<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee required)
For the year ended December 31, 1999;
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(No fee required) For the Transition Period from to
---------- -----------
Commission File Number: 000-29400
INVESTORSBANCORP, INC.
(Name of Small Business Issuer in Its Charter)
WISCONSIN 39-1854234
--------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
W239 N1700 BUSSE ROAD
WAUKESHA, WISCONSIN 53188-1160
------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (262)523-1000
-------------
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 year were $7.0 million.
The aggregate market value of the voting stock held by non-affiliates of the
issuer as of March 15, 2000 was approximately $4.6 million. As of said date, the
issuer had 1,050,000 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 2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
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's current mailing address is W239 N1700 Busse Road, Waukesha,
Wisconsin, 53188-1160. The Company's telephone number is (262) 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's checks,
money orders and traveler's checks.
The Bank's present lending limit is approximately $1.5
million. 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.
Under the Gramm-Leach-Bliley Act of 1999, effective March 11,
2000, securities firms and insurance companies that elect to become financial
holding companies may acquire banks and other financial institutions. The
Gramm-Leach-Bliley Act may significantly change the competitive environment in
which the Company and the Bank conduct business. The financial services industry
is also likely to become more competitive as further technological advances
enable more companies to provide financial services. These technological
advances may diminish the importance of depository institutions and other
financial intermediaries in the transfer of funds between parties.
1
<PAGE> 3
EMPLOYEES
As of March 1, 2000, the Company had 23 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.
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 the Division of Banking
of the Wisconsin Department of Financial Institutions (the "Banking Division"),
the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
the Federal Deposit Insurance Corporation (the "FDIC"), the Internal Revenue
Service and state taxing authorities and the Securities and Exchange Commission
(the "SEC"). The effect of applicable statutes, regulations and regulatory
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 is a summary of the material elements of the
regulatory framework that applies to the Company and its subsidiaries. It does
not describe all of the statutes, regulations and regulatory policies that apply
to the Company and its subsidiaries, nor does it restate all of the requirements
of the statutes, regulations and regulatory policies that are described. As
such, the following is qualified in its entirety by reference to the applicable
statutes, regulations and regulatory policies. Any change in applicable law,
regulations or regulatory policies may have a material effect on the business of
the Company and its subsidiaries.
RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, President Clinton signed legislation
that will 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 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
2
<PAGE> 4
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.
At this time, it is not possible to predict the impact the Act
may have on the Company. Various bank regulatory agencies have just begun
issuing regulations as mandated by the Act. The Federal Reserve has issued an
interim rule that sets forth procedures by which bank holding companies may
become financial holding companies, the criteria necessary for such a
conversion, and the Federal Reserve's enforcement powers should a holding
company fail to maintain compliance with the criteria. The Office of the
Comptroller of the Currency has issued a final rule discussing the procedures by
which national banks may establish financial subsidiaries as well as the
qualifications and safeguards that will be required. In addition, in February
2000, all federal bank regulatory agencies jointly issued a proposed rule that
would implement the financial privacy provisions of the Act.
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 under the Bank
Holding Company Act, as amended (the "BHCA"). In accordance with Federal Reserve
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 otherwise do so. Under the BHCA, the Company is subject to
periodic examination by the Federal Reserve. The Company is also required to
file with the Federal Reserve periodic reports of the Company's operations and
such additional information regarding the Company and its subsidiaries as the
Federal Reserve may require. The Company is also subject to supervision and
regulation by the Banking Division under Wisconsin law.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding
company must obtain Federal Reserve approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after the acquisition, it would own or control more than 5%
of the shares of the other bank or bank holding company (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 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 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) and state laws 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 generally prohibits 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. This general prohibition is subject to a number of
exceptions. The principal exception allows bank holding companies to engage in,
and to own shares of companies engaged in, certain businesses found by the
Federal Reserve to be "so closely related to banking ... as to be a proper
incident thereto." Under current regulations of the Federal Reserve, the Company
and its non-bank subsidiaries are permitted to engage in a variety of
banking-related businesses, including 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.
3
<PAGE> 5
Federal law also prohibits any person or company from
acquiring "control" of a bank or bank holding company without prior notice to
the appropriate federal bank regulator. "Control" is defined in certain cases as
the 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 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'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 a minimum requirement of
4% for all others. For purposes of these capital standards, Tier 1 capital
consists primarily of permanent stockholders' equity less intangible assets
(other than certain mortgage servicing rights and purchased credit card
relationships). Total capital consists primarily of 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. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the Federal Reserve'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.
Under the Federal Reserve'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,
1999, the Company had regulatory capital, calculated on a consolidated basis, in
excess of the Federal Reserve's minimum requirements, with a risk-based capital
ratio of 11.1% and a leverage ratio of 9.4%.
DIVIDENDS. 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. Additionally, the Federal Reserve has issued
a policy statement with regard to the payment of cash dividends by bank holding
companies. The policy statement provides 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. The Federal Reserve also 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.
FEDERAL SECURITIES REGULATION. The Company's common stock is
registered with the SEC under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (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 Bank Insurance Fund ("BIF") of the FDIC. As
a BIF-insured, Wisconsin-chartered bank, the Bank is subject to the
4
<PAGE> 6
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, 1999, BIF assessments
ranged from 0% of deposits to 0.27% of deposits. For the semi-annual assessment
period beginning January 1, 2000, 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 (i) has engaged or is engaging in unsafe or unsound practices, (ii)
is in an unsafe or unsound condition to continue operations or (iii) 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 members of the FDIC's Savings Association
Insurance Fund ("SAIF") has been used to cover interest payments due on the
outstanding obligations of the Financing Corporation ("FICO"). FICO was created
in 1987 to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the SAIF's predecessor insurance fund. As a result of
federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF
members and BIF members became subject to assessments to cover the interest
payments on outstanding FICO obligations. These FICO assessments are in addition
to amounts assessed by the FDIC for deposit insurance. Between January 1, 2000
and the final 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, 1999, the FICO assessment rate
for SAIF members ranged between approximately 0.058% of deposits and
approximately 0.061% of deposits, while the FICO assessment rate for BIF members
ranged between approximately 0.0116% of deposits and approximately 0.0122% of
deposits. During the year ended December 31, 1999, the Bank paid FICO
assessments totaling $6,517.88.
SUPERVISORY ASSESSMENTS. All Wisconsin banks are required to
pay supervisory assessments 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. During the year ended December 31, 1999, the Bank
paid supervisory assessments to the Banking Division totaling $1,642.76.
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 a minimum requirement
of at least 4% 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's
capital guidelines for bank holding companies (see "--The Company--Capital
Requirements").
The capital requirements described above are minimum
requirements. 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.
5
<PAGE> 7
As a condition to the regulatory approvals incident to the
Bank's formation, the Bank is required to maintain a minimum Tier 1 capital to
total assets ratio of 8% during the institution's first three years of
operation.
During the year ended December 31, 1999, the Bank was not
required by the FDIC to increase its capital to an amount in excess of the
minimum regulatory requirement. As of December 31, 1999, the Bank exceeded its
minimum regulatory capital requirements with a leverage ratio of 9.4% and a
risk-based capital ratio of 11.1%.
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," in each case as defined by regulation. Depending
upon the capital category to which an institution is assigned, the regulators'
corrective powers include: requiring the institution to submit a capital
restoration plan; limiting the institution's asset growth and restricting its
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
between the institution and its 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. As of December 31, 1999, the Bank was
well capitalized, as defined by FDIC regulations.
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 guidelines as of December 31, 1999. As of December 31, 1999,
approximately $340,000 was 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. In
addition, the 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 cash dividends will be paid to
shareholders during that period.
INSIDER TRANSACTIONS. The Bank is subject to certain
restrictions imposed by federal law 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 stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. 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
stockholder 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. Since the fourth quarter of 1998, and through the first quarter of
2000, the federal banking regulators have issued safety and soundness standards
for achieving Year 2000 compliance, including standards for developing and
managing Year 2000 project plans, testing remediation efforts and planning for
contingencies.
6
<PAGE> 8
In general, the safety and soundness 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. If an institution fails to submit
an acceptable compliance plan, or fails in any material respect to implement a
compliance plan that has been accepted by its primary federal regulator, the
regulator is required to issue an order directing the institution to cure the
deficiency. Until the deficiency cited in the regulator's order is cured, the
regulator may restrict the institution's rate of growth, require the institution
to increase its capital, restrict the rates the institution pays on deposits or
require the institution to take any action the regulator deems appropriate under
the circumstances. Noncompliance with the standards established by the safety
and soundness guidelines may also constitute grounds for other enforcement
action by the federal banking regulators, including cease and desist orders and
civil money penalty assessments.
BRANCHING AUTHORITY. Under Wisconsin law, Wisconsin banks may,
subject to regulatory approval, establish branch offices anywhere in the State
of Wisconsin.
Under the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), both state and national banks
are allowed 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 new
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 allowed 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. 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 regulations, as
presently in effect, require depository institutions to maintain non-interest
earning reserves against their transaction accounts (primarily NOW and regular
checking accounts), as follows: for transaction accounts aggregating $44.3
million or less, the reserve requirement is 3% of total transaction accounts;
and for transaction accounts aggregating in excess of $44.3 million, the reserve
requirement is $1.329 million plus 10% of the aggregate amount of total
transaction accounts in excess of $44.3 million. The first $5.0 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve.
The Bank is in compliance with the foregoing requirements.
ITEM 2. PROPERTIES
The Company leases 4,700 square feet for the Bank's main
office at W239 N1700 Busse Road, Pewaukee, Wisconsin, which also serves as the
Company's corporate headquarters. 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.
The Company leases the premises from BMCC which has its main
office in the same building. The building is a single story, brick building
constructed in 1996 with approximately 16,000 square feet of office space. The
Company's lease with BMCC dated March 1, 2000 is a triple net lease and has a
term of 10 years. Under the terms of the lease, the Company's rent is based on
the percentage of square footage it occupies. The
7
<PAGE> 9
Company's monthly rent is currently $4,400 subject to increases based on changes
in the one-month London Interbank Offered Rate (LIBOR). The Company is also
obligated to pay its pro rata share of utility and maintenance expenses.
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 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock was held by approximately 950
holders of record as of March 14, 2000, and is quoted on the OTC Bulletin Board
under the symbol "INVB". The following table shows for the periods indicated,
the high and low closing 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 period indicated of which the Company
has no knowledge. The following prices represent inter-dealer prices without
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Closing Price Per Share
Quarter ending: High Low
<S> <C> <C>
March 31, 1999 $ 11.00 $ 7.94
June 30, 1999 $ 9.25 $ 7.38
September 30, 1999 $ 8.25 $ 7.25
December 31, 1999 $ 7.75 $ 6.88
March 31, 1998 $ 10.75 $ 8.50
June 30, 1998 $ 10.75 $ 9.25
September 30, 1998 $ 11.25 $ 8.75
December 31, 1998 $ 10.88 $ 8.25
</TABLE>
A 5% stock dividend was paid on January 15, 2000 to
shareholders of record as of December 31, 1999. Additional stock dividends may
be declared in the future as the bank achieves continuing increases in earnings.
No cash dividends were declared or paid during the year ended
December 31, 1999. 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
8
<PAGE> 10
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 deem 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 affected the Company's
financial performance in 1999 with comparisons to 1998 and to 1997 where
applicable. As of December 31, 1999, the Bank was the only subsidiary of the
Company and its operations contributed all of the revenue and expense for the
year.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998.
During the year ended December 31, 1999, the Company reported
net income of $483,000 or $0.48 per share (diluted) as compared to the year
ended December 31, 1998 when reported net income was $297,000 or $0.29 per share
(diluted), a 63% increase. The increased profitability was attributable
primarily to a significant increase in earning assets as loans increased from
$39.2 million as of December 31, 1998 to $76.3 million at year end 1999. The
growth of the Company is illustrated on Schedule 1 which presents average
balance sheets for 1999 as compared to 1998.
The Company's return on average assets and average equity as
well as other key financial ratios for the years ended December 31, 1999 and
December 31, 1998 are detailed below.
<TABLE>
<CAPTION>
Ratios 1999 1998
- ------ ------ ------
<S> <C> <C>
Return on Average Assets 0.67% 0.71%
Return on Average Equity 6.60% 4.30%
Dividend Payout Ratio on Common Stock (1) 69.93% None
Average Equity to Average Assets 10.14% 16.41%
(1) Stock Dividend Paid in 1999
</TABLE>
NET INTEREST INCOME
Net interest income is the difference between interest income,
including fees on loans, and interest expense. It is the largest contributing
factor to net income for the Company. Total interest income in 1999 increased
67% to $5.5 million from $3.3 million in 1998. Significantly higher loan volumes
resulted in an increase in interest and fee income on loans which totaled $5.0
million in 1999 compared to $2.6 million in 1998. The majority of interest
income on loans is derived from the commercial and commercial real estate loan
portfolios which comprised 74% of total loans at December 31, 1999 and 73% of
total loans at December 31, 1998. The other
9
<PAGE> 11
components of interest income are interest earned on investment securities which
totaled $444,000 in 1999 and $348,000 in 1998; and interest earned on federal
funds sold which totaled $83,000 in 1999 and $323,000 in 1998. 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 projected growth of the loan portfolio.
Interest expense increased to $3.1 million in 1999 as compared
to $1.8 million for 1998. Interest expense consists predominantly of interest
paid on money market accounts and certificates of deposit. As indicated on
Schedule 1, average deposits in 1999 were $64.0 million compared to $34.7
million in 1998. It is anticipated that interest expense will continue to rise
as management expects that time deposit instruments will be the primary funding
source utilized by the Company to fund additional growth.
As presented on Schedule 2, the Company's interest spread
improved from 2.60% in 1998 to 2.71% in 1999. Due to lower prevailing average
interest rates, both the yield on earning assets and the rate paid on total
interest bearing liabilities declined in 1999. However, the yield on average
earnings assets declined only 19 basis points, while the average rate paid on
interest bearing liabilities declined 30 basis points. This disparity was
largely due to an increase in total loans, which have significantly higher rates
of return, relative to investments and federal funds sold. Conversely, the ratio
of the interest margin to total earning assets declined over these same periods
as a result of the increase in the percentage of interest bearing liabilities to
total earning assets. Schedule 2 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.
PROVISION FOR LOAN LOSSES
The allowance for loan losses increased from $396,000 as of
December 31, 1998 to $771,000 as of December 31, 1999. The allowance for loan
losses is established through a provision for loan losses charged to expense.
Due to substantial loan growth, loan loss provisions of $375,000 and $300,000
were expensed in 1999 and 1998, respectively. The allowance for loan losses at
the end of 1999 and 1998 was 1.0% 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
evaluations 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 repay. 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.
As presented on Schedule 8, there were no loan charge-offs or
recoveries or any impaired loans for 1999 and 1998. Management, to the best of
its knowledge, is not aware of any significant loans, group of loans or segments
of the portfolio where there are serious doubts as to the ability of the
borrower to comply with the present loan repayment terms. While a comprehensive
analysis of the allowance for loan losses is somewhat problematic due to the
Company's relatively short history, management believes that the allowance at
year end was at an adequate level based on the composition of the portfolio as
well as regulatory guidelines.
10
<PAGE> 12
The following table summarizes the Company's nonperforming
loans as of December 31, 1999, and December 31, 1998.
<TABLE>
<CAPTION>
NONPERFORMING LOANS 1999 1998
- ------------------- ---- ----
<S> <C> <C>
Nonaccrual Loans None None
Past Due 90 Days or More (1) None None
Restructured Loans None None
</TABLE>
(1) Loans are generally placed on nonaccrual when contractually past due 90 days
or more.
NON-INTEREST INCOME AND EXPENSE
Non-interest income in 1999 totaled $1.5 million compared to
$1.4 million in 1998, a 7% increase. Management service fees were the largest
component of non-interest income totaling $872,000 in 1999 and $776,000 in 1998.
The Company charges Bando McGlocklin Capital Corporation (BMCC), an affiliate 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. Service release fees which are received from the sale of
residential mortgages originated for the secondary market totaled $566,000 and
$577,000 in 1999 and 1998, respectively. Service charges related to deposit
accounts and other income totaled $74,000 in 1999 and $34,000 in 1998.
Non-interest expense totaled $2.6 million in 1999, which was
an increase of $420,000 or 19% as compared to $2.2 million in 1998. This
increase was due to salary and employee benefit expense increasing $433,000 due
to additional employees and regular compensation increases. The number of full
time equivalent employees increased from 13 at the beginning of 1998 to 23 as of
December 31, 1999. Salaries and employee benefits totaled $2.0 million and $1.5
million in 1999 and 1998, respectively. These amounts included salaries that
were reimbursed through the management service fee noted above. Other operating
expenses, which include occupancy and fixed assets expense, data processing
fees, advertising, investor communications and professional fees were $641,000
compared to $653,000, a 2% decrease.
Extraordinary expenses totaled $112,000 net of a $72,000
estimated tax benefit, and were attributable to the adoption of Statement of
Position 98-5 which required the Company to expense remaining capitalized
organizational and start-up costs in 1999.
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 relate
primarily to tax exempt interest income, allowance for loan losses, and
depreciation.
In 1999, the Company recorded federal and state income tax
expense of $362,000 compared to $82,000 in 1998. The Company also has a net
deferred tax asset of $294,000. 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 1999 was 37.8%.
11
<PAGE> 13
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
PERIOD ENDED DECEMBER 31, 1997.
During the first full fiscal year ended December 31, 1998, the
Company reported net income of $297,000 or $0.29 per share (diluted), as
compared to a net loss of $103,000 or ($0.10) per share (diluted) for the period
from September 3, 1997 through December 31, 1997. This enhanced profitability is
attributable to a significant increase in earning assets and the absence of
certain non-recurring expenses incurred during the Company's initial development
stage.
The Company's return on average assets and average equity, as
well as other key financial ratios for 1998 and the period ended December 31,
1997 are detailed below. Due to the relatively short period of operation in
September, averages for 1997 are calculated based on the fourth quarter only.
<TABLE>
<CAPTION>
RATIOS 1998 1997
- ------ ---- ----
<S> <C> <C>
Return on Average Assets 0.71% -0.87%
Return on Average Equity 4.30% -1.49%
Dividend Payout Ratio on Common Stock None None
Average Equity to Average Assets 16.41% 58.68%
</TABLE>
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 interest income increased from
$245,000 for the partial year ended December 31, 1997 to $3.3 million in 1998.
Significantly higher loan volumes resulted in a substantial increase in interest
and fee income on loans which totaled $2.6 million in 1998. The majority of
interest income on loans was derived from the commercial and commercial real
estate loan portfolios which, in aggregate, comprised 73% of total loans.
Interest earned on investment securities and federal funds sold totaling
$348,000 and $323,000, respectively, were the other components of interest
income.
Interest expense similarly increased from $49,000 for the
period ended December 31, 1997 to $1.8 million in 1998. Interest expense
consisted predominantly of interest paid on money market accounts totaling $1.2
million and certificates of deposit totaling $532,000 as of year end 1998.
The Company's interest spread in percentage terms improved for
the year ended December 31, 1998 as compared to the first quarter of operations
ended December 31, 1997. This was due to an increase in the relative mix of
loans versus investments and federal funds, despite a decline in the loan yield.
Conversely, the ratio of the interest margin to total earning assets declined
over this same period as a result of the anticipated increase in the percentage
of interest bearing liabilities to total earning assets.
PROVISION FOR LOAN LOSSES
The allowance for loan losses increased from $96,000 as of
December 31, 1997 to $396,000 as of December 31, 1998. The allowance for loan
losses is established through a provision for loan losses charged to expense.
Due to substantial loan growth, loan loss provisions of $300,000 were expensed
in 1998 and the allowance for loan losses at December 31, 1998 was 1.00% of
total loans, net of residential mortgage loans held for sale on the secondary
market.
There were no loan charge-offs or recoveries, or any impaired
loans for the periods ended December 31, 1998 and December 31, 1997. Management,
to the best of its knowledge, is not aware of any significant loans, group of
loans, or segments of the portfolio, where there are serious doubts as to the
ability of the borrower to comply with the present loan repayment terms. While a
comprehensive analysis of the allowance for
12
<PAGE> 14
loan losses is somewhat problematic due to the Company's relatively short
history, management believed that the allowance was at an adequate level, based
on the composition of the portfolio as well as regulatory guidelines.
The following table summarizes the Company's nonperforming
loans as of December 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
NONPERFORMING LOANS 1999 1998
- ------------------- ---- ----
<S> <C> <C>
Nonaccrual Loans None None
Past Due 90 Days or More (1) None None
Restructured Loans None None
(1) Loans are generally placed on nonaccrual when contractually
past due 90 days or more.
</TABLE>
NON-INTEREST INCOME AND EXPENSE
Due primarily to the Company's sizable growth and relatively
short period of operation in 1997, non-interest income and non-interest expense
were significantly higher in 1998.
Non-interest income for 1998 totaled $1.4 million as compared
to $312,000 for the period ended December 31, 1997. Management service fees
totaling $776,000 were the largest component of non-interest income in 1998. The
Company charges BMCC, 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 December 31, 1998, BMCC had loans under
management totaling $128.0 million. Other sources of non-interest income
included $577,000 of service release fees received from the sale of residential
mortgages originated for the secondary market. In addition, service charges
related to deposit accounts totaled $19,000 in 1998.
Non-interest expense increased to $2.2 million in 1998, and
consisted primarily of salaries and employee benefits totaling $1.5 million and
other operating expenses including occupancy and fixed asset expense, data
processing fees, advertising, investor communications, and professional fees.
Non-interest expense also includes salaries that are reimbursed through the
management services fee noted above.
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 relate
primarily 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 1998, the Company recorded federal and state income tax
expense of $82,000 and had a deferred tax asset of $94,000. Management believes
it is more likely than not that the deferred tax asset will be fully realized.
The effective rate for income tax expense for 1998 was 21.6% which was primarily
due to the effect of the tax exempt interest income.
FINANCIAL CONDITION
The Company reported total assets of $86.5 million as of
December 31, 1999 versus $63.1 million as of December 31, 1998, a 37% increase.
Cash and due from banks and federal funds sold increased to $2.3 million as of
December 31, 1999 from $1.6 million at December 31, 1998.
13
<PAGE> 15
The Company's investment securities portfolio decreased 67% to
$6.3 million as of December 31, 1999 from $19.0 million at December 31, 1998.
The $12.7 million decrease in the investment portfolio was the result of funding
loan commitments during 1999. Investment securities consist of taxable variable
rate demand notes secured by irrevocable letters of credit issued by federally
insured, domestic financial institutions. Although the notes have a long term
maturity structure (refer to Schedule 4), 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. While management
believes that the investment portfolio is adequately diversified, a detailed
listing of all investments which exceed 10% of stockholders' equity is provided
on Schedule 5.
As detailed on Schedule 6, loans grew 95% from $39.6 million
as of December 31, 1998 to $77.1 million as of December 31, 1999. 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. Residential mortgage loans
originated for sale on the secondary market totaled an additional $566,000 as of
December 31, 1999, as compared to $2.2 million as of December 31, 1998.
Excluding the mortgage loans originated for sale, the allowance for loan losses
remained at approximately 1.00% of gross loans, totaling $771,000 at December
31, 1999, and $396,000 at year end 1998. In addition to loans outstanding, the
Company had gross unfunded loan commitments outstanding totaling $27.3 million
as of December 31, 1999, of which $8.9 million has been participated to BMCC and
other third party lenders. Despite the current rising interest rate trend, loan
demand continues to remain strong for commercial and industrial loans in the
Company's trade area. Although higher interest rates have resulted in fewer
residential mortgage originations recently, the Company continues to increase
its market share.
Other assets at December 31, 1999 totaled $1.1 million,
relatively unchanged from the 1998 year end total. Other assets as of December
31, 1999 included net furniture and equipment of $93,000, accrued interest
receivable on loans and investments of $485,000, excess servicing assets of
$126,000 relating to loans sold to a third party, deferred tax assets of
$294,000 and other miscellaneous assets of $96,000. Decreases in other assets
due to the adoption of Statement of Position 98-5 which required the Company to
expense remaining capitalized organizational and start-up costs of $184,000 in
the first quarter of 1999, as well as reductions in receivables from affiliates
of $135,000 and excess servicing assets of $63,000, were largely offset by
increases of $200,000 in deferred tax assets and $159,000 of accrued interest
receivable.
Total deposits increased 40% to $76.8 million at December 31,
1999 from $55.0 million as of year end 1998. Indexed money market accounts
continued to comprise the largest portion of the deposit base totaling $41.4
million and $35.8 million as of December 31, 1999 and December 31, 1998,
respectively. Time certificates of deposit increased 95% to $29.6 million
compared to $15.2 as of the prior year end. Time deposits include brokered CDs
with terms ranging from three months to three years and totaled $9.6 million
both as of December 31, 1999 and December 31, 1998. 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 December 31, 1999 included
non-interest bearing accounts totaling $4.3 million and interest bearing
checking accounts (NOW accounts) of $1.4 million.
In addition to deposits, the Company periodically borrows
funds via its correspondent banking relationships. As of year end 1999, federal
funds purchased totaled $925,000.
Other liabilities increased to $1.1 million as of December 31,
1999 from $913,000 at December 31, 1998. Other liabilities as of December 31,
1999, consisted primarily of accrued interest payable totaling $491,000 as well
as accrued expenses payable of $454,000, retained loan discount relating to
loans sold to a third party totaling $111,000, and other miscellaneous
liabilities of $73,000. The increase was largely the result of significantly
higher accrued income taxes payable.
14
<PAGE> 16
CAPITAL RESOURCES
Capital ratios applicable to the Company at December 31, 1999
and December 31, 1998 were 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 December 31, 1999 11.1% 10.0% 9.4%
At December 31, 1998 15.3% 14.5% 16.7%
</TABLE>
As anticipated by management, the preceding table indicates a
considerable decline in the Company's capital ratios due to the strong level of
asset growth experienced in 1999. Management expects its capital ratios will
continue to decline somewhat as additional loan growth occurs; however, capital
levels will be maintained well in excess of minimums established by the
regulatory authorities.
The Company exceeds all regulatory requirements regarding the
maintenance of capital and was categorized as "well capitalized" under the
regulatory framework for capital adequacy as of December 31, 1999. The Company
also 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 operation commencing on
September 8, 1997.
The applications for a bank charter and for federal deposit
insurance stated that the Company would retain its earnings during the first
three years of operation. As such, no cash 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.
To facilitate continued loan growth, the Company has received
approval from the Federal Reserve Bank of Chicago to issue up to $2.5 million of
subordinated debt which will qualify as Tier 2 capital. This will enable the
Company to continue to maintain strong loan growth levels while maintaining its
status as a "well capitalized" institution.
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 repayments
of loan principal, the Company also maintains a significant level of liquid
assets to provide for potential funding needs. In addition to cash balances as
of December 31, 1999, the Company held $6.3 million of marketable securities and
$566,000 of residential mortgage loans originated and intended for sale in the
secondary market. 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 off-balance
sheet sources of funds, including the purchase of federal funds from
correspondent banks, the sale of commercial loans, and the acquisition of
brokered deposits. Currently, the Company has correspondent banking
relationships with four institutions which collectively have approved federal
funds lines for the Bank totaling $7.5 million. The Company also has the ability
to sell loan participations to correspondents and affiliates. Further, the
Company has the ability to acquire funds via the
15
<PAGE> 17
brokered CD market. Management has periodically purchased certificates of
deposit through approved brokers as market conditions dictate to fill funding
gaps. Finally, the Bank has a $2.0 million revolving line of credit with one of
its correspondent banks. There was no outstanding balance on the note as of
December 31, 1999. Management believes that current liquidity levels are
sufficient to meet anticipated loan demand as well as absorb potential 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 impact 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 Bank engages in
off-balance sheet activity to hedge interest rate risk. On April 24, 1998, the
bank entered into an interest rate swap agreement with a notional value totaling
$3.0 million structured as a hedge of specific fixed-rate deposits whose terms
coincide with the terms of the swap agreement. The swap agreement is structured
so that the Company receives a fixed interest rate and pays a variable rate
which is based on the federal funds rate. The instrument allows management to
more closely balance the repricing opportunities of the Company's assets and
liabilities and thereby, reduces potential interest rate risk exposure.
The Company does not expect to experience any significant
fluctuations in its net interest income as a consequence of changes in interest
rates. The following table summarizes the relationship between repricing
opportunities of interest-bearing assets and liabilities across various time
horizons as of December 31, 1999. "GAP" is defined as the difference between
interest bearing assets and liabilities which mature or reprice within the
specified time period.
<TABLE>
<CAPTION>
0-90 91-180 181-360 +360
(000's Omitted) Days Days Days Days Total
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Investments $ 6,260 $ - $ - $ - $ 6,260
Loans $ 45,364 $ 2,870 $ 2,393 $ 27,017 $ 77,644
-------- -------- --------- -------- ---------
Total Repriceable Assets $ 51,624 $ 2,870 $ 2,393 $ 27,017 $ 83,904
NOW accounts $ 1,440 $ - $ - $ - $ 1,440
Money Market accounts $ 41,455 $ - $ - $ - $ 41,455
Time Deposits of less than $100M $ 3,000 $ 3,518 $ 3,346 $ 5,049 $ 14,913
Time Deposits of $100M or more $ 3,256 $ 7,111 $ 1,313 $ 3,026 $ 14,706
Interest Rate Swaps $ 3,027 $ (1,171) $ - $ (1,856) $ -
Federal Funds Purchased $ 925 $ - $ - $ - $ 925
-------- -------- --------- -------- ---------
Total Repriceable Liabilities $ 53,103 $ 9,458 $ 4,659 $ 6,219 $ 73,439
GAP $ (1,479) $ (6,588) $ (2,266) $ 20,798
Cumulative GAP $ (1,479) $ (8,067) $ (10,333) $ 10,465
Cumulative GAP/Total Assets -1.7% -9.3% -11.9% 12.1%
</TABLE>
Note: Time Deposits consist of certificates of deposit and are categorized
according to remaining time to maturity.
16
<PAGE> 18
IMPACT OF INFLATION AND CHANGING PRICES
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 IMPACT
The Year 2000 has posed a unique set of challenges to those
industries reliant on information technology. Financial institutions are
particularly dependent on electronic data processing systems. As a result of
potential problems associated with the date change, the Year 2000 issue was
factored into the Company's decisions when new computer systems were purchased
in conjunction with the Company's move into a newly constructed building in
1997. During this time, the Company identified hardware and software issues
required to assure Year 2000 compliance. The Company began by assessing the
issues related to the Year 2000 problem and the potential for those issues to
adversely affect the Company's business and operations.
The Company's cumulative costs of the Year 2000 project
through the end of 1999 were approximately $14,000. This included costs to
upgrade software, test hardware, replace equipment specifically for the purpose
of Year 2000 compliance, and certain administrative expenditures. Additional
costs related to Year 2000 will be limited to payment of invoices, if any,
received after the end of 1999.
As a result of the efforts of the Company's Year 2000
Committee, the Company and the Bank experienced an uneventful transition from
1999 to 2000. As of this date, the Company has not experienced any disruption of
services to customers nor with internal operations. In addition, the Company has
not experienced, nor has it been informed of any such problems related to any of
its material third-party vendors or commercial customers.
Among the benefits derived from the time, effort, and costs
related to Year 2000 was a complete review and update of the Company's disaster
recovery and contingency plans. As a result, the Company is now better prepared
to deal with technical or natural disasters which could threaten the Company's
operations.
Despite extensive testing and lack of disruption to date,
there can be no assurance that Year 2000 related disruptions will not occur in
the future and will not have a material adverse impact on the Bank's results of
operations. Based on currently available information, however, the Company and
the Bank believe that any Year 2000 related disruptions that may occur in the
future will not have a material adverse impact on their results of operations.
The Company has developed contingency plans to deal with potential Year 2000
related disruptions and will continue to monitor its exposure as appropriate and
will act to resolve any problems that may occur.
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 Securities Exchange Act of 1934. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation 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 "may", "will", "could", "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
effect 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, including the condition of the local real estate
market, legislative/regulatory changes, monetary and fiscal policies of the U.S.
17
<PAGE> 19
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, demand for the Company's consumer products, our
implementation of new technologies, our ability to develop and maintain secure
and reliable electronic systems, and accounting principles and policies. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
18
<PAGE> 20
SCHEDULE 1
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------ ------------------
<S> <C> <C>
Cash and Due From Banks $ 1,413,255 $ 900,146
Federal Funds Sold 1,786,216 6,131,460
Investment Securities (Taxable) 8,442,054 6,245,720
Loans:
Commercial 22,441,159 8,793,611
Commercial Real Estate 25,819,397 13,519,798
Residential Real Estate 11,821,567 5,787,793
Installment and Consumer 201,803 121,804
---------------- ---------------
Total Loans 60,283,926 28,223,006
Less: Allowance for Loan Losses (578,171) (233,614)
---------------- ---------------
Net Loans 59,705,755 27,989,392
Fixed Assets 112,345 124,374
Other Assets 704,389 722,592
---------------- ---------------
Total Assets $ 72,164,014 $ 42,113,684
================ ===============
Demand Deposits $ 3,943,584 $ 2,157,659
Interest Bearing Deposits
NOW 1,308,114 781,378
Money Market 41,094,253 22,515,705
Time Deposits 17,646,743 9,220,705
---------------- ---------------
Total Deposits 63,992,694 34,675,447
Federal Funds Purchased 165,636 -
Other Liabilities 690,363 525,487
---------------- ---------------
Total Liabilities 64,848,693 35,200,934
Equity Capital 7,315,321 6,912,750
---------------- ---------------
Total Liabilities and Capital $ 72,164,014 $ 42,113,684
================ ===============
</TABLE>
19
<PAGE> 21
SCHEDULE 2
SUMMARY OF INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998
--------------------------------- -------------------------------
Average Related Yield Average Related Yield
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold $ 1,786,216 $ 82,883 4.64% $ 6,131,460 $ 323,225 5.27%
Taxable Securities 8,442,054 443,664 5.26% 6,245,720 347,858 5.57%
Loans (a)(b) 60,283,926 5,004,902 8.30% 28,223,006 2,589,509 9.18%
----------- ----------- ----- ----------- ----------- -----
Total Earning Assets $70,512,196 $ 5,531,449 7.84% $40,600,186 $ 3,260,592 8.03%
Interest Bearing
Liabilities:
NOW Accounts $ 1,308,114 $ 57,744 4.41% $ 781,378 $ 37,408 4.79%
Money Market 41,094,253 2,047,560 4.98% 22,515,705 1,196,519 5.31%
Time Deposits 17,646,743 974,690 5.52% 9,220,705 531,741 5.77%
Federal Funds Purchased 165,636 9,507 5.74% -- --
----------- ----------- ----- ----------- ----------- -----
Total Interest Bearing $60,214,746 $ 3,089,501 5.13% $32,517,788 $ 1,765,668 5.43%
Liabilities
Interest Spread $ 2,441,948 2.71% $ 1,494,924 2.60%
Interest Margin $ 2,441,948 3.46% $ 1,494,924 3.68%
</TABLE>
(a) Loan interest income includes net loan fees.
(b) There were no loans on nonaccrual status during 1999 or 1998.
20
<PAGE> 22
SCHEDULE 3
CHANGE IN INTEREST INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
Net Amount Increase (Decrease) Due To:
of Change Volume Rate
------------ ----------- -----------
Increase (Decrease) for 1999:
<S> <C> <C> <C>
Federal Funds Sold $ (240,342) $ (229,063) $ (11,279)
Taxable Securities 95,806 122,326 (26,520)
Loans 2,415,393 2,941,644 (526,251)
----------- ----------- -----------
Total Interest Income $ 2,270,857 $ 2,834,907 $ (564,050)
NOW Accounts $ 20,336 $ 25,217 $ (4,881)
Money Market 851,041 987,293 (136,252)
Time Deposits 442,949 485,914 (42,965)
Federal Funds Purchased 9,507 9,507 --
----------- ----------- -----------
Total Interest Expense $ 1,323,833 $ 1,507,931 $ (184,098)
----------- ----------- -----------
Net Change for 1999 $ 947,024 $ 1,326,976 $ (379,952)
=========== =========== ===========
</TABLE>
Note: The application of the rate/volume variance has been allocated in full to
the rate variance.
Due to the relatively short period of operation in 1997, a schedule summarizing
the amount of change in interest income and interest expense for 1998 is not
considered by management to be particularly meaningful and is therefore omitted.
21
<PAGE> 23
SCHEDULE 4
MATURITY SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS
LESS THAN THROUGH THROUGH AFTER
ONE YEAR FIVE YEARS 10 YEARS 10 YEARS TOTAL
------------- ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Available for Sale Securities
Corporate Demand Notes $ - $ - $ - $ 6,260,000 $ 6,260,000
Weighted Average Yield 5.26% 5.26%
Total Securities $ - $ - $ - $ 6,260,000 $ 6,260,000
============== ============== ============== ============== ===============
Weighted Average
Total Yield - - - 5.26% 5.26%
============== ============== ============== ============== ===============
DECEMBER 31, 1998
Available for Sale Securities
Corporate Demand Notes $ - $ - $ - $ 14,980,000 $ 14,980,000
Weighted Average Yield 5.59% 5.59%
Held to Maturity Securities
Commercial Paper 3,980,493 - - - 3,980,493
Weighted Average Yield 5.47% 5.47%
-------------- -------------- -------------- -------------- ---------------
Total Securities $ 3,980,493 $ - $ - $ 14,980,000 $ 18,960,493
============== ============== ============== ============== ===============
Weighted Average
Total Yield 5.47% - - 5.59% 5.57%
============== ============== ============== ============== ===============
</TABLE>
22
<PAGE> 24
SCHEDULE 5
SCHEDULE OF INVESTMENTS EXCEEDING 10% OF CAPITAL
The outstanding book and market values of the following
taxable variable rate demand notes exceeded 10% of shareholders' equity as of
December 31, 1999 and at December 31, 1998. The domestic, federally insured
financial institution issuing the irrevocable letter of credit securing the note
is also detailed below.
<TABLE>
<CAPTION>
ISSUER FINANCIAL INSTITUTION BOOK VALUE MARKET VALUE
- ------ --------------------- ---------- ------------
<S> <C> <C> <C>
December 31, 1999
Cal-Chlor Corporation S&T Bank $ 1,245,000 $ 1,245,000
JPV Capital, LLC Michigan National Bank 1,000,000 1,000,000
Junction Point, LLC Johnson Bank 890,000 890,000
--------------- -----------------
$ 3,135,000 $ 3,135,000
=============== =================
<CAPTION>
DECEMBER 31, 1998
- -----------------
<S> <C> <C> <C>
Alpine Capital Investments, LLC First of America Bank, N.A. $ 855,000 $ 855,000
Cunat Capital Corporation LaSalle National Bank 1,350,000 1,350,000
JDV, LLC Michigan National Bank 1,000,000 1,000,000
JPH Capital, LLC Ann Arbor Commerce Bank 965,000 965,000
Junction Point, LLC Johnson Bank 805,000 805,000
Kalamazoo Funding Corp. Old Kent Bank 1,305,000 1,305,000
Missouri Hecon Dev Export & Infra IDR AmSouth 950,000 950,000
Northern Motel of Munising North Country Bank & Trust 1,350,000 1,350,000
U-Stor-It Joint Venture A AMCORE Bank, N.A. 1,025,000 1,025,000
--------------- -----------------
$ 9,605,000 $ 9,605,000
=============== =================
</TABLE>
23
<PAGE> 25
SCHEDULE 6
LOAN SUMMARY
The following table summarizes the distribution of the Company's
loan portfolio expressed in dollar amounts and as a percentage of the total
portfolio as of December 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
----------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Commercial $ 25,225,933 32.73% $ 11,933,874 30.15%
Real Estate:
Construction - 0.00% 1,940,338 4.90%
Commercial 32,142,524 41.70% 17,022,356 43.01%
Residential 16,844,196 21.85% 7,265,606 18.36%
Industrial Revenue Bonds
and Municipals 2,595,078 3.37% 959,778 2.42%
Installment and Consumer 269,589 0.35% 458,564 1.16%
------------ -------- ------------ ----------
Total Loans $ 77,077,320 100.00% $ 39,580,516 100.00%
============ ======== ============ ==========
</TABLE>
<PAGE> 26
SCHEDULE 7
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The following schedules summarize the maturities and sensitivity
to changes in interest rates of the Company's loan portfolio at December 31,
1999 and December 31, 1998.
LOAN MATURITIES
<TABLE>
<CAPTION>
ONE YEAR
LESS THAN THROUGH AFTER
ONE YEAR FIVE YEARS 5 YEARS TOTAL
------------ ------------- ------------ -------------
DECEMBER 31, 1999
- -----------------
<S> <C> <C> <C> <C>
Commercial $ 9,787,322 $ 11,274,409 $ 4,164,202 $ 25,225,933
Real Estate Construction - - - -
----------- ------------ ----------- ------------
Total $ 9,787,322 $ 11,274,409 $ 4,164,202 $ 25,225,933
=========== ============ =========== ============
December 31, 1998
Commercial $ 4,802,830 $ 3,403,949 $ 3,727,095 $ 11,933,874
Real Estate Construction 1,470,000 470,338 - 1,940,338
----------- ------------ ----------- ------------
Total $ 6,272,830 $ 3,874,287 $ 3,727,095 $ 13,874,212
=========== ============ =========== ============
</TABLE>
AMOUNTS WITH MATURITIES EXCEEDING 1 YEAR
<TABLE>
<CAPTION>
FLOATING OR
PREDETERMINED ADJUSTABLE
RATES RATE TOTAL
------------- -------------- --------------
DECEMBER 31, 1999
- -----------------
<S> <C> <C> <C>
Commercial $ 7,204,824 $ 8,233,787 $ 15,438,611
Real Estate Construction - - -
----------- ------------ ------------
Total $ 7,204,824 $ 8,233,787 $ 15,438,611
=========== ============ ============
DECEMBER 31, 1998
- -----------------
Commercial $ 1,997,815 $ 5,133,229 $ 7,131,044
Real Estate Construction 470,338 - 470,338
----------- ------------ ------------
Total $ 2,468,153 $ 5,133,229 $ 7,601,382
=========== ============ ============
</TABLE>
<PAGE> 27
SCHEDULE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Beginning Loan Loss Reserve $ 395,804 $ 96,060
CHARGE-OFFS:
Commercial 0 0
Real Estate:
Construction 0 0
Commercial 0 0
Residential 0 0
Installment & Consumer 0 0
RECOVERIES:
Commercial 0 0
Real Estate:
Construction 0 0
Commercial 0 0
Residential 0 0
Installment & Consumer 0 0
Net Charge-offs/Recoveries 0 0
Provision charged to operations 374,969 299,744
----------- ----------
Balance at end of period $ 770,773 $ 395,804
=========== ==========
</TABLE>
26
<PAGE> 28
SCHEDULE 9
SUMMARY OF AVERAGE DEPOSITS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
---------- ----------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
AVERAGE RATE AVERAGE RATE
BALANCE PAID BALANCE PAID
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
DEPOSITS IN DOMESTIC BANK OFFICES:
Non-Interest Bearing Demand $ 3,943,584 - $ 2,157,659 -
NOW Accounts 1,308,114 4.41% 781,378 4.79%
Money Market Accounts 41,094,253 4.98% 22,515,705 5.31%
Time Deposits 17,646,743 5.52% 9,220,705 5.77%
------------ ------- ------------ ------
Total Deposits $ 63,992,694 4.81% $ 34,675,447 5.09%
============ ======= ============ ======
</TABLE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
<TABLE>
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Consolidated Balance Sheet (December 31, 1999 and 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Consolidated Statement of Income
(For the years ended December 31, 1999 and 1998, and for the
period from September 3, 1997 through December 31, 1997) . . . . . . . . . . . . . . . . . . . . . . .30
Consolidated Statement of Changes in Shareholders' Equity (For the years ended
December 31, 1999 and 1998, and for the
period from September 3, 1997 through December 31, 1997). . . . . . . . . . . . . . . . . . . . . . . .32
Consolidated Statement of Cash Flows
(For the years ended December 31, 1999 and 1998, and for the
period from September 3, 1997 through December 31, 1997) . . . . . . . . . . . . . . . . . . . . . . .33
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
</TABLE>
27
<PAGE> 29
[VIRCHOW, KRAUSE & COMPANY, LLP LOGO]
[VIRCHOW, KRAUSE & COMPANY, LLP LETTERHEAD]
Independent Auditors' Report
Board of Directors
InvestorsBancorp, Inc.
Pewaukee, Wisconsin
We have audited the accompanying consolidated balance sheets of
InvestorsBancorp, Inc and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years ended December 31, 1999 and 1998 and 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InvestorsBancorp,
Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998 and
the period from September 3, 1997 through December 31, 1997, in conformity with
generally accepted accounting principles.
VIRCHOW, KRAUSE & COMPANY, LLP
/s/ Virchow, Krause & Company, LLP
Milwaukee, Wisconsin
February 2, 2000
28
<PAGE> 30
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,281,184 $ 1,049,145
Federal funds sold -- 540,000
Available for sale securities 6,260,000 14,980,000
Held to maturity securities -- 3,980,493
Loans, less allowance for loan losses of $770,773
and $395,804 in 1999 and 1998, respectively 76,306,547 39,184,712
Mortgage loans held for sale 566,100 2,232,657
Furniture and equipment, net 93,478 126,760
Other assets 1,001,192 1,007,615
----------- -----------
TOTAL ASSETS $86,508,501 $63,101,382
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
<S> <C> <C>
Demand $ 4,273,423 $ 2,616,842
Savings and NOW accounts 42,895,527 37,172,478
Time 29,619,256 15,215,270
----------- -----------
Total Deposits 76,788,206 55,004,590
Federal funds purchased 925,000 --
Accrued expenses and other liabilities 1,128,395 912,551
----------- -----------
Total Liabilities 78,841,601 55,917,141
----------- -----------
COMMITMENTS AND CONTINGENCIES
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, 1,050,000 shares issued and
outstanding 10,500 10,000
Surplus 7,316,900 6,979,900
Retained earnings 339,500 194,341
----------- -----------
Total Stockholders' Equity 7,666,900 7,184,241
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $86,508,501 $63,101,382
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
and the Period from September 3, 1997 through December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $5,004,902 $2,589,509 $ 136,796
Interest on investment securities - taxable 443,664 347,858 --
Interest on federal funds sold 82,883 323,225 108,496
---------- ---------- ----------
Total Interest Income 5,531,449 3,260,592 245,292
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 3,079,994 1,765,668 49,373
Interest on federal funds purchased 9,507 -- --
---------- ---------- ----------
Total Interest Expense 3,089,501 1,765,668 49,373
---------- ---------- ----------
Net Interest Income Before Provision
for Loan Losses 2,441,948 1,494,924 195,919
PROVISION FOR LOAN LOSSES 374,969 299,744 96,060
---------- ---------- ----------
Net interest Income After Provision
for Loan Losses 2,066,979 1,195,180 99,859
---------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts 38,353 19,131 911
Service release premiums 565,897 577,087 81,898
Management service fees 872,201 775,892 229,285
Other income 35,775 14,378 22
---------- ---------- ----------
Total Non-interest Income 1,512,226 1,386,488 312,116
---------- ---------- ----------
NON-INTEREST EXPENSES
Salaries and employee benefits 1,981,757 1,549,210 385,383
Occupancy expenses 70,628 88,237 27,613
Equipment expenses 104,258 83,146 21,808
Data processing fees 85,466 65,118 8,571
Other expenses 380,846 416,768 137,900
---------- ---------- ----------
Total Non-interest Expenses 2,622,955 2,202,479 581,275
---------- ---------- ----------
Income (Loss) Before Income Taxes (Benefits) 956,250 379,189 (169,300)
Less: Applicable Income Taxes (Benefits) 361,878 81,948 (66,400)
---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 594,372 297,241 (102,900)
Cumulative effect of expensing start-up costs
as incurred, net of tax benefit of $72,067 111,713 -- --
---------- ---------- ----------
NET INCOME (LOSS) $ 482,659 $ 297,241 $ (102,900)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Concluded)
Years Ended December 31, 1999 and 1998
and the Period from September 3, 1997 through December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
EARNINGS (LOSS) PER COMMON SHARE
PRIMARY
Income (loss) before cumulative effect of a change
in accounting principle 0.59 0.30 (0.10)
Cumulative effect on prior years of expensing
start-up costs as incurred (0.11) -- --
---------- ---------- ----------
NET INCOME (LOSS) $ 0.48 $ 0.30 $ (0.10)
========== ========== ==========
DILUTED
Income (loss) before cumulative effect of a change
in accounting principle 0.59 0.29 (0.10)
Cumulative effect on prior years of expensing
start-up costs as incurred (0.11) -- --
---------- ---------- ----------
NET INCOME (LOSS) $ 0.48 $ 0.29 $ (0.10)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,000,137 1,000,000 1,000,000
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 33
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998 and Period from
September 3, 1997 through December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Retained Total
Common Earnings Stockholders'
Stock Surplus (Deficit) Equity
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCES - September 3, 1997 $ - $ - $ - $ -
Proceeds from sale of shares of common stock,
net of stock offering costs 10,000 6,979,900 - 6,989,900
Net loss - 1997 - - (102,900) (102,900)
---------- ----------- ------------ --------------
BALANCES - December 31, 1997 10,000 6,979,900 (102,900) 6,887,000
Net income - 1998 - - 297,241 297,241
---------- ----------- ------------ --------------
BALANCES - December 31, 1998 10,000 6,979,900 194,341 7,184,241
Stock dividend (50,000 shares at $6.75 per share) 500 337,000 (337,500) -
Net income - 1999 - - 482,659 482,659
---------- ----------- ------------ --------------
BALANCES - December 31, 1999 $ 10,500 $ 7,316,900 $ 339,500 $ 7,666,900
========== =========== ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 34
INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
and Period from September 3, 1997 through December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------ --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 482,659 $ 297,241 $ (102,900)
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities
Depreciation 40,954 27,086 8,163
Provision for loan losses 374,969 299,744 96,060
Benefit for deferred taxes (200,276) (27,189) (66,400)
Net (increase) decrease in mortgage loans held for sale 1,666,557 (2,232,657) --
(Increase) decrease in other assets 206,699 (368,111) (545,915)
Increase in accrued expenses and other liabilities 215,844 621,420 291,131
------------ --------------- ---------------
Total Adjustments 2,304,747 (1,679,707) (216,961)
------------ --------------- ---------------
Net Cash Provided By (Used in) Operating Activities 2,787,406 (1,382,466) (319,861)
------------ --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 540,000 4,004,000 (4,544,000)
Activity in available for sale securities:
Sales and calls 17,895,000 4,815,000 --
Purchases (9,175,000) (19,795,000) --
Activity in held to maturity securities:
Maturities 3,980,493 6,050,000 --
Purchases -- (10,030,493) --
Net increase in loans (37,496,804) (29,973,962) (9,606,554)
Purchase of furniture and equipment (7,672) (29,687) (132,322)
------------ --------------- ---------------
Net Cash Used in Investing Activities (24,263,983) (44,960,142) (14,282,876)
------------ --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 21,783,616 46,142,950 8,861,640
Net increase in federal funds purchased 925,000 -- --
Proceeds from the issuance of common stock, net -- -- 6,989,900
------------ --------------- ---------------
Net Cash Provided By Financing Activities 22,708,616 46,142,950 15,851,540
------------ --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS 1,232,039 (199,658) 1,248,803
CASH AND DUE FROM BANKS - Beginning of Year (Period) 1,049,145 1,248,803 --
------------ --------------- ---------------
CASH AND DUE FROM BANKS - END OF YEAR (Period) $ 2,281,184 $ 1,049,145 $ 1,248,803
============ =============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for
Interest $ 3,052,035 $ 1,326,908 $ 35,083
Income taxes $ 226,596 $ 50 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 35
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
A. 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.
B. 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.
C. USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses, and
the valuation of foreclosed real estate, deferred tax assets.
D. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents are defined as
those amounts included in the balance sheet caption "cash and due from banks."
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.
E. AVAILABLE FOR SALE SECURITIES
Securities classified as available for sale are those debt securities that the
subsidiary Bank intends 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 Bank's assets and
34
<PAGE> 36
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
E. AVAILABLE FOR SALE SECURITIES (CONTINUED)
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
accumulated other comprehensive income, 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.
F. HELD TO MATURITY SECURITIES
Securities classified as held to maturity are those debt securities the
subsidiary bank has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost, adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives. The sale of a security within three months of its maturity
date or after collection of at least 85 percent of the principal outstanding at
the time the security was acquired is considered a maturity for purposes of
classification and disclosure.
G. MORTGAGE LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income. All sales are made without recourse.
H. 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.
I. LOAN SERVICING
Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing
rights are reported in other assets and are amortized into noninterest income in
proportion to, and over the period of the estimated future net servicing income
of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized
cost. Fair value is based upon discounted cash flows using market-based
assumptions.
35
<PAGE> 37
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
J. RETAINED LOAN DISCOUNT
When a portion of a loan is sold, the basis of the retained portion of the loan
is discounted by the differential between the face amount of the sold portion of
the loan and the relative market value of the sold portion of the loan. This
difference is referred to as the retained loan discount. The relative market
value is determined by the expected cash flows discounted with assumptions made
on prepayments and rate of return. At the time of sale, premium income is
reduced by the retained loan discount. The retained loan discount is amortized
over the life of the underlying loan. When a loan is prepaid, the remaining
retained loan discount is recognized as an increase to interest income. When a
loan is sold, the remaining retained loan discount is included as a reduction to
the basis of the underlying loan.
K. 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 for loan losses is adequate to cover probable credit losses relating
to specifically identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio. In accordance with FASB Statements 5 and 114,
the allowance is provided for losses that have been incurred as of the balance
sheet date. The allowance is based on past events and current economic
conditions, and does not include the effects of expected losses on specific
loans or groups of loans that are related to future events or expected changes
in economic conditions. 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.
L. 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.
M. 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.
36
<PAGE> 38
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
N. 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 allowance for
loan losses, and depreciation. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
O. PENSION AND PROFIT-SHARING PLAN
The Company 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 Plan covers substantially all employees.
P. PER SHARE DATA
Net income (loss) per common share data has been computed based upon the
weighted average number of shares outstanding during the period.
Q. RECLASSIFICATION
Certain 1997 and 1998 amounts have been reclassified to conform with the 1999
presentation.
R. 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.
37
<PAGE> 39
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
R. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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
Available for sale securities
Variable rate loans that reprice frequently where no significant change
in credit risk has occurred
Mortgage loans held for sale
Accrued interest receivable
Demand deposits
Variable rate money market accounts
Variable rate certificates of deposit
Federal funds purchased
Accrued interest payable
QUOTED MARKET PRICES
Where available, or if not available, based on quoted market prices of
comparable instruments for the following instrument:
Held to maturity securities
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 consist of
nonfee-producing, variable rate commitments, the Company has determined it does
not have a distinguishable fair value.
38
<PAGE> 40
INVESTORS BANCORP, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 2 - 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 3 - AVAILABLE FOR SALE SECURITIES
Amortized cost and fair value of available for sale securities as of December
31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate bonds $ 6,260,000 $ - $ - $ 6,260,000
=========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate bonds $ 14,980,000 $ - $ - $ 14,980,000
=========== ========== ======== ============
</TABLE>
The amortized cost and fair value of available for sale securities as of
December 31, 1999, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------
Amortized Fair
Cost Value
------------------- -----------------
<S> <C> <C>
Due in one year or less $ 6,260,000 $ 6,260,000
================= =================
</TABLE>
NOTE 4 - HELD TO MATURITY SECURITIES
There were no held to maturity securities as of December 31, 1999. Amortized
cost and fair value of held to maturity securities as of December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial paper $ 3,980,493 - $ - $ 3,980,493
=========== =========== ========== ===========
</TABLE>
39
<PAGE> 41
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 5 - LOANS
- --------------------------------------------------------------------------------
Major classifications of loans at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Commercial $25,225,933 $11,933,874
Real estate
Commercial 32,142,524 18,962,694
Residential 16,844,196 7,265,606
Industrial revenue bonds 2,595,078 959,778
Installment and consumer 269,589 458,564
----------- -----------
77,077,320 39,580,516
Less: Allowance for loan losses (770,773) (395,804)
----------- -----------
Net Loans $76,306,547 $39,184,712
=========== ===========
</TABLE>
There were no loans that were impaired at December 31, 1999 and 1998.
Certain directors and executive officers of InvestorsBank, and their related
interests, had loans outstanding in the aggregate amounts of $427,842 and
$192,839 at December 31, 1999 and 1998, respectively. During 1999, $2,484,676 of
new loans were made and repayments totaled $2,249,673. These loans were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other persons and
did not involve more than normal risks of collectibility or present other
unfavorable features.
- --------------------------------------------------------------------------------
NOTE 6 - SERVICING
- --------------------------------------------------------------------------------
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of mortgage and other loans
serviced for others were $143,536,024 and $150,785,375 at December 31, 1999 and
1998, respectively. A portion of these loans, with balances of $123,579,489 and
$127,998,930 at December 31, 1999 and 1998, respectively, are loans serviced for
Bando McGlocklin Capital Corporation, a related company. Revenue relating to
loan servicing for Bando McGlocklin Capital Corporation was $337,858 and
$331,415 for the years ended December 31, 1999 and 1998, respectively and
$111,996 for the period from September 3, 1997 to December 31, 1997.
The balance of capitalized servicing rights, net of valuation allowances,
included in other assets at December 31, 1999 and 1998, was $126,367 and
$188,995, respectively. The balance of retained loan discounts, net of valuation
allowance, included in other liabilities at December 31, 1999 and 1998, was
$110,918 and $194,772, respectively. The carrying values approximate fair values
at December 31, 1999 and 1998. Net premium expense related to these items was
$2,281, $276 and $-0- for the years ended 1999, 1998 and 1997, respectively.
40
<PAGE> 42
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 7 - 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, 1999 and 1998 is presented in the following
tabulation:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998 1997
------------ ----------- --------
<S> <C> <C> <C>
BALANCE - Beginning of Year $ 395,804 $ 96,060 $ --
Provision charged to operations 374,969 299,744 96,060
----------- ----------- --------
BALANCE - END OF YEAR $ 770,773 $ 395,804 $ 96,060
=========== =========== ========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 8 - FURNITURE AND EQUIPMENT
- --------------------------------------------------------------------------------
Furniture and equipment at December 31, 1999 and 1998 are stated at cost, less
accumulated depreciation and amortization are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------- -----------
<S> <C> <C>
Furniture and equipment $ 169,682 $ 162,009
Less: Accumulated depreciation and amortization 76,204 35,249
----------- -----------
Total furniture and equipment $ 93,478 $ 126,760
=========== ===========
</TABLE>
Depreciation expense amounted to $40,954, $27,086 and $8,163 in 1999, 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
NOTE 9 - DEPOSITS
- --------------------------------------------------------------------------------
The aggregate amount of Time deposits, each with a minimum denomination of
$100,000, was approximately $14,706,497 and $10,315,453 in 1999 and 1998,
respectively. At December 31, 1999, the scheduled maturities of Time deposits
are as follows:
<TABLE>
<S> <C>
2000 $ 21,543,930
2001 3,106,816
2002 2,205,961
2003 789,471
2004 1,973,078
------------
Total $ 29,619,256
============
</TABLE>
41
<PAGE> 43
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 10 - LINE OF CREDIT
- --------------------------------------------------------------------------------
During 1999, the subsidiary Bank established a line of credit with a
correspondent bank in the amount of $2,000,000. The line of credit agreement
provides for interest at the correspondent bank's prevailing prime rate less
.75% (7.75% at December 31, 1999), and terminates June 30, 2000. The Company did
not have any outstanding borrowings on the line of credit at December 31, 1999.
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes included in the accompanying consolidated
financial statements consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
--------------- -------------- ---------
<S> <C> <C> <C>
Current Taxes
Federal $ 460,038 $ 72,092 $ -
State 102,116 37,045 -
--------------- -------------- ---------
562,154 109,137 -
--------------- -------------- ---------
Deferred Income Tax Benefit
Federal (173,047) (22,839) (53,000)
State (27,229) (4,350) (13,400)
--------------- -------------- ---------
(200,276) (27,189) (66,400)
--------------- -------------- ---------
Total Provision (Benefit) for Income Taxes $ 361,878 $ 81,948 $ (66,400)
=============== ============== =========
</TABLE>
The net deferred tax assets in the accompanying consolidated balance sheets
include the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Deferred Tax Assets
Allowance for loan losses $ 257,284 $ 112,885
Organizational costs 53,141 -
Deferred Tax Liabilities
Depreciation (16,560) (19,296)
--------------- ----------------
$ 293,865 $ 93,589
=============== ================
</TABLE>
Management believes it is more likely than not, that the gross deferred tax
assets will be fully realized. Therefore, no valuation allowance has been
recorded as of December 31, 1999 or 1998.
42
<PAGE> 44
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
- --------------------------------------------------------------------------------
A reconciliation of statutory Federal income taxes based upon income before
taxes, to the provision for federal and state income taxes, as summarized above,
is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- --------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
---------- ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of statutory to
effective taxes (benefit)
Federal income taxes (benefit)
at statutory rate $ 325,125 34.0% $ 128,924 34.0% $ (57,562) (34.0%)
Adjustments for
Tax-exempt interest on
municipal obligations (13,237) (1.4) (55,275) (14.6) (10,316) (6.1)
Increases (decreases) in
taxes resulting from
state income taxes 67,397 7.0 24,450 6.4 (8,861)
Other - net (17,407) (1.8) (16,151) (4.2) 10,339 6.1
---------- -------- --------- -------- --------- --------
Effective Income Taxes
(Benefits) - Operations $ 361,878 37.8% $ 81,948 21.6% $ (66,400) (39.2%)
========= ======= ========= ======= ========= ========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 12 - FACILITIES LEASE
- --------------------------------------------------------------------------------
The Company leases premises from Bando McGlocklin Capital Corporation, an
affiliated entity. Monthly rents are variable based on LIBOR interest rates and
the agreement is for a ten-year renewable term. Lease expense for the years
ended December 31, 1999 and 1998 was $46,348 and $67,452, respectively and
$24,330 for the period from September 3, 1997 through December 31, 1997. At
December 31, 1999, future minimum lease payments are as follows:
<TABLE>
<S> <C>
2000 $ 52,686
2001 52,686
2002 52,686
2003 52,686
2004 52,686
Thereafter 263,430
-----------
$ 526,860
===========
</TABLE>
43
<PAGE> 45
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 13 - 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 and interest rate 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, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk
Commitments to extend credit $ 17,442,858 $ 10,934,249
Standby letters of credit $ 566,291 $ 268,900
Credit card commitments $ 431,978 $ 230,869
Notional amount of financial instruments
Interest rate swap $ 3,027,000 $ 6,103,000
</TABLE>
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.
44
<PAGE> 46
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
- --------------------------------------------------------------------------------
On April 24, 1998, the Company entered into an interest rate swap agreement with
another company to manage interest rate exposure. The interest rate swap
agreement is structured as hedges of specific fixed-rate deposits whose terms
coincide with the terms of the swap agreement. Under the terms of the swap
agreement, the parties exchange interest payment streams calculated on the
notional principal amount. The swap agreement is structured so that the Company
receives a fixed interest rate and pays a variable rate based on the federal
funds rate. The variable rate of the swap agreement at December 31, 1999 was
3.99% and the weighted average for the year ended December 31, 1999 was 4.97%.
The swap agreement's expiration coincide with the maturity of the fixed rate
deposits. The notional amount, fixed rate and expiration date at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Fixed
Interest
Notional Rate Expiration
Amount Received Date
------ -------- ----------
<S> <C> <C>
$ 3,027,000 5.58% April 24, 2001
</TABLE>
The Company and the subsidiary Bank do not engage in the use of futures,
forwards or option contracts.
- --------------------------------------------------------------------------------
NOTE 14 - 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 of loan is set forth in Note 5.
- --------------------------------------------------------------------------------
NOTE 15 - STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The Company has a Nonqualified Stock Option Plan 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. Options may be
exercised based on the vesting schedule outlined in each agreement. As a result
of a 5% stock dividend declared in 1999, the Board of Directors approved a 5%
price adjustment on the stock options reducing the previous exercise price and
increasing the number of options outstanding.
45
<PAGE> 47
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Dividend yield 0.0% N/A 0.0%
Expected Life 10 years N/A 10 years
Expected volatility 23.44% N/A 25.13%
Risk-free interest rate 7.1% N/A 5.6%
</TABLE>
Activity of the Nonqualified Stock Option Plan is summarized in the following
table:
<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Fair Value Average
of Option Options Options Exercise
Granted Available Exercisable Outstanding Price
---------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE - September 3, 1997 -- -- -- --
Stock options authorized 100,000 --
Granted $ 3.33 (7,500) 7,500
Exercise of stock option
Exercise of stock option -- --
------- --------
BALANCE - December 31, 1998 92,500 3,000 7,500 $ 7.33
5% stock dividend $ 3.17 (375) 375
Granted $ 4.49 (3,150) 3,150
Exercise of stock option -- --
------- --------
EXERCISABLE -
DECEMBER 31, 1999 88,975 3,938 11,025 $ 7.55
======= ========
</TABLE>
Information pertaining to the options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Oustanding Life Price Exercisable Price
- --------------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$7.33 - 8.10 11,025 8.57 years $7.55 3,938 $7.33
</TABLE>
46
<PAGE> 48
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------------------------------------------------
The Company applies APB Opinion 25 and related interpretation in accounting for
its plan. Accordingly, no compensation cost was recognized for the 1998 and 1997
grants under the incentive stock option plan. There were no grants of options or
warrants during 1999. 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:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income - as reported $ 482,659 $ 297,241 $ (102,900)
Pro forma $ 481,485 $ 295,924 $ (106,850)
Basic earnings (loss) per share - as reported $ 0.48 $ 0.30 $ (0.10)
Pro forma $ 0.48 $ 0.30 $ (0.11)
Diluted earnings (loss) per share - as reported $ 0.48 $ 0.29 $ (0.10)
Pro forma $ 0.48 $ 0.29 $ (0.10)
</TABLE>
During 1997, the Company authorized and issued 100,000 stock warrants to its
chief executive officer, exercisable at $7.70 per share. The weighted average
fair value of each warrant is $3.17. The warrants expire September 3, 2004. As a
result of a 5% stock dividend declared in 1999, the Company approved a 5% price
adjustment on the warrants reducing the exercise price on the warrants and
increasing the number of warrants outstanding.
A reconciliation of the numerators and the denominators of earnings per share
and earnings per share assuming dilution are:
<TABLE>
<CAPTION>
Income Per Share
(Loss) Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
1999
Earnings per share $ 482,659 1,000,137 $ 0.48
---------
Effect of options -- 3,118
---------- ---------
Earnings Per Share - Assuming Dilution $ 482,659 1,003,255 $ 0.48
---------- --------- ---------
1998
Earnings per share $ 297,241 1,000,000 $ 0.30
---------
Effect of options -- 21,455
---------- ---------
Earnings Per Share - Assuming Dilution $ 297,241 1,021,455 $ 0.29
---------- --------- ---------
1997
Loss per share $ (102,900) 1,000,000 $ (0.10)
---------
Effect of options -- 29,889
---------- ---------
Loss Per Share - Assuming Dilution $ (102,900) 1,029,889 $ (0.10)
---------- --------- ---------
</TABLE>
In January 2000, the Company granted 4,000 stock options to key employees at an
exercise price of $6.75 per share. The options are to be exercised within ten
years of the grant date.
47
<PAGE> 49
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 16 - RETAINED EARNINGS AND RESTRICTIONS 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 earnings. 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. Unless exempted
by the Wisconsin Department of Financial Institutions, Division of Banking, a
state bank may not pay or declare dividends on capital stock in excess of 50% of
its net earnings until its surplus fund is fully restored to an amount equal to
100% of the bank's capital stock. Federal regulators have authority to prohibit
a bank from engaging in any action deemed by them to constitute an unsafe or
unsound practice, including the payment of dividends.
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 company 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 17 - REGULATORY CAPITAL REQUIREMENTS
- --------------------------------------------------------------------------------
The Company (on a consolidated basis) and the subsidiary Bank are 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 and
the subsidiary Bank's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the
subsidiary Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk- weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
requires the Company and the subsidiary Bank 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 of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999 and 1998, the Company and the subsidiary Bank met all capital adequacy
requirements to which they are subject.
As of December 31, 1999, the most recent notification from the regulatory
agencies categorized the subsidiary Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the institution must maintain minimum total risk-
48
<PAGE> 50
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 17 - REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
- --------------------------------------------------------------------------------
based, Tier I risk-based, and Tier 1 leverage ratios as set forth in the
following tables. There are no conditions or events since the notification that
management believes have changed the subsidiary Bank's category.
The Company and subsidiary Bank's actual capital amounts and ratios as of
December 31, 1999 and 1998 are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provision
----------------------- ---------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- --------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total capital (to risk-weighted assets)
InvestorsBancorp, Inc. $8,437,673 11.1% $ 6,105,877 8.0% N/A
InvestorsBank 8,437,673 11.1% 6,105,877 8.0% $ 7,632,347 10.0%
Tier I capital (to risk-weighted assets)
InvestorsBancorp, Inc. $7,666,900 10.0% $ 3,052,939 4.0% N/A
InvestorsBank 7,666,900 10.0% 3,052,939 4.0% $ 4,579,408 6.0%
Tier I capital (to average assets)
InvestorsBancorp, Inc. $7,666,900 9.4% $ 3,268,865 4.0% N/A
InvestorsBank 7,666,900 9.4% 3,268,865 4.0% $ 4,086,082 5.0%
As of December 31, 1998
Total capital (to risk-weighted assets)
InvestorsBancorp, Inc. $7,396,265 15.3% $ 3,862,310 8.0% N/A
InvestorsBank 7,396,265 15.3% 3,862,310 8.0% $ 4,827,888 10.0%
Tier I capital (to risk-weighted assets)
InvestorsBancorp, Inc. $7,000,461 14.5% $ 1,931,155 4.0% N/A
InvestorsBank 7,000,461 14.5% 1,931,155 4.0% $ 2,896,733 6.0%
Tier I capital (to average assets)
InvestorsBancorp, Inc. $7,000,461 16.7% $ 1,676,988 4.0% N/A
InvestorsBank 7,000,461 16.7% 1,676,988 4.0% $ 2,096,235 5.0%
</TABLE>
49
<PAGE> 51
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 18 - RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Company has a contributory 401(k) profit-sharing plan covering substantially
all of its employees. The total profit-sharing expense for the years ended
December 31, 1999 and 1998 amounted to $46,426 and $41,424, respectively. The
total pension expense and profit-sharing expense for the period ended December
31, 1997 amounted to $35,310.
The Company has a non-contributory defined contribution pension plan covering
substantially all of its employees. During 1997, the Company stopped
contributing to the plan.
The Company provides additional supplemental retirement benefits for an
executive officer. Such benefits totaled $43,099, $23,089 and $7,536 in 1999,
1998 and 1997, respectively, net of reimbursement from Bando McGlocklin Capital
Corporation's management fee. The payments were made at the sole discretion of
the Board of Directors. The payments are included in the calculation of
management fee charged to a related Company.
- --------------------------------------------------------------------------------
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The estimated fair values of the Company's financial instruments at December
31,1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 2,281,184 $ 2,281,184 $ 1,049,145 $ 1,049,145
============ ============ ============ ============
Federal funds sold $ -- $ -- $ 540,000 $ 540,000
============ ============ ============ ============
Securities $ 6,260,000 $ 6,260,000 $ 18,960,493 $ 18,960,493
============ ============ ============ ============
Net loans $ 76,306,547 $ 75,998,000 $ 39,184,712 $ 39,410,779
============ ============ ============ ============
Mortgage loans held for sale $ 566,100 $ 556,100 $ 2,232,657 $ 2,232,657
============ ============ ============ ============
Accrued interest receivable $ 484,962 $ 484,962 $ 326,334 $ 326,334
============ ============ ============ ============
FINANCIAL LIABILITIES
Deposits $ 76,788,206 $ 76,731,905 $ 55,004,590 $ 55,050,270
============ ============ ============ ============
Federal funds purchased $ 925,000 $ 925,000 $ -- $ --
============ ============ ============ ============
Accrued interest payable $ 490,516 $ 490,516 $ 453,050 $ 453,050
============ ============ ============ ============
</TABLE>
50
<PAGE> 52
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The estimated fair value of fee income on letters of credit at December 31,
1999, 1998 and 1997 is insignificant. Loan commitments on which the committed
interest rate is less than the current market rate are also insignificant at
December 31, 1999, 1998 and 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 20 - RELATED ENTITY
- --------------------------------------------------------------------------------
The Company shares common ownership and management with Bando McGlocklin Capital
Corporation. The Company charges Bando McGlocklin Capital Corporation a
management fee for salaries and employee benefits of common management. The
Company also charges a loan servicing fee for loans serviced for the related
entity and a leased property servicing fee. The management services fee for the
years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Salaries and benefits $ 446,053 $ 419,405 $ 117,289
Leased property servicing 88,290 25,072 --
Loan servicing 337,858 331,415 111,996
---------- ---------- ----------
$ 872,201 $ 775,892 $ 229,285
========== ========== ==========
</TABLE>
51
<PAGE> 53
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 21 - INVESTORSBANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Investment in subsidiary $ 7,666,900 $ 7,184,241
=========== ===========
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; 1,050,000 shares issued and outstanding 10,500 10,000
Surplus 7,316,900 6,979,900
Retained earnings 339,500 194,341
----------- -----------
Total Stockholders' Equity 7,666,900 7,184,241
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,666,900 $ 7,184,241
=========== ===========
</TABLE>
52
<PAGE> 54
INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 21 - INVESTORSBANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
(CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years (Period) Ended December 31,
-------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY $ 482,659 $ 297,241 $ (102,900)
------------ ----------- ------------
NET INCOME $ 482,659 $ 297,241 $ (102,900)
=========== =========== ============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years (Period) Ended December 31,
------------------------------------------
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 482,659 $ 297,241 $ (102,900)
Adjustments to reconcile net income to net
cash flows provided by operating activities
Equity in undistributed income of subsidiary (482,659) (297,241) 102,900
---------- ----------- ------------
NET CASH PROVIDED BY 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
---------- ----------- ------------
INCREASE IN CASH AND DUE FROM BANKS -- -- --
CASH AND DUE FROM BANKS -
Beginning of Year (Period) -- -- --
---------- ----------- ------------
CASH AND DUE FROM BANKS -
END OF YEAR (Period) $ -- $ -- $ --
=========== =========== ============
</TABLE>
53
<PAGE> 55
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In connection with the audit of the Company's financial statements for
the year ended December 31, 1999, there were no unresolved issues, scope
restrictions, unanswered questions or disagreements with Virchow, Krause &
Company, 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 Virchow, Krause & Company, LLP, would have caused Virchow,
Krause & Company, LLP to make reference to the matter in their report, and
Virchow, Krause & Company, 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 years ended December 31, 1999. 1998 and 1997, the Company (or anyone
on the Company's behalf) did not consult Virchow, Krause & Company, 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
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 2000 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, 34, has been the Company's controller and vice
president-finance since 1997, and was elected secretary in 1999. Ms. Hauke also
serves as vice president-finance, controller, and treasurer of the Bank. In
addition, she is the vice president-finance, controller, secretary and treasurer
of BMCC. Prior to joining BMCC in 1991, Ms. Hauke was a senior accountant at
PriceWaterhouseCoopers, LLP.
GREG A. MIESKE, 40, was elected vice president-operations and
compliance officer of the Company and the Bank in October 1999. He also serves
as secretary of the Bank. Prior to joining the Company in December 1998, Mr.
Mieske served as a financial examiner for the Department of Financial
Institutions of the State of Wisconsin from 1987 until 1998.
JOEL C. OBERMEIER, 33, was elected senior vice president of the Company
and Bank in January 1999. He has served as the senior mortgage banking officer
since joining the Company in 1997. From March 1997 to September 1997, Mr.
Obermeier served as vice president-residential lending of BMCC. Prior to joining
BMCC, he served as loan originator/manager of Approved Mortgage, Inc. from 1995
to 1997 and vice president of Creative Home Mortgage Corp. from 1989 to 1995.
SCOTT J. RUSSELL, 40, 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.
Prior to joining BMCC, he was a corporate banker with the Bank of Tokyo,
Chicago, Illinois.
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). The information on pages 4-5 of the 2000
Proxy Statement under the caption "Security Ownership of Certain Beneficial
Owners and Management" is incorporated by reference.
54
<PAGE> 56
ITEM 10. EXECUTIVE COMPENSATION
The information on page 4 of the 2000 Proxy Statement under the
subcaption "Compensation of Directors" and the information on pages 5-6 of the
2000 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 2000 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS
The information on page 6 of the 2000 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 27.
(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
There were no reports on Form 8-K filed during the
fourth quarter of 1999.
(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
55
<PAGE> 57
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 30, 2000.
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 30, 2000.
Signature Title
--------- -----
/s/ Terry L. Mather Director
-----------------------------------
Terry L. Mather
/s/ Jon McGlocklin Director
-----------------------------------
Jon McGlocklin
/s/ Donald L. Menefee Director
-----------------------------------
Donald L. Menefee
/s/ George R. Schonath Director
-----------------------------------
George R. Schonath
/s/ Donald E. Sydow Director
-----------------------------------
Donald E. Sydow
56
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT INCORPORATED HEREIN FILED PAGE
NO. DESCRIPTION OF EXHIBITS BY REFERENCE TO HEREWITH NUMBER
<S> <C> <C> <C> <C>
3.1 Restated Articles of Exhibit 2(a) to the Form 10-SB
Incorporation, as amended, filed with the Commission
of InvestorsBancorp, Inc. on July 24, 1997
(SEC File No. 000-29400)
3.2 ByLaws of Exhibit 2(b) to the Form 10-SB
InvestorsBancorp, Inc. filed with the Commission
on July 24, 1997
(SEC File No. 000-29400)
4.1 Specimen Common Stock Exhibit 4.1 to the Form 10-SB
Certificate of filed with the Commission
InvestorsBancorp, Inc. on July 24, 1997
(SEC File No. 000-29400)
10.1 InvestorsBancorp, Inc. Exhibit 6(c) to the Form 10-SB
1997 Equity Incentive Plan filed with the Commission
on July 24, 1997
(SEC File No. 000-29400)
10.2 Management Services and Exhibit 6(a) to the Form 10-SB
Allocation of Expenses filed with the Commission
Agreement on July 24, 1997
(SEC File No. 000-29400)
10.3 Tax Allocation and Exhibit 6(b) to the Form 10-SB
Services Agreement filed with the Commission
on July 24, 1997
(SEC File No. 000-29400)
21.1 Subsidiaries of X
InvestorsBancorp, Inc.
27.1 Financial Data Schedule X
99.1 Proxy Statement X
</TABLE>
57
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of InvestorsBancorp, Inc.
INVESTORSBANCORP, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Company Incorporated In Subsidiary Of
--------------- --------------- -------------
<S> <C> <C>
InvestorsBank, Wisconsin InvestorsBancorp, Inc.
A Wisconsin chartered
bank located in
Pewaukee, Wisconsin
</TABLE>
58
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INVESTORSBANCORP, INC.'S FORM 10-KSB 12/31/99.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2281184
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6260000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 77077320
<ALLOWANCE> 770773
<TOTAL-ASSETS> 86508501
<DEPOSITS> 76788206
<SHORT-TERM> 925000
<LIABILITIES-OTHER> 1128395
<LONG-TERM> 0
0
0
<COMMON> 7327400
<OTHER-SE> 339500
<TOTAL-LIABILITIES-AND-EQUITY> 86508501
<INTEREST-LOAN> 5004902
<INTEREST-INVEST> 526547
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5531449
<INTEREST-DEPOSIT> 3079994
<INTEREST-EXPENSE> 3089501
<INTEREST-INCOME-NET> 2441948
<LOAN-LOSSES> 374969
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2622955
<INCOME-PRETAX> 956250
<INCOME-PRE-EXTRAORDINARY> 594372
<EXTRAORDINARY> 0
<CHANGES> 111713
<NET-INCOME> 482659
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 3.460
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 395804
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 770773
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 770773
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[LOGO]
April 4, 2000
Dear Shareholder:
On behalf of the board of directors and management of InvestorsBancorp,
Inc., we cordially invite you to attend the annual meeting of shareholders to be
held at 4:00 p.m. on Thursday, May 25, 2000, at the Country Inn Hotel, 2810 Golf
Road, Waukesha, Wisconsin. The accompanying notice of annual meeting of
shareholders and proxy statement discuss the business to be conducted at the
meeting. A copy of our Form 10-KSB is also in this booklet. At the meeting we
shall report on our operations and the outlook for the year ahead.
Your board of directors has nominated one person to serve as a Class
III director, and the nominee is an incumbent director. The board of directors
has also selected and recommends that you ratify the appointment of Virchow,
Krause & Company LLP to continue as our independent public accountants for the
year ending December 31, 2000.
We recommend that you vote your shares for the director nominee and in
favor of the proposal.
We encourage you to attend the meeting in person. WHETHER OR NOT YOU
PLAN TO ATTEND, HOWEVER, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT IN THE ACCOMPANYING POSTPAID RETURN ENVELOPE AS PROMPTLY AS POSSIBLE.
This will ensure that your shares are represented at the meeting.
We look forward with pleasure to seeing and visiting with you at the
meeting.
Very truly yours,
INVESTORSBANCORP, INC.
George R. Schonath
President and Chief Executive Officer
W239 N1700 Busse Road - Waukesha, Wisconson 53188-1160
Phone (262) 523-1000 - Fax (262) 523-4193
<PAGE> 2
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 2000
-----------------------------------------------------------------
TO THE HOLDERS OF COMMON STOCK OF INVESTORSBANCORP, INC.
Notice is hereby given that the annual meeting of shareholders of
InvestorsBancorp, Inc., will be held at the Country Inn Hotel, 2810 Golf Road,
Waukesha, Wisconsin, on Thursday, May 25, 2000 at 4:00 p.m., for the purpose of
considering and voting upon the following matters:
1. the election of one Class III director for a term of three years.
2. the ratification of the appointment of Virchow, Krause & Company LLP
as our auditors for the fiscal year ending December 31, 2000.
3. the transaction of such other business as may properly come before the
meeting or any adjournments or postponements of the meeting.
The board of directors is not aware of any other business to come
before the meeting. Shareholders of record at the close of business on March 21,
2000, are the shareholders entitled to vote at the meeting and any adjournments
or postponements of the meeting. In the event there are not sufficient votes for
a quorum or to approve or ratify any of the foregoing proposals at the time of
the annual meeting, the meeting may be adjourned or postponed in order to permit
us time for further solicitation of proxies.
By Order of the Board of Directors
George R. Schonath
President and Chief Executive Officer
Pewaukee, Wisconsin
April 4, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE US THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
W239 N1700 Busse Road - Waukesha, Wisconson 53188-1160
Phone (262) 523-1000 - Fax (262) 523-4193
<PAGE> 3
[LOGO]
W239 N1700 Busse Road
Waukesha, Wisconsin 53188-1160
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 2000
This proxy statement is furnished in connection with the solicitation
on behalf of the board of directors of InvestorsBancorp, of proxies to be used
at the meeting which will be held at the Country Inn Hotel, 2810 Golf Road,
Waukesha, Wisconsin, on Thursday, May 25, 2000 at 4:00 p.m., and all
adjournments or postponements of the meeting. The proxy statement and the
accompanying notice of meeting and proxy are first being mailed to holders of
shares of common stock, par value $.01 per share, on or about April 4, 2000.
Certain of the information in the proxy statement relates to InvestorsBank, a
Wisconsin chartered bank located in Pewaukee, Wisconsin, our wholly owned
subsidiary.
VOTING RIGHTS AND PROXY INFORMATION
All shares of common stock represented at the meeting by properly
executed proxies received prior to or at the meeting, and not revoked, will be
voted at the meeting in accordance with the instructions thereon. If no
instructions are indicated, properly executed proxies will be voted for the
nominees and for adoption of the proposals set forth in this proxy statement. A
majority of the shares of the common stock, present in person or represented by
proxy and entitled to vote, shall constitute a quorum for purposes of the
meeting. Abstentions and broker non-votes will be counted for purposes of
determining a quorum.
Only holders of record of our common stock at the close of business on
March 21, 2000, will be entitled to vote at the meeting and at all adjournments
or postponements of the meeting. On March 21, 2000, we had 1,050,000 shares of
common stock outstanding. Directors are elected by a plurality of the votes cast
in person or by proxy with a quorum present. For all other matters, the
affirmative vote of a majority of the votes cast in person or by proxy with a
quorum present shall constitute shareholder approval. Abstentions and broker
"non-votes" will be considered in determining the presence of a quorum but will
not affect the vote required for approval of the election of directors or any
proposal.
We do not know of any matters, other than as described in the notice of
meeting, that are to come before the meeting. If any other matters are properly
presented at the meeting for action, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
Our board of directors would like to have all shareholders represented at the
meeting. Whether or not you plan to attend, please complete, sign and date the
enclosed proxy and return it in the accompanying postpaid return envelope as
promptly as possible. A proxy given pursuant to this solicitation may be revoked
at any time before it is voted. Proxies may be revoked by:
- - duly executing and delivering to our corporate secretary a later dated
proxy relating to the same shares prior to the exercise of the proxy,
- - filing with our corporate secretary at or before the meeting a written
notice of revocation bearing a later date than the proxy, or
- - attending the meeting and voting in person (although attendance at the
meeting will not in and of itself constitute revocation of a proxy),
<PAGE> 4
Any written notice revoking a proxy should be delivered to Ms. Susan Hauke,
secretary, at W239 N1700 Busse Road, Waukesha, Wisconsin 53188-1160.
ELECTION OF DIRECTORS
The annual meeting will be held on Thursday, May 25, 2000, the
shareholders will be entitled to elect one Class III director for a term
expiring in 2003. The directors are divided into three classes having staggered
terms of three years. The nominee for election as a Class III director is Donald
E. Sydow, who is an incumbent director. We have no knowledge that Mr. Sydow will
refuse or be unable to serve, but if he becomes unavailable for election, the
holders of the proxies reserve the right to substitute another person of their
choice as a nominee when voting at the meeting.
Set forth below is information concerning Mr. Sydow and for the other
directors whose terms of office will continue after the meeting, including the
age, year first elected a director and business experience of each during the
previous five years. Mr. Sydow, if elected at the annual meeting will serve as a
Class III director for a three year term expiring in 2003. The board of
directors recommends that shareholders vote FOR Mr. Sydow.
NOMINEES
<TABLE>
<CAPTION>
PRESENT POSITION DIRECTOR OF
INVESTORSBANCORP INVESTORSBANCORP AND
NAME AND AGE AND INVESTORSBANK INVESTORSBANK
- ------------ ----------------- -------------
<S> <C> <C>
CLASS III
- ---------
(Term Expires 2003)
Donald E. Sydow Director of InvestorsBancorp and InvestorsBank 1997
(Age 64)
CONTINUING DIRECTORS
CLASS I
- -------
(Term Expires 2001)
George R. Schonath Director, president and chief executive officer of 1997
(Age 59) InvestorsBancorp and InvestorsBank
Jon McGlocklin Director, senior vice president of InvestorsBancorp 1997
(Age 56) and InvestorsBank
CLASS II
- --------
(Term Expires 2002)
Donald L. Menefee Director of InvestorsBancorp and InvestorsBank 1999
(Age 58)
Terry L. Mather Director of InvestorsBancorp and InvestorsBank 1997
(Age 57)
</TABLE>
2
<PAGE> 5
All of our directors will hold office for the terms indicated, or until
their respective successors are duly elected and qualified. There are no
arrangements or understandings between InvestorsBancorp and any other person
pursuant to which any of our directors have been selected for their respective
positions.
BIOGRAPHICAL DATA
The principal occupation of each director is set forth below. Each
director has held his present position for at least five years unless otherwise
indicated.
TERRY L. MATHER has been a partner of Critical Solutions, Inc., a
business consulting firm headquartered in Milwaukee, Wisconsin, since 1992.
JON MCGLOCKLIN has been a senior vice president of InvestorsBancorp and
InvestorsBank since they were established in 1997. He has also served as
president of Healy Manufacturing, Inc., Menomonee Falls, Wisconsin, since 1997,
and as an announcer for the Milwaukee Bucks since 1976. In July 1997, Mr.
McGlocklin was appointed senior vice president of Bando McGlocklin Capital
Corporation. Until July 1997, he served as a director (since 1980) and president
(since 1991) of Bando McGlocklin Capital Corporation.
DONALD L. MENEFEE has been the president and chief executive officer of
Silent Partners, a management consulting firm based in Door County, Wisconsin,
since he founded the company in 1996. He has 32 years of banking experience
focused on marketing and strategic planning for banks in Illinois, Wisconsin,
and Arizona. From 1994 to 1996, Mr. Menefee served in various capacities with
Johnson International, Inc., Racine, Wisconsin, including director of corporate
marketing and president of private banking, as well as president and chairman of
both Biltmore Investors Bancorp, Phoenix, Arizona, and Johnson Asset Management
Company, Milwaukee, Wisconsin.
GEORGE R. SCHONATH has been the president and chief executive officer
of InvestorsBancorp and InvestorsBank since they were established in 1997. In
July 1997, Mr. Schonath was appointed president of Bando McGlocklin Capital
Corporation, and also currently serves as its chief executive officer (since
1983). Until July 1997, he served as a director (since 1980) and chairman of the
board (since 1983) of Bando McGlocklin Capital Corporation.
DONALD E. SYDOW has been the president of Oconomowoc Manufacturing
Corp., a ball-bearing manufacturer located in Oconomowoc, Wisconsin, since 1982.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During 1999, the board of directors of InvestorsBancorp and
InvestorsBank each held four meetings. No director attended fewer than 75% of
the total number of meetings of the board of directors of InvestorsBancorp or
InvestorsBank held during 1999. InvestorsBancorp's board of directors has
appointed an audit and finance committee and a compensation committee.
The audit and finance committee consists of Messrs. Mather, Menefee and
Sydow. The audit and finance committee reviews audit reports and related matters
to ensure effective compliance with regulations and internal policies and
procedures. This committee also recommends to the board the accounting firm to
perform InvestorsBancorp's and InvestorsBank's annual audit and acts as the
liaison between the auditors and the board. The committee also is responsible
for reviewing, approving and recommending to the board financial policies and
strategies of InvestorsBank and significant expenditures proposed to be made by
InvestorsBancorp or InvestorsBank. During 1999, the audit and finance committee
did not meet.
The compensation committee consists of Messrs. Mather, Menefee and
Sydow. The compensation committee meets to review the performance, salary and
other compensation of the chief executive officer, officers of InvestorsBancorp
and make recommendations to the board with respect to stock options and other
incentive awards. During 1999, the compensation committee met four times.
3
<PAGE> 6
COMPENSATION OF DIRECTORS
Directors of InvestorsBancorp who are not also officers received an
annual fee of $5,000 and $7,500 for 1999 and 2000, respectively, as well as $750
for each board or committee meeting attended. Directors who are also officers of
InvestorsBancorp do not receive additional compensation for their service as
directors of InvestorsBancorp.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock at February 29, 2000, by each person
known by us to be the beneficial owner of more than five percent of the
outstanding common stock, by each director or nominee, by each executive officer
named in the summary compensation table below, and by all directors and
executive officers of InvestorsBancorp as a group.
<TABLE>
<CAPTION>
Name of Individual and Amount and Nature of Percent
Number of Persons in Group Beneficial Ownership(1) of Class
- -------------------------- ----------------------- --------
<S> <C> <C>
DIRECTORS AND 5% SHAREHOLDERS
Terry L. Mather -- *
Jon McGlocklin 35,295(2) 3.4%
Donald L. Menefee 325 *
George R. Schonath 407,958(3) 35.2%
Donald E. Sydow 4,201 *
ALL DIRECTORS AND EXECUTIVE OFFICERS 466,002(4) 40.0%
AS A GROUP (9 persons)
</TABLE>
- --------------------------------
* Less than one percent.
(1) Information contained in this column is based upon information furnished to
us by the persons named above and the members of the designated group,
except as set forth in the footnotes below. The nature of beneficial
ownership for shares shown in this column is sole voting and investment
power, except as set forth in the footnotes below. Inclusion of shares
shall not constitute an admission of beneficial ownership or voting and
investment power over included shares. Pursuant to the rules and
regulations of the Securities and Exchange Commission and the Securities
Exchange Act of 1934, as amended, share amounts include shares obtainable
through the exercise of stock options or warrants within 60 days of the
date of the information contained in this table.
(2) Includes 10,597 shares over which Mr. McGlocklin shares voting and
investment power with his spouse.
(3) Includes 105,000 shares obtainable through the exercise of warrants, over
which shares Mr. Schonath has voting and sole investment power, 4,150
shares obtainable through the exercise of stock options, 2,088 shares over
which Mr. Schonath shares voting and investment power with his spouse or
children and 17,850 shares held by Lake Country Investments, LLC, a limited
liability company, over which Mr. Schonath has voting and investment power.
Excludes 70,350 shares held in irrevocable trusts for the benefit of his
daughters and 1,100 shares held directly by his daughter.
(4) Includes 113,925 shares obtainable through the exercise of options or
warrants. Excludes shares held for other employees by our 401(K) plan, for
which Mr. Schonath is a co-trustee and may be deemed to have shared voting
power.
4
<PAGE> 7
Section 16(a) of the Exchange Act requires InvestorsBancorp 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 us with copies of all
Section 16(a) forms they file. Based solely upon our review of these forms and,
if appropriate, representations made to us by any reporting person concerning
whether a Form 5 was required to be filed for the 1999 fiscal year, we are not
aware that any of our directors and executive officers or 10% shareholders
failed to comply with the filing requirements of Section 16(a) during 1999.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or granted by InvestorsBancorp or InvestorsBank to our chief executive
officer since our inception, and to each of our other executive officers whose
aggregate salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
Awards
- --------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Other Annual Restricted Securities All Other
Name and Compensation Stock Underlying Compensation
Position Year Salary($) Bonus($) ($) Award($) Options/SARs(#) ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George R. Schonath, 1999 $ 140,000 $ 6,083 $ --- $ --- --- $46,599(2)
president and chief 1998 100,000 --- --- --- --- 26,108(2)
executive officer(1) 1997 31,250 --- --- --- --- 10,047(2)
- --------------------------------------------------------------------------------------------------------------------
Scott J. Russell, 1999 $ 110,000 $ 6,083 --- --- --- $ 5,804(3)
senior vice president 1998 107,500 5,000 --- --- --- 5,625(3)
- --------------------------------------------------------------------------------------------------------------------
Joel C. Obermeier, 1999 $ 110,000 $17,083 --- --- --- $ 6,354(3)
senior vice president 1998 107,500 5,000 --- --- --- 5,625(3)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts paid are net of the amount reimbursed by Bando McGlocklin Capital
Corporation pursuant to the Management Services and Allocation of Expenses
Agreement. Under this Agreement, 56.25% of Mr. Schonath's 1999, and 62.26% of
his 1998 and 1997 salary paid by Bando McGlocklin Capital Corporation. Salary
for 1997 was for the period from the opening of InvestorsBank, September 8,
1997, to the end of the year. Also included are amounts deferred under our
401(k) plan.
(2) Represents InvestorsBank's contribution for supplemental retirement
benefits and contributions to our 401(k) plan.
(3) Represents InvestorsBank's 5% contribution to our 401(k) plan.
STOCK OPTIONS
None of the executive officers of InvestorsBancorp listed in the
summary compensation table received any grant of stock options during 1999.
However, the total options outstanding increased by 5% due to a 5% stock
dividend as of December 31, 1999.
5
<PAGE> 8
The following table sets forth certain information concerning the stock
options at December 31, 1999 held by the named executive officers. No stock
options were exercised during 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------------
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised In-
on Value Options/SARs at FY-End the-Money Options/SARs
Name Exercise Realized (#)(d) at FY-End ($)(e)
(a) (#)(b) ($)(c) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George R. Schonath --- $ --- --- --- $ --- $ ---
- ----------------------------------------------------------------------------------------------------------------------
Scott J. Russell --- --- 1,312 1,313 --- ---
- ----------------------------------------------------------------------------------------------------------------------
Joel C. Obermeier --- --- 525 2,100 --- ---
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the full board of directors considered and approved the
compensation packages of the employees of InvestorsBancorp and InvestorsBank.
None of these individuals is an officer or employee during 1999, except for
Messrs. McGlocklin and Schonath, and none of these individuals is a former
officer or employee of InvestorsBancorp or its subsidiaries. Messrs. McGlocklin
and Schonath do not participate in decisions regarding their respective
compensation. Messrs. McGlocklin and Schonath were directors of Bando McGlocklin
Capital Corporation prior to the distribution by Bando McGlocklin Capital
Corporation and its shareholders of all of its shares of InvestorsBancorp.
TRANSACTIONS WITH MANAGEMENT
Directors and officers of InvestorsBancorp and InvestorsBank, and their
associates, were customers of and had transactions with InvestorsBancorp and
InvestorsBank during 1999. InvestorsBank and Bando McGlocklin Capital
Corporation also purchase loan participations from each other from time to time
and, pursuant to a management services and allocation of expenses agreement,
InvestorsBank performs certain loan servicing and administration services to
Bando McGlocklin Capital Corporation. Additional transactions may be expected to
take place in the future.
All outstanding loans, commitments to loan, transactions in repurchase
agreements and certificates of deposit and depository and loan participation and
servicing relationships, in the opinion of management, were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features. InvestorsBank received an aggregate of
$872,201 in loan servicing and administration fees from Bando McGlocklin Capital
Corporation in 1999. InvestorsBancorp and InvestorsBank also lease space for
their main offices from Bando McGlocklin Capital Corporation. The annual rent
under the lease, including real estate taxes, utilities and furnishings, is
approximately $110,000, which represents a pro rata share of Bando McGlocklin
Capital Corporation's occupancy expense. InvestorsBancorp believes the terms of
the lease with Bando McGlocklin Capital Corporation are on substantially the
same terms and conditions as could be obtained from unrelated third parties.
6
<PAGE> 9
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors has appointed Virchow, Krause & Company LLP,
independent accountants, to be our auditors for the fiscal year ending December
31, 2000, and recommends that the shareholders ratify the appointment. A
representative of Virchow, Krause & Company LLP is expected to attend the annual
meeting and be available to respond to appropriate questions and make a
statement if he or she so desires. If the appointment is not ratified, the
matter of the appointment of auditors will be considered by our board of
directors.
In connection with the audit of our financial statements from September
3, 1997 through December 31, 1999, there were no unresolved issues, scope
restrictions, unanswered questions or disagreements with Virchow, Krause &
Company 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 Virchow, Krause & Company LLP, would have caused Virchow,
Krause & Company LLP to make reference to the matter in their report, and
Virchow, Krause & Company LLP did not advise us that any of the events described
in Item 304 (a)(1)(iv)(B) of Regulation S-B had occurred.
During our fiscal year ended December 31, 1999, we (or anyone on our
behalf) did not consult Virchow, Krause & Company LLP regarding any matter that
was either the subject of disagreement or a reportable event.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF VIRCHOW, KRAUSE & COMPANY LLP.
SHAREHOLDER PROPOSALS
Any proposals of shareholders intended to be presented at the 2001
annual meeting of shareholders must be received by our corporate secretary at
our principal executive offices at W239 N1700 Busse Road, Waukesha, Wisconsin
53188-1160, on or before December 8, 2000, to be considered for inclusion in the
proxy statement and proxy relating to such meeting. In order to be presented at
the 2001 annual meeting of shareholders, proposals must also comply with Article
II, Section 2.15, of our bylaws.
OTHER MATTERS
The board of directors is not aware of any business to come before the
meeting other than those matters described above in this proxy statement.
However, if any other matter should properly come before the meeting, holders of
the proxies will act in accordance with their best judgment. We will bear the
cost of solicitation of proxies. We will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy materials to the beneficial owners of common stock. In addition to
solicitation by mail, directors, officers and regular employees of
InvestorsBancorp and/or InvestorsBank may solicit proxies personally or by
telegraph or telephone without additional compensation.
BY ORDER OF THE BOARD OF DIRECTORS
George R. Schonath
President and Chief Executive Officer
Pewaukee, Wisconsin
April 4, 2000
7
