U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22471
LUXEMBURG BANCSHARES, INC.
(Name of Small Business Issuer in Its Charter)
Wisconsin 39-1457904
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
630 Main Street, Luxemburg, Wisconsin 54217
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (920) 845-2345
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $1.00 per share
(Title of Class)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or 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 [ ].
Check if there is no disclosure of delinquent filers in
response to Item 405 of regulation S-B is not contained
in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by
reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for the year ended December 31, 1999 $8,445,831.
The aggregate market value (determined using the book value per share) of
common stock held by non-affiliates of the registrant as of March 6, 2000
was $8,567,987.
The number of shares outstanding of the registrant's common stock as of
March 6, 2000 was 270,264.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March
27, 2000 to be delivered to shareholders in connection
with the Annual Meeting of Shareholders to be held
April 29, 2000 are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
Luxemburg Bancshares, Inc. (the "Company"), a
Wisconsin corporation, was formed June 10, 1983 for the
purpose of owning a Wisconsin bank. On December 30,
1983, the Company acquired a controlling interest in
the Bank of Luxemburg (the "Bank"). The Bank is now a
wholly-owned subsidiary of the Company.
As of December 31, 1999, the Company had total
consolidated assets of $110.0 million and total
stockholders' equity of $10.7 million.
THE BANK
The Bank was chartered by the Wisconsin Banking
Department (now the Wisconsin Department of
Financial Institutions ("DFI")) on October 6, 1903.
Bank deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank conducts
business at the Main Office at 630 Main Street,
Luxemburg, Wisconsin with other offices located at E166
County Hwy. S., Luxemburg ("Dyckesville office") and
602 Center Drive, Luxemburg ("IGA Supermarket office")
and 100 Old Orchard Avenue, Casco ("Casco Office") in
Kewaunee County and 1311 Bellevue Street, Green Bay
("Bellevue office") in Brown County. The Bank also
maintains seven automated teller machines ("ATMs") in
Kewaunee, Brown and Door Counties.
The Bank provides a full range of consumer and
commercial banking services to individuals, businesses
and farms. The basic services offered include: demand
deposit accounts, money market deposit accounts, NOW
accounts, time deposits, safe deposit services, credit
cards, direct deposits, notary services, money orders,
night depository, travelers' checks, cashier's checks,
savings bonds, secured and unsecured consumer,
commercial and real estate loans and stand-by letters
of credit. The Bank offers automated teller machine
cards through the TYME and Cirrus ATM networks. In
addition, the Bank purchased the financial planning and
alternative investment marketing of Total Financial
Concepts in January of 1996. The bank division renamed
to operate as the "Financial Resource Center" provides
financial planning, estate planning and retirement
planning services and to market mutual funds,
annuities, life insurance products, Individual
Retirement Accounts (IRAs) and other pension programs.
As is the case with banking institutions
generally, the Bank derives its revenues from interest
on the loan and investment portfolios and fee income
related to loans and deposits. Income derived from the
sale of alternative investment products provides
additional fee income. The source of funds for the
lending activities are deposits, repayment of loans,
sale and maturity of investment securities and
borrowing from the Federal Home Loan Bank of Chicago.
Principal expenses are the interest paid on deposits
and borrowings and operating and general administrative
expenses.
The Bank's business plan is based on being a
strong, established, locally owned bank providing
financial services to its local communities. The
Bank's main office and three branch offices are located
in western Kewaunee County, serving approximately 25%
of the county's 20,028 population. The Bank also
serves a small portion of southern Door County from
these locations. The Bank serves eastern Brown County
with these locations and an office in the Green Bay,
Wisconsin market. The Bank targets the individual and
small business customers within these markets and
emphasizes the advantages of local ownership, (i.e.,
responsive local loan decisions and community
involvement).
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AREA DEVELOPMENT CORPORATION
The Company formed Area Development Corporation as
a subsidiary to provide the Company with a vehicle to
invest in the community in real estate developments
which assist low and moderate income residents. To
date, the Area Development Corporation has assisted by
working with the low-income housing program in
Luxemburg by providing officers to serve on the board
and to advise on the current and future low-income
housing projects; assisting the low-income housing
development committee in Dyckesville; researching a low-
income housing project and putting aside funds to
purchase property if necessary to begin the project;
and providing funds to determine the need for library
services locally for all community residents.
LUXEMBURG INVESTMENT CORPORATION.
Luxemburg Investment Corporation ("Investment
Corporation") is a wholly-owned subsidiary of the Bank.
Investment Corporation is a Nevada corporation, the
business of which is to hold, invest and reinvest a
portion of the investment portfolio of the Bank. See
"INVESTMENTS".
LENDING ACTIVITIES
The Bank offers a range of lending services,
including real estate, consumer, commercial and
industrial and agricultural loans to individuals, small
business and other organizations that are located in or
conduct a substantial portion of their business in the
Bank's market area. The Bank's total loans as of
December 31, 1999 were $82.2 million, or approximately
75% of total consolidated assets. In addition, the
Bank services $26.9 million in consumer real estate
loans sold to the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Federal Home Loan Bank
("FHLB"). Interest rates charged on loans vary with
the degree of risk, maturity, and amount of the loan,
and are further subject to competitive pressures, cost
and availability of funds and government regulations.
The Bank maintains a comprehensive loan policy
that establishes guidelines with respect to all
categories of lending activity. The policy establishes
lending authority for each individual loan officer and
officer committee and board lending authority. All
loans to directors and executive officers are approved
by the Board of Directors. The loans are concentrated
in four major areas: real estate loans, commercial
loans, consumer loans and agricultural loans. The
lending strategy is development of a high quality loan
portfolio.
The Bank's credit customers did not suffer any
material losses as a result of Year 2000 related
problems with their own computer systems or the
computer systems of their suppliers and customers. The
Bank worked with those customers that may have been
significantly affected by the Year 2000 exposure.
The Bank's real estate loans are secured by
mortgages and consist primarily of loans to individuals
for the purchase and improvement of real estate and for
the purchase of residential lots and construction of
single-family residential units. The Bank's
residential real estate loans generally are repayable
in monthly installments based on up to a thirty year
amortization schedule. Typically, loans with terms of
fifteen or thirty years must qualify for and are sold
to the FHLMC or FHLB.
Commercial loans include loans to individuals and
small businesses including loans for working capital,
machinery and equipment purchases, premise and
equipment acquisitions, purchase, improvement and
investment in real estate development and other
business needs. Commercial lines of credit are
typically for a one year term. Other commercial loans
with terms or amortization schedules of longer than one
year will normally carry interest rates which vary with
the prime lending rate and will become payable in full
and are generally refinanced in three to five years.
Commercial loans typically entail a thorough analysis
of the borrower, its industry, current and projected
economic conditions and other factors. The Bank
typically requires commercial borrowers to have annual
financial statements and requires appraisals or
evaluations in connection with the loans secured by
real estate. The Bank often requires personal
guarantees from principals involved with closely-held
corporate borrowers.
The Bank's consumer loan portfolio consists
primarily of loans to individuals for various consumer
purposes payable on an installment basis. The loans
are generally for terms of five years or less and are
secured by liens on various personal assets of the
borrower. The Bank also provides consumer credit
through its credit card
<PAGE>
program. These loans are limited open-ended credits
requiring minimum monthly payments. Credit card loans
are unsecured.
The Bank also provides services to support dairy
farms in the rural areas of Kewaunee and southern Door
counties. About eight (8%) percent of the Bank's loan
portfolio, $6.4 million, is in agricultural loans
(including agricultural real estate loans). The loans
provide financing for real estate and personal property
purchases, as well as operational lines of credit and
production financing. The credit terms are typically
similar to other commercial loans. The Bank will
provide direct financing, as well as guaranteed
financing, through Federal (FmHA) and State of
Wisconsin (WHEDA) sponsored programs.
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds
for lending and other investment activities. The Bank
considers the majority of its regular savings,
investors choice, demand, NOW and money market deposit
accounts to be core deposits. These accounts comprised
approximately 43% of the Bank's total deposits at
December 31, 1999. Approximately 57% of the Bank's
deposits at December 31, 1999 were certificates of
deposit. Generally, the Bank attempts to maintain the
rates paid on its deposits at a competitive level.
Deposits of $100,000 and over made up approximately 9%
of the Bank's total deposits at December 31, 1999. The
majority of the deposits of the Bank are generated from
Kewaunee and Brown Counties. Brokered deposits at
December 31, 1999 made up 3.51% of the Bank's total
deposits. For additional information regarding the
Bank's deposit accounts, see "Management's Discussion
and Analysis or Plan of Operation - Liquidity and
Interest Rate Sensitivity" and Note 8 of Notes to
Consolidated Financial Statements.
INVESTMENTS
The Bank invests a portion of its assets in U.S.
Treasury and U.S. Governmental agency obligations,
FHLMC, FNMA and FHLB securities, state, county and
municipal obligations, collateralized mortgage
obligations ("CMO's") and federal funds sold. The
investments are managed in relation to the loan demand
and deposit growth and are generally used to provide
for the investment of excess funds at reduced yields
and risks relative to yields and risks of the loan
portfolio, while providing liquidity to fund increases
in loan demand or to offset fluctuations in deposits.
The investments are held in Investment Corporation as
well as in the Bank. The Bank portfolio is to provide
for immediate liquidity needs and therefore maintains
shorter term investments. Investment Corporation
provides for greater investment yields and therefore
maintains longer term investments. For further
information regarding the Company's investment
portfolio, see Note 4 of Notes to Consolidated
Financial Statements.
SUPERVISION AND REGULATION
Bank Holding Company Regulation. The Company is a
one-bank holding company, registered with the Federal
Reserve under the Bank Holding Company Act of 1956, as
amended ("BHC Act"). As such, the Company is subject
to the supervision, examination, and reporting
requirements of the BHC Act and the regulations of the
Federal Reserve. The Company is required to furnish to
the Federal Reserve an annual report of its operations
at the end of each fiscal year, and such additional
information as the Federal Reserve may require pursuant
to the BHC Act.
The BHC Act requires every bank holding company to
obtain the prior approval of the Federal Reserve before
(i) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or
indirectly own or control more than 5% of the total
voting shares of the bank, (ii) it or any of its
subsidiaries, other than a bank, may acquire all or
substantially all of the assets of the bank, or (iii)
it may merge or consolidate with any other bank holding
company.
The BHC Act further provides that the Federal
Reserve may not approve any transaction that would
result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any section of
the United States, or the effect of which may be
substantially to lessen competition or to tend to
create a monopoly in any section of the country, or
that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the
proposed transaction are clearly outweighed
<PAGE>
by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is
also required to consider the financial and managerial
resources and future prospects of the bank holding
companies and banks concerned, which generally focuses
on capital adequacy. The Federal Reserve must also
consider the convenience and needs of the community to
be served, including the parties' performance under the
Community Reinvestment Act of 1977, as amended (the
"CRA"), which is discussed below.
The BHC Act generally prohibits the Company from
engaging in activities other than banking or managing
or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect
control of any company engaged in any activities other
than those activities determined by the Federal Reserve
to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
In determining whether a particular activity is
permissible, the Federal Reserve must consider whether
the performance of such an activity reasonably can be
expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects,
such as undue concentration of resources, decreased or
unfair competition, conflicts of interests, or unsound
banking practices. For example, factoring accounts
receivable, acquiring or servicing loans, leasing
personal property, conducting discount securities
brokerage activities, performing certain data
processing services, acting as agent or broker in
selling credit life insurance and certain other types
of insurance in connection with credit transactions,
and performing certain insurance underwriting
activities all have been determined by the Federal
Reserve to be permissible activities of bank holding
companies. Despite prior approval, the Federal Reserve
has the power to order a bank holding company or its
subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has
reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a
serious risk to the financial safety, soundness, or
stability of any bank subsidiary of that bank holding
company.
Banks are subject to the provisions of the CRA.
Under the terms of the CRA, the appropriate federal
bank regulatory agency is required, in connection with
its examination of a bank, to assess such bank's record
in meeting the credit needs of the community served by
that bank, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of
the bank's record is made available to the public.
Further, such assessment is required of any bank which
has applied to (i) charter a national bank, (ii) obtain
deposit insurance coverage for a newly chartered
institution, (iii) establish a new branch office that
will accept deposits, (iv) relocate an office, or (v)
merge or consolidate with, or acquire the assets or
assume the liabilities of, a federally regulated
financial institution. In the case of a bank holding
company applying for approval to acquire a bank or
other bank holding company, the Federal Reserve will
assess the record of each subsidiary bank of the
applicant bank holding company, and such records may be
the basis for denying the application.
Bank Regulation. The Bank is chartered under the
laws of the State of Wisconsin and its deposits are
insured by the Federal Deposit Insurance Corporation
(the "FDIC") to the extent provided by law. The Bank
is subject to comprehensive regulation, examination and
supervision by the FDIC and DFI and to other laws and
regulations applicable to banks. Such regulations
include limitations on loans to a single borrower and
to its directors, officers and employees; restrictions
on the opening and closing of branch offices; the
maintenance of required capital and liquidity ratios;
the granting of credit under equal and fair conditions;
and the disclosure of the costs and terms of such
credit. The Bank is examined periodically by the FDIC
and DFI to which it submits periodic reports regarding
its financial condition and other matters. The FDIC
and DFI have a broad range of powers to enforce
regulations under their jurisdiction, and to take
discretionary actions determined to be for the
protection of the safety and soundness of insured
banks, including the institution of cease and desist
orders and the removal of directors and officers. The
FDIC and DFI also have the authority to approve or
disapprove mergers, consolidations, and similar
corporate actions.
Under federal law, federally insured banks are
subject, with certain exceptions, to certain
restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in
the stock or other securities of affiliates, and on the
taking of such stock or securities as collateral from
any borrower. In addition, such banks are prohibited
from engaging in certain tie-in arrangements in
connection with any extension of credit or the
providing of any property or service.
In 1989, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") was
enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loan
associations and stronger civil and criminal
enforcement provisions. FIRREA also provides that a
depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected
to be incurred by, the FDIC after
<PAGE>
August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC insured depository institution, or (ii)
any assistance provided by the FDIC to a commonly
controlled FDIC insured institution in danger of default.
In 1991, the FDIC Improvement Act of 1991
("FDICIA") was enacted. FDICIA made a number of
reforms addressing the safety and soundness of deposit
insurance funds, supervision, accounting, and prompt
regulatory action, and also implements other regulatory
improvements. Annual full-scope, on-site examinations
are required of all insured depository institutions.
The cost for conducting an examination of an
institution may be assessed to that institution, with
special consideration given to affiliates and any
penalties imposed for failure to provide information
requested. Insured state banks also are precluded from
engaging as principal in any type of activity that is
impermissible for a national bank, including activities
relating to insurance and equity investments. FDICIA
also recodified current law restricting extensions of
credit to insiders under the Federal Reserve Act.
Dividends. Dividends from the Bank constitute the
primary source of funds for dividends to be paid by the
Company. There are various statutory and contractual
limitations on the ability of Bank to pay dividends,
extend credit, or otherwise supply funds to the
Company. The Federal Reserve, the FDIC and DFI also
have the general authority to limit the dividends paid
by bank holding companies and insured banks,
respectively, if such payment may be deemed to
constitute an unsafe and unsound practice. In general,
under Wisconsin law applicable to the Bank, the board
of directors of a state bank may declare and pay a
dividend from so much of the bank's undivided profits
as the board deems expedient, provided that the payment
of such dividend does not in any way impair or diminish
the bank's capital, other than by reducing undivided
profits.
Effect of Governmental Policies. The earnings and
business of the Company and the Bank are effected by
the policies of various regulatory authorities of the
United States, especially the Federal Reserve. The
Federal Reserve, among other things, regulates the
supply of credit and deals with general economic
conditions within the United States. The instruments
of monetary policy employed by the Federal Reserve for
those purposes influence in various ways the overall
level of investments, loans, other extensions of
credits, and deposits, and the interest rates paid on
liabilities and received on assets.
Enforcement Powers. Congress has provided the
federal bank regulatory agencies with an array of
powers to enforce laws, rules, regulations and orders.
Among other things, the agencies may require that
institutions cease and desist from certain activities,
may preclude persons from participating in the affairs
of insured depository institutions, may suspend or
remove deposit insurance, and may impose civil money
penalties against institution-affiliated parties for
certain violations.
Change of Control. Federal law restricts the
amount of voting stock of a bank holding company and a
bank that a person may acquire without the prior
approval of banking regulators. The overall effect of
such laws is to make it more difficult to acquire a
bank holding company and a bank by tender offer or
similar means than it might be to acquire control of
another type of corporation. Consequently,
shareholders of the Company may be less likely to
benefit from the rapid increases in stock prices that
may result from tender offers or similar efforts to
acquire control of other companies. Federal law also
imposes restrictions on acquisitions of stock in a bank
holding company and a state bank. Under the federal
Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice
to the Federal Reserve before acquiring control of any
bank holding company and the FDIC and DFI before
acquiring control of an insured state bank (such as the
Bank). Upon receipt of such notice, the Federal
Reserve or the FDIC and DFI, as the case may be, may
approve or disapprove the acquisition. The Change in
Bank Control Act creates a rebuttable presumption of
control if a member or group acquires a certain
percentage or more of a bank holding company's or
bank's voting stock, or if one or more other control
factors set forth in the Act are present.
Insurance of Deposits. The Bank's deposit
accounts are insured by the FDIC up to a maximum of
$100,000 per insured depositor. The FDIC issues
regulations, conducts periodic examinations, requires
the filing of reports and generally supervises the
operations of its insured banks. Any insured bank
which is not operated in accordance with or does not
conform to FDIC regulations, policies and directives
may be sanctioned for non-compliance. Proceedings may
be instituted against any insured bank or any director,
officer, or employee of such bank engaging in unsafe
and unsound practices, including the violation of
applicable laws and regulations. The FDIC has the
authority to terminate insurance of accounts pursuant
to procedures established for that purpose.
<PAGE>
Capital Requirements. 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 profile among banks and bank
holding companies. The resulting capital ratios
represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. 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 all ratios well in excess of the
minimums. The current guidelines generally require
bank holding companies and federally-regulated banks to
maintain a minimum total risk-based capital ratio equal
to 8%, of which at least 4% must be Tier 1 capital.
For bank holding companies with assets less than $150
million, such as the Company, capital ratios are
determined at the subsidiary bank level. Tier 1
capital includes common stockholders' equity,
qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated
subsidiaries, less the amounts of goodwill and most
other intangibles. Tier 2 capital includes the excess
of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-
preferred stock, and general reserves for loan and
lease losses up to 1.25% of risk-weighted assets. At
December 31, 1999, the Bank's Tier 1 and total risk-
based capital ratios were 11.8% and 12.9%,
respectively.
FDICIA contains "prompt corrective action"
provisions pursuant to which banks are to be classified
into one of five categories based upon capital
adequacy, ranging from "well capitalized" to
"critically undercapitalized" and which require
(subject to certain exceptions) the appropriate federal
banking agency to take prompt corrective action with
respect to an institution which becomes "significantly
undercapitalized" or "critically undercapitalized".
The FDIC has issued regulations to implement the
"prompt corrective action" provisions of FDICIA. In
general, the regulations define the five capital
categories as follows: (i) an institution is "well
capitalized" if it has a total risk-based capital ratio
of 10% or greater, has a Tier 1 risk-based capital
ratio of 6% or greater, has a leverage ratio of 5% or
greater and is not subject to any written capital order
or directive to meet and maintain a specific capital
level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based
capital ratio of 8% or greater, has a Tier 1 risk-based
capital ratio of 4% or greater, and has a leverage
ratio of 4% or greater; (iii) an institution is
"undercapitalized" if it has a total risk-based capital
ratio of less than 8%, has a Tier 1 risk-based capital
ratio that is less than 4% or has a leverage ratio that
is less than 4%; (iv) an institution is "significantly
undercapitalized" if it has a total risk-based capital
ratio that is less than 6%, a Tier 1 risk-based capital
ratio that is less than 3% or a leverage ratio that is
less than 3%; and (v) an institution is "critically
undercapitalized" if its "tangible equity" is equal to
or less than 2% of its total assets. The FDIC also,
after an opportunity for a hearing, has authority to
downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately
capitalized" or "under-capitalized" institution to the
supervisory actions applicable to the next lower
category, for supervisory concerns. As of December 31,
1999, the Bank had a total risk-based capital ratio of
12.9%, a Tier 1 risk-based capital ratio of 11.8%, and
a leverage ratio of 9.5%.
Additionally, FDICIA requires, among other things,
that (i) only a "well capitalized" depository
institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal
banking agency annually examine all insured depository
institutions, with some exceptions for small, "well
capitalized" institutions and state-chartered
institutions examined by state regulators. FDICIA also
contains a number of consumer banking provisions,
including disclosure requirements and substantive
contractual limitations with respect to deposit
accounts.
Interstate Banking. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 provides
for nationwide interstate banking and branching. Under
the law, interstate acquisitions of banks or bank
holding companies in any state by bank holding
companies in any other state is permissible subject to
certain limitations. Wisconsin also has a law that
allows out-of-state bank holding companies (located in
states that allow Wisconsin bank holding companies to
acquire banks and bank holding companies in that state)
to acquire Wisconsin banks and Wisconsin bank holding
companies. The law essentially provides for out-of-
state entry by acquisition only (and not by interstate
branching) and requires the acquired Wisconsin bank to
have been in existence for at least five years.
Interstate branching and consolidation of existing bank
subsidiaries in different states is permissible. Out-of-
state banks that do not operate a branch in Wisconsin
are prohibited from establishing a de novo branch in
Wisconsin. A Wisconsin bank may establish, maintain,
and operate one or more branches in a state other than
Wisconsin pursuant to an interstate merger transaction
in which the Wisconsin bank is the resulting bank. An
interstate merger transaction resulting in the
acquisition by an out-of-state bank of a Wisconsin bank
is not permitted unless the
<PAGE>
Wisconsin bank has been in existence and continuously operating,
on the day of the acquisition, for more than five years.
Gramm-Leach-Bliley. The laws and regulations to
which the Company is subject are constantly under
review by Congress, regulatory agencies and state
legislatures. On November 12, 1999, President Clinton
signed important legislation passed by Congress to
overturn Depression-era restrictions on affiliations by
banking organizations. This comprehensive legislation,
referred to as the Gramm-Leach-Bliley Act (the "Act"),
eliminates certain barriers to and restrictions on
affiliations between banks and securities firms,
insurance companies and other financial services
organizations. The Act provides for a new type of
"financial holding company" structure under which
affiliations among these entities may occur, subject to
the regulation of the Federal Reserve Board and
regulation of affiliates by the functional regulators,
including the Securities and Exchange Commission and
state insurance regulators. In addition, the Act
permits certain non-banking financial and financially
related activities to be conducted by operating
subsidiaries of a national bank. Under the Act, a bank
holding company may become certified as a financial
holding company by filing a notice with the Federal
Reserve Board, together with a certification that the
bank holding company meets certain criteria, including
capital, management and Community Reinvestment Act
requirements. The Act contains a number of provisions
allocating regulatory authority among the Federal
Reserve Board, other banking regulators, the Securities
and Exchange Commission and state insurance regulators.
In addition, the Act imposes strict new privacy
disclosure and "opt out" requirements regarding the
ability of financial institutions to share personal non-
public customer information with third parties.
Other important provisions of the Act permit
merchant banking and venture capital activities, and
insurance underwriting, to be conducted by a subsidiary
of a financial holding company, and municipal
securities underwriting activities to be conducted
directly by a national bank or by its subsidiary.
Under the Act, a financial holding company may engage
in a broad list of "financial activities," and any non-
financial activity that the Federal Reserve Board
determines is "complementary" to a financial activity
and poses no substantial risk to the safety and
soundness of depository institutions or the financial
system.
While certain provisions of the Act became
effective on November 12, 1999, other provisions are
subject to delayed effective dates, and in some cases,
will be implemented only upon the adoption by federal
regulatory agencies of rules prescribed by the Act.
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has
been undergoing a restructuring process which is
anticipated to continue. The restructuring has been
caused by product and technological innovations in the
financial services industry, deregulation of interest
rates, and increased competition from foreign and
nontraditional banking competitors, and has been
characterized principally by the gradual erosion of
geographic barriers to intrastate and interstate
banking and the gradual expansion of investment and
lending authorities for bank institutions.
COMPETITION
The Bank's service area includes portions of
Kewaunee, Brown and Door Counties. Kewaunee County,
with a population of 20,028 residents, has six banks
with thirteen offices and one credit union with two
offices. Brown County, with a population of
approximately 216,000 residents, has sixteen banks with
fifty offices, two saving banks with thirteen offices
and fourteen credit unions with sixteen offices. Door
County, with a population of approximately 27,000
residents, has four banks with fifteen offices, one
savings bank with two offices and one credit union. In
addition to the financial institutions, significant
competition comes from security and brokerage firms,
mortgage companies, insurance companies and other
providers of financial services in the area. The Bank
competes as a locally owned banking institution that
responds quickly with personal service.
EMPLOYEES
As of December 31, 1999, the Company employed 39
full-time employees and 21 part-time employees. The
employees are not represented by a collective
bargaining unit. The Company considers relations with
employees to be good.
<PAGE>
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
For additional statistical, financial and other
information regarding the Company, see "Management's
Discussion and Analysis or Plan of Operation" and
"Notes to Consolidated Financial Statements."
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company and the Bank have their main office in
Luxemburg, Wisconsin at 630 Main Street. The building
is a two story building. The Bank owns the main
office.
The Bank opened its Dyckesville, Wisconsin office
(located at E166 County Hwy. S, Luxemburg) during May,
1987. This office was purchased on land contract by
the Company on September 30, 1994. The Bank leases
this office from the Company under a five year lease
expiring in 2004.
The Bank opened its Bellevue Office (located at
1311 Bellevue Street, Green Bay, Wisconsin) during
August, 1989. The Bank owns its Bellevue Office.
On April 17, 1996, the Bank opened its IGA office
(located at 602 Center Street, Luxemburg). The Bank
has executed a lease for this property expiring in
2001.
On May 24, 1999, the Bank opened its Casco office
(located at 100 Old Orchard Avenue, Casco, Wisconsin).
The Bank owns its Casco Office.
The Bank has installed an ATM at its Dyckesville
and Casco Offices, the Main Street Station and
Simonar's Service in Luxemburg, the Hwy. 54 T-Mart in
New Franken, FS Fast Stop in Forestville and the Hwy.
29 & P C-Mart in Henrysville. These remote ATMs
provide additional banking convenience for the
customers of the Bank, and generate an additional
source of fee income.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company, the Bank nor any other
subsidiary are subject to any material pending
litigation at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders
during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Following are the persons who were the executive
officers of Luxemburg Bancshares, Inc. as of December
31, 1999, their ages as of March 31, 2000, their
current titles and positions held during the past five
years:
JOHN A. SLATKY, - Age 48. Mr. Slatky is
President, Chief Executive Officer and a director of
the Company. He commenced employment with the Bank in
1984 and has held various executive positions with the
Company or the Bank since 1986. He was employed at the
Kimberly State Bank (an Associated Bank) from 1974
through 1983. Mr. Slatky has been a director of the
Company since 1987 and a director of the Bank since
1986.
DAVID L. LUEBBERS, - Age 50. Mr. Luebbers,
President and a Director at the Bank, has held numerous
officers positions since 1989, most recently as
Executive Vice President and CFO. Mr. Luebbers is
responsible for overseeing all loan operations and
managing the investment portfolio. Mr. Luebbers also
serves as one of the Company's Vice Presidents.
JOHN H. KAYE, CPA. - Age 48. Mr. Kaye is the
Treasurer of the company and is responsible for the
review and completion of the company's financial
filings. He is a Shareholder in the Accounting Firm of
Kerber, Rose and Associates, S.C., where he assists
clients in the preparation of individual and corporate
tax returns, management advisory services and client
accounting controls and audits. He previously worked
for Green Bay Packaging, Inc. from 1974 through 1984
where he was responsible for the preparation of
consolidated financial statements and the accounts
receivable and corporate credit management.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.
There is no established public trading market for
the Common Stock and such trading activity, as it
occurs, takes place in privately negotiated
transactions.
At December 31, 1999 there were approximately 725
shareholders of record of the Common Stock.
The Company has paid the following cash dividends
on its shares of Common Stock since 1995:
Year Ended December 31 Dividends Per Share
1995 $0.69
1996 $0.76
1997 $0.85
1998 $0.97
1999 $1.05
In determining the dividends to be paid, the Board of
Directors will examine the then-existing circumstances,
including the Company's rate of growth, profitability,
financial condition, existing and anticipated capital
requirements, the amount of funds legally available for
the payment of dividends, regulatory constraints and
such other factors as the Board determines relevant.
The primary source of funds for payment of dividends by
the Company is dividends paid to the Company by the
Bank. The Bank is limited by Wisconsin statute in the
amount of dividends it is allowed to pay. Under the
law, a bank may pay dividends from its undivided
profits after making provision for payment of all
expenses, losses, required reserves, taxes and interest
accrued or due from the bank. If a bank has declared
and paid dividends in either of two proceeding years in
excess of its net income in such year, it may not
declare or pay any dividend which exceeds year-to-date
net income except with the written approval of DFI.
On December 31, 1999, the Company sold 1,014
shares of stock at $37.40 per share to employees of the
Bank pursuant to the Company's 1999 Employee Stock
Purchase Plan. The Plan is a qualified stock purchase
plan under Section 423 of the Internal Revenue Code,
and allows employees to purchase stock at 85% of fair
market value. The offering was exempt from
registration under the Securities Act of 1933 pursuant
to Section 3(a)(11) of the Act and Rule 147 thereunder,
because all employees are residents of the state of
Wisconsin. Resales of the stock are restricted for
nine months to residents of the state of Wisconsin.
On December 31, 1999, the Company sold 734 shares
of stock at $44 per share to five directors of the
Company pursuant to the Company's 1999 Director Stock
Purchase Plan. The offering was exempt from
registration under the Securities Act of 1933, as
amended, pursuant to Sections 3(a)(11) and 4(2)
thereof, because the directors are residents of the
state of Wisconsin.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis of the Company
relates to the years ended December 31, 1999 and 1998
and should be read in conjunction with the Company's
consolidated financial statements and notes thereto
included elsewhere herein.
Results of Operations
Year ended December 31, 1999 Compared to the Year Ended
December 31, 1998
The Company's results of operations depend
primarily on the level of its net interest margin, its
provision for credit losses, its non-interest income
and its operating expenses. Net interest income
depends on the volume of and rates associated with
interest earning assets and interest bearing
liabilities which results in the net interest margin.
Net income decreased $23,872 or 2.2% to $1,039,657 for
the year ended December 31, 1999 from $1,063,529 for
the year ended December 31, 1998. This decrease is
primarily related to the construction and opening
expenses of the new office in the Casco, WI market
which had a loss of $168,262 and lower income from the
sale of consumer real estate mortgages to the secondary
market. The growth of the Bank increased net interest
margin which increased income. Additional sales of
alternative investment products by the Bank's Financial
Resource Center division also increased income to off-
set the additional expenses. The following table
summarizes the Company's operating performance for the
years specified.
Year Ended December 31,
1999 1998
------ ------
Return on Assets .94% 1.09%
Return on Equity 9.68% 11.24%
Year 2000 Risks. The Company was exposed to future
uncertainty, potential future reduction in earnings,
and future losses, including litigation, due to
business interruption or errors, if its computer
systems were not modified to ensure that dates after
December 31, 1999 were not misrepresented by those
systems. This eventuality was commonly referred to as
the Year 2000 problem. The Bank uses computer-related
technologies and software throughout its business that
may have been affected by the date change in the year
2000. The Bank's directors, senior management and
staff were aware of these Year 2000 issues and
appointed a technology committee to study and direct
the project to bring all of the computer-related
systems into Year 2000 compliance during 1999. The
technology committee reviewed both Information
Technology systems and non-Information Technology
Systems including the Bank's telephone systems, HVAC
systems and security equipment.
The Company did not experience any disruptions
with any of its systems or with the services provided
by contracted outside vendors. The Company did not
receive any complaints from customers, regulators or
other individuals that may have lead to potential
litigation.
Loan and deposit customers were
identified as having potential Year 2000 risks. No
serious loan or deposit related problems were
experienced by the Company or its bank subsidiary as a
result of the Year 2000 issues.
The Bank identified approximately $50,000 of
direct investment during 1998 and 1999 for Year 2000
renovation and testing. The Company expects that there
will be only minor expenses, if any, related to future
Year 2000 issues.
Net Interest Income. Net interest income
increased $409,553 or 12.3% to $3,746,209 for the year
ended December 31, 1999 from $3,336,656 for the year
ended December 31, 1998. Total interest income
increased $719,738 for the year ended December 31, 1999
to $7,410,021 from $6,690,283 for the year ended
December 31, 1998. This increase is primarily the
result of Bank growth as average earning assets
increased by 16.5% for the year ended December 31, 1999
compared to the year ended December 31, 1998. The
majority of the increase was in
<PAGE>
taxable loans which provides the greatest tax equivalent
yield of all the Company's earning assets. However the
average interest rate on loans declined during the year
reducing the average yield on earning assets from 8.22% for
the year ended December 31, 1998 to 7.82% for the year ended
December 31, 1999.
The following table summarizes average total loans
by category for the years ended December 31, 1999 and 1998:
Type of Loan December 31, 1999 December 31, 1998
Real Estate Loans $18,143,381 $16,945,342
Commercial and Industrial 34,390,206 25,908,974
Agricultural 6,585,552 6,304,252
Consumer 10,730,196 9,143,334
Other 327,013 201,972
----------- -----------
Total gross average loans 70,176,348 58,503,874
Less: Allowance for credit losses 829,352 726,349
Total net average loans $69,346,997 $57,777,525
=========== ===========
Supplemental Disclosure:
Municipal Loans $ 2,366,694 $ 1,605,712
The Bank does not separately track average real estate
construction loans.
Total interest expense increased $310,185 or 9.3%
to $3,663,812 for the year ended December 31, 1999 from
$3,353,627 for the year ended December 31, 1998. This
increase, due to bank growth, was tempered by lower
average rates paid on savings and other time deposits
for the year ended December 31, 1999 compared to the
year ended December 31, 1998. Total interest bearing
liabilities averaged approximately $80,100,000 for the
year ended December 31, 1999 as compared to
approximately $68,500,000 for the year ended December
31, 1998. The average rate paid on savings accounts
decreased to 3.43% for the year ended December 31, 1999
compared to 3.63% for the year ended December 31, 1998.
The average rate paid on other time deposits decreased
to 5.43% for the year ended December 31, 1999 compared
to 5.84% for the year ended December 31, 1998. The
average cost of interest bearing liabilities for the
year ended December 31, 1999 was 4.57% compared to an
average cost of interest bearing liabilities of 4.90%
for the year ended December 31, 1998.
The following table summarizes the maturities of
time deposits of $100,000 or more as of December 31, 1999:
Certificates of Other Time Deposits
Deposit of of
Time Until Maturity $100,000 or More $100,000 or More
- ------------------- ---------------- --------------------
3 months or less $ 730,000 $ 102,000
3 through 6 months 2,602,000 413,000
6 through 12 months 4,226,000 0
over 12 months 1,287,000 103,000
Totals $ 8,845,000 $ 618,000
=========== ===========
<PAGE>
The following table details average balances,
interest income/expense and average rates/yields for
the Company's earning assets and interest bearing
liabilities for the years ended December 31, 1999 and
1998. For purposes of the analysis below, any
adjustments of interest income due to loans being
placed on non-accrual status, the recovery of
previously charged off past due interest or the return
of a loan to full accrual status have been included in
interest income on loans and have been included in the
analysis of the reported yield on loans. The analysis
below excludes any changes in the fair market value of
investment securities available for sale. For purposes
of the analysis below, the Company does not report
yields and earnings on its tax-exempt investments and
loans on a tax-equivalent basis.
Year End December 31, 1999 Year End December 31, 1998
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS:
Interest Bearing:
Loans $ 70,176,348 $6,075,718 8.66% $58,503,874 $5,374,267 9.19%
Taxable
Investments
and Mortgage
Backed
Securities 12,189,105 744,485 6.11% 10,575,782 694,774 6.57%
Fed Funds Sold 2,363,499 111,053 4.70% 5,354,420 282,378 5.27%
Municipal Loans
and Investments 9,271,963 437,113 4.71% 6,248,440 300,748 4.81%
Other 797,028 41,652 5.23% 665,330 38,116 5.73%
Total 94,797,943 $7,410,021 7.82% 81,347,846 $6,690,283 8.22%
CSV Life ========== ==========
Insurance 1,250,140 1,176,095
Non-Earning Assets 6,311,373 4,660,180
TOTAL ASSETS $102,359,456 $87,184,121
============ ===========
LIABILITIES:
Interest Bearing:
Demand $ 5,267,819 $ 78,076 1.48% $ 5,099,630 $ 76,102 1.49%
Savings 23,802,974 817,387 3.43% 19,313,059 700,200 3.63%
Other Time
Deposits 50,387,934 2,737,690 5.43% 43,361,397 2,530,257 5.84%
Other 624,966 30,659 4.91% 735,639 47,068 6.40%
Total 80,083,693 $3,663,812 4.57% 68,509,725 $3,353,627 4.90%
========== ==========
Non-Interest-
Bearing
Liabilities 10,972,073 8,544,432
Other Liabilities 1,096,278 1,079,775
Total Liabilities 92,152,044 78,133,932
Equity 10,207,412 9,050,189
TOTAL LIABILITIES
& EQUITY $102,359,456 $87,184,121
============ ===========
Recap:
Interest Income $7,410,021 7.82% $6,690,283 8.22%
Interest Expense 3,663,812 4.57% 3,353,627 4.90%
Net Interest
Income/Spread $3,746,209 3.25% $3,336,656 3.32%
========== ==========
Contribution of
Non-Interest-
Bearing Funds 0.71% 0.78%
Net Interest Margin 3.96% 4.10%
===== =====
Ratio of Average
Interest-Earning
Assets to Average
Interest-Bearing
Liabilities 118.37% 118.74%
Average balances are computed using daily average balances.
<PAGE>
The following table sets forth an analysis of
volume and rate changes in interest income and interest
expense of the Company's average earning assets and
average interest bearing liabilities. The table
distinguishes between the changes related to average
outstanding balances of assets and liabilities (changes
in volume holding the initial average rate constant)
and the changes related to average interest rates
(changes in the average rate holding the initial
average outstanding balance constant). The change in
interest due to both volume and rate has been allocated
to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the
change in each.
Year ended December 31, 1999 compared to year ended December 31, 1998.
Increase (Decrease) in Net Interest Income
Net Due to Due to
Change Rate Volume
Interest Earning Assets:
Loans $701,451 $(322,929) $1,024,380
Taxable Investments and
Mortgage Backed Securities 49,711 (51,177) 100,888
Fed Funds Sold (171,325) (27,982) (143,343)
Municipal Loans
and Investments 136,365 (6,296) 142,661
Other 3,535 (3,551) 7,086
-------- ---------- ----------
TOTAL 719,737 (411,935) 1,131,672
-------- ---------- ---------
Interest Bearing Liabilities:
Interest Bearing Demand 1,974 (522) 2,496
Savings 117,187 (38,588) 155,775
Other Time Deposits 207,433 (182,763) 390,196
Other (16,409) (9,976) (6,433)
-------- ---------- --------
TOTAL 310,185 (231,848) 542,033
-------- ---------- --------
Change in Net
Interest Income $409,552 $(180,087) $589,639
======== ========== ========
Provision for Loan Losses. The amount charged to
the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to
maintain an allowance adequate to provide for potential
losses inherent in the loan portfolio. The level of
this allowance is dependent upon the total amount of
past due and non-performing loans, general economic
conditions and management's assessment of potential
losses based upon internal credit evaluations of loan
portfolios and particular loans. In 1999, the Bank
management allocated the allowance based on an assigned
risk factor for each category of loans and adjusting
the allocation by the potential loss of individual
loans. Specific factors considered by management in
setting the reserve for loan losses consist of the
following:
* Total loans outstanding.
* The balance of the allowance for loan losses as a
percent of total loans outstanding.
* The allowance for loan losses as a percent of past
due loans, classified loans and non-performing loans.
* The level of past due loans.
* Non-accrual loans.
* The level of watch list loans which include past
due loans, loans identified as potential problem loans,
loans with inadequate collateral, work out loans and
loans where a change in repayment ability has occurred
due to death or divorce.
<PAGE>
The Bank generally places loans on non-accrual
status, as discussed in Footnotes 1 and 4 of the
Company's Consolidated Financial Statements, when the
loan is past due as to the payment of interest and/or
principal in excess of 90 days unless the Bank deems
the loan collateral adequate to secure both the payment
of all loan principal and all uncollected accrued
interest receivable. The Bank also places loans on a
non-accrual status when it deems the collection of such
interest unlikely. Loans are returned to full accrual
status when the loan is brought current according to
all terms of the loan agreement and all past due
principal and interest is paid and the Bank deems its
collateral position adequate to warrant a return to
accrual status.
At December 31, 1999 and 1998 the Company did not
have any loans that meet the definition of troubled
debt restructuring contained in SFAS No. 15. Also, the
Company did not have any loans considered to be
impaired under SFAS Nos. 114 & 118 at December 31, 1999
and 1998. Loans past due 90 days or more that were
still accruing interest totaled $133,000 at December
31, 1999. At December 31, 1998 loans past due 90 days
or more that were still accruing interest totaled
$144,000.
During the year ended December 31, 1999, $120,000
was charged to the provision for loan losses compared
to $150,000 for the year ended December 31, 1998. At
December 31, 1999, the allowance was $896,000 or 1.09%
of total loans. This compares to an allowance of
$773,000 or 1.21% of total loans as of December 31,
1998. Net recoveries were $3,000 for the year ended
December 31, 1999 and as compared to a net charge off
of $54,000 for the year ended December 31, 1998. Non-
performing loans at December 31, 1999 were $350,000.
The following table summarizes loan charge-offs
and recoveries by type of loan for the years ended
December 31, 1999 and 1998:
Loan Type December 31, 1999 December 31, 1998
Charge-Off Recovery Charge-Off Recovery
Real Estate $ ---- $ 2,000 $ --- $ 1,000
Commercial and
Industrial ---- 1,000 13,000 ----
Agricultural ---- 50,000 1,000 11,000
Consumer 62,000 12,000 64,000 12,000
TOTALS $ 62,000 $ 65,000 $ 78,000 $ 24,000
The Company had net losses to average total loans
of (0.004%) for the year ended December 31, 1999 and
.09% for the year ended December 31, 1998.
<PAGE>
The Bank has allocated its allowance for credit
losses at the end of each period presented as follows:
Balance at End of
Period Applicable to: December 31, 1999 December 31, 1998
% of Loans % of Loans
to total to total
Amount Loans Amount Loans
Commercial and agricultural $ 578,000 58% $ --- 52%
Real Estate-construction 58,000 7% --- 6%
Real Estate-mortgage 77,000 19% --- 31%
Consumer 120,000 16% 38,000 11%
Total Domestic 833,000 100% 38,000 100%
Unallocated 63,000 735,000
--------- ---- --------- ----
TOTALS $ 896,000 100% $ 773,000 100%
========= ==== ========= ====
Other Operating Income. Other operating income
for the year ended December 31, 1999, increased $92,967
or 8.2% to $1,035,810 from $1,128,777 for the year
ended December 31, 1998. Mortgage Underwriting Fees
for the year ended December 31, 1999 decreased $233,636
or 80.1% to $58,115 from $291,751 for the year ended
December 31, 1998. This decrease is primarily due to
decreased volume of real estate mortgage loan financing
and refinancing due to the rising interest rates for
the year ended December 31, 1999. The Company
originated $5,438,993 of loans for the secondary market
for the year ended December 31, 1999 compared to
$19,141,060 for the year ended December 31, 1998. Loan
Servicing Fee Income for the year ended December 31,
1999 increased $41,046 or 92.2% to $85,579 from $44,533
for the year ended December 31, 1998. This increase is
primarily due to increased volume of loans serviced by
the bank. Average serviced loans totaled $26,908,000
for the year ended December 31, 1999 compared to
$22,036,000 for the year ended December 31, 1998.
Operating Expenses. Operating expenses for the
year ended December 31, 1999 increased $454,255 or
16.1% to $3,274,988 from $2,820,733 for the year ended
December 31, 1998. Salaries and related benefits
increased $218,167 or 13.8% to $1,803,199 for the year
ended December 31, 1999 from $1,585,032 for the year
ended December 31, 1998. This increase is primarily
due to wage increases, higher costs for employee
benefit programs and additional employees hired for the
new Casco branch office. Occupancy expenses for the
year ended December 31, 1999 increased $65,502 or 40.1%
to $228,944 from $163,442 for the year ended December
31, 1998. The increase is primarily due to the cost
involved in the new Casco branch location. Equipment
rentals, depreciation and maintenance increased $88,995
or 31.5% to $371,892 for the year ended December 31,
1999 from $282,897 for the year ended December 31,
1998. This increase is primarily due to additional
depreciation expense on furniture and equipment
acquired to support the new office in Casco. In 1999
there was twelve months of depreciation on the new
equipment reflected in expense. Data Processing
expense increased $26,476 or 20.9% to $156,056 for the
year ended December 31, 1999 from $129,061 for the year
ended December 31, 1998. The increase is due to
additional data processing cost in the investment
corporation. Other operating expenses increased
$54,596 or 8.3% to $714,897 for the year ended December
31, 1999 from $660,301 for the year ended December 31,
1998. This increase results from additional expenses
associated with stock offering and increase in spending
on supplies, accounting fees and legal fees in 1999.
<PAGE>
Dividends and Equity Capital. The Company paid
its shareholders dividends of $268,933 or $1.05 per
share for the year ended December 31, 1999 and $236,196
or $0.97 per share for the year ended December 31,
1998. The following table summarizes the Company's
dividend pay out ratio and average capital position for
the years specified.
Year Ended December 31,
1999 1998
Dividend Payout Ratio 25.87% 22.21%
Equity to Assets Ratio 9.97% 10.38%
Liquidity and Interest Rate Sensitivity
The Company must maintain an adequate liquidity
position in order to respond to the short-term demand
for funds caused by withdrawals from deposit accounts,
extensions of credit and for the payment of operating
expenses. Maintaining this position of adequate
liquidity is accomplished through the management of a
combination of liquid assets; those which can be
converted into cash and access to additional sources of
funds. Primarily liquid assets of the Company are cash
and due from banks, federal funds sold, investments
held as "available for sale" and maturing loans.
Federal funds purchased and loans from the Federal Home
Loan Bank system represent the Company's primary source
of immediate liquidity and were maintained at a level
to meet immediate needs. Federal Funds Sold averaged
approximately $2,363,000 and $5,400,000 for the years
ended December 31, 1999 and 1998, respectively.
Brokered deposits totaled $3,400,000 at December 31,
1999. Maturities in the Company's loan and investment
portfolios are monitored regularly to avoid matching
short-term deposits and long-term loans and
investments. Other assets and liabilities are also
monitored to provide the proper balance between
liquidity, safety, and profitability. This monitoring
process must be continuous due to the constant flow of
cash which is inherent in a financial institution.
The Company actively manages its interest rate
sensitive assets and liabilities to reduce the impact
of interest rate fluctuations. In addition, the Bank
monitors the interest rates paid on certificates of
deposit as advertised by its competitors and endeavors
to pay competitive interest rates to retain and attract
certificates of deposit. Should competitive pressures
dictate, the Bank may have to increase rates paid to
retain the certificates of deposit that mature in the
next year and any increase in interest rates paid on
certificates of deposit may reduce future Company
earnings. The Bank also monitors the assets and
liabilities that reprice each month to determine the
impact on future earnings due to anticipated
repricings. At December 31, 1999, the Company's rate
sensitive liabilities exceed rate sensitive assets due
within one year by $ 10,549,000.
As part of managing liquidity, the Company
monitors its loan to deposit ratio on a daily basis.
At December 31, 1999 the ratio was 85.0% which is
within the Company's acceptable range. The Company also
monitors the levels of assets and liabilities that
reprice with changes in the prime rate. At December 31,
1999, the Bank had net repriceable prime rate sensitive
assets of $6,432,000. The Bank's repriceable "Tied to
Prime" certificates of deposit, which have a 4.0 %
floor and 12.0% ceiling, totaled $4,431,000.00 at
December 31, 1999.
The Company experienced a decrease in cash and
cash equivalents, its primary source of liquidity, of
$7,804,720 during 1999. The primary sources of cash
flow for 1999 were a net increase in deposits of
$9,647,475, short term borrowing of $1,294,075, the
stock issuance of $1,100,000 and the Company's cash
flow from operations of $1,372,024. Cash flow from
financing activities as well as from investing activity
were used to fund loan growth of $18,417,125 and
$1,319,703 for capital expenditures. The Company's
management believes its liquidity sources are adequate
to meet its operating needs and does not know of any
trends, events or uncertainties that may result in a
significant adverse effect on the Company's liquidity
position.
<PAGE>
The following table illustrates the projected
maturities and the repricing mechanisms of the major
asset/liability categories of the Company as of
December 31, 1999, based on certain assumptions. No
prepayment assumptions have been made for the loan
portfolio. Maturities and repricing dates for
investments have been projected by applying the
classifications set forth below to contractual
maturities and repricing dates. The Bank's variable
rate loans consist primarily of commercial loans which
reprice with changes in the prime rate and are
generally written for a 1 year term.
1 Year 1 - 5 5 - 10 After 10
or Less Years Years Years
Interest Earning Assets:
Fed Funds Sold $ -- $ -- $ -- $ --
Investment Securities 1,556,000 8,677,000 6,078,000 2,542,000
Loans:
Variable Rate 10,863,000 -- -- --
Real Estate-Construction 5,154,000 675,000 -- --
Real Estate-Other 7,800,000 18,090,000 982,000 1,936,000
Commercial and Industrial 7,882,000 12,016,000 528,000 714,000
Agricultural 2,612,000 2,944,000 -- 627,000
Consumer 2,077,000 5,690,000 241,000 2,000
----------- ----------- ---------- ----------
Total Loans 36,388,000 39,415,000 1,751,000 3,279,000
----------- ----------- ---------- ----------
Other 397,000 330,000 806,000 --
Total Interest Earning
Assets 38,351,000 48,422,000 8,635,000 5,812,000
----------- ----------- ---------- ----------
Interest Bearing
Liabilities:
Interest Bearing Demand -- -- -- 5,541,000
Savings Deposits 5,947,000 -- -- 13,877,000
Money Market Accounts 1,157,000 -- -- 2,699,000
Certificates of Deposit 28,188,000 12,859,000 -- --
Jumbo CD's 7,559,000 1,287,000 -- --
IRA's 4,641,000 1,006,000 -- --
Other 1,408,000 -- -- --
----------- ----------- ---------- -----------
Total Interest Bearing
Liabilities 48,900,000 15,152,000 0 22,117,000
----------- ----------- ---------- -----------
Interest Sensitivity
Gap per Period $(10,549,000) $33,270,000 $ 8,635,000 $(16,296,000)
============= =========== =========== ============
Cumulative Interest
Sensitivity Gap $(10,549,000) $22,721,000 $31,356,000 $15,060,000
============= =========== =========== ===========
Interest Sensitivity
Gap as a Percentage
of Earning Assets (10.4%) 32.8% 8.5% (16.1%)
Cumulative Sensitivity
Gap as a Percentage
of Earning Assets (10.4%) 22.4% 30.9% 14.8%
<PAGE>
The Company does not have any security
concentrations exceeding 10% of stockholder's equity
that are required to be disclosed.
CAPITAL RESOURCES
The Company's primary source of capital since
commencing operations has been from issuance of common
stock and retained operating profit. The Company does
not have any long term debt facility arrangements at
December 31, 1999. Capital for the Bank is above
regulatory requirements at December 31, 1998.
Pertinent capital ratios for the Bank as of December
31, 1999 are as follows:
Minimum
Actual Requirements
Tier 1 Risk-Based Capital Ratio 11.8% 4.0%
Total Risk-Based Capital Ratio 12.9% 8.0%
Leverage Ratio 9.5% 4.0%
Dividends from the Bank to the Company may not exceed
the undivided profits of the Bank (included in
consolidated retained earnings) without prior approval
of a federal regulatory agency. The Bank paid $268,950
and $216,300 in dividends to the Company for the years
ended December 31, 1999 and 1998, respectively. At
December 31, 1999 the Bank could have paid the Company
approximately $2,311,000 of additional dividends
without prior regulatory approval. In addition,
Federal banking laws limit the amount of loans the bank
may make to the Company, subject to certain collateral
requirements. No loans were made by the Bank to the
Company during 1999 or 1998. The $1,100,000.00
proceeds from the sale of the 25,000 additional shares
of stock was used to replenish the short term
investments that were liquidated in order to pay for
the acquisition and construction of the new Casco
branch. The short term investments would be available
for our general corporate purposes, including funding
loan growth, capital expenditures, operating expenses,
stock repurchases or other activities.
The Company evaluates its tax position and the
relative tax equivalent yield of various alternative
investments and reviews the yield curve in making its
investment decisions. The Company has increased its
municipal loan and investment position based on this
evaluation from an average investment of $6,248,440 in
1998 to $9,373,396 in 1999.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
Luxemburg Bancshares, Inc.
and Subsidiaries
Luxemburg, Wisconsin
Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
This item is not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT.
Information called for by Item 9 is contained
under "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of the
Company's Proxy Statement, dated March 27, 2000 with
respect to the Annual Meeting of Shareholders to be
held on April 29, 2000 filed pursuant to Regulation 14A
of the Securities Exchange Act of 1934 and which is
incorporated herein by reference in response to this
item.
Reference is also made to "Executive Officers Of
The Registrant" included at the end of Part I of this
Form 10-KSB in partial response to Item 9.
ITEM 10. EXECUTIVE COMPENSATION.
The information appearing under "Director
Compensation" and " Executive Compensation" of the
Company's Proxy Statement dated March 27, 2000 is
incorporated herein by reference in response to this
item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information appearing under "Beneficial
Ownership of Principal Shareholders, Directors and
Management" of the Company's Proxy Statement dated
March 27, 2000 is incorporated herein by reference in
response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing under "Related
Transactions" of the Company's Proxy Statement dated
March 27, 2000 is incorporated herein by reference in
response to this item.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last
quarter of fiscal 1999.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation, incorporated herein by
reference to Exhibit 3(i) of the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended June 30, 1998
3.2 Bylaws, incorporated herein by reference to Exhibit 3.2
of the Company's Registration Statement on Form 10-SB
10.1 Director Deferred Compensation Plan for Bank of Luxemburg,
incorporated herein by reference to Exhibit 10.1 of the
Company's Registration Statement on Form 10-SB
10.2 1999 Directors Stock Purchase Plan, incorporated
herein by reference to exhibit 10.1 of the
Company's quarterly report on Form 10-QSB for the
quarter ended June 30, 1999
21 Subsidiaries of the Registrant
27 Financial Data Schedule
<PAGE>
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.
LUXEMBURG BANCSHARES, INC.
Date: March 22, 2000 By: /s/ John A. Slatky
------------------------
John A. Slatky
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, the report has been signed below by the
following persons on behalf of the registrant and in
the capacities indicated on March 22, 2000.
By: /s/ John A. Slatky
----------------------
John A. Slatky President and Chief Executive Officer and a Director
By: /s/ John H. Kaye
----------------------
John H. Kaye, C. P. A. Treasurer and Chief Financial and Accounting Officer
By:
----------------------
Irvin G. Vincent Chairman of the Board of Directors
By:
----------------------
Willard Marchant Director
By: /s/ Thomas J. Rueckl
----------------------
Thomas J. Rueckl Director
By: /s/ James J. Jadin
---------------------
James J. Jadin Director
By: /s/ Ronald A. Ledvina
-----------------------
Ronald A. Ledvina Director
By:
--------------------------
Richard L. Dougherty Director
By: /s/ Donald E. Pritzl
------------------------
Donald E. Pritzl Director
MW404538_1.DOC
Exhibit 21
Subsidiaries
Name Jurisdiction of Organization
Bank of Luxemburg Wisconsin
Area Development Corporation Wisconsin
Luxemburg Investment Corporation * Nevada
* A wholly-owned subsidiary of Bank of Luxemburg
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,275,838
<INT-BEARING-DEPOSITS> 240,293
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,276,824
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 82,266,209
<ALLOWANCE> 895,952
<TOTAL-ASSETS> 110,048,512
<DEPOSITS> 96,959,642
<SHORT-TERM> 1,373,649
<LIABILITIES-OTHER> 947,691
<LONG-TERM> 27,683
0
0
<COMMON> 295,500
<OTHER-SE> 10,444,347
<TOTAL-LIABILITIES-AND-EQUITY> 110,048,512
<INTEREST-LOAN> 6,192,866
<INTEREST-INVEST> 1,064,450
<INTEREST-OTHER> 152,705
<INTEREST-TOTAL> 7,410,021
<INTEREST-DEPOSIT> 3,633,153
<INTEREST-EXPENSE> 3,663,812
<INTEREST-INCOME-NET> 3,746,209
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,274,988
<INCOME-PRETAX> 1,387,031
<INCOME-PRE-EXTRAORDINARY> 1,387,031
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039,657
<EPS-BASIC> 3.87
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.96
<LOANS-NON> 217,000
<LOANS-PAST> 133,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 773,116
<CHARGE-OFFS> 61,912
<RECOVERIES> 64,748
<ALLOWANCE-CLOSE> 895,952
<ALLOWANCE-DOMESTIC> 833,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 63,000
</TABLE>
