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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, 2000
/ / 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 68154
(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 9, 2000
----------------------------- -------------------------------
Common Stock, $1.00 par value 79,068
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SPECTRUM BANCORPORATION, INC.
INDEX TO 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2000
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PAGE
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS........................................3
Consolidated Balance Sheets at September 30, 2000
and June 30, 2000 (unaudited) ...................................3
Consolidated Statements of Income - Three months
ended September 30, 2000 and September 30, 1999
(unaudited)......................................................4
Consolidated Statements of Cash Flows - Three months ended
September 30, 2000 and September 31, 1999 (unaudited) ...........5
Notes to Consolidated Financial Statements.......................6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................8
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk..9
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS...........................................9
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS...................10
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.............................10
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.....................................................10
ITEM 5: OTHER INFORMATION...........................................10
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................10
SIGNATURES..................................................10
</TABLE>
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PART I
FINANCIAL INFORMATION
SPECTRUM BANCORPORATION, INC.
Consolidated Balance Sheets
(In thousands except share data)
(unaudited)
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<CAPTION>
September 30, June 30,
2000 2000
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Assets
Cash and due from banks $27,295 $26,037
Federal funds sold 27,642 15,089
------------------- -------------------
Total cash and cash equivalents 54,937 41,126
Certificates of deposits 1,184 2,772
Securities available for sale 143,928 139,070
Loans receivable, net 682,443 626,560
Premises and equipment, net 19,517 17,676
Accrued interest receivable 11,343 8,740
Cost in excess of net assets acquired 10,192 7,928
Other assets 7,727 6,904
------------------- -------------------
$931,271 $850,776
=================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Non interest bearing $78,030 $65,843
Interest bearing 687,134 625,692
------------------- -------------------
Total Deposits 765,164 691,535
Federal funds purchased and securities sold
under agreements to repurchase 23,545 22,917
Notes payable 57,140 55,760
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely junior subordinated
debentures 20,400 20,400
Accrued interest and other liabilities 11,559 9,597
------------------- -------------------
877,808 800,209
------------------- -------------------
Minority interest in subsidiaries 2,946 2,745
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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
79,068 shares 79 79
Additional paid in capital 2,069 2,069
Retained earnings 47,729 46,331
Accumulated other comprehensive (loss) (1,060) (2,357)
------------------- -------------------
Total stockholders' equity 50,517 48,822
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$931,271 $850,776
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
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SPECTRUM BANCORPORATION, INC.
Consolidated Statements of Income
For The Three Months Ended
(In thousands, except share and per share data)
(unaudited)
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<CAPTION>
September 30, September 30,
2000 1999
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Interest income on:
Loans receivable $16,110 $11,869
Taxable Securities 2,267 1,543
Nontaxable Securities 240 213
Dividends on securities 61 3
Federal funds sold and other 205 254
-------------------- --------------------
18,883 13,882
-------------------- --------------------
Interest expense on:
Deposits 8,507 5,699
Federal funds purchased and securities sold
under agreements to repurchase 330 225
Notes payable and company obligated mandatorily
redeemable preferred securities 1,445 865
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10,282 6,789
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Net interest income 8,601 7,093
Provision for loan losses 512 411
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Net interest income after provision for loan
losses 8,089 6,682
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Other income:
Service charges and other fees 1,355 1,263
Net gains from sale of loans 183 145
Gain (loss) on securities, net 13 0
Trust department income 74 76
Other 382 237
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2,007 1,721
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Other expenses:
Salaries and employee benefits 3,241 2,401
Occupancy expenses, net 393 302
Data processing 498 390
Equipment expenses 226 162
Advertising 317 164
Other operating expenses 1,438 1,314
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6,113 4,733
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Income before income taxes and minority interest
in net income of subsidiaries 3,983 3,670
Income taxes 1,176 1,177
-------------------- --------------------
Income before minority interest in net
income of subsidiaries 2,807 2,493
Minority interest in net income of subsidiaries 121 107
-------------------- --------------------
Net income $2,686 $2,386
==================== ====================
Basic earnings per common share $33.49 $29.65
==================== ====================
Dividends per share declared on common stock $15.81 $2.37
==================== ====================
Weighted average shares outstanding 79,068 79,191
==================== ====================
</TABLE>
See Notes to Consolidated Financial Statements.
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SPECTRUM BANCORPORATION, INC.
Consolidated Statements of Cash Flows
For The Three Months Ended
(In thousands)
(unaudited)
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September 30, September 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (779) $ 3,497
------------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities
available for sale 7,829 7,060
Purchase of securities available for sale (1,347) 12,019)
Proceeds from maturities of certificates of deposit 1,588 0
Business acquisition (See below) (238) 0
Net increase in loans (7,095) 13,932)
Proceeds from sale of premises and equipment 1 0
Purchase of premises and equipment (988) (1,495)
------------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (250) 20,386)
------------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred securities 0 20,400
Net increase in deposits 14,132 14,676
Net increase in federal funds purchased and securities
sold under agreements to repurchase 628 2,520
Proceeds from notes payable 46,703 23,348
Principal payments on notes payable (45,323) 24,279)
Debt issuance cost incurred 0 (1,061)
Dividends paid, including ($12) and ($12) paid to
minority interest, respectively (1,300) (238)
------------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,840 35,366
------------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,811 18,477
Cash and cash equivalents:
Beginning 41,126 27,070
------------------ ------------
Ending $54,937 $45,547
================== ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $9,761 $6,823
Income taxes 0 411
Supplemental Schedules of Noncash Investing and
Financing Activities:
Net change in unrealized gain (loss) on
securities available for sale 1,297 (429)
Purchase of banks, net of cash and cash equivalents acquired, allocated to:
Assets
Securities $10,055
Loans receivable 48,989
Other assets 2,197
Premises and equipment 1,301
Cost in excess of net assets acquired 2,411
Liabilities assumed
Deposits (59,496)
Other Liabilities (5,219)
------------------
Net cash and cash equivalents used $238
==================
</TABLE>
See Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation.
June 30, 2000 amounts and fiscal 2000 results have been restated to
reflect the effects of a merger between Citizens Corporation ("Citizens") and
Spectrum Bancorporation, Inc. ("Spectrum") completed in the first quarter of
fiscal 2001. 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
(100.0% owned); Citizens Bank, Mount Ayr (100.0% owned), which is chartered in
Mount Ayr, Iowa; Citizens Bank of Princeton (100.0% owned), which is chartered
in Princeton, Missouri; F&M Bank (97.9% owned), which is chartered in Watertown,
South Dakota; Rushmore Bank & Trust (90.0% owned), which is chartered in Rapid
City, South Dakota; Citizens Bank, Carlisle (95.2% owned), which is chartered in
Carlisle, Iowa and Spectrum Banc Service Corporation (100% owned), a data
processing organization. Rushmore Bank & Trust also owns 99.0% of Ameriloan,
LLC, a loan origination company, which is currently inactive.
The June 30, 2000 consolidated balance sheet has been derived from the
audited balance sheet as of that date for Spectrum. The consolidated financial
statements as of September 30, 2000 and for the three months ended September 30,
2000 and 1999 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, 2000
are not necessarily indicative of the results to be expected for the entire
year.
2. Earnings per common share.
Earnings per share have 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 three months ended September 30, 2000 and 1999,
reduced earnings available to common stockholders in the computation.
3. Comprehensive Income.
Comprehensive income was $3,983,000 and $1,957,000 for the three months
ended September 30, 2000 and 1999. 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 Mandatory Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures.
The Company has issued 2,040,000 shares, $10 par value, of Company
Obligated Mandatory Redeemable Preferred Securities ("Preferred Securities") of
Spectrum Capital Trust I. Distributions accumulate from August 18, 1999 and are
paid quarterly beginning October 15, 1999. Cumulative cash distributions are
calculated at a 10.0% annual rate.
Holders of the Preferred Securities have no voting rights. The
Preferred Securities are unsecured and rank junior in priority of payment to all
of the Company's indebtedness and senior to the Company's common stock.
The Preferred Securities are traded on the American Stock Exchange
under the symbol "SBK PRA".
5. Acquisitions.
On January 14, 2000, Spectrum acquired selected assets and the deposits
of Hartford-Carlisle Savings Bank in Carlisle, Iowa through a newly chartered,
wholly owned bank subsidiary ("Citizens Bank, Carlisle"). The acquisition was
accounted for in a manner similar to a purchase.
On July 13, 2000, the Company's subsidiary, Citizens Bank, Mt. Ayr
purchased the assets and assumed the liabilities of the branch of Commercial
Federal Bank, FSB ("Commercial") located in Kellerton, Iowa. The acquisition
was accounted for as a purchase. See the cash flow statement for further
financial details.
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As of August 7, 2000 the Company acquired all of the outstanding shares
of Hamburg Financial, Inc. ("HFI"), an unaffiliated holding company which owned
two banks in southwestern Iowa. HFI's bank subsidiaries were merged into the
Company's subsidiary bank, Citizens Bank, Mt. Ayr. The acquisition was accounted
for as a purchase. See the cash flow statement for further financial details.
The cost in excess of net assets acquired generated from these
transactions is being amortized over 15 years using the straight-line method.
On August 7, 2000 Spectrum issued 7,584 shares of its common stock in
exchange for all outstanding common stock of Citizens. 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 and, accordingly, the consolidated
financial statements for periods prior to the combination have been restated to
include the accounts and results of both entities. The results of operations
previously reported by the separate entities and the combined amounts presented
in the accompanying consolidated financial statements (in thousands) are
summarized below.
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For the Three Months
Ended September 30, 1999
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Interest income:
Spectrum Bancorporation, Inc. and Subsidiaries $12,502
Citizens Corporation and Subsidiaries 1,380
--------
Combined $13,882
========
Net income:
Spectrum Bancorporation, Inc. and Subsidiaries $1,980
Citizens Corporation and Subsidiaries 460
--------
Combined $2,386
========
</TABLE>
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 $891,024,000 for the three months ended
September 30, 2000, compared to $700,323,000 for the three months ended
September 30, 1999 a 27.23% increase. Average interest-earning assets were
$819,344,000 for the three months ended September 30, 2000 and $649,327,000 for
the three months ended September 30, 1999, a 26.18% increase. Assets increased
primarily due to internal loan growth funded by deposits received from customers
and bank acquisitions.
Total assets were $931,271,000 at September 30, 2000, an increase of
$80,495,000 from June 30, 2000. Net loans grew $55,296,000 during the three
months ended September 30, 2000 due to loan originations, net of loan repayments
and charge-offs, and bank acquisitions. Loan growth was funded by an increase in
deposits and additional Federal Home Loan Bank ("FHLB") borrowings. The
allowance for loan losses increased to $10,610,000 at September 30, 2000 from
$8,197,000 at June 30, 2000. The allowance represented 1.5% and 1.3% of total
loans as of September 30, 2000 and June 30, 2000. Increase in allowance for loan
losses were due to recent bank acquisitions.
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For the three months ended September 30, 2000, the Company's annualized
return on average assets ("ROA") was 1.2%, compared to 1.4% for the three months
ended September 30, 1999. Return on average stockholders' equity ("ROE") for the
three months ended September 30, 2000 and 1999 was 21.9% and 22.4%.
Cash and cash equivalents and investment securities totaled
$200,049,000 or 21.5% of total assets at September 30, 2000, compared to
$182,968,000 or 21.5%, at June 30, 2000.
At September 30, 2000, the Company's leverage ratio was 6.8%, Tier 1
risk-based capital ratio was 9.0%, and total risk-based capital ratio was 10.9%,
compared to minimum required levels of 4% for leverage and Tier 1 risk-based
capital ratios and 8% for total risk-based capital ratio (subject to change and
the discretion of regulatory authorities to impose higher standards in
individual cases). At September 30, 2000, the Company had net risk-weighted
assets of $685,523,000.
ACQUISITIONS
On January 14, 2000, Spectrum acquired selected assets and the deposits
of Hartford-Carlisle Savings Bank in Carlisle, Iowa through a newly chartered
bank subsidiary ("Citizens Bank, Carlisle"). On January 14, 2000, state banking
regulators closed the Harford-Carlisle Savings Bank with offices in Carlisle,
Hartford, and Runnells, Iowa, and the FDIC was appointed receiver. Following the
closing of the bank, Spectrum assumed certain deposits and purchased certain
assets of the bank from the FDIC. Spectrum paid the FDIC a $5.5 million premium
to assume approximately $70.5 million in deposits, $4.8 million in liquid
assets, and $139,000 in loans. After the initial purchase, Spectrum acquired an
additional $34.4 million in loans and the fixed assets of the bank. All three of
the bank's locations were kept open. A major reason for this acquisition was the
proximity of this bank's offices to the Des Moines, Iowa market, and the ability
to open additional offices there. In October 2000, management applied to the
Iowa Division of Banking to move the headquarters of Citizens Bank, Carlisle to
Clive, Iowa, a suburb of Des Moines.
On July 13, 2000, the Company's subsidiary, Citizens Bank, Mt. Ayr
purchased the assets and assumed the liabilities of the branch of Commercial
Federal Bank, FSB located in Kellerton, Iowa. A premium of approximately
$175,000 was paid to acquire deposits of approximately $3,300,000.
As of August 7, 2000 the Company acquired all of the outstanding shares
of Hamburg Financial, Inc. ("HFI"), an unaffiliated holding company which owned
two banks in southwestern Iowa. The Company paid $8,730,995 in cash which
included a premium of $2,236,123 to acquire HFI and its subsidiaries; Thurman
State Corporation, a second-tier holding company which owned the United National
Bank of Iowa, headquartered in Sidney, Iowa; and Iowa State Bank, headquartered
in Hamburg, Iowa. Net Deposits of $56,196,000 and Net Loans of $48,989,000 were
acquired. The transaction was accounted for as a purchase. HFI and Thurman State
Corporation were merged into the Company. HFI's bank subsidiaries were merged
into the Company's subsidiary bank, Citizens Bank, Mt. Ayr.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Net Interest Income
Total interest income for the three months ended September 30, 2000 was
$18,883,000, a 36.0% increase over the three months ended September 30, 1999.
The increase was primarily the result of internal loan growth and bank
acquisitions.
Total interest expense for the three months ended September 30, 2000
was $10,282,000, a 51.5% increase over the three months ended September 30,
1999. The increase was the result of the issuance of Preferred Securities, bank
acquisitions and an increase in interest-bearing deposits, in addition to an
increase in average rates paid on deposits and other borrowings. Average total
interest-bearing liabilities increased by $184,582,000 or 32.3% during the three
months ended September 30, 2000 compared to the same period in fiscal 2000,
primarily due to the bank acquisitions.
Net interest income was $8,601,000 for the three months ended September
30, 2000, compared to $7,093,000 for the same period in 1999, an increase of
21.26%. The Company's net interest margin decreased to 4.2% for the three months
ended September 30, 2000 from 4.4% for the three months ended September 30,
1999. The decrease in the net interest margin was primarily caused by an
increase in the average cost of deposits and other borrowings. In
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addition, the acquisition in the third quarter of fiscal 2000 caused a
decrease in the net interest margin of the Company because over half of the
deposits assumed were invested in assets other than loans.
Provisions for Loan Losses
The provision for loan losses for the three months ended September 30,
2000, was $512,000, compared to $411,000 for the comparable 1999 period. The
increase was primary due to bank acquisitions in the first quarter of fiscal
year 2001.
Other Income
Other income for the three months ended September 30, 2000 was
$2,007,000, an increase of $286,000, or 16.6%, over the same period last year.
The increase in other income resulted from bank acquisitions and an increase in
other fees.
Other Expense
Other expense for the three months ended September 30, 2000 was
$6,113,000, an increase of $1,380,000, or 29.2%, over the same period last year.
This increase was primarily due to bank acquisitions and increased advertising
expenses.
Income Taxes
Income taxes for the three months ended September 30, 2000 and
September 30, 1999 was $1,176,000 and $1,177,000. The effective tax rates for
those periods were 29.5% and 32.1%. This decrease was primarily due to the
merged company Citizens Corporation being a "S" corporation at the time of
merger. Its merger into a "C" corporation provided a reduction in federal income
tax for the first quarter of the fiscal year 2001. Income tax expense has
historically been near 36%. It is estimated to return to this level in the
second quarter of the fiscal year 2001.
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 the Company's 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, 2000.
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
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
9
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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
27.1 Financial Data Schedule (for 3 months ended 9/30/00)
27.2 Financial Data Schedule (Restated for fiscal year
ended 6/30/00 and 3 months ended 9/30/99)
(b) REPORTS ON FORM 8-K
The Company filed no current reports on Form 8-K during the
quarter ended September 30,2000.
10
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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 14, 2000 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)
Date: November 14, 2000 By: /s/ Daniel Brabec
-----------------------------------
Daniel Brabec, CFO
Executive Officer
11
