 $182,123,787 Short-term borrowings 5,265,000 5,265,000 5,000,000 5,000,000 Long-term borrowings 31,100,000 31,100,000 9,100,000 8,605,269 Interest payable 964,086 964,086 783,971 783,971
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 value 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.
Notes to Consolidated Financial Statements
NOTE 21 -FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
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 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are the condensed, parent company only, financial statements of SVB & T Corporation:
December 31, Condensed Balance Sheet 2000 1999 ASSETS Cash in bank with subsidiary $ 176,277 $ 14,736 Investment in subsidiary 20,908,553 19,176,938 Buildings and equipment 1,746,975 1,770,277 Other assets 199,100 156,200 Total assets $23,030,905 $21,118,151
LIABILITIES Accrued expenses $ 92,596 $ 86,182 Dividends payable 134,105 133,781 Long-term debt with subsidiary 0 216,471 Deferred income taxes 335,492 312,688 Total liabilities 562,193 749,122
SHAREHOLDERS' EQUITY Common stock 200,000 200,000 Surplus 6,210,711 6,170,109 Retained earnings 17,047,543 15,544,930 Accumulated other comprehensive income (14,832) (544,375) Treasury stock (974,710) (1,001,635) Total shareholders' equity 22,468,712 20,369,029
Total liabilities and shareholders' equity $23,030,905 $21,118,151
2000 1999 Long-term debt with subsidiary consisted of: Mortgage payable to Springs Valley Bank & Trust Company, Jasper, Indiana (the wholly owned subsidiary of SVB & T Corporation), variable interest rate, 8.50% at December 31, 1999, secured by branch bank building in Jasper, Indiana, paid off in 2000 $ 0 $ 16,471
Notes to Consolidated Financial Statements
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
Years Ended December 31, Condensed Statement of Income 2000 1999 1998 INCOME Dividend income $ 11,000 $ 0 $ 0 Dividends from subsidiary 783,840 687,280 475,700 Rent from subsidiary 300,000 300,000 300,000 Total income 1,094,840 987,280 775,700
EXPENSE Depreciation 66,103 64,335 65,584 Interest on long-term debt 9,618 26,120 46,947 Other expenses 120,958 79,885 76,198 Total expense 196,679 170,340 188,729
Income before income taxes and equity in undistributed earnings of subsidiary 898,161 816,940 586,971 Income tax expense 61,200 51,400 45,900
Income before equity in undistributed earnings of subsidiary 836,961 765,540 541,071 Equity in undistributed earnings of subsidiary 1,202,071 639,017 1,288,111 Net income $ 2,039,032 1,404,557 $ 1,829,182
Notes to Consolidated Financial Statements
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Years Ended December 31, Condensed Statement of Cash Flows 2000 1999 1998 Operating Activities: Net income $ 2,039,032 $ 1,404,557 $1,829,182 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 66,103 64,335 65,584 Undistributed net income of subsidiary (1,202,071) (639,017) (1,288,111) Deferred income taxes 22,804 20,625 20,901 (Increase) decrease in other assets (42,900) (14,200) (35,500) Increase (decrease) in accrued expenses, dividends payable and payable to subsidiary 6,738 33,020 (2,559) Net cash provided by operating activities 889,706 869,320 589,497
Investing Activities: Additions to buildings and equipment (42,801) (22,217) (4,069) Net cash used by investing activities (42,801) (22,217) (4,069)
Financing Activities: Net treasury stock activity 67,527 (119,873) 7,114 Dividends paid (536,420) (514,667) (448,629) Principal payment on long-term debt (216,471) (219,368) (216,228) Net cash used by financing activities (685,364) (853,908) (657,743)
Increase (decrease) in cash and cash equivalents 161,541 (6,805) (72,315) Cash and cash equivalents at beginning of year 14,736 21,541 93,856 Cash and cash equivalents end of year $ 176,277 $ 14,736 $ 21,541
INDEPENDENT AUDITOR'S REPORT
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, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles.
Nonte & Company LLC Certified Public Accountants
Jasper, Indiana January 22, 2001
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Year Ended December 31, 2000 1999 1998 Primary Weighted average shares outstanding $ 745,017 $ 745,994 $ 745,006 Net Income 2,039,032 1,404,557 1,829,182 Net income per common share $ 2.74 $ 1.88 $ 2.45
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 January 22, 2001, included in the 2000 Annual Report to Shareholders of SVB&T Corporation.
NONTE & COMPANY LLC Certified Public Accountant
Jasper, Indiana March 22, 2001