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 113 full-time equivalents which are provided benefits and with whom it enjoys excellent relations.
The Bank serves as the local depository, and provides trust services 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 deposits of the bank. In addition, the Bank has loans outstanding with individuals who are employees of Kimball representing in excess of 10% 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, 2001, the company had total assets of $240 million, total deposits of $182 million, and total equity capital of $23 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 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.
Banks, securities firms and insurance companies may now affiliate in a new financial holding company structure. 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, which the Bank may not be able to pass on to its 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 prohibited from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same as, or at least as favorable to such institution or its subsidiaries as, those prevailing at the time for comparable transactons 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.
At December 31, 2001, the company had total assets of $240 million, total deposits of $182 million, and total equity capital of $23 million.
The following are the Company's regulatory capital ratios as of December 31, 2001:
Tier 1 Capital: 13.00% Total Capital: 14.10% Leverage Ratio: 9.60%
The following are the Bank's regulatory capital ratios as of December 31, 2001:
Tier 1 Capital: 12.20% Total Capital: 13.40% Leverage Ratio: 9.00%
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.
Effect of Governmental Monetary Policies. The earnings of the Company and the Bank 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 twelve automated teller machines, six in Jasper, one in West Baden, one in French Lick, one in Borden, one in Salem, one in Santa Claus and one in Huntingburg. 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 2000 and 2001. Other trades may have occurred at prices of which the Company was not aware.
Year Quarter High/Per Share Low/Per Share 2001 1 $39 $39 2 N/A N/A 3 $30 $30 4 $30 $30
2000 1 $40 $38 2 $40 $38 3 N/A N/A 4 $40 $39
The company has 328 shareholders on record as of March 10, 2001.
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 2001 $.18 $.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, 2001 approximately $3,055,000 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 2001 2000 1999 1998 1997 Interest and Fees on Loans $ 17,176 $ 16,933 $ 13,341 $ 12,480 $ 11,599 Interest on Investments 1,416 1,778 1,666 2,055 2,929 Total Interest Income 18,592 18,711 15,007 14,535 14,528 Interest on Deposits 8,056 8,135 6,781 7,161 7,475 Interest on Short-term Borrowing 10 148 8 43 157 Interest on Long-term Debt 1,832 1,766 540 12 0 Total Interest Expense 9,899 10,049 7,329 7,216 7,632 Net Interest Income 8,694 8,662 7,678 7,319 6,896 Provision for Loan Losses 1,120 300 850 580 400 Net Interest Income after Provision for Loan Loss 7,574 8,362 6,828 6,739 6,496 Service Charges on Deposit Accounts 579 534 533 615 505 Other Income 1,209 1,209 1,172 1,260 1,254 Total Other Income 1,789 1,743 1,705 1,875 1,759 Salaries and Benefits 4,179 3,870 3,614 3,381 3,295 Other Expenses 2,979 3,108 2,811 2,361 2,343 Total Other Expenses 7,158 6,978 6,452 5,742 5,638 Income Before Income Tax 2,205 3,127 2,108 2,872 2,617 Income Tax Expense 608 1,088 703 1,043 922 Net Income 1,597 2,039 1,405 1,829 1,695
Year-end Balances Total Assets 240,450 247,227 217,394 182,741 190,404 Total Loans, Net 203,707 203,001 173,492 142,563 139,202 Total Long-term Debt 29,100 31,100 9,100 1,000 0 Total Deposits 181,740 186,360 181,276 159,331 165,871
Total Shareholders' Equity 23,653 22,469 20,369 20,333 18,715 Per Share Data Net Income 2.14 2.74 1.88 2.45 2.27 Cash Dividends .72 .72 .69 .60 .54
Shareholders' Equity, End of Year 31.77 30.16 27.30 27.18 25.09
Other Data at Year-end Number of Employees 113 111 106 104 107 Weighted Average Number of Shares 746,372 745,017 745,994 745,806 745,800
Return on Assets .65% .86% .70% .98% .90% Return on Shareholders' Equity 7.11% 10.01% 6.90% 9.66% 10.43%
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)
2001 2000 1999 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 441 12 2.72% 69 3 4.35% 67 3 4.48% Federal funds sold 2,623 91 3.74% 1,309 73 5.58% 3,323 167 5.03% Investment securities: U.S. Treasury and Gov't Agencies & mortgage backed 6,474 385 5.95% 14,828 927 6.25% 14,748 885 6.00% States and political subdivisions 14,557 1,094 7.52% 11,321 849 7.50% 9,887 723 7.31% Other securities 2,577 188 7.30% 2,445 194 7.93% 1,774 115 6.48% TOTAL INVESTMENT SECURITIES 23,608 1,667 7.06% 28,594 1,970 6.89% 26,409 1,723 6.52% Loans: (1) (2) Commercial 63,043 4,989 7.91% 53,966 5,004 9.27% 39,196 3,451 8.80% Installment, net of unearned income 47,165 4,251 9.01% 48,437 4,612 9.52% 44,519 4,090 9.19% Real Estate 97,658 7,831 8.02% 87,707 7,182 8.19% 74,459 5,662 7.60% Credit Card and Other 811 10613.07% 1,059 13512.75% 1,033 13813.36% TOTAL LOANS 208,677 17,177 8.23%191,169 16,933 8.86%159,207 13,341 8.38% TOTAL EARNING ASSETS 235,349 18,947 8.05%221,141 18,979 8.58%189,006 15,234 8.06% Less: Allowance for Losses (1,751) (1,671) (1,394) Non-Earning Assets: Cash and due from banks 4,807 4,806 4,904 Other Assets 7,426 7,470 7,055 TOTAL ASSETS 245,831 231,746 199,571
LIABILITIES & SHAREHOLDERS EQUITY Interest-bearing liabilities Savings and daily interest checking 39,123 888 2.27% 40,167 959 2.39% 43,248 1,029 2.38% Money market accounts 40,639 1,482 3.65% 37,194 2,078 5.59% 32,266 1,426 4.42% Certificates of deposit $100,000 and over 23,274 1,360 5.84% 31,498 1,859 5.90% 26,864 1,467 5.46% Other time deposits74,327 4,326 5.82% 55,621 3,239 5.82% 53,019 2,859 5.39% TOTAL INTEREST- BEARING DEPOSITS 177,363 8,056 4.54%164,480 8,135 4.95%155,397 6,781 4.36% Borrowing 29,818 1,842 6.18% 30,815 1,914 6.21% 9,690 548 5.66% TOTAL INTEREST-BEARING LIABILITIES 207,181 9,898 4.78%195,295 10,049 5.15%165,087 7,329 4.44% Non-interest bearing liabilities: Demand deposits 13,262 13,362 12,594 Other liabilities 2,327 1,670 1,540 Shareholder's equity 23,061 21,419 20,350 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 245,831 231,746 199,571 INTEREST MARGIN RECAP: Interest income/ earning assets 18,947 8.05% 18,979 8.58% 15,234 8.06% Interest expense/ earning assets 9,898 4.21% 10,049 4.54% 7,329 3.88% New yield on interest earning assets 9,049 3.84% 8,930 4.04% 7,905 4.18%
(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 $1,597,209.
The table below is a comparison of the net income for the years 1999 thru 2001. 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 2001 $1,597,209 $(441,791) (21.67%) 2000 2,039,000 635,000 45.23% 1999 1,404,000 (425,000) (23.24%)
SVB&T Corporation's net income has decreased during the last year. The main contributing factors to this decrease is an increase in provision loan loss expense.
Total net income before tax for 2001 decreased $922,023 which results in a 29.48% decrease.
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 2001, tax equivalent net interest income of $9,049,000 increased by $119,000, which resulted in a 1.33% increase. The net interest income from 2000 was $8,930,000 which was a $1,025,000 over the 1999 net interest income of 7,905,000.
CHANGES IN NET INTEREST INCOME (Table 1) (Tax equivalent basis, dollars in thousands) Change from Prior Year 2001 2000 1999 2001 2000 Interest income on: Loans 17,177 16,933 13,341 1.44% 26.92% Investment securities 1,667 1,970 1,723 -15.38% 14.34% Federal funds sold 91 73 167 24.66% -56.29% Due from FHLB 12 3 3 300.00% 0.00% Total interest income 18,947 18,979 15,234 -0.17% 24.58%
Interest expense on: Savings and daily interest checking 888 959 1,029 -7.40% -6.80% Money market deposits 1,482 2,078 1,426 -28.68% 45.72% Certificates of deposit of $100,000 & over 1,360 1,859 1,467 26.84% 26.72% Other time deposits 4,326 3,239 2,859 33.56% 13.29% All other borrowing 1,842 1,914 548 -3.76% 249.27% Total interest expense 9,898 10,049 7,329 -1.50% 37.11% Net interest income 9,049 8,930 7,905 1.33% 12.97% Net interest margin 3.84% 4.04% 4.18%
RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME (Table 2) (Taxable equivalent basis, dollars in thousands) 2001 vs 2000 2000 vs 1999 Dollar Attributed to Dollar Attributed to Change Volume Rate Change Volume Rate Interest income on: Loans 244 1,496 (1,252) 3,592 2,755 837 Investment securities (303) (348) 45 247 147 100 Federal funds sold 18 59 (41) (94) (107) 13 Due from FHLB 9 13 (4) 0 0 (0) Total interest income (32)1,220 (1,252) 3,745 2,795 950 Interest expense on: Savings and daily interest checking (71) (24) (47) (70) (73) 3 Money market deposits (596) 159 (755) 652 247 405 Certificates of deposit of $100,000 and over (499) (483) (16) 392 263 129 Other time deposits 1,087 1,089 (2) 380 146 234 All other borrowing (72) (62) (10) 1,366 1,253 Total interest expense (151) 679 (830) 2,720 1,836 884 Net interest income 119 541 (422) 1,025 959 66
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 $1,120,000 in 2001; $300,000 in 2000; and $8500,000 in 1999. As of December 31, 2001, the provision was 1.01% of loans outstanding. The allowance for loan losses increased $426,000 during 2001. Management's analysis indicates the current allowance is adequate to fund anticipated future needs. These additional reserves are due to a softening of the economy through 2001 and a more conservative approach on the amount of funds necessary for our participation loans.
Other Income
Total other income for 2001 was $1,788,796, which is a $46,008, 2.64% increase over 2000's total other income of $1,742,788.
The two primary sources of other income were trust income and service charges income. Trust income accounts for 30.35% of total other income, however, it has decreased 28.5% from 2000. This decrease is due to the termination of SVB&T's trustee services to Kimball International, Inc.for their retirement account.
Service charge income is up 8.53%, from 2000. This is due largely to a tightening of our overdraft refunding policy.
In addition to the above referenced line items - net gain on sales of loans was a major contributor to other income. This is a result of selling in house fixed rate loans 2001 was the first year for this and resulted in $181,905 in income which is 10.17% of other income.
Insurance income, other operating income and realized security gains (losses) make up the remainder of total other income category. As a total the accounts resulted in $484,991 of income for 2001. Other Expenses
Total other expenses for 2001 were $7,157,686. This is a $180,198, 2.52% increase over the 2000 total of $6,977,488.
Salaries and employee benefits are the two largest expense categories. Salaries and employee benefits expense for 2001 were 4.179,233. This is an increase of $309,583 over 2001, which results in an 8% increase. This increase in expenses represent an increase in the number of employees and normal pay and benefit increases for the banks employees.
Personal property tax was up by $25,000 as compared to 2001. This was due to a higher assessment value for 2001.
Software Amortization expense increased 29.98% as compared to 2001. The $49,000 increase was due to a decrease in the number of years over which Software is being amortized.
Loan expense also increased for 2001. This increase is due to repoed assets being sold at $28,000 less than anticipated resulting a current year earning reduction.
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 2001 was $608,000 compared to $1,088,000 in 2000 and $703,000 in 1999. The effective tax rate was 27.57% in 2001, 34.80% in 2000, and 33.46% in 1999. The effective rate decreased in 2001 compared to 2000 due to an increased tax-free income. In 2000 compared to 1999, the effective rate changed very little.
Financial Condition
As of December 31, 2001 total assets decreased to $240,450,000, a 2.74% decrease from December 31, 2000 total of $247,227,000. Average total assets in 2001 of $245,831,000 were $14,085,000 greater than the 2000 average of $231,746,000.
Total deposits decreased to $181,740,000 at December 31, 2001 from $186,360,000 at December 31, 2000 a decrease of $4,890,000 or 2.62%.
Net loans at year-end 2001 were $203,707,000 up $706,000 or .35% above the 2000 year-end total of $203,001,000. Average loans outstanding of $208,677,000 in 2001 increased by $17,508,000 or 9.20% over the 2000 average loans outstanding of $191,169,000. Loan balances remained stable as the bank was not aggressive in loan volume. Total investment securities available for sale at year-end 2001 were $20,072,000 and at year-end 2000 were $28,592,000. 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, 2001 and December 31, 2000, money market investments were $0.
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.
The following table presents an analysis of the investment securities portfolio for 2001, 2000 and 1999.
Investment Securities Available for Sale (Dollars in thousands) December 31 Investment securities available for sale: 2001 2000 1999 U.S. Treasury 0 0 0 U.S. Government agencies and corp. 4,006 15,052 14,087 Mortgage-backed pass-through securities 66 73 125 Collateralized mortgage obligations: Agency 0 0 0 Corporate 0 0 0 State and Political subdivisions 15,083 12,619 10,705 Other Securities 714 873 882 Net unrealized gain (loss) 204 (25) (901) Total Carrying Value 20,072 28,592 24,898
Maturities and Average Yields of Investment Securities Available for Sale at December 31, 1999
2001 2000 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Securities Available for Sale Due in 1 yr or less 2,619,929 2,665,865 2,489,936 2,465,658 Due after 1 yr but with in 5 yrs 4,148,616 4,276,034 13,383,583 13,330,572 Due after 5 yrs but within 10 yrs 7,419,372 7,522,767 8,640,040 8,659,174 Due after 10 yrs 5,614,497 5,535,182 4,030,085 4,061,211 Total Securities 19,802,414 19,999,839 28,543,644 28,516,615 Mortgage backed securities 65,696 72,061 72,644 75,114 Total 19,868,110 20,071,900 28,616,288 28,591,729
Loans
Loans outstanding at December 31, 2001 were $205,889,148. This is an increase of $1,092,803 or .53% over December 31, 2000.
Real Estate loans continue to be the largest component of the loan portfolio at $104,923,219. This an increase of $1,822,945 or 1.8%.
Commercial and industrial loans were $46,102,714 at December 31, 2001. This is an $5,235,295 increase over December 31, 2000. This increase is 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, 2001 the bank had $48,618,234 in purchased loans. That represents a 9.5% decrease from December 31, 2000. The bank carefully monitors each Participation and reviews concentrations either by geographic area or industrial segment.
Individual loans for household and other personal purposes were 36,925,315. This is a decrease of $4,393,320 or 10.6% from December 31, 2000. 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.
Construction loans decreased $2,446,200 or 14.2% from December 31, 2000. The balance December 31, 2001 was $14,727,425. These construction loans are primarily related to participations with other banks and brokers. The decrease reflects a lack of good opportunities as the economy softened in 2001.
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 2001 2000 1999 1998 1997 Percent Percent Percent Percent Percent Amt of Total Amt of Total Amt of Total Amt of Total Amt of Total Commercial, financial & agricultural 48,682 23.64 42,618 20.81 23,261 10.20 18,722 13.3 16,228 13.2 Real estate - construction 14,727 7.15 17,174 8.39 6,490 3.70 1,687 1.20 1,322 0.9 Real estate - mortgage 104,923 50.96 103,100 50.34 98,851 56.4 80,803 56.7 79,491 56.4 Consumer installment 36,925 17.93 41,319 20.18 46,295 26.42 46,470 32.6 40,859 29.0 Banker Acceptances 0 0 0 0 0 0 0 0 0 0 Economic dev. rev. bonds 0 0 0 0 0 0 0 0 0 0 Repurchase Agreement 0 0 0 0 0 0 0 0 0 0 Lease Financing 631 .31 585 .29 363 .21 336 .24 437 .31 TOTAL 205,888 100 204,796 100175,260 100143,873 100 140,831 100 Less: Unearned income 85 124 141 204 227 Allowance for loan losses 2,097 1,671 1,627 1,106 1,402 Total loans 203,706 203,001 173,492 142,536 139,202
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 11,501 15,774 21,407 48,682 19,556 29,126 Real Estate Construction 7,123 4,598 3,006 14,727 3,097 11,630 TOTALS 18,624 20,372 24,413 63,409 22,653 40,756
Capital Resources
Stockholders' equity at December 31, 2001 increased to $23,653,000 from December 31, 2000 equity of $22,469,000. The increase of $1,184,000 was a result of earnings and the change in unrealized gains and loss on securities. 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 2001, the average deposits of $190,625,000 funded 81% of the average earning assets. Average total deposits for 2001 increased by $12,783,000, or 7.20% as compared to 2000 average deposit totals.
Customers are seeking higher rates of return on investments and have moved into alternative investments such as stocks and mutual funds. Management has funded some loan growth with advances from the Federal Home Loan Bank and Federal Funds purchased. Management will continue to seek increases in deposits when deposits can be lent or invested at a profitable spread.
Maturities of Time Deposits December 31, 2001 (dollars in thousands) Certificates of Deposit Over $100,000 Three months or less 8,113 Over three months through one year 7,973 Over one year through three years 5,129 Over three years 2,923 TOTAL 24,138
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 quarterly. 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) 2001 2000 1999 1998 1997 Balance as of January 1 1,671 1,627 1,106 1,403 1,330 Provision for Loan Losses 1,120 300 850 580 400 Recoveries of Prior Loan Losses 100 321 114 182 106 Loan Losses charged to the Allowance (794) (577) 443 1,059 (433) Balance as of December 31 2,097 1,671 1,627 1,106 1,403
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.
Included in the Non-Performing Asset total for December 31, 2001 are three participation loans with a total balance of $1,369,760. Management believes that any loss from the collection of these secured loans will be minimal and is covered by the balance in the Allowance for Loan Loss account.
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) 2001 2000 1999 1998 1997 Total Loans on non-accrual (non-performing loans) 4,164 2,002 1,406 857 1,832 Other Real Estate 397 133 44 53 0 Total non-performing assets 4,561 2,135 1,450 910 1,832 Total non-performing loans as a percentage of loans 2.22% 1.04% .81% .60% 1.30% Total non-performing assets as a percentage of loans and ORE 2.22% 1.04% .81% .63% 1.30% 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 40 0 0 0 0 40 Investment securities 0 0 2,666 4,276 13,130 20,072 Loans 48,423 21,872 33,100 64,517 37,892 205,804 Total Interest Earning Assets 48,463 21,872 35,766 68,793 51,022 225,916
Interest Bearing Liabilities
Interest bearing NOW, savings, and money market deposits 67,967 7,093 5,000 5,000 0 85,060 Time deposits under $100,000 17,146 5,727 14,819 22,764 242 60,698 Time deposits over $100,000 8,501 2,050 5,797 7,052 442 23,842 Borrowed funds 4,100 0 0 11,100 18,000 33,200 Total Interest Bearing Liabilities 97,714 14,870 25,616 45,916 18,684 202,800
Interest Sensitivity Gap Current (49,251) 7,002 10,150 22,877 32,338 Interest Sensitivity Gap Cumulative (49,251) (42,249) (32,099) (9,222) 23,116 Sensitivity Ratio Cumulative 50% 62% 77% 95% 113%
Quarterly Results of Operations March 31 June 30 Sept 30 Dec 31
Interest income 4,905 4,842 4,595 4,250 Interest expense 2,743 2,593 2,415 2,147 Net interest income 2,162 2,249 2,180 2,103 Provision for loan losses 180 130 105 705 Net securities gains 0 0 11 0 Non-interest income 364 383 369 673 Non-interest expense 1,810 1,794 1,830 1,724 Income before income taxes 536 708 614 Income taxes 167 239 196 Net income 369 469 418 Net income per share: Primary net income per share .49 .63 .56 .46
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 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, 2001 are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
PART III
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 P. 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.
NOMINEES FOR ELECTION AS A DIRECTOR ON MAY 21, 2002 Name, Shares beneficially Owned Foot Present Principal Year (Percentage of Outstanding Note Occupation Elected Common Shares)
Gary P. Critser 1999 1,580 Retired .26% Kimball International, Inc.
Brian K. Habig 1987 10,056 1 National Sales & Marketing Manager 1.67% Jackson of Danville Kimball International, Inc.
Douglas A. Habig 1973 100,257 2 Chairman of the Board & CEO 16.66% Kimball International, Inc.
John B. Habig 1959 90,626 3 Chairman of the Board 15.06% Springs Valley Bank & Trust Company
Thomas L. Habig 1959 78,911 4 Vice Chairman of the Board 13.11% Kimball International, Inc. Secretary, SVB&T Corporation
Hilbert Lindsey 1988 4,591 Vice President .76% Lindsey Lumber & Builders Supply, Inc.
Ronald G. Seals 1989 725 5 President & CEO .12% Springs Valley Bank & Trust Company
Ronald J. Sermersheim 1976 21,418 6 Vice President, Environment, 3.56% Health & Safety Kimball International, Inc.
Ronald J. Thyen 1999 11,674 7 Senior Executive Vice President 1.94% Operations Officer, Furniture & Cabinets Kimball International, Inc.
James C. Tucker 1989 15,808 8 Attorney-at-Law 2.63% Tucker & Tucker, P.C.
1 The above amount includes 1026 shares held by Kimberly A. Habig, the wife of Mr. Brian K. Habig and 3,088 shares held by Kyle Thomas Habig, the son of Mr. Brian K. Habig.
2 The above amount includes 66,356 shares held in the Irrevocable 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, The above amount includes 66,356 shares held in the Irrevocable 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 Irrevocable 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 10,420 shares held in the Thomas L. Habig Revocable Trust, over which Mr. Thomas L. Habig has voting rights.
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 Irrevocable 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.
Family Relationships of Directors Messrs. Douglas A. Habig, John B. Habig and Thomas L. Habig are brothers. Mr. Brian K. Habig is the son of Mr. Thomas L. Habig.
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 2001. 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. In 2001, all directors attended at least 75% of the meetings of the board, including committee meetings of which they were members.
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 2001.
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.C. Sermersheim and Gary P. Critser.
The Nomination Committee reviews, appoints and recommends to the Board the nomination of Board Members for the Corporation for the ensuing year. The embers 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 2001.
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 one hundred ninety seven (2,197) shares were issued for year 2001 in the amounts set forth in the following table 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 granted options for one thousand one hundred (1,100) shares for 2001 in the following amounts to the following Directors:
DIRECTOR 2001 2001 STOCK OPTIONS ISSUED GRANTED
Gary P. Critser 273 137 Brian K. Habig 302 151 Douglas A. Habig 302 151 John B. Habig 0 0 Thomas L. Habig 151 76 Hilbert Lindsey 273 137 Ronald G. Seals 0 0 Ronald J. Sermersheim 302 151 Ronald J. Thyen 292 146 James C. Tucker 302 151 TOTALS: 2,197 1,100
Certain Transactions
During 2001, 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.
Stock Transaction
On January 18, 2002, the Company purchased in a negotiated transaction 144,920 shares (19.46% of the total shares outstanding) of its common stock at $40.00 per share. The owner of the shares was the Kimball International, Inc. Retirement Trust, which currently owns 0% of the Company's issued and outstanding shares. Douglas A. Habig and Thomas A. Habig, each of whom are directors of the Company and the Bank, are the Chairman and Vice Chairman, respectively, of Kimball International, Inc. In connection with the purchase of these shares, the Company and the Bank were advised in writing, by an independent third-party financial advisor engaged by the Bank, that the price to be paid for the shares in the transaction would be fair to the Company and its shareholders from a financial point of view.
PRINCIPAL SHAREHOLDERS
The following information is given as of April 12, 2002, 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 100,257 16.66%* Jasper, IN
John B. Habig 90,626 15.06%** Jasper, IN
Thomas A. Habig 78,911 13.11%*** Jasper, IN
* The above amount includes 66,356 shares held in the Irrevocable 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 Irrevocable 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 Irrevocable 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 10,420 shares held in the Thomas L. Habig Revocable Trust.
EXECUTIVE COMPENSATION COMPENSATION OF OFFICERS
Compensation Committee Report
Officers of the Corporation are not compensated for their services in such capacity. All officers of the Corporation are also officers of the Bank and are compensated in their capacity as Bank officers. Decisions on compensation of the Bank&WP1-9;s executives are made by the Board of Directors of the Bank, upon the recommendation of the Executive Compensation Committee of the Board ("Committee"). Each member of the Committee except Mr. Randall Catt is a non-employee director. Mr. Catt is not a director and is not an employee. 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 Compensation Committee addressing the Bank&WP1-9;s compensation policies for 2001 as they affected all executive officers of the Bank and Mr. Ronald G. Seals who, for 2001, was the Bank&WP1-9;s most highly paid executive whose total annual salary and bonus exceeded $100,000.
Compensation Policies Toward Executive Officers
The Committee&WP1-9;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 Committee. The Committee also reviews a bank salary survey prepared by Crowe Chizek and Company LLP which contains benchmark salary information. 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 2001 was based upon the banks Return on Assets (ROA) and the officer's base salary. The Incentive Bonus Plan provided cash bonuses for executive officers equal to five percent (5%) 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 2001.
Executive Compensation for 2001
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 2001 were determined in the same manner as discussed above for other senior executives. The Board of Directors and the 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&WP1-9;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, 2001, 2000, and 1999 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, 2001.
Name and Principal Position Year Annual Compensation Salary(1) Bonus (2)
Ronald G. Seals President, CEO and Director 2001 $144,000 $ 7,200 2000 $132,000 $33,000 1999 $126,000 $13,300
1 While officers enjoy certain perquisites, such perquisites do not exceed the lesser of $50,000 or 10% of such officer&WP1-9;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."
1996 Key Employees' Stock Option and Stock Appreciation Rights Plan
The 1996 stock option and stock appreciation rights program (the "Plan") provides for the grant of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code, the grant of non-qualified stock options, and the grant of stock appreciation rights ("SARs") to 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 Executive Compensation Committee of the Board of Directors of the Bank administers the Plan.
2001 Equity Incentive Plan
The 2001 Equity Incentive Plan (the "Incentive Plan")provides for the grant of "incentive stock options", the grant of non-qualified stock options, the grant of "SARs" and the grant of performance shares to officers and key employees of the Corporation and the Bank. The Board of Directors of the Corporation believes the Incentive Plan provides an important incentive to those who will be instrumental to the success of the Corporation and of the Bank. The Corporation has reserved 70,000 shares for issuance under the Incentive Plan. The Compensation Committee may also grant performance shares which must have an initial value equal to the fair market value of the shares on the date of grant, and will only be earned upon terms and conditions determined by the Executive Compensation Committee. All performance goals established as a condition for earning any performance shares must provide for a targeted level or levels of financial performance with respect to one or more of the following business criteria: (a) return on assets, (b) income before interest and taxes, (c) net income, (d) total shareholder return, (e) return on equity, and (f) Bank operating income. After the grant of a performance share, the Compensation Committee has the discretion to reduce or waive any performance goals or related business criteria applicable to that performance hare. At the end of the applicable performance period, payment of earned performance shares will be made in cash, in shares of common stock of the Corporation, or any combination thereof as determined by the Compensation Committee.
Option Grants In Last Fiscal Year
The following table provides details regarding stock options granted to Mr. Ronald G. Seals in 2001. 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)
Ronald G. Seals 1,700 23% $30.00 $30.00
Potential Realizable Value at Assumed Annual Rates of Stack Appreciation For Option Term
Name Expiration 0% 5% 10% Date ($) (%) (%)
Ronald G. Seals 01-16-06 $0.00 $14,090 $31,136
1 The market price is determined by the Board of Directors after reference to a valuation of the Corporation's stock as of December 31 of each year by an independent valuation firm and other factors the Board of Directors considers relevant.
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 as of December 31, 2001. 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 Common Stock at December 31, 2001. For purposes of the following table, the year-end price of the stock is $38.50
Name Number of Shares Value of Unexercised Underlying Unexercised In-the-Money Options Options at Fiscal Year End At Fiscal Year End (#) ($) Exercisable Unexercisable Exercisable Unexercisable
Ronald G. Seals 4,425 3,050 $38,823 $14,665
Employee Benefit 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements - (as referred to in Item 8) (b) No reports on Form 8-K were filed with the Commission during the fourth quarter of 2001. (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, 2001 (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. 3/22/02
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 3/22/02 Principal Financial and Accounting 3/22/02 Officer
By: By: Douglas A. Habig, Director 3/22/02 Ronald G. Seals, Principal Executive Officer and 3/22/02 Director
By: By: Gary P. Critser, Director 3/22/02 Brian K. Habig, Director 3/22/02
By: By: Thomas L. Habig, Director 3/22/02 James C. Tucker, Director 3/22/02
By: By: Ronald J. Sermersheim, Director Hilbert Lindsey, Director 3/22/02 3/22/02
By: Ronald J. Thyen, Director 3/22/02 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
Message to our share owners: As with many other financial institutions, the year 2001 was a difficult year in growth and earnings for Springs Valley Bank & Trust Company. Due to a weakening economy, the tragedy of September 11th and a significant decline in trust assets, bank earnings were down $442,000 from our record earnings of 2000. Total assets decreased $6,777,000.
Financial highlights for the year: Net income $1,597,209, down 21.7% Income per share: $2.14, down from $2.74 Book value per share $31.69, up $1.53 Total assets $240 million, down 2.7% Deposits $181 million, down 2.5%
Following a year of significant growth in 2000, management decided to stabilize our balance sheet due to a softening economy. In 2001 an increase in our deposit base was not necessary to fund loan growth. Therefore, a very conservative approach was taken toward rates paid on deposit accounts. Additionally, we sold a total of $10,000,000 in fixed rate mortgages into the secondary market. This sale of loans plus a decrease in loan demand necessitated a conservative approach toward deposit growth.
The sale of fixed rate mortgage loans into the secondary market will be a significant benefit for future growth and earnings of the bank by providing more funds to service future customer needs. By selling our fixed rate loans we have eliminated the risk of interest rate increases in the future. However, we maintain the servicing rights for these sold loans, thus maintaining contact with our borrowing customers. This process positions us to sell other bank services to these borrowers.
Due to the large loan growth experienced in 2000 and a weakening economy in 2001, we decided that an increase in our Loan Loss Reserve account was necessary. We had been maintaining our reserve total at about .8% of total loans. With over $1,000,000 transferred from earnings to reserves, we increased our reserve account by $426,000 for a total of over 1% of outstanding loans. It is our intention to maintain our reserve totals at or above 1% of total loans.
In early 2001 Kimball International withdrew their company's Pension Profit Sharing Plan from our trust department. The loss of this account was not a surprise. We were notified over a year in advance that the account would be transferred out of the bank. The retirement plan was restructured to permit participants to self-direct their pension funds. Springs Valley Bank's trust department is not equipped to provide this service to the seven thousand plus employees of Kimball International.
With the loss of the Kimball trust account, our trust assets decreased from $500 million to $200 million. A trust operation of this size is still very large for a community bank. The size of our trust department will permit a very profitable operation for the bank. We will maintain our qualified staff and be very aggressive in growing for the future.
In early 2001 we were presented with the opportunity to repurchase 144,200 shares of the Company's common stock in a negotiated purchase. It is uncommon for such a large block of shares to become available. After a review and analysis of the financial implications of the repurchase of this block of shares, which represented approximately 20% of the total shares outstanding, we decided to pursue the transaction. The transaction required certain regulatory approvals, which were obtained in early 2002. On January 18, 2002, the Company completed the repurchase at $40.00 per share. In connection with the transaction, the Bank was advised in writing, by an independent third-party financial advisor engaged by the Bank, that the price to be paid for the shares in the transaction would be fair to the Company and its shareholders from a financial point of view. Our analysis indicates this transaction will be accretive to earning per share in 2002 and subsequent years.
Although 2001 was a difficult year for the bank we are not disappointed with our final results. In many areas the adverse experiences have made us a stronger organization. One of the most positive things we have for future prosperity is our dedicated staff. We continuously strive to provide our customers with the latest in banking technology and convenience along with the best personal service possible.
The year 2002 will be very special for our bank as we celebrate 100 years of service to southwest Indiana. We are planning several exciting activities throughout the year to commemorate our century of service and to thank those who have helped achieve this milestone.
Please accept this expression of gratitude from the directors and staff of Springs Valley Bank & Trust for your continued support. You have brought us business and 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.
Sincerely,
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, 2001 2000 ASSETS Cash and cash equivalents Cash and due from banks $4,811,902 $5,824,159 Interest-bearing deposits with banks 39,754 49,263 Total cash and cash equivalents 4,851,656 5,873,422 Investment securities, available for sale, at market value 20,071,900 28,591,729 Loans Held for sale 2,359,499 0 Loans Loans, net of unearned interest 205,804,166 204,672,215 Allowance for loan losses (2,097,423) (1,670,912) Net loans 203,706,743 203,001,303
Federal Home Loan Bank stock and other stock, at cost 2,005,150 1,855,000 Buildings and equipment 4,281,034 4,607,584 Interest receivable 1,509,538 1,886,009 Other assets 1,664,707 1,412,280 Total assets $240,450,227 $247,227,327
LIABILITIES Deposits Non-interest bearing $12,139,389 $13,800,356 Interest bearing 169,600,771 172,559,814 Total deposits 181,740,169 186,360,170
Federal funds purchased 4,100,000 2,765,000 Short-term borrowings 0 2,500,000 Interest payable 1,089,317 964,086 Deferred income taxes 74,972 133,931 Other liabilities 692,500 935,428 Long-term borrowings 29,100,000 31,100,000 Total liabilities 216,796,958 224,758,615
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY Common stock (No par value: 800,000 shares authorized and issued) 200,000 200,000 Surplus 6,253,296 6,210,711 ,Retained earnings 18,107,429 17,047,543 Accumulated other comprehensive income: Net unrealized gains (losses) on investment securities available for sale 123,069 (14,832) Treasury stock at cost (54,972 shares 2000, 56,767 shares 1999) (1,030,525) (974,710) Total shareholders' equity 23,653,269 22,468,712 Total liabilities and shareholders' equity $240,450,227 $247,227,327
See Notes to Consolidated Financial Statements
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Income Year Ended December 31, 2001 2000 1999 INTEREST INCOME Loans and fees on loans $17,176,908 $16,932,878 $13,340,512 Investment securities Taxable 416,135 974,194 932,315 Tax exempt 738,438 581,318 500,291
Dividends 157,216 146,459 67,166 Federal funds sold and other 103,328 76,564 166,728 Total interest income 18,592,025 18,711,413 15,007,012
INTEREST EXPENSE Deposits 8,056,027 8,134,830 6,781,089 Short-term borrowings 10,296 148,231 7,834 Long-term borrowings 1,831,603 1,766,420 540,108 Total interest expense 9,897,926 10,049,481 7,329,031
NET INTEREST INCOME 8,694,099 8,661,932 7,677,981 Provision for loan losses 1,120,000 300,000 850,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,574,099 8,361,932 6,827,981
NON-INTEREST INCOME Trust Department income 542,834 760,159 725,423 Service charges on deposit accounts 579,066 533,539 533,290 Net gain on sales of loans 181,905 0 0 Insurance income 171,228 160,645 157,290 Other operating income 302,970 298,272 292,293 Realized security gains (losses) 10,793 (9,827) (3,173) Total non-interest income 1,788,796 1,742,788 1,705,123 NON-INTEREST EXPENSE Salaries and employee benefits 4,179,233 3,869,650 3,613,674 Premises and equipment expense 1,280,768 1,392,219 1,135,080 Deposit insurance expense 35,379 35,597 18,970 Other operating expenses 1,662,306 1,680,022 1,657,823 Total non-interest expense 7,157,686 6,977,488 6,425,547
INCOME BEFORE INCOME TAXES 2,205,209 3,127,232 2,107,557 Income taxes 608,000 1,088,200 703,000 NET INCOME $1,597,209 $2,039,032 $1,404,557
EARNINGS PER SHARE Basic $2.14 $2.74 $1.88 Diluted $2.13 $2.73 $1.88
AVERAGE SHARES OUTSTANDING Basic 746,372 745,017 745,994 Diluted 748,201 746,429 747,949
See Notes to Consolidated Financial Statement
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Cash Flows Year Ended December 31, 2001 2000 1999 OPERATING ACTIVITIES: Net income $1,597,209 $2,039,033 $1,404,557 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,120,000 300,000 850,000 Depreciation 519,645 511,215 461,119 Investment securities amortization 11,176 23,740 50,786 Investment securities (gains) lossses (10,793) 24,263 3,173 Proceeds from sales of residential mortgage loans held for sale 10,128,918 0 0 Net gains on sale of loans (181,905) 0 0 Increase in residential mortgage loans held for sale (12,306,512) 0 0 Loss on sale of equipment 0 14,636 0 Loss on abandoned equipment 0 0 87,314 Gain on sale of other real estate (9,802) (43,100) 0 Deferred income taxes (147,693) (40,623) (233,370) (Increase) decrease in interest receivable and other assets 388,483 (863,118) (228,296) Increase in interest payable and other liabilities (119,412) 242,561 123,236
NET CASH PROVIDED BY OPERATING ACTIVITIES 989,314 2,208,607 2,518,519
INVESTING ACTIVITIES; Proceeds from sales and maturities of investment securities available for sale 12,355,576 2,386,071 7,220,309 Purchases of investment available for sale (3,607,780) (5,250,709) (7,913,802)
Purchases of investment securities held to maturity (150,150) (650,000) (614,300)
Proceeds from the sale of equipment 0 33,030 0
Proceeds - sale of loans 450,000 0 84,000
Proceeds - sale of other real estate 147,802 126,500 40,000
Net increase in loans (2,677,879) (29,982,016) (31,863,265) Additions to buildings and equipment (193,095) (643,839) (250,408)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 6,324,474 (33,980,963) (33,297,466)
FINANCING ACTIVITIES; Net increase (decrease) in deposits (4,620,001) 5,084,105 21,944,573
Net increase in federal funds purchased1,335,000 2,765,000 0 Net increase (decrease) in short-term borrowings (2,500,000) (5,000,000) 5,000,000
Increase in long-term borrowings (2,000,000) 24,500,000 8,100,000 Sale of treasury stock 85,170 67,527 78,259 Purchase of treasury stock (98,400) 0 (198,132) Cash dividends (537,323) (536,420) (514,667)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (8,335,554) 26,880,212 34,410,033
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,021,766) (4,892,144) 3,631,086
Cash and cash equivalents beginning of year 5,873,422 10,765,566 7,134,480
CASH AND CASH EQUIVALENTS AT END OF YEAR $4,851,656 $ 5,873,422 $10,765,566
SUPPLEMENTAL DISCLOSURES; Cash paid during the year for: Income taxes $ 935,795 $1,172,783 $876,673
Interest $9,772,695 $9,869,366 $7,257,711
See Notes to Consolidated Financial Statement
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 1,1999$200,000$6,124,070$14,655,040$ 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 gain 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, 1999200,0006,170,10915,544,930 (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 Less 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, 2000200,0006,210,711 17,047,543(14,832) (974,710) 22,468,712 COMPREHENSIVE INCOME 2001 Net income 1,597,209 1,597,209 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $90,449 127,108 127,108 Plus reclassifications for losses included in net income 10,793 10,793 TOTAL COMPREHENSIVE INCOME 1,735,110 Cash dividends (537,323) (537,323) Sold 2,839 shares of treasury stock 42,585 42,585 85,170 Purchased 3,280 shares of treasury stock (98,400) (98,400) BALANCE, DECEMBER 31, 2001$200,000$6,253,296$18,107,429 $123,069 $(1,030,525)$23,653,269
See Notes to Consolidated Financial Statements
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
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-earing 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, 2001 and 2000, 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 over the life of the security. Gains or losses on dispositions are computed using the specific identification method.
Investment Securities Held to Maturity - The Bank owns stock in the Federal Home Loan Bank of Indianapolis. This stock is classified as held to maturity and is carried at cost.
Loans Held for Sale - Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
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. Interest income on non-accrual loans is accounted for on the cash basis until the loan is written off or qualifies for return to accrual.
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. Subsequent recoveries, if any, are credited to the allowance.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate - Real estate acquired in foreclosures is carried in other assets 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. Real estate acquired in foreclosures is $397,440 at December 31, 2001 and $133,000 at December 31, 2000.
Servicing - Servicing assets are recognized as separate assets when rights are retained after the sale of loans. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost.
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 (the liability method). 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, which are accounted for under the rules of APB Opinion 25. 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.
Comprehensive Income - Generally accepted accounting principles require that recognized revenue, expenses, gains and losses be included in net income. Certain other changes in assets and liabilities caused by unrealized gains and losses on available-for-sale securities, are reported as a separate component of shareholders' equity in the consolidated statements of financial condition. These unrealized gains and losses on available-for-sale securities and net income, are the components of comprehensive income.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
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 dilutive effect of additional common shares issuable under stock option plans. The following table reconciles the amounts reported in the financial statements:
BASIC EARNINGS PER SHARE: 2001 2000 1999 Net income $1,597,209 $2,039,032 $1,404,557 Average shares outstanding 746,372 745,017 745,994 Basic earnings per share $ 2.14 $ 2.74 $ 1.88
DILUTED EARNINGS PER SHARE: Net income $1,597,209 $2,039,032 $1,404,557 Average shares outstanding 746,372 745,017 745,994 Stock options, net 1,829 664 1,955 Diluted average shares outstanding 748,201 745,681 747,949 Diluted earnings per share $ 2.13 $ 2.73 $ 1.88
Trust Assets - Trust assets are not assets of the Company and are not included in the financial statements
Reclassifications - Certain prior year amounts have been reclassified to conform with the 2001 presentation. These reclassifications had no effect on net income.
NOTE 2--EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 2002, the Company will adopt FASB Statement No. 142 "Goodwill and Other Intangible Assets". The adoption of this accounting standard will change the way the Company accounts for goodwill. The effect of adopting this accounting standard will not materially affect the financial statements of the Company.
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 was $715,000 at December 31, 2001 and $916,000 at December 31, 2000.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 4--INVESTMENT SECURITIES
The amortized costs and estimated market values of investment securities at December 31, 2001 and 2000 were as follows: December 31, 2001 Unrealized Unrealized Estimate Amortized Holding Holding Market Cost Gains Losses Value Securities Available for Sale U.S. Government corporations and agencies $4,005,916 $ 83,154 $ 0 $4,089,070
States and political subdivisions 15,082,601 253,214 175,102 15,160,713 Mortgage-backed securities 65,696 6,365 0 72,061 Other securities 713,897 36,159 0 750,056 Total $19,868,110 $ 378,892 $175,102 $20,071,900
December 31, 2000
Unrealized Unrealized Estimated Amortized Holding Holding Market Cost Gains Losses Value Securities Available 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
The amortized cost and estimated market values of securities available for sale at December 31, 2001 and 2000, 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.
2001 2000 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Securities Available for Sale Due in one year or less $ 2,619,929 $ 2,665,856 $ 2,489,936 $2,465,658 Due after one year but within five years 4,148,616 4,276,034 13,383,583 13,330,572 Due after five years but within ten years 7,419,372 7,522,767 8,640,040 8,659,174 Due after ten years 5,614,497 5,535,182 4,030,085 4,061,211 19,802,414 19,999,839 28,543,644 28,516,615 Mortgage backed securities 65,696 72,061 72,644 75,114 Total $19,868,110 $20,071,900 $28,616,288$28,591,729
Securities available for sale with amortized cost of $4,005,916 at December 31, 2001 and $15,051,788 at December 31, 2000 were pledged as collateral on debt of the Bank.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 4--INVESTMENT SECURITIES (Continued)
Proceeds from sales of securities available for sale during 2001, 2000 and 1999 were $2,877,200, $1,153,842 and $2,000,888. In 2001, gains of $10,793 and losses of $-0- were realized. In 2000, gains of $-0- and losses of $9,826 were realized. In 1999, gains of $-0- and losses of $3,173 were realized.
NOTE 5--LOANS
Loans at December 31, 2001 and 2000 are comprised of the following:
2001 2000 Commercial and industrial loans $ 46,102,714 $ 40,867,419 Real estate loans (including $3,338,772 and $2,137,752 secured by farm land) 104,923,219 103,100,274 Construction loans 14,727,425 17,173,625 Agricultural production financing and other loans to farmers 2,579,860 1,751,194 Individuals' loans for household and other personal expenditures 36,925,315 41,318,635 Lease financing 630,615 585,198 205,889,148 204,796,345 Less: Unearned income on loans 84,982 124,130 Total loans $205,804,166 $204,672,215
Information concerning impaired loans at December 31, 2001, 2000 and 1999 is as follows:
2001 2000 1999 Impaired loans with a related allowance for loss $ 588,386 $1,098,513 $1,301,967 Impaired loans without a related allowance for loss 4,153,303 981,884 939,940 Total impaired loans 4,741,689 2,080,397 2,241,907
Average balance of impaired loans 4,851,447 2,259,799 1,274,676 Allocated allowance for loan losses on impaired losses 270,403 525,043 532,151
Cash receipts applied to principal 164,351 322,952 66,234 Cash receipts applied as interest income 317,044 203,664 102,885 Total cash received $ 481,395 $ 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, 2001, 2000 and 1999 are as follows:
2001 2000 1999 Loans pledged as collateral $82,458,446 $78,129,312 $73,252,093
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK INDIANA
Notes to Consolidated Financial Statements
NOTE 6--ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the year 2001, 2000 and 1999 are as follows:
2001 2000 1999 Balance, January 1 $ 1,670,912 $ 1,627,141 $ 1,106,077 Loans charged-off (793,553) (576,981) (442,969) Recoveries 100,064 320,752 114,033 Net charged-off (693,489) (256,229) (328,936) Provision for loan losses 1,120,000 300,000 850,000 Balance, December 31 $ 2,097,423 $ 1,670,912 $ 1,627,141 NOTE 7--BUILDINGS AND EQUIPMENT
Balances in the buildings, equipment, and related accumulated depreciation accounts at December 31, 2001 and 2000 are as follows:
2001 2000 Land and bank buildings $ 5,010,740 $ 4,996,301 Equipment, furniture and fixtures 4,737,185 4,558,533 Totals 9,747,925 9,554,834 Less accumulated depreciation 5,466,891 4,947,250 Net $ 4,281,034 $ 4,607,584
Depreciation expense was $519,645 for 2001, $511,215 in 2000 and $461,119 in 1998.
NOTE 8--DEPOSITS
Deposits at December 31, 2001 and 2000 are as follows:
2001 2000 Demand, non-interest bearing $ 12,139,398 $ 18,752,398 Demand, interest-bearing 18,373,746 12,028,056 Savings 66,686,606 66,622,544 Time deposits, $100,000 and over 23,842,211 29,170,918 Other time deposits 60,698,208 59,786,254 $181,740,169 $186,360,170
As of December 31, 2001 the scheduled maturities of time deposits are as follows:
2002 $38,904,256 2003 12,974,308 2004 11,236,751 2005 12,660,951 2006 and thereafter 8,764,153 $84,540,419
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 9--OTHER SHORT-TERM BORROWINGS
Other short-term borrowings at December 31, 2001 and 2000 are as follows:
2001 2000 Federal Funds purchased from Bank One, Indiana, unsecured, 1.875% at December 31, 2001 and 6.875% at December 31, 2000 $4,100,000 $ 2,765,000
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 $ 0 $ 2,500,000
NOTE 10--LONG-TERM BORROWINGS
Long-term borrowings at December 31, 2001 and 2000 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 Conversion Option Date Rate 2001 2000 February 24, 2004 5.19% $ 0 $ 5,000,000 March 15, 2005 March 15, 2002 6.32% 7,000,000 7,000,000 October 15, 2005 N/A 5.02% 1,000,000 1,000,000 July 17, 2006 N/A 6.69% 3,100,000 3,100,000 April 19, 2010 April 19, 2002 6.18% 10,000,000 10,000,000 June 7,2010 March 6, 2002 6.53% 5,000,000 5,000,000 February 28, 2011 April 27, 2002 4.48% 3,000,000 0 Total long-term borrowings $ 29,100,000 $31,100,000
On the conversion option date and quarterly thereafter, the Federal Home Loan Bank can convert the entire advance to an adjustable rate advance which reprices quarterly. If the conversion option is exercised by the FHLB, the Company has the option to pay-off the advance without prepayment penalties. If FHLB does not exercise the conversion option the Company cannot prepay the advance without significant penalties.
As of December 31, 2001 long-term borrowings are scheduled to mature as follows:
2002 $ 0 2003 0 2004 0 2005 8,000,000 2006 3,100,000 Thereafter 18,000,000 $ 29,100,000 At December 31, 2001, the Bank has $30,840,000 available under a secured line of credit and $7,900,000 available under two unsecured lines. These line of credit are short-term and renew annually.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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, 2001, 2000 and 1999 was $125,609, $183,691 and $154,203.
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, 2001, 2000 and 1999 were $315,668, $296,159 and $347,940.
NOTE 12--INCOME TAXES
The components of the provision for income taxes are:
2001 2000 1999 Federal income taxes currently payable $ 552,882 $ 843,703 $ 695,375 Deferred Federal income taxes (113,882) (31,703) (183,375) Provision for Federal income taxes for the year $ 439,000 $ 812,000 $ 512,000
State income taxes currently payable $ 202,811 $ 285,120 $ 240,995 Deferred state income taxes (33,811) (8,920) (49,995) Provision for state income taxes for the year $ 169,000 $ 276,200 $ 191,000
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, 2001 and 2000 are as follows:
2001 2000 Deferred Tax Assets: Allowance for loan losses $ 637,643 $ 511,220 Unrealized losses on securities available for sale 0 9,728 Loan fees 33,661 56,343 Other 10,978 16,541 Total asset 682,282 593,832
Deferred Tax Liabilities: Depreciation (676,533) (727,763) Unrealized gains on securities available for sale (80,721) 0 Net deferred tax liability $(74,972) $ (133,931)
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 12--INCOME TAXES (Continued)
The difference between the Federal income tax rate and the Bank's effective tax rate is as follows:
2001 2000 1999 Income tax at Federal tax rate of 34% $ 749,771 $ 1,063,259 $ 714,385 Tax effect of: Tax exempt interest (206,939) (156,386) (140,656) Other (27,232) (1,852) 3,211 Tax credit (12,000) 0 0 State income taxes, net of Federal effect 104,400 183,179 126,060 Total income taxes $ 608,000 $ 1,088,200 $ 703,000 Effective tax rate 27.57% 34.80% 33.46%
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. Amounts on deposit with the Bank by Kimball International and Kimball International Employee Benefit Plan were $906,377 at December 31, 2001 and $9,209,359 at December 31, 2000.
The Bank serves as Trustee for Kimball International's employee benefit plans and rents office space to Kimball. The Bank also served as trustee for Kimball International's retirement plan until April 2001. Fees paid to the Bank for these services by Kimball International in 2001, 2000 and 1999 were $200,000, $426,574 and $446,207. Amounts receivable from Kimball International for these services were $39,000 at December 31, 2001, $124,500 at December 31, 2000 and $75,000 at December 31, 1999. Kimball International, Inc. changed retirement plan trustees in April 2001. The Bank expects that fees from Kimball will decrease to approximately $80,000 annually in 2002 and 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 2001 were as follows:
Balance, January 1, 2001 $ 5,143,854 New loans 819,650 Repayments (350,565) Changes in persons included 0 Balance, December 31, 2001 $ 5,612,939
NOTE 14--LEASE COMMITMENTS
Minimum lease payments at December 31, 2001, under operating lease commitments, total $-0-. Operating expenses include rental expense of $31,172 in 2001, $22,935 in 2000 and $21,260 in 1999.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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, 2001 and 2000 were as follows:
2001 2000 Commitments to extend credit $10,391,000 $12,960,000 Standby letters of credit $ 385,000 $ 360,355
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 16--STOCK OPTION PLANS
SVB & T Corporation maintains two stock option plans for certain employees and directors. 70,000 shares of stock were reserved for these plans and 45,993 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, 1999 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 Granted 8,772 $30.00 Exercised 0 $ .00 Balance, December 31, 2001 23,410 $31.57
Pro forma information required of companies not adopting FASB No. 123 is as follows:
2001 2000 1999 Pro forma net income $ 1,563,176 $ 2,024,214 $ 1,393,481 Pro forma basic earning per share $ 2.09 $ 2.72 $ 1.87 Pro forma diluted $ 2.09 $ 2.71 $ 1.86
NOTE 17--STOCKHOLDERS' EQUITY
The Company has committed to purchase 144,920 shares of its outstanding common stock from a related party shareholder. The total purchase price will be approximately $5,940,000. All regulatory agency approvals have been received. The purchase will take place in January 2002. Purchase of this stock will not result 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 2001, 2000 and 1999 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, 2001, approximately $3,055,000 of the Bank's retained earnings were available for dividend payments to the SVB & T Corporation.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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 of Total Capital to risk-weighted assets (minimum 8%), Tier 1 Capital to risk-weighted assets (minimum 4%), and of Tier 1 Capital to average assets (minimum 4%). Management believes, as of December 31, 2001, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2001, 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.
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 Capitalize As of December 31, 2001: Tier 1 Capital to Risk- Weighted Assets $ 23,517,000 $21,867,000 $ 10,754,000 13.0% 12.2% 6.0% Total Capital to Risk- Weighted Assets $ 25,615,000 $23,964,000 $ 17,923,000 14.1% 13.4% 10.0% Tier 1 Capital to Average Assets $ 23,517,000 $21,867,000 $ 12,208,000 9.6% 9.0% 5.0%
As of December 31, 2000: Tier 1 Capital to Risk- Weighted Assets $ 22,469,344 $20,909,185 $ 10,917,213 12.4% 11.6% 6.0% Total Capital to Risk- Weighted Assets $ 24,140,256 $22,580,097 $ 18,195,355 13.3% 12.5% 10.0% Tier 1 Capital to Average Assets $ 22,469,344 $20,909,185 $ 11,564,382 9.7% 9.1% 5.0%
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 20--CONCENTRATIONS OF CREDIT
At December 31, 2001, the total amount of due from banks included $1,788,177 with Bank One Kentucky, $136,274 with German American Bank and $270,439 with Old National 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 77% 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 23% 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.
NOTE 21--FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values of financial instruments at December 31, 2001 and 2000 are as follows:
2001 2000 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value
ASSETS Cash and cash equivalents $ 4,851,656 $ 4,851,656 $ 5,873,422 $5,873,422 Investment securities 20,071,900 20,071,900 28,591,729 28,591,729 Loans and loans held for sale (net) 206,066,242 207,384,390 203,001,303 204,816,648 FHLB and other stock 2,005,150 2,005,150 1,855,000 1,855,000 Interest receivable 1,509,538 1,509,538 1,886,009 1,886,009
LIABILITIES Deposits $181,740,169 $184,138,600 $186,360,170$186,365,074 Short-term borrowings 4,100,000 4,100,000 5,265,000 5,265,000 Long-term borrowings 29,100,000 29,545,225 31,100,000 31,100,000 Interest payable 1,089,317 1,089,317 964,086 964,086
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 21--FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
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.
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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 2001 2000 ASSETS Cash in bank with subsidiary $ 66,785 $ 176,277 Investment in subsidiary 22,003,080 20,908,553 Buildings and equipment 1,680,531 1,746,975 Other assets 498,455 199,100 Total assets $24,248,851 $23,030,905
LIABILITIES Accrued expenses $ 106,957 $ 92,596 Dividends payable 133,888 134,105 Deferred income taxes 354,737 335,492 Total liabilities 595,582 562,193
SHAREHOLDERS' EQUITY Common stock 200,000 200,000 Surplus 6,253,296 6,210,711 Retained earnings 18,107,429 17,047,543 Accumulated other comprehensive income 123,069 (14,832) Treasury stock (1,030,525) (974,710) Total shareholders' equity 23,653,269 22,468,712
Total liabilities and shareholders' equity $24,248,851 $23,030,905
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 22--PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
Years Ended December 31, Condensed Statement of Income 2001 2000 1999 INCOME Dividend income $ 20,750 $ 11,000 $ 0 Dividends from subsidiary 526,820 783,840 687,280 Rent from subsidiary 300,000 300,000 300,000 Total income 847,570 1,094,840 987,280
EXPENSE Depreciation 66,444 66,103 64,335 Interest on long-term debt 0 9,618 26,120 Other expenses 68,544 120,958 79,885 Total expense 134,988 196,679 170,340
Income before income taxes and equity in undistributed earnings of subsidiary 712,582 898,161 816,940 Income tax expense 72,000 61,200 51,400
Income before equity in undistributed earnings of subsidiary 640,582 836,961 765,540 Equity in undistributed earnings of subsidiary 956,627 1,202,071 639,017 Net income $ 1,597,209 $ 2,039,032 $ 1,404,557
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements
NOTE 22--PARENT COMPANY ONLY FINANCIAL STATEMENTS Years Ended December 31, Condensed Statement of Cash Flows 2001 2000 1999 Operating Activities: Net income $ 1,597,209 $ 2,039,032 $ 1,404,557 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 66,444 66,103 64,335 Undistributed net income of subsidiary (956,627) (1,202,071) (639,017) Deferred income taxes 19,245 22,804 20,625 (Increase) decrease in other assets (299,355) (42,900) (14,200) Increase (decrease) in accrued expenses, dividends payable and payable to subsidiary 14,145 6,738 33,020 Net cash provided by operating activities 441,061 889,706 869,320
Investing Activities: Additions to buildings and equipment 0 (42,801) (22,217) Net cash used by investing activities 0 (42,801) (22,217)
Financing Activities: Net treasury stock activity (13,230) 67,527 (119,873) Dividends paid (537,323) (536,420) (514,667) Principal payment on long-term debt 0 (216,471) (219,368) Net cash used by financing activities (550,553) (685,364) (853,908) Increase (decrease) in cash and cash equivalents (109,492) 161,541 (6,805) Cash and cash equivalents at beginning of year 176,277 14,736 21,541 Cash and cash equivalents end of year$ 66,785 $ 176,277 $ 14,736
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, 2001 and 2000, 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, 2001. 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 U.S. 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, 2001 and 2000, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2001, in conformity with U.S. generally accepted accounting principles.
Nonte & Company LLC Certified Public Accountants Jasper, Indiana January 28, 2002
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Year Ended December 31, 2001 2000 1999 Primary Weighted average shares outstanding $ 746,372 $ 745,017 $ 745,994 Net Income 1,597,209 2,039,032 1,404,557 Net income per common share $ 2.14 $ 2.74 $ 1.88
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 28, 2002, included in the Annual Report to Shareholders of SVB&T Corporation.
NONTE & COMPANY LLC Certified Public Accountant
Jasper, Indiana March 21, 2002
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 2001. (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, 2001 (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. 3/22/02
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 3/22/02 Principal Financial and Accounting 3/22/02 Officer
By: By: Douglas A. Habig, Director 3/22/02 Ronald G. Seals, Principal Executive Officer and 3/22/02 Director
By: By: Gary P. Critser, Director 3/22/02 Brian K. Habig, Director 3/22/02
By: By: Thomas L. Habig, Director 3/22/02 James C. Tucker, Director 3/22/02
By: By: Ronald J. Sermersheim, Director Hilbert Lindsey, Director 3/22/02 3/22/02
By: Ronald J. Thyen, Director 3/22/02 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
Message to our share owners: As with many other financial institutions, the year 2001 was a difficult year in growth and earnings for Springs Valley Bank & Trust Company. Due to a weakening economy, the tragedy of September 11th and a significant decline in trust assets, bank earnings were down $442,000 from our record earnings of 2000. Total assets decreased $6,777,000.
Financial highlights for the year: Net income $1,597,209, down 21.7% Income per share: $2.14, down from $2.74 Book value per share $31.69, up $1.53 Total assets $240 million, down 2.7% Deposits $181 million, down 2.5%
Following a year of significant growth in 2000, management decided to stabilize our balance sheet due to a softening economy. In 2001 an increase in our deposit base was not necessary to fund loan growth. Therefore, a very conservative approach was taken toward rates paid on deposit accounts. Additionally, we sold a total of $10,000,000 in fixed rate mortgages into the secondary market. This sale of loans plus a decrease in loan demand necessitated a conservative approach toward deposit growth.
The sale of fixed rate mortgage loans into the secondary market will be a significant benefit for future growth and earnings of the bank by providing more funds to service future customer needs. By selling our fixed rate loans we have eliminated the risk of interest rate increases in the future. However, we maintain the servicing rights for these sold loans, thus maintaining contact with our borrowing customers. This process positions us to sell other bank services to these borrowers.
Due to the large loan growth experienced in 2000 and a weakening economy in 2001, we decided that an increase in our Loan Loss Reserve account was necessary. We had been maintaining our reserve total at about .8% of total loans. With over $1,000,000 transferred from earnings to reserves, we increased our reserve account by $426,000 for a total of over 1% of outstanding loans. It is our intention to maintain our reserve totals at or above 1% of total loans.
In early 2001 Kimball International withdrew their company's Pension Profit Sharing Plan from our trust department. The loss of this account was not a surprise. We were notified over a year in advance that the account would be transferred out of the bank. The retirement plan was restructured to permit participants to self-direct their pension funds. Springs Valley Bank's trust department is not equipped to provide this service to the seven thousand plus employees of Kimball International.
With the loss of the Kimball trust account, our trust assets decreased from $500 million to $200 million. A trust operation of this size is still very large for a community bank. The size of our trust department will permit a very profitable operation for the bank. We will maintain our qualified staff and be very aggressive in growing for the future.
In early 2001 we were presented with the opportunity to repurchase 144,200 shares of the Company's common stock in a negotiated purchase. It is uncommon for such a large block of shares to become available. After a review and analysis of the financial implications of the repurchase of this block of shares, which represented approximately 20% of the total shares outstanding, we decided to pursue the transaction. The transaction required certain regulatory approvals, which were obtained in early 2002. On January 18, 2002, the Company completed the repurchase at $40.00 per share. In connection with the transaction, the Bank was advised in writing, by an independent third-party financial advisor engaged by the Bank, that the price to be paid for the shares in the transaction would be fair to the Company and its shareholders from a financial point of view. Our analysis indicates this transaction will be accretive to earning per share in 2002 and subsequent years.
Although 2001 was a difficult year for the bank we are not disappointed with our final results. In many areas the adverse experiences have made us a stronger organization. One of the most positive things we have for future prosperity is our dedicated staff. We continuously strive to provide our customers with the latest in banking technology and convenience along with the best personal service possible.
The year 2002 will be very special for our bank as we celebrate 100 years of service to southwest Indiana. We are planning several exciting activities throughout the year to commemorate our century of service and to thank those who have helped achieve this milestone.
Please accept this expression of gratitude from the directors and staff of Springs Valley Bank & Trust for your continued support. You have brought us business and 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.
Sincerely,
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, 2001 2000 ASSETS Cash and cash equivalents Cash and due from banks $4,811,902 $5,824,159 Interest-bearing deposits with banks 39,754 49,263 Total cash and cash equivalents 4,851,656 5,873,422 Investment securities, available for sale, at market value 20,071,900 28,591,729 Loans Held for sale 2,359,499 0 Loans Loans, net of unearned interest 205,804,166 204,672,215 Allowance for loan losses (2,097,423) (1,670,912) Net loans 203,706,743 203,001,303
Federal Home Loan Bank stock and other stock, at cost 2,005,150 1,855,000 Buildings and equipment 4,281,034 4,607,584 Interest receivable 1,509,538 1,886,009 Other assets 1,664,707 1,412,280 Total assets $240,450,227 $247,227,327
LIABILITIES Deposits Non-interest bearing $12,139,389 $13,800,356 Interest bearing 169,600,771 172,559,814 Total deposits 181,740,169 186,360,170
Federal funds purchased 4,100,000 2,765,000 Short-term borrowings 0 2,500,000 Interest payable 1,089,317 964,086 Deferred income taxes 74,972 133,931 Other liabilities 692,500 935,428 Long-term borrowings 29,100,000 31,100,000 Total liabilities 216,796,958 224,758,615
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY Common stock (No par value: 800,000 shares authorized and issued) 200,000 200,000 Surplus 6,253,296 6,210,711 ,Retained earnings 18,107,429 17,047,543 Accumulated other comprehensive income: Net unrealized gains (losses) on investment securities available for sale 123,069 (14,832) Treasury stock at cost (54,972 shares 2000, 56,767 shares 1999) (1,030,525) (974,710) Total shareholders' equity 23,653,269 22,468,712 Total liabilities and shareholders' equity $240,450,227 $247,227,327
See Notes to Consolidated Financial Statements
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Income Year Ended December 31, 2001 2000 1999 INTEREST INCOME Loans and fees on loans $17,176,908 $16,932,878 $13,340,512 Investment securities Taxable 416,135 974,194 932,315 Tax exempt 738,438 581,318 500,291
Dividends 157,216 146,459 67,166 Federal funds sold and other 103,328 76,564 166,728 Total interest income 18,592,025 18,711,413 15,007,012
INTEREST EXPENSE Deposits 8,056,027 8,134,830 6,781,089 Short-term borrowings 10,296 148,231 7,834 Long-term borrowings 1,831,603 1,766,420 540,108 Total interest expense 9,897,926 10,049,481 7,329,031
NET INTEREST INCOME 8,694,099 8,661,932 7,677,981 Provision for loan losses 1,120,000 300,000 850,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,574,099 8,361,932 6,827,981
NON-INTEREST INCOME Trust Department income 542,834 760,159 725,423 Service charges on deposit accounts 579,066 533,539 533,290 Net gain on sales of loans 181,905 0 0 Insurance income 171,228 160,645 157,290 Other operating income 302,970 298,272 292,293 Realized security gains (losses) 10,793 (9,827) (3,173) Total non-interest income 1,788,796 1,742,788 1,705,123 NON-INTEREST EXPENSE Salaries and employee benefits 4,179,233 3,869,650 3,613,674 Premises and equipment expense 1,280,768 1,392,219 1,135,080 Deposit insurance expense 35,379 35,597 18,970 Other operating expenses 1,662,306 1,680,022 1,657,823 Total non-interest expense 7,157,686 6,977,488 6,425,547
INCOME BEFORE INCOME TAXES 2,205,209 3,127,232 2,107,557 Income taxes 608,000 1,088,200 703,000 NET INCOME $1,597,209 $2,039,032 $1,404,557
EARNINGS PER SHARE Basic $2.14 $2.74 $1.88 Diluted $2.13 $2.73 $1.88
AVERAGE SHARES OUTSTANDING Basic 746,372 745,017 745,994 Diluted 748,201 746,429 747,949
See Notes to Consolidated Financial Statement
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Consolidated Statements of Cash Flows Year Ended December 31, 2001 2000 1999 OPERATING ACTIVITIES: Net income $1,597,209 $2,039,033 $1,404,557 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,120,000 300,000 850,000 Depreciation 519,645 511,215 461,119 Investment securities amortization 11,176 23,740 50,786 Investment securities (gains) lossses (10,793) 24,263 3,173 Proceeds from sales of residential mortgage loans held for sale 10,128,918 0 0 Net gains on sale of loans (181,905) 0 0 Increase in residential mortgage loans held for sale (12,306,512) 0 0 Loss on sale of equipment 0 14,636 0 Loss on abandoned equipment 0 0 87,314 Gain on sale of other real estate (9,802) (43,100) 0 Deferred income taxes (147,693) (40,623) (233,370) (Increase) decrease in interest receivable and other assets 388,483 (863,118) (228,296) Increase in interest payable and other liabilities (119,412) 242,561 123,236
NET CASH PROVIDED BY OPERATING ACTIVITIES 989,314 2,208,607 2,518,519
INVESTING ACTIVITIES; Proceeds from sales and maturities of investment securities available for sale 12,355,576 2,386,071 7,220,309 Purchases of investment available for sale (3,607,780) (5,250,709) (7,913,802)
Purchases of investment securities held to maturity (150,150) (650,000) (614,300)
Proceeds from the sale of equipment 0 33,030 0
Proceeds - sale of loans 450,000 0 84,000
Proceeds - sale of other real estate 147,802 126,500 40,000
Net increase in loans (2,677,879) (29,982,016) (31,863,265) Additions to buildings and equipment (193,095) (643,839) (250,408)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 6,324,474 (33,980,963) (33,297,466)
FINANCING ACTIVITIES; Net increase (decrease) in deposits (4,620,001) 5,084,105 21,944,573
Net increase in federal funds purchased1,335,000 2,765,000 0 Net increase (decrease) in short-term borrowings (2,500,000) (5,000,000) 5,000,000
Increase in long-term borrowings (2,000,000) 24,500,000 8,100,000 Sale of treasury stock 85,170 67,527 78,259 Purchase of treasury stock (98,400) 0 (198,132) Cash dividends (537,323) (536,420) (514,667)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (8,335,554) 26,880,212 34,410,033
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,021,766) (4,892,144) 3,631,086
Cash and cash equivalents beginning of year 5,873,422 10,765,566 7,134,480
CASH AND CASH EQUIVALENTS AT END OF YEAR $4,851,656 $ 5,873,422 $10,765,566
SUPPLEMENTAL DISCLOSURES; Cash paid during the year for: Income taxes $ 935,795 $1,172,783 $876,673
Interest $9,772,695 $9,869,366 $7,257,711
See Notes to Consolidated Financial Statement
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 1,1999$200,000$6,124,070$14,655,040$ 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 gain 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, 1999200,0006,170,10915,544,930 (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 Less 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, 2000200,0006,210,711 17,047,543(14,832) (974,710) 22,468,712 COMPREHENSIVE INCOME 2001 Net income 1,597,209 1,597,209 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $90,449 127,108 127,108 Plus reclassifications for losses included in net income 10,793 10,793 TOTAL COMPREHENSIVE INCOME 1,735,110 Cash dividends (537,323) (537,323) Sold 2,839 shares of treasury stock 42,585 42,585 85,170 Purchased 3,280 shares of treasury stock (98,400) (98,400) BALANCE, DECEMBER 31, 2001$200,000$6,253,296$18,107,429 $123,069 $(1,030,525)$23,653,269
See Notes to Consolidated Financial Statements
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
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-earing 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, 2001 and 2000, 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 over the life of the security. Gains or losses on dispositions are computed using the specific identification method.
Investment Securities Held to Maturity - The Bank owns stock in the Federal Home Loan Bank of Indianapolis. This stock is classified as held to maturity and is carried at cost.
Loans Held for Sale - Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
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. Interest income on non-accrual loans is accounted for on the cash basis until the loan is written off or qualifies for return to accrual.
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. Subsequent recoveries, if any, are credited to the allowance.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate - Real estate acquired in foreclosures is carried in other assets 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. Real estate acquired in foreclosures is $397,440 at December 31, 2001 and $133,000 at December 31, 2000.
Servicing - Servicing assets are recognized as separate assets when rights are retained after the sale of loans. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost.
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 (the liability method). 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, which are accounted for under the rules of APB Opinion 25. 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.
Comprehensive Income - Generally accepted accounting principles require that recognized revenue, expenses, gains and losses be included in net income. Certain other changes in assets and liabilities caused by unrealized gains and losses on available-for-sale securities, are reported as a separate component of shareholders' equity in the consolidated statements of financial condition. These unrealized gains and losses on available-for-sale securities and net income, are the components of comprehensive income.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
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 dilutive effect of additional common shares issuable under stock option plans. The following table reconciles the amounts reported in the financial statements:
BASIC EARNINGS PER SHARE: 2001 2000 1999 Net income $1,597,209 $2,039,032 $1,404,557 Average shares outstanding 746,372 745,017 745,994 Basic earnings per share $ 2.14 $ 2.74 $ 1.88
DILUTED EARNINGS PER SHARE: Net income $1,597,209 $2,039,032 $1,404,557 Average shares outstanding 746,372 745,017 745,994 Stock options, net 1,829 664 1,955 Diluted average shares outstanding 748,201 745,681 747,949 Diluted earnings per share $ 2.13 $ 2.73 $ 1.88
Trust Assets - Trust assets are not assets of the Company and are not included in the financial statements
Reclassifications - Certain prior year amounts have been reclassified to conform with the 2001 presentation. These reclassifications had no effect on net income.
NOTE 2--EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 2002, the Company will adopt FASB Statement No. 142 "Goodwill and Other Intangible Assets". The adoption of this accounting standard will change the way the Company accounts for goodwill. The effect of adopting this accounting standard will not materially affect the financial statements of the Company.
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 was $715,000 at December 31, 2001 and $916,000 at December 31, 2000.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 4--INVESTMENT SECURITIES
The amortized costs and estimated market values of investment securities at December 31, 2001 and 2000 were as follows: December 31, 2001 Unrealized Unrealized Estimate Amortized Holding Holding Market Cost Gains Losses Value Securities Available for Sale U.S. Government corporations and agencies $4,005,916 $ 83,154 $ 0 $4,089,070
States and political subdivisions 15,082,601 253,214 175,102 15,160,713 Mortgage-backed securities 65,696 6,365 0 72,061 Other securities 713,897 36,159 0 750,056 Total $19,868,110 $ 378,892 $175,102 $20,071,900
December 31, 2000
Unrealized Unrealized Estimated Amortized Holding Holding Market Cost Gains Losses Value Securities Available 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
The amortized cost and estimated market values of securities available for sale at December 31, 2001 and 2000, 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.
2001 2000 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Securities Available for Sale Due in one year or less $ 2,619,929 $ 2,665,856 $ 2,489,936 $2,465,658 Due after one year but within five years 4,148,616 4,276,034 13,383,583 13,330,572 Due after five years but within ten years 7,419,372 7,522,767 8,640,040 8,659,174 Due after ten years 5,614,497 5,535,182 4,030,085 4,061,211 19,802,414 19,999,839 28,543,644 28,516,615 Mortgage backed securities 65,696 72,061 72,644 75,114 Total $19,868,110 $20,071,900 $28,616,288$28,591,729
Securities available for sale with amortized cost of $4,005,916 at December 31, 2001 and $15,051,788 at December 31, 2000 were pledged as collateral on debt of the Bank.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 4--INVESTMENT SECURITIES (Continued)
Proceeds from sales of securities available for sale during 2001, 2000 and 1999 were $2,877,200, $1,153,842 and $2,000,888. In 2001, gains of $10,793 and losses of $-0- were realized. In 2000, gains of $-0- and losses of $9,826 were realized. In 1999, gains of $-0- and losses of $3,173 were realized.
NOTE 5--LOANS
Loans at December 31, 2001 and 2000 are comprised of the following:
2001 2000 Commercial and industrial loans $ 46,102,714 $ 40,867,419 Real estate loans (including $3,338,772 and $2,137,752 secured by farm land) 104,923,219 103,100,274 Construction loans 14,727,425 17,173,625 Agricultural production financing and other loans to farmers 2,579,860 1,751,194 Individuals' loans for household and other personal expenditures 36,925,315 41,318,635 Lease financing 630,615 585,198 205,889,148 204,796,345 Less: Unearned income on loans 84,982 124,130 Total loans $205,804,166 $204,672,215
Information concerning impaired loans at December 31, 2001, 2000 and 1999 is as follows:
2001 2000 1999 Impaired loans with a related allowance for loss $ 588,386 $1,098,513 $1,301,967 Impaired loans without a related allowance for loss 4,153,303 981,884 939,940 Total impaired loans 4,741,689 2,080,397 2,241,907
Average balance of impaired loans 4,851,447 2,259,799 1,274,676 Allocated allowance for loan losses on impaired losses 270,403 525,043 532,151
Cash receipts applied to principal 164,351 322,952 66,234 Cash receipts applied as interest income 317,044 203,664 102,885 Total cash received $ 481,395 $ 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, 2001, 2000 and 1999 are as follows:
2001 2000 1999 Loans pledged as collateral $82,458,446 $78,129,312 $73,252,093
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK INDIANA
Notes to Consolidated Financial Statements
NOTE 6--ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the year 2001, 2000 and 1999 are as follows:
2001 2000 1999 Balance, January 1 $ 1,670,912 $ 1,627,141 $ 1,106,077 Loans charged-off (793,553) (576,981) (442,969) Recoveries 100,064 320,752 114,033 Net charged-off (693,489) (256,229) (328,936) Provision for loan losses 1,120,000 300,000 850,000 Balance, December 31 $ 2,097,423 $ 1,670,912 $ 1,627,141 NOTE 7--BUILDINGS AND EQUIPMENT
Balances in the buildings, equipment, and related accumulated depreciation accounts at December 31, 2001 and 2000 are as follows:
2001 2000 Land and bank buildings $ 5,010,740 $ 4,996,301 Equipment, furniture and fixtures 4,737,185 4,558,533 Totals 9,747,925 9,554,834 Less accumulated depreciation 5,466,891 4,947,250 Net $ 4,281,034 $ 4,607,584
Depreciation expense was $519,645 for 2001, $511,215 in 2000 and $461,119 in 1998.
NOTE 8--DEPOSITS
Deposits at December 31, 2001 and 2000 are as follows:
2001 2000 Demand, non-interest bearing $ 12,139,398 $ 18,752,398 Demand, interest-bearing 18,373,746 12,028,056 Savings 66,686,606 66,622,544 Time deposits, $100,000 and over 23,842,211 29,170,918 Other time deposits 60,698,208 59,786,254 $181,740,169 $186,360,170
As of December 31, 2001 the scheduled maturities of time deposits are as follows:
2002 $38,904,256 2003 12,974,308 2004 11,236,751 2005 12,660,951 2006 and thereafter 8,764,153 $84,540,419
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 9--OTHER SHORT-TERM BORROWINGS
Other short-term borrowings at December 31, 2001 and 2000 are as follows:
2001 2000 Federal Funds purchased from Bank One, Indiana, unsecured, 1.875% at December 31, 2001 and 6.875% at December 31, 2000 $4,100,000 $ 2,765,000
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 $ 0 $ 2,500,000
NOTE 10--LONG-TERM BORROWINGS
Long-term borrowings at December 31, 2001 and 2000 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 Conversion Option Date Rate 2001 2000 February 24, 2004 5.19% $ 0 $ 5,000,000 March 15, 2005 March 15, 2002 6.32% 7,000,000 7,000,000 October 15, 2005 N/A 5.02% 1,000,000 1,000,000 July 17, 2006 N/A 6.69% 3,100,000 3,100,000 April 19, 2010 April 19, 2002 6.18% 10,000,000 10,000,000 June 7,2010 March 6, 2002 6.53% 5,000,000 5,000,000 February 28, 2011 April 27, 2002 4.48% 3,000,000 0 Total long-term borrowings $ 29,100,000 $31,100,000
On the conversion option date and quarterly thereafter, the Federal Home Loan Bank can convert the entire advance to an adjustable rate advance which reprices quarterly. If the conversion option is exercised by the FHLB, the Company has the option to pay-off the advance without prepayment penalties. If FHLB does not exercise the conversion option the Company cannot prepay the advance without significant penalties.
As of December 31, 2001 long-term borrowings are scheduled to mature as follows:
2002 $ 0 2003 0 2004 0 2005 8,000,000 2006 3,100,000 Thereafter 18,000,000 $ 29,100,000 At December 31, 2001, the Bank has $30,840,000 available under a secured line of credit and $7,900,000 available under two unsecured lines. These line of credit are short-term and renew annually.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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, 2001, 2000 and 1999 was $125,609, $183,691 and $154,203.
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, 2001, 2000 and 1999 were $315,668, $296,159 and $347,940.
NOTE 12--INCOME TAXES
The components of the provision for income taxes are:
2001 2000 1999 Federal income taxes currently payable $ 552,882 $ 843,703 $ 695,375 Deferred Federal income taxes (113,882) (31,703) (183,375) Provision for Federal income taxes for the year $ 439,000 $ 812,000 $ 512,000
State income taxes currently payable $ 202,811 $ 285,120 $ 240,995 Deferred state income taxes (33,811) (8,920) (49,995) Provision for state income taxes for the year $ 169,000 $ 276,200 $ 191,000
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, 2001 and 2000 are as follows:
2001 2000 Deferred Tax Assets: Allowance for loan losses $ 637,643 $ 511,220 Unrealized losses on securities available for sale 0 9,728 Loan fees 33,661 56,343 Other 10,978 16,541 Total asset 682,282 593,832
Deferred Tax Liabilities: Depreciation (676,533) (727,763) Unrealized gains on securities available for sale (80,721) 0 Net deferred tax liability $(74,972) $ (133,931)
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 12--INCOME TAXES (Continued)
The difference between the Federal income tax rate and the Bank's effective tax rate is as follows:
2001 2000 1999 Income tax at Federal tax rate of 34% $ 749,771 $ 1,063,259 $ 714,385 Tax effect of: Tax exempt interest (206,939) (156,386) (140,656) Other (27,232) (1,852) 3,211 Tax credit (12,000) 0 0 State income taxes, net of Federal effect 104,400 183,179 126,060 Total income taxes $ 608,000 $ 1,088,200 $ 703,000 Effective tax rate 27.57% 34.80% 33.46%
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. Amounts on deposit with the Bank by Kimball International and Kimball International Employee Benefit Plan were $906,377 at December 31, 2001 and $9,209,359 at December 31, 2000.
The Bank serves as Trustee for Kimball International's employee benefit plans and rents office space to Kimball. The Bank also served as trustee for Kimball International's retirement plan until April 2001. Fees paid to the Bank for these services by Kimball International in 2001, 2000 and 1999 were $200,000, $426,574 and $446,207. Amounts receivable from Kimball International for these services were $39,000 at December 31, 2001, $124,500 at December 31, 2000 and $75,000 at December 31, 1999. Kimball International, Inc. changed retirement plan trustees in April 2001. The Bank expects that fees from Kimball will decrease to approximately $80,000 annually in 2002 and 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 2001 were as follows:
Balance, January 1, 2001 $ 5,143,854 New loans 819,650 Repayments (350,565) Changes in persons included 0 Balance, December 31, 2001 $ 5,612,939
NOTE 14--LEASE COMMITMENTS
Minimum lease payments at December 31, 2001, under operating lease commitments, total $-0-. Operating expenses include rental expense of $31,172 in 2001, $22,935 in 2000 and $21,260 in 1999.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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, 2001 and 2000 were as follows:
2001 2000 Commitments to extend credit $10,391,000 $12,960,000 Standby letters of credit $ 385,000 $ 360,355
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 16--STOCK OPTION PLANS
SVB & T Corporation maintains two stock option plans for certain employees and directors. 70,000 shares of stock were reserved for these plans and 45,993 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, 1999 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 Granted 8,772 $30.00 Exercised 0 $ .00 Balance, December 31, 2001 23,410 $31.57
Pro forma information required of companies not adopting FASB No. 123 is as follows:
2001 2000 1999 Pro forma net income $ 1,563,176 $ 2,024,214 $ 1,393,481 Pro forma basic earning per share $ 2.09 $ 2.72 $ 1.87 Pro forma diluted $ 2.09 $ 2.71 $ 1.86
NOTE 17--STOCKHOLDERS' EQUITY
The Company has committed to purchase 144,920 shares of its outstanding common stock from a related party shareholder. The total purchase price will be approximately $5,940,000. All regulatory agency approvals have been received. The purchase will take place in January 2002. Purchase of this stock will not result 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 2001, 2000 and 1999 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, 2001, approximately $3,055,000 of the Bank's retained earnings were available for dividend payments to the SVB & T Corporation.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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 of Total Capital to risk-weighted assets (minimum 8%), Tier 1 Capital to risk-weighted assets (minimum 4%), and of Tier 1 Capital to average assets (minimum 4%). Management believes, as of December 31, 2001, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2001, 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.
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 Capitalize As of December 31, 2001: Tier 1 Capital to Risk- Weighted Assets $ 23,517,000 $21,867,000 $ 10,754,000 13.0% 12.2% 6.0% Total Capital to Risk- Weighted Assets $ 25,615,000 $23,964,000 $ 17,923,000 14.1% 13.4% 10.0% Tier 1 Capital to Average Assets $ 23,517,000 $21,867,000 $ 12,208,000 9.6% 9.0% 5.0%
As of December 31, 2000: Tier 1 Capital to Risk- Weighted Assets $ 22,469,344 $20,909,185 $ 10,917,213 12.4% 11.6% 6.0% Total Capital to Risk- Weighted Assets $ 24,140,256 $22,580,097 $ 18,195,355 13.3% 12.5% 10.0% Tier 1 Capital to Average Assets $ 22,469,344 $20,909,185 $ 11,564,382 9.7% 9.1% 5.0%
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 20--CONCENTRATIONS OF CREDIT
At December 31, 2001, the total amount of due from banks included $1,788,177 with Bank One Kentucky, $136,274 with German American Bank and $270,439 with Old National 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 77% 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 23% 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.
NOTE 21--FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values of financial instruments at December 31, 2001 and 2000 are as follows:
2001 2000 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value
ASSETS Cash and cash equivalents $ 4,851,656 $ 4,851,656 $ 5,873,422 $5,873,422 Investment securities 20,071,900 20,071,900 28,591,729 28,591,729 Loans and loans held for sale (net) 206,066,242 207,384,390 203,001,303 204,816,648 FHLB and other stock 2,005,150 2,005,150 1,855,000 1,855,000 Interest receivable 1,509,538 1,509,538 1,886,009 1,886,009
LIABILITIES Deposits $181,740,169 $184,138,600 $186,360,170$186,365,074 Short-term borrowings 4,100,000 4,100,000 5,265,000 5,265,000 Long-term borrowings 29,100,000 29,545,225 31,100,000 31,100,000 Interest payable 1,089,317 1,089,317 964,086 964,086
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 21--FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
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.
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.
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
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 2001 2000 ASSETS Cash in bank with subsidiary $ 66,785 $ 176,277 Investment in subsidiary 22,003,080 20,908,553 Buildings and equipment 1,680,531 1,746,975 Other assets 498,455 199,100 Total assets $24,248,851 $23,030,905
LIABILITIES Accrued expenses $ 106,957 $ 92,596 Dividends payable 133,888 134,105 Deferred income taxes 354,737 335,492 Total liabilities 595,582 562,193
SHAREHOLDERS' EQUITY Common stock 200,000 200,000 Surplus 6,253,296 6,210,711 Retained earnings 18,107,429 17,047,543 Accumulated other comprehensive income 123,069 (14,832) Treasury stock (1,030,525) (974,710) Total shareholders' equity 23,653,269 22,468,712
Total liabilities and shareholders' equity $24,248,851 $23,030,905
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA
Notes to Consolidated Financial Statements
NOTE 22--PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
Years Ended December 31, Condensed Statement of Income 2001 2000 1999 INCOME Dividend income $ 20,750 $ 11,000 $ 0 Dividends from subsidiary 526,820 783,840 687,280 Rent from subsidiary 300,000 300,000 300,000 Total income 847,570 1,094,840 987,280
EXPENSE Depreciation 66,444 66,103 64,335 Interest on long-term debt 0 9,618 26,120 Other expenses 68,544 120,958 79,885 Total expense 134,988 196,679 170,340
Income before income taxes and equity in undistributed earnings of subsidiary 712,582 898,161 816,940 Income tax expense 72,000 61,200 51,400
Income before equity in undistributed earnings of subsidiary 640,582 836,961 765,540 Equity in undistributed earnings of subsidiary 956,627 1,202,071 639,017 Net income $ 1,597,209 $ 2,039,032 $ 1,404,557
SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements
NOTE 22--PARENT COMPANY ONLY FINANCIAL STATEMENTS Years Ended December 31, Condensed Statement of Cash Flows 2001 2000 1999 Operating Activities: Net income $ 1,597,209 $ 2,039,032 $ 1,404,557 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 66,444 66,103 64,335 Undistributed net income of subsidiary (956,627) (1,202,071) (639,017) Deferred income taxes 19,245 22,804 20,625 (Increase) decrease in other assets (299,355) (42,900) (14,200) Increase (decrease) in accrued expenses, dividends payable and payable to subsidiary 14,145 6,738 33,020 Net cash provided by operating activities 441,061 889,706 869,320
Investing Activities: Additions to buildings and equipment 0 (42,801) (22,217) Net cash used by investing activities 0 (42,801) (22,217)
Financing Activities: Net treasury stock activity (13,230) 67,527 (119,873) Dividends paid (537,323) (536,420) (514,667) Principal payment on long-term debt 0 (216,471) (219,368) Net cash used by financing activities (550,553) (685,364) (853,908) Increase (decrease) in cash and cash equivalents (109,492) 161,541 (6,805) Cash and cash equivalents at beginning of year 176,277 14,736 21,541 Cash and cash equivalents end of year$ 66,785 $ 176,277 $ 14,736
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, 2001 and 2000, 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, 2001. 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 U.S. 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, 2001 and 2000, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2001, in conformity with U.S. generally accepted accounting principles.
Nonte & Company LLC Certified Public Accountants Jasper, Indiana January 28, 2002
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Year Ended December 31, 2001 2000 1999 Primary Weighted average shares outstanding $ 746,372 $ 745,017 $ 745,994 Net Income 1,597,209 2,039,032 1,404,557 Net income per common share $ 2.14 $ 2.74 $ 1.88
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 28, 2002, included in the Annual Report to Shareholders of SVB&T Corporation.
NONTE & COMPANY LLC Certified Public Accountant
Jasper, Indiana March 21, 2002