<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities and Exchange
Act of 1934 for the Year Ended December 31, 1993.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________
COMMISSION FILE NO. (0-16163)
INVESTORS BANK CORP.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1566301
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Lake Street
Wayzata, Minnesota 55391
------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(612)475-8500
------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-------- --------
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 28, 1994 was approximately $43,631,000 (based on the
closing sale price of such stock on March 28, 1994 as reported by the NASDAQ
National Market System).
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 28, 1994 was:
Common Stock, $.01 par value: 3,425,564 shares
DOCUMENTS INCORPORATED BY REFERENCE: The responses to Items 5, 6, 7, and 8 are
incorporated herein by reference to certain information contained in the
Company's Annual Report to Shareholders for the year ended December 31, 1993.
The responses to Items 10, 11, 12 and 13 are incorporated herein by reference to
certain information contained in the Company's Definitive Proxy Statement for
its Annual Meeting of Shareholders to be held May 3, 1994.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (SECTION 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /x/
<PAGE>
PART I
ITEM 1. BUSINESS
Investors Bank Corp. (formerly Investors Savings Corp.) is a
savings and loan holding company incorporated under Delaware law and
headquartered in Minneapolis, Minnesota. Investors Bank Corp.'s
principal asset consists of all the outstanding capital stock of
Investors Savings Bank, F.S.B. (the "Bank"), a federally chartered
savings bank formed in June 1984. The Bank is the third largest thrift
institution in Minnesota based on assets. Unless the context otherwise
requires, Investors Bank Corp. together with its consolidated
subsidiary, the Bank, are herein referred to as "Investors" or the
"Company". The Company changed its fiscal year end from June 30 of
each year to December 31 effective December 31, 1989.
The Company currently operates twelve retail banking offices and
six mortgage production offices in the Minneapolis-St. Paul
metropolitan area, one mortgage production office in Duluth, Minnesota,
one mortgage production office in a Milwaukee suburb, and four mortgage
production offices in the Chicago region. Since commencement of its
operations in 1984, the Company has focused on the retail banking
business of attracting deposits from the general public within the
communities it serves, and on originating and investing in, or selling
and servicing, loans secured by mortgages on residential property
primarily in the same communities. The Company's operations, however,
are distinguishable from many other thrift and community banking
institutions by a proportionately large and active mortgage banking
organization. In its primary market, the twin cities of Minneapolis
and St. Paul, the Company is one of the largest originators of
residential mortgages.
The Company's operations during the year ended December 31, 1993
continued to be positively affected by low market interest rates and a
high level of mortgage banking activity. Net interest margins, which
had increased to a record high level in 1991 and 1992, declined during
1993 as asset yield repricings declined at a more rapid rate than
liability repricings. The decline in market interest rates in 1992 and
1993 contributed to a very high level of mortgage banking activity
generating both increased noninterest income and a substantial amount
of adjustable rate mortgages ("ARMs") that are retained in the
Company's portfolio. Between December 31, 1992 and 1993 the Company's
interest-earning assets increased 26% and contributed significantly to
the increased net interest income.
The Company believes there are opportunities to expand both its
retail banking and mortgage banking operations. Currently, the Company
is interested in expanding in markets in which it now operates or in
contiguous states. The Company opened a mortgage banking office in a
Milwaukee suburb in 1993 and a mortgage banking office in Merrillville,
Indiana in March 1994, the fourth office in the Chicago Region. To
expand its retail consumer banking services, the Company is currently
investigating establishing additional retail banking offices in markets
currently served by its banking or mortgage banking operations. The
Company opened three retail banking offices during the December 1993
quarter. One site is near the Knollwood Shopping Center in St. Louis
Park and a second is in the IDS Center, the hub of the downtown
Minneapolis skyway system. The third office is in a Cub Foods store in
Minnetonka, the Company's first supermarket-based bank. Although it
presently has no offers or arrangements outstanding for acquisitions,
the Company may also, from time to time, consider acquisitions that
fall within its targeted markets.
LENDING
GENERAL. As a federally chartered savings bank, the Bank is
authorized by Federal law to invest without limitation in loans secured
by residential real property and by savings accounts, in government
securities, in Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) and Government National Mortgage
Association (GNMA) securities, in deposits insured by the Federal
Deposit Insurance Corporation (FDIC), in securities of states or
municipalities, and in various liquid investments. In addition, the
Bank may invest in loans secured by commercial real estate to the
extent of 400% of its capital; in secured and unsecured commercial,
corporate, business and agricultural loans to the extent of 10% of its
assets; in secured and unsecured consumer loans to the extent of 35% of
its assets; in education loans, nonconforming loans, and unsecured
construction loans each to the extent of 5% of its assets; and in
service corporations to the extent of 2% of its assets. The Company is
in compliance with all the above requirements.
2
<PAGE>
Despite this broad investment authority, the Company, through the
Bank, has historically conducted primarily the traditional savings and
loan business of originating, purchasing, holding and selling
residential real estate loans. During the past few years, the Company
has also placed increasing emphasis on consumer loans originated
through its retail banking offices.
The following table sets forth the composition of the Company's
loan portfolio at the dates indicated by type of loan:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
------------------------------------------------------------------------------------------- ----------------
1993 1992 1991 1990 1989 1989
---------------- --------------- ---------------- ---------------- --------------- ----------------
BALANCE % BALANCE % BALANCE % BALANCE % BALANCE % BALANCE %
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential $671,659 84.6% $550,117 84.7% $398,270 85.1% $448,195 88.5% $400,110 88.0% $360,014 85.6%
Commercial 30,630 3.9 32,722 5.1 35,226 7.6 31,623 6.2 27,106 6.0 36,648 8.7
Construction 1,428 .3 2,468 .5 1,510 .4
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate
loans 702,289 88.5 582,839 89.8 433,496 92.7 481,246 95.0 429,684 94.5 398,172 94.7
Consumer loans 91,691 11.5 66,489 10.2 34,261 7.3 25,388 5.0 25,225 5.5 22,376 5.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total portfolio
loans $793,980 100.0% $649,328 100.0% $467,757 100.0% $506,634 100.0% $454,909 100.0% $420,548 100.0%
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
Because virtually all of the loans retained by the Company are
ARMs or other loans that are prime related, 98.2% of the Company's loan
portfolio adjusts periodically in accordance with market interest
rates. See Item 7 -- "Management's Discussion and Analysis -
Asset/Liability Management and Interest Rate Risk". Nevertheless,
because most of the loans originated by the Company are 15 or 30 year
residential loans with principal payments that amortize over the loan
period and are relatively young, a majority of the principal payments
on the Company's loans are due (or "mature") in more than 15 years.
The following table sets forth the principal maturities of the
Company's assets at December 31, 1993:
<TABLE>
<CAPTION>
1 2 3 4-5 6-10 11-15 Over 15
Years Years Years Years Years Years Year Total
-------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
Adjustable rate:
1-4 family residental
real estate loans $10,022 $10,631 $11,281 $24,668 $ 76,039 $269,349 $269,344 $671,334
Fixed Rate:
1-4 family residential
real estate loans 22 24 26 60 193 325
Commercial real estate 1,770 1,538 984 9,684 16,456 198 30,630
----------- --------- --------- --------- ---------- ---------- ---------- ----------
Total Mortgage Loans 11,814 12,193 12,291 34,412 92,688 269,547 269,344 702,289
Consumer loans 5,359 2,819 2,939 15,326 45,626 16,990 2,632 91,691
----------- --------- --------- --------- ---------- ---------- ---------- ----------
Total Loans $17,173 $15,012 $15,230 $49,738 $138,314 $286,537 $271,976 $793,980
----------- --------- --------- --------- ---------- ---------- ---------- ----------
----------- --------- --------- --------- ---------- ---------- ---------- ----------
</TABLE>
RESIDENTIAL MORTGAGE LENDING. Residential mortgage lending
constitutes the vast majority of the Company's lending activities. One
to four family residential mortgage loans comprised 84.6% of the
Company's loan portfolio at December 31, 1993. Loans secured by
residential real estate generally have presented a lower level of
credit risk than consumer loans or loans secured by commercial
properties.
Substantially all of the residential first mortgage lending
activities of the Company are conducted out of the Company's twelve
mortgage production offices. The Company originates mortgages on one
to four family residential properties for inclusion in the Company's
loan portfolio or for sale in the secondary market. Although the
Company has authority to make loans secured by real property throughout
the United States, because of its desire to maintain close control over
such activities and because of the relatively stable markets they
represent, substantially all of the loans originated by the Company are
secured by real property in the metropolitan areas of Minneapolis-St.
Paul, Duluth, Milwaukee and Chicago.
3
<PAGE>
Most of the Company's loans are originated by loan officers
through contacts with local realtors and builders rather than through
direct solicitation. Before funding a mortgage loan, employees process
applications, perform a credit review (including verification of
employment, credit standing and personal assets), obtain an appraisal
of the property to be financed and obtain title insurance in the
Company's favor. At the time an application is accepted, the Company
collects a deposit on loans for appraisal and credit reports. At the
loan closing, the Company advances an amount equal to the principal
amount of the mortgage less a discount based on its loan pricing
policies. In addition, the borrower pays the Company an origination
fee for its services, which is normally equal to one percent of the
principal amount of the mortgage.
Substantially all mortgage loans secured by one to four family
residential properties originated by the Company conform to established
Federal Housing Authority (FHA), Veterans Administration (VA), FHLMC
and FNMA guidelines and include both fixed rate and adjustable rate
loans. Loan size, occupancy/ownership characteristics, appraisal
requirements and loan-to-value relationships are determined by internal
policy and secondary marketing guidelines. The Company's internal
policy requires that a loan that exceeds 80% of the value of the
secured property be made only if it is insured by a FNMA and FHLMC
qualified insurer. Second mortgage loans are generally made in an
amount in excess of unpaid prior mortgages, liens and encumbrances on
the property, and do not exceed the lesser of 80% of the fair market
value of the property or the purchase price of such property.
The Company retains for its own loan portfolio most of the ARMs it
originates. At December 31, 1993, the Company's portfolio consisted of
$656.4 million principal amount of first mortgage loans and $13.6
million principal amount of second mortgage loans. The Company offers
a variety of ARM plans, including ARMs that reprice every six months
and every year. For a portion of the one year ARM loans, the interest
rate is fixed for an initial two-year or three-year period. At
December 31, 1993, 99% of the Company's ARMs were set to reprice based
upon a fixed margin over the weekly average yield of treasury
securities generally having a maturity equal to the repricing period of
the ARMs. All ARMs originated by the Company are subject to a lifetime
cap on the maximum interest rate they may bear (currently ranging from
10-1/2% to 12-5/8%) and to caps on the maximum amount that they may adjust
during any repricing period (currently 1% for a 6 month ARM and generally 2%
for a one year ARM). The Company's ARMs do not contain due on sale
clauses but are instead assumable by qualified buyers. The Company's
ARMs generally provide for an increase or decrease in loan payments at
the end of each repricing period to an amount that will amortize the
loan over its remaining term at the adjusted interest rate. Although
this avoids negative amortization, during periods of rapidly increasing
interest rates it could result in significant increases in a borrower's
monthly mortgage payments.
Substantially all long-term fixed-rate mortgages and government
insured ARMs originated by the Company are sold in the secondary market
or pooled and sold as mortgage-backed securities. Conventional fixed-
rate loans may be sold to FHLMC, FNMA or other investors. Most FHA and
VA mortgage loans originated by the Company have been placed in
mortgage pools backing GNMA mortgage pass-through certificates. The
Company also pools conventional mortgages to back FHLMC participation
certificates and to back FNMA pass-through securities.
To increase its servicing portfolio, the Company purchases newly
originated mortgage loans from correspondents and pools the loans to
support mortgage-backed securities. The Company intends to continue
its correspondent and pooling activities. The same underwriting
criteria are applied to correspondent loans as loans originated by the
Company.
4
<PAGE>
The following table sets forth the residential real estate lending
and loan purchase and sale activities of the Company during the periods
indicated:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1993 1992 1991
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Additions to mortgage loans:
Mortgage loans originated $1,102,916 $929,088 $506,557
Mortgage loans purchased from
correspondents 125,896 111,788 69,809
Other mortgage loans purchased 609 1,126 6,246
Loans to finance foreclosed real estate 308 823 3,449
---------- ---------- --------
Total 1,229,729 1,042,825 586,061
---------- ---------- --------
Reductions to mortgage loans:
Mortgage loans sold:
GNMA pass-through certificates 397,791 245,244 160,539
FNMA mortgage-backed certificates 501,255 481,163 291,172
Other 83,718 73,296 60,909
Repayments 99,613 90,139 89,641
Foreclosures 2,329 3,224 5,947
---------- ---------- --------
Total 1,084,706 893,066 608,208
---------- ---------- --------
Net increase (decrease) in mortgage loans $145,023 $149,759 ($22,147)
---------- ---------- --------
---------- ---------- --------
</TABLE>
A gain or loss may be realized on the sale of a loan in the secondary
market depending on whether the mortgage is sold at a principal amount
above or below the amount advanced by the Company and, in the case of
loans on which the Company has retained the servicing, on whether the
servicing fees over the life of the loan exceed a normal servicing fee
("excess servicing fees"). For "covered loans" (loans for which the
Bank has obtained a purchase commitment when it executes a pricing
commitment), the Company may originate loans above the sales price and
incur a marketing loss. The value of the servicing that is retained
and the resulting servicing fee income or gain on sale of servicing
rights has exceeded such marketing loss to the Company. During periods
of high volume loan production and rapidly increasing rates, the
Company's ability to match pricing commitments with purchase
commitments may be impaired and marketing losses may occur which would
reduce gain on sales of mortgage loans.
SERVICING. The Company retains all of the servicing on private
investor ARM loan sales, and a portion of the servicing on GNMA
securities and other mortgage-backed securities. The Company collects
principal and interest payments and remits them, less a servicing fee,
to holders of the mortgage or mortgage-backed securities. The Company
also deposits property taxes and insurance payments which it receives
in escrow accounts until such payments are due. For such servicing,
the Company typically collects a servicing fee ranging from 1/4% to
1/2% of the outstanding principal balance of the mortgage per year.
5
<PAGE>
The following table sets forth certain information regarding the Company's
servicing for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1993 1992 1991
----------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Amounts of loans serviced for
others at year end $1,357,204 $981,468 $660,051
Loan servicing fees collected $2,830 $1,491 $2,201
Servicing fees as percentage
of interest income 4.90% 2.84% 4.02%
Servicing contracts for others
at year end 16,510 12,361 8,712
</TABLE>
The Company has capitalized as a deferred charge the discounted
present value of the amount by which future servicing fees it is
entitled to collect exceeds a normal market rate servicing fee. These
capitalized fees are amortized as fees are collected. The amount that
is capitalized is adjusted based on certain prepayment assumptions. If
the actual prepayments exceed the Company's assumptions, charge-offs of
amounts capitalized may be necessary.
Since 1988, the Company has sold loan servicing rights, and
expects to continue to sell loan servicing rights, to offset the cost
of originating mortgage loans and provide noninterest income. The
Company may deviate from this policy periodically because of market
fluctuations in the pricing of loan servicing rights. When it elects
to sell servicing rights, the Company normally contracts with a broker
and submits a portion of its servicing portfolio for competitive bids.
The broker contacts other financial institutions and mortgage banking
companies through circulation of a disclosure document describing the
servicing to be sold and the minimum sale terms.
CONSUMER LENDING. A Federal savings institution such as the Bank
is authorized to make secured or unsecured consumer loans in various
forms including home equity loans, home improvement loans, loans
secured by deposit accounts, car loans, boat loans and personal lines
of credit. These loans generally have a higher degree of credit risk
than residential mortgage loans and the Company maintains a higher
level of general reserves for loan losses. At December 31, 1993,
consumer loans totaled $91.7 million or 11.5% of the Company's
permanent loan portfolio.
Since 1990 the Company has placed increased emphasis on consumer
lending and has located consumer lending officers in most of its retail
banking offices. Approximately 87.3% of the Company's consumer loans
at December 31, 1993 were home equity loans secured by residential real
estate. To expand its home equity loan origination, the Company has
periodically offered special programs, such as a low fee home equity
loan program in which the Company does not charge for appraisals or
origination fees and during 1993 established a home improvement lending
division. The Company's policy is to make home equity loans which,
when combined with the balance of the first mortgage on the same
property, do not exceed 80% of the property's appraised value. Private
mortgage insurance is obtained for any loans which exceed such limit.
Consumer loans are also made for other housing related
expenditures as well as to finance education, debt consolidation, and
major purchases, such as autos, boats, recreational vehicles and
vacation homes. Loan products are marketed through the local media,
direct mail, point of sale advertising in the retail banking offices,
and solicitation of the Company's existing mortgage customer base.
Since commencement of operations, the Company has also had a
private banking department through which it makes consumer loans and a
limited amount of business purpose loans. A majority of such loans are
made to upper income, high net worth individuals on both a secured and
unsecured basis. The Company's private banking department generally
processes applications for such loans, performs credit checks and
monitors delinquencies.
6
<PAGE>
COMMERCIAL REAL ESTATE LENDING. Because of competitive markets
and the treatment of commercial real estate loans under risk-based
capital regulations, the Company eliminated commercial real estate
lending as a separate department in early 1989. The Company does not
intend to actively solicit commercial real estate loans in the
foreseeable future. The commercial real estate loans originated prior
to 1989 consist primarily of loans secured by apartment complexes and
small retail shopping malls in the Minneapolis-St. Paul metropolitan
area. The Company maintains a higher general loss reserve on
commercial real estate loans, which represent a higher credit risk,
than residential real estate loans. Most of the Company's commercial
real estate loans are adjustable rate loans that reprice annually,
mature in ten years and are paid based on a 30-year amortization
schedule. At December 31, 1993, the Company's commercial real estate
loans totaled approximately $30.6 million, or 3.9% of its permanent
loan portfolio.
CONSTRUCTION LENDING. The Company makes a limited amount of
construction loans to established home builders in the Minneapolis-St.
Paul metropolitan area. There were no outstanding construction loans
or commitments to home builders at December 31, 1993. In addition, the
Company occasionally makes construction loans directly to homeowners,
which are often secured by collateral in addition to the subject real
estate, through its private banking department. At December 31, 1993,
the Company had $859 thousand outstanding and additional commitments of
$1.0 million for such construction loans to homeowners.
DELINQUENT LOANS. When a borrower fails to make a required
payment on a mortgage loan, the loan is considered delinquent and,
after expiration of the applicable cure period, the borrower is charged
a late fee. The Company follows practices customary in the savings
industry in attempting to cure delinquencies and in pursuing remedies
upon default. Generally, if the borrower does not cure the delinquency
within 90 days, the Company initiates foreclosure action. During
foreclosure and the statutory redemption period, such property is
carried in the "real estate in judgment" account and included in
"foreclosed real estate". If the loan is not reinstated, paid in full
or refinanced, the collateral is sold. The Company is often the
purchaser. In such instances, acquired property is carried in the
Company's "real estate owned" account, also part of "foreclosed real
estate", until the property is sold.
All residential mortgage loans delinquent for 90 days or more are
considered nonaccrual. Commercial real estate loans are considered
nonaccrual when collection of interest is doubtful.
The Company includes in nonperforming assets all nonaccrual loans
and foreclosed real estate, both net of specific reserves.
The following table summarizes the Company's nonperforming assets
at the dates indicated:
<TABLE>
<CAPTION>
December 31 June 30
-------------------------------------------------------------------- ----------
1993 1992 1991 1990 1989 1989
-------- --------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans:
Residential real estate $1,852 $1,987 $3,509 $3,382 $1,400 $669
Commercial real estate 1,182 205 402
Consumer 51 43 160 749 68
-------- --------- ---------- ---------- ---------- ----------
1,903 2,030 4,851 4,131 1,673 1,071
-------- --------- ---------- ---------- ---------- ----------
Real estate owned
and in judgment, net:
Residential 1,868 3,242 3,068 2,723 774 666
Commercial 4,807 3,997 3,275 3,367 9,757 1,096
-------- --------- ---------- ---------- ---------- ----------
6,675 7,239 6,343 6,090 10,531 1,762
-------- --------- ---------- ---------- ---------- ----------
Total nonperforming assets $8,578 $9,269 $11,194 $10,221 $12,204 $2,833
-------- --------- ---------- ---------- ---------- ----------
-------- --------- ---------- ---------- ---------- ----------
Nonperforming loans as a
percentage of net loans
held in portfolio .24% .31% 1.04% .82% .37% .26%
Nonperforming assets as a
percentage of total assets .85% 1.14% 1.85% 1.67% 2.21% .56%
</TABLE>
7
<PAGE>
See Item 7 - "Management's Discussion and Analysis - Nonperforming
Assets" for discussion on these properties and an analysis of the changes in
nonperforming assets.
RESERVES FOR LOAN AND REAL ESTATE LOSSES. The reserves for losses
provide for potential losses in the Company's loan and real estate
portfolios. The reserves are increased by the provision for losses and
recoveries and decreased by charge-offs. The adequacy of the reserves
is judgmental and is based on continual evaluation of the nature and
volume of the loan and real estate portfolios, overall portfolio
quality, specific problems loans, collateral values, historical
experience and current economic conditions that may affect borrowers'
ability to pay. Pursuant to regulations governing the classification
of assets, insured institutions such as the Bank are required to
classify troubled assets as "substandard", "doubtful", and "loss".
Institutions must establish specific loss reserves for assets
classified as doubtful and loss and the Office of Thrift Supervision
(OTS) through their examinations may require an increase in the
institution's reserve for loan and real estate losses if the examiner
concludes such reserves are inadequate. In December 1993, the OTS
completed a routine examination of the Bank. No additions to loss
reserves were required following this examination. At December 31,
1993, the Company had classified $10.3 million and $138 thousand of its
assets as substandard and loss, respectively. No loans were classified
as doubtful at December 31, 1993. For information on interest income
excluded on nonaccrual loans see Item 8 -- Note 4 of Notes to
Consolidated Financial Statements.
The following table sets forth information regarding the Company's
reserve for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Six months
Year ended ended
Year ended December 31 June 30 December 31
------------------------------------------------------- ----------- -------------
1993 1992 1991 1990 1989 1989
--------- --------- --------- --------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance $2,599 $1,982 $1,067 $450 $560 $796
Provisions for losses 632 869 1,009 803 307 256
Charge-offs:
Residential real estate loans (103) (199) (28) (140) (45) (100)
Commercial real estate loans (286) (5) (1) (435)
Consumer loans (35) (151) (124) (43) (25) (67)
--------- --------- --------- --------- ----------- -------------
Total charge-offs (424) (350) (152) (188) (71) (602)
--------- --------- --------- --------- ----------- -------------
Recoveries:
Residential real estate loans 111 65 47 2
Consumer loans 63 33 11
--------- --------- --------- ---------
Total recoveries 174 98 58 2
--------- --------- --------- --------- ----------- -------------
Ending balance $2,981 $2,599 $1,982 $1,067 $796 $450
--------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- ----------- -------------
Ratio of net charge-offs
to average loans outstanding .03% .04% .02% .04% .02% .25%
</TABLE>
As the foregoing table illustrates, the Company's reserve for loan
losses has generally increased over the periods presented as the
Company's loan portfolio has increased. The provision for loan losses
over the periods presented reflects both recent experience in charge-
offs, and a reevaluation of the methods of establishing the reserve for
loan losses in 1990. In 1990, the Company established for the first
time an unallocated general reserve for unforeseen loan losses and a
general reserve for losses on performing real estate.
8
<PAGE>
The following tables present the separate reserves allocated for
each category of loans and those allocated reserves as
a percentage of the Company's total loan portfolio at the dates
indicated:
Allocation Amount:
<TABLE>
<CAPTION>
December 31 June 30
---------------------------------------------------------------------- ------------
1993 1992 1991 1990 1989 1989
---------- ---------- ---------- ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $591 $507 $394 $426 $90 $178
Commercial real estate 260 283 336 322 234 483
Consumer 568 439 381 202 126 135
---------- ---------- ---------- ----------- ----------- ------------
Total allocated 1,419 1,229 1,111 950 450 796
Unallocated portion 1,562 1,370 871 117
---------- ---------- ---------- ----------- ----------- ------------
Total reserve $2,981 $2,599 $1,982 $1,067 $450 $796
---------- ---------- ---------- ----------- ----------- ------------
---------- ---------- ---------- ----------- ----------- ------------
</TABLE>
Allocation as a Percent of Loans Outstanding:
<TABLE>
<CAPTION>
December 31 June 30
---------------------------------------------------------------------- ------------
1993 1992 1991 1990 1989 1989
---------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate .08% .08% .08% .09% .02% .04%
Commercial real estate .03 .04 .07 .06 .05 .12
Consumer .07 .07 .08 .04 .03 .03
---------- ---------- ---------- ----------- ----------- ------------
Total allocated .18 .19 .23 .19 .10 .19
Unallocated portion .20 .21 .19 .02
---------- ---------- ---------- ----------- ----------- ------------
Total reserve .38% .40% .42% .21% .10% .19%
---------- ---------- ---------- ----------- ----------- ------------
---------- ---------- ---------- ----------- ----------- ------------
</TABLE>
The Company's portfolio continues to consist primarily of
residential real estate loans and the reserve for losses allocated to
residential real estate loans reflects the low loss experience
associated with these loans. Residential real estate loans are well
collateralized and property values have remained stable in the markets
the Company lends in. The reserve for losses allocated to commercial
real estate loans reflects the higher credit risk associated with
commercial real estate lending. The reserve for losses allocated to
consumer loans has grown as outstandings grew. That reserve level was
higher at December 31, 1990 due to the adoption in 1990 of a detailed
method of categorizing loans and related reserve levels. The increases
in 1991 through 1993 are the result of growth in the consumer loan
portfolio.
The following tables present the allocation of the reserve for
real estate losses and those allocated reserves as a percentage of the
foreclosed real estate as of December 31 for the years indicated:
<TABLE>
<CAPTION>
Allocation Amount
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Residential real estate $35 $82 $104 $120
Commercial real estate 100 614 418 286 $100
-------- -------- --------- -------- --------
Total reserve $135 $696 $522 $406 $100
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
<CAPTION>
Allocations as a Percent of Real Estate
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Residential real estate .51% 1.03% 1.51% 1.85%
Commercial real estate 1.47 7.74 6.09 4.40 .94%
-------- -------- --------- -------- --------
Total reserve 1.98% 8.77% 7.60% 6.25% .94%
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
</TABLE>
The higher reserve for real estate losses was largely due to the
continued decline in commercial real estate values in 1990 that
affected the Company's portfolio. The increase in the reserve for 1991
and 1992 is the result of a higher specific reserve on a commercial
retail property and the decline in 1993 was the result of a charge-off
as the property was disposed of. For additional information, see Item 8 --
Note 8 of Notes to Consolidated Financial Statements and Item 7 -- "Management's
Discussion and Analysis - Analysis of Reserves for Loan and Real Estate
Losses".
9
<PAGE>
INVESTMENT PORTFOLIO
Although the Company has authority to make investments in a number
of government, municipal and corporate debt securities, the Company
does not have a large portfolio of investment securities. The
portfolio of investment securities the Company maintains are mostly
U.S. Government agency securities and investment grade corporate debt
securities. The following table sets forth the components of the
Company's investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
December 31 June 30
----------------------------------------------------------------------- ----------
1993 1992 1991 1990 1989 1989
---------- ---------- ---------- ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Obligations of U.S. Government
corporations and agencies $11,626 $5,372 $4,371 $4,291 $3,113 $1,102
State and municipal obligations 210 510 430 550 250
Investment grade corporate bonds 15,439 11,789 12,760 12,496 7,232 6,883
Other 504 501
---------- ---------- ---------- ----------- ----------- ------------
$27,779 $18,172 $17,561 $17,337 $10,595 $7,985
---------- ---------- ---------- ----------- ----------- ------------
---------- ---------- ---------- ----------- ----------- ------------
</TABLE>
See Note 3 - Notes to Consolidated Financial Statements included
as Item 8 to this report for information regarding the carrying values
and market values of the Company's investment securities. The
following table presents information regarding the scheduled maturities
and yields on investment securities at December 31, 1993:
<TABLE>
<CAPTION>
Due in one Due in one Due in five
year or less to five years to six years Total
----------------- ------------------ ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations in U.S. Government
and agencies $2,952 8.54% $6,767 5.81% $1,907 5.35% $11,626 6.43%
State and municipal
obligations 130 7.15 80 5.65 210 6.58
Investment grade corporate bonds 2,259 7.31 13,180 5.34 15,439 5.63
Other 504 3.99 504 3.99
-------- ------- -------- ------- -------- -------- --------- --------
$5,845 7.64% $20,027 5.50% $1,907 5.35% $27,779 5.94%
-------- ------- -------- ------- -------- -------- --------- --------
-------- ------- -------- ------- -------- -------- --------- --------
</TABLE>
DEPOSITS AND SOURCES OF FUNDS
The primary sources of funds for the lending and general business
activities of the Company are retail deposits and advances from the
FHLB. In addition, the Company derives funds from loan sales and
principal and interest payments on loans. Scheduled loan payments are
a relatively stable source of funds, while deposit inflows and outflows
and loan prepayments, which are influenced significantly by general
interest rate levels, interest rates available on other investments,
economic conditions and other factors, are less stable.
DEPOSITS
The following table sets forth the deposit flows of the Company
for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1993 1992 1991
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Net deposit inflow (outflow) $70,754 ($22,094) ($26,176)
Interest credited or accrued 20,307 23,897 30,757
------------ ----------- -----------
Net increase in deposits $91,061 $1,803 $4,581
------------ ----------- -----------
------------ ----------- -----------
Deposits at end of period $603,413 $512,352 $510,549
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
10
<PAGE>
The Company has built its savings business through retail deposits
at its twelve retail banking offices in the Minneapolis-St. Paul
metropolitan area. Substantially all of the Bank's depositors are
Minnesota residents. The Company does not currently bid on, or
actively solicit, deposits from municipalities or governmental agencies
and none of the Company's outstanding deposits has been obtained in
brokered transactions.
The Company attracts deposits by advertising through newspaper,
radio and direct mail advertising and by various special promotions.
The Company also offers deposit and withdrawal services for customers
at automated teller machines by participating in the CIRRUS-TM- network.
The Company offers a variety of savings plans to its depositors
including interest-bearing checking accounts, regular passbook savings
accounts, money market deposit accounts, time certificates and Koegh
and individual retirement accounts. For a description of the portion
of total deposits represented by each type of account and the average
rate of interest paid on such accounts as well as the maturities of the
Company's certificate accounts, see Item 8--Note 9 of Notes to
Consolidated Financial Statements.
At December 31, 1993, the Company had $38.7 million of certificate
accounts with individual balances of $100,000 or more. For additional
information on deposits see Item 7 -- "Management's Discussion and
Analysis -- Net Interest Income Yield Analysis table".
BORROWINGS. The following table sets forth the Company's
borrowings for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1993 1992 1991
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
FHLB advances $325,000 $225,000 $50,000
Subordinated debt 25,800 25,800 2,800
Capitalized lease obligations 466 510 548
---------- ---------- ---------
$351,266 $251,310 $53,348
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
As a depository institution insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC, the Bank is required to own
capital stock in the FHLB and is authorized to apply for advances on
the security of such stock and certain mortgages and other assets
(principally securities which are obligations of, or guaranteed by, the
United States government), provided standards related to credit
worthiness are met. See "Federal Home Loan Bank System". FHLB
advances are made in accordance with several credit programs of the
FHLB, each of which has its own interest rate and range of maturities.
The FHLB prescribes the acceptable uses of such advances and the
limitations on the amount of advances to each member.
On November 22, 1991, $7.6 million of the Bank's 12.75%
Subordinated Capital Notes due 1999 were exchanged by the capital note
holders for preferred stock of the Company. (See Item 8--Note 13 of
Notes to Consolidated Financial Statements). On December 11, 1992, the
Company issued $23.0 million of 9.25% Subordinated Notes due 2002. Of
the $22.1 million net proceeds, $12.0 million was contributed to the
Bank's paid-in capital during 1992 and an additional $5.0 million in
1993. The balance of the net proceeds remains at the Company to
support future growth of the Bank's operations. For additional
information on borrowings, see Item 7 -- "Management's Discussion and
Analysis, Net Interest Income, Liquidity and Capital Management"
sections and see Item 8 -- Note 10 of Notes to Consolidated Financial
Statements.
11
<PAGE>
COMPETITION
The Company faces substantial competition both in its retail
banking and its mortgage banking operations. Competition for deposits
comes from other savings institutions, banks, credit unions, money
market funds and other mutual funds, corporate and government debt
securities, insurance companies and pension funds, many of which have
greater capital resources than the Company and offer investment
alternatives without comparable regulatory restrictions. The Company's
most direct deposit competition comes from two large federally-
chartered thrift institutions and a large number of commercial banks,
including two major banks. The Company believes that the primary
factors in competing for deposits are interest rates offered, type of
products offered and location of banking offices. Competition in
residential lending comes primarily from other mortgage companies,
banks and savings institutions. The primary factors in competing for
mortgage loans are interest rates offered, type of products offered,
origination fees charged and range of services offered.
EMPLOYEES
The Company had 509 employees at December 31, 1993, 451 of whom
were full-time employees and 58 of whom were part-time employees. Of
such employees, 308 were mortgage banking personnel, 136 were retail
banking personnel and 65 were corporate and administrative personnel.
None of the employees of the Company is a member of a union or subject
to a collective bargaining agreement, and the Company believes that its
relationship with its employees is satisfactory.
FEDERAL HOME LOAN BANK SYSTEM
The bank is required to invest in FHLB stock in an amount equal to
the greater of 1% of the unpaid principal of home mortgage loans or 5%
of the Bank's borrowings with the FHLB. Investment in capital stock of
the FHLB increased to $16.3 million at December 31, 1993. The increase
was the result of additional stock purchases to meet the requirement to
maintain stock equal to 5% of the Bank's FHLB borrowings.
FEDERAL RESERVE SYSTEM
Under Federal Reserve Board regulations, depository institutions
are required to maintain reserves against their transaction accounts
(primarily checking accounting for the Bank), nonpersonal time deposits
and Eurocurrency liabilities. At present, the reserve requirement for
transaction accounts is 3% of the first $51.9 million of such accounts
and 10% of the amount in excess of $51.9 million. The Federal Reserve
Board also has authority to impose supplemental reserves of up to 4% of
transaction accounts and emergency reserve requirements upon
consultation with committees of Congress.
REGULATION
GENERAL. As a federal chartered savings bank engaged in mortgage
and consumer lending and in the acceptance of deposits, the Bank is
subject to extensive federal and state regulation in virtually all
areas of its operations, including regulations that govern the type of
its investments and liabilities, the form of the instruments used to
represent such assets and liabilities, the advertisement and promotion
of such assets and liabilities, its efforts to support community
reinvestment, its dealings with affiliates, the location and, in some
instances configuration of its offices and various other matters. As a
federally-chartered savings bank with accounts insured by SAIF of the
FDIC, the Bank's primary regulators are the OTS, an office of the
Department of Treasury and the FDIC. In addition, the Bank is a member
of and may obtain advances from the Federal Home Loan Bank system which
provides credit for home finance to savings institutions and other
financial institutions that meet certain tests as to the composition of
their assets.
INSURANCE OF ACCOUNTS. The FDIC administers both the fund that
insures commercial banks (the "Bank Insurance Fund" or "BIF") and the
SAIF. FDIC insurance assessments for SAIF members must be not less
than .185% of deposits from January 1, 1994 to December 31, 1997 and
.15% of deposits after 1997. The FDIC may, in its discretion, increase
the rate of assessments to a rate which is adequate to increase the
SAIF reserves to a specified percentage of deposits.
12
<PAGE>
The FDIC currently uses a risk-based assessment system for all
SAIF and BIF members. Members are assigned an assessment risk
classification based on the institution's capitalization as of a date
six months prior to the beginning of the assessment period (assigning
the institution to one of three categories) and an evaluation by the
institution's primary regulator of the risk posed by the institution to
the insurance fund (assigning the institution to one of three
subgroups). Well capitalized institutions (institutions with risk-
based capital exceeding 10%, core capital exceeding 5% and core capital
to risk-weighted assets exceeding 6%) are assessed at between .23% and
.29% of deposits, depending on their subgroup assignment. Adequately
capitalized institutions (institutions with risk-based capital
exceeding 8%, core capital exceeding 4% and core capital to risk-
weighted assets exceeding 4%) are assessed at between .26% to .30% of
deposits. Undercapitalized institutions (institutions that do not meet
applicable capital requirements) are assessed at between .28% and .31%
of deposits. The Bank qualifies as a well-capitalized institution and
its assessment rate was .23% during 1993.
Deposits in institutions insured by SAIF are insured to $100,000
per insured depositor and are backed by the full faith and credit of
the United States government.
REGULATORY CAPITAL. A federal savings institution such as the
Bank is required to satisfy three capital requirements: (i) a
requirement that "tangible capital" be not less than 1.5% of adjusted
total assets, (ii) a requirement that "core capital" be not less than
3% of adjusted total assets, and (iii) a risk-based capital standard of
8% of "risk-adjusted" assets. The Bank currently meets each such test.
See Item 7 -- "Management's Discussion and Analysis -- Capital
Management" or Note 11 of Notes to Consolidated Financial Statements
included as Item 8 for reconciliation of capital compliance.
Tangible capital includes stockholder's equity, noncumulative
perpetual preferred stock, certain nonwithdrawable accounts, pledged
deposits of mutual savings institutions, and minority interests in
fully consolidated subsidiaries, less intangible assets and certain
investments in subsidiaries that conduct activities not permissible for
a national bank. Purchased mortgage servicing rights may be included
in tangible capital at the lower of 90% of fair market value, 90% of
original cost, or 100% of current amortized book value.
Core capital consists of tangible capital plus a percentage of
certain marketable intangible assets, and a decreasing portion (through
1994) of qualifying supervisory goodwill. Because the Bank does not
have any supervisory goodwill or marketable intangible assets that
would be added to tangible capital, its core capital is equivalent to
its tangible capital.
Risk-based capital is determined by assigning a risk-weight,
ranging from 0% for government securities to 200% for certain equity
investments, to each of an institution's assets, including the credit-
equivalent amount of off-balance sheet assets. An institution is
required to maintain total regulatory capital (consisting of both "core
capital" and supplementary capital such as the Bank's subordinated
debt) equal to the regulatory mandated percentage (currently 8.0%) of
the sum of its assets multiplied by their respective risk-weights. In
August 1993, the OTS adopted final regulations effective in January
1994 for all savings institutions (except certain institutions with
less than $300 million of assets) that add an interest rate risk
component to the risk based capital test. Under these regulations,
each institution is required to submit a complex report of its assets
and liabilities to the OTS that forms the basis for calculation of the
effect a 200 basis point change in market interest rates would have on
the institution's "net portfolio value" (a measure based on the cash
flows from, and required by, the institution's assets, liabilities and
off-balance sheet contracts). If such net portfolio value declines by
more than two percent of the estimated value of the institution's
assets, one half of the excess is subtracted from the institution's
total capital in calculating the risk based capital test. The interest
rate risk is calculated based on the assets and liabilities two
quarters preceding the calculation date. As of December 31, 1993, the
Bank's required regulatory capital was not impacted by the interest
rate risk rule.
13
<PAGE>
A savings institution that fails to meet its capital requirements
is subject to an increased level of monitoring and must submit a
capital restoration plan to the OTS within 45 days of the date its
capital falls below the applicable standard. The capital plan must
include a guarantee by the institution's holding company that the
institution will comply with the plan until it is adequately
capitalized for four quarters or the holding company is liable for the
deficiency in the institution's capital deficit (up to 5% of the
institution's assets). A savings institution not meeting its capital
requirements may not, without approval of the OTS, allow assets to
increase beyond interest credited to deposits. The OTS may impose a
number of conditions on approval of capital plans, including growth
restrictions, operating restrictions, and disposition plans, if
objectives are not achieved. The OTS may also mandate the replacement
of officers or directors, place restrictions on distributions of
controlling companies, prohibit interest payments on subordinated debt
and prohibit salary increases or bonuses for significantly
undercapitalized institutions. Pursuant to the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a critically
undercapitalized institution with tangible capital of less than 2% of
total assets or 65% of the minimum tangible capital requirement is
subject to conservatorship or receivership within 90 days unless the
OTS makes periodic determinations to forbear such action.
In accordance with the requirements of FDICIA, the four principal
banking agencies adopted prompt corrective action rules in September
and October 1992. The rules divide depository institutions into five
categories: "well capitalized" institutions have a risk-based capital
ratio of 10% or greater, a core capital to risk-weighted assets ratio
of 6% or greater and a core capital ratio of 5% or better; "adequately
capitalized" institutions have a risk-based capital ratio of 8% or
greater, a core capital to risk-weighted asset ratio of 4% of greater
and a core capital ratio of 4% or greater; "undercapitalized"
institutions have a risk-based capital ratio of greater than 6% but
less than 8%, a core capital to risk-weighted asset ratio of at least
3% and a core capital of at least 3%; "significantly undercapitalized"
institutions have a risk- based capital ratio of less than 6% and core
capital ratio of less than 3%; "critically undercapitalized"
institutions have a tangible equity to total assets ratio of less than
2%. The greatest amount of operating flexibility is afforded a "well
capitalized" institution and the regulations impose increasing
operational restrictions on each category of less "well capitalized"
institutions. "Critically undercapitalized" institutions must be
placed in receivership 90 days after being so determined unless
significant progress is made to improve capital. The Bank qualifies as
a "well capitalized" institution at December 31, 1993.
RESTRICTIONS ON DIVIDENDS. Under OTS regulations, savings
associations are limited in the amount of "capital distributions" that
they are permitted to make, including cash dividends, payments to
repurchase or otherwise acquire its shares, payments to stockholders or
another entity in a cash out merger and other distributions charged
against capital. The regulation also applies to capital distributions
that the Bank may make to the Company, thereby affecting the dividends
that the Company may pay to its stockholders. The regulation
establishes a three tiered system of regulation, with the greatest
flexibility being afforded to well capitalized institutions. An
institution that has regulatory capital that is at least equal to its
fully phased in capital requirement, and has not been notified that it
"is in need of more than normal supervision", is a Tier 1 institution.
Any institution that has regulatory capital at least equal to its
minimum capital requirement, but less than its fully phased in capital
requirement, is a Tier 2 institution. An institution having regulatory
capital that is less than its minimum capital requirement is a Tier 3
institution. At December 31, 1993, the Bank qualified as a Tier 1
institution.
A Tier 1 institution is permitted, after prior notice to the OTS,
to make capital distributions in amounts up to 100% of its net income
to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the percentage by which the ratio
of its regulatory capital to assets exceeds its fully phased in capital
ratio) at the beginning of the calendar year. Any additional amount of
capital distributions would require prior regulatory approval. A Tier
2 institution is permitted to make capital distributions in amounts up
to 75% of its net income for the most recent four quarters, if it
satisfies the risk based capital requirement. In each case, the amount
of capital distributions permitted is reduced by the amount of capital
distributions that the institution previously has made during the four
quarter period. A Tier 3 institution is not authorized to make any
capital distributions except with prior OTS approval or pursuant to an
OTS approved capital plan. Under FDIC regulation, no institution may
make a capital distribution that causes it to fail its minimum capital
requirement.
QUALIFIED THRIFT LENDER TEST. Unless a savings institution meets
the qualified thrift lender test (QTL), it is classified and subject to
regulation as a national bank or becomes subject to a number of
limitations on investment, branching, advances, dividends and other
activities. In addition, a unitary savings and loan holding company,
such as the Company, that owns a thrift failing the QTL test becomes
subject to limitations on activities applicable to multiple savings and
loan holding companies. The QTL test, generally requires that an
insured institution's "qualified thrift investments" equal or exceed
65% of the institutions "portfolio assets". Qualified thrift
investments include (i) loans for the purchase, refinance,
construction, and improvement of residential housing (including
manufactured housing), (ii) home equity loans, (iii) mortgage-backed
securities, (iv) obligations of the FDIC, the Resolution Trust
Corporation (RTC), or FSLIC Resolution
14
<PAGE>
Fund, (v) 50% of loans held for sale less than 90 days after origination, (vi)
investments in qualifying service corporations, (vii) subject to certain
limitations, 200% of loans to acquire developed or constructed lower income
residential properties, (viii) loans for the purchase or construction
of churches, schools, nursing homes, and hospitals and (ix) loans for
personal, family, household or educational purposes up to 5% of the
portfolio assets. Portfolio assets include all of an institution's
assets less intangible assets, the value of property used in the
business and qualifying liquidity assets (up to 20% of total assets).
An institution must satisfy the QTL test on a monthly average basis
during 9 out of every 12 months. The Bank has always satisfied such
test and had qualifying thrift investments equal to 98% of portfolio
assets on December 31, 1993.
LIQUID ASSET REQUIREMENT. FIRREA requires each savings
institution to maintain qualifying liquid assets (which include cash,
certain time deposits, banker's acceptances and specified United States
Government, State or Federal agency obligations, certain money market
funds and qualifying assets that would qualify except for maturity) of
a percentage designated by the Director of the OTS (currently 5%) of
the balance of its withdrawable deposit accounts and borrowings payable
in one year or less. Monetary penalties will be imposed, unless
waived, for failure to meet liquidity requirements. The Bank had
liquid assets in excess of the requirements for each month in the year
ended December 31, 1993.
LOANS TO ONE BORROWER RESTRICTIONS. Under FIRREA permissible
lending limits for loans to one borrower are generally equal to the
greater of $500,000 or 15% of unimpaired capital and surplus (except
for loans fully secured by certain readily marketable securities, in
which case this limit is increased to 25% of unimpaired capital and
surplus).
LIMITATIONS ON CERTAIN INVESTMENTS. As a federally chartered
institution, the Bank is generally prohibited from investing directly
in equity securities and real estate (other than that used for offices
and related facilities or acquired through, or in lieu of, foreclosure
or on which a contract purchaser has defaulted). In addition, the
Bank's authority to invest directly in service corporations is limited
to a maximum of 2% of the Bank's assets, plus an additional 1% of
assets if the amount over 2% is used for specified community or inner
city development purposes. In addition, because the Bank meets all of
the minimum capital requirements, the Bank is permitted to make
additional loans in an amount not exceeding 50% of its regulatory
capital to its service corporations.
TRANSACTIONS WITH AFFILIATES. Under FIRREA all transactions
involving a savings association and its affiliates are subject to
sections 23A and 23B of the Federal Reserve Act (FRA). Generally,
these sections restrict "covered transactions" (loans, purchases of
assets, guarantees and similar transactions) to 10% of the
institution's capital stock and surplus, restrict all transactions with
affiliates to 20% of such capital stock and surplus, and require such
transactions to be on terms as favorable to the savings association as
transactions with nonaffiliates. The affiliates of a savings
association include any company whose management is under a common
controlling influence with the management of the savings associations
(including the savings association's holding company), any company
controlled by controlling stockholders of the savings association or
with a majority of interlocking directors with the savings association,
and any company sponsored and advised on a contractual basis by the
savings association or any of its subsidiaries or affiliates. The
Bank's subsidiaries are not deemed affiliates; however, transactions
between the Bank or any of its subsidiaries and any affiliates are
subject to the requirements and limits of sections 23A and 23B of FRA.
FIRREA and FDICIA also subject loans to insiders (officers,
directors and 10% stockholders) to sections 22(g) and (h) of FRA and
the regulations promulgated thereunder. The OTS recently amended its
regulations governing loans to officers and directors to provide that
such transactions will be governed by Regulation 0 of the Federal
Reserve Board. Among other things, such loans must be made on terms
substantially the same as loans to non-insiders.
REGULATORY SANCTIONS. Any institution that does not operate in
accordance with or conform to OTS or FDIC regulations, policies and
directives may be sanctioned for noncompliance. For example,
proceedings may be instituted against any insured institution or any
director, officer, employee or person participating in the conduct of
the affairs of an insured institution who engages in unsafe and unsound
practices, including violation of applicable laws, regulations, orders,
agreements or similar items. In addition, noncompliance may result in
the OTS or FDIC declining to approve various actions by an institution
that may be taken only with such approval. FIRREA substantially
increases enforcement remedies, including civil monetary damages, that
may be assessed against an institution or its officers, directors,
employees, agents or independent contractors. For knowing violations
and under certain aggravated circumstances, penalties of up to
$1,000,000 may be assessed. For lesser violations where there is a
pattern of misconduct, or under certain other circumstances, a penalty
of up to $25,000 per day may be assessed.
15
<PAGE>
FDIC insurance may be terminated upon a finding that an insured
institution is engaging in unsafe and unsound practices, is in an
unsafe or unsound condition or has violated any applicable laws,
regulation or order of or condition imposed by the FDIC. Upon
termination, funds then on deposit continue to be insured for at least
six months and up to two years and notice is provided to all
depositors.
HOLDING COMPANY REGULATION. By virtue of owning 100% of the
outstanding capital stock of the Bank, the Company is a unitary savings
and loan holding company under the National Housing Act, as amended by
the Savings and Loan Holding Company Amendments of 1967 and FIRREA (the
"Holding Company Act").
As a savings and loan holding company, the Company is required to
register with, and is subject to direct regulation by, the Director of
the OTS under the Holding Company Act. There are very few limitations
on unitary holding companies whose insured institution subsidiary
complies with the qualified thrift lender test. The Holding Company
Act does place certain restrictions on dealings between the holding
company and its insured institution subsidiary. Management believes it
currently complies with all such regulations.
ITEM 2. PROPERTIES
The Company owns a 48,800 square foot, three story building in
Wayzata, Minnesota that was constructed in 1990 to its specifications
and that serves as its corporate and mortgage banking headquarters as
well as a retail bank. The Company also owns a 9,400 square foot
single story retail banking facility in Brooklyn Center, Minnesota
completed to its specifications in mid-1992. The Company acquired in
September of 1993 a 6,080 square foot single story retail banking
facility in St. Louis Park, Minnesota that is subject to a ground lease
which expires in 2031. The Company's remaining nine retail banking
facilities in the Minneapolis/St. Paul metropolitan area are leased
pursuant to agreements that provide various renewal and/or purchase
options. The following table presents certain information regarding
leases for retail banking offices:
Retail Banking Opening Lease Expiration
Office Location Date (after renewal option)
- --------------- ------ ----------------------
Rand Tower June 1984 2009
St. Paul August 1985 2032
Ridgedale January 1986 2007
Edina June 1986 2007
Highland Park August 1987 2012
Roseville December 1988 2010
Bloomington December 1992 2001
Cub Foods Minnetonka October 1993 2013
IDS Center September 1993 2008
The Company leases space for its mortgage loan offices and its
mortgage loan servicing operations. These leases have generally been
for terms of three to five years. The location for each of the
mortgage offices is as follows:
16
<PAGE>
Mortgage Office Lease
Location Expiration
- --------------- ----------
Minnesota:
Edina 1998
Minnetonka (Builder Division) 1995
Minnetonka 1996
Roseville 1995
Eagan 1995
Coon Rapids 1995
Duluth 1994
St. Louis Park (Loan Servicing) 1998
Illinois:
Oak Brook 1996
Crystal Lake 1996
Orland Park 1996
Indiana:
Merrillville 1997
Wisconsin:
Waukesha 1996
The Company also leases space for its private banking division in
downtown Minneapolis which expires in 1995.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently engaged in any litigation. The Bank is
party to various forms of litigation in the ordinary course of business,
including foreclosure proceedings and various forms of consumer and employee
complaints. The Company does not believe that any of such litigation is
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
EXECUTIVE OFFICERS
The following sets forth the Company's current executive officers:
NAME AGE POSITION
- ---- --- ------------------------------------
James M. Burkholder 51 Chief Executive Officer, President
and Chairman of the Board of Directors
of the Company and the Bank
John G. Lohmann, Jr. 54 Executive Vice President, Secretary
and Director of the Company and the
Bank, Chief Lending Officer of the
Bank
Daniel Arrigoni 42 Executive Vice President of the
Company and the Bank
Lynn V. Bueltel 43 Senior Vice President and Chief
Financial Officer of the Company and
the Bank and Treasurer of the Bank
Mr. Burkholder has been President and Chief Executive Officer of the
Company and Investors Savings Bank, F.S.B. since September 1990 and Chairman
since December 1990. Mr. Burkholder was Executive Vice President and Chief
Financial Officer of the Company and Investors Savings Bank, F.S.B. from 1983 to
September 1990.
Mr. Lohmann has been Executive Vice President and Secretary of the
Company and Executive Vice President, Chief Lending Officer and Secretary of
Investors Savings Bank, F.S.B. since 1983.
Mr. Arrigoni has been Executive Vice President of the Company since May
1992 and Executive Vice President of the Bank since October 1, 1991. From
September 1, 1986 until October 1, 1991, Mr. Arrignoi was President of the North
Central Region of Margarettan Mortgage Co., Inc.
Mr. Bueltel has been Senior Vice President of the Company since May 1992,
Senior Vice President, Treasurer and Chief Financial Officer of the Bank since
September 1990, and a Vice President of the Bank since June 1984.
18
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained under the caption "Common Stock Data" on page 36
of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Five Year Financial
Highlights" on page 35 of the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 6 to 16 of
the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and notes thereto contained on pages 17
to 34 of the Annual Report are incorporated herein by reference:
Consolidated Statements of Earnings for the years ended December 31, 1993,
December 31, 1992, and December 31, 1991.
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Stockholders' Equity for the period from January
1, 1991 to December 31, 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1993, December 31, 1992 and December 31, 1991
Notes to Consolidated Financial Statements
Report of KPMG Peat Marwick
The information contained under the caption "Selected Quarterly Financial Data"
on page 33 of the Annual Report is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Election of Directors--
Nominees" of the Company's definitive proxy statement for its annual meeting of
shareholders to be held May 3, 1994 (hereafter the "Proxy Statement"), is hereby
incorporated by reference. Reference is also made to the information contained
under the caption "Executive Officers" in part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings "Executive Compensation--Summary
Compensation Table, --Stock Options, --Long-term Incentive Plan Awards, --Change
in Control Agreements and --Employment Agreements" of the Proxy Statement is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement is hereby incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Election of Directors--Certain
Transactions," of the Proxy Statement is hereby incorporated by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements and notes thereto contained on pages 17
to 34 of the Annual Report are incorporated herein by reference:
Consolidated Statements of Earnings for the years ended December 31, 1993,
December 31, 1992, and December 31, 1991
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Stockholders' Equity for the period from January
1, 1991 to December 31, 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1993, December 31, 1992 and December 31, 1991
Notes to Consolidated Financial Statements
Report of KPMG Peat Marwick
20
<PAGE>
(a) 2. FINANCIAL STATEMENT SCHEDULES
The schedules have been omitted because of absence of conditions under which
they are required or because the required information is included in the
consolidated financial statements or notes thereto.
(a) 3. LISTING OF EXHIBITS
Exhibit Number Description
- -------------- -----------
3.1 Certificate of Incorporation of Company, as amended (Incorporated
by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 (Registration No. 33-9554) (the
"Registration Statement")).
3.2 Certificate of Amendment to Certificate of Incorporation
(Incorporated by reference to Exhibit 4.18 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1992) (File 0-16163)).
3.3 Charter of Investors Savings Bank, F.S.B. (the "Bank")
(Incorporated by reference to Exhibit 3.2 of the Registration
Statement).
3.4 Bylaws of the Company (Incorporated by reference to Exhibit 3.3
to the Registration Statement).
3.5 Restated Bylaws of the Bank (Incorporated by reference to Exhibit
3.4 of the Registration Statement).
3.6 Certificate of Designation of Series A Junior Participating
Preferred Stock (Incorporated by reference to Exhibit 3.2 to the
Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1991).
3.7 Certificate of Designation of Cumulative Perpetual Preferred
Stock, Series 1991, of the Company (Incorporated by reference to
Exhibit 4.5 to Amendment No. 1 to the Registration Statement on
Form S-4 filed by the Company with the Commission on October 11,
1992 (file No. 33-42684) (hereafter "S-4 Amendment No. 1").
3.8 Amended Certificate of Designation of Cumulative Perpetual
Preferred Stock, Series 1991 (Incorporated by reference to
Exhibit 4.17 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1992 (File 0-16163)).
3.9 Warrant Agreement dated October 15, 1991 between the Company and
Norwest Bank Minnesota National Association (Incorporated by
reference to Exhibit 4.7 to the S-4 Amendment No. 1).
3.10 Specimen form of certificate for the Company's Cumulative
Perpetual Preferred Stock, Series 1991 (Incorporated by reference
to Exhibit 1.1 to the Company's Form 8-A dated January 6, 1992).
3.11 Specimen Certificate of the Company's Warrants to Purchase Common
Stock (Incorporated by reference to Exhibit 1.2 to the Company's
Form 8-A dated January 6, 1992).
3.12 Specimen Certificate for the Company's Common Stock (Incorporated
by reference to exhibit 4.1 to the Registration Statement).
3.13 Rights Agreement dated as of May 7, 1991, between the Company and
Norwest Bank Minnesota National Association (Incorporated by
reference to Exhibit 4 to the Company's current report on
21
<PAGE>
Form 8-K dated May 7, 1991).
4.1 Form of Subordinated Debenture Due 1996 of the Bank (Incorporated
by reference to Exhibit 4.3 to the Registration Statement).
4.2 Stock Option Plan of the Company, as amended (Incorporated by
reference to Exhibit 4.6 to the Company's Registration Statement
on Form S-8 (File No. 33-12893))
4.3 Investors Bank Corp. 1993 Stock Incentive Plan
4.4 Form of Indemnification Agreement with Directors (Incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on Form
10-K for the year ended June 30, 1987).
4.5 Indenture dated as of March 21, 1989 between the Bank and First
Trust National Association relating to the 12.75% Subordinated
Capital Notes due 1999 (Incorporated by reference to Exhibit 4.8
of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1989 (File No. 0-16163)).
4.6 Form of 12.75% Subordinated Capital Note due 1999 of the Bank
(Incorporated by reference to Exhibit 4.7 to the Company's
quarterly report on Form 10-Q for the quarter ended March 31,
1989 (File No. 0-16163)).
10.1 Lease dated January 7, 1987 between Thomas R. Lohmann, Susan M.
Lohmann and the Bank relating to the Bank's Highland Park office
(Incorporated by reference to Exhibit 10.14 of the Exchange
Statement).
10.2 Leases dated June 3, 1988 between Pinehurst Properties, Inc. and
the Bank relating to the Roseville office of the Bank and the
Investors Mortgage division. (Incorporated by reference to
Exhibit 10.2 to the Company's Form 10-K for the fiscal year ended
June 30, 1988 (File No. 0-16163))
10.3 Investors Savings 401(k) Plan Trust Agreement (1988 Restatement).
(Incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1988 (File
No. 0-16163)).
10.5 Deferred Compensation Plan (Incorporated by reference to Exhibit
4.9 to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1989 (File No. O-16163)).
*10.6 Restated Employment Agreement between the Company and James M.
Burkholder
*10.7 Restated Employment Agreement between the Company and John G.
Lohmann, Jr.
*10.8 Form of Severance Agreement (Incorporated by reference to Exhibit
19.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 0-16163)).
*10.9 Restricted Stock Award Agreement dated December 31, 1992 between
the Company and James M. Burkholder (Incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 (File No. 0-16163)).
22
<PAGE>
*10.10 Restricted Stock Award Agreement dated December 31, 1992 between
the Company and John G. Lohmann, Jr. (Incorporated by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 0-16163))
*10.11 Nonqualified Stock Option Agreement between the Company and
Daniel Arrigoni (Incorporated by reference to Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16163)).
*10.12 Nonqualified Stock Option Agreement between the Company and
Daniel Arrigoni (Incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16163)).
*10.13 Performance Bonus Policy of the Company (Incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 0-16163)).
*10.14 Restricted Stock Award Agreement dated January 4, 1994 between
the Company and James M. Burkholder
*10.15 Restricted Stock Award Agreement dated January 4, 1994 between
the Company and John G. Lohmann, Jr.
*10.16 Restricted Stock Award Agreement dated January 4, 1994 between
the Company and Lynn V. Bueltel.
11 Computation of Earnings per Common Share.
13 Incorporated portions of Annual Report to Shareholders.
22 Subsidiaries of the Company (Incorporated by reference to Exhibit
22 to the Registration Statement)
24.1 Consent of KPMG Peat Marwick
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K.
(b) REPORTS ON FORM 8-K
None
(c) See Exhibit Index and Exhibits attached as a separate section of
this report.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INVESTORS BANK CORP.
Dated: March 22, 1994 By /s/ JAMES M. BURKHOLDER
-------------------------
James M. Burkholder, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
/s/ JAMES M. BURKHOLDER President, Chief Executive March 22, 1994
- ---------------------------- Officer and Director
James M. Burkholder (Principal Executive Officer)
/s/ JOHN G. LOHMANN, Jr. Executive Vice President, March 22, 1994
- ---------------------------- Secretary and Director
John G. Lohmann, Jr.
/S/ LYNN V. BUELTEL Senior Vice President and March 22, 1994
- ---------------------------- Chief Financial Officer
Lynn V. Bueltel (principal financial and
accounting officer)
/s/ E. THOMAS BINGER Director March 22, 1994
- ----------------------------
E. Thomas Binger
/s/ LEONARD E. BROWN Director March 22, 1994
- ----------------------------
Leonard E. Brown
/s/ GEORGE E. MAAS Director March 22, 1994
- ----------------------------
George E. Maas
/s/ GRAHAM N. HEIKES Director March 22, 1994
- ----------------------------
Graham N. Heikes
/s/ ALICE D. MORTENSON Director March 22, 1994
- ----------------------------
Alice D. Mortenson
24
<PAGE>
INVESTORS BANK CORP.
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
3.1 Certificate of Incorporation of Company, as
amended (Incorporated by reference to Exhibit 3.1
of the Company's Registration Statement on Form
S-1 (Registration No. 33-9554) (the "Registration
Statement")).
3.2 Certificate of Amendment to Certificate of
Incorporation (Incorporated by reference to
Exhibit 4.18 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992)
(File 0-16163)).
3.3 Charter of Investors Savings Bank, F.S.B. (the
"Bank") (Incorporated by reference to Exhibit 3.2
of the Registration Statement).
3.4 Bylaws of the Company (Incorporated by reference
to Exhibit 3.3 to the Registration Statement).
3.5 Restated Bylaws of the Bank (Incorporated by
reference to Exhibit 3.4 of the Registration
Statement).
3.6 Certificate of Designation of Series A Junior
Participating Preferred Stock (Incorporated by
reference to Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter
ended March 31, 1991).
3.7 Certificate of Designation of Cumulative Perpetual
Preferred Stock, Series 1991, of the Company
(Incorporated by reference to Exhibit 4.5 to
Amendment No. 1 to the Registration Statement on
Form S-4 filed by the Company with the Commission
on October 11, 1992 (file No. 33-42684) (hereafter
"S-4 Amendment No. 1").
3.8 Amended Certificate of Designation of Cumulative
Perpetual Preferred Stock, Series 1991
(Incorporated by reference to Exhibit 4.17 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File 0-16163)).
3.9 Warrant Agreement dated October 15, 1991 between
the Company and Norwest Bank Minnesota National
Association (Incorporated by reference to Exhibit
4.7 to the S-4 Amendment No. 1).
3.10 Specimen form of certificate for the Company's
Cumulative Perpetual Preferred Stock, Series 1991
(Incorporated by reference to Exhibit 1.1 to the
Company's Form 8-A dated January 6, 1992).
3.11 Specimen Certificate of the Company's Warrants to
Purchase Common Stock (Incorporated by reference
to Exhibit 1.2 to the Company's Form 8-A dated
January 6, 1992).
3.12 Specimen Certificate for the Company's Common
Stock (Incorporated by reference to exhibit 4.1 to
the Registration Statement).
25
<PAGE>
3.13 Rights Agreement dated as of May 7, 1991, between
the Company and Norwest Bank Minnesota National
Association (Incorporated by reference to Exhibit
4 to the Company's current report on Form 8-K
dated May 7, 1991).
4.1 Form of Subordinated Debenture Due 1996 of the
Bank (Incorporated by reference to Exhibit 4.3 to
the Registration Statement).
4.2 Stock Option Plan of the Company, as amended
(Incorporated by reference to Exhibit 4.6 to the
Company's Registration Statement on Form S-8 (File
No. 33-12893))
4.3 Investors Bank Corp. 1993 Stock Incentive Plan. . . . .
4.4 Form of Indemnification Agreement with Directors
(Incorporated by reference to Exhibit 4.3 to the
Company's Annual Report on Form 10-K for the year
ended June 30, 1987).
4.5 Indenture dated as of March 21, 1989 between the
Bank and First Trust National Association relating
to the 12.75% Subordinated Capital Notes due 1999
(Incorporated by reference to Exhibit 4.8 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989 (File No. 0-16163)).
4.6 Form of 12.75% Subordinated Capital Note due 1999
of the Bank (Incorporated by reference to Exhibit
4.7 to the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1989 (File No.
0-16163)).
10.1 Lease dated January 7, 1987 between Thomas R.
Lohmann, Susan M. Lohmann and the Bank relating to
the Bank's Highland Park office (Incorporated by
reference to Exhibit 10.14 of the Exchange
Statement).
10.2 Leases dated June 3, 1988 between Pinehurst
Properties, Inc. and the Bank relating to the
Roseville office of the Bank and the Investors
Mortgage division. (Incorporated by reference to
Exhibit 10.2 to the Company's Form 10-K for the
fiscal year ended June 30, 1988 (File No.
0-16163))
10.3 Investors Savings 401(k) Plan Trust Agreement
(1988 Restatement). (Incorporated by reference to
Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1988 (File
No. 0-16163)).
10.5 Deferred Compensation Plan (Incorporated by
reference to Exhibit 4.9 to the Company's
quarterly report on Form 10-Q for the quarter
ended March 31, 1989 (File No. O-16163)).
*10.6 Restated Employment Agreement between the Company
and James M. Burkholder . . . . . . . . . . . . . . . .
*10.7 Restated Employment Agreement between the Company
and John G. Lohmann, Jr.. . . . . . . . . . . . . . . .
*10.8 Form of Severance Agreement (Incorporated by
reference to Exhibit 19.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992 (File No. 0-16163)).
*10.9 Restricted Stock Award Agreement dated December
31, 1992 between the Company and James M.
Burkholder (Incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 0-
16163)).
26
<PAGE>
*10.10 Restricted Stock Award Agreement dated December
31, 1992 between the Company and John G. Lohmann,
Jr. (Incorporated by reference to Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 (File No. 0-16163))
*10.11 Nonqualified Stock Option Agreement between the
Company and Daniel Arrigoni (Incorporated by
reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1992 (File No. 0-16163)).
*10.12 Nonqualified Stock Option Agreement between the
Company and Daniel Arrigoni (Incorporated by
reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1992 (File No. 0-16163)).
*10.13 Performance Bonus Policy of the Company
(Incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 0-16163)).
*10.14 Restricted Stock Award Agreement dated January 4,
1994 between the Company and James M. Burkholder. . . .
*10.15 Restricted Stock Award Agreement dated January 4,
1994 between the Company and John G. Lohmann, Jr. . . .
*10.16 Restricted Stock Award Agreement dated January 4,
1994 between the Company and Lynn V. Bueltel. . . . . .
11 Computation of Earnings per Common Share. . . . . . . .
13 Incorporated portions of Annual Report to
Shareholders. . . . . . . . . . . . . . . . . . . . . .
22 Subsidiaries of the Company (Incorporated by
reference to Exhibit 22 to the Registration
Statement)
24.1 Consent of KPMG Peat Marwick. . . . . . . . . . . . . .
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K.
27
<PAGE>
EXHIBIT 4.3
INVESTORS BANK CORP.
1993 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the Plan is to aid in attracting and retaining
personnel and members of the Board of Directors who are not also employees
("Non-Employee Directors") of Investors Bank Corp. (the "Company") capable of
assuring the future success of the Company, to offer such personnel incentives
to put forth maximum efforts for the success of the Company's business and to
afford such personnel an opportunity to acquire a proprietary interest in the
Company.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest, in each
case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent
or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan, which shall consist
of members appointed from time to time by the Board of Directors and shall be
comprised of not less than such number of directors as shall be required to
permit the Plan to satisfy the requirements of Rule 16b-3. Each member of the
Committee shall be a "disinterested person" within the meaning of Rule 16b-3.
(f) "Company" shall mean Investors Bank Corp., a Delaware
corporation, and any successor corporation.
(g) "Dividend Equivalent" shall mean any right granted under
Section 6(e) of the Plan.
(h) "Eligible Person" shall mean any employee, officer, consultant or
independent contractor providing services to the Company or any Affiliate who
the Committee determines to be an Eligible Person. Eligible Person shall not
include any Non-Employee Director, who shall receive Awards only pursuant to
Section 6(h) of the Plan.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee or, in the case of
-29-
<PAGE>
grants pursuant to Section 6(h), the Board of Directors.
(j) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(k) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan, or Section 6(h) of the Plan in the case of grants to
Non-Employee Directors, that is not intended to be an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option, and shall include Restoration Options.
(m) "Other Stock-Based Award" shall mean any right granted under
Section 6(f) of the Plan.
(n) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
(o) "Performance Award" shall mean any right granted under
Section 6(d) of the Plan.
(p) "Person" shall mean any individual, corporation, partnership,
association or trust.
(q) "Plan" shall mean this 1993 Stock Incentive Plan, as amended from
time to time.
(r) "Reload Option" shall mean any Option granted under
Section 6(a)(iv) of the Plan.
(s) "Restricted Stock" shall mean any Share granted under
Section 6(c) of the Plan.
(t) "Restricted Stock Unit" shall mean any unit granted under
Section 6(c) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
(u) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(v) "Shares" shall mean shares of Common Stock, $.01 par value, of
the Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
(w) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be
administered by the Committee; PROVIDED, HOWEVER, that Section 6(h) of the Plan
shall not be administered by the Committee but rather by the Board of Directors
subject to the provisions and restrictions of such Section 6(h). Subject to the
express provisions of the Plan and to applicable law, and except with respect to
Section 6(h) of the Plan, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of Awards to be
granted to each Participant under the Plan; (iii) determine the number of Shares
to be covered by (or with respect to which payments, rights or other matters are
to be calculated in connection with) each Award; (iv) determine the terms and
-30-
<PAGE>
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock, Restricted Stock Units
or other Awards; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities, other
Awards or other property, or canceled, forfeited or suspended; (vii) determine
whether, to what extent and under what circumstances cash, Shares, other
securities, other Awards, other property and other amounts payable with respect
to an Award under the Plan shall be deferred either automatically or at the
election of the holder thereof or the Committee; (viii) interpret and administer
the Plan and any instrument or agreement relating to, or Award made under, the
Plan; (ix) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (x) make any other determination and take any other action that
the Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) DELEGATION. The Committee may delegate its powers and duties
under the Plan to one or more officers of the Company or any Affiliate or a
committee of such officers, subject to such terms, conditions and limitations as
the Committee may establish in its sole discretion; PROVIDED, HOWEVER, that the
Committee shall not delegate its powers and duties under the Plan with regard to
officers or directors of the Company or any Affiliate who are subject to Section
16 of the Securities Exchange Act of 1934, as amended.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(c), the number of Shares available for granting Awards under the Plan shall be
350,000 shares. If any Shares covered by an Award or to which an Award relates
are not purchased or are forfeited, or if an Award otherwise terminates without
delivery of any Shares, then the number of Shares counted against the aggregate
number of Shares available under the Plan with respect to such Award, to the
extent of any such forfeiture or termination, shall again be available for
granting Awards under the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an
Award entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted on
the date of grant of such Award against the aggregate number of Shares available
for granting Awards under the Plan.
(c) ADJUSTMENTS. In the event that the Committee (or, in the case of
grants under Section 6(h) of the Plan, the Board of Directors) shall determine
that any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee (or,
in the case of grants under Section 6(h) of the Plan, the Board of Directors) to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee (or, in the case of grants under Section 6(h) of the Plan, the Board
of Directors) shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and type of Shares (or other securities or other property)
which thereafter may be made the subject of Awards, (ii) the number and type of
Shares (or other securities or other property) subject to outstanding Awards and
(iii) the purchase or exercise price with respect to any Award; PROVIDED,
HOWEVER, that the number of Shares covered by any Award or to
-31-
<PAGE>
which such Award relates shall always be a whole number.
(d) LIMITATION ON ANNUAL AWARDS TO INDIVIDUALS. Notwithstanding any
other provision in this Plan, no Participant may be granted an Award or Awards
under the Plan, the value of which is based solely on an increase in the value
of the Shares after the date of grant of such Award or Awards, for more than
50,000 Shares in the aggregate in any one calendar year period beginning with
the period commencing on January 1, 1994 through December 31, 1994. The
foregoing annual limitation specifically includes the grant of any "performance-
based" awards within the meaning of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an officer
or director of the Company or any Affiliate, shall be eligible to be designated
a Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Committee may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant. Notwithstanding the
foregoing, an Incentive Stock Option may only be granted to full or part-time
employees (which term as used herein includes, without limitation, officers and
directors who are also employees) and an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision. Non-Employee Directors shall receive
Awards of Non-Qualified Stock Options as provided in Section 6(h) of the Plan.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable under
an Option shall be determined by the Committee.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards
or other property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price) in which,
payment of the exercise price with respect thereto may be made or deemed to
have been made.
(iv) RELOAD OPTIONS. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which, subject to
the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 or any other applicable law, the Participant
would be granted a new Option when the payment of the exercise price of the
option to which such Reload Option relates is made by the delivery of
Shares owned by the Participant pursuant to the relevant provisions of the
plan or agreement relating to such option, which new Option would be an
Option to purchase the number of Shares not exceeding the sum of (A) the
number of Shares so provided as consideration upon the exercise of the
previously granted option to which such Reload Option relates and (B) the
number of Shares, if any, tendered or withheld as payment of the amount to
be withheld under
-32-
<PAGE>
applicable tax laws in connection with the exercise of the option to which
such Reload Option relates pursuant to the relevant provisions of the plan
or agreement relating to such option. Reload Options may be granted with
respect to options previously granted under the Plan or any other stock
option plan of the Company, and may be granted in connection with any
option granted under the Plan or any other stock option plan of the Company
at the time of such grant.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than 100% of the Fair Market Value of one Share on the date of grant
of the Stock Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, dates of
exercise, methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is
hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units
to Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Company. Such
certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock. In the
case of Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise
determined by the Committee, upon termination of employment (as determined
under criteria established by the Committee) during the applicable
restriction period, all Shares of Restricted Stock and all Restricted Stock
Units at such time subject to restriction shall be forfeited and reacquired
by the Company; PROVIDED, HOWEVER, that the Committee may, when it finds
that a waiver would be in the best interest of the Company, waive in whole
or in part any or all remaining restrictions with respect to Shares of
Restricted Stock or Restricted Stock Units. Any Share representing
Restricted Stock that is no longer subject to restrictions shall be
delivered to the holder thereof promptly after the applicable restrictions
lapse or are waived. Upon the lapse or waiver of restrictions and the
restricted period relating to Restricted Stock Units evidencing the right
to receive Shares, such Shares shall be issued and delivered to the holders
of the Restricted Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance
-33-
<PAGE>
Awards to Participants subject to the terms of the Plan and any applicable Award
Agreement. A Performance Award granted under the Plan (i) may be denominated or
payable in cash, Shares (including, without limitation, Restricted Stock), other
securities, other Awards or other property and (ii) shall confer on the holder
thereof the right to receive payments, in whole or in part, upon the achievement
of such performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan and any applicable Award Agreement,
the performance goals to be achieved during any performance period, the length
of any performance period, the amount of any Performance Award granted, the
amount of any payment or transfer to be made pursuant to any Performance Award
and any other terms and conditions of any Performance Award shall be determined
by the Committee.
(e) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to
grant to Participants Dividend Equivalents under which such Participants shall
be entitled to receive payments (in cash, Shares, other securities, other Awards
or other property as determined in the discretion of the Committee) equivalent
to the amount of cash dividends paid by the Company to holders of Shares with
respect to a number of Shares determined by the Committee. Subject to the terms
of the Plan and any applicable Award Agreement, such Dividend Equivalents may
have such terms and conditions as the Committee shall determine.
(f) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to
grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan;
PROVIDED, HOWEVER, that such grants must comply with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value of
which consideration, as established by the Committee, shall not be less than
100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.
(g) GENERAL. Except as otherwise specified with respect to Awards to
Non-Employee Directors pursuant to Section 6(h) of the Plan:
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for
no cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in
the discretion of the Committee, be granted either alone or in addition to,
in tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property or any combination thereof), and
may be made
-34-
<PAGE>
in a single payment or transfer, in installments or on a deferred basis, in
each case in accordance with rules and procedures established by the
Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents with respect to installment or deferred payments.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any
such Award shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution; PROVIDED, HOWEVER, that, if so
determined by the Committee, a Participant may, in the manner established
by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant. Each Award or
right under any Award shall be exercisable during the Participant's
lifetime only by the Participant or, if permissible under applicable law,
by the Participant's guardian or legal representative. No Award or right
under any such Award may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
thereof shall be void and unenforceable against the Company or any
Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period
as may be determined by the Committee.
(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee (or, in the case of grants under 6(h)
of the Plan, the Board of Directors) may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission and any applicable federal or state securities laws,
and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares or other securities are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by
an Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
(h) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS. The Board
of Directors shall issue Non-Qualified Stock Options to Non-Employee
Directors in accordance with this Section 6(h).
Non-Qualified Stock Options to purchase 2,000 shares of Common Stock
(subject to adjustment in accordance with section 4(c)) shall be granted
automatically as of the date of each Annual Meeting of Shareholders of the
Company (the "Annual Option Grant Date") held during the term of the Plan
(beginning with the 1994 Annual Meeting of Shareholders if the Plan becomes
effective pursuant to Section 10 hereof at such meeting) to each Non-
Employee Director in office on such Annual Option Grant Date.
Each Non-Qualified Stock Option granted to a Non-Employee Director
pursuant to this Section 6(h) shall not be exercisable as of the date of
grant but shall become exercisable with respect to 50% of the shares
subject thereto on the first annual anniversary of the date of grant and
with respect to the remaining 50% on the second annual anniversary of the
date of grant. Each such option shall have an exercise price equal to the
Fair Market Value of a Share on the date of grant and shall expire on the
seventh anniversary of the date of grant, except as provided below. Reload
options may not be granted to any Non-Employee Director. This Section 6(h)
shall not be amended more than once every six months other than to comport
with changes in the Code, the Employee Retirement Income Security Act or
the rules and regulations
-35-
<PAGE>
thereunder.
All grants of Non-Qualified Stock Options pursuant to this Section
6(h) shall be automatic and non-discretionary and shall be made strictly in
accordance with the foregoing terms and the following additional
provisions:
(i) Non-Qualified Stock Options granted to a Non-Employee Director
hereunder shall terminate and may no longer be exercised if such Director
ceases to be a Non-Employee Director of the Company, except that:
(A) If such Director's term shall be terminated for any reason other
than gross and willful misconduct, death, disability, or retirement, such
Director may at any time within a period of three months after such
termination, but not after the termination date of the Option, exercise the
Option.
(B) If such Director's term shall be terminated by reason of gross
and willful misconduct during the course of the term, including but not
limited to, wrongful appropriation of funds of the Company or the
commission of a gross misdemeanor or felony, the Option shall be terminated
as of the date of the misconduct.
(C) If such Director's term shall be terminated by reason of
disability or retirement, such Director may exercise the Option in
accordance with the terms thereof as though such termination had never
occurred. If such Director shall die following any such termination, the
Option may be exercised in accordance with its terms by the personal
representatives or administrators of such Director or by any person or
persons to whom the Option has been transferred by will or the applicable
laws of descent and distribution.
(D) If such Director shall die while a Director of the Company or
within three months after termination of such Director's term for any
reason other than disability or retirement or gross and willful misconduct,
the Option may be exercised in accordance with its terms by the personal
representatives or administrators of such Director or by any person or
persons to whom the Option has been transferred by will or the applicable
laws of descent and distribution.
(ii) Non-Qualified Stock Options granted to Non-Employee Directors
may be exercised in whole or in part from time to time by serving written
notice of exercise on the Company at its principal executive offices, to
the attention of the Company's Secretary. The notice shall state the
number of shares as to which the Option is being exercised and be
accompanied by payment of the purchase price. A Non-Employee Director may,
at such Director's election, pay the purchase price by check payable to the
Company, by promissory note, or in shares of the Company's Common Stock, or
in any combination thereof having a Fair Market Value on the exercise date
qual to the applicable exercise price. If payment or partial payment is
made by promissory note, such note shall (A) be secured by the Shares to be
delivered upon exercise of such Option (other than those withheld in
payment of taxes as set forth below), (B) be limited in principal amount to
the maximum amount permitted under applicable laws, rules and regulations,
(C) be for a term of six years and (D) bear interest at the applicable
federal rate (as determined in accordance with Section 1274(d) of the
Code), compounded semi-annually.
(iii) In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Non-Employee Director, are withheld or collected from
such Director. At any time when a Non-Employee Director is required to pay
the Company an
-36-
<PAGE>
amount required to be withheld under applicable income tax laws in
connection with an Option granted pursuant to this Section 6(h), such
Director may (A) elect to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise of such Option with a Fair Market
Value equal to the amount of such taxes (an "Election") or (B) deliver to
the Company shares other than Shares issuable upon exercise of such Option
with a Fair Market Value equal to the amount of such taxes. An Election,
if any, must be made on or before the date that the amount of tax to be
withheld is determined. The Board of Directors may disapprove of any
Election, may suspend or terminate the right to make Elections, may limit
the amount of any Election, and may make rules concerning the required
information to be included in any Election. Non-Employee Directors may
only make an Election in compliance with the Rules established by the
Company to comply with Section 16(b) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company
may amend, alter, suspend, discontinue or terminate the Plan; PROVIDED, HOWEVER,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the stockholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would cause Rule 16b-3 to become unavailable with respect to the
Plan;
(ii) would violate the rules or regulations of the New York Stock
Exchange, any other securities exchange or the National Association of
Securities Dealers, Inc. that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. Except with respect to Awards granted
pursuant to Section 6(h) of the Plan, the Committee may waive any conditions of
or rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as otherwise
herein provided.
(c) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee (or, in the case of grants under Section 6(h) of the Plan, the Board
of Directors) may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING; TAX BONUSES.
(a) WITHHOLDING. In order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise or receipt of
(or the lapse of restrictions relating to) an Award, the Committee, in its
-37-
<PAGE>
discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such Award
with a Fair Market Value equal to the amount of such taxes or (ii) delivering to
the Company Shares other than Shares issuable upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes. The election, if any, must be made on or before
the date that the amount of tax to be withheld is determined.
(b) TAX BONUSES. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions).
The Committee shall have full authority in its discretion to determine the
amount of any such tax bonus.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. Except as otherwise provided in Section
6(h) of the Plan, no Eligible Person, Participant or other Person shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Persons, Participants or holders or
beneficiaries of Awards under the Plan. The terms and conditions of Awards need
not be the same with respect to any Participant or with respect to different
Participants.
(b) AWARD AGREEMENTS. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.
(c) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(d) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ, or as
giving a Non-Employee Director the right to continue as a Director, of the
Company or any Affiliate, nor will it affect in any way the right of the Company
or an Affiliate to terminate such employment at any time, with or without cause.
In addition, the Company or an Affiliate may at any time dismiss a Participant
from employment, or terminate the term of a Non-Employee Director, free from any
liability or any claim under the Plan, unless otherwise expressly provided in
the Plan or in any Award Agreement.
(e) GOVERNING LAW. The validity, construction and effect of the Plan
or any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Minnesota.
(f) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee (or, in the case of grants under Section 6(h) of the Plan, the Board
of Directors), such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee (or, in the case of grants under Section 6(h)
of the Plan, the Board of Directors), materially altering the purpose or intent
of the Plan or the Award, such provision shall be stricken as to such
jurisdiction or Award, and the remainder of the Plan or any such Award shall
remain in full force and
-38-
<PAGE>
effect.
(g) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee (or, in the case
of grants under Section 6(h) of the Plan, the Board of Directors) shall
determine whether cash shall be paid in lieu of any fractional Shares or whether
such fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) HEADINGS. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date on which it is approved by
the shareholders of the Company.
SECTION 11. TERM OF THE PLAN.
Unless the Plan shall have been discontinued or terminated as provided
in Section 7(a), the Plan shall terminate on the date which is ten years after
the date on which the Plan receives shareholder approval. No Award shall be
granted after the termination of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond the termination of the Plan, and the authority of the
Committee provided for hereunder with respect to the Plan and any Awards, and
the authority of the Board of Directors of the Company to amend the Plan, shall
extend beyond the termination of the Plan.
-39-
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated ____________________, 1993, is made by and
between Investors Bank Corp., a Delaware corporation (the "Company"), and James
M. Burkholder, an individual resident of the state of Minnesota ("Executive").
WHEREAS, Executive has heretofore been employed as an executive
officer of the Company;
WHEREAS, Executive and the Company have heretofore entered into an
Employment Agreement dated as of April 9, 1992 (the "Original Agreement") but,
in accordance with concerns of the Office of Thrift Supervision, wish to clarify
the terms of such Original Agreement;
WHEREAS, the Company desires to assure itself of the services of
Executive, and to that end desires to enter into this Restated Agreement of
employment with him, upon the terms and conditions hereinafter set forth; and
WHEREAS, Executive desires to continue to be employed by the Company
and to obtain the additional benefits, including extended term, set forth
herein.
NOW, THEREFORE, in consideration of the premises, the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive and Executive
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. TERM. Unless terminated at an earlier date in accordance with
Sections 5 or 9 of this Agreement, the term of Executive's employment hereunder
shall commence on the date of this Agreement and shall extend for a period of
three years thereafter, terminating on ____________________, 1996. Thereafter,
the term of this Agreement shall be automatically extended for successive one-
year periods unless either the Company or Executive notifies the other party in
writing of its/his desire to terminate this Agreement at least 90 days prior to
the expiration of such initial term or any extension term; provided, however,
that notwithstanding any notice by the Company not to renew, this Agreement
shall continue in effect for a period of 24 months beyond the term provided
herein if a change in control of the Company (as defined in Section 5 hereof)
shall have occurred during such term.
3. POSITION AND DUTIES.
3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time and shall have
the title of President and Chief Executive Officer of the Company. Executive
also agrees to serve, for any period for which he is elected, as a director of
the Company; provided, however, that Executive shall not be entitled to any
additional compensation for serving as a director of the Company.
3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time, attention
and efforts to the business and affairs of the Company and its subsidiaries
during the term of this Agreement. Executive hereby confirms that he
-40-
<PAGE>
is under no contractual commitments inconsistent with his obligations set forth
in this Agreement, and that during the term of this Agreement, he will not
render or perform services for any other corporation, firm, entity or person
which are inconsistent with the provisions of this Agreement.
4. COMPENSATION.
4.01 BASE SALARY. As base compensation for all services to be
rendered under this Agreement during the term of the Agreement, the Company
shall pay to Executive an annual salary of $195,000, which salary shall be paid
on a monthly basis in accordance with the Company's normal payroll procedures
and policies. The base salary shall be reviewed annually by the Company's Board
of Directors and may be increased to such higher rate as the Company's Board of
Directors determines, whereby such increased base salary shall constitute the
base salary for all purposes of this Employment Agreement.
4.02 INCENTIVE COMPENSATION. In addition to the base salary described
in Section 4.01, Executive shall be entitled to participate in such bonus or
incentive compensation plans as have been or may be established by the Company's
Board of Directors from time to time for executive-level employees.
4.03 PARTICIPATION IN BENEFIT PLANS. During the term of this
Agreement, Executive shall be entitled to receive such medical and
hospitalization insurance and other fringe benefits as are being provided to the
key executive employees of the Company or its subsidiaries from time to time to
the extent that Executive's age, position or other factors qualify him for such
fringe benefits, which benefits shall include, without limitation, continuation
of an automobile allowance on terms at least as favorable to Executive as are
afforded pursuant to the Company's policy on the date of this Agreement.
4.04 DISABILITY/LIFE INSURANCE BENEFITS. The Company shall maintain
(i) a key man disability insurance policy for Executive; and (ii) a term life
insurance policy on Executive's life, both on such terms as existed on the date
of this Agreement.
4.05 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
5. CHANGE IN CONTROL.
5.01 TERMINATION BY COMPANY. From and after the date of a Change in
Control (as defined in Section 5.03 hereof) and during the remainder of the term
of this Agreement, the Company:
(a) shall have the right to terminate Executive from employment with
the Company at any time during the term of this Agreement for Cause (as defined
in Section 5.03 hereof), by written notice to Executive, specifying the
particulars of the conduct of Executive forming the basis for such termination,
and shall not be obligated to pay Executive the benefits provided in Section
5.04 hereof; and
(b) shall have the right to terminate Executive's employment without
Cause, and Executive shall, upon the occurrence of such termination without
Cause be entitled to receive the benefits provided in Section 5.04 hereof.
5.02 TERMINATION BY EXECUTIVE. The Executive shall also be entitled
to receive the
-41-
<PAGE>
benefits defined in Section 5.04 hereof upon (a) the voluntary termination of
Executive's employment by Executive for Good Reason (as defined in Section 5.03
hereof) after the date of a Change in Control (as defined in Section 5.03
hereof) or (b) upon voluntary termination of Executive's employment by Executive
for any reason within six months of the date of a Change in Control. Executive
shall evidence a voluntary termination for Good Reason by written notice to the
Company given within 60 days after the date of the occurrence of any event that
Executive knows or should reasonably have known constitutes Good Reason for
voluntary termination. Such notice need only identify the Executive and set
forth in reasonable detail the facts and circumstances claimed by Executive to
constitute Good Reason. Any notice given by Executive to this Section 5.02 shall
be effective five business days after the date it is given by Executive.
5.03 DEFINITIONS.
(a) A "Change in Control" shall mean the occurrence of any of the
following events as a result of a transaction or series of transactions not
approved by the Board of Directors in advance of the event, or by majority of
the Continuing Directors within 30 days after the event:
(i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such
reporting requirement;
(ii) a "person" (as such term is used in Sections 13(d) and 14 (d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 15% or more of the combined voting
power of the Company's then outstanding securities;
(iii) individuals who at the date hereof constitute the Board of
Directors of the Company cease to constitute a majority thereof, provided
that such change is the direct or indirect result of a proxy fight and
contested election for positions on the Board; or
(iv) the Board of Directors of the Company determines in its sole and
absolute discretion that there has been a change in control of the Company.
For purposes of this Section 5.03(a), "Continuing Directors" shall
include only those directors of the Company on the date hereof and those
directors, as of a date 30 days prior to an event that would otherwise be
considered a "Change in Control," who were nominated by Continuing Directors and
duly elected by shareholders at an annual meeting thereof or nominated and
elected by directors who were "Continuing Directors."
(b) "Cause" shall mean that Executive has engaged in willful
misconduct that is materially detrimental to the interests of the Company. For
purposes of this paragraph, no act, or failure to act, on Executive's part shall
be considered "willful" unless done, or omitted to be done, by Executive in bad
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(c) "Disability" shall mean any physical or mental illness or
disability that renders Executive unable to perform substantially all of his
duties and services hereunder for a period of six months during any one-year
period.
(d) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Executive's
-42-
<PAGE>
employment by the Company for Cause, for Disability, or for death:
(i) the assignment to Executive of employment responsibilities which
are not of comparable responsibility and status as the employment
responsibilities held by Executive immediately prior to a Change in Control
or prior to the date of such reassignment, as the case may be;
(ii) a reduction by the Company in Executive's base salary as in
effect immediately prior to a Change in Control;
(iii) an amendment or modification of the Company's incentive
compensation program (except as may be required by applicable law) which
affects the terms or administration of the program in a manner adverse to
the interest of Executive as compared to the terms and administration of
such program immediately prior to a Change in Control;
(iv) the Company's requiring Executive to be based anywhere other than
within 50 miles of Executive's office location immediately prior to a
Change in Control, except for requirements of temporary travel on the
Company's business to an extent substantially consistent with Executive's
business travel obligations immediately prior to a Change in Control;
(v) except to the extent otherwise required by applicable law, the
failure by the Company to continue in effect any benefit or compensation
plan, stock ownership plan, stock purchase plan, bonus plan, life insurance
plan, health plan or disability plan in which Executive is participating
immediately prior to a Change in Control (or plans providing Executive with
substantially similar benefits), the taking of any action by the Company
which would adversely affect Executive's participation in, or materially
reduce Executive's benefits under, any of such plans or deprive Executive
of any material fringe benefit enjoyed by Executive immediately prior to
such Change in Control, or the failure by the Company to provide such
Executive with the number of paid vacation days to which Executive is
entitled immediately prior to such Change in Control in accordance with the
Company's vacation policy as then in effect; or
(vi) the failure by the Company to obtain, as specified in Section
9.08 hereof, an assumption of the obligations of the Company to perform
this Agreement by any successor of the Company.
5.04 SEVERANCE PAYMENT. Upon the termination of the employment of
Executive pursuant to Section 5.01(b) or 5.02 hereof, Executive shall be
entitled to receive the benefits specified in this Section 5.04. The amounts
due to Executive under subparagraphs (a) of (b) of this Section 5.04 shall be
paid to Executive not later than one business day prior to the date that the
termination of Executive's employment becomes effective.
(a) The Company shall pay to Executive (i) the full base salary
earned by him and unpaid through the date that the termination of Executive's
employment becomes effective, at the rate in effect at the time written notice
of termination (voluntary or involuntary) was given, (ii) any amount earned by
Executive as a bonus with respect to the fiscal year of the Company preceding
the termination of his employment if such bonus has not theretofore been paid to
Executive, and (iii) an amount representing credit for any vacation earned or
accrued by him but not taken;
(b) In lieu of any further base salary payments to Executive for
periods subsequent to the date that the termination of Executive's employment
becomes effective, the Company shall pay
-43-
<PAGE>
as severance pay to Executive a lump-sum cash amount equal to three times
Executive's average annualized cash compensation for the period consisting of
the most recent five taxable years ending before the date on which a Change in
Control occurs (or such portion of such period during which Executive performed
services for the Company) subject, however, to the restriction that the
Executive shall not be entitled to receive any amount pursuant to this Agreement
which constitutes an "excess parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, or any successor
provision or regulations promulgated thereunder. In case of uncertainty as to
whether some portion of a payment might constitute an excess parachute payment,
the Company shall initially make the payment to the Executive and Executive
agrees to refund to the Company any amounts ultimately determined to be excess
parachute payments; and
Executive shall not be required to mitigate the amount of any payment
provided for in this Section 5.04 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 5.04 shall not be
reduced by any compensation earned by Executive as a result of any employment by
another employer.
5.05 ESCROW ACCOUNT PRECEDING TERMINATION.
(a) For purposes of this paragraph, a "Potential Change in Control"
shall be deemed to have occurred if (i) the Company enters into an agreement,
the consummation of which would result in a Change of Control of the Company,
(ii) any person (including the Company) publicly announces an intention to take
or consider taking actions which, if consummated, would constitute a change in
control of the Company, (iii) any person other than a trustee of a Company
benefit plan, acting in such capacity, becomes the beneficial owner, directly or
indirectly, of securities of the Company representing more than ten (10) percent
of the combined voting power of the Company's then outstanding securities; or
(iv) the Board of Directors adopts a resolution reasonably finding that a
Potential Change in Control for purposes of this Agreement has occurred.
(b) In the event a Potential Change in Control of the Company shall
have occurred, the Company shall promptly deposit in an escrow account (the
"Escrow Account") with a national banking institution chosen by the Company but
not affiliated therewith (the "Escrow Agent") an amount equal to the aggregate
of (a) the amount which would be payable to Executive pursuant to subsection (a)
and (b) of Section 5.04 hereof as if Executive were immediately entitled to
payment pursuant thereto. All funds deposited in the Escrow Account shall be
held by the Escrow Agent for the benefit of Executive, subject to Executive's
right to receive payment from, and the Company's right to withdraw, such funds
as hereinafter provided.
(c) The Company shall continue any such deposit being maintained in
the Escrow Account for a period of one year from the date it is made or three
years from the date of this Agreement, whichever is later.
(d) If, during any period in which a deposit is being maintained in
the Escrow Account, Executive shall be entitled to benefits pursuant to Section
5 hereof, Executive shall be entitled to receive payment of all or any portion
of such benefits from the Escrow Account upon making a demand therefor from the
Escrow Agent in accordance herewith. Any demand shall be submitted to the
Escrow Agent in writing signed by Executive or his authorized representative and
shall state (i) that such demand is being made pursuant to Section 5 hereof,
(ii) the amount of the payment being demanded, (iii) that Executive is entitled
to payment of at least the amount demanded, and (iv) the date of termination of
Executive's employment. Executive's rights hereunder to demand and receive
payment form the Escrow Agent shall not be affected or diminished in any way by
the existence of any dispute relating to Executive's entitlement thereto between
Executive and the Company, and the Escrow Agent shall be entitled to rely upon
Executive's demand in making payments to Executive from the Escrow
-44-
<PAGE>
Account.
(e) Promptly, and in no event after the first business day following
the day of making of any demand as aforesaid, the Escrow Agent shall notify the
Secretary of the Company by telephone (and confirm by a written notice) of the
receipt of the demand. On the fifth business day following the latter of the
making of any demand as aforesaid or the date of termination specified therein,
the Escrow Agent shall pay to Executive the amount so demanded, to the extent
funds in such amount are then on deposit in the Escrow Account. Such payment
shall be made notwithstanding any notice or demand by or on behalf of the
Company that the payment should not be made, whether based on the amount of such
payment or otherwise, and the Escrow Agent shall have no responsibility or
liability to the Company for making any payment despite having received any such
notice or demand by or on behalf of the Company. However, the making of such
payment by the Escrow Agent from the Escrow Account shall not constitute a
waiver by the Company of, or in any way preclude the Company from asserting, any
claim against Executive that Executive is not entitled to some or all of such
payment.
(f) If any deposit in the Escrow Account has been continued for the
period required pursuant to subsection (b) above without any demand in respect
thereof having been made pursuant to subsection (c) above, the Escrow Agent may
pay back to the Company the funds then held in the Escrow Account. Any funds
remaining in the Escrow Account after payment therefrom has been made to
Executive pursuant to demand shall be paid back to the Company.
(g) Funds deposited in the Escrow Account shall, at the Company's
discretion, be invested in short-term U.S. Government obligations or
certificates of deposit of the Escrow Agent, provided that such investments
shall not interfere with the disbursement of funds from the Escrow Account in
accordance herewith. Any interest on such investments shall become part of the
Escrow Account, and the Company shall pay all income taxes payable in respect
thereof.
(h) The Company shall pay all charges of the Escrow Agent for acting
as escrow agent under this Agreement. The Escrow Account shall be subject to
the Escrow Agent's usual rules and procedures, and the Company shall indemnify
the Escrow Agent against any loss or liability for any action taken or omitted
to be taken by it in good faith as escrow agent hereunder.
6. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors, during the term of this Agreement or at any time
thereafter, Executive shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company or
any of its subsidiaries which Executive has acquired or become acquainted with
or will acquire or become acquainted with during the period of his employment by
the Company or any subsidiary of the Company, whether developed by himself or by
others, concerning any trade secrets, any customer lists of the Company or any
such subsidiary, or any other confidential information or secret aspects of the
business of the Company or any such subsidiary. Executive acknowledges that the
above-described knowledge or information constitutes a unique and valuable asset
of the Company and represents a substantial investment of time and expense by
the Company, and that any disclosure or other use of such knowledge or
information other than for the sole benefit of the Company would be wrongful and
would cause irreparable harm to the Company. Both during and after the term of
this Agreement, Executive will refrain from any acts or omissions that would
reduce the value of such knowledge or information to the Company. The foregoing
obligations of confidentiality shall not apply to any knowledge or information
which is now published or which subsequently becomes generally publicly known in
the form in which it was obtained from the Company, other than as a direct or
indirect result of the breach of this Agreement by Executive.
-45-
<PAGE>
7. NONCOMPETITION COVENANT.
7.01 AGREEMENT NOT TO COMPETE. Executive agrees that during the
period of his employment by the Company and, provided that such termination is
by Executive for other than Good Reason or by the Company for Cause and provided
further that the Company elects, by notifying Executive in writing within 15
days of termination of Executive's employment, to enforce this Section 7 and to
undertake any payments required by Section 7.04, for a period of one year after
the termination of such employment, Executive shall not be employed in any
executive, policy making or advisory capacity with any other bank, savings and
loan association, mortgage banking institution or other financial institution
within the seven counties comprising the Minneapolis/St. Paul metropolitan
statistical area.
7.02 LIMITATION ON COVENANT. Ownership by Executive, as a passive
investment, of less than five percent of the outstanding shares of capital stock
of any corporation listed on a national securities exchange or publicly traded
in the over-the-counter market shall not constitute a breach of this Section 7.
7.03 INDIRECT COMPETITION. Executive further agrees that, during the
term of this Agreement and for the one-year period after termination of
employment that such noncompetition covenant is effective, he will not, directly
or indirectly, assist or encourage any other person in carrying out, directly or
indirectly, any activity that would be prohibited by the above provisions of
this Section 7 if such activity were carried out by Executive, either directly
or indirectly; and, in particular, Executive agrees that he will not, directly
or indirectly, induce any employee of the Company to carry out, directly or
indirectly, any such activity.
7.04 COMPENSATION FOR NONCOMPETITION COVENANT. If Executive is unable
to obtain employment consistent with his training and education during the one
year period commencing with the termination of Executive's employment solely
because of Executive's compliance with the noncompetition covenant in this
Section 7 and if the Company is not obligated to make payments to Executive
pursuant to Section 5.04 as a result of such termination, then the Company shall
be obligated to pay Executive an amount equal to one-twelfth of his annual base
salary in effect on the date of such termination plus one-twelfth of the amount
of any cash bonuses paid in the year immediately preceding such termination for
each such month of unemployment. Such amount shall be due monthly for the
twelve months following such termination and only if Executive has not violated
the covenant contained in this Section 7 on the date of each payment. Executive
agrees that, if requested by the Company at least 10 days before a monthly
payment, Executive shall provide the Company with a written statement that,
although Executive conscientiously sought employment, he was unable to obtain it
solely because of his compliance with the provisions of this Section 7.
8. TERMINATION WITHOUT A CHANGE IN CONTROL. The provisions of this
Section 8 shall be null and void from and after any Change in Control as defined
in Section 5.
8.01 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to a change in control: (i) by the mutual agreement of both parties
to this Agreement, (ii) upon the death or Disability of Executive, (iii) by
Executive for Good Reason, (iv) by the Company for Cause, or (v) by either party
upon a breach of a material term of this Agreement by the other party hereto.
For purposes of this Section 8.01, "Cause," "Disability," and "Good Reason"
shall have the meanings assigned to them in Section 5.03, except that references
in the definition of "Good Reason" contained in Section 5.03(d) to Executive's
position, compensation and benefits as of the date of or prior to a Change in
Control shall be deemed, for purposes of this Section 8.01, to refer to such
position, compensation, and benefits as of the date of this Agreement.
Notwithstanding any termination of this Agreement, Executive, in consideration
of his employment hereunder to the date of such termination, shall remain
-46-
<PAGE>
bound by the provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Executive's
employment.
8.02 SURRENDER OF RECORDS AND PROPERTY. Upon termination of his
employment with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in his possession or
under his control.
8.03 DAMAGES/TERMINATION BY THE COMPANY FOR OTHER THAN CAUSE. In the
event the Company breaches this Employment Agreement and terminates Executive's
employment for any reason prior to a change in control other than in accordance
with Section 8.01(i),(ii),(iv) or (v), the noncompetition covenants contained in
Section 7 shall not apply and Executive shall be entitled, as a severance
payment and in addition to any other damages or benefits to which Executive may
be entitled under this Agreement, to an immediate lump-sum cash payment in an
amount equal to two times the Executive's annualized cash compensation (which
shall include, but not be limited to, salary, bonuses, contributions to savings
plans, and deferred compensation) for the most recent fiscal year.
9. SEVERANCE UPON NON-RENEWAL. Except in the event (i) Executive
has committed a breach of this Agreement (ii) has engaged in conduct
constituting grounds for dismissal for "Cause" or (iii) has reached the age of
sixty-five (65), and provided that Executive is not otherwise entitled to
compensation in accordance with Sections 5.04, 7.04 or 8.03 of this Agreement,
if the Company notifies Executive of its intention not to renew this Agreement
within 90 days prior to its scheduled expiration in accordance with Section 2
hereof, the Company shall pay to Executive as severance compensation, for a
period of 24 months after the expiration of this Agreement, monthly cash
payments equal to one-twelfth of his annual base salary plus annual cash bonuses
paid during the last year of this Agreement.
10. MISCELLANEOUS.
10.01 REGULATORY INVALIDITY. Notwithstanding any provision in this
Agreement to the contrary, no payment shall be due Executive hereunder, and the
Company shall not be obligated and shall not make any payment hereunder, if,
because of the condition of the Company or any insured institution subsidiary of
the Company or the acts of the Executive, such payment would be prohibited
pursuant to Section 18 of the Federal Deposit Insurance Act, as amended, 12
U.S.C. SECTION 1828(k), or the regulations governing insured depositary
institutions or depository institution holding companies promulgated pursuant
thereto.
10.02 SATISFACTION. The Company shall not have any obligation under
this Agreement with respect to any payment, action, or benefit required of it
for any period by any provision herein to the extent that such payment, action
or benefit has been satisfied or provided by a subsidiary of the Company with
respect to such period. Notwithstanding the foregoing, nothing in this
Agreement shall be deemed to require any subsidiary of the Company to satisfy
any obligation set forth herein. Without limiting the generality of the
foregoing, Executive expressly acknowledges that Investors Savings Bank, F.S.B.
(the "Bank") is a federal savings bank subject to regulation of the Office of
Thrift Supervision under the Home Owners Loan Act, and particularly to
regulation relating to the level and form of employment agreement and
compensation which such a savings institution may pay its executive officers.
The Bank is not a party to this agreement and nothing in this Agreement shall
create any obligation enforceable against the Bank or imply any course of
conduct or level of
-47-
<PAGE>
compensation to which the Bank will be bound. This Agreement is solely between
Investors Bank Corp. and Executive.
10.03 LEGAL FEES AND EXPENSES. The Company shall pay to Executive all
legal fees and expenses incurred by Executive in seeking to obtain or enforce
any right or benefit provided to Executive by this Agreement whether by
arbitration or otherwise.
10.04 GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota.
10.05 PRIOR AGREEMENTS. This Agreement restates, amends and in all
respects replaces the Original Agreement and the parties hereby mutually agree
that the Original Agreement is terminated upon execution hereof. This Agreement
contains the entire Agreement of the parties relating to the employment of
Executive by the Company and the other matters discussed herein and supersedes
all prior Agreements and understandings with respect to such subject matter, and
the parties hereto have made no Agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
10.06 WITHHOLDING TAXES. The Company may withhold from any
compensation or other benefits payable under this Agreement all federal, state,
city or other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
10.07 AMENDMENTS. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by Executive and the
Company.
10.08 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
10.09 ASSIGNMENT. This Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by, or is under common ownership with, the Company.
After any such assignment by the Company, the Company shall be discharged from
all further liability hereunder and such assignee shall thereafter be deemed to
be the Company for the purposes of all provisions of this Agreement including
this Section 10.08. Notwithstanding the foregoing, this Agreement shall inure
to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees.
10.10 SUCCESSORS AND BINDING AGREEMENT. The Company will require any
successor (whether direct or substantially all of the business and/or assets of
the Company), by agreement in form and substance satisfactory to Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such Agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive terminated his employment after a Change in Control for Good Reason,
except that for
-48-
<PAGE>
purposes of implementing the forgoing, the date on which any such succession
becomes effective shall be deemed the date that the termination of Executive's
employment becomes effective. As used in this Agreement, "Company" shall mean
the Company and any successor to its business and/or assets which executes and
delivers the Agreement provided for in this Section 10.09 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
10.11 INJUNCTIVE RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement, including without limitation the provisions of Sections 6, 7
and 8. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
10.12 SEVERABILITY. To the extent that any provision of this
Agreement shall be determined to be invalid or unenforceable, the invalid or
unenforceable portion of such provision shall be deleted from this Agreement,
and the validity and enforceability of the remainder of such provision and of
this Agreement shall be unaffected. In furtherance of and not in limitation of
the foregoing, it is expressly agreed that should the duration of or
geographical extent of, or business activities covered by, the noncompetition
Agreement contained in Section 8 be determined to be in excess of that which is
valid or enforceable under applicable law, then such provision shall be
construed to cover only that duration or extent, or those activities which may
validly or enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement shall be
construed in a manner which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
INVESTORS BANK CORP.
By
--------------------------------
Its
-----------------------------
----------------------------------
James M. Burkholder
-49-
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS RESTATED AGREEMENT, dated ____________________, 1993, is made by
and between Investors Bank, Corp., a Delaware corporation (the "Company"), and
John G. Lohmann, Jr., an individual resident of the state of Minnesota
("Executive").
WHEREAS, Executive has heretofore been employed as an executive officer
of the Company in an executive capacity;
WHEREAS, Executive and the Company have heretofore entered into an
Employment Agreement dated as of April 9, 1992 (the "Original Agreement") but,
in accordance with concerns of the Office of Thrift Supervision, wish to clarify
the terms of such Original Agreement;
WHEREAS, the Company desires to assure itself of the services of
Executive, and to that end desires to enter into this Restated Agreement of
employment with him, upon the terms and conditions hereinafter set forth; and
WHEREAS, Executive desires to continue to be employed by the Company or
a subsidiary of the Company and to obtain the additional benefits, including
extended term, set forth herein.
NOW, THEREFORE, in consideration of the premises, the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive and Executive
accepts such employment and agrees to perform services for the Company for the
period and upon the other terms and conditions set forth in this Agreement.
2. TERM. Unless terminated at an earlier date in accordance with
Sections 5 or 9 of this Agreement, the term of Executive's employment hereunder
shall commence on the date of this Agreement and shall extend for a period of
three years thereafter, terminating on ____________________, 1996. Thereafter,
the term of this Agreement shall be automatically extended for successive one-
year periods unless either the Company or Executive notifies the other party in
writing of its/his desire to terminate this Agreement at least 90 days prior to
the expiration of such initial term or any extension term; provided, however,
that notwithstanding any notice by the Company not to renew, this Agreement
shall continue in effect for a period of 24 months beyond the term provided
herein if a change in control of the Company (as defined in Section 5 hereof)
shall have occurred during such term.
3. POSITION AND DUTIES.
3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time and shall have
the title of Executive Vice President and Secretary of the Company. Executive
also agrees to serve, for any period for which he is elected, as a director of
the Company; provided, however, that Executive shall not be entitled to any
additional compensation for serving as a director of the Company.
3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time, attention
and efforts to the business and affairs of
-50-
<PAGE>
the Company and its subsidiaries during the term of this Agreement. Executive
hereby confirms that he is under no contractual commitments inconsistent with
his obligations set forth in this Agreement, and that during the term of this
Agreement, he will not render or perform services for any other corporation,
firm, entity or person which are inconsistent with the provisions of this
Agreement.
4. COMPENSATION.
4.01 BASE SALARY. As base compensation for all services to be
rendered under this Agreement during the term of the Agreement, the Company
shall pay to Executive an annual salary of $161,000, which salary shall be paid
on a monthly basis in accordance with the Company's normal payroll procedures
and policies. The base salary shall be reviewed annually by the Company's Board
of Directors and may be increased to such higher rate as the Company's Board of
Directors determines, whereby such increased base salary shall constitute the
base salary for all purposes of this Employment Agreement.
4.02 INCENTIVE COMPENSATION. In addition to the base salary
described in Section 4.01, Executive shall be entitled to participate in such
bonus or incentive compensation plans as have been or may be established by the
Company's Board of Directors from time to time for executive-level employees.
4.03 PARTICIPATION IN BENEFIT PLANS. During the term of this
Agreement, Executive shall be entitled to receive such medical and
hospitalization insurance and other fringe benefits as are being provided to the
key executive employees of the Company or its subsidiaries from time to time to
the extent that Executive's age, position or other factors qualify him for such
fringe benefits, which benefits shall include, without limitation, continuation
of an automobile allowance on terms at least as favorable to Executive as are
afforded pursuant to the Company's policy on the date of this Agreement.
4.04 LIFE/DISABILITY INSURANCE BENEFITS. The Company shall maintain
(i) a key man disability insurance policy for Executive; and (ii) a term life
insurance policy on Executive's life, both on such terms as exist on the date of
this Agreement.
4.05 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
5. CHANGE IN CONTROL.
5.01 TERMINATION BY COMPANY. From and after the date of a Change in
Control (as defined in Section 5.03 hereof) and during the remainder of the term
of this Agreement, the Company:
(a) shall have the right to terminate Executive from employment with
the Company at any time during the term of this Agreement for Cause (as defined
in Section 5.03 hereof), by written notice to Executive, specifying the
particulars of the conduct of Executive forming the basis for such termination,
and shall not be obligated to pay Executive the benefits provided in Section
5.04 hereof; and
(b) shall have the right to terminate Executive's employment without
Cause, and Executive shall, upon the occurrence of such termination without
Cause be entitled to receive the benefits provided in Section 5.04 hereof.
-51-
<PAGE>
5.02 TERMINATION BY EXECUTIVE. The Executive shall also be entitled
to receive the benefits defined in Section 5.04 hereof upon (a) the voluntary
termination of Executive's employment by Executive for Good Reason (as defined
in Section 5.03 hereof) after the date of a Change in Control (as defined in
Section 5.03 hereof) or (b) upon voluntary termination of Executive's employment
by Executive for any reason within six months of the date of a Change in
Control. Executive shall evidence a voluntary termination for Good Reason by
written notice to the Company given within 60 days after the date of the
occurrence of any event that Executive knows or should reasonably have known
constitutes Good Reason for voluntary termination. Such notice need only
identify the Executive and set forth in reasonable detail the facts and
circumstances claimed by Executive to constitute Good Reason. Any notice given
by Executive to this Section 5.02 shall be effective five business days after
the date it is given by Executive.
5.03 DEFINITIONS.
(a) A "Change in Control" shall mean the occurrence of any of the
following events as a result of a transaction or series of transactions not
approved by the Board of Directors in advance of the event, or by majority of
the Continuing Directors within 30 days after the event:
(i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such
reporting requirement;
(ii) a "person" (as such term is used in Sections 13(d) and 14 (d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 15% or more of the combined voting
power of the Company's then outstanding securities;
(iii) individuals who at the date hereof constitute the Board of
Directors of the Company cease to constitute a majority thereof, provided
that such change is the direct or indirect result of a proxy fight and
contested election for positions on the Board; or
(iv) the Board of Directors of the Company determines in its sole and
absolute discretion that there has been a change in control of the Company.
For purposes of this Section 5.03(a), "Continuing Directors" shall
include only those directors of the Company on the date hereof and those
directors, as of a date 30 days prior to an event that would otherwise be
considered a "Change in Control," who were nominated by Continuing Directors and
duly elected by shareholders at an annual meeting thereof or nominated and
elected by directors who were "Continuing Directors."
(b) "Cause" shall mean that Executive has engaged in willful
misconduct that is materially detrimental to the interests of the Company. For
purposes of this paragraph, no act, or failure to act, on Executive's part shall
be considered "willful" unless done, or omitted to be done, by Executive in bad
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(c) "Disability" shall mean any physical or mental illness or
disability that renders Executive unable to perform substantially all of his
duties and services hereunder for a period of six months during any one-year
period.
-52-
<PAGE>
(d) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Executive's employment by the Company for Cause,
for Disability, or for death:
(i) the assignment to Executive of employment responsibilities which
are not of comparable responsibility and status as the employment
responsibilities held by Executive immediately prior to a Change in Control
or prior to the date of such reassignment, as the case may be;
(ii) a reduction by the Company in Executive's base salary as in
effect immediately prior to a Change in Control;
(iii) an amendment or modification of the Company's incentive
compensation program (except as may be required by applicable law) which
affects the terms or administration of the program in a manner adverse to
the interest of Executive as compared to the terms and administration of
such program immediately prior to a Change in Control;
(iv) the Company's requiring Executive to be based anywhere other
than within 50 miles of Executive's office location immediately prior to a
Change in Control, except for requirements of temporary travel on the
Company's business to an extent substantially consistent with Executive's
business travel obligations immediately prior to a Change in Control;
(v) except to the extent otherwise required by applicable law, the
failure by the Company to continue in effect any benefit or compensation
plan, stock ownership plan, stock purchase plan, bonus plan, life insurance
plan, health plan or disability plan in which Executive is participating
immediately prior to a Change in Control (or plans providing Executive with
substantially similar benefits), the taking of any action by the Company
which would adversely affect Executive's participation in, or materially
reduce Executive's benefits under, any of such plans or deprive Executive
of any material fringe benefit enjoyed by Executive immediately prior to
such Change in Control, or the failure by the Company to provide such
Executive with the number of paid vacation days to which Executive is
entitled immediately prior to such Change in Control in accordance with the
Company's vacation policy as then in effect; or
(vi) the failure by the Company to obtain, as specified in Section
9.08 hereof, an assumption of the obligations of the Company to perform
this Agreement by any successor of the Company.
5.04 SEVERANCE PAYMENT. Upon the termination of the employment of
Executive pursuant to Section 5.01(b) or 5.02 hereof, Executive shall be
entitled to receive the benefits specified in this Section 5.04. The amounts
due to Executive under subparagraphs (a) of (b) of this Section 5.04 shall be
paid to Executive not later than one business day prior to the date that the
termination of Executive's employment becomes effective.
(a) The Company shall pay to Executive (i) the full base salary
earned by him and unpaid through the date that the termination of Executive's
employment becomes effective, at the rate in effect at the time written notice
of termination (voluntary or involuntary) was given, (ii) any amount earned by
Executive as a bonus with respect to the fiscal year of the Company preceding
the termination of his employment if such bonus has not theretofore been paid to
Executive, and (iii) an amount representing credit for any vacation earned or
accrued by him but not taken;
-53-
<PAGE>
(b) In lieu of any further base salary payments to Executive for
periods subsequent to the date that the termination of Executive's employment
becomes effective, the Company shall pay as severance pay to Executive a lump-
sum cash amount equal to two times Executive's average annualized cash
compensation for the period consisting of the most recent five taxable years
ending before the date on which a Change in Control occurs (or such portion of
such period during which Executive performed services for the Company) subject,
however, to the restriction that the Executive shall not be entitled to receive
any amount pursuant to this Agreement which constitutes an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor provision or regulations promulgated
thereunder. In case of uncertainty as to whether some portion of a payment
might constitute an excess parachute payment, the Company shall initially make
the payment to the Executive and Executive agrees to refund to the Company any
amounts ultimately determined to be excess parachute payments; and
Executive shall not be required to mitigate the amount of any payment
provided for in this Section 5.04 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 5.04 shall not be
reduced by any compensation earned by Executive as a result of any employment by
another employer.
5.05 ESCROW ACCOUNT PRECEDING TERMINATION.
(a) For purposes of this paragraph, a "Potential Change in Control"
shall be deemed to have occurred if (i) the Company enters into an agreement,
the consummation of which would result in a Change of Control of the Company,
(ii) any person (including the Company) publicly announces an intention to take
or consider taking actions which, if consummated, would constitute a change in
control of the Company, (iii) any person other than a trustee of a Company
benefit plan, acting in such capacity, becomes the beneficial owner, directly or
indirectly, of securities of the Company representing more than ten (10) percent
of the combined voting power of the Company's then outstanding securities; or
(iv) the Board of Directors adopts a resolution reasonably finding that a
Potential Change in Control for purposes of this Agreement has occurred.
(b) In the event a Potential Change in Control of the Company shall
have occurred, the Company shall promptly deposit in an escrow account (the
"Escrow Account") with a national banking institution chosen by the Company but
not affiliated therewith (the "Escrow Agent") an amount equal to the the amount
which would be payable to Executive pursuant to subsection (a) and (b) of
Section 5.04 hereof as if Executive were immediately entitled to payment
pursuant thereto. All funds deposited in the Escrow Account shall be held by
the Escrow Agent for the benefit of Executive, subject to Executive's right to
receive payment from, and the Company's right to withdraw, such funds as
hereinafter provided.
(c) The Company shall continue any such deposit being maintained in
the Escrow Account for a period of one year from the date it is made or three
years from the date of this Agreement, whichever is later.
(d) If, during any period in which a deposit is being maintained in
the Escrow Account, Executive shall be entitled to benefits pursuant to Section
5 hereof, Executive shall be entitled to receive payment of all or any portion
of such benefits from the Escrow Account upon making a demand therefor from the
Escrow Agent in accordance herewith. Any demand shall be submitted to the
Escrow Agent in writing signed by Executive or his authorized representative and
shall state (i) that such demand is being made pursuant to Section 5 hereof,
(ii) the amount of the payment being demanded, (iii) that Executive is entitled
to payment of at least the amount demanded, and (iv) the date of termination of
Executive's employment. Executive's rights hereunder to demand and receive
payment form the Escrow Agent shall not be affected or diminished in any way by
the existence of any dispute
-54-
<PAGE>
relating to Executive's entitlement thereto between Executive and the Company,
and the Escrow Agent shall be entitled to rely upon Executive's demand in
making payments to Executive from the Escrow Account.
(e) Promptly, and in no event after the first business day following
the day of making of any demand as aforesaid, the Escrow Agent shall notify the
Secretary of the Company by telephone (and confirm by a written notice) of the
receipt of the demand. On the fifth business day following the latter of the
making of any demand as aforesaid or the date of termination specified therein,
the Escrow Agent shall pay to Executive the amount so demanded, to the extent
funds in such amount are then on deposit in the Escrow Account. Such payment
shall be made notwithstanding any notice or demand by or on behalf of the
Company that the payment should not be made, whether based on the amount of such
payment or otherwise, and the Escrow Agent shall have no responsibility or
liability to the Company for making any payment despite having received any such
notice or demand by or on behalf of the Company. However, the making of such
payment by the Escrow Agent from the Escrow Account shall not constitute a
waiver by the Company of, or in any way preclude the Company from asserting, any
claim against Executive that Executive is not entitled to some or all of such
payment.
(f) If any deposit in the Escrow Account has been continued for the
period required pursuant to subsection (b) above without any demand in respect
thereof having been made pursuant to subsection (c) above, the Escrow Agent may
pay back to the Company the funds then held in the Escrow Account. Any funds
remaining in the Escrow Account after payment therefrom has been made to
Executive pursuant to demand shall be paid back to the Company.
(g) Funds deposited in the Escrow Account shall, at the Company's
discretion, be invested in short-term U.S. Government obligations or
certificates of deposit of the Escrow Agent, provided that such investments
shall not interfere with the disbursement of funds from the Escrow Account in
accordance herewith. Any interest on such investments shall become part of the
Escrow Account, and the Company shall pay all income taxes payable in respect
thereof.
(h) The Company shall pay all charges of the Escrow Agent for acting
as escrow agent under this Agreement. The Escrow Account shall be subject to
the Escrow Agent's usual rules and procedures, and the Company shall indemnify
the Escrow Agent against any loss or liability for any action taken or omitted
to be taken by it in good faith as escrow agent hereunder.
6. CONFIDENTIAL INFORMATION. Except as permitted or directed by
the Company's Board of Directors, during the term of this Agreement or at any
time thereafter, Executive shall not divulge, furnish or make accessible to
anyone or use in any way (other than in the ordinary course of the business of
the Company) any confidential or secret knowledge or information of the Company
or any of its subsidiaries which Executive has acquired or become acquainted
with or will acquire or become acquainted with during the period of his
employment by the Company or any subsidiary of the Company, whether developed by
himself or by others, concerning any trade secrets, any customer lists of the
Company or any such subsidiary, or any other confidential information or secret
aspects of the business of the Company or any such subsidiary. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company and represents a substantial investment
of time and expense by the Company, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company. Both during and after
the term of this Agreement, Executive will refrain from any acts or omissions
that would reduce the value of such knowledge or information to the Company.
The foregoing obligations of confidentiality shall not apply to any knowledge or
information which is now published or which subsequently becomes generally
publicly known in the
-55-
<PAGE>
form in which it was obtained from the Company, other than as a direct or
indirect result of the breach of this Agreement by Executive.
7. NONCOMPETITION COVENANT.
7.01 AGREEMENT NOT TO COMPETE. Executive agrees that during the
period of his employment by the Company and, provided that such termination is
by Executive for other than Good Reason or by the Company for Cause and provided
further that the Company elects, by notifying Executive in writing within 15
days of termination of Executive's employment, to enforce this Section 7 and to
undertake any payments required by Section 7.04, for a period of one year after
the termination of such employment, Executive shall not be employed in any
executive, policy making or advisory capacity with any other bank, savings and
loan association, mortgage banking institution or other financial institution
within the seven counties comprising the Minneapolis/St. Paul metropolitan
statistical area.
7.02 LIMITATION ON COVENANT. Ownership by Executive, as a passive
investment, of less than five percent of the outstanding shares of capital stock
of any corporation listed on a national securities exchange or publicly traded
in the over-the-counter market shall not constitute a breach of this Section 7.
7.03 INDIRECT COMPETITION. Executive further agrees that, during the
term of this Agreement and for the one-year period after termination of
employment that such noncompetition covenant is effective, he will not, directly
or indirectly, assist or encourage any other person in carrying out, directly or
indirectly, any activity that would be prohibited by the above provisions of
this Section 7 if such activity were carried out by Executive, either directly
or indirectly; and, in particular, Executive agrees that he will not, directly
or indirectly, induce any employee of the Company to carry out, directly or
indirectly, any such activity.
7.04 COMPENSATION FOR NONCOMPETITION COVENANT. If Executive is
unable to obtain employment consistent with his training and education during
the one year period commencing with the termination of Executive's employment
solely because of Executive's compliance with the noncompetition covenant in
this Section 7 and if the Company is not obligated to make payments to Executive
pursuant to Section 5.04 as a result of such termination, then the Company shall
be obligated to pay Executive an amount equal to one-twelfth of his annual base
salary in effect on the date of such termination plus one-twelfth of the amount
of any cash bonuses paid in the year immediately preceding such termination for
each such month of unemployment. Such amount shall be due monthly for the
twelve months following such termination and only if Executive has not violated
the covenant contained in this Section 7 on the date of each payment. Executive
agrees that, if requested by the Company at least 10 days before a monthly
payment, Executive shall provide the Company with a written statement that,
although Executive conscientiously sought employment, he was unable to obtain it
solely because of his compliance with the provisions of this Section 7.
8. TERMINATION WITHOUT A CHANGE IN CONTROL. The provisions of this
Section 8 shall be null and void from and after any Change in Control as defined
in Section 5.
8.01 GROUNDS FOR TERMINATION. This Agreement may be terminated at
any time prior to a change in control: (i) by the mutual agreement of both
parties to this Agreement, (ii) upon the death or Disability of Executive, (iii)
by Executive for Good Reason, (iv) by the Company for Cause, or (v) by either
party upon a breach of a material term of this Agreement by the other party
hereto. For purposes of this Section 8.01, "Cause," "Disability," and "Good
Reason" shall have the meanings assigned to them in Section 5.03, except that
references in the definition of "Good Reason" contained in Section 5.03(d) to
Executive's position, compensation and benefits as of the date of or prior to a
Change
-56-
<PAGE>
in Control shall be deemed, for purposes of this Section 8.01, to refer to such
position, compensation, and benefits as of the date of this Agreement.
Notwithstanding any termination of this Agreement, Executive, in consideration
of his employment hereunder to the date of such termination, shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Executive's
employment.
8.02 SURRENDER OF RECORDS AND PROPERTY. Upon termination of his
employment with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in his possession or
under his control.
8.03 DAMAGES/TERMINATION BY THE COMPANY FOR OTHER THAN CAUSE. In the
event the Company breaches this Employment Agreement and terminates Executive's
employment for any reason prior to a change in control other than in accordance
with Section 8.01(i),(ii),(iv) or (v), the noncompetition covenants contained in
Section 7 shall not apply and Executive shall be entitled, as a severance
payment and in addition to any other damages or benefits to which Executive may
be entitled under this Agreement, to an immediate lump-sum cash payment in an
amount equal to two times the Executive's annualized cash compensation (which
shall include, but not be limited to, salary, bonuses, contributions to savings
plans, and deferred compensation) for the most recent fiscal year.
9. SEVERANCE UPON NON-RENEWAL. Except in the event (i) Executive
has committed a breach of this Agreement (ii) has engaged in conduct
constituting grounds for dismissal for "Cause" or (iii) has reached the age of
sixty-five (65), and provided that Executive is not otherwise entitled to
compensation in accordance with Sections 5.04, 7.04 or 8.03 of this Agreement,
if the Company notifies Executive of its intention not to renew this Agreement
within 90 days prior to its scheduled expiration in accordance with Section 2
hereof, the Company shall pay to Executive as severance compensation, for a
period of 12 months after the expiration of this Agreement, monthly cash
payments equal to one-twelfth of his annual base salary plus annual cash bonuses
paid during the last year of this Agreement.
10. MISCELLANEOUS.
10.01 REGULATORY INVALIDITY. Notwithstanding any provision in this
Agreement to the contrary, no payment shall be due Executive hereunder, and the
Company shall not be obligated and shall not make any payment hereunder, if,
because of the condition of the Company or any insured institution subsidiary of
the Company or the acts of the Executive, such payment would be prohibited
pursuant to Section 18 of the Federal Deposit Insurance Act, as amended, 12
U.S.C. SECTION 1828(k), or the regulations governing insured depositary
institutions or depository institution holding companies promulgated pursuant
thereto.
10.02 SATISFACTION. The Company shall not have any obligation under
this Agreement with respect to any payment, action, or benefit required of it
for any period by any provision herein to the extent that such payment, action
or benefit has been satisfied or provided by a subsidiary of the Company with
respect to such period. Notwithstanding the foregoing, nothing in this
Agreement shall be deemed to require any subsidiary of the Company to satisfy
any obligation set forth herein. Without limiting the generality of the
foregoing, Executive expressly acknowledges that Investors Savings Bank, F.S.B.
(the "Bank") is a federal savings bank subject to regulation of the Office of
Thrift Supervision under the Home Owners Loan Act, and particularly to
regulation relating to the level and form of employment agreement and
compensation which such a savings insitution may pay its
-57-
<PAGE>
executive officers. The Bank is not a party to this agreement and nothing in
this Agreement shall create any obligation enforcable against the Bank or imply
any course of conduct or level of compensation to which the Bank will be bound.
This Agreement is solely between Investors Bank Corp. and Executive.
10.03 LEGAL FEES AND EXPENSES. The Company shall pay to Executive all
legal fees and expenses incurred by Executive in seeking to obtain or enforce
any right or benefit provided to Executive by this Agreement whether by
arbitration or otherwise.
10.04 GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota.
10.05 PRIOR AGREEMENTS. This Agreement contains the entire Agreement
of the parties relating to the employment of Executive by the Company and the
other matters discussed herein and supersedes all prior Agreements and
understandings with respect to such subject matter, and the parties hereto have
made no Agreements, representations or warranties relating to the subject matter
of this Agreement which are not set forth herein.
10.06 WITHHOLDING TAXES. The Company may withhold from any
compensation or other benefits payable under this Agreement all federal, state,
city or other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
10.07 AMENDMENTS. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by Executive and the
Company.
10.08 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
10.09 ASSIGNMENT. This Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by, or is under common ownership with, the Company.
After any such assignment by the Company, the Company shall be discharged from
all further liability hereunder and such assignee shall thereafter be deemed to
be the Company for the purposes of all provisions of this Agreement including
this Section 10.08. Notwithstanding the foregoing, this Agreement shall inure
to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees.
10.10 SUCCESSORS AND BINDING AGREEMENT. The Company will require any
successor (whether direct or substantially all of the business and/or assets of
the Company), by agreement in form and substance satisfactory to Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such Agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive terminated his employment after a Change in Control for Good Reason,
except that for
-58-
<PAGE>
purposes of implementing the forgoing, the date on which any such succession
becomes effective shall be deemed the date that the termination of Executive's
employment becomes effective. As used in this Agreement, "Company" shall mean
the Company and any successor to its business and/or assets which executes and
delivers the Agreement provided for in this Section 10.09 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
10.11 INJUNCTIVE RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement, including without limitation the provisions of Sections 6, 7
and 8. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
10.12 SEVERABILITY. To the extent that any provision of this
Agreement shall be determined to be invalid or unenforceable, the invalid or
unenforceable portion of such provision shall be deleted from this Agreement,
and the validity and enforceability of the remainder of such provision and of
this Agreement shall be unaffected. In furtherance of and not in limitation of
the foregoing, it is expressly agreed that should the duration of or
geographical extent of, or business activities covered by, the noncompetition
Agreement contained in Section 8 be determined to be in excess of that which is
valid or enforceable under applicable law, then such provision shall be
construed to cover only that duration or extent, or those activities which may
validly or enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement shall be
construed in a manner which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
INVESTORS BANK CORP.
By
------------------------------
Its
---------------------------
--------------------------------
John G. Lohmann, Jr.
-59-
<PAGE>
EXHIBIT 10.14
INVESTORS BANK CORP.
RESTRICTED STOCK AWARD AGREEMENT
This Agreement, made as of this 4th day of January, 1994, between
Investors Bank Corp., a Delaware corporation (the "Company"), and James M.
Burkholder (the "Executive").
WITNESSETH:
WHEREAS, the Company and the Compensation Committee of its Board of
Directors (the "Committee") have determined that equity securities awarded
pursuant to this Agreement and the Company's 1993 Incentive Stock Plan (the
"Plan") will provide incentive for Executive to remain employed by the Company
and put forth his maximum efforts for its continued success.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. AWARD. The Company, effective as of the date of this Agreement but
contingent upon approval of the Plan at the Company's 1994 annual meeting of
shareholders, hereby grants to the Executive a restricted stock award of 13,000
shares (the "Shares") of Common Stock, par value $.01 per share, of the Company
(the "Common Stock"), subject to the terms and conditions set forth herein.
2. VESTING.
(a) Subject to the terms and conditions of this Agreement and to the
terms of the Plan, the Shares shall vest in the Executive at the rate of 33
1/3% of the Shares as of January 1 in each year (commencing on January 1, 1995)
as set forth below:
<TABLE>
<CAPTION>
Plan Year Vesting Date % of Award Vested
--------- ------------ -----------------
<S> <C> <C>
1 January 1, 1995 33 1/3%
2 January 1, 1996 66 2/3%
3 January 1, 1997 100 %
</TABLE>
(b) Notwithstanding the provisions of Section 2(a) hereof, but
subject to the other terms and conditions set forth herein, the Shares shall
vest in full in the Executive if an Event of Termination occurs (as hereinafter
defined).
(c) For purposes of this Agreement, the following terms shall have
the definitions set forth below:
"Acquisition Date" means the date of public announcement of the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
thereto) of more than 15% of the outstanding voting stock of the Company by any
"person" (as defined in Section 13(d) of the Exchange Act) other than the
Company by means of a tender offer, exchange offer or otherwise.
"Event of Termination" means the termination of employment of
Executive (other than by the Executive) within 36 months of either an
Acquisition Date or a Transaction Date.
-60-
<PAGE>
"Transaction Date" means the date of shareholder approval of (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation immediately after
the merger; (ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of the Company; or (iii) any plan of liquidation or dissolution of the Company.
(d) Notwithstanding any other provision of this agreement or this
section 2, the Shares shall not vest, and all the Shares shall be forfeited to
the Company, if the shareholders of the Company do not approve the Planb at the
1994 Annual Meeting of Shareholders of the Company.
3. RESTRICTION ON TRANSFER. Until the Shares vest pursuant to Section 2
or Section 4(b) hereof, none of the Shares may be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to
transfer the Shares, whether voluntary or involuntary, by operation of law or
otherwise, shall vest the transferee with any interest or right in or with
respect to the Shares.
4. FORFEITURE; EARLY VESTING IN EVENT OF DISABILITY OR DEATH.
(a) If the Executive ceases to be an employee other than by reason of
disability or death prior to the vesting of the Shares pursuant to Section 2
hereof, the Executive's rights to all of such Shares that are not vested shall
be immediately and irrevocably forfeited without payment by the Company to the
Executive.
(b) If the Executive ceases to be an employee by reason of disability
or death prior to the vesting of the Shares pursuant to Section 2 hereof, the
Executive or his estate shall become immediately vested, as of the date of such
disability or death, in the Shares. No transfer by will or by laws of descent
and distribution of any Shares which vest by reason of the Executive's death
shall be effective to bind the Company, unless the Committee shall have been
furnished with written notice of such transfer and a copy of the will or such
other evidence as the Committee may deem necessary to establish the validity of
the transfer.
5. ISSUANCE AND CUSTODY OF CERTIFICATE.
(a) The Company shall cause to be issued one or more stock
certificates, registered in the name of the Executive, evidencing the Shares.
Each such certificate shall bear the following legend:
"The shares of common stock represented by this certificate are
subject to forfeiture, and the transferability of this certificate and
the shares of stock represented hereby are subject to the
restrictions, terms and conditions (including restrictions against
transfer) contained in a Restricted Stock Award Agreement entered into
between Investors Bank Corp. and the registered owner of such shares.
Copies of the Agreement are on file in the office of the Chief
Financial Officer of Investors Bank Corp.,
(b) The Executive shall cause stock powers relating to the shares
executed by the Executive to be delivered to the Company.
-61-
<PAGE>
(c) Each certificate issued pursuant to Section 5(a) hereof, together
with the stock powers relating to the Shares, shall be deposited by the Company
with the Chief Financial Officer of the Company or a custodian designated by the
Chief Financial Officer. The Chief Financial Officer or such custodian shall
issue a receipt to the Executive evidencing the certificate or certificates held
which are registered in the name of the Executive.
(d) After any Shares vest pursuant to Section 2 or Section 4(b)
hereof, the Company shall promptly cause to be issued a certificate or
certificates evidencing such vested Shares, free of the legend provided in
Section 4(a) hereof, and shall cause such certificate or certificates and the
stock powers relating to the Shares to be delivered to the Executive or the
Executive's legal representatives, beneficiaries or heirs.
6. DISTRIBUTIONS AND ADJUSTMENTS.
(a) If all or any portion of the Shares vest in the Executive
subsequent to any change in the number or character of the shares of Common
Stock (through merger, consolidation, reorganization, recapitalization, stock
dividend or otherwise), the Executive shall then receive upon such vesting the
number and type of securities or other consideration which he would have
received if the Shares had vested prior to the event changing the number or
character of outstanding shares of Common Stock.
(b) Any additional shares of Common Stock, any other securities of
the Company and any other property (except for cash dividends) distributed with
respect to the Shares prior to the date the Shares vest shall be subject to the
same restrictions, terms and conditions as the Shares. Any cash dividends
payable with respect to the Shares shall be distributed to the Executive at the
same time cash dividends are distributed to other shareholders of the Company.
(c) Any additional shares of Common Stock, any securities and any
other property (except for cash dividends) distributed with respect to the
Shares prior to the date such Shares vest shall be promptly deposited with the
Secretary or the custodian designated by the Secretary to be held in custody in
accordance with Section 5(c) hereof.
7. TAXES. In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it in
connection with this restricted stock award, and in order to comply with all
applicable federal or state tax laws or regulations, the Company may take such
action as it deems appropriate to insure that, if necessary, all applicable
federal or state income and social security taxes are withheld or collected from
the Executive.
8. MISCELLANEOUS.
(a) This Agreement shall not confer on the Executive any right with
respect to continuance of employment by the Company.
(b) Any notice with either party hereto or the Committee may be
required or permitted to give to the other with respect to this Agreement shall
be in writing, and may be delivered personally or by mail, postage prepaid,
addressed as follows:
(i) if to the Company:
Investors Bank Corp.
200 East Lake Street
Wayzata, Minnesota 55391
-62-
<PAGE>
(ii) if to the Committee:
Compensation Committee of Investors Bank Corp.
Investors Bank Corp.
200 East Lake Street
Wayzata, Minnesota 55391
(iii) if to the Executive:
James M. Burkholder.
200 East Lake Street
Wayzata, Minnesota 55391
(c) Commencing on the date of this Agreement and subject to the
restrictions and terms of this Agreement, the Executive shall have all of the
rights of a shareholder with respect to the Shares (including, without
limitation, the right to vote the Shares).
(d) This Agreement is made and accepted in the State of Minnesota.
The laws of the State of Minnesota shall control the interpretation and
performance of the terms of this Agreement.
(e) This Agreement shall be binding upon, and shall inure to the
benefit of, the respective successors, assigns, heirs, executors, administrators
and guardians of the parties hereto.
-63-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered on the day and year first above written.
INVESTORS BANK CORP.
By
----------------------
Its
-------------------
------------------------
Executive
-64-
<PAGE>
EXHIBIT 10.15
INVESTORS BANK CORP.
RESTRICTED STOCK AWARD AGREEMENT
This Agreement, made as of this 4th day of January, 1994, between
Investors Bank Corp., a Delaware corporation (the "Company"), and John G.
Lohmann, Jr. (the "Executive").
WITNESSETH:
WHEREAS, the Company and the Compensation Committee of its Board of
Directors (the "Committee") have determined that equity securities awarded
pursuant to this Agreement and the Company's 1993 Incentive Stock Plan (the
"Plan") will provide incentive for Executive to remain employed by the Company
and put forth his maximum efforts for its continued success.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. AWARD. The Company, effective as of the date of this Agreement but
contingent upon approval of the Plan at the Company's 1994 annual meeting of
shareholders, hereby grants to the Executive a restricted stock award of 13,000
shares (the "Shares") of Common Stock, par value $.01 per share, of the Company
(the "Common Stock"), subject to the terms and conditions set forth herein.
2. VESTING.
(a) Subject to the terms and conditions of this Agreement and to the
terms of the Plan, the Shares shall vest in the Executive at the rate of
33 1/3% of the Shares as of January 1 in each year (commencing on January 1,
1995) as set forth below:
<TABLE>
<CAPTION>
Plan Year Vesting Date % of Award Vested
--------- ------------ -----------------
<S> <C> <C>
1 January 1, 1995 33 1/3%
2 January 1, 1996 66 2/3%
3 January 1, 1997 100 %
</TABLE>
(b) Notwithstanding the provisions of Section 2(a) hereof, but
subject to the other terms and conditions set forth herein, the Shares shall
vest in full in the Executive if an Event of Termination occurs (as hereinafter
defined).
(c) For purposes of this Agreement, the following terms shall have
the definitions set forth below:
"Acquisition Date" means the date of public announcement of the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
thereto) of more than 15% of the outstanding voting stock of the Company by any
"person" (as defined in Section 13(d) of the Exchange Act) other than the
Company by means of a tender offer, exchange offer or otherwise.
"Event of Termination" means the termination of employment of
Executive (other than by the Executive) within 36 months of either an
Acquisition Date or a Transaction Date.
"Transaction Date" means the date of shareholder approval of (i) any
consolidation or
-65-
<PAGE>
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which Common Stock would be converted into cash,
securities or other property, other than a merger of the Company in which
shareholders immediately prior to the merger have the same proportionate
ownership of stock of the surviving corporation immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the assets of the
Company; or (iii) any plan of liquidation or dissolution of the Company.
(d) Notwithstanding any other provision of this agreement or this
section 2, the Shares shall not vest, and all the Shares shall be forfeited to
the Company, if the shareholders of the Company do not approve the Planb at the
1994 Annual Meeting of Shareholders of the Company.
3. RESTRICTION ON TRANSFER. Until the Shares vest pursuant to Section 2
or Section 4(b) hereof, none of the Shares may be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to
transfer the Shares, whether voluntary or involuntary, by operation of law or
otherwise, shall vest the transferee with any interest or right in or with
respect to the Shares.
4. FORFEITURE; EARLY VESTING IN EVENT OF DISABILITY OR DEATH.
(a) If the Executive ceases to be an employee other than by reason of
disability or death prior to the vesting of the Shares pursuant to Section 2
hereof, the Executive's rights to all of such Shares that are not vested shall
be immediately and irrevocably forfeited without payment by the Company to the
Executive.
(b) If the Executive ceases to be an employee by reason of disability
or death prior to the vesting of the Shares pursuant to Section 2 hereof, the
Executive or his estate shall become immediately vested, as of the date of such
disability or death, in the Shares. No transfer by will or by laws of descent
and distribution of any Shares which vest by reason of the Executive's death
shall be effective to bind the Company, unless the Committee shall have been
furnished with written notice of such transfer and a copy of the will or such
other evidence as the Committee may deem necessary to establish the validity of
the transfer.
5. ISSUANCE AND CUSTODY OF CERTIFICATE.
(a) The Company shall cause to be issued one or more stock
certificates, registered in the name of the Executive, evidencing the Shares.
Each such certificate shall bear the following legend:
"The shares of common stock represented by this certificate are
subject to forfeiture, and the transferability of this certificate and
the shares of stock represented hereby are subject to the
restrictions, terms and conditions (including restrictions against
transfer) contained in a Restricted Stock Award Agreement entered into
between Investors Bank Corp. and the registered owner of such shares.
Copies of the Agreement are on file in the office of the Chief
Financial Officer of Investors Bank Corp.,
(b) The Executive shall cause stock powers relating to the shares
executed by the Executive to be delivered to the Company.
-66-
<PAGE>
(c) Each certificate issued pursuant to Section 5(a) hereof, together
with the stock powers relating to the Shares, shall be deposited by the Company
with the Chief Financial Officer of the Company or a custodian designated by the
Chief Financial Officer. The Chief Financial Officer or such custodian shall
issue a receipt to the Executive evidencing the certificate or certificates held
which are registered in the name of the Executive.
(d) After any Shares vest pursuant to Section 2 or Section 4(b)
hereof, the Company shall promptly cause to be issued a certificate or
certificates evidencing such vested Shares, free of the legend provided in
Section 4(a) hereof, and shall cause such certificate or certificates and the
stock powers relating to the Shares to be delivered to the Executive or the
Executive's legal representatives, beneficiaries or heirs.
6. DISTRIBUTIONS AND ADJUSTMENTS.
(a) If all or any portion of the Shares vest in the Executive
subsequent to any change in the number or character of the shares of Common
Stock (through merger, consolidation, reorganization, recapitalization, stock
dividend or otherwise), the Executive shall then receive upon such vesting the
number and type of securities or other consideration which he would have
received if the Shares had vested prior to the event changing the number or
character of outstanding shares of Common Stock.
(b) Any additional shares of Common Stock, any other securities of
the Company and any other property (except for cash dividends) distributed with
respect to the Shares prior to the date the Shares vest shall be subject to the
same restrictions, terms and conditions as the Shares. Any cash dividends
payable with respect to the Shares shall be distributed to the Executive at the
same time cash dividends are distributed to other shareholders of the Company.
(c) Any additional shares of Common Stock, any securities and any
other property (except for cash dividends) distributed with respect to the
Shares prior to the date such Shares vest shall be promptly deposited with the
Secretary or the custodian designated by the Secretary to be held in custody in
accordance with Section 5(c) hereof.
7. TAXES. In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it in
connection with this restricted stock award, and in order to comply with all
applicable federal or state tax laws or regulations, the Company may take such
action as it deems appropriate to insure that, if necessary, all applicable
federal or state income and social security taxes are withheld or collected from
the Executive.
8. MISCELLANEOUS.
(a) This Agreement shall not confer on the Executive any right with
respect to continuance of employment by the Company.
(b) Any notice with either party hereto or the Committee may be
required or permitted to give to the other with respect to this Agreement shall
be in writing, and may be delivered personally or by mail, postage prepaid,
addressed as follows:
(i) if to the Company:
Investors Bank Corp.
200 East Lake Street
Wayzata, Minnesota 55391
-67-
<PAGE>
(ii) if to the Committee:
Compensation Committee of Investors Bank Corp.
Investors Bank Corp.
200 East Lake Street
Wayzata, Minnesota 55391
(iii) if to the Executive:
John G. Lohmann, Jr.
200 East Lake Street
Wayzata, Minnesota 55391
(c) Commencing on the date of this Agreement and subject to the
restrictions and terms of this Agreement, the Executive shall have all of the
rights of a shareholder with respect to the Shares (including, without
limitation, the right to vote the Shares).
(d) This Agreement is made and accepted in the State of Minnesota.
The laws of the State of Minnesota shall control the interpretation and
performance of the terms of this Agreement.
(e) This Agreement shall be binding upon, and shall inure to the
benefit of, the respective successors, assigns, heirs, executors, administrators
and guardians of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered on the day and year first above written.
INVESTORS BANK CORP.
By
-----------------------
Its
--------------------
-------------------------
Executive
-68-
<PAGE>
EXHIBIT 10.16
INVESTORS BANK CORP.
RESTRICTED STOCK AWARD AGREEMENT
This Agreement, made as of this 4th day of January, 1994, between
Investors Bank Corp., a Delaware corporation (the "Company"), and Lynn V.
Bueltel (the "Executive").
WITNESSETH:
WHEREAS, the Company and the Compensation Committee of its Board of
Directors (the "Committee") have determined that equity securities awarded
pursuant to this Agreement and the Company's 1993 Incentive Stock Plan (the
"Plan") will provide incentive for Executive to remain employed by the Company
and put forth his maximum efforts for its continued success.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. AWARD. The Company, effective as of the date of this Agreement but
contingent upon approval of the Plan at the Company's 1994 annual meeting of
shareholders, hereby grants to the Executive a restricted stock award of 2,000
shares (the "Shares") of Common Stock, par value $.01 per share, of the Company
(the "Common Stock"), subject to the terms and conditions set forth herein.
2. VESTING.
(a) Subject to the terms and conditions of this Agreement and to the
terms of the Plan, the Shares shall vest in the Executive at the rate of 33
1/3% of the Shares as of January 1 in each year (commencing on January 1, 1995)
as set forth below:
<TABLE>
<CAPTION>
Plan Year Vesting Date % of Award Vested
--------- ------------ -----------------
<S> <C> <C>
1 January 1, 1995 33 1/3%
2 January 1, 1996 66 2/3%
3 January 1, 1997 100 %
</TABLE>
(b) Notwithstanding the provisions of Section 2(a) hereof, but
subject to the other terms and conditions set forth herein, the Shares shall
vest in full in the Executive if an Event of Termination occurs (as hereinafter
defined).
(c) For purposes of this Agreement, the following terms shall have
the definitions set forth below:
"Acquisition Date" means the date of public announcement of the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
thereto) of more than 15% of the outstanding voting stock of the Company by any
"person" (as defined in Section 13(d) of the Exchange Act) other than the
Company by means of a tender offer, exchange offer or otherwise.
"Event of Termination" means the termination of employment of
Executive (other than by the Executive) within 36 months of either an
Acquisition Date or a Transaction Date.
-69-
<PAGE>
"Transaction Date" means the date of shareholder approval of (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation immediately after
the merger; (ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of the Company; or (iii) any plan of liquidation or dissolution of the Company.
(d) Notwithstanding any other provision of this agreement or this
section 2, the Shares shall not vest, and all the Shares shall be forfeited to
the Company, if the shareholders of the Company do not approve the Planb at the
1994 Annual Meeting of Shareholders of the Company.
3. RESTRICTION ON TRANSFER. Until the Shares vest pursuant to Section 2
or Section 4(b) hereof, none of the Shares may be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to
transfer the Shares, whether voluntary or involuntary, by operation of law or
otherwise, shall vest the transferee with any interest or right in or with
respect to the Shares.
4. FORFEITURE; EARLY VESTING IN EVENT OF DISABILITY OR DEATH.
(a) If the Executive ceases to be an employee other than by reason of
disability or death prior to the vesting of the Shares pursuant to Section 2
hereof, the Executive's rights to all of such Shares that are not vested shall
be immediately and irrevocably forfeited without payment by the Company to the
Executive.
(b) If the Executive ceases to be an employee by reason of disability
or death prior to the vesting of the Shares pursuant to Section 2 hereof, the
Executive or his estate shall become immediately vested, as of the date of such
disability or death, in the Shares. No transfer by will or by laws of descent
and distribution of any Shares which vest by reason of the Executive's death
shall be effective to bind the Company, unless the Committee shall have been
furnished with written notice of such transfer and a copy of the will or such
other evidence as the Committee may deem necessary to establish the validity of
the transfer.
5. ISSUANCE AND CUSTODY OF CERTIFICATE.
(a) The Company shall cause to be issued one or more stock
certificates, registered in the name of the Executive, evidencing the Shares.
Each such certificate shall bear the following legend:
"The shares of common stock represented by this certificate are
subject to forfeiture, and the transferability of this certificate and
the shares of stock represented hereby are subject to the
restrictions, terms and conditions (including restrictions against
transfer) contained in a Restricted Stock Award Agreement entered into
between Investors Bank Corp. and the registered owner of such shares.
Copies of the Agreement are on file in the office of the Chief
Financial Officer of Investors Bank Corp.,
(b) The Executive shall cause stock powers relating to the shares
executed by the Executive to be delivered to the Company.
-70-
<PAGE>
(c) Each certificate issued pursuant to Section 5(a) hereof, together
with the stock powers relating to the Shares, shall be deposited by the Company
with the Chief Financial Officer of the Company or a custodian designated by the
Chief Financial Officer. The Chief Financial Officer or such custodian shall
issue a receipt to the Executive evidencing the certificate or certificates held
which are registered in the name of the Executive.
(d) After any Shares vest pursuant to Section 2 or Section 4(b)
hereof, the Company shall promptly cause to be issued a certificate or
certificates evidencing such vested Shares, free of the legend provided in
Section 4(a) hereof, and shall cause such certificate or certificates and the
stock powers relating to the Shares to be delivered to the Executive or the
Executive's legal representatives, beneficiaries or heirs.
6. DISTRIBUTIONS AND ADJUSTMENTS.
(a) If all or any portion of the Shares vest in the Executive
subsequent to any change in the number or character of the shares of Common
Stock (through merger, consolidation, reorganization, recapitalization, stock
dividend or otherwise), the Executive shall then receive upon such vesting the
number and type of securities or other consideration which he would have
received if the Shares had vested prior to the event changing the number or
character of outstanding shares of Common Stock.
(b) Any additional shares of Common Stock, any other securities of
the Company and any other property (except for cash dividends) distributed with
respect to the Shares prior to the date the Shares vest shall be subject to the
same restrictions, terms and conditions as the Shares. Any cash dividends
payable with respect to the Shares shall be distributed to the Executive at the
same time cash dividends are distributed to other shareholders of the Company.
(c) Any additional shares of Common Stock, any securities and any
other property (except for cash dividends) distributed with respect to the
Shares prior to the date such Shares vest shall be promptly deposited with the
Secretary or the custodian designated by the Secretary to be held in custody in
accordance with Section 5(c) hereof.
7. TAXES. In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it in
connection with this restricted stock award, and in order to comply with all
applicable federal or state tax laws or regulations, the Company may take such
action as it deems appropriate to insure that, if necessary, all applicable
federal or state income and social security taxes are withheld or collected from
the Executive.
8. MISCELLANEOUS.
(a) This Agreement shall not confer on the Executive any right with
respect to continuance of employment by the Company.
(b) Any notice with either party hereto or the Committee may be
required or permitted to give to the other with respect to this Agreement shall
be in writing, and may be delivered personally or by mail, postage prepaid,
addressed as follows:
(i) if to the Company:
Investors Bank Corp.
200 East Lake Street
Wayzata, Minnesota 55391
-71-
<PAGE>
(ii) if to the Committee:
Compensation Committee of Investors Bank Corp.
Investors Bank Corp.
200 East Lake Street
Wayzata, Minnesota 55391
(iii) if to the Executive:
Lynn V. Bueltel
200 East Lake Street
Wayzata, Minnesota 55391
(c) Commencing on the date of this Agreement and subject to the
restrictions and terms of this Agreement, the Executive shall have all of the
rights of a shareholder with respect to the Shares (including, without
limitation, the right to vote the Shares).
(d) This Agreement is made and accepted in the State of Minnesota.
The laws of the State of Minnesota shall control the interpretation and
performance of the terms of this Agreement.
(e) This Agreement shall be binding upon, and shall inure to the
benefit of, the respective successors, assigns, heirs, executors, administrators
and guardians of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered on the day and year first above written.
INVESTORS BANK CORP.
By
----------------------
Its
-------------------
------------------------
Executive
-72-
<PAGE>
EXHIBIT 11
INVESTORS BANK CORP.
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
(in thousands except per share data)
<TABLE>
<CAPTION>
Six months Year
ended ended
Year ended December 31 Dec. 31 June 30
--------------------------------------------------- ------------ ------------
1993 1992 1991 1990 1989 1989
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY (1):
Average shares outstanding 3,301 3,221 3,052 3,032 3,030 3,025
Net effect of the assumed purchase of stock
under the stock option plan based on the
treasury stock method using average
market price 281 227 191 53 89 75
Net effect of the assumed exercise of common
stock warrants based on the treasury
stock method using average market price 59 20
------------ ------------ ------------ ------------ ------------ ------------
3,641 3,448 3,263 3,085 3,119 3,100
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Earnings:
Earnings before cumulative effect
of accounting change $9,900 $7,812 $5,036 $2,041 $756 $1,771
Preferred stock dividends 945 968 105
Earnings available for common stockholders
before cumulative effect of accounting
------------ ------------ ------------ ------------ ------------ ------------
change 8,955 6,844 4,931 2,041 756 1,771
Cumulative effect of accounting change 125
Net earnings available for common
stockholders $9,080 $6,844 $4,931 $2,041 $756 $1,771
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Earnings per common share:
Before cumulative effect of accounting change $2.46 $1.98 $1.51 $0.66 $0.24 $0.57
Cumulative effect of accounting change 0.03
------------ ------------ ------------ ------------ ------------ ------------
Net earnings $2.49 $1.98 $1.51 $0.66 $0.24 $0.57
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
FULLY DILUTED (1):
Average shares outstanding 3,301 3,221 3,052 3,032 3,030 3,025
Net effect of the assumed purchase of stock
under the stock option plan based on the
treasury stock method using ending
market price 317 243 227 53 89 78
Net effect of the assumed exercise of common
stock warrants based on the treasury
stock method using ending market price 94 33
------------ ------------ ------------ ------------ ------------ ------------
3,712 3,464 3,312 3,085 3,119 3,103
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Earnings:
Earnings before cumulative effect
of accounting change $9,900 $7,812 $5,036 $2,041 $756 $1,771
Preferred stock dividends 945 968 105
Earnings available for common stockholders
before cumulative effect of accounting ------------ ------------ ------------ ------------ ------------ ------------
change 8,955 6,844 4,931 2,041 756 1,771
Cumulative effect of accounting change 125
Net earnings available for common ------------ ------------ ------------ ------------ ------------ ------------
stockholders $9,080 $6,844 $4,931 $2,041 $756 $1,771
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Earnings per common share:
Before cumulative effect of accounting change $2.42 $1.98 $1.49 $0.66 $0.24 $0.57
Cumulative effect of accounting change 0.03
------------ ------------ ------------ ------------ ------------ ------------
Net earnings $2.45 $1.98 $1.49 $0.66 $0.24 $0.57
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<FN>
(1) All share data restated for effect of four-for-three common stock split effective December 31, 1993
</TABLE>
<PAGE>
Exhibit 13.1
COMMON STOCK DATA
The common stock of Investors Bank Corp. is traded in the NASDAQ National Market
System under the symbol INVS. The price ranges per share, adjusted for the
4-for-3 stock split on December 31, 1993 and shown in the table below, are the
highest and lowest prices as quoted on the NASDAQ National Market System. These
prices include interdealer prices, without retail markup, markdown or
commissions, and do not always represent transactions with the public.
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ended December 31, 1992
High Low
First Quarter 11.44 8.44
Second Quarter 10.69 8.63
Third Quarter 10.88 8.63
Fourth Quarter 11.63 9.94
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ended December 31, 1993
High Low
First Quarter 16.50 10.69
Second Quarter 16.88 13.50
Third Quarter 19.13 13.50
Fourth Quarter 20.63 16.50
</TABLE>
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
INVESTORS BANK CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL HIGHLIGHTS Six
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) months Year
ended ended
Year ended December 31 Dec. 31 June 30
--------------------------------------------------- ------------ ------------
1993 1992 1991 1990 1989 1989
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Interest income $57,769 $52,516 $54,793 $56,483 $26,572 $40,258
Interest expense 32,652 30,354 36,654 43,576 22,406 30,880
------------ ------------ ------------ ------------ ------------ ------------
Net interest income 25,117 22,162 18,139 12,907 4,166 9,378
Provision for loan losses 631 869 1,010 803 256 307
Mortgage banking income 13,313 11,178 6,399 4,766 3,133 4,407
Loan servicing fees 2,830 1,491 2,201 1,864 897 2,027
Other noninterest income 2,487 1,586 1,156 1,482 250 319
Noninterest expense 26,462 22,509 18,452 16,779 6,918 12,842
------------ ------------ ------------ ------------ ------------ ------------
Earnings before income tax expense and
cumulative effect of accounting change 16,654 13,039 8,433 3,437 1,272 2,982
Income tax expense 6,754 5,227 3,397 1,396 516 1,211
Cumulative effect of accounting change 125
------------ ------------ ------------ ------------ ------------ ------------
Net earnings $10,025 $7,812 $5,036 $2,041 $756 $1,771
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Net earnings available for
common stockholders $9,080 $6,844 $4,931 $2,041 $756 $1,771
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Earnings per common share $2.49 $1.98 $1.51 $0.66 $0.24 $0.57
Dividends per common share $0.38 $0.18
FINANCIAL RATIOS:
Net interest margin 2.94% 3.39% 3.23% 2.36% 1.69% 2.32%
Return on average assets 1.13 1.14 0.84 0.35 0.28 0.42
Return on average common equity 25.6 24.2 22.0 10.9 8.8 11.2
Average equity to average assets 4.9 5.2 3.9 3.2 3.2 3.7
AVERAGE BALANCE SHEET DATA:
Total assets $889,425 $685,790 $601,903 $580,322 $537,499 $425,624
Interest-earning assets 855,441 653,162 561,538 547,622 515,809 403,861
Stockholders' equity 43,113 35,867 23,544 18,730 17,162 15,863
ENDING BALANCE SHEET DATA:
Total assets $1,017,085 $815,844 $605,823 $610,464 $551,760 $501,452
Investment securities 27,779 18,172 17,561 17,737 10,595 7,985
Loans 878,372 710,106 531,404 541,074 499,660 453,003
Deposits 603,413 512,352 510,549 505,968 471,460 421,444
Borrowings 351,267 251,310 53,348 76,322 50,004 50,018
Stockholders' equity 47,153 39,068 32,654 19,766 17,672 16,809
Book value per common share 11.90 9.60 7.80 6.52 5.83 5.55
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
INVESTORS BANK CORP. AND SUBSIDIARY
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY. Investors Bank Corp. (the Company) reported record
net earnings for the third consecutive year. Earnings were $10.0 million for
1993, compared to the previous highs of $7.8 million for 1992 and $5.0 million
for 1991. Earnings per common share were $2.49 for 1993, compared to $1.98 for
1992 and $1.51 for 1991. The Company's record performances are attributable to
the continued strength of its core operations of retail banking and mortgage
banking. In addition to the record earnings performance in 1993, total assets
grew 24.7 percent during the year to exceed $1 billion at December 31, 1993.
Return on average assets was 1.13 percent in 1993, compared to 1.14
percent in 1992 and .84 percent in 1991. Return on average common equity
increased to 25.6 percent in 1993 from 24.2 percent in 1992 and 22.0 percent in
1991.
The Company's interest-earning asset base continued to grow significantly
in 1993 causing net interest income to increase $3.0 million or 13.3 percent
despite a decline in the net interest margin from 3.39 percent in 1992 to 2.94
percent in 1993. Average interest-earning assets, primarily loans, were $855
million in 1993 compared to $653 million in 1992. Interest-earning assets
reached $982 million at December 31, 1993 and are expected to support a strong
net interest income level in 1994. This growth in interest-earning assets was
made possible because of the Company's ability to internally generate loans.
The Company's residential lending activity originated $276 million in new
adjustable rate mortgage loans, increasing mortgage loans $120 million during
1993. Through the Company's retail banking network, consumer loans were
increased $25.1 million during the year.
In order to support the rapid growth in assets, the Company implemented
strategies to generate deposit growth both in the near term and over the long
term. As a result, deposits grew $91.1 million or 17.8 percent during the
current year to $603 million at December 31, 1993. This growth follows a number
of years of minimum deposit growth. Beginning in late 1992 and throughout 1993,
the Company was more competitive in the pricing and promotion of special deposit
accounts designed to attract depositors. In addition, the Company has become
more aggressive in expanding its retail banking network by the opening of new
offices. One new retail banking office was opened in December 1992 and three
additional offices were opened in the December quarter of 1993. The Company
plans on continuing the efforts to grow deposits in order to fund its asset
growth.
As a result of the increased level of mortgage banking activity in 1993,
noninterest income increased $4.4 million or 30.7 percent compared to 1992. In
1993, the Company closed $838 million of loans for sale in the secondary market,
also a record performance. An additional $115 million of loans for sale were
purchased from correspondent lenders. This level of loan originations was made
possible by the strength of the Company's expanding mortgage lending capability
and the continued low interest rate environment in 1993 which kept refinancing
activity at a high level. Mortgage banking income increased $2.1 million or
19.1 percent in 1993 compared to 1992. In addition, the portfolio of loans
serviced for others grew $376 million during 1993 to $1.4 billion at year end.
This is expected to result in a significant increase in servicing fee income in
1994. The low interest rate environment in 1993 not only caused a higher level
of new loans to be originated, but also resulted in significant prepayment of
higher rate loans in the Company's loan servicing portfolio. Loan servicing
fees were negatively impacted for the year because of this high prepayment
experience which resulted in adjustments being made to capitalized servicing
rights. To adjust for the high prepayment activity, the Company charged off
$1.4 million in capitalized servicing rights in 1993 compared to $1.5 million in
1992. If adjustments for prepayments would be required in the future, the
Company would expect them to be at lower levels because of the reduced amount
of higher interest rate loans remaining in its portfolio of loans serviced for
others as of December 31, 1993.
The significantly higher earnings in 1992 as compared to 1991 also resulted
from strong retail banking and mortgage banking performance. Net interest
income increased $4.0 million or 22.2 percent from $18.1 million in 1991 to
$22.2 million in 1992, while noninterest income increased $4.5 million or 46.1
percent from $9.8 million in 1991 to $14.3 million in 1992. The increased net
interest income for 1992 was due to the higher level of interest-earning
assets. Average interest-earning assets, primarily loans, were $653 million
in 1992 compared to $562 million in 1991. The higher noninterest income was
primarily the result of the increase in mortgage banking income. Loans
originated for sale in 1992 increased 57.9 percent over originations in 1991.
<PAGE>
NET INTEREST INCOME. A significant portion of the Company's earnings is
derived from net interest income. Net interest income is the difference between
interest earned on interest-earning assets and interest paid on interest-bearing
liabilities. Net interest income, when divided by average interest-earning
assets, is referred to as the net interest margin. The net interest rate spread
is the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities.
Net interest income was $25.1 million in 1993, up $3.0 million or 13.3
percent from 1992. As shown in the volume/rate analysis table, an increase in
average interest-earning assets contributed $5.5 million to increasing net
interest income during 1993. The positive contribution from the increased
volume of interest-earning assets was partially offset by a $2.5 million
decrease in net interest income due to a lower net interest rate spread in 1993
than in 1992. Net interest income in 1992 had increased $4.0 million or 22.2
percent from 1991 caused by an increase in average interest-earning assets in
1992 over 1991.
During 1993, the Company's average interest-earning assets were $855
million, a 31.0 percent increase over 1992. This increase was primarily in
loans which averaged $798 million in 1993 compared to $612 million in 1992. A
continuation of the strong mortgage loan market experienced in 1992, together
with the addition of mortgage production offices and consumer lending staff,
enabled the company to increase its mortgage loans held in portfolio $120
million and its consumer loan portfolio $25.1 million during 1993. Interest-
earning assets were $982 million at the current year end compared to $780
million at the end of 1992. This growth is expected to have a positive impact
on net interest income in 1994. Average interest-earning assets grew 16.3
percent in 1992 as average loans increased 16.1 percent. As a result of the
significant lending activity during 1992, the mortgage loans held in portfolio
increased $149 million and consumer loan portfolio increased $32.2 million.
In 1993, the Company funded the asset growth with increases in deposits and
Federal Home Loan Bank (FHLB) advances. Average interest-bearing liabilities
increased 28.8 percent compared to 1992. Average interest-bearing deposits
increased $40.1 million and average FHLB advances increased $118 million. The
increase in deposits in 1993 was due to special deposit promotions and to the
opening of new retail bank offices. The Company intends to continue to
stimulate deposit growth with deposit promotions. The Company also expects
additional deposit growth from three new retail bank offices opened in late 1993
and the continued expansion of its retail bank network. During 1992, average
interest-bearing liabilities increased 13.4 percent compared to 1991. The
increase occurred in FHLB advances which were used to fund the growth in
interest-earning assets. FHLB advances averaged $132 million in 1992 compared
to $40.9 million in 1991. Average interest-bearing deposits were down $13.8
million in 1992 compared to 1991.
The net interest rate spread decreased to 2.70 percent for 1993 from 3.19
percent during 1992 and 3.12 percent in 1991. The interest rate maturity of the
Company's interest-bearing liabilities has historically been shorter than its
interest-earning assets. The increased spread in 1992 and 1991 was due to
deposits and FHLB advances repricing at lower rates and decreasing the overall
cost of funds while asset yields decreased at a slower rate. With short term
interest rates remaining relatively flat in 1993, asset yield repricings caught
up with liability repricings by declining at a more rapid rate causing the net
interest rate spread to decline. In addition, adjustable rate mortgage loans
originated in 1993 were at lower initial rates and the more aggressive deposit
pricing in 1993 combined to further reduce the net interest rate spread.
The net interest margin was 2.94 percent for 1993, compared to 3.39 percent
for 1992 and 3.23 percent in 1991. The majority of the changes in margin were
the result of the changes in net interest rate spread previously explained. The
difference between net interest margin and net interest spread widened in 1993
and 1992 as the ratio of average interest-earning assets to average interest-
bearing liabilities increased. The increase in this ratio was largely due to
the increase in equity and decrease in liabilities resulting from the exchange
of capital notes for preferred stock in November of 1991 and from the retention
of earnings for both years. In addition, noninterest bearing deposits have
increased during 1993 and 1992.
<PAGE>
NET INTEREST INCOME YIELD ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------------------------
1993 1992 1991
--------------------------- --------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
balance Interest rate balance Interest rate balance Interest rate
------- -------- ------ ------- -------- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans1 $797,895 $54,250 6.80% $611,772 $49,449 8.08% $526,952 $51,728 9.82%
Cash and investments 43,400 2,397 5.52 31,769 2,263 7.12 29,384 2,561 8.72
Other assets 14,146 1,122 7.93 9,621 804 8.36 5,202 504 9.69
------ ------ ---- ------ ----- ---- ------ ----- ----
Total interest-
earning assets 855,441 $57,769 6.75% 653,162 $52,516 8.04% 561,538 $54,793 9.76%
------- ---- ------- ---- ------- ----
Other assets2 33,984 32,628 40,365
------- ------- -------
Total assets $889,425 $685,790 $601,903
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing
deposits $31,294 $15,686 $ 10,047
Interest-bearing deposits:
Checking, savings,
money market 183,973 $4,771 2.59% 188,939 $6,633 3.51% 195,482 $11,226 5.74%
Certificates 343,478 15,226 4.43 298,400 17,114 5.74 305,690 21,480 7.03
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-
bearing deposits 527,451 19,997 3.79 487,339 23,747 4.87 501,172 32,706 6.53
FHLB advances 249,370 9,713 3.89 131,547 5,863 4.46 40,888 2,613 6.39
Other borrowings 29,697 2,941 9.90 7,361 744 10.09 10,294 1,335 12.97
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-
bearing liabilities 806,518 $32,651 4.05% 626,247 $30,354 4.85% 552,354 $36,654 6.64%
------- ---- ------- ---- ------- ----
Other liabilities2 8,500 7,990 15,958
-------- -------- --------
Total liabilities 846,312 649,923 578,359
Stockholders' equity2 43,113 35,867 23,544
-------- -------- --------
Total liabilities and
stockholders' equity $889,425 $685,790 $601,903
-------- -------- --------
-------- -------- --------
Net interest income $25,118 $22,162 $18,139
------- ------- -------
------- ------- -------
Net interest rate spread 2.70% 3.19% 3.12%
---- ---- ----
---- ---- ----
Net interest margin 2.94% 3.39% 3.23%
---- ---- ----
---- ---- ----
<FN>
1 Nonaccrual loans are included in average loan balances
2 Average balance is based on month-end balances for 1991.
</TABLE>
<PAGE>
NONINTEREST INCOME. Noninterest income is a significant source of revenue
for the Company and has a major impact on operating results. An active mortgage
banking operation is an integral part of the Company's strategy to supplement
net interest income with a significant amount of noninterest income. Mortgage
banking generates income primarily through the sale of loan servicing rights and
the sale of mortgage loans. This mortgage banking activity also adds to the
portfolio of loans serviced for others, generating continuing noninterest income
from loan servicing fees. Through mortgage banking, the Company originates
government insured loans and fixed-rate conventional loans and sells such loans
in the secondary market or pools the loans and sells the resulting mortgage-
backed securities, generating a gain on sale of mortgage loans. For most of
these sales the Company retains the servicing rights. The Company also
regularly engages in the sale of portions of servicing rights it creates,
generating significant gains on such sales. Historically, the amount of loans
the Company has originated for sale has been significant and the Company intends
to continue to originate loans for sale to create mortgage banking income from
gains on sale of loans and loan servicing rights.
<TABLE>
<CAPTION>
NONINTEREST INCOME
(IN THOUSANDS)
Year ended December 31
-------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Mortgage banking $13,313 $11,178 $6,399
Loan servicing fees 2,830 1,491 2,201
Commissions on title insurance sales 935 135
Commissions on annuity sales 561 575 511
Other 991 876 645
------- ------- ------
$18,630 $14,255 $9,756
------- ------- ------
------- ------- ------
</TABLE>
The Company's mortgage banking income is highly dependent on the amount of
mortgage loans originated for sale. Most of its loans are originated through
loan closings by its mortgage loan offices, but loans are also purchased from
correspondents. The Company has six Twin Cities offices, a Duluth office, three
offices in the Chicago market and an office in the Milwaukee area which opened
in late 1993. During the latter part of 1991, two experienced senior level
mortgage production managers joined the Company. Their presence, along with a
staff of experienced and high performing lending officers, has been a factor in
the improved production. During 1993 and 1992 the Company benefited from the
strong mortgage demand generated by reduced market interest rates as well as the
strengthened production staff. Mortgage refinancings increased to 49.0 percent
and 46.5 percent of the total loans closed during 1993 and 1992, respectively.
As a result of the increased mortgage loan originations, mortgage banking
income increased $2.1 million or 19.1 percent in 1993 from the prior year and
$4.8 million or 74.7 percent in 1992 compared to 1991. The increase in 1993 was
from a higher gain on sales of mortgage loans which was partially offset by a
lower gain on sales of loan servicing rights. Most of the increase in mortgage
banking income for 1992 was from higher gains on sales of mortgage loans and
loan servicing rights. The Company closed $838 million loans for sale in
1993, 26.4 percent more than in 1992. Also in 1993, loan purchases were up
25.9 percent to $115 million. In 1992, loans originated for sale totaled $663
million which was a 61.8 percent increase from 1991 and loan purchases were up
34.2 percent to $91.3 million. Refinancing activity is highly dependent on
market interest rates. If rates increase, refinance activity could decrease
substantially in 1994 and the Company would experience a reduction in loans
originated for sale. This reduction should be partially offset by the Company's
continued mortgage lending expansion, primarily in the Chicago and Wisconsin
markets.
<PAGE>
MORTGAGE BANKING ACTIVITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Loans originated for sale:
Loans closed $838,097 $663,275 $409,852
Loans purchased 114,986 91,346 68,070
-------- -------- --------
$953,083 $754,621 $477,922
-------- -------- --------
-------- -------- --------
Mortgage loans sold $982,764 $799,703 $512,620
Gain on sales of mortgage loans 9,391 6,329 2,447
Loan servicing rights sold 252,178 301,642 298,840
Gain on sales of loan servicing rights 3,331 4,232 3,511
Other lending fees 591 617 441
</TABLE>
Gain on sales of mortgage loans increased $3.1 million in 1993 and $3.9
million in 1992. The increased gain was due to 22.9 percent and 56.0 percent
increases in the amount of loans sold for 1993 and 1992, respectively, and to
higher cash gains as a result of the higher level of refinancing activity in
1993 and 1992. If the refinancing activity decreases, the gain on sales of
mortgage loans is likely to decrease.
Gain on sales of loan servicing rights was $3.3 million in 1993, a 21.3
percent decrease from the gain earned in the previous year. Because of the
larger gains realized on the sales of mortgage loans in 1993, the Company
reduced the amount of loan servicing rights sold in the current year by 16.4
percent to $252 million. Gain on sales of loan servicing rights was $4.2
million for 1992, a 20.5 percent increase from the gain earned in 1991. The
increased gain in 1992 reflects more favorable market pricing for loan servicing
rights as the volume sold was approximately the same as in the prior year. Loan
servicing rights sales continue to generate substantial mortgage banking income.
The amount of loan servicing rights sold annually by the Company and the
resulting gain may vary because of market fluctuations in the pricing of loan
servicing rights. In addition, the Company may reduce sales of servicing rights
in periods when gains on sales of mortgage loans are higher than normal or
increase sales of servicing rights when gains on sales of mortgage loans are
reduced to more normal levels.
Loan servicing fees were $2.8 million in 1993 compared to $1.5 million in
1992 and $2.2 million in 1991. Loan servicing fees were negatively impacted in
1993 and 1992 by adjustments of $1.4 million and $1.5 million, respectively,
made to capitalized servicing rights. These adjustments were necessary to
reflect the high prepayment activity in the low interest rate environment and to
conform with accounting and regulatory guidelines adopted in 1992 which take a
more conservative approach to accounting for capitalized servicing rights.
Because of the high level of new originations in 1993 and 1992, the servicing
portfolio experienced a net growth during 1993 of $376 million and in 1992 of
$321 million to increase the portfolio to $1.4 billion at December 31, 1993. If
the above adjustments would not have been required, loan servicing fees would
have been $4.2 million in 1993 and $3.0 million in 1992 or increases of 40.4
percent and 27.2 percent, respectively. If adjustments for prepayments would be
required in the future, the Company would expect them to be at lower levels
because of the reduction in high rate loans in its portfolio of loans serviced
for others as of the 1993 year end.
Commissions on title insurance sales were $935 thousand in 1993 compared to
$135 thousand in 1992. This activity began in late 1992 with 1993 being the
first full year of operation. During 1993 title insurance was sold on
2,894 loans compared to 476 loans in 1992.
<PAGE>
Commissions on annuity sales were $561 thousand on sales of $11.4 million
in 1993, down 2.4 percent from $575 thousand on annuity sales of $11.0 million
in 1992. The Company earned $511 thousand on annuity sales of $9.4 million in
1991. In early 1992, there were proposals to Congress that certain tax
benefits enjoyed by the insurance industry be eliminated. This had the effect
of increasing sales during 1992. During 1993, sales remained strong due to the
continued strength of the Company's sales staff. Investors has an experienced
staff of licensed agents who regularly promote these products and customer
acceptance is good, but uncertainty or change in the market interest rates or
regulatory environment could affect sales of annuities in the future.
Other income increased to $991 thousand for 1993 from $876 thousand in 1992
and $645 thousand in 1991. The Company began selling mutual funds in 1992 and
earned fees of $163 thousand in 1993 and $80 thousand in 1992. The remaining
increases in other income were caused by gains on the disposal of foreclosed
residential properties.
NONINTEREST EXPENSE. Noninterest expense increased 17.6 percent to $26.5
million for the year ended December 31, 1993 compared to $22.5 million for the
same period in 1992. Noninterest expense grew 22.0 percent in 1992 from the
$18.5 million in 1991. The increase in noninterest expense over the three year
period was generally attributable to the Company's continued expansion of both
its mortgage banking and retail banking activities.
NONINTEREST EXPENSE
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1993 1992 1991
------- -------- -------
<S> <C> <C> <C>
Employee compensation and benefits $15,430 $ 12,650 $ 9,612
Occupancy and equipment 3,814 3,407 2,981
Advertising 926 667 582
Federal deposit insurance premiums 1,224 1,173 1,169
Other 5,068 4,612 4,108
------- ------- -------
$26,462 $22,509 $18,452
------- ------- -------
------- ------- -------
</TABLE>
Employee compensation and benefits for 1993 were 22.0 percent more than
1992 primarily because of an 18.2 percent increase in staffing to support the
high level of growth. During 1993, three retail banks and two mortgage
production offices were opened. In addition, mortgage production, title
insurance, consumer lending, mortgage servicing and marketing increased staff to
support the higher level of activity. Benefits increased in step with
compensation and were also affected by higher health insurance costs. Employee
compensation and benefits increased 31.6 percent in 1992 compared to 1991 due to
increased staffing and commissions paid to support the much higher level of
mortgage loan production, increased consumer lending activity and the
establishment of builder finance and title insurance divisions.
The new offices opened in 1993 were also largely responsible for the 11.9
percent increase in occupancy and equipment expenses from 1992. Occupancy
expense was up 7.9 percent due to rents on the new offices. Equipment expenses
rose 20.2 percent from increased depreciation on new office equipment and
equipment purchased to create or enhance computer networking capabilities among
offices. Occupancy and equipment expenses were 14.3 percent higher in 1992 than
in 1991. This increase was the result of a write-off of unamortized leasehold
improvements on a retail bank office replaced by a new facility, higher real
estate taxes on the Company's new headquarters which the Company occupied in
December 1990, and greater depreciation on equipment.
Advertising expense increased 38.8 percent to $926 thousand in 1993 from
$667 thousand in 1992. In 1993, as part of its strategy to increase deposits
and consumer loans, the Company increased both its advertising of retail
products and targeted marketing efforts such as promotions for the new retail
banks and point of sale materials. From 1991 to 1992, advertising expense rose
by 14.6 percent as the Company increased expenditures for advertisement of
deposit products, partly in response to a decrease in deposits.
<PAGE>
Federal deposit insurance premiums increased 4.3 percent in 1993 from 1992
along with increased deposits. The Bank's insurance premium rate was .23
percent of the deposit base for both 1993 and 1992 due to the Bank being
categorized by the FDIC as "well capitalized". The increase in insurance
expense was less than the percent of deposit increase because the premiums are
based on deposit levels of the prior six month periods. Between 1992 and 1991,
there was almost no change in deposit insurance premium expense because deposits
did not increase.
Other expenses were up 9.9 percent in 1993 over 1992 primarily due to the
record production level and the Company's growth and new product lines.
Decreases in expenses associated with holding foreclosed real estate were offset
by increases in other categories. These included telephone expenses, which grew
to support new offices and enhanced computer network capabilities, supplies,
postage, data processing and professional fees. Other expenses increased 12.3
percent for the year ended December 31, 1992 compared to 1991. Approximately
$200 thousand of the increase was due to variable costs such as supplies,
postage and service fees rising with the higher mortgage loan production. There
was also $199 thousand of additional foreclosed real estate expenses and a $49
thousand increase in charitable contributions.
INCOME TAXES. Effective January 1, 1993, the Company adopted the new
accounting standard for income taxes, Statement of Financial Accounting
Standards No. 109. A $125 thousand cumulative effect of adopting the new
standard was recognized in the first quarter of 1993. Income tax expense was
$6.8 million for 1993 compared to $5.2 million for 1992 and $3.4 million for
1991. Income tax expense has been between 40.1 percent and 40.6 percent of
earnings before income tax expense for all three years. For additional
information on income taxes, refer to Note 12 of Notes to Consolidated Financial
Statements.
FINANCIAL CONDITION
The Company's assets grew 24.7 percent to $1 billion between December 31,
1993 and 1992. This growth was primarily the result of origination of
significant amounts of adjustable rate residential mortgage loans and, to a
lesser extent, of consumer home equity loans. This reflects the Company's
strategy to grow with high quality, interest-rate sensitive assets. Residential
real estate loans continue to make up the largest portion of the Company's
permanent loan portfolio. These loans were 84.6 percent of portfolio loans at
December 31, 1993, nearly identical with the composition at December 31, 1992.
The Company has increased its emphasis on supplementing its residential loan
portfolio by increasing its consumer lending capability, primarily through home
equity loans. Although the Company has made consumer loans through its private
banking department since commencement of operations, consumer lending is now an
active part of retail banking operations. Continued marketing and exposure to
the loans in the retail bank offices caused consumer loans to grow to 11.5
percent of the permanent loan portfolio at December 31, 1993 from 10.2 percent
at December 31, 1992. The Company maintains a small commercial real estate
loan portfolio originated in prior years and is not actively seeking new
commercial real estate loans.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In the accompanying financial statements, the Company has disclosed the
estimated fair values of all on and off-balance sheet financial instruments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosure About Fair Value of Financial Instruments". See Note 17 of Notes to
Consolidated Financial Statements. At December 31, 1993 and 1992, total
financial assets had estimated fair values in excess of their carrying amounts
of $51.4 million and $39.1 million, respectively. These excess amounts were
primarily due to mortgage loans and excess servicing rights. Total financial
liabilities had estimated fair values in excess of their carrying amounts of
$3.5 million and $1.8 million at December 31, 1993 and 1992, respectively.
These excess amounts were primarily due to deposits.
The estimated fair values of mortgage loans were $32.1 million and $25.8
million greater than the respective carrying amounts at December 31, 1993 and
1992. The Company's mortgage loans are predominately ARM loans which are
generally sold in the marketplace at a premium because the currently indexed
rates on the underlying loans are higher than initial market yields. The
increase in estimated fair values in excess of the carrying amounts between
years was mostly due to the increased amounts of mortgage loans. Excess
servicing rights had estimated fair values greater than carrying amounts by
$17.4 million at year end 1993 and $12.1 million at year end 1992. This
increase was due to the increased amount of mortgage loans serviced for others
between years. Excess servicing rights relate to servicing that the Company has
created and retained from its own origination activities. Carrying amounts
represent only the discounted present value of future service fee income in
excess of a normal market rate servicing fee. Estimated fair values are
significantly greater than these amounts.
<PAGE>
Deposits had estimated fair values greater than carrying amounts of $4.3
million and $1.5 million at December 31, 1993 and 1992, respectively. These
amounts result from certificates of deposits which have interest rates somewhat
higher than the Company's rates offered for deposits with maturities similar to
the remaining maturities of the existing deposits at December 31, 1993 and 1992,
NONPERFORMING ASSETS. Nonperforming assets include all nonaccrual loans
and real estate acquired through foreclosure net of specific reserves.
Nonperforming assets were $8.6 million at December 31, 1993, down 7.5 percent
from year end 1992. The decline is primarily the net of a $1.4 million decrease
in foreclosed residential real estate and an $810 thousand increase in
foreclosed commercial real estate. The Company believes the decline in
foreclosed residential real estate is the result of its quality underwriting
standards and improving economic conditions. Foreclosed commercial real estate
had a net increase because two properties, valued at about $2.1 million, were
added while a $1.3 million property was sold during 1993. Nonperforming assets
were $9.3 million at December 31, 1992, down 17.2 percent from December 31,
1991. The decline resulted primarily from a $1.5 million decrease in
nonperforming residential real estate loans. Total nonperforming commercial
real estate assets declined $460 thousand in 1992 with a $1.1 million asset
moving from the nonperforming loan category to the real estate in judgment
category. Nonperforming loans as a percentage of loans held in portfolio
continued decreasing and were .24 percent at December 31, 1993 compared to .31
percent and 1.04 percent at December 31, 1992 and 1991, respectively.
Nonperforming assets as a percentage of total assets also continued to decline
and were .85 percent at December 31, 1993 compared to 1.14 percent at December
31, 1992 and 1.85 percent at December 31, 1991. The improvement in these
ratios was both the result of the decline in nonperforming assets along with
the increase in loans held in portfolio and total assets during 1993 and 1992.
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
----------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Loans:
Residential real estate $1,852 $1,987 $3,509
Commercial real estate 1,182
Consumer 51 43 160
------ ------ -------
1,903 2,030 4,851
------ ------ -------
Real estate owned and
in judgment, net:
Residential 1,868 3,242 3,068
Commercial 4,807 3,997 3,275
------ ------ -------
6,675 7,239 6,343
------ ------ -------
Total nonperforming assets $8,578 $9,269 $11,194
------ ------ -------
------ ------ -------
Nonperforming loans as a
percentage of net loans held
in portfolio .24% .31% 1.04%
Nonperforming assets as a
percentage of total assets .85 1.14 1.85
</TABLE>
In accordance with generally accepted accounting principles, real estate
owned and in judgment is carried at the lower of cost or fair value less
estimated cost to sell. At December 31, 1993, commercial real estate owned
included $3.8 million in properties acquired through foreclosure of four loans
and commercial real estate in judgment consisted of one property for $1.0
million. In January, 1994, the Company completed foreclosure on this property,
a combination office and warehouse in a western suburb of Minneapolis. Since
October 1991, the Company has owned a 59 unit apartment complex in Brooklyn
Park, Minnesota which has a carrying value of $1.3 million. A complex sale
agreement, including a portion of public financing, has been pending during
1993. In the event the sale is not completed, the Company will work to increase
the occupancy level and remarket the property. In April 1993, the Company
received title to seven fully leased retail and convenience store properties
located in the Minneapolis-St. Paul area which originally secured a $1.1 million
loan. The Company is actively marketing these properties. In November of 1993,
the Company acquired a $1.0 million 48 unit apartment property. This property
will require some minor repairs and, after occupancy is increased, will be
listed for sale later in 1994. No other nonperforming asset had a carrying
value exceeding $500 thousand at December 31, 1993.
<PAGE>
ANALYSIS OF RESERVES FOR LOAN AND REAL ESTATE LOSSES. The reserves for
losses provide for potential losses in the Company's loan and real estate
portfolios. The reserves are increased by the provision for losses and by
recoveries and are decreased by charge-offs. The adequacy of the reserves is
judgmental and based on the continued evaluation of the nature and volume of the
loan and real estate portfolios, overall portfolio quality, specific problem
loans, collateral values, historical experience and current economic conditions
that may affect the borrowers' ability to pay.
The reserve for loan losses was $3.0 million at December 31, 1993, $2.6
million at December 31, 1992, and $2.0 million at December 31, 1991. The
increases over the three year period are a result of increased provisions to
cover larger residential and consumer loan portfolios as well as a determination
by the Company to increase the size of its unallocated general reserve which was
established to cover unforeseen loan losses. The provision for loan losses was
$631 thousand in 1993, $869 thousand in 1992 and $1.0 million in 1991. Of these
provisions, $192 thousand, $499 thousand and $754 thousand, respectively, were
allocated to the unallocated general reserve. Additions to the unallocated
reserve have been reduced recently because of the continuing high quality of the
Company's assets, the favorable rate of net charge-offs and improving economic
conditions. Offsetting the provision were net charge-offs of $250 thousand,
$252 thousand, and $94 thousand in 1993, 1992 and 1991, respectively. For a
summary of the reserve for loan losses, see Note 4 of Notes to Consolidated
Financial Statements of this report.
The reserve for real estate losses was $135 thousand, $696 thousand, and
$522 thousand at December 31, 1993, 1992 and 1991, respectively. The provision
for real estate losses (included in other expenses) was $120 thousand, $286
thousand and $428 thousand in 1993, 1992, and 1991, respectively. During 1993,
the reserve declined because of the charge-off of a $599 thousand loss that had
been previously reserved for on a commercial property first acquired in late
1989. The decline in commercial property values since the late 1980's has
largely abated. Accordingly, the Company's foreclosures have been at a
significantly lower level in the last three years and the property values have
generally been closer to the related loan values. As a result, less loss
reserve is required on commercial real estate. While the Company has
experienced occasional losses on foreclosed residential real estate, its
experience has generally been favorable. For a summary of the reserve for real
estate losses, see Note 8 of Notes to Consolidated Financial Statements of this
report.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK.
The Company's continuing objective is to minimize the sensitivity of its
earnings to interest rate fluctuations by matching the repricing characteristics
of its assets and liabilities at a profitable interest rate spread. In order to
achieve such matching, the Company has emphasized the origination and retention
of ARMs and prime-rate related consumer lending for its own loan portfolio which
have interest rates that adjust periodically in accordance with market interest
rates. At December 31, 1993, loans that adjust with market interest rates
constituted 98.2 percent of the Company's permanent loan portfolio. The Company
sells substantially all of the long-term fixed-rate mortgages it originates.
The Company monitors its interest rate risk primarily through analysis of
the match between the repricing characteristics of its assets and liabilities
and the potential impact on net interest income from possible interest rate
movements. The Company has not utilized hedging techniques such as financial
futures or interest rate swaps.
The accompanying table sets forth the Company's interest rate sensitive
assets and interest rate sensitive liabilities at December 31, 1993 and the
related "gap" (the difference between the interest-earning assets and the
interest-bearing liabilities that reprice during such period) for each repricing
period. Loans are shown based on the repricing date or contractual maturity
date, if applicable, and then adjusted for scheduled amortization and prepayment
assumptions based on historical experience. Mortgage loans held for sale are
shown in the "6 months or less" category. All fixed rate and noninterest-
bearing checking and savings accounts have been adjusted for an annual decay
rate based on industry experience. While management believes this assumption to
be reasonable, these balances could decrease in a period of generally rising
interest rates. Certain advances and loan payments from borrowers held under
escrow (escrow accounts) are included in transaction accounts while other escrow
accounts are included in other borrowings depending on the nature of the escrow
deposit. These escrow accounts have been adjusted for annual decay rates.
Other borrowings also include subordinated debt.
<PAGE>
ASSET/LIABILITY MATURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------------------------------------------------------
6 months 6 months 1 to 3 3 to 5 More than
or less to 1 year years years 5 years Total
------- --------- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Mortgage loans $431,121 $264,199 $90,689 $295 $944 $787,248
Consumer loans 65,939 13,419 4,451 5,869 1,446 91,124
Cash and investment securities 76,626 3,091 13,119 6,908 1,907 101,651
-------- -------- -------- ------- ------ --------
Total rate sensitive assets $573,686 $280,709 $108,259 $13,072 $4,297 $980,023
-------- -------- -------- ------- ------ --------
-------- -------- -------- ------- ------ --------
LIABILITIES
Fixed maturity deposits $107,315 $138,882 $100,635 $22,657 $369,489
Transaction accounts 11,166 9,822 24,828 12,117 $27,208 85,141
Money market accounts 146,132 146,132
FHLB advances 210,000 102,000 13,000 325,000
Other borrowings 738 3,079 2,629 1,632 26,599 34,677
------- ------- ------- ------ ------ -------
Total rate sensitive liabilities $475,351 $253,783 $141,092 $36,406 $53,807 $960,439
-------- -------- -------- ------- ------- --------
-------- -------- -------- ------- ------- --------
Gap $98,335 $26,926 $(32,833) $(23,334) $(49,510) $19,584
Cumulative gap $125,261 $ 92,428 $ 69,094 $19,584
Cumulative gap to total assets 9.7% 12.3% 9.1% 6.8% 1.9%
</TABLE>
<PAGE>
The Company's cumulative one year gap was a positive $125 million or 12.3
percent of assets at December 31, 1993 versus a positive 4.4 percent at December
31, 1992. During 1993, assets in the "one year or less" categories increased
$197 million while liabilities in the same categories increased $108 million.
The increase in assets for such categories was due to an increase in one year
ARM loans and prime rate related consumer loans originated and to a higher cash
position at year end. The increase in liabilities for these categories was due
to a $110 million increase in FHLB advances that had an initial rate maturity of
one year or less, matching up with the rate maturity of the corresponding asset
growth. The cumulative three year gap was $92.4 million or 9.1 percent of
assets at December 31, 1993. The three year gap was slightly less positive than
the 8.9 percent at December 31, 1992. Although the Company had a positive one
year gap at December 31, 1993, a rapid increase in market interest rates could
cause a decline in net interest rate spread because the adjustments on some ARM
loans may be limited by interest rate caps.
The recorded value of capitalized servicing rights is susceptible to
interest rate risk. At December 31, 1993, capitalized servicing rights were
$4.4 million. The capitalized amounts and the amortization is based partly on
prepayment assumptions of the underlying loans. Increased levels of prepayments
generally occur in a declining interest rate environment. When a loan is
prepaid, the Company ceases to collect servicing income on such loan. If actual
prepayments exceed the Company's assumptions in the future, adjustments to the
carrying value of servicing rights may be required. During 1993, 1992 and 1991,
adjustments of $1.4 million, $1.5 million and $158 thousand, respectively, were
made to capitalized servicing rights on loans because of the higher prepayments
experienced in the related periods. For additional information on these
adjustments, see the discussion on loan servicing fees included in the
"Noninterest Income" section.
LIQUIDITY. Cash and cash equivalents increased $18.1 million during 1993
to $58.3 million at December 31, 1993. The increase resulted from $191 million
in net cash provided by financing activities less $159 million in net cash used
by investing activities and $14.4 million in net cash used by operating
activities.
Because of the success in significantly increasing deposits through more
competitive pricing during 1993, the Company reduced the reliance on FHLB
advances to fund lending activities. The Company expects continued asset growth
in the future and plans to continue funding this growth with deposits and FHLB
advances. Increases in retail deposits are expected from new retail bank
locations opened in late 1993, the opening of additional retail bank locations
in 1994, and by continued competitive deposit pricing. Based on discussions
with the FHLB, the Company has additional borrowing capacity from the FHLB and
will use advances as needed or appropriate.
Cash and cash equivalents totaled $40.2 million at December 31, 1992, an
increase of $22.4 million from December 31, 1991. This increase was the result
of $12.9 million in net cash provided from operating activities and $200 million
in net cash provided by financing activities less $191 million in net cash used
by investing activities. Cash and cash equivalents increased $4.1 million
during 1991. This increase resulted from $36.8 million in net cash provided by
investing activities less $24.9 million in net cash used by operating activities
and $7.7 million in net cash used by financing activities.
Net cash provided by operating activities was from a number of sources in
1993 and 1992 as detailed in the Statement of Cash Flows. Net cash used by
operating activities in 1991 was primarily due to the $26.8 million net increase
in mortgage loans held for sale.
During 1993, $148 million of the net cash used by investing activities
funded an increase in loans. Of this growth, $120 million was in mortgage loans
as customer demand continued. Consumer loans made up the remainder of the
increase. Funds were also invested in investment securities for a net increase
of $9.6 million to help the Company meet its growing liquidity requirement
caused by the asset growth. Of the net cash used by investing activities in
1992, $185 million was used to fund a net increase in loans. Approximately $149
million of this growth was in mortgage loans with consumer loans causing the
remaining increase. In 1991, $33.1 million of the net cash provided from
investing activities was from a net decrease in loans. This was the result of a
decline in the Company's ARM portfolio due to prepayments and conversions to
fixed rate loans. These converted loans were then sold in the secondary market.
<PAGE>
During 1993, the net cash provided by financing activities was from a $91
million increase in deposits and a $100 million net increase in FHLB advances.
These funds were used to fund loan growth during the year. The net cash
provided by financing activities in 1992 was due to a net increase of $175
million in FHLB advances used to fund loan growth and the $22.1 million of net
proceeds from the issuance of subordinated notes. Deposits increased only $3.1
million as the Company had difficulty attracting deposits in the low interest
rate environment. The net cash used by financing activities in 1991 was the
result of a net decrease in FHLB advances of $15 million which was partially
offset by a $4.7 million increase in deposits. The increase in deposits was low
due to the Company limiting its asset growth in 1991 to increase capital ratios
and to continue to comply with regulatory capital requirements. FHLB advances
provided funding not met by other sources. FHLB borrowings were $325 million at
December 31, 1993 and $225 million at December 31, 1992. The maximum FHLB
borrowings were $325 million in 1993 compared to $243 million and $75 million
for 1992 and 1991, respectively.
At December 31, 1993, the Company had aggregate loan funding commitments
(including committed lines of credit) of $94.5 million and aggregate commitments
for the sale of loans of $126 million. The Company's expected proceeds from
loan sales and its ability to obtain advances from the FHLB exceeded its funding
commitments at December 31, 1993.
The Bank is required by the OTS to maintain "liquidity" (cash and eligible
investments) in an amount equal to a certain percentage of its deposits and
short-term borrowings to assure its ability to meet demands for withdrawals and
repayment of short-term borrowings. The percentage, which may be changed at any
time by the OTS, is currently 5 percent. Management believes that the liquidity
maintained by the Bank, together with the sources of funds discussed above, is
adequate to meet contingencies.
CAPITAL MANAGEMENT. The Company's stockholders' equity increased 20.7
percent to $47.2 million at December 31, 1993 from $39.1 million at December 31,
1992. This increase was primarily the result of net earnings retained of $7.8
million. The Company began paying quarterly common dividends in the second
quarter of 1992 at the annual rate of $.24 per share. For 1993, the Company
increased the dividend rate 56.3 percent to $.375 per share and has declared
that the 1994 dividend will increase 33.3 percent to an annual rate of $.50 per
share. Book value per common share was $11.90 at December 31, 1993 compared to
$9.60 at December 31, 1992.
The Company further increased its capital position in 1992 by issuing $23.0
million of 10 year subordinated notes. Of the net proceeds of $22.1 million,
$12.0 million was contributed to the Bank's paid in capital during 1992 and an
additional $5.0 million in 1993. The balance of the net proceeds remains at the
Company to support further growth of the Bank's operations.
As a result of the additional capital received in 1992 and 1993, the Bank
is categorized by regulations as a "well capitalized" institution, the highest
level obtainable. This categorization will allow the Bank to have a lower
deposit insurance premium cost and to have more operational flexibility. For
additional information on capital requirements see Note 11 of Notes to
Consolidated Financial Statements of this report.
ACCOUNTING FOR IMPAIRED LOANS. In May 1993, the Financial Accounting
Standards Board (FASB) issued tatement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114
requires that expected loss of interest income on impaired loans be taken into
account when calculating loan loss reserves. SFAS No. 114 requires that
specified impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or the fair
value of collateral for secured loans. SFAS No. 114 does not apply to large
groups of small balance, homogeneous loans that are collectively evaluated for
impairment. SFAS No. 114 is effective for years beginning after December 15,
1994. Management does not expect the adoption of SFAS No. 114 to have a
material effect on the Company's consolidated financial statements.
<PAGE>
ACCOUNTING FOR INVESTMENTS. In May 1993, the FASB issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
115 requires debt and equity securities to be classified into one of three
categories: held to maturity, held for trading, or available for sale.
Securities held to maturity are limited to debt securities that the holder has
the positive intent and ability to hold to maturity; these securities are
reported at amortized cost. Securities held for trading are limited to debt and
equity securities that are held principally to be sold in the near term; these
securities are reported at fair value, and unrealized gains and losses are
reflected in earnings. Securities held as available for sale consist of all
other securities; these securities are reported at fair value, and unrealized
gains and losses, net of taxes, are not reflected in earnings but are reflected
as a separate component of stockholders' equity. Under SFAS No. 115, securities
that could be sold in the future because of changes in interest rates or other
factors may not be classified as held to maturity. SFAS No. 115 is effective
for years beginning after December 15, 1993. Management does not expect the
adoption of SFAS No. 115 to have a material effect on the Company's consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
Net Interest Income Volume/Rate Analysis
(In thousand)
Year ended December 31, 1993 Year ended December 31, 1992
versus same period in 1992 versus same period in 1991
-------------------------- --------------------------
Increase (decrease) due to Increase (decrease) due to
-------------------------- --------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest Income on:
Loans $13,474 $(8,673) $4,801 $7,619 $ (9,898) $(2,279)
Cash and investments 713 (579) 134 190 (488) (298)
Other assets 361 (43) 318 400 (100) 300
------ ------ ----- ----- ------- ------
Total interest income 14,548 (9,295) 5,253 8,209 (10,486) (2,277)
------ ------ ----- ----- ------- ------
Interest expense on:
Deposits:
Interest-bearing accounts (170) (1,692) (1,862) (329) (4,264) (4,593)
Certificates 2,351 (4,239) (1,888) (481) (3,885) (4,366)
------ ------ ----- ----- -------- ------
Total deposits 2,181 (5,931) (3,750) (810) (8,149) (8,959)
FHLB advances 4,671 (821) 3,850 5,224 (1,974) 3,250
Other borrowings 2,212 (15) 2,197 (353) (238) (591)
------ ------ ----- ----- -------- ------
Total interest expense 9,064 (6,767) 2,297 4,061 (10,361) (6,300)
------ ------ ----- ----- ------- ------
Net interest income $5,484 $(2,528) $2,956 $4,148 $ (125) $4,023
------ ------- ------ ------ -------- ------
------ ------- ------ ------ -------- ------
</TABLE>
Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
<PAGE>
INVESTORS BANK CORP. AND SUBSIDARY
Consolidatd Financial Statements
December 31, 1993 and 1992
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Investors Bank Corp.:
Wayzata, Minnesota:
We have audited the accompanying consolidated balance sheets of Investors
Bank Corp. and subsidiary as of December 31, 1993 and 1992 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Investors
Bank Corp. and subsidiary as of December 31, 1993 and 1992 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
KPMG Peat Marwick
Minneapolis, Minnesota
January 27, 1994
<PAGE>
INVESTORS BANK CORP. AND SUBSIDIARY
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------
1993 1992 1991
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest Income:
Interest on loans $54,250,037 $49,449,041 $51,727,598
Interest on cash and investments 2,396,639 2,262,820 2,560,860
Interest and dividends on other assets 1,122,410 803,998 504,014
--------------- --------------- ---------------
Total interest income 57,769,086 52,515,859 54,792,472
--------------- --------------- ---------------
Interest Expense:
Interest on deposits (Note 9) 19,997,333 23,747,373 32,705,935
Interest on borrowings (Note 10) 12,654,143 6,606,392 3,947,856
--------------- --------------- ---------------
Total interest expense 32,651,476 30,353,765 36,653,791
--------------- --------------- ---------------
Net interest income 25,117,610 22,162,094 18,138,681
Provision for loan losses (Note 4) 631,446 868,758 1,009,513
--------------- --------------- ---------------
Net interest income after provision for loan losses 24,486,164 21,293,336 17,129,168
--------------- --------------- ---------------
Noninterest Income:
Mortgage banking (Note 5) 13,313,359 11,178,090 6,399,077
Loan servicing fees (Note 6) 2,829,749 1,490,797 2,201,121
Commissions on title insurance sales 935,681 135,081
Commissions on annuity sales 560,733 575,053 510,482
Other 990,761 875,571 644,860
--------------- --------------- ---------------
Total noninterest income 18,630,283 14,254,592 9,755,540
--------------- --------------- ---------------
Noninterest Expense:
Employee compensation and benefits 15,429,639 12,650,501 9,611,891
Occupancy and equipment 3,813,908 3,406,693 2,981,123
Advertising 926,178 666,779 582,329
Federal deposit insurance premiums 1,224,472 1,172,908 1,168,851
Other 5,067,996 4,611,767 4,108,272
--------------- --------------- ---------------
Total noninterest expense 26,462,193 22,508,648 18,452,466
--------------- --------------- ---------------
Earnings before income tax expense and cumulative
effect of accounting change 16,654,254 13,039,280 8,432,242
Income tax expense (Note 12) 6,753,835 5,227,251 3,396,603
--------------- --------------- ---------------
Earnings before cumulative effect
of accounting change 9,900,419 7,812,029 5,035,639
Cumulative effect of accounting change (Note 2) 125,000
--------------- --------------- ---------------
Net earnings $10,025,419 $7,812,029 $5,035,639
--------------- --------------- ---------------
--------------- --------------- ---------------
Net earnings available for common stockholders $9,079,707 $6,844,175 $4,930,788
--------------- --------------- ---------------
--------------- --------------- ---------------
Earnings per common share:
Before cumulative effect of accounting change $2.46 $1.98 $1.51
Cumulative effect of accounting change 0.03
--------------- --------------- ---------------
Net earnings $2.49 $1.98 $1.51
--------------- --------------- ---------------
--------------- --------------- ---------------
Average common and common equivalent shares 3,641,375 3,448,057 3,263,255
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
INVESTORS BANK CORP. AND SUBSIDIARY
Consolidated Balance Sheets
December 31
------------------------------------------
Assets 1993 1992
-------------------- --------------------
<S> <C> <C>
Cash and cash equivalents $58,314,515 $40,179,006
Investment securities (market value of $28,021,177 and
$18,596,590, respectively) (Note 3) 27,778,989 18,171,509
Mortgage loans held for sale (Note 5) 88,351,696 64,662,326
Mortgage loans (Note 4) 698,895,887 579,393,797
Consumer loans (Note 4) 91,124,400 66,049,661
Federal Home Loan Bank stock (Notes 10 and 11) 16,250,000 12,413,800
Capitalized servicing rights (Note 6) 4,425,281 5,794,837
Office properties and equipment (Note 7) 15,731,333 14,192,534
Accrued interest receivable (Notes 3, 4 and 5) 3,653,453 3,475,023
Foreclosed real estate (Note 8) 6,674,799 7,238,396
Other assets 5,884,713 4,273,206
-------------------- --------------------
Total assets $1,017,085,066 $815,844,095
-------------------- --------------------
-------------------- --------------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 9) $603,412,708 $512,352,295
Notes payable (Note 10) 325,000,000 225,000,000
Advances and loan payments from borrowers held under escrow 8,409,797 6,163,340
Income taxes (Note 12) 549,263 1,098,207
Subordinated debt (Note 10) 25,800,000 25,800,000
Other liabilities 6,760,035 6,362,069
-------------------- --------------------
Total liabilities 969,931,803 776,775,911
-------------------- --------------------
Stockholders' Equity (Note 13):
Preferred stock, par value $.01, 1,000,000
shares authorized, 303,640 shares issued and outstanding 3,036 3,036
Common stock, par value $.01, 5,000,000
shares authorized, 3,325,522 and 2,458,846 shares
issued and outstanding, respectively 33,255 24,589
Additional paid-in capital 19,111,504 18,650,901
Unamortized restricted stock (675,808) (449,964)
Retained earnings 28,681,276 20,839,622
-------------------- --------------------
Total stockholders' equity 47,153,263 39,068,184
-------------------- --------------------
Total liabilities and stockholders' equity $1,017,085,066 $815,844,095
-------------------- --------------------
-------------------- --------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INVESTORS BANK CORP. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Unamortized
Preferred Common paid-in restricted Retained
stock stock capital stock earnings Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1990 $22,740 $10,098,256 $9,644,561 $19,765,557
Issuance of 303,640 preferred shares $3,036 6,769,685 6,772,721
Dividends on preferred stock (104,851) (104,851)
Exercise of options 328 145,278 145,606
Exercise of warrants 1,042 858,917 859,959
Installment payments on common
stock issued to employees 179,793 179,793
Net earnings 5,035,639 5,035,639
------------ ------------ ------------ ------------ ------------
Balances at December 31 , 1991 3,036 24,110 18,051,929 14,575,349 32,654,424
Issuance of 45,973 restricted shares 345 499,615 ($499,960)
Amortization of restricted stock 49,996 49,996
Dividends on preferred stock (967,854) (967,854)
Dividends on common stock (579,902) (579,902)
Exercise of options 134 60,321 60,455
Installment payments on common
stock issued to employees 39,036 39,036
Net earnings 7,812,029 7,812,029
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1992 3,036 24,589 18,650,901 (449,964) 20,839,622 39,068,184
Remeasurement of restricted stock 310,320 (310,320)
Amortization of restricted stock 84,476 84,476
Dividends on preferred stock (945,712) (945,712)
Dividends on common stock (1,238,053) (1,238,053)
Exercise of options 351 155,648 155,999
Exercise of warrants 2 2,948 2,950
Net earnings 10,025,419 10,025,419
Four-for-three stock split 8,313 (8,313)
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1993 $3,036 $33,255 $19,111,504 ($675,808) $28,681,276 $47,153,263
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INVESTORS BANK CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------
1993 1992 1991
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings 10,025,419 $7,812,029 $5,035,639
Adjustments to reconcile net earnings
to net cash provided
(used) by operating activities:
Depreciation and amortization 3,799,572 3,732,627 2,162,230
Amortization of deferred loan fees
and discounts (1,723,350) (1,402,410) (1,543,256)
Gain on sales of mortgage loan servicing rights (3,330,642) (4,231,620) (3,510,828)
Proceeds from the sales of mortgage loan
servicing rights 4,676,016 6,471,360 5,250,489
Gain on sales of mortgage loans (9,391,057) (6,328,687) (2,447,172)
Provision for loan and real estate losses 751,623 1,154,743 1,437,301
Prepaid income taxes (401,241) (863,075) (544,991)
Change in:
Capitalized servicing rights (2,639,546) (3,826,393) (2,225,076)
Accrued interest receivable (178,430) 254,809 398,045
Interest payable on deposit accounts 60,405 (1,288,251) (91,243)
Mortgage loans held for sale (14,298,313) 8,407,745 (26,846,314)
Other, net (1,769,027) 2,971,738 (1,992,472)
------------------ ------------------ ------------------
Net cash provided (used) by operating activities (14,418,571) 12,864,615 (24,917,648)
------------------ ------------------ ------------------
Cash Flows from Investing Activities:
Net decrease (increase) in loans (147,846,650) (185,108,155) 33,100,744
Purchase of investment securities (16,632,480) (5,560,543) (4,473,981)
Maturities of investment securities 7,025,000 4,950,000 3,998,409
Sale of investment security 251,750
Purchase of FHLB stock (3,321,800) (6,142,100) (303,600)
Sales of foreclosed real estate 4,805,145 3,679,461 5,716,083
Increase in office properties and equipment (2,674,643) (2,492,026) (1,538,565)
------------------ ------------------ ------------------
Net cash provided (used) by investing activities (158,645,428) (190,673,363) 36,750,840
------------------ ------------------ ------------------
Cash Flows from Financing Activities:
Net increase in deposits 91,000,008 3,091,344 4,672,336
Proceeds from FHLB advances 412,000,000 420,000,000 220,000,000
Repayment of FHLB advances (312,000,000) (245,000,000) (235,000,000)
Net proceeds from issuance of subordinated debt 22,133,514
Net proceeds from common stock transactions 158,949 99,491 1,185,358
Dividends on preferred stock (967,853) (911,395)
Dividends on common stock (1,238,053) (579,902)
Net increase in advances and loan payments
from borrowers held under escrow 2,246,457 1,329,221 1,399,579
------------------ ------------------ ------------------
Net cash provided (used) by financing activities 191,199,508 200,162,273 (7,742,727)
------------------ ------------------ ------------------
Net increase in cash and cash equivalents 18,135,509 22,353,525 4,090,465
Cash and cash equivalents at beginning of year 40,179,006 17,825,481 13,735,016
------------------ ------------------ ------------------
Cash and cash equivalents at end of year $58,314,515 $40,179,006 $17,825,481
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Supplemental Disclosures:
Cash paid during the year for:
Interest $32,408,299 $31,627,990 $36,652,651
Income taxes 7,190,000 5,700,000 3,710,000
Non-cash transfer of loans to foreclosed real estate 4,361,725 4,860,867 6,396,711
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INVESTORS BANK CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1993, 1992 and 1991
NOTE 1. DESCRIPTION OF THE BUSINESS
Investors Bank Corp., formerly Investors Savings Corp., (the Company)
is a holding company for a subsidiary engaged in the retail banking
and mortgage banking businesses.
The subsidiary, Investors Savings Bank, F.S.B. (the Bank), is a
federally chartered savings bank with deposits insured by the
Federal Deposit Insurance Corporation through the Savings
Association Insurance Fund. The Bank is subject to the regulations
of certain federal agencies and undergoes periodic examinations by
those regulatory authorities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, 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 revenues and
expenses for the period. Actual results could differ significantly
from those estimates or assumptions.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the reserve
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the reserves for loan and real
estate losses, management obtains independent appraisals for
significant properties.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Investors Bank Corp. and its wholly owned subsidiary, Investors
Savings Bank, F.S.B. All material intercompany balances and
transactions have been eliminated in consolidation.
INVESTMENT SECURITIES
Investment securities, consisting primarily of investment grade
corporate bonds and U.S. Government agency obligations, are stated
at cost, adjusted for amortization of premiums and accretion of
discounts on purchase, as the Company has the intention and ability
to hold the securities until maturity. Premiums and discounts are
amortized using the interest method over the term of the
securities.
<PAGE>
MORTGAGE LOANS
The Bank originates and purchases both adjustable rate mortgage (ARM)
and fixed interest rate mortgage loans. Substantially all
conventional ARM loans are held for portfolio investment while
substantially all government insured ARM loans and all fixed
interest rate loans are sold in the secondary market. Mortgage
loans held for sale are carried at the lower of cost or market
determined on an aggregate loan basis.
Interest is accrued monthly on outstanding principal balances unless
management considers collection to be doubtful, which generally
occurs when principal or interest payments are three months or more
past due. Interest is subsequently recognized as income only to the
extent cash is received.
LOAN ORIGINATION FEES AND DISCOUNTS
Loan origination fees and certain other fees and certain direct loan
origination costs are deferred and amortized to interest income as
an adjustment of yield using the level yield interest method, or
recognized as a portion of gain on sales when the loans are sold.
Loan discounts representing a return of yield are deferred and
amortized to income using the interest method over the related
periods required to achieve a level yield.
MORTGAGE BANKING INCOME
Included in mortgage banking income are gain on sales of mortgage
loans, gain on sales of loan servicing rights, and other lending
fees.
Gain on sales of mortgage loans are recognized when the loans are
sold. Gain on sales include any discounts or premiums and the
excess value of servicing rights retained. The excess value of
servicing rights retained represents the discounted present value
of future service fee income in excess of a normal market rate
servicing fee.
The Company engages in the sale of loan servicing rights. Gain on
sales of servicing rights is recognized when the servicing rights
are sold. Gains on sale result from net cash proceeds less the
carrying value of capitalized servicing rights on the servicing
pools sold.
LOAN SERVICING FEES
The Company derives loan servicing fees by collecting loan payments
and performing certain escrow services for mortgage investors.
Amortization of excess servicing rights and purchased servicing
rights are recorded as a reduction to loan servicing fees.
<PAGE>
CAPITALIZED SERVICING RIGHTS
Included in capitalized servicing rights is the unamortized balance of
excess servicing rights capitalized. The amounts capitalized and
the amortization thereon is based, in part, on certain prepayment
assumptions of the underlying loans. If, in the future, actual
prepayments exceed the Company's assumptions, adjustments to the
carrying value of servicing rights may be required. Excess
servicing rights are being amortized over the estimated remaining
life of the related loans sold in proportion to estimated net
servicing income.
The Company has engaged in bulk purchases of loan servicing rights.
The cost of these rights is capitalized and amortized over the
estimated remaining life of the related loans in proportion to
estimated net servicing income. Loan servicing rights are also
purchased from correspondents in connection with the purchase of
mortgage loans. Service release premiums are paid to acquire these
rights. These amounts are amortized over the estimated life of the
related loans or are offset against gain on sales of mortgage loans
when the related loans are sold.
FORWARD CONTRACTS
The Company uses mandatory, optional and standby forward contracts as
part of its overall interest rate risk management strategy for its
mortgage banking operations. Outstanding contracts represent future
commitments and are not included in the consolidated balance
sheets. Gains and losses on forward contracts used as hedges in
mortgage banking operations are deferred and recognized when the
related mortgages or commitments are sold or when a loss adjustment
is recognized on an aggregate basis to reduce the Bank's unsold
loans and loan commitments to the lower of cost or market. Forward
contracts which are no longer needed to hedge specific assets or
commitments are valued at market and the resulting gains or losses
are recognized immediately.
LOAN LOSSES
The reserve for loan losses provides for potential losses in the loan
portfolio. The reserve is increased by the provision for loan
losses and by recoveries and is decreased by charge-offs. The
adequacy of the reserve is judgmental and is based on continual
evaluation of the nature and volume of the loan portfolio, overall
portfolio quality, specific problem loans, collateral values,
historical experience and current economic conditions that may
affect the borrowers' ability to pay.
Management believes that the reserves for losses on loans are
adequate. While management uses available information to recognize
losses on loans, future additions to the reserves may be necessary
based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the reserves for losses on loans. Such
agencies may require additions to the reserves based on their
judgments of information available to them at the time of their
examination.
<PAGE>
FORECLOSED REAL ESTATE
Real estate in judgment and acquired through foreclosure is initially
recorded at the lower of cost or estimated fair value less selling
costs. Provisions for possible losses on real estate are charged to
earnings when necessary to reduce carrying values to estimated fair
value less selling costs.
DEPRECIATION AND AMORTIZATION
Depreciation is computed on a straight-line basis over three to twelve
years for office furniture and equipment and over forty years for
buildings. Leasehold improvements are amortized using the
straight-line method over the life of the asset or the term of the
lease, whichever is less.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". The Company adopted SFAS No. 109 as
of January 1, 1993 and applied the provisions prospectively as of
that date. SFAS No. 109 requires a change from the deferred method
of accounting for income taxes to the asset and liability method.
Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The cumulative effect of
the application of SFAS No. 109 as of January 1, 1993 increased net
income for the year ended December 31, 1993 by $125,000.
EARNINGS PER COMMON SHARE
Net earnings are adjusted for preferred stock dividends in the
computation of earnings per common share. Earnings per common share
are computed on the basis of the weighted average number of common
and common equivalent shares outstanding during the year and have
been restated for the effects of the four-for-three common stock
split on December 31, 1993. See Note 13 for additional information
on the stock split. Common equivalent shares represent the dilutive
effect of outstanding stock options and warrants.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash equivalents include
investments in certificates of deposit with maturities of three
months or less.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements
of prior periods to conform to the current presentation. The
reclassifications had no effect on net earnings or stockholders'
equity as previously reported.
<PAGE>
NOTE 3. INVESTMENTS
Investments consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1993:
Obligations of U.S.
Government corpora-
tions and agencies $11,625,812 $174,746 $35,747 $11,764,811
State and municipal
obligations 210,000 1,150 211,150
Investment grade corporate
bonds 15,439,296 127,314 25,275 15,541,335
Other 503,881 503,881
------------ ------------ ------------ ------------
$27,778,989 $303,210 $61,022 $28,021,177
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
December 31, 1992:
Obligations of U.S.
Government corpora-
tions and agencies $5,372,260 $223,802 $ 6,949 $ 5,589,113
State and municipal
obligations 510,000 300 509,700
Investment grade corporate
bonds 11,788,627 222,585 14,057 11,997,155
Other 500,622 500,622
------------ ------------ ------------ ------------
$18,171,509 $446,387 $21,306 $18,596,590
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
During 1991, a security was sold for $251,750 which resulted in a gain of
$1,750.
The amortized cost and estimated market value of investment securities at
December 31, 1993, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because obligors may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized cost market value
-------------- ------------
<S> <C> <C>
Due in one year or less $5,844,920 $5,940,024
Due after one year through five years 20,027,078 20,192,853
Due after five years through six years 1,906,991 1,888,300
-------------- ------------
$27,778,989 $28,021,177
-------------- ------------
-------------- ------------
</TABLE>
Included in accrued interest receivable at December 31, 1993 and 1992 is
interest receivable on investments of $315,587 and $311,516, respectively.
<PAGE>
NOTE 4. LOANS HELD IN PORTFOLIO
Mortgage loans consisted of the following:
<TABLE>
<CAPTION>
December 31
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Adjustable rate first mortgage $656,402,702 $530,816,022
Adjustable rate commercial real estate 30,629,989 32,722,484
Adjustable rate second mortgage 13,567,815 16,542,276
Other mortgage 1,688,696 2,758,594
------------ ------------
702,289,202 582,839,376
Less:
Unearned discount and fees 979,061 1,285,079
Reserve for losses 2,414,254 2,160,500
------------ ------------
$698,895,887 $579,393,797
------------ ------------
------------ ------------
Consumer loans consisted of the following:
December 31
---------------------------
1993 1992
------------ ------------
Home equity $80,025,235 $56,216,872
Other consumer 6,324,975 7,118,560
Business purpose 5,340,521 3,153,121
------------ ------------
91,690,731 66,488,553
Less reserve for losses 566,331 438,892
------------ ------------
$91,124,400 $66,049,661
------------ ------------
------------ ------------
</TABLE>
The Company originates consumer and residential real estate loans in
the metropolitan area of Minneapolis/St. Paul. The Company also
originates residential real estate loans in Duluth, Minnesota and
the Chicago and Milwaukee metropolitan areas. The Company
maintains a small commercial real estate loan portfolio originated
in prior years and is not actively seeking new commercial real
estate loans. The commercial real estate portfolio consists mainly
of loans secured by apartment complexes and small retail shopping
malls in the Minneapolis/St. Paul metropolitan area. Although the
Company has a diversified loan portfolio, a substantial portion of
its borrowers' ability to honor their loans is dependent on the
economic strength of the metropolitan areas of Minneapolis/St.
Paul, Duluth, Chicago and Milwaukee.
<PAGE>
Following is a summary of the reserve for losses on loans:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1993 1992 1991
---------- ----------- -----------
<S> <C> <C> <C>
Beginning balance $2,599,392 $1,982,274 $1,066,645
Provision for losses 631,446 868,758 1,009,513
Charge-offs:
Residential real estate (103,430) (199,456) (27,983)
Commercial real estate (285,651)
Consumer ( 34,575) (150,568) (123,609)
---------- ----------- -----------
Total charge-offs (423,656) (350,024) (151,592)
Recoveries 173,403 98,384 57,708
---------- ----------- -----------
Ending balance $2,980,585 $2,599,392 $1,982,274
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
At December 31, 1993 and 1992 the Company had approximately $1,903,000
and $2,089,000, respectively, of loans in a nonaccrual status. Had
nonaccrual loans been accruing interest in accordance with
original terms, interest income would have been increased by
approximately $40,000, $54,000 and $129,000 for the years ended
December 31, 1993, 1992 and 1991, respectively. The Company's loan
portfolio as of December 31, 1993 includes no restructured loans.
There are no commitments to lend additional funds to customers
whose loans were in a nonaccrual status at December 31, 1993.
Included in accrued interest receivable at December 31, 1993 and 1992
is interest receivable on loans of $3,237,750 and $3,079,869,
respectively.
The aggregate amount of loans to executive officers and directors of
the Company and executive officers of the Bank were $243,000 and
$341,000 at December 31, 1993 and 1992, respectively. During the
year ended December 31, 1993, approximately $87,000 of new loans
were made and reductions totaled $185,000. Such loans were made in
the ordinary course of business at the normal credit terms and
collateralization and do not represent more than normal risk of
collection.
<PAGE>
NOTE 5. MORTGAGE BANKING
Mortgage loans held for sale consisted of the following:
<TABLE>
<CAPTION>
December 31
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Loans held for sale $88,636,117 $65,155,829
Less unearned discount and fees 284,421 493,503
------------ ------------
$88,351,696 $64,662,326
------------ ------------
------------ ------------
</TABLE>
Mortgage banking income consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Gain on sales of mortgage loans $9,391,057 $6,328,687 $2,447,172
Gain on sales of loan servicing rights 3,330,642 4,231,620 3,510,828
Other lending fees 591,660 617,783 441,077
------------ ------------ ------------
$13,313,359 $11,178,090 $6,399,077
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Mortgage banking activity is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1993 1992 1991
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Loans originated for sale:
Loans closed $838,097 $663,275 $409,852
Loans purchased 114,986 91,346 68,070
------------ ------------ ------------
$953,083 $754,621 $477,922
------------ ------------ ------------
------------ ------------ ------------
Mortgage loans sold $982,764 $799,703 $512,620
Loan servicing rights sold 252,178 301,642 298,840
</TABLE>
Included in accrued interest receivable at December 31, 1993 and 1992 is
interest receivable on loans held for sale of $100,116 and $83,638,
respectively.
<PAGE>
NOTE 6. LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The mortgage loans
serviced for others consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------------------------------
1993 1992 1991
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Outstanding principal balance $1,357,204 $981,468 $660,051
Number of loans 16,510 12,361 8,712
</TABLE>
Included in the consolidated balance sheets are the following amounts of
capitalized servicing rights:
<TABLE>
<CAPTION>
December 31
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Excess servicing rights $2,958,834 $3,199,739
Purchased servicing rights 1,466,447 2,595,098
------------ ------------
$4,425,281 $5,794,837
------------ ------------
------------ ------------
</TABLE>
During the years ended December 31, 1993, 1992 and 1991, the excess
value of servicing rights retained included in gain on sales of
mortgage loans was $2,287,592, $3,503,556 and $1,994,986,
respectively. Amortization of capitalized servicing rights
recorded as a reduction to loan servicing fees was $2,663,727,
$2,733,520, and $1,296,140 during the years ended December 31,
1993, 1992 and 1991, respectively.
NOTE 7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Land $2,009,464 $2,009,464
Office buildings 7,919,911 7,407,569
Furniture and equipment 8,017,352 6,936,454
Leasehold improvements 2,458,410 1,700,785
------------ ------------
20,405,137 18,054,272
Less accumulated depreciation and amortization 4,673,804 3,861,738
------------ ------------
$15,731,333 $14,192,534
------------ ------------
------------ ------------
</TABLE>
<PAGE>
NOTE 8. FORECLOSED REAL ESTATE
Foreclosed real estate consisted of the following:
<TABLE>
<CAPTION>
December 31
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Real estate in judgment, subject to redemption $2,275,596 $3,244,974
Real estate acquired through foreclosure 4,534,303 4,689,613
------------ ------------
6,809,899 7,934,587
Less reserve for losses 135,100 696,191
------------ ------------
$6,674,799 $7,238,396
------------ ------------
------------ ------------
</TABLE>
The following is a summary of the reserve for losses on real estate:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Beginning balance $696,191 $521,842 $406,320
Provisions 120,177 285,985 427,788
Charge-offs:
Residential real estate (88,426) (32,990) (133,419)
Commercial real estate (598,757) (124,804) (178,847)
------------ ------------ ------------
Total charge-offs (687,183) (157,794) (312,266)
Recoveries 5,915 46,158
------------ ------------ ------------
Ending balance $135,100 $696,191 $521,842
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
NOTE 9. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
rate at
December December 31
31
----------- ----------------------------
1993 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Checking and savings accounts:
Noninterest-bearing
checking accounts $46,456,372 $17,505,571
Interest-bearing checking
accounts 1.53% 24,941,059 21,481,490
Savings accounts 1.99 13,744,563 10,123,837
Money market savings
accounts 2.52 146,131,513 159,775,423
------------ ------------
1.88 231,273,507 208,886,321
------------ ------------
Certificate accounts:
1.50% to 2.00% 486,041
2.01% to 3.00% 7,947,456 3,521,123
3.01% to 4.00% 156,870,882 107,644,196
4.01% to 5.00% 162,431,985 104,594,007
5.01% to 6.00% 28,379,596 31,263,658
6.01% to 7.00% 5,493,667 29,773,156
7.01% to 8.00% 7,359,800 23,234,182
8.01% to 9.00% 519,082 845,365
------------ ------------
4.28 369,488,509 300,875,687
------------ ------------
Accrued interest payable 2,650,692 2,590,287
------------ ------------
Total deposits 3.35 $603,412,708 $512,352,295
------------ ------------
------------ ------------
</TABLE>
<PAGE>
At December 31, 1993 and 1992 the Bank had $38,675,442 and
$26,195,523, respectively, of certificate accounts with balances
of $100,000 or more.
Scheduled maturities and related weighted average rates of certificate
accounts at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C> <C>
1994 4.09% $246,197,072
1995 4.31 88,951,693
1996 5.55 11,682,721
1997 5.85 10,838,952
1998 5.38 11,818,071
------------
4.28 $369,488,509
------------
------------
</TABLE>
Interest expense on deposits for the years presented are as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1993 1992 1991
------------ ------------ -------------
<S> <C> <C> <C>
Checking and savings accounts $663,526 $750,100 $675,740
Money market savings accounts 4,107,465 5,882,888 10,550,438
Certificate accounts 15,226,342 17,114,385 21,479,757
------------ ------------ ------------
$19,997,333 $23,747,373 $32,705,935
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 10. BORROWINGS
Notes payable to Federal Home Loan Bank (FHLB) of Des Moines consisted
of the following:
<TABLE>
<CAPTION>
Weighted
average
rate at
December 31 December 31
----------- ----------------------------
1993 1993 1992
----------- ------------- ------------
<S> <C> <C> <C>
Due in 1993 $202,000,000
1994 3.56% $220,000,000 10,000,000
1995 6.00 6,000,000 6,000,000
1996 5.68 7,000,000 7,000,000
1997 3.50 45,000,000
1998 3.37 20,000,000
2000 3.36 27,000,000
------------ ------------
3.61 $325,000,000 $225,000,000
------------ ------------
</TABLE>
The interest rates on notes due in 1997, 1998 and 2000 are reset by
the FHLB on the anniversary dates to a rate indexed to the current
rate charged by the FHLB for one year borrowings. The Company also
has the option of repaying each such note at its anniversary date
without penalty.
<PAGE>
Notes payable to the FHLB are collateralized by FHLB stock and first
mortgage real estate loans. At December 31, 1993, the Company had
a collateral requirement on first mortgage real estate loans of
$406,000,000 and had pledged specific collateral with an aggregate
carrying value of approximately $477,000,000.
Subordinated debt is as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
9.25% Subordinated notes due
December 15, 2002 $23,000,000 $23,000,000
12.75% Subordinated capital notes due
March 15, 1999 2,409,000 2,409,000
10% Subordinated debentures due April 1, 1996 391,000 391,000
----------- -----------
$25,800,000 $25,800,000
----------- -----------
----------- -----------
</TABLE>
The subordinated debt is unsecured. At the option of the Company, the
9.25% notes may be redeemed at par on or after December 15, 1995,
and the 10% debentures on or after January 1, 1995. On January 25,
1994, the Company elected to exercise the right to redeem at par
the 12.75% capital notes on April 1, 1994. During 1991, $7,591,000
of the 12.75% capital notes were exchanged by the capital note
holders for preferred stock (see Note 13).
Covenants for the 9.25% notes provide that the Company must maintain
at least $1 million in certain investments with a maturity of one
year or less, of which no more than $500 thousand may be placed on
account at the Bank.
The interest is payable monthly for the 9.25% notes, semiannually for
the 12.75% capital notes and quarterly for the 10% debentures. The
notes, capital notes and debentures are subordinated in payment of
principal and interest to all customer deposits and other
indebtedness of the Bank for borrowed money as defined in the
note, capital note and debenture agreements.
Unamortized debt issue costs of $852,248 and $883,219 are included in
other assets at December 31, 1993 and 1992, respectively.
Interest expense for borrowings for the periods presented are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Notes payable to FHLB $ 9,712,763 $5,863,469 $2,612,570
Subordinated debt 2,582,741 483,635 1,243,014
Other borrowings 358,639 259,288 92,272
----------- ---------- ----------
$12,654,143 $6,606,392 $3,947,856
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
<PAGE>
NOTE 11. FEDERAL HOME LOAN BANK STOCK, LIQUIDITY AND CAPITAL
REQUIREMENTS
The Bank, as a member of the FHLB, is required to hold a specified
number of shares of capital stock, which is carried at cost, in
the FHLB of Des Moines. In addition, under regulations currently
in effect, the Bank is required to maintain cash and other liquid
assets in an amount equal to 5% of its deposit accounts and other
obligations due within one year. The Bank has met these
requirements.
Effective December 19, 1992, the Bank became subject to capital
standards established by the Federal Deposit Insurance Corporation
Improvement Act of 1991 which defines five capital tiers, the
highest of which is "well capitalized". Under the regulations a
"well capitalized" institution must have a leverage ratio of at
least 5%, a tier 1 risk based capital ratio of at least 6% and a
total risk based capital ratio of at least 10%.
At December 31, 1993, the Bank exceeded each of these requirements and
is categorized as a "well capitalized" institution. The following
is a summary of the Bank's capital ratios (unaudited):
<TABLE>
<CAPTION>
December 31
-----------------------------
1993 1992
-------------- ------------
<S> <C> <C>
Leverage:
Adjusted total assets $1,015,633,415 $813,920,729
Tier 1 Capital 63,839,691 50,264,185
Leverage ratio 6.29% 6.18%
Tier 1 risk based capital:
Risk weighted assets $591,320,941 $478,775,027
Tier 1 Capital 63,839,691 50,264,185
Tier 1 risk based capital ratio 10.80% 10.50%
Total risk based capital:
Risk weighted assets $591,320,941 $478,775,027
Total risk based capital 68,383,760 54,753,855
Total risk based capital ratio 11.56% 11.44%
</TABLE>
Management believes the Bank will continue to meet the requirements to
be categorized as a "well capitalized" institution in 1994.
<PAGE>
The Bank is also required by federal regulations to maintain minimum
levels of capital that are measured by three ratios: a tangible
capital ratio of at least 1.5% of tangible assets, a core capital
ratio of at least 3%, and a risk based capital ratio of at least
8%. The Bank exceeded all three ratios during 1993 and management
believes the Bank will continue to do so in 1994. In August 1993,
the Office of Thrift Supervision (OTS) issued its final
regulations on interest rate risk. Under the final rule,
institutions deemed to have an "above normal" level of
interestrate risk are subject to a capital charge and must deduct
a portion of that risk from total capital for regulatory capital
purposes. Management believes that as of December 31, 1993 the
Bank's required regulatory capital will not be impacted by the
interest rate risk rule.
NOTE 12. INCOME TAXES
The Company and the Bank file consolidated federal income tax returns.
Federal income taxes are allocated to the Company and the Bank
based on their contributions to consolidated taxable income.
The components of income tax expense for the years ended December 31
consist of the following:
<TABLE>
<CAPTION>
Asset/Liability
Method Deferred Method
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $5,525,886 $4,700,907 $3,042,834
State 1,629,190 1,389,419 898,760
----------- ----------- -----------
7,155,076 6,090,326 3,941,594
----------- ----------- -----------
Deferred (prepaid):
Federal (310,106) (666,177) (418,440)
State (91,135) (196,898) (126,551)
----------- ----------- -----------
(401,241) (863,075) (544,991)
----------- ----------- -----------
$6,753,835 $5,227,251 $3,396,603
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
A reconciliation of the statutory federal income tax rate with the
actual rate provided on earnings is as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax
rate 35.0% 34.0% 34.0%
State income taxes, net of
federal tax benefits 6.0 6.0 6.0
Other (0.4) 0.1 0.3
--------- --------- ---------
40.6% 40.1% 40.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Bank qualifies under various provisions of the Internal Revenue
Code which permit it to deduct from taxable income an allowance
for bad debts which differs from the provision for such losses
charged to income for financial statement purposes. Accordingly,
retained earnings at December 31, 1993 includes approximately
$1,072,000 for which no provision for income taxes has been made.
If, in the future, this portion of retained earnings is used for
any purpose other than to absorb bad debt losses, income taxes may
be imposed at the then applicable rates. It is not contemplated
that any portion of retained earnings will be used in a manner
that will result in additional taxable income.
Deferred income taxes for 1992 and 1991 related primarily to the
difference in recognition of components of gains on sales of
mortgage loans and depreciation for financial reporting and income
tax purposes.
The tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities at December 31,
1993 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Reserve for loan losses $700,050
Deferred loan fees 504,428
Other 216,382
---------
1,420,860
---------
Deferred tax liabilities:
Federal Home Loan Bank stock 623,474
Office properties and equipment 916,094
Other 116,462
---------
1,656,030
---------
Net deferred tax liability $235,170
---------
---------
</TABLE>
No valuation allowance was required for deferred tax assets at January
1, 1993 or December 31, 1993.
<PAGE>
NOTE 13. STOCKHOLDERS' EQUITY
PREFERRED STOCK
On November 22, 1991 the Company issued 303,640 shares of preferred
stock in exchange for $7,591,000 of the Bank's 12.75% subordinated
capital notes due 1999. The preferred stock was issued in units
consisting of one share of preferred stock and one warrant to
purchase two-thirds share of the Company's common stock (See
"Stock Warrants"). Dividends on the preferred stock were at an
annual rate of $3.1875 per share until October 31, 1993 and are at
an annual rate of $2.75 per share thereafter. Dividends are
cumulative from the date of original issue and are payable
quarterly. The preferred stock has a liquidation preference of
$25.00 per share plus accumulated and unpaid dividends. The
preferred stock is redeemable at the option of the Company, in
whole or in part, at any time on or after October 31, 1996, at
$25.00 per share plus accumulated and unpaid dividends.
COMMON STOCK SPLIT
On November 4, 1993, the Board of Directors of the Company declared a
four- for-three split of its common stock payable on December 31,
1993 to all holders of record as of December 1, 1993. The split
was effected by means of a stock dividend. No fractional shares
were issued. A total of 831,294 shares of common stock were issued
in connection with the split. The par value of each share was not
changed from $.01. All information relating to number of shares,
per share amounts, stock option data, stock warrants, and
restricted stock have been restated to reflect the split.
STOCKHOLDER RIGHTS PLAN
On May 7, 1991 the Company's Board of Directors adopted a stockholder
rights plan under which each share of common stock has an
associated preferred stock purchase right. The rights are
exercisable only under certain circumstances and allow holders of
such rights to purchase common stock of the Company at a
discounted price which would be the equivalent number of shares of
common stock having a fair market value equal to $80. The Company
has reserved 55,000 shares of preferred stock for the stockholder
rights plan.
DIVIDEND RESTRICTIONS
The Company is limited in its ability to declare dividends by the
dividend restrictions imposed on its savings bank subsidiary.
Under applicable regulations of the OTS, the Bank could declare
dividends to the Company without regulatory approval in an amount
equal to accumulated net income for the current calendar year plus
50% of the amount by which its capital exceeded its capital
requirements at the beginning of the year. However, the Bank could
not declare dividends that would cause it to fall below its
capital requirement without OTS approval.
<PAGE>
STOCK OPTIONS
The Company has a stock option plan under which 531,415 shares of
common stock are reserved for issuance to employees and directors
of the Company at December 31, 1993.
Incentive stock options are to be granted at not less than 100% of
the fair market value of the common stock at the date of grant
(110% of market value for options granted to 10% or greater
stockholders). Options which do not qualify as incentive stock
options may be granted at less than 100% of the fair market value
of the common stock at the date of grant. No option may extend
more than ten years from the date of grant (five years for 10%
stockholders). At December 31, 1993, the exercise of options
granted for purchase of 6,666 shares of common stock are
contingent on attainment of certain performance goals.
The following is a summary of activity in the plan:
<TABLE>
<CAPTION>
Number of
shares Option price
under option per share
-------------- --------------
<S> <C> <C>
December 31, 1990 398,667 Average $3.74
Exercised (43,737) $2.50-4.50
Granted 64,000 $6.00-9.38
Canceled (21,545) $3.94-4.50
--------------
December 31, 1991 397,385 Average $4.22
Exercised (17,764) $2.50-4.50
Granted 33,333 $9.19-9.66
Canceled (444) $4.13
--------------
December 31, 1992 412,510 Average $4.68
Exercised (48,898) $2.50-9.66
Granted 42,667 $10.69-15.00
Canceled (1,779) $4.50
--------------
December 31, 1993 404,500 Average $5.52
--------------
--------------
Exercisable at December 31, 1993 302,977
Available for grant at
December 31, 1993 126,915
</TABLE>
<PAGE>
STOCK WARRANTS
At December 31, 1990 the Company had outstanding common stock warrants
which entitled the holders to purchase 139,000 shares of the
Company's common stock at a price of $6.25 per share through April
1, 1991, the expiration date. On March 19, 1991 the Board of
Directors of the Company extended the expiration date of the
warrants to December 31, 1991. All of these warrants were
exercised during 1991.
In conjunction with the issuance of preferred stock on November 22,
1991 the Company issued warrants to purchase 202,427 shares of
common stock at a price of approximately $11.06 per share on or
after February 11, 1992. The warrants expire on November 13, 1996.
The Company has reserved 202,160 shares of common stock for the
remaining outstanding warrants.
RESTRICTED STOCK AWARD AGREEMENT
The Company entered into a Restricted Stock Award Agreement in 1992.
Under the terms of the agreement, 45,973 shares of restricted
stock were granted to two executive officers of the Company. Such
shares vest over a ten-year period at the rate of 10% per year.
Compensation expense for the shares vesting in 1993 and 1992 was
$84,476 and $49,996, respectively.
NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit, mortgage loan purchase commitments and forward
mortgage loan sales commitments. These instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the balance sheet. The contract
or notional amounts of these instruments reflect the extent of
involvement the Company has in particular classes of financial
instruments.
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 purchase mortgage loans is represented by the
contract or notional amount of these commitments. The Company uses
the same credit policies in making commitments as it does for
on-balance-sheet instruments. For forward mortgage loan sales
commitments, the contract or notional amounts do not represent
exposure to credit loss. The Company controls the credit risk of
forward mortgage loan sales commitments through credit approvals,
credit limits and monitoring procedures.
<PAGE>
The contract or notional amounts of these financial instruments were
as follows:
<TABLE>
<CAPTION>
December 31
------------------------------
1993 1992
------------- -------------
(In thousands)
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit:
Loans held for sale $24,507 $13,093
Portfolio loans 9,261 12,345
Purchased loans held for sale 14,941 15,950
Purchased portfolio loans 309 6,190
Available lines of credit 45,531 37,301
Financial instruments whose notional or
contract amounts do not represent credit
risk:
Forward mortgage loan sales
commitments $125,525 $101,525
</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 a
portion of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on the loan type and on management's
credit evaluation of the borrower. Collateral consists primarily of
residential real estate and personal property.
Forward mortgage loan sales commitments are contracts for the delivery
of securities backed by mortgage loans in which the Company agrees
to make delivery at a specified future date of a specified
instrument, at a specified price or yield. Risks arise from the
possible inability of the counterparties to meet the terms of their
contracts and from movements in mortgage loan values and interest
rates.
<PAGE>
NOTE 15. COMMITMENTS
The Company has several noncancelable operating lease agreements for
its office properties which have remaining lease terms of up to
fifteen years. In addition, one retail banking office is under a
capital lease which has a remaining term of seven years. Future
minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31 Capital Operating
----------------------- --------- ----------
<S> <C> <C>
1994 $95,000 $1,101,000
1995 95,000 1,092,000
1996 95,000 810,000
1997 95,000 606,000
1998 95,000 570,000
Thereafter 191,000 3,690,000
--------- ----------
Total minimum lease payments 666,000 $7,869,000
----------
----------
Less amounts representing interest 200,000
---------
Present value of net minimum obligations $466,000
---------
---------
</TABLE>
In addition, the Company has several renewal options on its retail
banking office leases and some of its mortgage office leases ranging
from two- to five-year periods. At present, the Company intends to
exercise most options on its retail banking offices when the
original leases expire. If this occurs, total future minimum
payments (estimated using original lease term costs) under these
leases, as shown above, would increase by approximately $4,596,000.
The Company previously sold two retail banking office properties to
third parties under sale/leaseback arrangements. These lease
agreements include purchase options at market value at certain
points during the lease terms.
Total rent expense for the years ended December 31, 1993, 1992 and
1991 was approximately $1,509,000, $1,007,000 and $1,290,000,
respectively.
NOTE 16. EMPLOYEE BENEFITS
The Company currently offers a 401(k) plan which is available to all
permanent employees who have attained age twenty-one and have met
the one year eligibility requirement, as defined. Under the 401(k)
plan, an employee may defer up to 15% of his or her compensation as
defined, with discretionary matching Company contributions. The
401(k) plan was amended effective January 1, 1991 to provide for the
Company to make discretionary profit sharing contributions to be
invested in common stock of the Company. Total expense under the
plan for the years ended December 31, 1993, 1992 and 1991 was
$541,579, $403,294 and $227,362, respectively.
<PAGE>
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No. 107)
requires disclosure of estimated fair values of a company's
financial instruments, including assets, liabilities and off-balance
sheet items, for which it is practicable to estimate fair value.
These fair values are estimates made as of December 31, 1993 and
1992 based on relevant market information, if available, and upon
characteristics of the financial instruments themselves. Because no
market exists for a significant portion of the Company's financial
instruments, many of the fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments
and other factors. Thus, the estimates are subjective in nature,
involving uncertainties and requiring judgment, and therefore cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based only on existing financial instruments.
The Company has not attempted to estimate the value of anticipated
future business or assets, liabilities or activities that are not
considered financial instruments. For example, the Company has a
substantial mortgage banking operation that contributes significant
amounts of noninterest income annually. The mortgage banking
operation is not a financial instrument and its value has not been
incorporated into the fair value estimates. In addition, the tax
effects of unrealized gains or losses implied in the fair value
estimates have not been considered in the estimates nor have costs
necessary to consummate a sale been considered. Accordingly, the
aggregate fair value amounts do not represent an estimate of the
underlying fair value of the Company.
<PAGE>
The estimated fair values of the Company's financial instruments are
shown below. Following the table, there is an explanation of the
methods and assumptions used to estimate the fair values of each
class of financial instrument.
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1993 1992
-------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 58,315 $ 58,315 $ 40,179 $ 40,179
Investment securities 27,779 28,021 18,172 18,597
Mortgage loans held for
sale 88,352 88,767 64,662 64,804
Mortgage loans 698,896 731,017 579,394 605,235
Consumer loans 91,124 92,335 66,050 66,628
Federal Home Loan Bank
stock 16,250 16,250 12,414 12,414
Excess servicing rights 2,959 20,353 3,200 15,281
Accrued interest receivable 3,653 3,653 3,475 3,475
Financial liabilities:
Deposits 603,413 607,743 512,352 513,828
Notes payable 325,000 323,589 225,000 225,175
Subordinated debt 25,800 26,379 25,800 25,900
</TABLE>
CASH AND CASH EQUIVALENTS
The carrying amounts of cash and cash equivalents approximate their
fair values.
INVESTMENT SECURITIES
The fair values of investment securities are based on quoted market
prices. See Note 3 for the carrying amounts and fair values of the
various components of the Company's investment portfolio.
MORTGAGE LOANS HELD FOR SALE
In order to manage the market exposure on its residential loans held
for sale and its commitments to extend credit for residential
loans, the Company enters into forward mandatory, optional and
standby mortgage loan sales commitments. Therefore, the estimated
fair values of mortgage loans held for sale are based on the
committed sales prices.
<PAGE>
MORTGAGE LOANS
The fair values of mortgage loans were estimated for groups of loans
with similar characteristics. See Note 4 for the descriptions and
amounts of these groups. Nonperforming loans were subtracted and
discounted by the average historical rate of loss that the Company
has experienced on these types of loans.
The largest group, adjustable first mortgage loans, has experienced no
significant change in credit risk. Its fair values were estimated
by subtracting nonperforming loans, classifying the loans into
segments with similar characteristics which determine saleability
and obtaining market quotes for each of the segments.
The fair values of the commercial real estate loans were estimated
using discounted cash flow analysis. The discount rates used were
estimated market rates for similar types of loans adjusted upward
to reflect the decline in the collateral market values of
commercial real estate properties over the last few years. In
addition, certain loans have experienced increased credit risk
since origination. The discount rate for these loans was further
adjusted upward to compensate for this additional risk.
The credit risk of the adjustable second mortgage loans and other
mortgages has not changed appreciably. Discounted cash flow
analysis of scheduled payments applying a discount rate based on an
estimated market rate appropriate for each type of loan was used to
estimate the fair values of these loans.
CONSUMER LOANS
Consumer loans consist primarily of loans secured by residential real
estate. See Note 4 for the classifications of such loans. The
Company believes the credit risk of these loans has not changed
significantly since origination. Nonperforming loans were removed
from the totals and discounted to reduce them to estimated fair
value. The remaining loans were segmented into groups with similar
characteristics and the fair values were estimated by discounting
the expected cash flows using discount rates that equaled the
Company's origination rates for similar loans as of December 31,
1993 and 1992.
FEDERAL HOME LOAN BANK STOCK
The carrying amount of FHLB stock approximates its fair value.
EXCESS SERVICING RIGHTS
Excess servicing rights are included in capitalized servicing rights
on the balance sheet. The fair values of excess servicing rights
were estimated by discounting the expected cash flows associated
with the servicing of the underlying loans. The mortgages serviced
for others were sorted into groups with characteristics similar to
loan pools for which servicing is typically bought or sold. An
estimated market rate of return was assumed for each pool and these
rates were used as the discount rates in the analysis.
<PAGE>
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable approximates its
fair value since it is short term in nature and does not present
unanticipated credit concerns.
DEPOSITS
Under SFAS No. 107, the fair value of deposits with no stated
maturity, such as checking, savings and money market accounts, is
equal to the amounts payable on demand as of December 31, 1993 and
1992. See Note 9 for deposit classifications. The fair values of
certificates of deposit are based on the discounted value of
contractual cash flows using as discount rates the rates that were
offered by the Company as of December 31, 1993 and 1992 for
deposits with maturities similar to the remaining maturities of the
existing certificates of deposit.
The fair value estimates for deposits do not include the benefit that
results from the low-cost funding provided by the Company's
existing deposits and long-term customer relationships compared to
the cost of obtaining different sources of funding. This benefit,
generally referred to as core deposit intangible, has not been
quantified by the Company.
NOTES PAYABLE
Notes payable consist of FHLB advances. The carrying amount of notes
payable which may be repaid at any time without penalty at the
Company's discretion approximates their fair value. The fair values
of the notes payable with fixed maturities are estimated based on
discounted cash flow analyses using as discount rates interest
rates charged by the FHLB at December 31, 1993 and 1992 for
borrowings of similar remaining maturities.
SUBORDINATED DEBT
There are three separate subordinated debt instruments that have been
issued by the Company. See Note 10 for more information. The fair
values of the 9.25% notes due 2002 were estimated based on the bid
market prices as of December 31, 1993 and 1992. The fair value at
December 31, 1993 of the 12.75% capital notes due 1999 approximates
its carrying amount because the market anticipated the Company's
redemption of the capital notes at par on April 1, 1994. At
December 31, 1992, the fair value of the 12.75% capital notes was
estimated based on the bid market price. The fair values of the 10%
debentures due 1996 were based upon estimated market prices taking
into account the instrument's rate, maturity and risk in relation
to the other two issues.
<PAGE>
COMMITMENTS TO EXTEND CREDIT
At December 31, 1993 and 1992, the Company had commitments to extend
credit with total notional amounts of $94,549,000 and $84,879,000,
respectively. See Note 14 for the type and amounts of commitments
as well as related discussion. The fair values of commitments to
extend credit are not based on the notional amounts, but rather are
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counter parties.
For commitments to extend credit for residential mortgage loans and
for commercial development of residential property, the fair values
are based on the fees charged for these commitments. Because of
the short term nature of the commitments, no adjustment was
necessary for changes in creditworthiness or changes in market
interest rates for 1993 or 1992. The company does not charge fees
for commitments to retail customers to extend credit under
available lines of credit. Accordingly, no fair values were
assigned to these commitments. The estimated fair values of
commitments to extend credit at December 31, 1993 and 1992 were
$73,000 and $41,000, respectively.
<PAGE>
NOTE 18. PARENT COMPANY FINANCIAL INFORMATION
The Investors Bank Corp. (parent company only) condensed financial
statements are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
1993 1992
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $5,168,198 $10,108,552
Investment securities 503,881 500,622
Investment in subsidiary 63,938,647 50,824,464
Other assets 901,179 926,519
------------ ------------
Total assets $70,511,905 $62,360,157
------------ ------------
------------ ------------
Liabilities and stockholders' equity:
Liabilities:
Subordinated debt $23,000,000 $23,000,000
Other liabilities 358,642 291,973
------------ ------------
Total liabilities 23,358,642 23,291,973
------------ ------------
Stockholders' equity:
Preferred stock 3,036 3,036
Common stock 33,255 24,589
Additional paid-in capital 19,111,504 18,650,901
Unamortized restricted stock (675,808) (449,964)
Retained earnings 28,681,276 20,839,622
------------ ------------
Total stockholders' equity 47,153,263 39,068,184
------------ ------------
Total liabilities and stockholders'
equity $70,511,905 $62,360,157
------------ ------------
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF EARNINGS
Year ended December 31
--------------------------------------
1993 1992 1991
------------ ----------- -----------
<S> <C> <C> <C>
Interest income $254,165 $34,118 $17,044
Interest expense 2,221,593 124,122
Operating expenses 224,494 154,401 143,930
------------ ----------- -----------
Loss before income tax benefit and
equity in earnings of subsidiary (2,191,922) (244,405) (126,886)
Income tax benefit 753,158 82,439 43,099
------------ ----------- -----------
Loss before equity in earnings of
subsidiary (1,438,764) (161,966) (83,787)
Equity in earnings of subsidiary 11,464,183 7,973,995 5,119,426
------------ ----------- -----------
Net earnings $10,025,419 $7,812,029 $5,035,639
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31
-------------------------------------
1993 1992 1991
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $10,025,419 $7,812,029 $5,035,639
Adjustments to reconcile net earnings to
net cash (used) by operating
activities:
Equity in earnings of subsidiary (11,464,183) (7,973,995) (5,119,426)
Increase (decrease) in other assets
and liabilities, net 195,367 10,016 (533,079)
------------ ----------- ----------
Net cash used by
operating activities (1,243,397) (151,950) (616,866)
------------ ----------- ----------
Cash flows from investing activities:
Capital contributed to subsidiary (5,000,000) (12,000,000) (700,000)
Dividends received from subsidiary 3,350,000 1,491,297 400,000
Purchase of investment security (500,000)
------------ ----------- ----------
Net cash used by investing
activities (1,650,000) (11,008,703) (300,000)
------------ ----------- ----------
Cash flows from financing activities:
Net proceeds from common stock
transactions 158,949 99,491 1,185,358
Net proceeds from issuance of
subordinated debt 22,133,514
Dividends on preferred stock (967,853) (911,395)
Dividends on common stock (1,238,053) (579,902)
------------ ----------- ----------
Net cash provided (used) by
financing activities (2,046,957) 20,741,708 1,185,358
------------ ----------- ----------
Net increase (decrease) in cash and cash
equivalents (4,940,354) 9,581,055 268,492
Cash and cash equivalents at beginning of
year 10,108,552 527,497 259,005
------------ ----------- ----------
Cash and cash equivalents at end of year $5,168,198 $10,108,552 $527,497
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
<PAGE>
NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Summarized quarterly data for 1993 and 1992 follows :
(In thousands except per share data) 1993 1992
-------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $15,042 $14,677 $14,546 $13,504 $13,871 $13,471 $12,996 $12,178
Interest expense 8,649 8,345 7,999 7,659 7,848 7,713 7,535 7,258
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 6,393 6,332 6,547 5,845 6,023 5,758 5,461 4,920
Provision for loan losses 187 84 171 189 177 277 227 188
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses 6,206 6,248 6,376 5,656 5,846 5,481 5,234 4,732
Mortgage banking income 4,037 3,281 2,987 3,008 3,518 2,665 2,549 2,446
Other noninterest income 1,293 1,487 1,181 1,356 152 893 1,014 1,018
Noninterest expense 7,364 6,748 6,470 5,880 6,107 5,703 5,597 5,102
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before income tax
expense and cumulative
effect of accounting change 4,172 4,268 4,074 4,140 3,409 3,336 3,200 3,094
Income tax expense 1,617 1,844 1,634 1,659 1,367 1,337 1,283 1,240
Cumulative effect of
accounting change 125
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings $ 2,555 $ 2,424 $ 2,440 $ 2,606 $ 2,042 $1,999 $ 1,917 $ 1,854
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings available for
common stockholders $ 2,336 $ 2,182 $ 2,198 $ 2,364 $ 1,800 $ 1,757 $ 1,675 $ 1,612
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Earnings per common share $ .63 $ .60 $ .61 $ .66 $ .52 $ .51 $ .49 $ .47
</TABLE>
<PAGE>
EXH 24-1
[Logo]
The Board of Directors
Investors Bank Corp.:
We consent to incorporation by reference in the registration statements (No. 33-
12893, 33-20115 and 33-22880) on Form S-8 of Investors Bank Corp. of our report
dated January 27, 1994, relating to the consolidated balance sheets of Investors
Bank Corp. and subsidiary as of December 31, 1993 and 1992 and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1993, which report
appears in the December 31, 1993 annual report on form 10-K of Investors Bank
Corp.
/s/ KPMG Peat Marwick
March 30, 1994
