10-K 1 r10k_02.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal year ended December 31, 2002 Commission File Number 33-10149 SVB&T Corporation (Exact name of registrant as specified in its charter) Indiana (State or other jurisdiction of incorporation or organization) 35-1539978 (Employer Identification (I.R.S.) No.) College and Maple Streets, French Lick, Indiana 47432 (Address of principal executive offices, including Zip Code) (812) 936-9961 (Registrant's Telephone Number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes_X_ No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _X_ The aggregate market value of the voting stock held by nonaffiliated shareholders of the registrant computed by reference to the price at which the stock was sold or the average bid and asked prices of such stock, as of March 15, 2003 was approximately $15,398,800. The number of shares outstanding of each of the registrant's classes of common stock as of March 15, 2003 was 600,220. Portions of the 2002 Annual Report to Shareholders for the year ended December 31, 2002 are incorporated by reference into Part II. SVB&T Corporation 2002 Annual Report on Form 10-K Table of Contents Part I Item 1. Business 3 Item 2. Property 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8. Financial Statement and Supplementary Data 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23 Part III Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Security Ownership of Certain Beneficial Owners and Management 28 Item 12. Executive Compensation 28 Item 14 Controls and Procedures 33 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33 Signatures 33 Index to Exhibits 36 PART I Item 1. Business General. SVB&T Corporation (the "Company") is a registered bank holding company under the Bank Holding Company Act with its principal office in French Lick, Indiana. The Company has elected to be governed by the Indiana Business Corporation Law (IBCL). The Company's sole subsidiary is Springs Valley Bank & Trust Company (the "Bank"), which operates two banking offices in Orange County, Indiana, 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 an interest in a Reinsurance Company For credit insurance products (VII) acting as a broker for residential and commercial real estate. (VII) 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 3% of the deposits of the bank. In addition, the Bank has loans outstanding with individuals who are employees of Kimball representing in excess of 7% 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, 2002, the company had total assets of $242 million, total deposits of $181 million, and total equity capital of $19 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 transactions with nonaffiliated companies. Extensions of credit by the Bank to its executive officers, directors, certain principal shareholders, and their related interests must: be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties; and not involve more than the normal risk of repayment or present other unfavorable features. Dividends. Under Indiana law, the Bank may pay dividends from its undivided profits in an amount declared by its board of directors, subject to prior approval of the Indiana Department of Financial Institutions if the proposed dividend, when added to all prior dividends declared during the current calendar year, would be greater than the current year's "net profits" and retained "net profits" for the previous two calendar years. Federal law generally prohibits the Bank from paying a dividend to its holding company if the depository institution would thereafter be undercapitalized. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice. Branching and Acquisitions. Branching by the Bank requires the prior approval of the FDIC and the DFI. Under current law, Indiana chartered banks may establish branches throughout the state and in other states. Congress authorized interstate branching, with certain limitations, beginning in 1997. Indiana law authorizes an Indiana bank to establish one or more branches in states other than Indiana through interstate merger transactions and to establish one or more interstate branches through de novo branching or the acquisition of a branch. Community Reinvestment Act. The Community Reinvestment Act requires that the FDIC evaluate the record of the Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could result in the imposition of additional requirements and limitations on the Bank. Capital Regulations. The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and account for off-balance sheet items. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk weighted categories of 0%, 20%, 50%, or 100%, with higher levels of capital being required for the categories perceived as representing greater risk. The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios in excess of the minimums. Neither the Company nor the Bank has received any notice indicating that either is subject to higher capital requirements. The federal bank regulatory authorities have also implemented a leverage ratio to supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. At December 31, 2002, the company had total assets of $242 million, total Deposits of $181 million, and total equity capital of $19 million. The following are the Company's regulatory capital ratios as of December 31, 2002: Tier 1 Capital: 10.40% Total Capital: 11.60% Leverage Ratio: 7.50% The following are the Bank's regulatory capital ratios as of December 31, 2002: Tier 1 Capital: 11.70% Total Capital: 13.00% Leverage Ratio: 8.40% 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, 2002, 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. Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act of 2002. On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from the type of corporate and accounting scandals that have occurred during the past year. The Sarbanes-Oxley Act's principal legislation includes: the creation of an independent accounting oversight board; auditor independence provisions which restrict non-audit services that accountants may provide to their audit clients; additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer certify financial statements; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; an increase the oversight of, and enhancement of certain requirements relating to audit committees of public companies and how they interact with the company's independent auditors; requirement that audit committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer; requirement that companies disclose whether at least one member of the committee is a "financial expert" (as such term will be defined by the Securities and Exchange Commission) and if not, why not; expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition on insider trading during pension blackout periods; a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions; disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; mandatory disclosure by analysts of potential conflicts of interest; and a range of enhanced penalties for fraud and other violations. Although we anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition. USA Patriot Act USA Patriot Act. On October 26, 2001, President George W. Bush signed the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"). The USA Patriot Act is intended to strengthen the ability of U. S. Law Enforcement to combat terrorism on a variety of fronts. The potential impact of the USA Patriot Act on financial institutions is significant and wide-ranging. The USA Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, suspicious activities and currency transaction reporting; and currency crimes. Item 2. Property The Bank properties consist of the home office, located at 505 South Maple Street in French Lick, Indiana, and branch offices located at Broadway Avenue in West Baden Springs; 1500 Main Street in Jasper, Indiana; 865 3rd Avenue in Jasper, Indiana; and 614 E Water Street in Borden, Indiana; and a leased office at 241 US 231 South in Jasper, as well as eleven automated teller machines, six in Jasper, one in West Baden, one in French Lick, one in Borden, one in Salem and one in Huntingburg. All cities are located in Indiana. The Company has no separate offices. Item 3. Legal Proceedings As a part of its ordinary course of business, the Bank is a party in law suits involving claims to the ownership of funds in particular accounts and involving the collection of delinquent accounts (such as garnishment proceedings). All such litigation is incidental to the Bank's business. Management believes that no litigation is threatened or pending in which the Company or the Bank faces potential loss or exposure which will materially affect the stockholders' equity or the Bank's financial position. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters Shares of the common stock of the Company are not traded on any national or regional exchange or in the over-the-counter market. Accordingly, there is no established market for the common stock. These are occasional trades as a result of private negotiations not involving a broker or a dealer. According to the information available to the Company the following table displays the high and low selling prices for each quarter for 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 2002 1 $40.00 $31.00 2 $38.50 $38.50 3 $38.50 $38.50 4 $38.50 $38.50 2001 1 $39.00 $39.00 2 N/A N/A 3 $30.00 $30.00 4 $30.00 $30.00 The company has 344 shareholders on record as of March 20, 2003. 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 2002 $.18 $.18 $.18 $.18 2001 $.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, 2002 approximately $770,000 of the Bank's retained earnings were available for dividend payments to the Corporation. There is no assurance as to future dividends since they are dependent upon earnings, general economic conditions, financial condition, capital requirements, regulatory limitations, and other factors as may be appropriate in determining dividend policy. PART II Item 6. Selected Financial Data (dollars in thousands except per share data) Summary of Operations 2002 2001 2000 1999 1998 Interest and Fees on Loans $ 14,014 $ 17,176 $ 16,933 $ 13,341 $ 12,480 Interest on Investments 1,482 1,416 1,778 1,666 2,055 Total Interest Income 15,496 18,592 18,711 15,007 14,535 Interest on Deposits 5,742 8,056 8,135 6,781 7,161 Interest on Short-term Borrowing 1 10 148 8 43 Interest on Long-term Debt 2,279 1,832 1,766 540 12 Total Interest Expense 8,022 9,899 10,049 7,329 7,216 Net Interest Income 7,474 8,694 8,662 7,678 7,319 Provision for Loan Losses 959 1,120 300 850 580 Net Interest Income after Provision for Loan Loss 6,515 7,574 8,362 6,828 6,739 Service Charges on Deposit Accounts 711 579 534 533 615 Other Income 1,494 1,209 1,209 1,172 1,260 Total Other Income 2,205 1,789 1,743 1,705 1,875 Salaries and Benefits 4,270 4,179 3,870 3,614 3,381 Other Expenses 3,056 2,979 3,108 2,811 2,361 Total Other Expenses 7,326 7,158 6,978 6,452 5,742 Income Before Income Tax 1,394 2,205 3,127 2,108 2,872 Income Tax Expense 275 608 1,088 703 1,043 Net Income 1,119 1,597 2,039 1,405 1,829 Year-end Balances Total Assets 242,183 240,450 247,227 217,394 182,741 Total Loans, Net 183,361 203,707 203,001 173,492 142,563 Total Long-term Debt 40,042 29,100 31,100 9,100 1,000 Total Deposits 181,320 181,740 186,360 181,276 159,331 Total Shareholders' Equity 18,768 23,653 22,469 20,369 20,333 Per Share Data Net Income 1.86 2.14 2.74 1.88 2.45 Cash Dividends .72 .72 .72 .69 .60 Shareholders' Equity, End of Year 31.33 31.77 30.16 27.30 27.18 Other Data at Year-end Number of Employees 113 113 111 106 104 Weighted Average Number of Shares 601,179 746,372 745,017 745,994 745,806 Return on Assets .49% .65% .86% .70% .98% Return on Shareholders' Equity 6.35% 7.11% 10.01% 6.90% 9.66% 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) 2002 2001 2000 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 2,381 23 0.97% 441 12 2.72% 69 3 4.35% Federal funds sold 5,256 90 1.71% 2,623 91 3.47% 1,309 73 5.58% Investment securities: U.S. Treasury and Gov't Agencies & mortgage backed 8,896 393 4.42% 6,474 385 5.95% 14,828 927 6.25% States and political subdivisions 14,959 1,105 7.39% 14,557 1,094 7.52% 11,321 849 7.50% Other securities 2,018 120 5.95% 2,577 188 7.30% 2,445 194 7.93% TOTAL INVESTMENT SECURITIES 25,873 1,618 6.25% 23,608 1,667 7.06% 28,594 1,970 6.89% Loans: (1) (2) Commercial 59,302 3,668 6.19% 63,043 4,989 7.91% 53,966 5,004 9.27% Installment, net of unearned income 44,868 3,710 8.27% 47,165 4,251 9.01% 48,437 4,612 9.52% Real Estate 94,110 6,534 6.94% 97,658 7,831 8.02% 87,707 7,182 8.19% Credit Card and Other 733 10213.92% 811 10613.07% 1,059 135 12.75% TOTAL LOANS 199,013 14,014 7.04%208,677 17,177 8.23%191,169 16,933 8.86% TOTAL EARNING ASSETS 232,523 15,745 6.77%235,349 18,947 8.05%221,141 18,979 8.58% Less: Allowance for Losses (2,138) (1,751) (1,671) Non-Earning Assets: Cash and due from banks 4,648 4,807 4,806 Other Assets 12,970 7,426 7,470 TOTAL ASSETS 248,003 245,831 231,746 LIABILITIES & SHAREHOLDERS EQUITY Interest-bearing liabilities Savings and daily interest checking 44,362 771 1.74% 39,123 888 2.27% 40,167 959 2.39% Money market accounts 34,591 520 1.50% 40,639 1,482 3.65% 37,194 2,078 5.59% Certificates of deposit $100,000 and over 24,779 1,091 4.40% 23,274 1,360 5.84% 31,498 1,859 5.90% Other time deposits71,343 3,360 4.71% 74,327 4,326 5.82% 55,621 3,239 5.82% TOTAL INTEREST- BEARING DEPOSITS 175,075 5,742 3.28%177,363 8,056 4.54%164,480 8,135 4.95% Borrowing 40,095 2,280 5.69% 29,818 1,842 6.18% 30,815 1,914 6.21% TOTAL INTEREST-BEARING LIABILITIES 215,170 8,022 3.73%207,181 9,898 4.78%195,29510,049 5.15% Non-interest bearing liabilities: Demand deposits 11,748 13,262 13,362 Other liabilities 2,068 2,327 1,670 Shareholder's equity 19,017 23,061 21,419 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 248,003 245,831 231,746 INTEREST MARGIN RECAP: Interest income/ earning assets 15,745 6.77% 18,947 8.05% 18,979 8.58% Interest expense/ earning assets 8,022 3.45% 9,898 4.21% 10,049 4.54% New yield on interest earning assets 7,723 3.32% 9,049 3.84% 8,930 4.04% (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 Corporation's 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 2002 was $1,119,000. The table below is a comparison of the net income for the years 2000 thru 2002. 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 2002 $1,119,000 $(478,000) (29.93%) 2001 1,597,000 (442,000) (21.68%) 2000 2,039,000 635,000 45.23% SVB&T Corporation's net income has decreased during the last year. The main contributing factors to this decrease is a decrease in interest and fee income on loans. Total net income before tax for 2002 decreased $811,000 which results in a 36.78% 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 2002, tax equivalent net interest income of $7,723,000 decreased by $1,326,000, which resulted in a 14.65% decrease. The decrease in net interest income is due to the decrease in loan volume and the large volume of non-accrual loans. The net interest income from 2001 was $9,048,000 which was an increase or $119,000 over the 2000 net interest income of 8,930,000. CHANGES IN NET INTEREST INCOME (Table 1) (Tax equivalent basis, dollars in thousands) Change from Prior Year 2002 2001 2000 2002 2001 Interest income on: Loans 14,014 17,177 16,933 -18.41% 1.44% Investment securities 1,618 1,667 1,970 - 2.94% -15.38% Federal funds sold 90 91 73 -1.10% 24.66% Due from FHLB 23 12 3 91.67% 300.00% Total interest income 15,745 18,947 18,979 -16.90% -0.17 % Interest expense on: Savings and daily interest checking 771 888 959 -13.18% -7.40% Money market deposits 520 1,482 2,078 -64.91% -28.68% Certificates of deposit of $100,000 & over 1,091 1,360 1,859 -19.78% -26.84% Other time deposits 3,360 4,326 3,239 -22.33% 33.56% All other borrowing 2,280 1,842 1,914 23.78% -3.76% Total interest expense 8,022 9,898 10,049 -18.95% -1.50% Net interest income 7,723 9,049 8,930 -14.65% 1.33% Net interest margin 3.32% 3.84% 4.04% RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME (Table 2) (Taxable equivalent basis, dollars in thousands) 2002 vs 2001 2001 vs 2000 Dollar Attributed to Dollar Attributed to Change Volume Rate Change Volume Rate Interest income on: Loans (3,163) (739) (2,424) 244 1,496 (1,252) Investment securities (49) 151 (200) (303) (348) 45 Federal funds sold (1) 68 (69) 18 59 (41) Due from FHLB 11 36 (25) 9 13 (4) Total interest income (3,202) (484) (2,718) (32) 1,220 (1,252) Interest expense on: Savings and daily interest checking (117) 105 (222) (71) (24) (47) Money market deposits (962) (156) (806) (596) 159 (755) Certificates of deposit of $100,000 and over (269) 77 (346) (499) (483) (16) Other time deposits (966) (157) (809) 1,087 1,089 (2) All other borrowing 438 610 (172) (72) (62) (10) Total interest expense (1,876) 479 (2,355) (151) 679 (830) Net interest income (1,326) (963) (363) 119 541 (422) 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 $959,000 in 2002; $1,120,000 in 2001; and $300,000 in 2000. As of December 31, 2002, the provision was 1.17% of loans outstanding. Management's analysis is that the provision is adequate to fund anticipated future losses. Management has taken a conservative approach to future participation lending. Several participation loans have not performed as expected. The level of the provision takes into account management's analysis of the exposure in these loans. Other Income Total other income for 2002 was $2,205,000, which is a $416,000, 23.25% increase over 2001's total other income of $1,789,000. The two primary sources of other income were trust income and service charges income. Trust income accounts for 22.36% of total other income, however, it has decreased 9.21% from 2001. 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 33.68%, from 2001. This is due largely to a A new overdraft protection program implemented. 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 and resulted in $310,000 income which is 14.06% 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 $628,000 of income for 2002. Other Expenses Total other expenses for 2002 were $7,326,000. This is a $168,000, 2.35% increase over the 2001 total of $7,158,000. Salaries and employee benefits are the two largest expense categories. Salaries and employee benefits expense for 2002 were 4,270,000. This is an increase of $91,000 over 2001, which results in an 2.18% increase. The bank has a self-insured medical plan which covers an insurance override to protect the bank against major increases and claims. The banks contribution's to the plan increased by $135,000. There was an increase in legal expenses and Other Real Estate expenses. The Legal expenses increased due to an increase in loan collections. Other Real Estate expense increased due to several properties being adjusted to FMV. 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 and state income taxes. Note 12 in the consolidated financial statements contains additional information about the corporation's income taxes. Income tax expense for 2002 was $275,000 compared to $608,000 in 2001 and $1,088,000 in 2000. The effective tax rate was 19.73% in 2002 compared to 27.57% in 2001 and 24.80% in 2000. The effective tax rate has decreased in 2002 and 2001 because tax-free income, while comparable in amount for these two years, had a greater percentage effect because of lower taxable income from other sources. Financial Condition As of December 31, 2002 total assets increased to $242,183,000 .72% increase from December 31, 2001 total of $240,450,000. Total deposits decreased to $181,320,000 at December 31, 2002 from $181,740,000 at December 31, 2001 a decrease of $420,000 or .23%. Net loans at year-end 2002 were $183,361,000 down $20,346 or 9.99% from the 2001 year-end total of $203,707,000. Total investment securities available for sale at year-end 2002 were $27,912,000 and at year-end 2001 were $20,072,000. 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, 2002, money market investments were $4,607,000 and were zero on December 31, 2001. 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 2002, 2001 and 2000. Investment Securities Available for Sale (Dollars in thousands) December 31 Investment securities available for sale: 2002 2001 2000 U.S. Treasury 0 0 0 U.S. Government agencies and corp. 10,852 4,006 15,052 Mortgage-backed pass-through securities 58 66 73 Collateralized mortgage obligations: Agency 0 0 0 Corporate 0 0 0 State and Political subdivisions 16,097 15,083 12,619 Other Securities 0 714 873 Net unrealized gain (loss) 905 204 (25) Total Carrying Value 27,912 20,072 28,592 Maturities and Average Yields of Investment Securities Available for Sale at December 31, 2002 and 2001 2002 2001 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Securities Available for Sale Due in 1 yr or less 6,546 6,636 2,620 2,666 Due after 1 yr but with in 5 yrs 8,975 9,272 4,149 4,276 Due after 5 yrs but within 10 yrs 7,180 7,558 7,419 7,523 Due after 10 yrs 4,249 4,381 5,614 5,535 Total Securities 26,950 27,847 19,802 20,000 Mortgage backed securities 58 65 66 72 Total 27,008 27,912 19,868 20,072 Loans Loans outstanding at December 31, 2002 were $185,662,000. This is a decrease of $20,267,000 or 9.8% from December 31, 2001. Real estate loans continue to be the largest component of the portfolio at $94,595,000. This is a decrease of 9.8% from December 31, 2001. Commercial and industrial loans were $49,977,000 at December 31, 2001. This is a $3,874,000 increase from December 31, 2001. This growth continues to be in the loan participations purchased category. The bank continues to use loan participations purchased as a means of providing loan balances when the bank's local markets do not provide sufficient volume. On December 31, 2002, the bank had $44,627,000 outstanding in participation loans purchased. This is a decrease of 8.2% from December 31, 2001. Management has elected to use conservative underwriting practices in acquiring new participation loans. As current loans are paid down or off, the bank expects these participation loan balances to continue to decline. Individual loans for household and other personal purposes were $28,146,000 at December 31, 2002. This is a decrease of $8,779,000 or 23.8% from December 31, 2001. A soft economy and extreme competitive pressures have contributed to this decline. The bank continues to seek quality loans in this area. Construction loans decreased $4,377,000 or 29.7% from December 31, 2001 with a remaining outstanding balance of $10,350,000. This activity is primarily related to participation loans. As mentioned previously, quality opportunities have not been available. 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 2002 2001 2000 1999 1998 Percent Percent Percent Percent Percent Amt of Total Amt of Total Amt of Total Amt of Total Amt of Total Commercial, financial & agricultural 52,289 28.17 48,682 23.64 42,618 20.81 18,722 10.20 18,722 13.3 Real estate - construction 10,350 5.57 14,727 7.15 17,174 8.39 1,687 3.70 1,687 1.20 Real estate - mortgage 94,595 50.96 104,923 50.96 103,100 50.34 80,803 56.4 80,803 56.7 Consumer installment 28,020 15.09 36,925 17.93 41,319 20.18 46,470 26.42 46,470 32.6 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 397 .21 631 .31 585 .21 363 .21 336 .24 TOTAL 185,651 100 205,888 100204,796 100143,873 100 143,873 100 Less: Unearned income 114 85 124 204 204 Allowance for loan losses 2,176 2,097 1,671 1,106 1,106 Total loans 183,361 203,706 203,001 142,536 142,536 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 27,524 18,466 5,044 51,034 24,155 26,879 Real Estate Construction 4,917 2,191 233 7,341 4,405 2,936 TOTALS 32,441 20,657 5,277 58,375 28,560 29,815 Capital Resources The corporation purchased in a negotiated transaction 144,920 shares (19.46% of the total outstanding shares) of its common stock at $40 per share. This purchase reduced total equity by over $5,800,000. Source of Funds Deposits The main source of funding for earning assets are deposits. During 2002, the average deposits of $186,823,000 funded 80% of the average earning assets. Average total deposits for 2002 decreased by $3,800,000, or 1.99% as compared to 2001 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 been conservative on deposit rate pricing. 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 5,838 Over three months through one year 4,019 Over one year through three years 8,059 Over three years 7,697 TOTAL 25,613 Risk Management Lending and Loan Administration Loan administration for the bank is the responsibility of the President and designated 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 individual authority, a committee structure is in place to allow the timely and prudent review of loan requests. Loans above a predetermined level require the approval of two board members before being approved and funded. A presentation is made at each board meeting regarding the operation of the loan department. Reports covering all phases of the loan operation are prepared and distributed in advance to board members. A loan review committee reviews activity on loans sampled by the loan review officer, the calculation of the loan loss reserve provision, and the resolution of all problem loans or loans that have the potential for being a problem. With the pending retirement of the bank's loan review officer, management expects to outsource at least a portion of the loan review function. The required loan loss reserve provision is calculated monthly. It is based on the historical performance of the loan portfolio as well as current and projected conditions for specific credits. The bank's loan loss experience is summarized below: Allowance for Loan Losses (dollars in thousands) 2002 2001 2000 1999 1998 Balance as of January 1 2,097 1,671 1,627 1,106 1,403 Provision for Loan Losses 959 1,120 300 850 580 Recoveries of Prior Loan Losses 97 100 321 114 182 Loan Losses charged to the Allowance (977) (794) (577) 443 1,059 Balance as of December 31 2,176 2,097 1,671 1,627 1,106 Loans are placed on non-accrual and interest received is posted on a cash basis whenever a loan is ninety days delinquent or in management's judgment is impaired to such an extent that repayment is not assured. Loans in non-accrual status are evaluated individually and returned to accrual only when, in management's judgment, the quality of the loan of the loan has improved sufficiently to warrant such an action. Non-performing loans were $5,482,000 on December 31, 2002. Of that total, $4,329,000 was in the loan participation portfolio. A soft economy as well as a variety of individual loan issues have caused this portfolio not to perform up to original expectations. Management is confident that it has adequately reserved for any losses that might occur in this portfolio. Management is actively pursuing collection of these loans and expects that all remaining principal balances will be collected. Non-performing loans are loans on non-accrual and assets like other real estate and repossessions held for sale. Following is a schedule of those loan categories for the previous five years. Non-performing Assets (dollars in thousands) 2002 2001 2000 1999 1998 Total Loans on non-accrual (non-performing loans) 5,544 4,164 2.002 1,406 857 Other Real Estate 1,111 397 133 44 53 Total non-performing assets 6,655 4,561 2,135 1,450 910 Total non-performing loans as a percentage of loans 3.54% 2.22% 1.04% .81% .60% Total non-performing assets as a percentage of loans and ORE 3.52% 2.22% 1.04% .81% .63% 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 4,607 0 0 0 0 4,607 Interest bearing deposits in banks 1,615 0 0 0 0 1,615 Investment securities 301 0 1,038 7,400 19,173 27,912 Loans 53,804 16,360 34,309 60,965 22,687 188,125 Total Interest Earning Assets 60,327 16,360 35,347 68,365 41,860 222,259 Interest Bearing Liabilities Interest bearing NOW, savings, and money market deposits 46,335 7,629 5,488 4,573 0 64,025 Time deposits under $100,000 11,986 4,362 7,519 51,364 219 75,450 Time deposits over $100,000 5,839 1,951 2,067 15,756 0 25,613 Borrowed funds 0 0 0 18,100 18,000 36,100 Total Interest Bearing Liabilities 64,160 13,942 15,074 89,793 18,219 201,188 Interest Sensitivity Gap Current (3,833) 2,418 20,273 (21,428) 23,641 Interest Sensitivity Gap Cumulative (3,833) (1,415) 18,858 (2,570) 21,071 Sensitivity Ratio Cumulative 94% 98% 120% 98% 110% Quarterly Results of Operations March 31 June 30 Sept 30 Dec 31 2002 Interest income 3,985 4,145 3,692 3,554 Interest expense 2,003 2,046 2,033 1,940 Net interest income 1,982 2,099 1,659 1,765 Provision for loan losses 70 105 105 679 Net securities gains 0 0 0 0 Non-interest income 414 331 690 871 Non-interest expense 1,714 1,793 1,827 1,973 Income before income taxes 585 532 417 (140) Income taxes 198 161 99 (183) Net income 387 371 318 43 Net income per share: Primary net income per share .64 .62 .53 .22 2001 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 536 708 614 347 Income taxes 167 239 196 6 Net income 369 469 418 347 Net income per share: Primary net income per share .49 .63 .56 .46 Item 8. Financial Statements and Supplementary Data The Registrant's Annual Report to Shareholders for the year ended December 31, 2002 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. PART III Item 10. Directors and Executive Officers of the Registrant ELECTION OF DIRECTORS The nominees for election shall be the nine persons listed below. Each nominee has been nominated by the Board of Directors to hold office for a term of one year ending in 2004 and until his respective successor is elected and qualified. Each of the nominees has indicated that he will accept nomination and election as a director. If any nominee listed in the table below should become unavailable for any reason, which the Board of Directors does not anticipate, the proxy will be voted for a substitute nominee or nominees, if any, who may be selected by the Board of Directors prior to or at the meeting. The following table shows the earlier of the year the named individual became a Director of the Corporation or the Bank. NOMINEES FOR ELECTION AS A DIRECTOR ON MAY 20, 2003 Name, Shares beneficially Owned Foot Present Principal Year (Percentage of Outstanding Note Occupation Elected Common Shares) Gary P. Critser 1999 2,360 1 Retired .39% Kimball International, Inc. 66 Brian K. Habig 1987 11,134 2 Self Employed 1.86% 46 Douglas A. Habig 1973 100,257 3 Chairman of the Board & CEO 16.71% Kimball International, Inc. 56 John B. Habig 1959 90,779 4 Chairman of the Board 15.13% Springs Valley Bank & Trust Company 70 Hilbert Lindsey 1988 4,982 Vice President .83% Lindsey Lumber & Builders Supply, Inc. 68 Ronald G. Seals 1989 1,176 5 President & CEO .19% Springs Valley Bank & Trust Company 64 Ronald J. Sermersheim 1976 23,699 6 Vice President, Environment, 3.95% Health & Safety Kimball International, Inc. 63 Ronald J. Thyen 1999 11,929 7 Senior Executive Vice President 1.98% Operations Officer, Furniture & Cabinets Kimball International, Inc. 66 James C. Tucker 1989 16,214 8 Attorney-at-Law 2.70% Tucker & Tucker, P.C. 56 1 The above amount includes 1,953 shares held in the Gary P. Critser Trust and 152 shares held in the Phyllis J. Critser Trust. Phyllis J. Critser is the wife of Gary P. Critser. 2 The above amount includes 1,311 shares held by Kimberly A. Habig, the wife of Mr. Brian K. Habig and 3,358 shares held in the Kyle Thomas Habig Trust of which Mr. Brian K. Habig is trustee. 3 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. Also includes 14,056 shares held by the Kimball International 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, 4 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. The above amount includes 3,124 shares held in the Carma Jane Habig Revocable Trust, Carma Jane Habig is the wife of Mr. John B. Habig. Also included are 19,178 shares held in the John B. Habig Revocable Trust, 1,080 shares held in the Hannah R. Zunk Irrevocable Trust, and 888 shares held in the Andrew H. Zunk Irrevocable Trust of which Mr. John B. Habig is trustee. 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 The above amount includes 2,000 shares held in the A.C. Sermersheim Trust in which Mr. Ronald J. Sermersheim is trustee. 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 amount includes 14,176 shares held jointly with Sharon R. Tucker, the wife of James C. Tucker. Family Relationships of Directors Messrs. Douglas A. Habig and John B. Habig are brothers. 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 two special meetings during 2002. 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, Nominating Committee, Executive Loan Committee and the Retirement Profit Sharing Trust Advisory Committee. In 2002, 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 committee has met with the independent auditors and has determined that the audit process is sound. The members of the Audit Committee are Messrs. Ronald J. Sermersheim (Chairman), Brian K. Habig and Gary P. Critser. The Audit Committee met six (6) times in 2002. The Bank has an Executive Compensation Committee to review and recommend to the directors salary and bonus programs for the Senior Bank Officers. The members of the Executive Compensation Committee are Messrs. James C. Tucker (Chairman), Randall Catt, Ronald J. Sermersheim and Gary P. Critser. The Executive Compensation Committee met one (1) time in 2002. The Nominating Committee reviews, appoints and recommends to the Board the nomination of Board Members for the Corporation for the ensuing year. The members of the Nominating Committee include Messrs. Ronald J. Thyen (Chairman), John B. Habig and Hilbert Lindsey. The Nominating Committee met one (1) time in 2002. 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. One thousand five hundred thirteen (1,513) shares were issued for year 2002 in the amounts set forth in the following table for fees that 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 seven hundred fifty five (755) shares for 2002 in the following amounts to the following Directors: DIRECTOR 2002 DEFERRED FEES 2002 OPTIONS SHARES ISSUED GRANTED Gary P. Critser 255 127 Brian K. Habig 238 119 Douglas A. Habig 0 0 John B. Habig 0 0 Thomas L. Habig 34 17 Hilbert Lindsey 238 119 Ronald G. Seals 0 0 Ronald J. Sermersheim 238 119 Ronald J. Thyen 255 127 James C. Tucker 255 127 TOTALS 1,513 755 Certain Transactions During 2002, 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 director of the Company and the bank, is the Chairman 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. Item 11 Security Ownership of certain Beneficial Owners and Management PRINCIPAL SHAREHOLDERS The following information is given as of April 11, 2003, 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 Name and Address of Beneficial Ownership Percent of Class Douglas A. Habig 100,257 16.71%* Jasper, IN John B. Habig 90,779 15.13%** 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. Also includes 14,056 shares held by the Kimball International 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. The above amount includes 3,124 shares held in the Carma Jane Habig Revocable Trust, Carma Jane Habig is the wife of Mr. John B. Habig. Also included are 19,178 shares held in the John B. Habig Revocable Trust, 1,080 shares held in the Hannah R. Zunk Irrevocable Trust, and 888 shares held in the Andrew H. Zunk Irrevocable Trust of which Mr. John B. Habig is trustee. Item 12. Executive Compensation Compensation Committee Report Officers of the Corporation are not compensated for their services in such capacity. All officers of the Corporation are also officers of the Bank and are compensated in their capacity as Bank officers. Decisions on compensation of the Bank s executives are made by the Board of Directors of the Bank, upon the recommendation of the Executive Compensation Committee of the Board ("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's compensation policies for 2002 as they affected all executive officers of the Bank and Mr. Ronald G. Seals who, for 2002, was the Bank s most highly paid executive whose total annual salary and bonus exceeded $100,000. Compensation Policies Toward Executive Officers The Committee s executive compensation policies are designed to provide competitive levels of compensation to the executive officers and to reward officers for satisfactory performance of the Corporation and the Bank as a whole. There are no established goals or standards relating to performance of the Corporation or the Bank, which have been utilized in setting the base salary portion of an individual employee's compensation. Base Salary The Committee reviews each executive officer individually. The Committee also reviews a bank salary survey prepared by Crowe Chizek and Company LLP that contains benchmark salary information. The background data for this information is typically generated from over 80 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 to banks of similar size. Annual Bonus Amounts The Bank's Incentive Bonus Plan ("Bonus Plan") for 2002 was based upon the bank's Return on Assets (ROA) and the officer's base salary. 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 2002. 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 2002 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 satisfactorily. Compensation Committee Insider Participation During the past fiscal year, Mr. Ronald G. Seals, the Bank's Chief Executive Officer, served on the Board of Directors, but did not serve on the Executive Compensation Committee. Mr. Seals did not participate in any discussion or vote with respect to his salary or bonus as an executive officer and excused himself from the room during the discussion by the Board of Directors of his compensation. Summary Compensation Table The following table sets forth for the fiscal years ending December 31, 2002, 2001, and 2000 the cash compensation paid by the Bank, as well as certain other compensation paid or awarded during those years, to the Chief Executive Officer. No other executive officer's annual salary and bonus exceeded $100,000 during the fiscal year ended December 31, 2002. Name and Principal Position Year Annual Compensation Salary (1) Bonus(2) Ronald G. Seals President, CEO and Director 2002 $144,000 $0 2001 $144,000 $7,200 2000 $132,000 $33,300 1 While officers enjoy certain perquisites, such perquisites do not exceed the lesser of $50,000 or 10% of such officers 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 share. 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 2002. 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 1,500 20% $38.50 $38.50 Potential Realizable Value at Assumed Annual Rates of Stack Appreciation For Option Term Name Expiration 5% 10% Date (%) (%) Ronald G. Seals 1-15-07 $15,955 $35,257 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, 2002. 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, 2002. For purposes of the following table, the year-end price of the stock is $40.50. Name Number of Shares Value of Unexercised Underlying Unexercised In-the-Money Options Options at Fiscal Year End At Fiscal Year End (#) ($) Exercisable Unexercisable Exercisable Unexercisable Ronald G. Seals 5,037 2,965 $35,476 $14,310 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 70% 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. The Bank, as Trustee, invests all amounts contributed to the Profit Sharing Plan 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 account in a single lump sum. The Profit Sharing Plan also provides for the distribution of the participant salary deferrals on account of "financial hardship" (as defined) and authorizes the making of loans to participants from that portion of their Profit Sharing Plan accounts attributable to salary deferral contributions. Item 13. Controls and Procedures Within 90 days of the filing of this report, the Company conducted a review and evaluation of its disclosure controls and procedures, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer. Based upon this review, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed is recorded, processed, summarized, and reported in a timely manner. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described above, nor were there any significant deficiencies or material weaknesses in the controls which required corrective action. 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, 2002 (incorporated in part into this form 10-K by reference) Exhibit 21 - Subsidiaries of the Registrant Exhibit 23 - Consent of Independent Public Auditors Exhibit 99.1 - CEO Certification Exhibit 99.2 - CFO Certification (d) Financial Statement Schedules - This information is omitted since the required information is not applicable to the Registrant. 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. 3/22/03 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 3/22/03 Principal Financial and Accounting 3/22/03 Officer By: By: Douglas A. Habig, Director 3/22/03 Ronald G. Seals, Principal Executive Officer and 3/22/03 Director By: By: Gary P. Critser, Director 3/22/03 Brian K. Habig, Director 3/22/03 By: James C. Tucker, Director 3/22/03 By: By: Ronald J. Sermersheim, Director Hilbert Lindsey, Director 3/22/03 3/22/03 By: Ronald J. Thyen, Director 3/22/03 CERTIFICATIONS I, David Rees, certify that: 1. I have reviewed this annual report on Form 10-K of SVB&T Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this anual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 15, 2002 David Rees, Principal Financial Officer I, Ronald G. Seals, certify that: 1. I have reviewed this annual report on Form 10-K of SVB&T Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 15, 2002 Ronald G. Seals, President and Chief Executive Officer 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, 2002 54 21 Subsidiaries of the Registrant 54 23 Consent of Independent Auditors 27 Financial Data Schedule Exhibit 13 Message to Our Shareholders Given the current economic environment, achieving corporate profitability has become very challenging over the past few years. However, we at Springs Valley Bank & Trust Company (SVB&T) remain dedicated in our efforts to meet the needs of our customers. Employees are driven to provide for customer financial needs, enhancing their ability to manage financial affairs. We continue to invest in ever-more sophisticated technology in an effort to enhance customer convenience and banking efficiency. While striving to help our customers achieve success we are not losing sight of our required efforts to provide superior returns to our shareholders. Increasing equity ownership and paying adequate dividends will provide a proper balance between growth and income. It is a continuing challenge to properly invest in enterprises that generate shareholder returns and improve customer convenience. The goals of satisfying customers and providing for shareholders is a true balancing act. We at SVB&T think that these are complementary goals. Management believes that successful customer and shareholder strategies go hand-in-hand. We believe that endeavors that bring us closer to our customers and make us partners in helping to plan their financial successes are the efforts that create value for our shareholders. Becoming more involved with our customers provides increased retention of those customers. In turn, other banking requirements of our customers evolve into additional business. The main point is that quality, caring, and reliable service lead to customer acquisition and retention. As we increase our customer base we will increase the value of our shareholder's investment. At the close of 2002 Springs Valley Bank &Trust Company completed 100 years of financial service to our communities and customers. Several exciting activities were enjoyed throughout the year to commemorate our Century of Service. We thank those customers and shareholders who helped us achieve this milestone. Financial highlights for the year 2002: Net Income $1,119,000, down 30% Income per share $1.86, down from $2.14 Book value per share $31.33, down from $31.69 Total assets $242,000,000, up .7% Deposits $181,000,000, no change Details are contained in the following reports. Bank earnings were negatively impacted by eleven cuts in interest rates during the past year. Prime rate, the best interest rate charged by large banks, decreased from 9.5% to 4.25%. The large and rapid decrease in interest rates created a narrowing of interest spread in all banks. Interest spread is the difference between yield on earning assets and the cost of interest bearing funds. As did many financial institutions, we experienced some collection problems in our loan portfolio. Some losses were taken in our commercial loans. We added $959,000 to our loan reserve account. This addition covered all losses and also increased our reserve account for any possible future losses. The Sarbanes-Oxley Act of 2002 was also a negative impact on bank earnings. Enacted in July 2002, it regulates accounting and corporate governance of public companies accounting practices. It directly impacts public companies that report to the Securities and Exchange Commission (SEC). This Act is proving burdensome and costly for most financial institutions because of the additional regulations that must be met. Although 2002 was not one of our best earnings years, we did achieve success in our technology areas. We were able to activate our on-line banking this year and are currently serving 1,412 customers with this service. Phone banking is also new this year. There are 1,651 customers using this service. To accommodate our customers and grow profitably we will continue to improve technology in all areas of the bank. Our entire community was saddened by the loss of our long time Director, Mr. Thomas Habig. Tom was involved with the purchase of our bank when his father, Arnold F. Habig, acquired the bank in 1958. Everyone who knew him will miss Tom. He was a caring and gracious person. The Directors, Officers, and Staff of SVB&T appreciate your support. We remain dedicated in our efforts to satisfy our customers and you, our shareholders. Cordially, John B. Habig Ronald G. Seals Chairman of the Board President & CEO SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Consolidated Statements of Financial Condition December 31, 2002 2001 ASSETS (Dollars in thousands) Cash and cash equivalents Cash and due from banks $6,728 $4,812 Interest-bearing deposits with banks 1,615 40 Federal funds sold 4,607 0 Total cash and cash equivalents 12,950 4,852 Investment securities, available for sale at market value 27,912 20,072 Loans held for sale 2,588 2,359 Loans Loans, net of unearned interest 185,537 205,804 Allowance for loan losses (2,176) (2,097) Net loans 183,361 203,707 Federal Home Loan Bank stock and other stock, at cost 2,055 2,005 Buildings and equipment 4,196 4,281 Accrued interest receivable 1,383 1,510 Cash value of life insurance 5,148 0 Foreclosed real estate 1,111 397 Other assets 1,479 1,267 Total assets $242,183 $240,450 LIABILITIES Deposits Non-interest bearing $12,371 $12,139 Interest bearing 168,949 169,601 Total deposits 181,320 181,740 Federal funds purchased 0 4,100 Accrued interest payable 1,189 1,089 Deferred income taxes 345 75 Other liabilities 519 693 Long-term borrowings 40,042 29,100 Total liabilities 223,415 216,797 COMMITMENTS AND CONTINGENT LIABILITIES (Note 15) SHAREHOLDERS' EQUITY Common stock (No par value: 800,000 shares authorized and issued) 200 200 Capital surplus 6,308 6,254 Retained earnings 18,793 18,107 Accumulated other comprehensive income 546 123 Treasury stock at cost (201,005 shares 2002, 55,413 shares 2001) (7,079) (1,031) Total shareholders' equity 18,768 23,653 Total liabilities and shareholders' Equity $242,183 $240,450 See Notes to Consolidated Financial Statements SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Consolidated Statements of Income Year Ended December 31, 2002 2001 2000 (Dollars in thousands, except per share data) INTEREST AND DIVIDEND INCOME Loans and fees on loans $14,014 $17,177 $16,933 Investment securities Taxable 491 416 974 Tax exempt 759 739 581 Dividends 120 157 146 Federal funds and other 112 103 77 Total interest and dividend income 15,496 18,592 18,711 INTEREST EXPENSE Deposits 5,742 8,056 8,135 Short-term borrowings 1 10 148 Long-term borrowings 2,279 1,832 1,766 Total interest expense 8,022 9,898 10,049 NET INTEREST INCOME 7,474 8,694 8,662 Provision for loan losses 959 1,120 300 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,515 7,574 8,362 NON-INTEREST INCOME Trust Department income 493 543 760 Service charges on deposit accounts 774 579 534 Net gain on sales of loans 310 182 0 Insurance income 167 171 161 Other operating income 452 303 298 Net security gains (losses) 9 11 (10) Total non-interest income 2,205 1,789 1,743 NON-INTEREST EXPENSE Salaries and employee benefits 4,270 4,179 3,870 Premises and equipment expense 1,413 1,281 1,392 Deposit insurance expense 32 36 36 Other operating expenses 1,611 1,662 1,680 Total non-interest expense 7,326 7,158 6,978 INCOME BEFORE INCOME TAXES 1,394 2,205 3,127 Income taxes 275 608 1,088 NET INCOME $1,119 $1,597 $2,039 EARNINGS PER SHARE Basic $1.86 $2.14 $2.74 Diluted $1.85 $2.13 $2.73 AVERAGE SHARES OUTSTANDING Basic 601,179 746,372 745,017 Diluted 604,624 748,201 746,429 See Notes to Consolidated Financial Statement SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Consolidated Statements of Cash Flows Year Ended December 31, 2002 2001 2000 OPERATING ACTIVITIES: (Dollars in thousands) Net income $1,119 $1,597 $2,039 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 959 1,120 300 Depreciation 507 520 512 Investment securities amortization 103 11 24 Investment securities (gains) losses (8) (10) 24 Proceeds from sales of residential mortgage loans held for sale 16,813 10,129 0 Net gains on sale of loans (310) (182) 0 Increase in residential mortgage loans held for sale (18,644) (12,307) 0 Loss on sale of equipment 3 0 15 Increase in cash value of life insurance (148) 0 0 (Gain) loss on sale of other real estate 75 (10) (43) Deferred income taxes (48) (148) (41) (Increase) decrease in interest receivable and other assets (78) 389 (863) Increase (decrease) in interest payable and other liabilities (40) (119) 242 NET CASH PROVIDED BY OPERATING ACTIVITIES 303 990 2,209 INVESTING ACTIVITIES; Proceeds from sales and maturities of investment securities available for sale 6,524 12,355 2,386 Purchases of investment available for sale (13,759) (3,608) (5,251) Purchases of FHLB stock and other Stock (50) (150) (650) Purchases of Bank owned life insurance (5,000) 0 0 Proceeds from the sale of equipment 27 0 33 Proceeds - sale of loan participations 0 450 0 Proceeds - sale of other real estate 432 148 127 Net (increase) decrease in loans 20,078 (2,678)(29,982) Additions to buildings and equipment (452) (193) (644) NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 7,800 6,324 (33,981) SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Consolidated Statements of Cash Flows Year Ended December 31, 2002 2001 2000 (Dollars in thousands) FINANCING ACTIVITIES; Net increase (decrease) in deposits (420) (4,620) 5,084 Net increase (decrease) in federal funds purchased (4,100) 1,335 2,765 Net increase (decrease) in short-term Borrowings 0 (2,500) (5,000) Proceeds from long-term borrowings 11,300 0 24,500 Repayment of long-term debt (358) (2,000) 0 Sale of treasury stock 106 85 67 Purchase of treasury stock (6,100) (98) 0 Cash dividends (433) (537) (536) NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (5) (8,335) 26,880 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,098 (1,021) (4,892) Cash and cash equivalents beginning of year 4,852 5,873 10,765 CASH AND CASH EQUIVALENTS AT END OF YEAR $12,950 $4,852 $5,873 SUPPLEMENTAL DISCLOSURES: Cash paid during the year for: Income taxes $539 $936 $1,173 Interest $7,922 $9,773 $9,869 See Notes to Consolidated Financial Statement SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Consolidated Statements of Changes in Shareholders' Equity Accumulated Common Stk Other Surplus Retained Comprehensive Treasury Total Earnings Income Stock Equity (Dollars in thousands) JANUARY 1, 2000 $15,544 $(544) $5,368 $20,368 COMPREHENSIVE INCOME 2000 Net income 2,039 2,039 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $347 505 505 Plus reclassifications for losses included in net income 24 24 TOTAL COMPREHENSIVE INCOME 2,568 Cash dividends (536) (536) Sold 1,795 shares treas Stk 68 68 DECEMBER 31, 2000 17,047 (15) 5,436 22,468 COMPREHENSIVE INCOME 2001 Net income 1,597 1,597 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $90 149 149 Less reclassifications for gains included in net income (11) (11) TOTAL COMPREHENSIVE INCOME 1,735 Cash dividends (537) (537) Sold 2,839 shs treas stk 85 85 Purch 3,280 shs treas stk (98) (98) DECEMBER 31, 2001 18,107 123 5,423 23,653 COMPREHENSIVE INCOME 2002 Net income 1,119 1,119 Change in unrealized gain (loss) on securities available for sale, net of deferred income tax of $277 431 431 Plus reclassifications for gains included in net income (8) (8) TOTAL COMPREHENSIVE INCOME 1,542 Cash dividends (433) (433) Sold 2,197 shs treas stk 85 85 Purch 149,030 shs treas stk (6,100) (6,100) Issued 1,241 shs of treasury stock under stock option plans 21 21 DECEMBER 31, 2002 $18,793 $546 $(571) $18,768 See Notes to Consolidated Financial Statements SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of SVB & T Corporation and Subsidiary (the Bank) are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. The more significant of the principles used in preparing the financial statements are briefly described below Principles of Consolidation The consolidated financial statements include the accounts of SVB & T Corporation and its wholly owned subsidiary, Springs Valley Bank & Trust Company. All significant intercompany balances and transactions have been eliminated. Nature of Operations SVB & T Corporation operates under a charter from the State of Indiana and provides full banking services, including trust services. As a state bank, Springs Valley Bank & Trust Company is subject to regulation by the Department of Financial Institutions of the State of Indiana and the Federal Deposit Insurance Corporation. The area served by the Bank is primarily Orange, Dubois and the surrounding counties in Southern Indiana. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash, due from banks, interest-bearing deposits with banks and federal funds sold. Generally, federal funds are sold for one-day periods. Investment Securities Available for Sale The Bank buys investment debt securities with the intent and ability to hold these securities to maturity. However, management has determined that all debt securities would be available for sale in response to certain situations, such as changes in interest rates and prepayment risk, need for liquidity, changes in availability and yield on alternative investments, and changes in funding sources and terms. At December 31, 2002 and 2001, 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 in other comprehensive income. Accreted discounts and amortized premiums are included SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) in earnings over the life of the security. Gains or losses on dispositions are computed using the specific identification method. 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. 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. FHLB Stock and Other Stock The Bank owns stock in the Federal Home Loan Bank of Indianapolis and other restricted stock. This stock is carried at cost. 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 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 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. Foreclosed Real Estate Real estate acquired in foreclosures is held for sale and is initially recorded 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. Subsequent to foreclosure, valuations are periodically performed by management and assets are carried at the lower of the carrying amount or fair value. Any future revenue, expenses or carrying amount write downs associated with the real estate is recognized in current operating results. 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. Fair value is determined using prices for similar assets with similar characteristics. 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. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 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. 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: 2002 2001 2000 BASIC EARNINGS PER SHARE Net Income $ 1,119 $1,597 $2,039 Average Shares outstanding 601 746 745 Basic earnings per share 1.86 2.14 2.74 DILUTED EARNINGS PER SHARE: Net Income 1,119 1,597 2,039 Average shares outstanding 601 746 745 Stock options, net 4 2 1 Diluted average shares outstanding 605 748 746 Diluted earnings per share $ 1.85 $ 2.13 $ 2.73 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 2002 presentation. These reclassifications had no effect on net income. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 2-EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 2003, the Company will adopt SOP 01-6 Accounting by Certain Entities that Lend or Finance the Activities of Others. 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 $582 at December 31, 2002 and $715 at December 31, 2001. NOTE 4-INVESTMENT SECURITIES The amortized costs and fair value of investment securities at December 31, 2002 and 2001 were as follows: December 31, 2002 Unrealized Unrealized Amortized Holding Holding Securities Available for Sale Cost Gains Losses Fair Value U.S. Government corporations and Agencies $ 10,852 $ 178 $ 1 $ 11,029 States and political subdivisions 15,385 692 35 16,042 Mortgage-backed securities 58 7 0 65 Other securities 713 63 0 776 Total $ 27,008 $ 940 $ 36 $ 27,912 December 31, 2001 Unrealized Unrealized Amortized Holding Holding Securities Available for Sale Cost Gains Losses Fair Value U.S. Government corporations and Agencies $ 4,006 $ 83 $ 0 $ 4,089 States and political subdivisions 15,082 254 175 15,161 Mortgage-backed securities 66 6 0 72 Other securities 714 36 0 750 Total $ 19,868 $ 379 $ 175 $ 20,072 The amortized cost and fair value of securities available for sale at December 31, 2002 and 2001, 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. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 2002 2001 Amortized Amortized Cost Fair Value Cost Fair Value Securities Available for Sale Due in one year or less $ 6,546 $ 6,636 $ 2,620 $ 2,666 Due after one year but within five years 8,975 9,272 4,149 4,276 Due after five years but within ten years 7,180 7,558 7,419 7,523 Due after ten years 4,249 4,381 5,614 5,535 26,950 27,847 19,802 20,000 Mortgage backed securities 58 65 66 72 Total $ 27,008 $27,912 $ 19,868 $ 20,072 Securities available for sale with amortized cost of $10,852 at December 31, 2002 and $4,006 at December 31, 2001 were pledged as collateral on debt of the Bank. NOTE 4-INVESTMENT SECURITIES (Continued) Proceeds from sales of securities available for sale during 2002, 2001 and 2000 were $495, $2,877 and $1,154. In 2002, gains of $9 and losses of $-0- were realized. In 2001, gains of $11 and losses of $-0- were realized. In 2000, gains of $-0- and losses of $10 were realized. NOTE 5-LOANS Loans at December 31, 2002 and 2001 are comprised of the following: 2002 2001 Commercial and industrial loans $ 49,977 $ 46,103 Real estate loans (including $3,181 and $3,339 secured by farm land) 94,595 104,923 Construction loans 10,350 14,727 Agricultural production financing and other loans to farmers 2,186 2,580 Individuals' loans for household and other personal expenditures 28,146 36,925 Lease financing 397 631 185,651 205,889 Less: Unearned income on loans 114 85 Total loans 185,537 $ 205,804 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Information concerning impaired loans at December 31, 2002, 2001 and 2000 is as follows: 2002 2001 2000 Impaired loans with a related allowance for loss $ 2,597 $ 588 $ 1,099 Impaired loans without a related allowance for loss 6,238 4,154 982 Total impaired loans 8,835 4,742 2,081 Average balance of impaired loans 9,239 4,851 2,259 Allocated allowance for loan losses on impaired losses 450 270 525 Cash receipts applied to principal 929 164 323 Cash receipts applied as interest income 400 317 204 Total cash received $ 1,329 $ 481 $ 527 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, 2002, 2001 and 2000 are as follows: 2002 2001 2000 Loans pledged as collateral $ 71,750 $ 82,458 $ 78,129 Loans serviced for others are not included in the consolidated statements of financial condition. The unpaid principal balances of mortgage loans serviced for others were $26,681 and $13,147 at December 31, 2002 and 2001. The balance of servicing rights included in other assets at December 31, 2002 and 2001 was $227 and $104. Carrying values approximate the fair values of the assets. The following summarizes the activity in mortgage servicing rights: 2002 2001 2000 Mortgage services rights capitalized $ 126 $ 105 $ 0 Mortgage services rights amortized 4 1 0 Valuation allowance 0 0 0 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 6-ALLOWANCE FOR LOAN LOSSES The changes in the allowance for loan losses for the year 2002, 2001 and 2000 are as follows: 2002 2001 2000 Balance, January 1 $ 2,097 $ 1,671 $ 1,627 Loans charged-off (978) (794) (577) Recoveries 98 100 321 Net charged-off (880) (694) (256) Provision for loan losses 959 1,120 300 Balance, December 31 $ 2,176 $ 2,097 $ 1,671 NOTE 7-BUILDINGS AND EQUIPMENT Balances in the buildings, equipment, and related accumulated depreciation accounts at December 31, 2002 and 2001 are as follows: 2002 2001 Land and bank buildings $ 5,162 $ 5,011 Equipment, furniture and fixtures 4,947 4,737 Totals 10,109 9,748 Less accumulated depreciation 5,913 5,467 Net $ 4,196 $ 4,281 Depreciation expense was $507 for 2002, $520 in 2001 and $511 in 2000. NOTE 8-DEPOSITS Deposits at December 31, 2002 and 2001 are as follows: 2002 2001 Demand, non-interest bearing $ 12,371 $ 12,139 Demand, interest-bearing 19,540 18,374 Savings 61,736 66,687 Time deposits, $100,000 and over 25,613 23,842 Other time deposits 62,060 60,698 $ 181,320 $ 181,740 As of December 31, 2002 the scheduled maturities of time deposits are as follows: 2003 $ 26,799 2004 27,671 2005 11,134 2006 16,115 2007 and thereafter 5,954 $ 87,673 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 9-OTHER SHORT-TERM BORROWINGS Short-term borrowings at December 31, 2002 and 2001 are as follows: 2002 2001 Federal Funds purchased from Bank One, Indiana, unsecured, 1.875% at December 31, 2001 $ 0 $ 4,100 NOTE 10-LONG-TERM BORROWINGS Long-term borrowings at December 31, 2002 and 2001 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 Option Date Rate 2002 2001 March 15, 2005 March 15, 2002 6.32% $ 7,000 $ 7,000 October 15, 2005 N/A 5.02% 1,000 1,000 July 17, 2006 N/A 6.69% 3,100 3,100 April 19, 2010 April 19, 2002 6.18% 10,000 10,000 June 7, 2010 March 6, 2002 6.53% 5,000 5,000 February 28, 2011 April 27, 2002 4.48% 3,000 3,000 January 5, 2004 N/A 3.63% 2,000 0 January 4, 2006 N/A 4.97% 5,000 0 Total Federal Home Loan Bank Advances 36,100 29,100 Notes Payable: Independent Bankers' Bank, payable annually,collateralized by all assets of the holding company, interest rate adj.monthly 3.38% 3,942 0 Total long-term borrowings $ 40,042 $ 29,100 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, 2002 long-term borrowings are scheduled to mature as follows: 2003 $ 358 2004 2,358 2005 8,358 2006 8,458 2007 358 Thereafter 20,152 $ 40,042 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) At December 31, 2002, the Bank has $17,287 available under a secured line of credit and $7,500 available under two unsecured lines. These line of credit are short-term and renew annually. 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 pre-tax net income and are subject to the discretion of the Board of Directors. The Bank's expense for the plan for the years ended December 31, 2002, 2001 and 2000 was $105, $127 and $184. The Bank 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, 2002, 2001 and 2000 were $427, $316 and $296. In 2002, the Bank started a bank owned life insurance plan covering 15 management employees. Under the plan, the Bank will pay beneficiaries a predetermined cash benefit at the death of a participant. The program is non- vesting. A participant must meet Bank retirement requirements to remain eligible after terminating employment. The entire future benefit obligation for all participants of $3,625 was settled by the purchase of $10,868 of single premium life insurance policies at a cost of $5,000. The Bank owns all policies. At December 31, 2002, these policies had a surrender value of $5,148. This amount is carried as an asset in the statement of financial condition. NOTE 12-INCOME TAXES The components of the provision for income taxes are: 2002 2001 2000 Federal income taxes currently payable $ 219 $ 553 $ 844 Deferred Federal income taxes (44) (114) (32) Provision for Federal income taxes for the year $ 175 $ 439 $ 812 State income taxes currently payable $ 104 $ 203 $ 285 Deferred state income taxes (4) (34) (9) Provision for state income taxes for the year $ 100 $ 169 $ 276 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 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, 2002 and 2001 are as follows: 2002 2001 Deferred Tax Assets: Allowance for loan losses $ 680 $ 638 Loan fees 26 34 Alternative minimum tax credit carryover 39 0 Other 85 11 Total asset 830 683 Deferred Tax Liabilities: Depreciation and software amortization (817) (677) Unrealized gains on securities available for sale (358) (81) Net deferred tax liability $ (345) $ (75) The difference between the Federal income tax rate and the Bank's effective tax rate is as follows: 2002 2001 2000 Income tax at Federal tax rate of 34% $ 474 $ 750 $ 1,063 Tax effect of: Tax exempt interest (218) (207) (156) Other (46) (39) (2) State income taxes, net of Federal effect 65 104 183 Total income taxes $ 275 $ 608 $ 1,088 Effective tax rate 19.74% 27.57% 34.80% The Bank has $56 of alternative minimum tax credit carry forward which has no expiration period. 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 $872 at December 31, 2002 and $906 at December 31, 2001. The Bank serves as Trustee for Kimball International's employee benefit plans. 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 2002, 2001 and 2000 were $76, $200 and $427. Amounts receivable from Kimball International for these services were $38 at December 31, 2002, $39 at December 31, 2001 and $124 at December 31, 2000. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 13 RELATED PARTY TRANSACTIONS (CONTINUED) 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 2002 were as follows: Balance, January 1, 2002 $ 5,612 New loans 364 Repayments (661) Changes in persons included 0 Balance, December 31, 2002 $ 5,315 NOTE 14-LEASE COMMITMENTS Minimum lease payments at December 31, 2002, under operating lease commitments, total $-0-. Operating expenses include rental expense of $35 in 2002, $31 in 2001 and $23 in 2000. 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, 2002 and 2001 were as follows: 2002 2001 Commitments to extend credit $ 17,950 $ 10,391 Standby letters of credit $ 312 $ 385 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 15-COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case- by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank is subject to claims and lawsuits which arise in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Bank in connection with such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company. NOTE 16-STOCK OPTION PLANS SVB & T Corporation maintains two stock option plans for certain employees and directors. 70,000 shares of stock were reserved for these plans and 38,593 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: Average Exercise Number Price Balance, January 1, 2000 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 Granted 7,400 $38.50 Exercised (3,771) $25.99 Balance, December 31, 2002 27,039 $34.25 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 16-STOCK OPTION PLANS (CONTINUED) Pro forma information required of companies not adopting FASB No. 123 is as follows: 2002 2001 2000 Pro forma net income $ 1,103 $ 1,563 $ 2,024 Pro forma basic earning per share $ 1.83 $ 2.09 $ 2.72 Pro forma diluted $ 1.82 $ 2.09 $ 2.71 NOTE 17-STOCKHOLDERS' EQUITY In January 2002, the Company purchased 144,920 shares of its outstanding common stock from a related party shareholder. The total purchase price was $5,941. All regulatory agencies approved the purchase. Purchase of this stock did not result in capital ratios which were 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 2002, 2001 and 2000 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, 2002, approximately $770 of the Bank's retained earnings were available for dividend payments to the SVB & T Corporation. NOTE 19-REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios 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, 2002, that the Bank meets all capital adequacy requirements to which it is subject. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 19-REGULATORY MATTERS (CONTINUED) As of December 31, 2002, 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 Bank Required for Amounts and Amounts Bank to be Well As of December 31, 2002: Tier 1 Capital to Risk-Weighted Assets $ 18,209 $ 20,410 $ 10,438 10.4% 11.7% 6.0% Total Capital to Risk-Weighted Assets $ 20,385 $ 22,585 $ 17,397 11.6% 13.0% 10.0% Tier 1 Capital to Average Assets $ 18,209 $ 20,410 $ 12,183 7.5% 8.4% 5.0% As of December 31, 2001: Tier 1 Capital to Risk-Weighted Assets $ 23,517 $ 21,867 $ 10,754 13.0% 12.2% 6.0% Total Capital to Risk-Weighted Assets $ 25,615 $ 23,964 $ 17,923 14.1% 13.4% 10.0% Tier 1 Capital to Average Assets $ 23,517 $ 21,867 $ 12,208 9.6% 9.0% 5.0% The Indiana Department of Financial Institutions (DFI) conducted a regulatory examination of Springs Valley Bank & Trust Company in late 2002. The DFI classified $485 of loans as losses, directed the Bank to write off these loans against the allowance for loan losses and directed that the allowance be restored to its previous level. All of these transactions are reflected in the December 31, 2002 financial statements. In addition the Bank will be required to take corrective actions concerning its credit underwriting, loan administration, budgeting, liquidity monitoring and call report preparation. The board of directors will submit quarterly progress reports to the regulatory agencies. The Bank will be examined by the FDIC within the next year. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 20-CONCENTRATIONS OF CREDIT At December 31, 2002, the total amount of due from banks included $8,431 with Independent Bankers' Bank, $1,615 with Federal Home Loan Bank of Indianapolis, $126 with Bank One Kentucky, and $102 with Old National Bank, which is in excess of the Federal Deposit Insurance Corporation's insured limit of $100 per institution. The majority of investments in state and municipal securities involve governmental entities in the State of Indiana. Approximately 76% 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 24% 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, 2002 and 2001 are as follows: 2002 2001 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ASSETS Cash and cash equivalents $ 12,950 $ 12,950 $ 4,852 $ 4,852 Investment securities 27,912 27,912 20,072 20,072 Loans and loans held for sale (net) 185,949 188,507 206,066 207,384 FHLB and other stock 2,055 2,055 2,005 2,005 Interest receivable 1,383 1,383 1,510 1,510 LIABILITIES Deposits $ 181,320 $ 185,457 $ 181,740 $ 184,139 Short-term borrowings 0 0 4,100 4,100 Long-term borrowings 40,042 43,512 29,100 29,545 Interest payable 1,189 1,189 1,089 1,089 The following methods and assumptions were used to estimate the fair value of each class of financial instruments. SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 21-FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) Cash and Cash Equivalents The carrying amounts reported in the consolidated statements of financial condition for cash and federal funds sold is a reasonable estimate of their fair value. Investment Securities Fair values for investment securities are based on quoted market prices. Loans and Loans Held for Sale 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. FHLB and Other Stock The carrying amount of FHLB and other stock is a reasonable estimate of their fair value. Interest Receivable The carrying amount of accrued interest receivable is a reasonable estimate of its fair value. Deposits 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. 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 (Dollars in thousands, except per share data) NOTE 21-FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED Interest Payable The carrying amount of accrued interest payable is a reasonable estimate of its fair value. 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 2002 2001 ASSETS (In thousands) Cash in bank with subsidiary $ 238 $ 67 Investment in subsidiary 20,992 20,303 Buildings and equipment 1,707 1,681 Other assets 322 2,198 Total assets $ 23,259 $ 24,249 LIABILITIES Accrued expenses $ 63 $ 107 Dividends payable 108 134 Long-term borrowings 3,942 0 Deferred income taxes 378 355 Total liabilities 4,491 596 SHAREHOLDERS' EQUITY Common stock 200 200 Surplus 6,308 6,253 Retained earnings 18,793 18,107 Accumulated other comprehensive income 546 123 Treasury stock (7,079) (1,030) Total shareholders' equity 18,768 23,653 Total liabilities and shareholders' equity $ 23,259 $ 24,249 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 22-PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued) Years Ended December 31, Condensed Statement of Income 2002 2001 2000 INCOME (In thousands) Dividend income $ 12 $ 20 $ 11 Dividends from subsidiary 878 2,227 784 Rent from subsidiary 300 300 300 Total income 1,190 2,547 1,095 EXPENSE Depreciation 68 66 66 Interest on long-term debt 158 0 10 Other expenses 138 69 121 Total expense 364 135 197 Income before income taxes and equity in undistributed earnings of subsidiary 826 2,412 898 Income tax expense (27) 72 61 Income before equity in undistributed earnings of subsidiary 853 2,340 837 Equity in undistributed earnings of Subsidiary 266 0 1,202 Dividends received in excess of earnings of Subsidiary 0 (743) 0 Net income $ 1,119 $ 1,597 $ 2,039 SVB & T CORPORATION AND SUBSIDIARY FRENCH LICK, INDIANA Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) NOTE 22-PARENT COMPANY ONLY FINANCIAL STATEMENTS Years Ended December 31, Condensed Statement of Cash Flows 2002 2001 2000 Operating Activities: (In thousands) Net income $ 1,119 $ 1,597 $ 2,039 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 67 66 66 (Undistributed) excess net income of subsidiary (266) 743 (1,202) Deferred income taxes 23 19 23 (Increase) decrease in other assets 1,877 (1,998) (43) Increase (decrease) in accrued expenses and dividends payable (70) 14 7 Net cash provided by operating activities 2,750 441 890 Investing Activities: Additions to buildings and equipment (94) 0 (43) Net cash used by investing activities (94) 0 (43) Financing Activities: Net treasury stock activity (5,994) (13) 67 Dividends paid (433) (537) (536) Increase in long-term debt 4,300 0 0 Principal payment on long-term debt (358) 0 (216) Net cash used by financing activities (2,485) (550) (685) Increase (decrease) in cash and cash Equivalents 171 (109) 162 Cash and cash equivalents at beginning of year 67 176 14 Cash and cash equivalents end of year $ 238 $ 67 $ 176 NOTE 23-FOURTH QUARTER RESULTS (Unaudited) During the fourth quarter ended December 31, 2002, the Bank recognized a $679 provision for loan losses. The total provision for loan losses in the year ended December 31, 2002 was $959. 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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2002, in conformity with U.S. generally accepted accounting principles. Nonte & Company LLC Certified Public Accountants Jasper, Indiana March 21, 2003 Exhibit 11 - Statement Re: Computation of Per Share Earnings Year Ended December 31, 2001 2001 2000 Primary Weighted average shares outstanding $ 601,179 $ 746,372 $ 745,017 Net Income 1,119,000 1,597,209 2,039,032 Net income per common share $ 1.86 $ 2.14 $ 2.74 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 March 21, 2003, included in the 2002 Annual Report to Shareholders of SVB&T Corporation. NONTE & COMPANY LLC Certified Public Accountant Jasper, Indiana March 26, 2003 Exhibit 99.1 CEO Certifications CETIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 In connection with the annual Report of SVBT & Corporation (the 'Company') on Form 10-K for the year ending December 31, 2002 as filed with the Securities And Exchange Commission on the date hereof (the 'Report'), I Ronald G. Seals, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes - Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the company. Ronald G. Seals Chief Executive Officer March 28, 2003 The foregoing certification is being furnished solely pursuant to 18 U.S.C. 1350 and not for any other purpose, and is subject to the knowledge standard contained in 18 U.S.C. 1350. Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 In connection with the Annual Report of SVB&T Corporation (the 'Company') On form 10-K for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the 'Report'), I, David Rees, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes - Oxley Act of 2002, that: (1) The report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all Material Respects, the financial condition and result of Operations of the company. David Rees Chief Financial Officer March 28, 2003 The foregoing certification is being furnished solely pursuant to 18 U.S.C. 1350 and not for any other purpose, and is subject to the knowledge standard contained in 18 U.S.C. 1350. 1