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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ x ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) For the fiscal year ended DECEMBER 31, 1997
[ ] Transition report under Section to 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required) For the transition period from
Commission file number 000-29400
INVESTORSBANCORP, INC.
(Name of Small Business Issuer in Its Charter)
WISCONSIN 39-1854234
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
W239 N1700 BUSSE ROAD, P.O. BOX 190
PEWAUKEE, WISCONSIN 53072-0190
(Address of Principal Executive Offices) (Zip Code)
(414) 523-1000
(Issuer's Telephone Number, Including Area Code)
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 $.01 PER SHARE.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer'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 ]
The Issuer's revenues for its most recent fiscal year were $562,810
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of March 13, 1998 was approximately $5,700,000. As of said date, the
Issuer had 1,000,000 shares of Common Stock issued and outstanding.
Documents incorporated by reference:
Part III of Form 10-KSB - Proxy statement for annual meeting of shareholders to
be held in May, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ x ]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
InvestorsBancorp, Inc. (the "Company"), a Wisconsin corporation, was
organized on June 12, 1996, to be the holding company of InvestorsBank, a
Wisconsin state bank located in Pewaukee, Wisconsin (the "Bank"). The Bank
commenced business on September 8, 1997. On September 6, 1997, Bando
McGlocklin Capital Corporation, the former principal shareholder of the Company
("BMCC"), distributed all of the 880,000 shares of the Company it held on such
date to its shareholders, (the "Distribution"). In connection with the
Distribution, the Company filed a Form 10SB with the Securities and Exchange
Commission (the "SEC") to register its shares of Common Stock, $.01 par value
per share, under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company currently maintains its offices at W239 N1700 Busse Road,
P.O. Box 190, Pewaukee, Wisconsin, 53072. The Company's telephone number is
(414) 523-1000.
BUSINESS STRATEGY
The Company offers a complete line of financial services to small
businesses and individuals in the community of Waukesha and in southeastern
Wisconsin. Pursuant to a management services agreement, the Bank also manages
the commercial loan and leased properties portfolio of Bando McGlocklin Small
Business Lending Corporation, a subsidiary of BMCC.
The Bank offers a broad range of deposit services, including checking
accounts, money market accounts and certificates of deposit, as well as a full
range of short to intermediate term personal and commercial loans. The Bank
makes personal loans directly to individuals for various purposes, including
first mortgage loans and home equity lines of credit. The Bank also offers
other services, including credit cards, debit cards, cashier checks, money
orders and traveler's checks.
The Bank's initial legal lending limit was $1,370,000. Management may
from time to time impose a lower "in-house" limit as it deems appropriate to
comply with safe and sound banking practices and respond to overall economic
conditions. In addition, the Company's relationship with BMCC may result in
the Bank being able to originate loans in larger principal amounts and sell
participations in such loans to BMCC and other financial institutions.
The Bank's market area is competitive. The Bank faces competition from
numerous other banks, savings and loan associations, finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market funds, loan production offices and other providers of financial
services. Most of the Bank's competitors have been in business for many years,
have established customer bases, are substantially larger, have substantially
larger lending limits than the Bank and can offer certain services, including
multiple branches and international banking services, that the Bank will be
able to offer only through correspondent banks, if at all. In addition, most
of these entities have greater capital resources than the Bank, which among
other things, may allow them to price their services at levels more favorable
to clients and to provide larger credit facilities than could the Bank.
EMPLOYEES
As of March 6, 1997, the Company had 18 full-time employees. None of its
employees are covered by a collective bargaining agreement with the Company or
the Bank. The Company considers its employee relations to be excellent.
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SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions and
general economic conditions, but also by the requirements of applicable state
and federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Division of Banking
of the Wisconsin Department of Financial Institutions (the "Banking Division"),
the Federal Reserve Board, Federal Deposit Insurance Corporation (the "FDIC"),
the Internal Revenue Service and state taxing authorities and the SEC. The
effect of such statutes, regulations and policies can be significant, and
cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The
system of supervision and regulation applicable to the Company and its
subsidiaries establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds and the depositors, rather than the shareholders, of financial
institutions.
The following references to material statutes and regulations affecting
the Company and its subsidiaries are brief summaries thereof and do not purport
to be complete, and are qualified in their entirety by reference to such
statutes and regulations. Any change in applicable law or regulations may have
a material effect on the business of the Company and its subsidiaries.
RECENT REGULATORY DEVELOPMENTS
PENDING LEGISLATION. Legislation is pending in the Congress that would
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. The expanded powers generally would be available to a bank holding
company only if the bank holding company and its bank subsidiaries remain
well-capitalized and well-managed. Additionally, the pending legislation would
eliminate the federal thrift charter and merge the FDIC's Bank Insurance Fund
("BIF") and Savings Association Insurance Fund ("SAIF"). At this time, the
Company is unable to predict whether the proposed legislation will be enacted
and, therefore, is unable to predict the impact such legislation may have on
the operations of the Company and the Bank.
THE COMPANY
GENERAL. The Company, as the sole shareholder of the Bank, is a bank
holding company. As a bank holding company, the Company is registered with,
and is subject to regulation by, the Federal Reserve Board under the Bank
Holding Company Act, as amended (the "BHCA"). 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 where the Company might not do so absent such policy. Under the
BHCA, the Company is subject to periodic examination by the Federal Reserve
Board and is required to file with the Federal Reserve Board periodic reports
of its operations and such additional information as the Federal Reserve Board
may require. The Company is also subject to supervision and regulation by the
Banking Division under Wisconsin law.
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INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain Federal Reserve Board approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than
5% of such shares (unless it already owns or controls the majority of such
shares); (ii) acquiring all or substantially all of the assets of another bank;
or (iii) merging or consolidating with another bank holding company. Subject
to certain conditions (including certain deposit concentration limits
established by the BHCA), the Federal Reserve Board may allow a bank holding
company to acquire banks located in any state of the United States without
regard to whether the acquisition is prohibited by the law of the state in
which the target bank is located. In approving interstate acquisitions,
however, the Federal Reserve Board is required to give effect to applicable
state law limitations on the aggregate amount of deposits that may be held by
the acquiring bank holding company and its insured depository institution
affiliates in the state in which the target bank is located (provided that
those limits do not discriminate against out-of-state depository institutions
or their holding companies) or which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Company from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing and controlling banks or furnishing
services to banks and their subsidiaries. The principal exception to this
prohibition allows bank holding companies to engage in, and to own shares of
companies engaged in, certain businesses found by the Federal Reserve Board to
be "so closely related to banking ... as to be a proper incident thereto."
Under current regulations of the Federal Reserve Board, the Company and its
non-bank subsidiaries are permitted to engage in, among other activities, such
banking-related businesses as the operation of a thrift, sales and consumer
finance, equipment leasing, the operation of a computer service bureau,
including software development, and mortgage banking and brokerage. The BHCA
generally does not place territorial restrictions on the domestic activities of
non-bank subsidiaries of bank holding companies.
Federal law also prohibits acquisition of "control" of a bank, such as the
Bank, or a bank holding company, such as the Company, without prior notice to
certain federal bank regulators. "Control" is defined in certain cases as
acquisition of 10% of the outstanding shares of a bank or bank holding company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with Federal Reserve Board capital
adequacy guidelines. If capital falls below minimum guideline levels, a bank
holding company, among other things, may be denied approval to acquire or
establish additional banks or non-bank businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: a
risk-based requirement expressed as a percentage of total risk-weighted assets,
and a leverage requirement expressed as a percentage of total assets. The
risk-based requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.
The leverage requirement consists of a minimum ratio of Tier 1 capital to total
assets of 3% for the most highly rated companies, with minimum requirements of
4% to 5% for all others. For purposes of these capital standards, Tier 1
capital consists primarily of permanent shareholders' equity less intangible
assets (other than certain mortgage servicing rights and purchased credit card
relationships) and total capital means Tier 1 capital plus certain other debt
and equity instruments which do not qualify as Tier 1 capital and a portion of
the company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the Federal Reserve Board's capital guidelines contemplate that
additional capital may be required to take adequate account of, among other
things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions
(i.e., Tier 1 capital less all intangible assets), well above the minimum
levels.
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Under the Federal Reserve Board's guidelines, the capital standards
described above apply on a consolidated basis to bank holding companies that
have more than $150 million in total consolidated assets, but generally apply
on a bank-only basis to bank holding companies that, like the Company, have
less than $150 million in total consolidated assets. Nevertheless, as of
December 31, 1997, the Company had regulatory capital, calculated on a
consolidated basis, in excess of the Federal Reserve Board's minimum
requirements, with a risk-based capital ratio of 64.9% and a leverage ratio of
55.8%.
DIVIDENDS. The Federal Reserve Board has issued a policy statement with
regard to the payment of cash dividends by bank holding companies. In the
policy statement, the Federal Reserve Board expressed its view that a bank
holding company should not pay cash dividends which exceed its net income or
which can only be funded in ways that weaken the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve
Board 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.
In addition to the restrictions on dividends that may be imposed by the
Federal Reserve Board, the Wisconsin Business Corporation Law prohibits the
Company from paying dividends if the Company is insolvent or if the payment of
dividends would render the Company unable to pay its debts as they come due in
the ordinary course of business.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered
with the SEC under the Exchange Act. Consequently, the Company is subject to
the information, proxy solicitation, insider trading and other restrictions and
requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. The Bank is a Wisconsin-chartered bank, the deposit accounts of
which are insured by the BIF of the FDIC. As a BIF-insured,
Wisconsin-chartered bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the Banking Division, as the
chartering authority for Wisconsin banks, and the FDIC, as administrator of the
BIF.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required
to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted
a risk-based assessment system under which all insured depository institutions
are placed into one of nine categories and assessed insurance premiums based
upon their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment
period.
During the year ended December 31, 1997, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 1998, BIF assessment rates will continue to range from 0% of
deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any
activity or condition that could result in termination of the deposit insurance
of the Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due
on the outstanding obligations of the FICO, the entity created to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund.
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Pursuant to federal legislation enacted September 30, 1996, commencing January
1, 1997, both SAIF members and BIF members became subject to assessments to
cover the interest payments on outstanding FICO obligations. Such FICO
assessments are in addition to amounts assessed by the FDIC for deposit
insurance. Until January 1, 2000, the FICO assessments made against BIF
members may not exceed 20% of the amount of the FICO assessments made against
SAIF members. Between January 1, 2000 and the maturity of the outstanding FICO
obligations in 2019, BIF members and SAIF members will share the cost of the
interest on the FICO bonds on a pro rata basis. During the year ended December
31, 1997, the FICO assessment rate for SAIF members was approximately 0.063% of
deposits while the FICO assessment rate for BIF members was approximately
0.013% of deposits.
SUPERVISORY ASSESSMENTS. All Wisconsin banks are required to pay
supervisory fees to the Banking Division to fund the operations of the Banking
Division. The amount of such supervisory fees is based upon each institution's
total assets.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered insured non-member banks, such as the
Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of
a minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital. For purposes of these capital
standards, Tier 1 capital and total capital consist of substantially the same
components as Tier 1 capital and total capital under the Federal Reserve
Board's capital guidelines for bank holding companies (see "--The
Company--Capital Requirements").
The capital requirements described above are minimum requirements.
Additionally, higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions. For
example, the regulations of the FDIC provide that additional capital may be
required to take adequate account of, among other things, interest rate risk or
the risks posed by concentrations of credit, nontraditional activities or
securities trading activities.
The FDIC, as a condition to its approval of the Bank's application for
deposit insurance, has required the Bank to maintain a minimum ratio of Tier 1
capital to total assets of at least 8% for the first three years of the Bank's
operation. As of December 31, 1997, the Bank exceeded this requirement and the
minimum regulatory capital requirements with a leverage ratio of 55.8% and a
risk-based capital ratio of 64.9%.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the
submission of a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional
capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the
institution may pay on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
DIVIDENDS. Wisconsin law generally allows a Wisconsin bank to pay
dividends out of its undivided profits, in such amounts and at such times as
the bank's board of directors deems prudent. Without the prior approval of the
Banking Division, however, a Wisconsin bank may not pay dividends in any year
which, in the aggregate, exceed the bank's calendar year-to-date net income if,
during either of the two immediately preceding years the bank paid aggregate
dividends exceeding its net income for such year.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, the Bank exceeded its minimum capital requirements under applicable
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guidelines as of December 31, 1997. As of December 31, 1997, no amounts were
available to be paid as dividends to the Company by the Bank. Notwithstanding
the availability of funds for dividends, however, the FDIC may prohibit the
payment of any dividends by the Bank if the FDIC determines such payment would
constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to the Company and its
subsidiaries, on investments in the stock or other securities of the Company
and its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiaries, to principal shareholders of the Company, and to "related
interests" of such directors, officers and principal shareholders. In
addition, federal law and regulations may affect the terms upon which any
person becoming a director or officer of the Company or one of its subsidiaries
or a principal shareholder of the Company may obtain credit from banks with
which the Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In general, the guidelines prescribe the goals to be achieved in
each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with any
of the standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the
agencies expect to require a compliance plan from an institution whose failure
to meet one or more of the guidelines is of such severity that it could
threaten the safety and soundness of the institution. Failure to submit an
acceptable plan, or failure to comply with a plan that has been accepted by the
appropriate federal regulator, would constitute grounds for further enforcement
action.
BRANCHING AUTHORITY. Under Wisconsin law, Wisconsin banks may, subject to
regulatory approval, establish branch offices anywhere in the State of
Wisconsin.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of de novo interstate branches or the
acquisition of individual branches of a bank in another state (rather than the
acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The legislation
allows individual states to "opt-out" of certain provisions of the Riegle-Neal
Act by enacting appropriate legislation prior to June 1, 1997. Wisconsin has
enacted legislation permitting interstate mergers, subject to certain
conditions, including a prohibition against interstate mergers unless any
Wisconsin bank involved has been in existence and continuous operation for more
than five years.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC
insured state banks are prohibited, subject to certain exceptions, from making
or retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also
prohibit FDIC insured state banks and their subsidiaries, subject to certain
exceptions, from engaging as principal in any activity that is not permitted
for a national bank or its subsidiary, respectively, unless the bank meets, and
continues to meet, its minimum regulatory capital requirements and the FDIC
determines the activity would not pose a significant risk to the deposit
insurance fund of which the bank is a member. Impermissible investments and
activities must be divested or discontinued within certain time frames set by
the FDIC. These restrictions have not had, and are not currently expected to
have, a material impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. Federal Reserve Board regulations, as presently
in effect, require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular
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checking accounts), as follows: for transaction accounts aggregating $47.8
million or less, the reserve requirement is 3% of total transaction accounts;
and for transaction accounts aggregating in excess of $47.8 million, the
reserve requirement is $1.434 million plus 10% of the aggregate amount of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances are exempted from the reserve requirements.
These reserve requirements are subject to annual adjustment by the Federal
Reserve Board. The Bank is in compliance with the foregoing requirements.
ITEM 2. PROPERTIES
The Company subleases premises for the Bank's main office at W239 N1700
Busse Road, Pewaukee, Wisconsin, which also serve as the Company's corporate
headquarters. The premises consist of approximately 4,700 square feet of a
single story, brick building constructed in 1996. The building, which overall
consists of approximately 16,000 square feet of office space, has parking for
approximately 60 automobiles.
The Company subleases the premises from BMCC, which has its main office in
the same building. The Company's sublease with BMCC has a primary term of one
year, but the Company expects to be able to renew the sublease with BMCC on
substantially similar terms. The BMCC lease has nine years remaining on its
original term, and BMCC has an option to extend the term for an additional five
years. Under the sublease, the Company's rent is based on a pro rata portion
of BMCC's rent. The Company's monthly rent is currently $4,300, subject to
increases based on BMCC's lease. The Company is also obligated to pay a pro
rata share of BMCC's gas and maintenance expenses, and one-half of BMCC's
electricity expense.
The Bank has three interior teller stations and a night depository
facility. The Company believes the facility will be adequate to meet the needs
of the Company and the Bank for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any legal proceedings against it or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S STOCK AND RELATED SHAREHOLDER MATTERS.
The Company's Common Stock was held by approximately 1,200 holders of
record as of March 13, 1998, and is quoted on the OTC Bulletin Board under the
symbol "INVB." The following table shows, for the periods indicated, the range
of prices per share of transactions in the Company's common stock as quoted on
the OTC Bulletin Board. Certain other private transactions may have occurred
during the periods indicated of which the Company has no knowledge. The
following prices represent inter-dealer prices without retail markups,
markdowns or commissions.
<TABLE>
<CAPTION>
Quarter ending: Price/Share
--------------- -----------
<S> <C>
March 31, 1997 N/A
June 30, 1997 N/A
September 30, 1997 $10.50
December 31, 1997 $11.00
</TABLE>
No cash or other dividends were declared or paid during the fiscal year
ended December 31, 1997. The Company expects that all Company and Bank
earnings, if any, will be retained to finance the growth of the Company and the
Bank and that no cash dividends will be paid for the foreseeable future. If
and when dividends are declared, the Company will probably be largely dependent
upon dividends paid by the Bank for funds to pay dividends on the Common Stock.
It is also possible, however, that the Company will pay dividends in the
future generated from investment income and other activities of the Company.
The Wisconsin Business Corporation Law prohibits the Company from paying
dividends if the Company is insolvent or if the payment of dividends would
render the Company unable to pay its debts as they come due in the ordinary
course of business. Wisconsin law generally allows the Bank to pay dividends
out of its undivided profits, in such amounts and at such times as the Bank's
board of directors deems prudent. However, without the prior approval of the
Banking Division, the Bank in any one year may not, pay dividends in an amount
which exceeds the Bank's calendar year-to-date net income if, during either of
the two immediately preceding years the Bank paid aggregate dividends exceeding
its net income for such year.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion provides additional analysis of the financial
statements and should be read in conjunction with this information. This
discussion focuses on significant factors which effected the Company's earnings
since commencing operations on September 8, 1997. The results of operations
discuss only the period ended December 31, 1997 because quarter comparisons
would not be meaningful. As of December 31, 1997, the Bank was the only
subsidiary of the Company and its operations contributed all of the revenue and
expenses for the year.
RESULTS OF OPERATIONS
During the period ended December 31, 1997, the Company reported a net loss
of $102,900, or $0.10 per share due to the Company's early stage of
development.
The Company's return on average equity and return on average assets for
the quarter ended December 31, 1997 is as follows:
Return on average assets -0.87%
Return on average equity -1.49%
Dividend payout ratio on common stock None
Average equity to average assets 58.68%
Total interest income during the period was $332,600, which consisted of
$224,104 of interest on loans and $108,496 of interest on federal funds sold.
Management anticipates that interest income will continue to grow along with
the loan portfolio and other assets of the Company.
The following table sets forth the composition of the Company's gross loan
portfolio in dollar amounts and as a percentage of the respective portfolios as
of December 31, 1997.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF TOTAL
------ ----------------
<S> <C> <C>
Commercial loans $1,581,725 16.46%
Mortgage loans:
Construction real estate 2,519,586 26.23%
Commercial real estate 896,289 9.33%
Residential real estate 1,161,558 12.09%
Industrial revenue bonds and municipals 3,446,886 35.88%
Installment and consumer 510 0.01%
---------- -------
9,606,554 100.00%
=======
Less: Allowance for loan losses (96,060)
----------
$9,510,494
==========
</TABLE>
9
<PAGE> 11
The following table summarizes the maturities and sensitivity to change in
interest rates of the Company's loan portfolio at December 31, 1997.
<TABLE>
<CAPTION>
AFTER 1 YEAR
1 YEAR OF LESS THROUGH 5 YEARS AFTER 5 YEARS TOTAL
-------------- --------------- ------------- -----
<S> <C> <C> <C> <C>
Commercial $430,369 $294,274 $ 857,082 $1,581,725
Real estate construction - - 2,519,586 2,519,586
------------------------------------------------------------
Total $430,369 $294,274 $3,376,668 $4,101,311
</TABLE>
<TABLE>
<CAPTION>
FLOATING OR
PREDETERMINED RATES ADJUSTABLE RATE TOTAL
------------------- --------------- -----
<S> <C> <C> <C>
Commercial $ 260,000 $1,321,725 $1,581,725
Real estate construction 910,983 1,608,603 2,519,586
------------------------------------------------------------
Total $1,170,983 $2,930,328 $4,101,311
</TABLE>
Interest expense for the period was $49,373, which will increase as
deposits grow. The following table sets forth the distribution of deposit
accounts as of December 31, 1997 and as a percentage of the respective
categories of deposits presented.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF TOTAL
---------- ----------------
<S> <C> <C>
Core deposits:
- --------------
Non-interest bearing $2,087,484 23.56%
Interest bearing 455,733 5.14%
Money Market 6,296,523 71.06%
Certificate of deposit accounts:
- ---------------------------------
Three months or less 3,000 0.03%
Over three months through 12 months 18,900 0.21%
---------- ----------------
$8,861,640 100.00%
========== ================
</TABLE>
10
<PAGE> 12
Net interest income amounted to $283,227 for the period ended December 31,
1997. The following table sets forth an analysis of the interest rates and
interest differential of earning assets, which earn interest income, and
interest bearing liabilities, which accrue interest expense for the quarter
ended December 31, 1997.
<TABLE>
<CAPTION>
AVERAGE BALANCE RELATED INTEREST YIELD RATE
--------------- ---------------- ----------
<S> <C> <C> <C>
Earning assets:
Federal funds sold $5,751,793 $ 79,245 5.47%
Loans 5,120,651 124,424 9.64%
---------- -------- ----
Total earning assets 10,872,444 203,669 7.43%
Interest bearing liabilities:
Interest bearing checking 280,210 3,446 4.88%
accounts
Money market accounts 3,200,944 43,314 5.37%
Time deposits 7,314 97 5.26%
---------- -------- ----
Total interest bearing 3,488,468 46,857 5.33%
liabilities
Interest spread $156,812 2.10%
Interest margin $156,812 5.72%
</TABLE>
PROVISIONS FOR LOAN LOSSES
At December 31, 1997, the allowance for loan losses was $96,060, which was
charged against earnings in 1997. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluation of the collectibility
of loans 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 that may affect the borrower's ability to pay.
While management uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if there are significant
changes in economic conditions. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
A loan is impaired when it is probable the creditor will be unable to collect
all contractual principal and interest payments due in accordance with the
terms of the loan agreement.
There were no loan charge-offs or recoveries or any impaired loans for the
period ended December 31, 1997.
The following table summarizes the Company's nonperforming loans as of
December 31, 1997.
Nonaccrual loans None
Past Due 90 days + (1) None
Restructured loans None
(1) Loans are generally placed in nonaccrual when contractually past due 90
days or more.
11
<PAGE> 13
Other operating income for the period ended December 31, 1997 was
$230,218. The Bank services loans for BMCC, a related company with balances of
$140,275,911 at December 31, 1997. Revenue relating to services for BMCC was
$229,285 for the period from September 3, 1997 to December 31, 1997.
Other operating expenses for the period ended December 31, 1997 were
$586,685, and consisted primarily of salaries and employee benefits and other
operating expenses, such as occupancy expenses, office supplies, examination
fees and directors fees. These operating expenses include all salaries,
including the salaries that are reimbursed through the management services fee
noted above.
The effective rate for the benefit for income taxes for the period ended
December 31, 1997 was 39.22% which was in excess of the maximum federal
statutory rate of 35% because of the effect of state income tax benefit,
partially offset by surtax exemptions. Management believes it is more likely
than not that the deferred tax asset will be realized.
FINANCIAL CONDITION
Total assets of the Company were $16,039,771 at December 31, 1997. Cash
and due from banks was $1,248,803 and federal funds sold with daily liquidity
was $4,544,000 at December 31, 1997.
Loans at December 31, 1997 were $9,606,554, which included commercial and
residential loans. The allowance for loan losses was $96,060 or 1% of gross
loans. In addition to loans outstanding, the Company had unfunded loan
commitments of $2,757,556 as of December 31, 1997. Loan demand continues to be
strong for both commercial and residential loans. The Company's home equity
line has been designed to be very competitive with those of other banks in the
area.
Other assets at December 31, 1997 were $612,315, consisting of
organizational and start up costs of $165,899, which are being amortized over a
sixty-month period. It also included an excess servicing asset of $209,891
relating to loans sold to a third party, a receivable for $106,523 to a related
company, a deferred tax asset of $66,400, interest receivable of $59,134 and
other assets of $4,468.
Deposits at December 31, 1997 were $8,861,640, consisting of $2,087,484 in
non-interest bearing accounts and $6,774,156 in interest bearing accounts.
Other liabilities of $291,131 at December 31, 1997 consisted of a retained
loan discount on loans sold to third parties of $215,301. In addition, it
included participation principal payments of $32,362, accrued expenses payable
of $29,178 and accrued interest payable of $14,290.
CAPITAL RESOURCES
On September 3, 1997, the Company issued 999,857 shares of common stock at
$7.00 per share. The Company incurred $10,100 in stock issuance costs that
were netted against additional paid in capital.
The Federal Reserve Board has established risk-based capital guidelines
that must be observed by bank holding companies and banks. Under these
guidelines, total qualifying capital is categorized into two components - Tier
I and Tier II capital. Tier I capital generally consists of common
shareholders' equity, perpetual preferred stock (subject to limitations) and
minority interest in subsidiaries. Subject to limitations, Tier II capital
includes certain other preferred stock and debentures, and a portion of the
reserve for loan losses. These ratios are expressed as a percentage of
risk-adjusted assets, which include various risk-weighted percentages of
off-balance sheet exposures, as well as assets on the balance sheet.
The Bank has committed to the FDIC that it will maintain a Tier I capital
to total assets ratio of not less than 8% for the first three years of
operations starting September 8, 1997.
12
<PAGE> 14
Capital ratios applicable to the Bank and the Company at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
TOTAL RISK-BASED TIER I RISK-BASED
CAPITAL CAPITAL LEVERAGE RATIO
---------------- -------------------- --------------
<S> <C> <C> <C>
Regulatory Capital Requirements:
Minimum 8.00% 4.00% 4.00%
Well-capitalized 10.00% 6.00% 5.00%
Bank 64.9% 64.0% 55.8%
Company 64.9% 64.0% 55.8%
</TABLE>
The Company expects that its capital ratios will decline in the future as
assets grow; however, management intends to maintain its ratios at levels at or
above those established by regulatory agencies for well-capitalized
institutions.
The applications for a bank charter and for federal deposit insurance
stated that the Bank would retain its earnings during the first three years of
operations. As such, no dividends will be paid by the Company to the
shareholders during that period. The Company expects that all Company and Bank
earnings, if any, will be retained to finance the growth of the Company and the
Bank and that no cash dividends will be paid for the foreseeable future.
LIQUIDITY
The liquidity of a financial institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific types of categories of short-term loans and investments with specific
types of deposits and borrowings. Financial institution liquidity is thus
normally considered in terms of the nature and mix of the institution's sources
and uses of funds. As of December 31, 1997, the Company had $5,792,803
available to meet future demand. Management believes that current liquidity
levels are sufficient.
ASSET/LIABILITY MANAGEMENT
Closely related to liquidity management is the management of
interest-earning assets and interest-bearing liabilities. The Company manages
its rate sensitivity position to avoid wide swings in net interest margins and
to minimize risk due to changes in interest rates.
The following table summarizes the repricing opportunities as of December
31, 1997 for each major category of interest bearing asset and interest bearing
liability:
<TABLE>
<CAPTION>
0-89 90-179 180-359 +360
(Millions) DAYS DAYS DAYS DAYS TOTAL
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Loans $ 6,147 - $ 417 $3,043 $9,607
- ---------------------------------------------------------------------------
Total rate sensitive assets 6,147 - 417 3,043 9,607
Rate sensitive liabilities(1) 8,843 19 - - 8,862
- ---------------------------------------------------------------------------
GAP $(2,696) $ (19) $ 417 $3,043 $ 745
Cumulative GAP $(2,696) $(2,715) $(2,298) $ 745
GAP/Rate sensitive assets (44%) 0% (551%) 24%
</TABLE>
(1) Interest bearing checking and Money market accounts are considered as
immediately repricable.
13
<PAGE> 15
Changes in net interest income, other than volume related changes, arise
when interest rates on assets reprice in a time frame or interest rate
environment that is different from the repricing period for liabilities.
Changes in net interest income also arise from changes in the mix of interest
earning assets and interest-bearing liabilities.
The Company does not expect to experience any significant fluctuations in
its net interest income as a consequence of changes in interest rates.
YEAR 2000 COMPLIANCE
A critical issue facing the financial services industry is concerns over
the ability of computer systems to process year-data beyond the year 1999.
This issue could effect a variety of the Company's computer systems, from its
data processing systems used to process deposit and loan information to
ancillary systems such as alarms and locking devices. Management has
considered this issue and has attempted to ensure that the data processing and
other systems used by the Company and the Bank are Year 2000 compliant, and
based on representations made by its vendors, management does not expect to
incur material expenses in connection with upgrading its computer systems to
handle Year 2000 data. Nevertheless, if not properly addressed, Year 2000
related computer issues could result in interruptions to the operations of the
Bank and have a material adverse effect on the Company's results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains certain forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Exchange Act. The Company intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is including this statement
for purposes of these safe harbor provisions. Forward-looking statements,
which are based on certain assumptions and describe future plans, strategies
and expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company
and the subsidiaries include, but are not limited to, changes in: interest
rates, general economic conditions guidelines, including the condition of the
local real estate market, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area and accounting principles,
policies. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements.
14
<PAGE> 16
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
FOR QUARTEER ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Cash and due from banks $ 508,571
Federal Funds sold 5,751,793
Loans:
Commercial 152,467
Mortgage
Construction
Commercial 1,784,156
Residential 836,093
Industrial Revenue Bonds 2,346,743
Installment and consumer 1,194
Less allowance for loan losses (2,528)
-----------
Net loans 5,118,125
Fixed assets 128,181
Other assets 271,525
-----------
Total assets $11,778,195
===========
Demand deposits $ 1,324,046
Interest bearing deposits
Checking 280,210
Money market 3,200,944
Time deposits 7,314
-----------
Total Deposits 4,812,514
Other liabilities 54,264
-----------
Total liabilities 4,866,778
Equity capital 6,911,417
-----------
Total liabilities and capital $11,778,195
===========
</TABLE>
15
<PAGE> 17
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Independent Auditor's Report...........................................17
Consolidated Balance Sheet (December 31, 1997).........................18
Consolidated Statement of Income (for the period from
September 3, 1997 through December 31, 1997)..........................19
Consolidated Statement of Changes in Stockholder's Equity
(for the period from September 3, 1997 through December 31, 1997).....20
Consolidated Statement of Cash Flows (for the period from
September 3, 1997 through December 31, 1997)..........................21
Notes..................................................................22
16
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT
Board of Directors
InvestorsBancorp, Inc.
Pewaukee, Wisconsin
We have audited the accompanying consolidated balance sheet of
InvestorsBancorp, Inc. and Subsidiary as of December 31, 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the period from September 3, 1997 through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InvestorsBancorp,
Inc. and Subsidiary as of December 31, 1997, and the results of its operations
and its cash flows for the period from September 3, 1997 through December 31,
1997, in conformity with generally accepted accounting principles.
CONLEY MCDONALD LLP
Brookfield, Wisconsin
January 23, 1998
17
<PAGE> 19
<TABLE>
<CAPTION>
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Cash and due from banks (Note B) $ 1,248,803
Federal funds sold 4,544,000
----------
CASH AND CASH EQUIVALENTS 5,792,803
Loans, less allowance for loan losses of
$96,060 (Notes C and D) 9,510,494
Furniture and equipment, net (Note E) 124,159
Accrued interest and other assets (Note G) 612,315
----------
TOTAL ASSETS $ 16,039,771
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
LIABILITIES:
Deposits: (Note F)
Non-interest bearing $ 2,087,484
Interest bearing 6,774,156
----------
TOTAL DEPOSITS 8,861,640
Accrued interest payable and other liabilities (Note I) 291,131
----------
TOTAL LIABILITIES 9,152,771
----------
COMMITMENTS AND CONTINGENCIES (Note I)
STOCKHOLDERS' EQUITY: (Note K)
Preferred stock, $.01 par value; 1,000,000 shares
authorized, -0- shares issued and outstanding ----
Common stock, $.01 par value; 9,000,000 shares
authorized, 1,000,000 shares issued and outstanding 10,000
Surplus 6,979,900
Retained deficit (Notes L and M) (102,900)
----------
TOTAL STOCKHOLDERS' EQUITY 6,887,000
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,039,771
==========
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 20
<TABLE>
<CAPTION>
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM SEPTEMBER 3, 1997 THROUGH DECEMBER 31, 1997
- ------------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME:
Interest and fees on loans (Note C) $ 224,104
Interest on federal funds sold 108,496
----------
TOTAL INTEREST INCOME 332,600
INTEREST EXPENSE - interest on deposits (Note F) 49,373
----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 283,227
PROVISION FOR LOAN LOSSES (Note D) 96,060
----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 187,167
----------
OTHER OPERATING INCOME:
Service charges 911
Management service fee (Note C) 229,285
Other 22
----------
TOTAL OTHER OPERATING INCOME 230,218
----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 385,383
Occupancy expenses (Note H) 27,613
Equipment expenses (Note E) 21,808
Other expenses 151,881
----------
TOTAL OTHER OPERATING EXPENSES 586,685
----------
LOSS BEFORE INCOME TAXES (169,300)
INCOME TAX (BENEFITS) (Note G) 66,400
----------
NET LOSS $ (102,900)
==========
LOSS PER SHARE OF COMMON STOCK $ (0.10)
==========
LOSS PER SHARE OF COMMON STOCK - ASSUMING DILUTION $ (0.10)
==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,000,000
==========
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE> 21
<TABLE>
<CAPTION>
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 3, 1997 THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
Total
Common Retained stockholders'
stock Surplus deficit equity
<S> <C> <C> <C> <C>
BALANCE, September 3, 1997 $ ---- $ ---- $ ---- $ ----
Proceeds from sale of shares of common
stock, net of stock offering costs (Note K) 10,000 6,979,900 ---- 6,989,900
Net loss ---- ---- (102,900) (102,900)
-----------------------------------------------------------------
BALANCES, December 31, 1997 $10,000 $6,979,900 $(102,900) $6,887,000
=================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE> 22
<TABLE>
<CAPTION>
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 3, 1997 THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (102,900)
-----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 8,163
Provision for loan losses 96,060
Provision (benefit) for deferred taxes (66,400)
Increase in accrued interest and other assets (545,915)
Increase in accrued interest payable and other liabilities 291,131
-----------
TOTAL ADJUSTMENTS (216,961)
-----------
NET CASH USED IN OPERATING ACTIVITIES (319,861)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (132,322)
Net increase in loans (9,606,554)
-----------
NET CASH USED IN INVESTING ACTIVITIES (9,738,876)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 8,861,640
Proceeds from the issuance of common stock, net 6,989,900
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,851,540
INCREASE IN CASH AND CASH EQUIVALENTS 5,792,803
-----------
CASH AND CASH EQUIVALENTS at end of period $ 5,792,803
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 35,083
===========
Income taxes $ ----
</TABLE> ===========
See Notes to Consolidated Financial Statements
21
<PAGE> 23
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. NATURE OF BUSINESS:
InvestorsBancorp, Inc. (the "Company"), a Wisconsin corporation, was organized
on June 12, 1996, to be the holding company of InvestorsBank, a Wisconsin state
bank located in Pewaukee, Wisconsin (the "subsidiary Bank"). The subsidiary
Bank commenced business on September 8, 1997. On September 6, 1997 Bando
McGlocklin Capital Corporation, the former principal stockholder of the
Company, distributed all of the 880,000 shares of the Company it held on such
date to its shareholders.
The consolidated income of the Company is principally from income of its
subsidiary Bank. The subsidiary Bank grants commercial, installment and
residential loans and accepts deposits from customers primarily in southeastern
Wisconsin. The subsidiary Bank is subject to competition from other financial
institutions and nonfinancial institutions providing financial products.
Additionally, the Company and the subsidiary Bank are subject to the
regulations of certain regulatory agencies and undergo periodic examinations by
those regulatory agencies.
2. CONSOLIDATION:
The consolidated financial statements of InvestorsBancorp, Inc. include the
accounts of its wholly owned subsidiary, InvestorsBank. The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and conform to general practices within the banking
industry. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
3. BASIS OF FINANCIAL STATEMENT PRESENTATION:
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 year. Actual results
could differ from those estimates.
4. CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold and investments with an
original maturity of three months or less. Generally, federal funds are sold
for one-day periods.
The subsidiary Bank maintains amounts due from banks which, at times, may
exceed federally insured limits. The subsidiary Bank has not experienced any
losses in such accounts.
5. AVAILABLE FOR SALE SECURITIES:
Securities classified as available for sale are those debt securities that the
subsidiary Banks intend to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the subsidiary
Banks' assets and liabilities, liquidity needs, regulatory capital
consideration, and other similar factors. Securities classified as available
for sale are carried at fair value. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the related deferred tax
effect. Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
22
<PAGE> 24
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. LOANS:
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are reported at the amount of unpaid
principal, reduced by the allowance for loan losses. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. The accrual of interest income on impaired loans
is discontinued when, in the opinion of management, there is reasonable doubt
as to the borrower's ability to meet payment of interest or principal when they
become due. When interest accrual is discontinued, all unpaid accrued interest
is reversed. Cash collections on impaired loans are credited to the loan
receivable balance, and no interest income is recognized on those loans until
the principal balance is current. Accrual of interest is generally resumed when
the customer is current on all principal and interest payments and has been
paying on a timely basis for a period of time.
7. LOAN SERVICING:
The subsidiary Bank has entered into a Management Services Agreement with Bando
McGlocklin Capital Corporation to manage loans generated by Bando. Such loans
are not included in the accompanying Consolidated Balance Sheet.
8. ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans 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 that may affect the
borrower's ability to pay. While management uses the best information available
to make its evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. Impaired loans are
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable the creditor will
be unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement.
In addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require the subsidiary Bank to make additions
to the allowance for loan losses based on their judgments of collectibility
based on information available to them at the time of their examination.
9. FURNITURE AND EQUIPMENT:
Depreciable assets are stated at cost less accumulated depreciation. Provisions
for depreciation are computed on straight-line and accelerated methods over the
estimated useful lives of the assets, which are 3 to 7 years for furniture and
equipment.
10. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
In the ordinary course of business, the subsidiary Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit and standby letters of credit. Such financial instruments are recorded
in the financial statements when they are funded or related fees are incurred
or received.
23
<PAGE> 25
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. INCOME TAXES:
The Company files a consolidated Federal income tax return and individual
subsidiary State income tax returns. Accordingly, amounts equal to tax
benefits of those companies having taxable Federal losses or credits are
reimbursed by the other companies that incur Federal tax liabilities.
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes. The differences relate principally to
operating loss carryforwards. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
12. PENSION AND PROFIT-SHARING PLAN:
The Company had a defined contribution pension plan and has a contributory
401(k) profit-sharing plan in which contributions are made in accordance with
specified formulas or at the discretion of the Board of Directors of the
Company. The Plans cover substantially all employees. The defined
contribution pension plan was dissolved in 1998.
13. PER SHARE DATA:
Net loss per common share data has been computed based upon the weighted
average number of shares outstanding during the period.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. Statement No. 107
excludes certain financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
CARRYING AMOUNTS APPROXIMATE FAIR VALUES FOR THE FOLLOWING INSTRUMENTS:
Cash and cash equivalents
Federal funds sold
Accrued interest receivable
Accrued interest payable
Variable rate loans that reprice frequently where no
significant change in credit risk has occurred
Demand deposits
Variable rate money market accounts
Variable rate certificate of deposit
24
<PAGE> 26
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS: (continued)
DISCOUNTED CASH FLOWS:
Using interest rates currently being offered on instruments with
similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
QUOTED FEES CURRENTLY BEING CHARGED FOR SIMILAR INSTRUMENTS:
Taking into account the remaining terms of the agreements and the
counterparties' credit standing:
Off-balance-sheet instruments:
Letters of credit
Lending commitments
Since the majority of the Company's off-balance-sheet instruments consists of
nonfee-producing, variable rate commitments, the Company has determined it does
not have a distinguishable fair value.
NOTE B. CASH AND DUE FROM BANKS
At this time, the Federal Reserve Bank has not required the subsidiary Bank to
maintain vault cash or reserve balances with the Federal Reserve Bank based
upon a percentage of deposits.
NOTE C. LOANS
Major classifications of loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Commercial $ 1,581,725
Real estate:
Commercial 3,370,510
Residential 1,206,923
Industrial revenue bonds and municipals 3,446,886
Installment and consumer 510
------------
9,606,554
Allowance for loan losses (96,060)
------------
NET LOANS $ 9,510,494
============
</TABLE>
There were no loans that were impaired at December 31, 1997.
As of December 31, 1997, there were no outstanding loans to directors,
executive officers, principal shareholders of the Bank or their related
interests. The subsidiary Bank services loans for Bando McGlocklin Capital
Corporation, a related company with balances of $140,275,911 at December 31,
1997. Revenue relating to services for Bando McGlocklin Capital Corporation
was $229,285 for the period from September 3, 1997 to December 31, 1997.
25
<PAGE> 27
NOTE D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected in the consolidated financial
statements represents the allowance available to absorb loan losses. An
analysis of changes in the allowance at December 31, 1997 is presented in the
following tabulation:
<TABLE>
<CAPTION>
<S> <C>
BALANCE, beginning of period $ ----
Provision charged to operations 96,060
---------
BALANCE, end of period $ 96,060
=========
NOTE E. FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1997 are stated at cost less
accumulated depreciation and amortization are summarized as follows:
Furniture and equipment $ 132,322
Less accumulated depreciation and amortization 8,163
---------
TOTAL FURNITURE AND EQUIPMENT $ 124,159
=========
Depreciation expense amounted to $8,163 in 1997.
NOTE F. DEPOSITS
At December 31, 1997, the scheduled maturities of other Time deposits is as
follows:
1998 $ 21,900
=========
Interest expense on deposits for the period from September
3, 1997 through December 31, 1997 is $49,373.
NOTE G. INCOME TAXES
The provision for income taxes included in the accompanying consolidated
financial statements consists of the following:
DEFERRED INCOME TAXES (BENEFIT):
Federal $ (53,000)
State (13,400)
---------
TOTAL PROVISION (BENEFIT) FOR INCOME TAXES $ (66,400)
=========
</TABLE>
At December 31, 1997, the subsidiary Bank had a net operating loss carryforward
for income tax purposes of approximately $102,900, of which, if not utilized to
reduce taxable income in future periods will expire in 2012. The deferred tax
assets relate primarily to net operating loss carryforwards which management
anticipates will be utilized in future periods.
NOTE H. FACILITIES LEASE
The Company subleases premises from Bando McGlocklin Capital Corporation under
a lease that Bando McGlocklin Capital Corporation has entered into with Bando
McGlocklin Real Estate Investment Corporation. Monthly rents are variable
based on LIBOR interest rates and the agreement is for a one year renewable
term. Lease expense for the period from September 3, 1997 through December 31,
1997 was $24,330.
26
<PAGE> 28
NOTE I. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the financial
statements.
The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit financial
guarantees and standby letters of credit. They involve, to varying degrees,
elements of credit risk in excess of amounts recognized on the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and issuing letters of credit as it does for on-balance-sheet
instruments.
A summary of the contract or notional amount of the Company's exposure to
off-balance-sheet risk as of December 31, 1997 is as follows:
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 2,757,556
Credit cards 93,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company 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. Credit card commitments are unsecured.
The Company and the subsidiary Bank do not engage in the use of interest rate
swaps, futures, forwards or option contracts.
NOTE J. CONCENTRATION OF CREDIT RISK
Practically all of the subsidiary Bank's loans, commitments, and commercial and
standby letters of credit have been granted to customers in the subsidiary
Bank's market area. Although the subsidiary Bank has a diversified loan
portfolio, the ability of its debtors to honor their contracts is dependent on
the economic conditions of the counties surrounding the subsidiary Bank. The
concentration of credit by type loan are set forth in Note C.
NOTE K. STOCKHOLDERS' EQUITY
Common stock at December 31, 1997 represents 1,000,000 shares issued at par
value of $.01 per share less associated costs.
Proceeds from public stock offering at $7 per share $ 7,000,000
Associated costs (10,100)
------------
COMMON STOCK (NET) $ 6,989,900
============
27
<PAGE> 29
In 1997, the Company established a Nonqualified Stock Option Plan which was
approved by the directors at the September 1997 board of directors meeting,
providing for the granting of options for up to 100,000 shares of common stock
to key officers and employees of the Company. Options are granted at the
current market value unless the stock is traded on a public market which it is
then granted at the average of the high and the low for the year, provided,
however, if the principal market is a national exchange, the grant price shall
be the last reported sales price. Options may be exercised in accordance with
each option agreement prepared at the time of the option, and must be exercised
within a ten year period.
Activity of the Nonqualified Stock Option Plan is summarized in the following
table:
<TABLE>
<CAPTION>
Options Options Option price
available outstanding per share
-----------------------------------------
<S> <C> <C> <C>
BALANCE, September 3, 1997 ---- ---- $ ----
Stock options authorized 100,000 ---- $ ----
Granted (7,500) 7,500 7.70
-----------------------------------------
BALANCE, December 31, 1997 92,500 7,500 $ 7.70
=========================================
A reconciliation of the numerators and the denominator of earnings per share
and earning per share assuming dilution are:
Per share
Income Shares amount
-----------------------------------------
1997:
Earnings per share $(102,900) 1,000,000 $(0.10)
============
Effect of options ---- 29,889
-------------------------------------------
Earnings per share -
assuming dilution $(102,900) 1,029,889 $(0.10)
===========================================
</TABLE>
The Company applies APB Opinion 25 and related interpretation in accounting for
its plan. Accordingly, no compensation cost has been recognized for its
incentive stock option plan. Had compensation cost for the Company's
stock-based compensation plan been determined based upon the fair value at the
grant dates for awards under the plan consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would be reduced
to the pro forma amounts indicated below:
Net income - as reported $ (102,900)
Pro forma $ (730,585)
Loss per share - as reported $ (0.10)
Pro forma $ (0.73)
The Company has issued 100,000 stock warrants to its chief executive officer,
exercisable at $7.70 per share. The warrants expire September 3, 2004.
NOTE L. RETAINED EARNINGS AND RESTRICTION ON DIVIDENDS
The principal source of income and funds of the Company will be dividends from
the subsidiary Bank. Under Wisconsin law, the subsidiary Bank will be
restricted as to the maximum amount of dividends it may pay on its common
stock. A Wisconsin bank may not pay dividends except out of net profits. Unless
exempted by the Wisconsin Department of Financial Institutions, Division of
Banking, a state bank may not pay any dividend until an amount equal to at
least 20% of net profits for the preceding half year or dividend period has
been transferred to surplus. Such transfers are required until the surplus fund
equals 100% of the bank's capital stock. A bank's ability to pay dividends may
also be restricted in the event that losses in excess of undivided profits have
been charged against surplus and in certain other circumstances. Federal
regulators have authority to prohibit a bank from
28
<PAGE> 30
engaging in any action deemed by them to constitute an unsafe or unsound
practice, including the payment of dividends. In addition to the foregoing,
Wisconsin business corporations such as the subsidiary Bank are prohibited by
Wisconsin law from paying dividends while they are insolvent or if the payment
of dividends would render them unable to pay debts as they come due in the
usual course of business.
The subsidiary Bank made a statement in its application for a bank charter and
federal deposit insurance that it will retain its earnings during the first
three years of operation. As such, no dividends will be paid to the
shareholders during that period. Federal Reserve Board policy provides that a
bank holding bank should not pay dividends unless (i) the dividends can be
fully funded out of net income from the bank's net earnings over the prior year
and (ii) the prospective rate of earnings retention appears consistent with the
Company (and its subsidiary's) capital needs, asset quality and overall
financial conditions.
NOTE M. REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements administered
by the federal and state 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 Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company'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
requires the Company to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, the Company
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the regulatory
agencies categorized the Company as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Company must maintain minimum total risk-based, Tier I risk-based, and
leverage ratios as set forth in the table. There are no conditions or events
since these notifications that management believes have changed the
institution's category.
Below is a comparison of the Company's and the subsidiary Bank's 1997 actual
with the minimum requirements for well-capitalized and adequately capitalized
banks, as defined by the federal regulatory agencies' Prompt Corrective Action
Rules.
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
-------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets):
InvestorsBancorp, Inc. $ 6,817,161 64.9% $ 840,334 8.0% $ 1,050,417 10.0%
InvestorsBank $ 6,817,161 64.9% $ 840,334 8.0% $ 1,050,417 10.0%
Tier I capital (to risk-weighted assets):
InvestorsBancorp, Inc. $ 6,721,101 64.0% $ 420,167 4.0% $ 630,250 6.0%
InvestorsBank $ 6,721,101 64.0% $ 420,167 4.0% $ 630,250 6.0%
Tier I capital (to average assets):
InvestorsBancorp, Inc. $ 6,721,101 55.8% $ 481,606 4.0% $ 602,008 5.0%
InvestorsBank $ 6,721,101 55.8% $ 481,606 4.0% $ 602,008 5.0%
</TABLE>
29
<PAGE> 31
NOTE N. PENSION PLAN
The Company had a non-contributory defined contribution pension plan covering
substantially all of its employees. The Company also has a contributory 401(k)
profit-sharing plan covering substantially all of its employees. The total
pension expense and profit-sharing expense at December 31, 1997 amounted to
$35,310. The defined contribution pension plan was dissolved in 1998.
NOTE O. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
amount fair value
-----------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 5,792,803 $ 5,792,803
=============================
Net loans $ 9,510,494 $ 9,548,783
=============================
Accrued interest receivable$ 59,134 $ 59,134
=============================
FINANCIAL LIABILITIES:
Deposits $ 8,861,640 $ 8,861,640
=============================
Accrued interest payable $ 14,290 $ 14,290
=============================
</TABLE>
The estimated fair value of fee income on letters of credit at December 31,
1997 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31,
1997.
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However,
borrowers with fixed rate obligations are less likely to prepay in a rising
rate environment and more likely to repay in a falling rate environment.
Conversely, depositors who are receiving fixed rates are more likely to
withdraw funds before maturity in a rising rate environment and less likely to
do so in a falling rate environment. Management monitors rates and maturities
of assets and liabilities and attempts to minimize interest rate risk by
adjusting terms of new loans and deposits and by investing in securities with
terms that mitigate the Company's overall interest rate risk.
NOTE P. DEVELOPMENT STAGE BANK
During a portion of 1997, the subsidiary Bank was a development stage bank as
it had not yet commenced its planned principal operations of banking. The
subsidiary Bank commenced operations on September 8, 1997 and at that time the
subsidiary Bank ceased to be a development stage bank. Pre-opening expenses
were paid by Bando McGlocklin Capital Corporation prior to the spin-off of
InvestorsBank to Bando McGlocklin Capital Corporation's shareholders.
30
<PAGE> 32
NOTE Q. INVESTORSBANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
- ----------------------------------------------------------------------
<S> <C>
ASSETS - investment in subsidiary $ 6,887,000
==============
LIABILITIES $ ----
==============
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; -0- shares issued and outstanding ----
Common stock, $.01 par value; 9,000,000 shares
authorized; $1,000,000 shares issued and outstanding 10,000
Surplus 6,979,900
Retained deficit (102,900)
--------------
TOTAL STOCKHOLDERS' EQUITY 6,887,000
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,887,000
==============
CONDENSED STATEMENT OF INCOME
- ----------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED (LOSS) AT SUBSIDIARY $ (102,900)
--------------
NET LOSS $ (102,900)
==============
CONDENSED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (102,900)
Adjustment to reconcile net loss to net
cash used in operating activities - equity
in undistributed loss of subsidiary 102,900
--------------
NET CASH USED IN OPERATING ACTIVITIES
--------------
CASH FLOWS FROM INVESTING ACTIVITIES -
investment in subsidiary (6,989,900)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES - proceeds
from issuance of common stock, net 6,989,900
--------------
CASH AND CASH EQUIVALENTS at end of period $ ----
==============
</TABLE>
31
<PAGE> 33
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 22, 1997, the Company replaced Price Waterhouse LLP, who were
the Company's independent auditors prior to that date, with Conley, McDonald
LLP as its independent auditors for the fiscal year ending December 31, 1997.
The report of Price Waterhouse LLP on the Company's balance sheet as of July 7,
1997 did not contain an adverse opinion or a disclaimer of opinion, and the
report was not qualified or modified as to uncertainty, audit scope or
accounting principles.
In connection with the audit of the Company's financial statements from
June 12, 1996 (date of inception) through December 22, 1997, there were no
unresolved issues, scope restrictions, unanswered questions or disagreements
with Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of Price Waterhouse LLP, would have caused Price
Waterhouse LLP to make reference to the matter in their report, and Price
Waterhouse LLP did not advise the Company that any of the events described in
Item 304 (a)(1)(iv)(B) of Regulation S-B had occurred. During the Company's
fiscal years ended December 31, 1997, the Company (or anyone on the Company's
behalf) did not consult Conley, McDonald LLP regarding: (i) either the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements; and as such no written report was provided
to the Company and no oral advice was provided that the new accountant
concluded was an important factor considered by the Company in reaching a
decision as to any accounting, auditing or financial reporting issue, or (ii)
any matter that was either the subject of disagreement or a reportable event.
PART III
ITEM 9. DIRECTORS AND OFFICERS OF THE REGISTRANT
DIRECTORS. The information on pages 2-3 of the 1998 Proxy Statement under
the caption "Election of Directors" is incorporated by reference.
EXECUTIVE OFFICERS. The Company's executive officers who are not also
directors are as follows:
SUSAN J. HAUKE, 32, has been the Company's Controller, Vice President -
Finance and Assistant Secretary since 1997. In 1997 Ms. Hauke was also
appointed Secretary and Treasurer of the Bank and Vice President - Finance,
Secretary and Treasurer of BMCC. From 1991 until 1997, Ms. Hauke served as
Controller for BMCC, and was a senior accountant at Price Waterhouse LLP before
joining BMCC.
SCOTT J. RUSSELL, 38, has been a Senior Vice President of the Company
since February, 1998, and a Senior Vice President and Lending Officer of the
Bank since 1997. In 1997 Mr. Russell was also appointed Senior Vice President
of BMCC. From 1994 until 1997, Mr. Russell served as a Vice President
of BMCC, and was a corporate banker with the Bank of Tokyo, Chicago, Illinois,
prior to joining BMCC.
There are no arrangements or understandings between any of the executive
officers or any other persons pursuant to which any of the executive officers
have been selected for their respective positions.
COMPLIANCE WITH SECTION 16(A). Section 16(a) of the Exchange Act requires
the Company's executive officers and directors and persons who own more than
10% of the Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and with the exchange on which the
shares of Common Stock are traded. Such persons are also required to furnish
the Company with copies of all Section 16(a) forms they file. Based solely
upon the Company's review of such forms and, if appropriate, representations
made to the Company by any such reporting person concerning whether a Form 5
was required to be filed for the 1997 fiscal year, the Company is not aware
that any of its directors and executive officers or 10% shareholders failed to
comply with the filing requirements of Section 16(a) during the period
commencing January 1, 1997 through December 31, 1997.
32
<PAGE> 34
ITEM 10. EXECUTIVE COMPENSATION
The information on page 4 of the 1998 Proxy Statement under the Subcaption
"Compensation of Directors" and the information on page 5 of the 1998 Proxy
Statement under the caption "Executive Compensation" is incorporated by
reference.
ITEM. 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The information on page 4 of the 1998 Proxy Statement, under the caption
"Security Ownership of Certain Beneficial Owners" in incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS
The information on page 6 of the 1998 Proxy Statement under the caption
"Transactions with Management" is incorporated by reference.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) INDEX TO FINANCIAL STATEMENTS
See page 14.
(a)(2) FINANCIAL STATEMENT SCHEDULES
[None required]
(a)(3) SCHEDULE OF EXHIBITS
The Exhibit Index which immediately follows the signature pages to
this Form 10-KSB is incorporated by reference.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K, dated December 22, 1997, to report under
Item 4 of Form 8-K that the Company had dismissed Price Waterhouse LLP and
retained Conley, McDonald LLP as its independent auditors for the fiscal year
ended December 31, 1997.
(c) EXHIBITS
The Exhibit Index to this Form 10-KSB is incorporated by reference.
The exhibits required to be filed with this Form 10-KSB are
included with this Form 10-KSB and are located immediately following
the Exhibit Index to this Form 10-KSB.
(d) FINANCIAL DATA SCHEDULE
Exhibit 27.1
33
<PAGE> 35
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, as amended,
the Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March ____, 1998.
INVESTORSBANCORP, INC.
By:/s/ George R. Schonath
--------------------------------------
George R. Schonath
Chief Executive Officer
By:/s/ Susan J. Hauke
--------------------------------------
Susan J. Hauke, Vice President Finance
and Chief Accounting Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Issuer and in the capacities and on
March ____, 1998.
Signature Title
/s/ Salvatore L. Bando
- ---------------------------------- Director
Salvatore L. Bando
/s/ Terry L. Mather
- ---------------------------------- Director
Terry L. Mather
/s/ Jon McGlocklin
- ---------------------------------- Director
Jon McGlocklin
/s/ George R. Schonath
- ---------------------------------- Director
George R. Schonath
/s/ Donald E. Sydow
- ---------------------------------- Director
Donald E. Sydow
34
<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
INCORPORATED HEREIN
EXHIBIT NO. DESCRIPTION OF EXHIBITS BY REFERENCE TO FILED HEREWITH SEQUENTIAL PAGE NUMBER
<S> <C> <C> <C> <C>
3.1 Restated Articles of Exhibit 2(a) to the
Incorporation, as Form 10-SB filed
amended, of with the Commission
InvestorsBancorp, Inc. on July 24, 1997
(SEC File No.
000-29400
3.2 Bylaws of Exhibit 2(b) to
InvestorsBancorp, Inc. the Form 10-SB
filed with the
Commission on July
24, 1997 (SEC File
No. 000-29400)
4.1 Specimen Common Stock Exhibit 4.1 to the
Certificate of Form 10-SB filed
InvestorsBancorp, Inc. with the Commission
on July 24, 1997
(SEC File No.
000-29400)
10.1 InvestorsBancorp, Inc. Exhibit 6(c) to
1997 Equity Incentive the Form 10-SB
Plan filed with the
Commission on July
24, 1997 (SEC File
No. 000-29400)
10.2 Management Services Exhibit 6(a) to the
and Allocation of Form 10-SB filed
Expenses Agreement with the Commission
on July 24, 1997
(SEC File No.
000-29400)
10.3 Tax Allocation and Exhibit 6(b) to the
Services Agreement Form 10-SB filed
with the Commission
on July 24, 1997
(SEC File No.
000-29400)
23.1 Subsidiaries of X
InvestorsBancorp, Inc.
27.1 Financial Data Schedule X
</TABLE>
35
<PAGE> 1
Exhibit 23.1
SUBSIDIARIES OF THE REGISTRANT
InvestorsBank, a Wisconsin state bank with its main office located in Pewaukee,
Wisconsin.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
INVESTORSBANCORP, INC. AUDITED DECEMBER 31, 1997 FINANCIAL STATEMENTS INCLUDED
IN ITS FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
INVESTORSBANCORP INC. FORM 10-KSB DATED MARCH 30, 1998.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-03-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1248803
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4544000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9606554
<ALLOWANCE> 96060
<TOTAL-ASSETS> 16039771
<DEPOSITS> 8861640
<SHORT-TERM> 0
<LIABILITIES-OTHER> 291131
<LONG-TERM> 0
0
0
<COMMON> 6989900
<OTHER-SE> (102900)
<TOTAL-LIABILITIES-AND-EQUITY> 16039771
<INTEREST-LOAN> 224104
<INTEREST-INVEST> 108496
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 332600
<INTEREST-DEPOSIT> 49373
<INTEREST-EXPENSE> 49373
<INTEREST-INCOME-NET> 283227
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<NET-INCOME> (102900)
<EPS-PRIMARY> (0.10)
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</TABLE>
