U. S. SECURITIES AND EXCHANGE COMMISSION
Washington. D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________.
Commission file number 0-22471
Luxemburg Bancshares, Inc.
(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1457904
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
630 Main Street, Luxemburg, Wisconsin 54217
(Address of principal executive offices)
(920) 845-2345
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each issuer's classes
of common equity, as of November 4, 1999:
268,516 shares were outstanding.
Transitional Small Business Disclosure Format (check one): Yes[ ] No [X]
LUXEMBURG BANCSHARES, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income -
Three and Nine Months Ended
September 30, 1999 and 1998 4
Consolidated Condensed Statements of
Changes in Stockholders' Equity -
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 15
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 16
PART I - FINANCIAL INFORMATION
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
September 30, 1999 and December 31, 1998
ASSETS
1999 1998
Cash and due from banks $ 3,738,708 $ 2,931,179
Interest-bearing deposits 205,947 907,672
Federal funds sold 1,498,000 8,482,000
Cash and cash equivalents 5,442,655 12,320,851
Investment securities available
for sale-Stated at fair value 17,829,260 18,064,562
Total loans 77,258,208 64,052,248
Allowance for credit losses (844,623) (773,116)
Net loans 76,413,585 63,279,132
Premises and equipment 2,777,497 1,779,477
Other investments at cost 318,550 276,050
Other assets 2,506,662 2,250,553
TOTAL ASSETS $ 105,288,209 $ 97,970,625
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
LIABILITIES:
Non-interest-bearing deposits $ 11,249,643 $ 10,758,991
Interest-bearing deposits 81,556,668 76,553,176
Total deposits 92,806,311 87,312,167
Short-term borrowings 723,031 79,574
Borrowed funds 34,266 78,031
Other liabilities 981,680 1,044,420
Total liabilities 94,545,288 88,514,192
STOCKHOLDERS' EQUITY:
Common stock- $1.00 par value:
Authorized - 2,400,000 shares,
Issued - 295,500 and 270,500
shares at September 30,1999
and December 31, 1998,
respectively 295,500 270,500
Capital surplus 4,281,978 3,206,510
Retained earnings 6,756,083 6,120,354
Accumulated other comprehensive
income (loss) (246,481) 203,419
Less - 26,984 and 26,999 shares
of treasury common stock,
at Sept. 30, 1999 and
Dec. 31, 1998, respectively,
at cost (344,159) (344,350)
Total stockholders' equity 10,742,921 9,456,433
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 105,288,209 97,970,625
See accompanying notes to consolidated financial statements.
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
INTEREST INCOME:
Interest and fees on loans $1,598,755 $1,379,032 $4,469,040 $4,056,676
Interest on investment
securities:
Taxable 182,519 163,738 594,312 502,011
Tax-Exempt 83,986 56,459 228,264 152,248
Other interest and dividend
income 11,261 111,074 119,414 213,832
Total interest income 1,876,521 1,710,303 5,411,030 4,924,767
INTEREST EXPENSE:
Deposits 912,043 853,193 2,674,449 2,391,932
Short-term borrowings 12,133 4,518 20,460 10,452
Borrowed funds 1,192 9,539 4,793 31,676
Total interest expense 925,368 867,250 2,699,702 2,434,060
Net interest income 951,153 843,053 2,711,328 2,490,707
Provision for credit losses 30,000 37,500 90,000 112,500
Net interest income after
provision for credit losses 921,153 805,553 2,621,328 2,378,207
OTHER INCOME:
Service charges on deposit
accounts 50,050 49,658 148,539 143,146
Mortgage underwriting fees-
Secondary market 43,102 27,961 76,445 161,942
Loan servicing fee income 22,754 19,267 69,841 58,960
Other operating income 127,844 135,498 449,724 471,926
Total other income 243,750 232,384 744,549 835,974
OPERATING EXPENSES:
Salaries and related benefits 479,791 406,770 1,288,034 1,189,451
Net occupancy expense 56,671 42,134 159,556 125,473
Equipment rentals,
depreciation, and maintenance 98,465 63,936 261,592 214,413
Data processing 41,624 33,498 119,874 90,865
Other operating expenses 160,104 157,279 507,650 478,670
Total operating expenses 836,655 703,617 2,336,706 2,098,872
Income before provision for
income taxes 328,248 354,462 1,029,171 1,115,309
Provision for income taxes 77,072 106,857 266,823 329,466
Net income $ 251,176 $ 247,605 $ 762,348 $ 785,843
Basic earnings per
common share $.94 $1.02 $2.84 $3.23
See accompanying notes to consolidated financial statements.
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY - (UNAUDITED)
Nine Months Ended September 30, 1999 and 1998
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
Shares Equity Total Shares Equity Total
Balance - Beginning of period 243,501 $9,456,433 243,501 $8,528,876
Comprehensive income:
Net Income 762,348 785,843
Other comprehensive income -
Change in net unrealized
gain(loss) on securities
available for sale (449,920) 139,227
Total comprehensive income 312,428 925,070
Dividends paid (126,600) (114,445)
Issuance of common stock 25,000 1,100,000 0
Sale of treasury stock 15 660
Balance - End of period 268,516 $10,742,921 243,501 $9,339,501
See accompanying notes to consolidated financial statements.
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW - (UNAUDITED)
Nine Months Ended September 30, 1999 and 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 762,348 $ 785,843
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 270,625 222,799
Accretion of discounts on securities ( 15,677) (23,215)
Amortization of premiums on securities 14,406 7,505
Provision for credit losses 90,000 112,500
Gain on sale of other real estate 0 (164)
Provision for deferred taxes 0 (30,600)
Change in other operating assets (232,808) (168,935)
Change in other operating liabilities (62,739) (22,431)
Total adjustments 63,807 97,459
Net cash provided by operating activities 826,155 883,302
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 6,820,627 2,167,506
Purchase of securities available for sale (7,053,305) (3,761,846)
Net (increase) decrease in loans (13,224,453) (1,385,430)
Purchase of additional life insurance (54,953) (17,300)
Proceeds from sale of other real estate 31,652 15,164
Capital expenditures (1,249,295) (168,083)
Purchase of other investments (42,500) (22,000)
Net cash provided by (used in)
investing activities (14,772,227) (3,171,989)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 5,494,144 7,447,211
Net increase (decrease) in short-term
borrowings 643,457 (449,059)
Loan from (repayment to) FHLMC 0 (500,000)
Principal payments on borrowed funds (43,765) (40,725)
Proceeds from issuance of common stock 1,100,660 0
Dividends paid (126,620) (114,445)
Net cash provided by (used in)
financing activities 7,067,876 6,342,982
Net increase (decrease) in cash and
cash equivalents (6,878,196) 4,054,295
Cash and cash equivalents at beginning 12,320,851 5,132,708
Cash and cash equivalents at end $ 5,442,655 $ 9,187,003
Supplemental information:
Cash paid during the period for:
Interest $ 2,865,556 $ 2,601,265
Income taxes $ 251,129 $ 366,515
See accompanying notes to consolidated financial statements.
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
The consolidated financial statements for interim periods are
unaudited; however, in the opinion of the management of Luxemburg
Bancshares, Inc. ("Company"), all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation
have been included. Refer to the Notes to Consolidated Financial
Statements which appear in the Company's Form 10-KSB for the
Fiscal Year ended December 31, 1998 for the Company's accounting
policies which are pertinent to these financial statements.
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of the Company, a bank
holding company, include the accounts of the Company and it's
Subsidiaries - Bank of Luxemburg, Luxemburg Investment
Corporation, and Area Development Corporation. All significant
intercompany balances and transactions have been eliminated in
consolidation. Goodwill acquired in a business acquisition is
being amortized on a straight-line basis over five years.
The accompanying financial statements have been prepared in
accordance with the instructions for Form 10-QSB and, therefore,
do not include all information and footnotes necessary to be in
conformity with generally accepted accounting principles.
For purposes of reporting cash flows, the Company considers cash
on hand, interest-bearing and non-interest bearing deposits in
banks and federal funds sold as cash and cash equivalents.
Earnings per common share are based upon the weighted average
number of common shares outstanding. The weighted average number
of shares outstanding was 268,516 and 243,501 for three months
and 251,839 and 243,501 for the nine months ended September 30,
1999 and 1998, respectively. The basic and diluted earnings per
share are the same for 1999 and 1998.
NOTE 2: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank of Luxemburg's ("Bank's") financial statements do not
reflect various commitments and contingent liabilities which
arise in the normal course of business and which involve elements
of credit risk, interest rate risk, and liquidity risk. These
commitments and contingent liabilities are commitments to extend
credit and standby letters of credit. A summary of the Bank's
commitments and contingent liabilities at each balance sheet date
is as follows:
Notional Amount
September 30, 1999 December 31, 1998
Commitments to extend credit $8,836,000 $4,545,000
Credit card arrangements 1,413,000 561,000
Standby letters of credit 878,000 132,000
Commitments to extend credit and credit card arrangements 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. A portion of the
commitments are expected to be drawn upon, thus representing
future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable; inventory;
property, plant, and equipment; real estate; and stocks and
bonds. Management does not anticipate any material losses as a
result of these commitments.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral supporting
those commitments for which collateral is deemed necessary.
Because these instruments have fixed maturity dates and because
many of them expire without being drawn upon, they do not
generally present any significant liquidity risk to the Bank.
Management does not anticipate any material losses as a result of
these letters of credit.
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 3: ACCOUNTING CHANGES
Future Accounting Change - In June, 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established
accounting and reporting standards for derivative instruments and
for hedging activities. This statement requires an entity to
recognize all derivative instruments and for hedging activities.
This statement requires an entity to recognize all derivatives as
either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. This statement is
effective for fiscal years beginning after June 15, 2000 as
amended. Management, at this time cannot determine the effect
adoption of this statement may have on the consolidated financial
statements of the Company as the accounting for derivatives is
dependent on the amount and nature of derivatives in place at the
time of adoption.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LUXEMBURG BANCSHARES, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Net Earnings $ 251,176 $ 241,334 $ 762,348 $ 785,843
Average Consolidated
Balance Sheet Items:
Loans 72,490,846 58,598,329 66,719,594 57,728,177
Taxable Investment
Securities 11,272,053 10,125,982 12,644,743 10,268,149
Fed Funds Sold 538,848 7,480,120 2,893,183 4,598,180
Municipal Loans &
Investments 9,633,770 5,992,927 9,165,093 5,531,345
Other Earning Assets 711,103 532,755 875,911 588,415
Total Earning Assets 94,646,620 82,730,113 92,298,524 78,714,266
Total Assets 103,201,269 88,619,481 99,750,727 84,487,357
Deposits 91,415,349 78,460,120 88,612,988 74,496,788
Shareholders' Equity 10,810,805 9,904,606 10,063,750 8,909,001
Key Ratios:
Average Equity to
Average Total Assets 10.48% 10.26% 10.09% 10.54%
Return on Average
Total Assets .97% 1.09% 1.02% 1.24%
Return on Average Equity 9.29% 10.61% 10.10% 11.76%
Net Interest Margin 3.99% 4.04% 3.93% 4.23%
NET INTEREST INCOME
Net interest income, the principle source of earnings, is the
amount by which interest generated by earning assets exceeds the
interest costs of liabilities obtained to fund them. As shown
below, net interest income has increased $108,100 or 12.82% to
$951,153 for the three months ended September 30, 1999 from
$843,053 for the three months ended September 30, 1998. The
increase in net interest income is due to asset growth. As noted
above, average assets for the three months ended September 30,
1999 were $103,201,269 compared to average assets for the three
months ended September 30, 1998 of $88,619,481.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Interest Income $1,876,521 $1,710,303 $5,411,030 $4,924,767
Interest Expense 925,368 867,250 2,699,702 2,434,060
Net Interest Income $ 951,153 $ 843,053 $2,711,328 $2,490,707
Net Interest Margin 3.99% 4.04% 3.93% 4.23%
RATE/VOLUME ANALYSIS
The impact of changes in volume and interest rates on net
interest income for the three and nine months ended September 30,
1999 is illustrated in the following table:
Three Months Ended September 30, 1999 Compared to Three Months
Ended September 30, 1998.
Increase (Decrease) in Net Interest Income
Net Due To Due To
Change Rate Volume
Interest Income $166,218 $(119,654) $285,872
Interest Expense 58,118 (65,238) 123,356
Net Interest Income $108,100 $ (54,416) $162,516
Nine Months Ended September 30, 1999 Compared to Nine Months
Ended September 30, 1998.
Increase (Decrease) in Net Interest Income
Net Due To Due To
Change Rate Volume
Interest Income $486,263 $(300,021) $786,284
Interest Expense 265,642 (144,507) 410,149
Net Interest Income $220,621 $(155,514) $376,135
Interest rates on the Bank's earning assets and interest bearing
liabilities were generally lower for the three months and nine
months ended September 30, 1999 compared to the three months and
the nine months ended September 30, 1998. Earning assets
increased 14.40% and 17.26%, respectively, to $94,646,620 for
the three months and $92,298,524 for the nine months ended
September 30, 1999 from $82,730,113 for the three months and
$78,714,266 for the nine months ended September 30, 1998.
However, interest bearing liabilities increased 16.51% and 18.95%
to $91,415,349 for the three months and $88,612,988 for the nine
months ended September 30, 1999 compared to $78,460,120 for the
three months and $74,496,788 for the nine months ended September
30, 1998.
OPERATING RESULTS
Net income for the three months ended September 30, 1999, was
$251,176 compared to $247,605 for the three months ended
September 30, 1998. The increase of $3,571 reflects the lower
interest rate margin and increased operating expenses relating to
construction and operation of the new branch office. The
increase in net interest income of $108,100 for the three months
ended September 30, 1999, compared to the three months ended
September 30, 1998, and is discussed in "Net Interest Income" and
"Rate/Volume Analysis" elsewhere in this report. Mortgage
underwriting fees - Secondary market increased $15,141 to $43,102
for the three months ended September 30, 1999, compared to
$27,961 for the three months ended September 30, 1998.
Total operating expenses increased a $133,038 or 18.91% from
$703,617 for the three months ended September 30, 1998 to
$836,655 for the three months ended September 30, 1999.
Salaries and related benefits increased $73,021 or 17.95% to
$479,791 for the three months ended September 30, 1999 compared
to $406,770 for the three months ended September 30, 1998 because
of increases in salaries and increases in fringe benefit costs.
Equipment rentals, depreciation, and maintenance for the three
months ended September 30, 1999 increased $34,529 or 54.01% to
$98,465 compared to $63,936 for the three months ended September
30, 1998. Finally, other operating expenses for the three months
ended September 30, 1999 increased $2,825 or 1.80% to $160,104
from $157,279 for the three months ended September 30, 1998
because of increases in maintenance costs.
Net income for the nine months ended September 30, 1999,
decreased $23,495 or 2.99% to $762,348 from $785,843 for the nine
months ended September 30, 1998. The increase in net interest
income is $220,621 for the nine months ended September 30, 1999,
compared to the nine months ended September 30, 1998, and is
discussed in "Net Interest Income" and "Rate/Volume Analysis"
elsewhere in this report. Mortgage underwriting fees - Secondary
market decreased $85,497 or 52.79% to $76,445 for the nine months
ended September 30, 1999, compared to $161,942 for the nine
months ended September 30, 1998. This decrease is primarily due
to decreased volume as for the nine months ended September 30,
1999, the Company originated less loans for the secondary market
compared to the nine months ended September 30, 1998.
Operating expenses for the nine months ended September 30, 1999
increased $237,834 or 11.33% to $2,336,706 compared to $2,098,872
for the nine months ended September 30, 1998. Salaries and
related benefits increased $98,583 or 8.29% to $1,288,034 for the
nine months ended September 30, 1999 compared to $1,189,451 for
the nine months ended September 30, 1998. The increase is due to
inflationary increases and higher costs for employee benefit
programs. Equipment rentals, depreciation, and maintenance for
the nine months ended September 30, 1999 increased $47,179 or
22.00% to $261,592 compared to $214,413 for the nine months ended
September 30, 1998. Data processing expense increased $29,009 or
31.93% from $90,865 for the nine months ended September 30, 1998
to $119,874 for the nine months ended September 30, 1999.
A new branch office of the Bank was opened on May 24, 1999 in Casco, WI.
Year 2000 Risks. The Company is exposed to future
uncertainty, potential future reduction in earnings, and future
losses, including litigation, due to business interruption or
errors, if its computer systems are not modified to ensure that
dates after December 31, 1999 are not misrepresented by those
systems. This eventuality is commonly referred to as the Year
2000 problem.
The Bank uses computer-related technologies and software
throughout its business that will be affected by the date change
in the year 2000. The Bank's directors, senior management and
staff are aware of these Year 2000 issues and have appointed a
technology committee to study and direct the project to bring all
of the computer-related systems into Year 2000 compliance during
1998 and 1999. In accordance with the guidelines of the FDIC, the
technology committee will be addressing the issue using the
following phases
Percent Completed
1) Awareness 100%
2) Assessment 100%
3) Renovation 100%
4) Validation 100%
5) Implementation 90%
The Bank has recently converted its main data processing system.
The vendor has provided the Bank with a copy of its Year 2000
project plan and stated that the software is Year 2000 compliant.
The Bank has received obtained similar information and
commitments from the Bank's other vendors. The Bank is acting
upon the belief and understanding that all federal agencies are
actively managing the Year 2000 problems which are inherent in
the global banking and payments system.
The Company spent approximately $30,000 in 1998 on Year 2000
renovation and testing. The Technology Committee of the Bank of
Luxemburg has budgeted $20,000 for technology improvements for
1999, a portion which may be required for consulting and
technical assistance in testing of information and non-
information systems. During the nine months ended September 30,
1999 $3,255 was spent for year 2000 related modifications.
The Company completed a Y2K Contingency Plan and is in the
process of testing the alternative processing systems, and the
testing was completed during the third quarter. The written plan
is being review by Bankers' Financial Services to provide an
independent review of the plan. The Company has alternative
resources for additional liquidity and cash reserves for the
fourth quarter of 1999, but to date has not experienced any
significant reduction in deposits.
ALLOWANCE FOR LOAN LOSSES
The amount charged to the provision for loan losses by the Bank
is based on management's evaluation as to the amounts required to
maintain an allowance adequate to provide for potential losses
inherent in the loan portfolio. The level of this allowance is
dependent upon the total amount of past due and non-performing
loans, general economic conditions and management's assessment of
potential losses based upon internal credit evaluations of the
loan portfolio and particular loans. In 1999 the Bank management
allocated the allowance based on an assigned risk factor for each
category of loans and adjusting the allocation by potential
losses of individual loans. The Bank's credit customers are
subject to potential losses as a result of Year 2000 exposure in
their own computer systems as well as the computer systems of
their suppliers and customers. The Bank is working with those
customers that may be significantly affected by the Year 2000
exposure. The exposure, if not adequately addressed, will be
taken into account in assessing the loss potential, if any,
associated with each credit relationship. Loans are entirely to
borrowers in Northeast Wisconsin.
The Bank generally places loans on non-accrual status when the
loan is past due as to the payment of interest and/or principal
in excess of 90 days. The Bank also places loans on a non-accrual
status when it deems the collection of such interest unlikely.
Loans are returned to full accrual status when the loan is
brought current according to all terms of the loan agreement, all
past due principal and interest is paid and the Bank deems its
collateral position adequate to warrant a return to accrual
status.
At September 30, 1999 and 1998 the Company had $160,000 and
$94,000 of loans past due 90 days or more that were still
accruing interest. At September 30, 1999 and 1998 the Company did
not have any loans that meet the definition of "Troubled Debt
Restructuring". In addition, there were no loans considered to be
impaired. The Bank had $200,000 of nonaccrual loans at September
30, 1999 and $192,000 of nonaccrual loans at September 30, 1998.
During the three months ended September 30, 1999, $30,000 was
charged to the provision for loan losses compared to $37,500 for
the three months ended September 30, 1998. At September 30, 1999
the allowance was $844,623 or 1.09% of total loans. This compares
to an allowance of $753,052 or 1.21% of total loans as of
Sepember 30, 1998. For the three months ended September 30, 1999
the Bank had net charge-offs of $3,000 compared to net charge-
offs of $5,000 for the three months ended Septembere 30, 1998.
The following table summarizes loan charge-offs and recoveries by
type of loan for the three months ended Sepember 30, 1999 and 1998:
Loan Type September 30, 1999 September 30, 1998
Charge-Off Recovery Charge-Off Recovery
Real Estate $ 0 $ 1,000 $ 0 $ 1,000
Commercial and Industrial 0 0 1,000 3,000
Agricultural 0 2,000 0 0
Consumer 13,000 7,000 11,000 3,000
TOTALS $ 13,000 $ 10,000 $ 12,000 $ 7,000
The following table summarizes loan charge-offs and recoveries by
type of loan for the nine months ended September 30, 1999 and 1998:
Loan Type September 30, 1999 September 30, 1998
Charge-Off Recovery Charge-Off Recovery
Real Estate $ 0 $ 1,000 $ 0 $ 1,000
Commercial and Industrial 0 2,000 14,000 8,000
Agricultural 0 8,000 0 0
Consumer 40,000 10,000 42,000 10,000
TOTALS $ 40,000 $ 21,000 $ 56,000 $ 19,000
The Bank has allocated its allowance for credit losses at the end
of each period presented as follows:
September 30, 1999 September 30, 1998
% of % of
loans loans
Balance at End of to total to total
Period Applicable to: Amount Loans Amount Loans
Commercial and agricultural $ 548,519 59% $ 0 50%
Real Estate-construction 54,675 6% 6%
Real Estate-mortgage 76,722 20% 33%
Consumer 112,161 15% 32,000 11%
Total Domestic 792,077 100% 32,000 100%
Unallocated 52,546 721,000
TOTALS $ 844,623 100% $ 753,000 100%
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company must maintain an adequate liquidity position in order
to respond to the short-term demand for funds caused by
withdrawals from deposit accounts, extensions of credit and for
the payment of operating expenses. Maintaining this position of
adequate liquidity is accomplished through the management of a
combination of liquid assets; those which can be converted into
cash and access to additional sources of funds. Primary liquid
assets of the Company are cash and due from banks, federal funds
sold, investments held as "available for sale" and maturing
loans. Federal funds purchased and loans from the Federal Home
Loan Bank system represent the Company's primary source of
immediate liquidity and were maintained at a level to meet
immediate needs. Federal Funds Sold averaged approximately
$538,848 and $7,480,000 for the three months ended Septemeber 30,
1999 and 1998, respectively. Maturities in the Company's loan and
investment portfolios are monitored regularly to avoid matching
short-term deposits with long-term loans and investments. Other
assets and liabilities are also monitored to provide the proper
balance between liquidity, safety, and profitability. This
monitoring process must be continuous due to the constant flow of
cash that is inherent in a financial institution.
The Company actively manages its interest rate sensitive assets
and liabilities to reduce the impact of interest rate
fluctuations. In addition, the Bank monitors the interest rates
paid on Certificates of Deposit as advertised by its competitors
and strive to pay competitive interest rates to retain and
attract Certificates of Deposit. Should competitive pressures
dictate, the Bank might have to increase rates paid to retain the
Certificates of the Deposit that mature in the next year and any
increase in interest rates paid on Certificates of Deposit may
reduce future Company earnings. The Bank also monitors the assets
and liabilities that reprice each month to determine the impact
on future earnings from anticipated repricings. At September 30,
1999 the Company's rate sensitive liabilities exceed rate
sensitive assets due within one year by $1,759,000.
As part of managing liquidity, the Company monitors its loan to
deposit ratio on a daily basis. At September 30, 1999 the ratio
was 83.25% which is within the Company's acceptable range.
The Company experienced a decrease in cash and cash equivalents,
its primary source of liquidity, of $3,744,348 for the nine
months ended September 30, 1999. The primary source of cash flow
for the nine months ended September 30, 1999 was cash provided by
operating activities of $826,155. Cash outflow for the nine
months ended September 30, 1999 primarily consisted of the
following: Net security purchases of $232,698, dividends paid of
$126,600 and an increase in capital expenditures of $1,249,295.
The Company experienced an increase in loans in the first nine
months of 1999 of $13,134,453. The Company's management believes
its liquidity sources are adequate to meet its operating needs
and does not know of any trends, events or uncertainties that may
result in a significant adverse effect on the Company's
operations or liquidity position.
The Company has completed a stock offering of 25,000 shares of
stock at $44.00 a share. The Bank used the net proceeds to
replenish short-term investments that were liquidated in order to
pay for the acquisition and construction of our new Casco branch.
The following table illustrates the projected maturities and the
repricing mechanisms of the major asset/liability categories of
the Company as of September 30, 1999, based on certain
assumptions. No prepayment rate assumptions have been made for
the loan portfolio. Maturities and repricing dates for
investments have been projected by applying the assumptions set
forth below to contractual maturities and repricing dates.
1 Year After
or Less 1-5 Years 5-10 Years 10 Years
Interest Earning Assets:
Fed Funds Sold $ 1,498,000
Investment Securities $ 1,357,000 $ 8,482,000 $5,815,000 $ 2,175,000
Loans
Variable Rate $11,574,000
Real Estate-Construction $ 3,784,000 $ 435,000
Real Estate-Other $ 8,665,0000 $16,666,000 $ 793,000
Commercial and
Industrial $10,974,000 $ 8,228,000 $ 432,000 $ 1,564,000
Agricultural $ 2,070,000 $ 3,101,000
Consumer $ 1,806,000 $ 5,413,000 $ 116,000
Other $ 206,000 $ 592,000 $ 839,000 - 0-
Total Interest
Earning Assets $41,934,000 $42,917,000 $7,995,000 $ 3,739,000
Interest Bearing Liabilities:
Interest Bearing Demand $ 4,941,000
Savings Deposits $ 6,079,000 $14,183,000
Money Market Accounts $ 1,139,000 $ 2,657,000
Certificates of Deposit $27,421,000 $14,419,000
Jumbo CD's $ 3,428,000 $ 1,791,000
IRA's $ 4,869,000 $ 630,000
Other $ 757,000 $ 0 -0- -0-
Total Interest Bearing
Liabilities $43,693,000 $16,840,000 -0- $21,781,000
Interest Sensitivity
Gap per Period $(1,759,000) $26,077,000 $7,995,000 $(18,042,000)
Cumulative Interest
Sensitivity Gap $(1,759,000) $24,318,000 $32,313,000 $14,271,000
Interest Sensitivity Gap
as a Percentage of
Earning Assets (1.8) 27.4 8.4 (19.0)
Cumulative Sensitivity
Gap as a Percentage
of Earning Assets (1.8) 25.6 34.0 15.0
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On July 14,1999, the Company sold 25,000 shares
of common stock for $44.00 per share. The shares
were sold by officers and directors of the Company, and no
commissions were paid. The shares were offered
only to bona fide residents of the State of Wisconsin. For nine
months after completion of the offering, any resales if the
shares may be only to bona fide residents of the State of
Wisconsin. The stock certificates bear a restrictive legend to
this effect. The offering was exempt from registration under the
Securities Act of 1933 pursuant to Section 3(a)(11) of the Act
and Rule 147 promulgated thereunder. The offering was registered
pursuant to the securities laws of the State of Wisconsin.
On July 14, 1999, the Company delivered 15 shares
of common stock held as treasury stock to three persons.
The stock was given away as a promotion by the
Company. The issuance of stock was exempt from registration
under Securities Act as not involving the offer or sale of stock
"for value." In addition, the issuance was exempt from
registration under the Securities Act pursuant to Section
3(a)(11) thereof as constituting an intrastate offering and
Section 4(2) thereof as not a public offering.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1999, the
registrant did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
LUXEMBURG BANCSHARES, INC.
(Registrant)
/s/ John A. Slatky /s/ John H. Kaye, CPA
- -------------------------------- -------------------------------
John A. Slatky John H. Kaye, CPA
President and Chief Executive Officer Treasurer
(Principal Accounting Officer)
Date: 11/9/99 Date: 11/9/99
- ------------------------------- ------------------------------