<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
----- -----
Commission file number: 0-29400
INVESTORSBANCORP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1854234
--------- ----------
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
W239 N1700 Busse Road
P.O. Box 190
Pewaukee, Wisconsin 53072-0190
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 523-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of November 1, 1999, the Issuer had 1,000,000 shares of $0.01 par value
Common Stock issued and outstanding.
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INVESTORSBANCORP, INC.
FORM 10-QSB INDEX
<TABLE>
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1999 (Unaudited) and
December 31, 1998............................................................ 3
Consolidated Statements of Income - For the Three and Nine Months
Ended September 30, 1999 and 1998 (Unaudited)................................ 4
Consolidated Statements of Changes in Shareholders' Equity - For the
Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited).......... 6
Consolidated Statement of Cash Flows - For the Nine Months Ended
September 30, 1999 and 1998 (Unaudited) ..................................... 7
Notes to the Consolidated Financial Statements (Unaudited) .................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................. 21
Item 2. Changes in Securities .............................................. 21
Item 3. Defaults Upon Senior Securities .................................... 1
Item 4. Submission of Matters to a Vote of Security Holders ................ 21
Item 5 Other Information................................................... 21
Item 6. Exhibits and Reports on Form 8-K ................................... 21
Signatures ................................................................. 22
</TABLE>
2
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
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1999 1998
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<S> <C> <C>
ASSETS
Cash and due from banks $ 1,331,146 $ 1,049,145
Federal funds sold 175,000 540,000
Available for sale securities 4,285,000 14,980,000
Held to maturity securities, fair value of $3,980,493 - 3,980,493
Loans, less allowance for loan losses of $709,449 and
$395,804, respectively 70,235,408 39,184,712
Mortgage loans held for sale 608,000 2,232,657
Furniture and equipment, net 103,372 126,760
Accrued interest receivable and other assets 834,810 1,007,615
------------------- ------------------
TOTAL ASSETS $ 77,572,736 $ 63,101,382
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 5,174,069 $ 2,616,842
Savings and NOW accounts 44,665,009 37,172,478
Time 19,619,057 15,215,270
------------------- ------------------
TOTAL DEPOSITS 69,458,135 55,004,590
Accrued interest payable and other liabilities 670,157 912,551
------------------- ------------------
TOTAL LIABILITIES 70,128,292 55,917,141
------------------- ------------------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; shares authorized
1,000,000; no shares issued and outstanding - -
Common stock, $0.01 par value; shares authorized
9,000,000; shares issued and outstanding 1,000,000 10,000 10,000
Additional paid in capital 6,979,900 6,979,900
Retained earnings 454,544 194,341
------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 7,444,444 7,184,241
------------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,572,736 $ 63,101,382
=================== ==================
</TABLE>
3
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,344,269 $ 737,043 $3,395,083 $1,623,587
Interest on securities 78,322 118,618 373,384 205,630
Interest on federal funds sold 13,071 93,406 61,972 272,801
--------------- --------------- --------------- ---------------
TOTAL INTEREST INCOME 1,435,662 949,067 3,830,439 2,102,018
Interest expense - interest on deposits 798,386 536,174 2,156,272 1,132,314
--------------- --------------- --------------- ---------------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 637,276 412,893 1,674,167 969,704
Provision for loan losses 121,004 75,692 313,645 211,703
--------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 516,272 337,201 1,360,522 758,001
--------------- --------------- --------------- ---------------
NONINTEREST INCOME:
Service charges 10,998 5,481 25,950 11,752
Service release premiums 117,709 127,790 480,383 328,458
Management services fees 211,547 197,087 645,432 575,028
Other income 9,155 6,236 47,531 8,070
--------------- --------------- --------------- ---------------
TOTAL NONINTEREST INCOME 349,409 336,594 1,199,296 923,308
--------------- --------------- --------------- ---------------
NONINTEREST EXPENSE:
Salaries and employee benefits 499,230 417,439 1,497,347 1,107,849
Occupancy expenses 7,984 22,799 52,115 65,437
Equipment expenses 14,499 12,469 43,456 43,167
Other expenses 124,349 123,052 369,342 354,981
--------------- --------------- --------------- ---------------
TOTAL NONINTEREST EXPENSE 646,062 575,759 1,962,260 1,571,434
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 219,619 98,036 597,558 109,875
Income tax expense (benefit) 81,150 24,625 225,642 (416)
--------------- --------------- --------------- ---------------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 138,469 73,411 371,916 110,291
--------------- --------------- --------------- ---------------
Cumulative effect of expensing start-up costs
as incurred, net of income taxes - - 111,713 -
--------------- --------------- --------------- ---------------
NET INCOME $ 138,469 $ 73,411 $ 260,203 $ 110,291
=============== =============== =============== ===============
</TABLE>
4
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE AMOUNTS:
BASIC EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $ 0.14 $ 0.07 $ 0.37 $ 0.11
Cumulative effect of expensing start-up
costs as incurred - - 0.11 -
-------------- -------------- -------------- --------------
Net income $ 0.14 $ 0.07 $ 0.26 $ 0.11
============== ============== ============== ==============
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $ 0.14 $ 0.07 $ 0.37 $ 0.11
Cumulative effect of expensing start-up
costs as incurred - - 0.11 -
-------------- -------------- -------------- --------------
Net income $ 0.14 $ 0.07 $ 0.26 $ 0.11
============== ============== ============== ==============
</TABLE>
5
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON EARNINGS SHAREHOLDERS'
STOCK SURPLUS (DEFICIT) EQUITY
----- ------- --------- ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 10,000 $ 6,979,900 $(102,900) $ 6,887,000
Net income for first nine months of 1998 - - 110,291 110,291
--------- ------------ ---------- ------------
BALANCE, September 30, 1998 $ 10,000 $ 6,979,900 $ 7,391 $ 6,997,291
========= ============ ========== ============
BALANCE, December 31, 1998 $ 10,000 $ 6,979,900 $ 194,341 $ 7,184,241
Net income for first nine months of 1999 - - 260,203 260,203
--------- ------------ ---------- ------------
BALANCE, September 30, 1999 $ 10,000 $ 6,979,900 $ 454,544 $ 7,444,444
========= ============ ========== ============
</TABLE>
6
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
-------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 260,203 $ 110,291
Adjustments to reconcile net income to net cash
net cash used in operating activities
Depreciation 30,607 19,237
Provision for loan loss 313,645 211,703
Amortization of organizational costs 183,780 36,550
Benefit for deferred taxes (53,100) (416)
Net decrease in mortgage loans held for sale 1,624,657 -
(Increase) decrease in assets:
Interest receivable (123,913) (131,286)
Other assets 166,038 (132,174)
Increase (decrease) in liabilities:
Accrued interest (138,927) 285,297
Taxes payable 8,080 -
Other liabilities (111,547) 95,914
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,159,523 495,116
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in federal funds 365,000 (1,391,000)
Proceeds from sales of available for sale securities 14,890,000 4,625,000
Purchase of available for sale securities (4,195,000) (13,010,000)
Proceeds from maturity of held to maturity securities 3,980,493 -
Purchase of furniture and equipment (7,219) (21,249)
Net increase in loans (31,364,341) (28,364,503)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (16,331,067) (38,161,752)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 14,453,545 37,711,572
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,453,545 37,711,572
------------ ------------
Net increase (decrease) in cash and due from banks 282,001 44,936
Cash and due from banks, beginning of period 1,049,145 1,248,803
------------ ------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 1,331,146 $ 1,293,739
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,295,199 $ 693,552
============ ============
Income taxes $ 90,000 $ -
============ ============
</TABLE>
7
<PAGE> 8
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION
InvestorsBancorp, Inc. (the "Company") was incorporated under Wisconsin law 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.
NOTE 2. ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management of the Company, all adjustments
necessary to present fairly the financial position as of September 30, 1999 and
December 31, 1998 and the results of operations and cash flows for the three
months and nine months ended September 30, 1999 have been made. Such adjustments
consisted only of normal recurring items. Operating results for the three months
and nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
Principles of Consolidation - The consolidated financial statements as of and
for the period presented include the accounts of the Company and the Bank, its
wholly owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
NOTE 2. SUBSEQUENT EVENTS
On November 1, 1999, the Company declared a 5% stock dividend to shareholders of
record on December 31, 1999. The stock dividend will be payable on January 15,
2000.
8
<PAGE> 9
ITEM 2. 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 that affected the Company's earnings
for the periods ended September 30, 1999 and 1998. As of September 30, 1999 and
1998, the Bank was the only subsidiary of the Company and its operations
contributed all of the revenue and expenses.
Results of Operations
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
During the quarter ended September 30, 1999, the Company reported net income of
$138,469, or $0.14 per share, as compared to net income of $73,411, or $0.07 per
share for the quarter ended September 30, 1998, an 89% increase. This enhanced
profitability was primarily attributable to a 45% increase in earning assets and
the absence of non-recurring expenses which were incurred during the Company's
initial development stage. The current year, which ends December 31, 1999, will
be the Company's second full year of operation.
Net Interest Income
Net interest income is the difference between interest income, including fees on
loans, and interest expense, and is the largest contributing factor to net
income for the Company. Total net interest income increased 54% to $637,276 for
the quarter ended September 30, 1999 from $412,893 for the quarter ended
September 30, 1998. Significantly higher loan volumes resulted in an 82%
increase in interest and fee income on loans which totaled $1,344,269 for the
three months ended September 30, 1999 compared to $737,043 for the three months
ended September 30, 1998. The majority of interest income on loans was derived
from the commercial and commercial real estate loan portfolios which, in
aggregate, comprised approximately 80% of total loans at September 30, 1999.
Interest earned on investment securities and federal funds sold totaling $78,322
and $13,071, respectively, were the other components of interest income. While
the direction of future interest rates, competition, and other factors may have
a significant impact, management anticipates interest income will continue to
increase proportionately with the growth of the loan portfolio and other
investments.
Interest expense similarly increased 49% to $798,386 for the quarter ended
September 30, 1999 from $536,174 for the quarter ended September 30, 1998.
Interest expense consisted predominantly of interest paid on money market
accounts totaling $524,009 and certificates of deposit totaling $258,140 for the
quarter ended September 30, 1999. Interest expense is anticipated to continue to
rise in the near future as management expects these deposit instruments will
remain the primary funding sources utilized by the Company to fund additional
growth.
9
<PAGE> 10
Provision for Loan Losses
The allowance for loan losses increased 79% to $709,449 as of September 30, 1999
from $395,804 as of December 31, 1998. The allowance for loan losses is
established through a provision for loan losses charged to expense. Due in large
part to substantial loan growth, a loan loss provision of $121,004 was expensed
in the quarter ended September 30, 1999 as compared to $75,692 during the three
months ended September 30, 1998. The allowance for loan losses remained at
approximately 1.00% of total loans, net of residential mortgage loans held for
sale on the secondary market.
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, nor any impaired loans during 1998
or the first nine months of 1999. While a comprehensive analysis of the
allowance for loan losses is somewhat difficult due to the Company's relatively
short operating history, management believes that the allowance was at an
adequate level at September 30, 1999 based on the composition of the portfolio
as well as regulatory guidelines.
Non-Interest Income and Expenses
Non-interest income for the quarter ended September 30, 1999 totaled $349,409 as
compared to $336,594 for the quarter ended September 30, 1998, a 4% increase.
Management service fees totaled $211,547 for the quarter ended September 30,
1999 compared to $197,087 for the quarter ended September 30, 1998. The Company
charges Bando McGlocklin Capital Corporation (BMCC), the former principal
shareholder of the Company, a management fee for salaries and employee benefits
of common management, as well as a loan servicing fee based on total loans and
leases under management. As of September 30, 1999, the Company had BMCC loans
under management totaling $101,989,161 and leased properties of $25,248,805.
Other sources of non-interest income included $117,709 of service release fees
received in the three months ended September 30, 1999 compared to $127,790 for
the three months ended September 30, 1998, from the sale of residential
mortgages originated for the secondary market. Service charges and other income
were $20,153 compared to $11,717 for the same periods.
10
<PAGE> 11
Non-interest expense increased 12% to $646,062 for the three months ended
September 30, 1999 as compared to $575,759 for the three months ended September
30, 1998. The increase of $70,303 was primarily due to salaries and employee
benefits expense increasing $81,791 due to additional employees and regular
compensation increases. During the quarter ended September 30, 1999, the Company
had an average of 28 full time equivalent employees compared to an average of 22
full time equivalents for the prior year's third quarter. Salaries and employee
benefits totaled $499,230 and $417,439 for the three months ended September 30,
1999 and 1998, respectively. These amounts include salaries that were reimbursed
through the management service fee noted above. The other operating expenses,
which included occupancy and fixed asset expense, data processing fees,
advertising, investor communications, and professional fees, decreased $11,488.
Amounts provided for income tax expense or benefit 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 quarterly for differences between the financial statement and tax basis
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 are related principally
to tax exempt interest income, allowance for loan losses, depreciation, and
operating loss carryforwards that will be used to offset future net operating
income.
For the quarter ended September 30, 1999, the Company recorded federal and state
income tax expense of $81,150. The Company also has a deferred tax asset of
$146,688. For the quarter ended September 30, 1998 the Company recorded a
federal and state income tax expense of $24,625 and had a deferred tax asset of
$66,866. Management believes it is more likely than not that the deferred tax
asset will be fully realized. The effective rate for the expense for income
taxes for the quarter ended September 30, 1999 was 37%.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
During the nine months ended September 30, 1999, the Company reported net income
of $260,203 or $0.26 per share as compared to $110,291 or $0.11 per share for
the nine months ended September 30, 1998, a 136% increase. Net income as of
September 30, 1999 was reduced by the cumulative effect of a change in
accounting principle that totaled $111,713 after income taxes. The Company
adopted Statement of Position 98-5 that requires all entities to expense
start-up costs as incurred. Income before cumulative effect of a change in
accounting principle was $371,916 or $0.37 per share for the nine months ended
September 30, 1999.
Net Interest Income
Total net interest income for the period increased 73% to $1,674,167 for the
nine months ended September 30, 1999 from $969,704 for the nine months ended
September 30, 1998. Interest income for the first nine months of 1999 consisted
of $3,395,083 of interest on loans and fees on loans, $61,972 of interest on
federal funds sold and $373,384 of interest on investment securities.
11
<PAGE> 12
During the first nine months of 1998, comparative amounts were $1,623,587,
$272,801 and $205,630, respectively. Management anticipates that interest income
will continue to grow along with the loan portfolio and other assets of the
Company.
Interest expense nearly doubled to $2,156,272 for the nine months ended
September 30, 1999 as compared to $1,132,314 for the nine months ended September
30, 1998. Average deposits for the nine months ended September 30, 1999 were
$60,916,789 compared to $29,094,239 for the nine months ended September 30,
1998. As deposits continue to grow, the interest expense will also increase.
Provision for Loan Losses
A loan loss provision of $313,645 was expensed during the nine months ended
September 30, 1999 as compared to $211,703 during the first nine months of 1998,
a 48% increase. There were no loan charge-offs or recoveries nor any impaired
loans for the nine months ended September 30, 1999 and 1998.
Non-Interest Income and Expenses
Non-interest income for the nine months ended September 30, 1999 increased 30%
to $1,199,296 as compared to $923,308 for the nine months ended September 30,
1998. Management service fees totaled $645,432 for the first nine months of 1999
as compared to $575,028 for the first nine months of 1998, a 12% increase.
Service release fees increased 46% to $480,383 from $328,458 for the same
period. In addition, service charges related to deposit accounts totaled $25,950
and other income totaled $47,531 during the nine months ended September 30, 1999
compared to 11,752 and $8,070, respectively, for the nine months ended September
30, 1998.
Non-interest expense increased 25% to $1,962,260 for the nine months ended
September 30, 1999 as compared to $1,571,434 for the nine months ended September
30, 1998. The increase of $390,826 was primarily due to salary and employee
benefit expense increasing $389,498 due to additional employees and regular
compensation increases. For the nine months ended September 30, 1999 the Company
had an average of 28 full time equivalent employees and for the nine months
ended September 30, 1998 there was an average of 19 full time equivalents.
Salaries and employee benefits totaled $1,497,347 and $1,107,849 for the nine
months ended September 30, 1999 and 1998, respectively. These amounts included
salaries that were reimbursed through the management service fee noted above.
The other operating expenses, which included occupancy and fixed asset expense,
data processing fees, advertising, investor communications, and professional
fees, were $464,913 compared to $463,585 for the same periods, an increase of
$1,328.
For the nine months ended September 30, 1999, the Company recorded federal and
state income tax expense of $225,642 compared to an income tax benefit of $416
for the nine months ended September 30, 1998. The Company also has a deferred
tax asset of $146,688. Management believes it is more likely than not that the
deferred tax asset will be fully realized. The effective rate for the expense
for income taxes for the nine months ended September 30, 1999 was 38%.
12
<PAGE> 13
FINANCIAL CONDITION
Assets
The Company reported total assets of $77,572,736 as of September 30, 1999 versus
$63,101,382 as of December 31, 1998, a 23% increase. Cash and due from banks and
federal funds sold decreased to $1,506,146 as of September 30, 1999 from
$1,589,145 at December 31, 1998. The Company's investment securities portfolio
decreased to $4,285,000 as of September 30, 1999 from $18,960,493 at year end.
The $14,675,493 decrease in the investment portfolio was the result of funding
loan commitments in the first nine months of 1999. As of September 30, 1999
investment securities consisted of taxable variable rate demand notes secured by
irrevocable letters of credit from federally insured, domestic financial
institutions. Although the notes have a long term maturity structure, the
interest rate is adjustable weekly and the holder has the option to liquidate
the security at 100% of par value within seven days upon proper notice. These
instruments provide the Company with ready liquidity to provide for loan funding
requirements. Management believes that the investment portfolio is adequately
diversified.
Loans continued to grow during the quarter. As of September 30, 1999, loans rose
79% to $70,944,857 compared to $39,580,516 as of December 31, 1998. While most
of the growth occurred in the commercial, industrial and commercial real estate
segments of the loan portfolio, residential real estate loans, including home
equity credit facilities, also grew considerably. It is management's focus to
grow the loan portfolio as much as possible. For the funding source of this loan
growth the Company does not rely solely on its liquid assets, such as
investments. The Company has access to various off-balance sheet sources. As of
September 30, 1999, the Company had $608,000 of loans held for sale. As of
December 31, 1998, residential mortgage loans originated for sale on the
secondary market totaled $2,232,657. Excluding the mortgage loans originated for
sale, the allowance for loan losses remained at approximately 1.00% of gross
loans, totaling $709,449 at September 30, 1999 and $395,804 at year end 1998. In
addition to loans outstanding, the Company had unfunded loan commitments
totaling $23,455,000 as of September 30, 1999, although the Company intends to
participate approximately $8,892,000 of those loans to BMCC and other third
party lenders. Loan demand continues to remain strong for both commercial and
residential loans in the Company's trade area. Despite the recent increase in
residential loan rates, the Company continues to grow its market share.
Other assets at September 30, 1999 totaled $938,182 compared to $1,134,375 at
December 31, 1998. Other assets at September 30, 1999 included net furniture and
equipment of $103,372, accrued interest receivable on loans and investments of
$450,249, excess servicing assets of $130,643 relating to loans sold to a third
party, deferred tax assets of $146,688 and other miscellaneous assets of
$107,230. A significant portion of the decrease in other assets was attributable
to the adoption of Statement of Position 98-5 which required the Company to
expense in the first quarter the remaining organizational and start-up costs of
$183,780.
13
<PAGE> 14
Liabilities
Total deposits increased 26% to $69,458,135 at September 30, 1999 from
$55,004,590 as of year end 1998. Indexed money market accounts comprised the
largest portion of the deposit base totaling $43,221,006 as of September 30,
1999 compared to $35,842,546 as of December 31, 1998. Time certificates of
deposit increased to $19,619,057 compared to $15,215,270 as of year end. Time
deposits included retail brokered deposits with maturities ranging from 1 to 3
years of $6,274,000 and $9,645,000 as of September 30, 1999 and December 31,
1998, respectively. In order for the Company to facilitate continued loan
growth, management expects to continue to aggressively market and competitively
price its money market and certificate of deposit products. Other deposits
outstanding as of September 30, 1999 included non-interest bearing accounts
totaling $5,174,069 and interest bearing checking accounts (NOW accounts) of
$1,444,003.
Other liabilities decreased to $670,157 as of September 30, 1999 from $912,551
at December 31, 1998. Other liabilities as of September 30, 1999 consisted
primarily of accrued interest payable totaling $314,124, as well as accrued
expenses payable of $177,100, retained loan discount relating to loans sold to a
third party totaling $115,194, and other miscellaneous liabilities of $63,739.
The decrease was the result of lower accrued interest payable and lower accrued
expenses.
CAPITAL RESOURCES
Capital ratios applicable to the Bank and the Company at September 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Total Tier I
Risk-based Risk-based Leverage
Capital Capital Ratio
-------------- -------------- -------------
<S> <C> <C> <C>
Regulatory Capital Requirements:
Minimum 8.0% 4.0% 4.0%
Well-capitalized 10.0% 6.0% 5.0%
At September 30, 1999
Bank 11.5% 10.5% 10.1%
Company 11.5% 10.5% 10.1%
At December 31, 1998
Bank 15.3% 14.5% 16.7%
Company 15.3% 14.5% 16.7%
</TABLE>
Management anticipates its capital ratios will continue to decline in 1999 as
additional loan growth occurs; however, management intends to maintain capital
levels well in excess of minimums established by the regulatory authorities. The
Bank has committed to the FDIC that the ratio of Tier I capital to total assets
will not be less than 8% for the first three years of operations commencing
September 8, 1997.
14
<PAGE> 15
The application for a bank charter and for federal deposit insurance stated that
the Bank would retain its earnings during the first three years of operation. As
such, no dividends will be paid by the Company to the shareholders during that
period. The Company expects that all earnings 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, accommodate possible deposit withdrawals, and take
advantage of interest rate market opportunities in a cost effective manner.
Although primary sources of funds are deposits and repayment of loan principal,
the Company maintains a significant level of liquid assets to provide for
potential funding needs. In addition to federal funds sold and cash balances as
of September 30, 1999, the Company held $4,285,000 of marketable securities.
Should an immediate need for funds arise, these assets may be readily liquidated
with nominal risk of principal loss. Additionally, the Company has access to
various alternative sources of funds including the purchase of federal funds
from correspondent banks, the sale of commercial loans, and the acquisition of
brokered deposits. Further, the Bank has a $3,000,000 revolving line of credit
with one of its correspondent banks. There was no outstanding balance on the
note as of September 30, 1999. Management believes that current liquidity levels
are sufficient to meet anticipated loan demand, as well as absorb deposit
withdrawals.
Asset/Liability Management
The primary function of asset/liability management is to identify, measure and
control the extent to which changes in interest rates, commodity prices or
equity prices adversely affect a financial institution's earnings or economic
capital. The Company's strategy is to optimize and stabilize net income across a
wide range of interest rate cycles while maintaining adequate liquidity and
conforming to all applicable capital and other regulatory requirements.
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.
In the normal course of business, the Company engages in off-balance sheet
activity to hedge interest rate risk. As of September 30, 1999, the Company had
one interest rate swap agreement outstanding with a notional value totaling
$3,027,000, structured as a hedge of specific fixed-rate deposits whose terms
coincide with the terms of the swap agreement. The swap agreements are
structured so that the Company receives a fixed interest rate and pays a
variable rate which is based on the federal funds rate. These instruments allow
management to more closely balance the repricing opportunities of the Company's
assets and liabilities, and thereby, reduce potential rate risk exposure.
15
<PAGE> 16
The Company does not expect to experience any significant fluctuations in its
net interest income as a consequence of changes in interest rates.
Unlike most industries, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance and results of operations than
the effect of general levels of inflation. Interest rates do not necessarily
move in the same direction or magnitude as the prices of goods and services as
measured by the Consumer Price Index. As discussed previously, the Company's
interest rate gap position in conjunction with the direction of the movement in
interest rates is an important factor in the Company's operating results.
Year 2000
The Year 2000 has posed a unique set of challenges to those industries reliant
on information technology. As a result of methods employed by early programmers,
many software applications and operation programs may be unable to distinguish
the Year 2000 from the Year 1900. If not effectively addressed, this problem
could result in the production of inaccurate data, or, in the worst cases, the
inability of the systems to continue to function altogether. Financial
institutions are particularly vulnerable due to the industry's dependence on
electronic data processing systems.
In 1997, the Company moved into a newly constructed building. The move helped to
make the Year 2000 problem manageable because most of the Company's systems were
new purchases and the Year 2000 problem was factored into the Company's
decisions. The move also started the process of identifying the hardware and
software issues required assuring Year 2000 compliance. The Company began by
assessing the issues related to the Year 2000 and the potential for those issues
to adversely affect the Company's operations.
The Company has established a Year 2000 management committee to deal with this
issue. It is the mission of this committee to identify areas subject to
complication related to the Year 2000 and to initiate remedial measures designed
to eliminate any adverse effects on the Company's operations. The committee has
identified and tested all mission-critical software and hardware that may be
adversely affected by the Year 2000 and has required vendors to represent that
the systems and products provided are or will be Year 2000 compliant.
The Company licenses all software used in conducting its business from third
party vendors. None of the Company's software has been internally developed. The
Company has developed a comprehensive list of all software, all hardware and all
service providers used by the Company. Every vendor and commercial customer has
been contacted regarding the Year 2000 issue. The vendor of the primary software
in use at the Company has released its Year 2000 compliant software. Testing at
the Company, using test scripts developed by the vendor was completed in the
fall of 1998. The vendor has conducted proxy testing and has had an independent
company rate the proxy testing. The Company's Year 2000 committee has analyzed
the published results by the independent company and is satisfied that this
vendor has proved itself Year 2000 compliant. The vendor has been conducting
seminars and has issued its final management report. The primary software vendor
will continue to work with the Company throughout the
16
<PAGE> 17
year end and into the Year 2000. In addition, the Company continues to monitor
all other major vendors of services to the Company for Year 2000 issues in order
to avoid shortages of supplies and services in the coming months.
There are three third party utilities with which the Company has an important
relationship; Ameritech, U S Xchange (phone services) and Wisconsin Electric
Company (gas and electric service). As of September 30, 1999, Ameritech's
corporate information services organization had completed its Year 2000
remediation, certification and deployment activity on 100% of Ameritech's
information systems and applications. U S Xchange has issued a Year 2000
Readiness Disclosure statement dated April 8, 1999 stating that they will be
"Y2K Compliant" well before the Year 2000. Wisconsin Electric has stated that
they are on schedule to have critical gas, electric and steam systems ready. The
Company has not identified any practical, long-term alternatives for these basic
utility services. In the event that the utilities significantly curtail or
interrupt their services to the Company, it would have a significant adverse
effect on the Company's ability to conduct its business.
The Company has also tested all heating and air conditioning units, vault doors,
alarm systems, networks, etc. and is not aware of any significant problems with
such systems.
The Company's cumulative costs of the Year 2000 project through the quarter
ended September 30, 1999 totaled $13,000. At the present time, no situations
that will require material cost expenditures to become fully compliant have been
identified. However, the Year 2000 is pervasive and complex and can potentially
affect any computer process. Accordingly, no assurance can be given that Year
2000 compliance can be achieved without additional unanticipated expenditures
and uncertainties that might affect future financial results. The estimated
total cost of the Year 2000 project is currently $20,000. This includes costs to
upgrade software, test hardware, including the local area network, and replace
equipment specifically for the purpose of Year 2000 compliance and certain
administrative expenditures.
It is not possible at this time to quantify the estimated future costs due to
possible business disruption caused by vendors, suppliers, customers or even the
possible loss of electric power or phone service; however, such costs could be
substantial.
The Company is committed to a plan for achieving compliance, focusing not only
on its own data processing systems, but also on its loan customers. The
management committee has proposed policy and procedure changes to help identify
potential risks to the Company and to gain an understanding of how customers are
managing the risks associated with the Year 2000. The Company is assessing the
impact, if any, the Year 2000 will have on its credit risk and loan
underwriting. In connection with potential credit risk related to the Year 2000
issue, the Company has contacted its commercial loan customers regarding their
level of preparedness for the Year 2000.
The Company has developed contingency plans for various Year 2000 problems and
continues to revise those plans based on testing results and vendor
notifications.
17
<PAGE> 18
RECENT REGULATORY DEVELOPMENTS
Pending Legislation
On November 2, 1999, the Conference Committee on financial services reform
approved legislation 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. Under the Gramm-Leach-Bliley Act (the
"Act"), a bank holding company that elects to become a financial holding company
may engage in any activity that the Board of Governors of the Federal Reserve
System (the "Federal Reserve"), in consultation with the Secretary of the
Treasury, determines by regulation or order is (i) financial in nature, (ii)
incidental to any such financial activity, or (iii) complementary to any such
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The Act
specifies certain activities that are deemed to be financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance; providing
financial, investment, or economic advisory services; underwriting, dealing in
or making a market in, securities; and any activity currently permitted for bank
holding companies by the Federal Reserve under section 4(c)(8) of the Bank
Holding Company Act. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are well-capitalized, well-managed and have at least a
satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the Act to engage, through "financial
subsidiaries", in any activity that is permissible for a financial holding
company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve, determines is financial in
nature or incidental to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate investment activities
(unless otherwise permitted by law), (iii) insurance company portfolio
investments and (iv) merchant banking. The authority of a national bank to
invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well-managed
and well-capitalized (after deducting from capital the bank's outstanding
investments in financial subsidiaries). The Act provides that state banks may
invest in financial subsidiaries (assuming they have the requisite investment
authority under applicable state law) subject to the same conditions that apply
to national bank investments in financial subsidiaries.
The Act must be approved by the House of Representatives and the Senate, and
signed by the President, before it will take effect. At this time, the Company
is unable to predict the impact the Act may have on the Company and its
subsidiaries.
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
18
<PAGE> 19
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 the
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 and policies. These risks and uncertainties should be
considered in evaluating forward-looking statement and undue reliance should not
be placed on such statements.
19
<PAGE> 20
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED FOR YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 1,198,205 $ 900,146
Federal funds sold 1,846,553 6,131,460
Investment securities 9,750,952 6,245,720
Loans:
Commercial 6,136,323 8,793,611
Commercial Real Estate 38,987,114 13,519,798
Residential Real Estate 10,448,185 5,787,793
Installment and consumer 257,719 121,804
------------------ ------------------
Total loans 55,829,341 28,223,006
Less allowance for loan losses (532,075) (233,614)
------------------ ------------------
Net loans 55,297,266 27,989,392
Fixed assets 116,877 124,374
Other assets 690,753 722,592
------------------ ------------------
Total assets $ 68,900,606 $ 42,113,684
================== ==================
Demand deposits $ 3,272,947 $ 2,157,659
Interest bearing deposits
NOW 1,269,663 781,378
Money market 40,979,690 22,515,705
Time deposits 15,394,489 9,220,705
------------------ ------------------
Total deposits 60,916,789 34,675,447
Other liabilities 755,180 525,487
------------------ ------------------
Total liabilities 61,671,969 35,200,934
Equity capital 7,228,637 6,912,750
------------------ ------------------
Total liabilities and capital $ 68,900,606 $ 42,113,684
================== ==================
</TABLE>
20
<PAGE> 21
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Company or its subsidiary is a party.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1999.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
INVESTORSBANCORP, INC.
(Registrant)
Date: November 1, 1999 /s/ George R. Schonath
----------------------
George R. Schonath
Chief Executive Officer
Date: November 1, 1999 /s/ Susan J. Hauke
------------------
Susan J. Hauke
Vice President Finance and
Chief Accounting Officer
22
<PAGE> 1
EXHIBIT 11
INVESTORSBANCORP, INC. AND SUBSIDIARY
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(UNAUDITED)
A reconciliation of the income and shares used in computing the basic and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED
---------------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 138,469 $ 73,411 $ 260,203 $ 110,291
=============== =============== =============== ===============
Determination of shares:
Weighted average common shares
outstanding (basic) 1,000,000 1,000,000 1,000,000 1,000,000
Assumed conversion of stock options - 24,204 - 23,686
--------------- --------------- --------------- ---------------
Weighted average common shares
outstanding (diluted) 1,000,000 1,024,204 1,000,000 1,023,686
=============== =============== =============== ===============
Basic earnings per common share $ 0.14 $ 0.07 $ 0.26 $ 0.11
=============== =============== =============== ===============
Diluted earnings per common share $ 0.14 $ 0.07 $ 0.26 $ 0.11
=============== =============== =============== ===============
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,331,146
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 175,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,285,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 71,552,857
<ALLOWANCE> 709,449
<TOTAL-ASSETS> 77,572,736
<DEPOSITS> 69,458,135
<SHORT-TERM> 0
<LIABILITIES-OTHER> 670,157
<LONG-TERM> 0
0
0
<COMMON> 10,000
<OTHER-SE> 7,434,444
<TOTAL-LIABILITIES-AND-EQUITY> 77,572,736
<INTEREST-LOAN> 3,395,083
<INTEREST-INVEST> 435,356
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,830,439
<INTEREST-DEPOSIT> 2,156,272
<INTEREST-EXPENSE> 2,156,272
<INTEREST-INCOME-NET> 1,674,167
<LOAN-LOSSES> 313,645
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,962,260
<INCOME-PRETAX> 597,558
<INCOME-PRE-EXTRAORDINARY> 371,916
<EXTRAORDINARY> 0
<CHANGES> 111,713
<NET-INCOME> 260,203
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 3.31
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 395,804
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 709,449
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 709,449
</TABLE>
