<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended September 30, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the
transition period from ___________ to________________
Commission File Number: 001-15215
SPECTRUM BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0867112
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10834 Old Mill Road, Suite One, Omaha, NE
(Address of principal executive office) (Zip code)
(402) 333-8330
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at November 11, 1999
- -------------------------- --------------------------
Common Stock, $1.00 par value 71,607
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SPECTRUM BANCORPORATION, INC.
INDEX TO 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1999
PART I: FINANCIAL INFORMATION PAGE
ITEM 1: FINANCIAL STATEMENTS........................................3
Consolidated Balance Sheets at September 30, 1999 (unaudited)
and June 30, 1999............................. ..................3
Consolidated Statements of Income - Three months
ended September 30, 1999 and September 30, 1998
(unaudited)......................................................4
Consolidated Statements of Cash Flows - Three months ended
September 30, 1999 and September 30, 1998 (unaudited)............5
Notes to Consolidated Financial Statements.......................6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................7
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS...........................................9
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS...................9
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.............................9
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.....................................................9
ITEM 5: OTHER INFORMATION...........................................9
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................9
SIGNATURES..................................................9
2
<PAGE>
PART I
FINANCIAL INFORMATION
SPECTRUM BANCORPORATION, INC.
Consolidated Balance Sheets
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------------- -------------------
<S> <C> <C>
Assets
Cash and due from banks $18,434 $18,389
Federal funds sold 25,328 7,255
------------------- -------------------
Total cash and cash equivalents 43,762 25,644
------------------- -------------------
Securities available for sale 95,612 91,932
Loans receivable, net 477,342 466,970
Premises and equipment, net 13,617 12,668
Other assets 17,276 13,956
------------------- -------------------
$647,609 $611,170
=================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Non interest bearing $50,251 $49,934
Interest bearing 472,832 456,975
------------------- -------------------
TOTAL DEPOSITS 523,083 506,909
Federal funds purchased and securities sold
under agreements to repurchase 21,797 19,777
Notes payable 33,106 39,024
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely junior subordinated
debentures 20,400 0
Accrued interest and other liabilities 8,255 6,243
------------------- -------------------
606,641 571,953
------------------- -------------------
Minority interest in subsidiaries 2,068 2,020
------------------- -------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $100 par value; 500,000 shares
authorized; issued and outstanding: 9,000
shares of 8% cumulative, nonvoting; 8,000
shares of 10% noncumulative, nonvoting 1,700 1,700
Common stock, $1.00 par value, authorized
1,000,000 shares, issued and outstanding:
71,607 and 71,607 shares, respectively 72 72
Additional paid in capital 1,654 1,654
Retained earnings 36,168 34,276
Accumulated and other comprehensive income
(loss) (694) (505)
------------------- -------------------
Total stockholder's equity 38,900 37,197
------------------- -------------------
$647,609 $611,170
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
SPECTRUM BANCORPORATION, INC.
Consolidated Statements of Income
For The Three Months Ended
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
-------------------- --------------------
<S> <C> <C>
Interest income on:
Loans receivable $10,558 $9,421
Securities 1,494 1,453
Federal funds sold and other 267 483
-------------------- --------------------
12,319 11,357
-------------------- --------------------
Interest expense on:
Deposits 5,159 5,106
Federal funds purchased and securities sold
under agreements to repurchase 225 239
Notes payable 813 655
-------------------- --------------------
6,197 6,000
-------------------- --------------------
Net interest income 6,122 5,357
Provision for loan losses 396 224
-------------------- --------------------
Net interest income after provision for loan
losses 5,726 5,133
-------------------- --------------------
Other income:
Service charges and other fees 1,278 1,388
Other 202 115
-------------------- --------------------
1,480 1,503
-------------------- --------------------
Other expenses:
Salaries and employee benefits 2,123 2,018
Occupancy expense, net 511 407
Data processing 240 240
Other operating expenses 1,091 1,147
-------------------- --------------------
3,965 3,812
-------------------- --------------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN NET INCOME OF SUBSIDIARIES 3,241 2,824
Income tax expense 1,154 1,038
-------------------- --------------------
INCOME BEFORE MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES 2,087 1,786
Minority interest in net income of subsidiaries 107 146
NET INCOME $1,980 $1,640
==================== ====================
Basic earnings per common share $27,120.25 $22,334.69
==================== ====================
Dividends per share declared on common stock $0.70 $0.35
==================== ====================
Weighted average shares outstanding 71,607 71,727
==================== ====================
</TABLE>
See Notes to Consolidated Financial Statements.
4
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SPECTRUM BANCORPORATION, INC.
Consolidated Statements of Cash Flows
For The Three Months Ended
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------------ --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING ACTIVITIES $2,536 $2,314
------------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities
available for sale 5,920 5,964
Purchase of securities available for sale (9,789) (12,998)
Net increase in loans (11,643) (2,260)
Purchase of premises and equipment (1,482) (598)
Purchase of other assets - (316)
------------------ --------------------
NET CASH USED IN INVESTING ACTIVITIES (16,994) (10,208)
------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred securities 20,400 -
Net increase in deposits 16,174 17,298
Net increase (decrease) in federal funds purchased
and securities sold under agreements to
repurchase 2,020 2,266
Proceeds from notes payable 9,773 1,390
Principal payments on notes payable (15,691) (1,937)
Dividends paid, including ($12) and ($21) paid to
minority interest, respectively (100) (84)
------------------ --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,576 18,933
------------------ --------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,118 11,039
Cash and cash equivalents:
Beginning 25,644 40,804
------------------ --------------------
Ending $43,762 $51,843
================== ====================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $6,188 $5,129
Income taxes 405 367
Supplemental Schedules of Noncash Investing and
Financing Activities
Net change in unrealized gain/loss on securities
available for sale (189) 448
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation.
Fiscal 1999 results have been restated to reflect the effects of a
merger between Decatur Corporation ("Decatur") and Spectrum Bancorporation,
Inc. ("Spectrum") completed in the fourth quarter of fiscal 1999. Since the
entities were under common control, the merger has been accounted for at
historical cost in a manner similar to a pooling-of-interests.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions with subsidiaries are eliminated in consolidation.
The consolidated subsidiaries are as follows: Spectrum Capital Trust I
(100% owned); Citizens Bank (100% owned), which is chartered in Mount Ayr, Iowa;
Citizens Bank of Princeton (100% owned), which is chartered in Princeton,
Missouri; F&M Bank (97.9% owned), which is chartered in Watertown, South Dakota;
Rushmore Bank & Trust (90% owned), which is chartered in Rapid City, South
Dakota; and Spectrum Banc Service Corporation (89% owned), a data processing
organization. Also, at September 30, 1999, Rushmore Bank & Trust owns 99% of
Ameriloan, LLC, a loan origination company, which is currently inactive.
The June 30, 1999 consolidated balance sheet has been derived from the
audited balance sheet as of that date. The consolidated financial statements as
of September 30, 1999 and for the three months ended September 30, 1999 and 1998
are unaudited but include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
financial position and results of its operations and its cash flows for those
periods. Results for the three months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the entire year.
2. Earnings per common share.
Earnings per share has been computed on the basis of weighted average
number of common shares outstanding during each period presented. Dividends
accumulated or declared on cumulative and noncumulative preferred stock, which
totaled $38,000 in each of the 3 months ended September 30, 1999 and 1998,
reduced earnings available to common stockholders in the computation.
3. Comprehensive Income.
Comprehensive income was $1,791,000 and $2,088,000 for the three months
ended September 30, 1999 and 1998. The difference between comprehensive income
and net income presented in the Consolidated Statements of Income is attributed
solely to unrealized gains and losses on available-for-sale securities.
4. Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures
The Company has issued 2,040,000 shares, $10 par value, of Company
Obligated Mandatorily Redeemable Preferred Securities ("Preferred Securities")
of Spectrum Capital Trust I. Distributions will accumulate from August 18, 1999
and will be paid quarterly each year beginning October 15, 1999. Cumulative cash
distributions are calculated at a 10.0% annual rate.
Holders of the Preferred Securities will have no voting rights. The
Preferred Securities and are unsecured and rank junior in priority of payment
to all of the Company's indebtedness and Senior to the calculation of Tier I
capital.
The Preferred Securities are traded on the American Stock Exchange
under the symbol "SBK PRA".
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a multi-bank holding company organized under the laws of
Iowa whose primary business is providing trust, commercial, consumer, and
mortgage banking services through its South Dakota, Missouri and Iowa based
subsidiary banks. Substantially all of the Company's income is generated from
banking operations.
The Company's fiscal year end is June 30.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total average assets were $629,390,000 for the three months ended
September 30, 1999, compared to $559,206,000 for the three months ended
September 30, 1998, a 12.6% increase. Average interest-earning assets were
$588,343,000 for the three months ended September 30, 1999 and $522,456,000
for the three months ended September 30, 1998, a 12.6% increase. Assets
increased during the first quarter of fiscal 2000 due to internal loan growth
funded by deposits received from customers.
Total assets were $647,609,000 at September 30, 1999, an increase of
$36,439,000 from June 30, 1999. Net loans grew $10,372,000 during the first
three months of 1999 due to loan originations, net of loan repayments and
charge-offs. Loan growth was funded by an increase in deposits and additional
Federal Home Loan Bank ("FHLB") borrowings. The allowance for loan losses
increased to $6,227,000 at September 30, 1999 from $6,020,000 at June 30, 1999.
The allowance represented 1.3% and 1.3% of total loans as of September 30, 1999
and June 30, 1999, respectively.
For the three months ended September 30, 1999, the Company's annualized
return on average assets ("ROA") was 1.3%, compared to 1.2% for the three months
ended September 30, 1998. Return on average common stockholders' equity ("ROE")
for the three months ended September 30, 1999 and 1998 was 20.8% and 20.1%,
respectively.
Cash and cash equivalents and investment securities totaled
$139,374,000, or 21.5% of total assets at September 30, 1999, compared to
$117,576,000, or 19.2%, at June 30, 1999.
At September 30, 1999, the Company's leverage, Tier 1 risk-based
capital, and total risk-based capital ratios were 8.3%, 10.7%, and 13.5%
respectively, compared to minimum required levels of 4%, 4% and 8%, respectively
(subject to change and the discretion of regulatory authorities to impose higher
standards in individual cases). At September 30, 1999, the Company had
risk-weighted assets of $485,201,000.
During the first quarter of fiscal 2000, the Company issued
$20,400,000 of ("Preferred Securities"). Proceeds from the issuance were used
to repay $11,695,000 in correspondent bank debt and the remaining amount is
to be used for acquisitions and general corporate purposes.
Management believes that cash generated from its operations, from its
Preferred Securities and from its correspondent bank facility will be sufficient
to meet its cash requirements for acquisitions, internal growth and general
operations in the foreseeable future.
RESULTS OF OPERATIONS
Net Interest Income
Total interest income for the three months ended September 30, 1999 was
$12,319,000, a 8.5% increase over the three months ended September 30, 1998. The
increase was primarily the result of internal loan growth.
Total interest expense for the three months ended September 30, 1999
was $6,197,000, a 3.3% increase over the three months ended September 30,
1998. The increase was the result of the issuance of Preferred Securities and
an increase in interest-bearing deposits, which was only partially offset by
a reduction in average rates paid on deposits. Average total interest-bearing
liabilities increased by $59,416,000 or 12.6% during the first three months
of fiscal 2000 compared to the same period in fiscal 1999, primarily due to
the increased volume in interest-bearing deposits.
7
<PAGE>
Net interest income was $6,122,000 for the three months ended
September 30, 1999, compared to $5,357,000 for the same period in 1998, an
increase of 14.3%. The Company's net interest margin increased from 4.1% for
the three months ended September 30, 1998 to 4.2% for the three months ended
September 30, 1999. The increase in net interest margin was created by
originating loans at a higher average rate than the costs of new deposits and
other borrowings.
Provisions for Loan Losses
The provision for loan losses for the three months ended September 30,
1999, was $396,000, compared to $224,000 for the comparable 1998 period. The
increase can be attributed to the loan growth of $10,372,000 in the first
quarter of fiscal 2000 compared to $2,260,000 in the same period in fiscal
1999.
Other Income
Other income for the three months ended September 30, 1999 was
$1,480,000, a decrease of $23,000, or 1.5%, over the same period last year. The
decrease in other income resulted from a slight decrease in service charges and
other fees.
Other Expense
Other expense for the three months ended September 30, 1999 was
$3,965,000, an increase of $153,000, or 4.0%, over the same period last year.
This increase was primarily due to increased salaries and benefits expenses and
occupancy expense.
Income Tax Expense
Income tax expense for the three months ended September 30, 1999 and
September 30, 1998 was $1,154,000 and $1,038,000, respectively. The effective
tax rates for those periods were 35.6% and 36.8%, respectively.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive
interest-earning assets and interest-bearing liabilities. Controlling the
maturity or repricing of an institution's liabilities and assets in order to
minimize interest rate risk is commonly referred to as gap management. Close
matching of the repricing of assets and liabilities will normally result in
little change in net interest income when interest rates change. A mismatched
gap position will normally result in changes in net interest income as interest
rates change.
Management regularly monitors the interest sensitivity position and
considers this position in its decisions with regard to interest rates and
maturities for interest-earning assets acquired and interest-bearing liabilities
accepted.
There has not been a material change in the interest rate sensitivity
of the Company during the three months ended September 30, 1999.
YEAR 2000 COMPLIANCE
There has been no material change in the Company's efforts to comply
with Year 2000 issues as reported in the June 30, 1999 Form 10-K.
8
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PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company has not been informed of any legal matters that would have
a material adverse effect on its consolidated financial condition, results of
operations or cash flows.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 18, 1999, Spectrum Capital Trust I (the "Trust"), a Delaware
business trust formed by the Company, completed the sale of $20,400,000 of
Preferred Securities in a registered offering made through an underwriting group
led by Howe Barnes Investments, Inc. The Trust also issued Common Securities to
the Company and used the net proceeds from the offering to purchase a like
amount of 10.0% Junior Subordinated Debentures (the "Debentures") of the
Company. In connection with the offering the Company and the Trust registered a
total of $20,400,000 of Preferred Securities on a Form S-1 Registration
Statement (Registration Nos. 333-80551 and 333-80551-01). Total expenses
associated with the offering were approximately $1,097,000, including $765,000
in underwriting commissions and an advisory fee paid to Howe Barnes. As of
September 30, 1999, the Company had used the net proceeds from the sale of the
Debentures to repay approximately $11,695,000 of corporate indebtedness and
invested the remaining $7,608,000 in investments to be used for future
acquisitions and general corporate purposes.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed no current reports on Form 8-K during the
quarter ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECTRUM BANCORPORATION, INC.
Date: November 11, 1999 By:/s/ Deryl F. Hamann
-----------------------------------
Deryl F. Hamann, Chairman and Chief
Executive Officer
(Duly Authorized Representative)
(Authorized officer and principal financial officer of the registrant)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,434
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 25,328
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,612
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 483,569
<ALLOWANCE> 6,227
<TOTAL-ASSETS> 647,609
<DEPOSITS> 523,083
<SHORT-TERM> 23,048
<LIABILITIES-OTHER> 8,255
<LONG-TERM> 52,055
0
1,700
<COMMON> 72
<OTHER-SE> 37,128
<TOTAL-LIABILITIES-AND-EQUITY> 647,609
<INTEREST-LOAN> 10,558
<INTEREST-INVEST> 1,494
<INTEREST-OTHER> 267
<INTEREST-TOTAL> 12,319
<INTEREST-DEPOSIT> 5,159
<INTEREST-EXPENSE> 1,038
<INTEREST-INCOME-NET> 6,122
<LOAN-LOSSES> 396
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,965
<INCOME-PRETAX> 3,241
<INCOME-PRE-EXTRAORDINARY> 2,087
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,980
<EPS-BASIC> 27.12
<EPS-DILUTED> 27.12
<YIELD-ACTUAL> 4.16
<LOANS-NON> 1,416
<LOANS-PAST> 1,263
<LOANS-TROUBLED> 4,186
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