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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2001
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or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission file number: 0-29400
INVESTORSBANCORP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1854234
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
W239 N1700 Busse Road
Waukesha, Wisconsin 53188-1160
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 523-1000
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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
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As of May 14, 2001, the Issuer had 1,006,349 shares of $0.01 par value common
stock issued and outstanding.
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INVESTORSBANCORP, INC.
FORM 10-QSB INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (Unaudited) and
December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income -
For the Three Months Ended March 31, 2001 and 2000 (Unaudited). . 4
Consolidated Statements of Changes in Shareholders' Equity -
For the Three Months Ended March 31, 2001 and 2000 (Unaudited). . 5
Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 2001 and 2000 (Unaudited). . 6
Notes to the Consolidated Financial Statements (Unaudited) . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . 14
Item 5 Other Information . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
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ASSETS
Cash and due from banks $ 8,949,447 $ 3,453,639
Federal funds sold - 1,250,000
Available for sale securities 6,801,384 14,391,194
Loans, less allowance for loan losses of $1,894,568 and
$1,808,813 in 2001 and 2000, respectively 119,141,631 118,778,727
Mortgage loans held for sale 650,000 100,000
Premises and equipment, net 187,288 87,539
Accrued interest receivable and other assets 2,699,031 2,648,831
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TOTAL ASSETS $138,428,781 $140,709,930
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 8,367,663 $ 8,031,571
Savings and NOW accounts 61,331,911 62,597,776
Other Time 56,523,648 58,173,494
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TOTAL DEPOSITS 126,223,222 128,802,841
Other borrowings 2,500,000 2,500,000
Accrued interest payable and other liabilities 1,529,437 1,440,904
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TOTAL LIABILITIES 130,252,659 132,743,745
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SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, -0- shares issued and outstanding - -
Common stock, $0.01 par value; 9,000,000 shares
authorized, 1,050,000 shares issued 10,500 10,500
Surplus 7,316,900 7,316,900
Retained earnings 1,162,085 901,948
Treasury stock, 43,651 shares and 37,351 shares in
2001 and 2000, respectively, at cost (313,363) (263,163)
TOTAL SHAREHOLDERS' EQUITY 8,176,122 7,966,185
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $138,428,781 $140,709,930
============ ============
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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2001 2000
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INTEREST INCOME:
Interest and fees on loans $2,636,817 $1,682,205
Interest on investment securities 146,988 71,925
Interest on federal funds sold 11,091 12,107
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TOTAL INTEREST INCOME 2,794,896 1,766,237
INTEREST EXPENSE:
Interest on deposits 1,821,108 1,030,167
Interest on federal funds purchased 14,852 6,222
Interest on other borrowings 67,808 -
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TOTAL INTEREST EXPENSE 1,903,768 1,036,389
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 891,128 729,848
Provision for loan losses 307,472 40,155
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 583,656 689,693
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NONINTEREST INCOME:
Service fees 27,764 12,564
Management service fees 241,365 237,707
Service release premiums 181,476 82,895
Other income 14,569 12,954
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TOTAL NONINTEREST INCOME 465,174 346,120
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NONINTEREST EXPENSES:
Salaries 401,127 444,437
Pension, profit sharing and other employee benefits 117,434 138,102
Occupancy 28,749 26,925
Furniture and equipment expenses 15,163 17,860
Data processing services 30,981 27,150
Other expenses 117,815 101,937
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TOTAL NONINTEREST EXPENSES 711,269 756,411
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INCOME BEFORE INCOME TAXES 337,561 279,402
Income tax expense 77,424 103,539
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NET INCOME $ 260,137 $ 175,863
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PER SHARE AMOUNTS:
BASIC EARNINGS PER SHARE $ 0.26 $ 0.17
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DILUTED EARNINGS PER SHARE $ 0.26 $ 0.17
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WEIGHTED AVERAGE SHARES OUTSTANDING 1,006,748 1,050,000
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
RETAINED TOTAL
COMMON EARNINGS TREASURY SHAREHOLDERS'
STOCK SURPLUS (DEFICIT) STOCK EQUITY
BALANCES, December 31, 1999 $10,500 $7,316,900 $ 339,500 $ - $7,666,900
Net income for
first three months of 2000 - - 175,863 - 175,863
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BALANCES, March 31, 2000 $10,500 $7,316,900 $ 515,363 $ - $7,842,763
======= ========== ========== ========= ==========
BALANCES, December 31, 2000 $10,500 $7,316,900 $ 901,948 $(263,163) $7,966,185
Net income for
first three months of 2001 - - 260,137 - 260,137
Purchase of treasury stock - - - (50,200) (50,200)
------- ---------- ---------- --------- ----------
BALANCES, March 31, 2001 $10,500 $7,316,900 $1,162,085 $(313,363) $8,176,122
======= ========== ========== ========= ==========
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 260,137 $ 175,863
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation 10,505 10,383
Provision for loan losses 307,472 40,155
Net change in
Mortgage loans held for sale (550,000) (192,500)
Accrued interest receivable and other assets (50,200) (82,035)
Accrued interest payable and other liabilities 88,533 (336,660)
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NET CASH FLOWS FROM OPERATING ACTIVITIES 66,447 (384,794)
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CASH FLOWS FROM INVESTING ACTIVITIES
Net change in federal funds sold 1,250,000 -
Activity in available for sale securities
Maturities, prepayments, sales and calls 7,589,810 2,525,000
Purchases - (1,725,000)
Net increase in loans (670,376) (4,021,336)
Additions to premises and equipment (110,254) (1,166)
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NET CASH FLOWS FROM INVESTING ACTIVITIES 8,059,180 (3,222,502)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (2,579,619) 2,464,405
Net change in federal funds purchased - 1,525,000
Purchase of treasury stock (50,200) -
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NET CASH FLOWS FROM FINANCING ACTIVITIES (2,629,819) 3,989,405
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Net Change in Cash and Due From Banks 5,495,808 382,109
Cash and Due From Banks, beginning of period 3,453,639 2,281,184
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CASH AND DUE FROM BANKS, END OF PERIOD $ 8,949,447 $ 2,663,293
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 1,665,226 $ 917,335
Cash paid for income taxes $ 126,113 $ 499,982
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INVESTORSBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
NOTE 1. ORGANIZATION
InvestorsBancorp, Inc. (the "Company") was incorporated under Wisconsin law on
June 12, 1996, to be the holding company of InvestorsBank, a Wisconsin state
bank located in Pewaukee, Wisconsin (the "Bank"). The Bank commenced business on
September 8, 1997.
Investors Business Credit, Inc. was incorporated under Nevada law on September
19, 2000, as a wholly owned subsidiary of the Bank to hold and manage certain
loans and securities of the Bank. A portion of the Bank's loan portfolio was
sold to the new investment subsidiary as of October 20, 2000.
NOTE 2. ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
the instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management of the Company,
all adjustments necessary to present fairly the financial position as of March
31, 2001 and December 31, 2000 and the results of operations and cash flows for
the three months ended March 31, 2001 and 2000 have been made. Such adjustments
consisted only of normal recurring items. Operating results for the period ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted. The accounting policies followed by the Company
are set forth in Note 1 to the Company's consolidated financial statements
contained in the Company's 2000 Annual Report on Form 10-KSB. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
Principles of Consolidation - The consolidated financial statements as of and
for the period presented include the accounts of the Company and the Bank, its
wholly owned subsidiary. The accounts of the Bank also include the accounts of
its wholly owned subsidiary, Investors Business Credit, Inc. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides additional analysis of the financial
statements and should be read in conjunction with that information. The
discussion focuses on significant factors that affected the Company's earnings
for the periods ended March 31, 2001 and 2000. During those periods, the Bank
was the only subsidiary of the Company and its operations contributed
substantially all of the revenue and expense. Included in the operations of the
Bank are the activities of its wholly-owned subsidiary, Investors Business
Credit, Inc., for the period ending March 31, 2001.
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Results of Operations
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
During the quarter ended March 31, 2001, the Company reported net income of
$260,000, or $0.26 per share, as compared to net income of $176,000, or $0.17
per share for the quarter ended March 31, 2000. This enhanced profitability was
primarily attributable to a 61% increase in average earning assets.
Net Interest Income
Net interest income is the difference between interest income, including fees on
loans, and interest expense, and is the largest contributing factor to net
income for the Company. Total net interest income increased 22% to $891,000 for
the quarter ended March 31, 2001 from $730,000 for the quarter ended March 31,
2000. Significantly higher loan volumes resulted in a 53% increase in interest
and fee income on loans which totaled $2.6 million for the three months ended
March 31, 2001 compared to $1.7 million for the three months ended March 31,
2000. The majority of interest income on loans was derived from the commercial
and commercial real estate loan portfolios which comprised 79% of total loans at
March 31, 2001. Interest earned on investment securities and federal funds sold
totaling $147,000 and $11,000, respectively, were the other components of
interest income. While the direction of future interest rates, competition, and
other factors may have a significant impact, management anticipates interest
income will continue to increase proportionately with the growth of the loan
portfolio.
Interest expense increased 90% to $1.9 million for the quarter ended March 31,
2001 from $1.0 million for the quarter ended March 31, 2000. Interest expense
consisted predominantly of interest paid on money market accounts totaling
$865,000 and certificates of deposit totaling $970,000 for the quarter ended
March 31, 2001. Interest expense will continue to rise as management expects
that money market and time deposit instruments will be the primary funding
source utilized by the Company to fund additional growth. During the first
quarter of 2001 the prime rate of interest dropped 150 basis points and in
April, 2001 the prime rate dropped another 50 basis points. Therefore, as time
deposits mature and if interest rates continue to decline, the increase in
interest expense will be offset by the lower rates.
The Company's interest rate spread was 2.06% for first quarter 2001 compared to
2.60% for first quarter 2000. The yield on average earning assets was 5 basis
points lower while the average rate paid on interest bearing liabilities
increased 49 basis points. This disparity was due to an increase in the yield on
time deposits and an increase in subordinated debt. As time deposits mature they
are reset at the current rate which may be lower than their stated rate. In
April of 2000 the Company entered into a $2.5 million subordinated debt
agreement. Interest expense on this debt was $0.07 million in the first quarter
of 2001 compared to none in the first quarter of 2000.
Provision for Loan Losses
The allowance for loan losses increased 4% to $1.9 million as of March 31, 2001
from $1.8 million as of December 31, 2000. The allowance for loan losses is
established through a provision for loan losses charged to expense. A loan loss
provision of $307,000 was expensed in the quarter ended March 31, 2001 as
compared to $40,000 during the three months ended March 31, 2000. The allowance
for loan losses was approximately 1.5% of total loans compared to 1% for first
quarter of 2000, net of residential mortgage loans held for sale on the
secondary market. The Bank has a relatively high percentage of commercial and
commercial real estate loans, most of which are extended to small or
medium-sized businesses. Management believes the allowance for loan losses is at
a level commensurate with the overall risk exposure of the loan portfolio.
However, along with other financial institutions, management shares a concern
for the possible continued softening of the economy in 2001. Should the economic
climate continue to deteriorate, borrowers may experience difficulty, and the
level of non-performing loans, charge-offs, and delinquencies could rise and
require further increases in the provision.
Loans are charged against the allowance for loan losses when management believes
that the collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that
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may affect the borrower's ability to repay. The allowance does not include the
effects of expected losses on specific loans or groups of loans that are related
to future events or expected changes in economic conditions. The majority of
risk in the loan portfolio lies in commercial loans which include commercial
real estate loans. Accordingly, the Bank allocated $1.9 million (or 99% of the
total loan loss reserve) to these loans, which comprise about 79% of the loan
portfolio. The Bank also allocated $12,000 (or approximately 1% of the total
loan loss reserve) to residential mortgages, which comprise about 20% of the
loan portfolio. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions.
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement.
Impaired loans totaled $1.92 million at March 31, 2001 and $284,000 as of
December 31, 2000. The increase in impaired loans was caused by three additional
borrowers that were past due. These loan balances are mainly secured with real
estate. For first quarter 2001, gross interest income which would have been
recorded had the nonaccruing loans been current in accordance with their
original terms was $50,762, none of which was recognized. The amount of interest
income on nonaccruing loans that was collected and included in net income for
first quarter 2001 was $7,994.
During the quarter ended March 31, 2001, a loan charge-off of $222,000 was
applied against the reserve. There were no loan charge-offs or recoveries during
2000. While a comprehensive analysis of the allowance for loan losses is
somewhat problematic due to the Company's relatively short history, management
believes that the allowance was at an adequate level at March 31, 2001 based on
the composition of the portfolio as well as regulatory guidelines. However,
there can be no assurance that the allowance will be adequate to cover all
losses.
Non-Interest Income and Expenses
Non-interest income for the quarter ended March 31, 2001 totaled $465,000 as
compared to $346,000 for the quarter ended March 31, 2000, a 34% increase.
Management service fees were the largest component of non-interest income
totaling $241,000 for the quarter ended March 31, 2001 compared to $238,000 for
the quarter ended March 31, 2000. The Company charges The Middleton Doll
Company, an affiliate of the Company, a management fee for salaries and employee
benefits of common management, as well as a loan servicing fee based on total
loans and leases under management. Service release fees which are received from
the sale of residential mortgages originated for the secondary market totaled
$181,000 for the quarter ended March 31, 2001 compared to $83,000 for the
quarter ended March 31, 2000. Due to the decrease in long-term interest rates,
there were more individuals refinancing their current mortgages during the first
quarter of 2001 as compared to the first quarter of 2000. Service charges
related to deposit accounts and other income totaled $43,000 compared to $25,000
for the same periods. The increase was due to an increase in service fees and
credit card income.
Non-interest expense decreased 6% to $711,000 for the three months ended March
31, 2001 as compared to $756,000 for the three months ended March 31, 2000. The
decrease was due to salary and employee benefit expense decreasing $64,000 due
to personnel changes. Salaries and employee benefits totaled $519,000 and
$583,000 for the three months ended March 31, 2001 and 2000, respectively. These
amounts included salaries that were reimbursed through the management service
fee noted above. Other operating expenses, which include occupancy and fixed
asset expense, data processing fees, advertising, investor communications, and
professional fees were $193,000 compared to $174,000, an 11% increase.
Amounts provided for income tax expense or benefit are based on income reported
for financial statement purposes and do not necessarily represent amounts
currently payable under tax laws. Deferred income tax assets and liabilities are
computed quarterly for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. The differences relate primarily to tax
exempt interest income, allowance for loan losses, and depreciation.
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For the quarter ended March 31, 2001, the Company recorded federal and state
income tax expense of $77,000. The Company also has a deferred tax asset of
$702,000. For the quarter ended March 31, 2000, the Company recorded a federal
and state income tax expense of $104,000 and had a deferred tax asset of
$294,000. Management believes it is more likely than not that the deferred tax
asset will be fully realized. The effective rate for the expense for income
taxes for the quarter ended March 31, 2001 was 23%, as compared to 37% for the
first quarter of 2000. The decrease in the effective rate was the result of the
Bank establishing an investment subsidiary in September, 2000.
FINANCIAL CONDITION
Assets
The Company reported total assets of $138.43 million as of March 31, 2001 versus
$140.71 million as of December 31, 2000, a 2% decrease. Cash and due from banks
increased to $8.95 million as of March 31, 2001 from $3.45 million at December
31, 2000. Federal funds sold decreased $1.25 million from December 31, 2000.
The Company's investment securities portfolio decreased to $6.80 million as of
March 31, 2001 from $14.39 million at year end. Investment securities consist of
taxable variable rate demand notes secured by irrevocable letters of credit
issued by federally insured, domestic financial institutions. Although the notes
have a long term maturity structure, the interest rate is adjustable weekly and
the holder has the option to liquidate the security at 100% of par value within
seven days upon proper notice. These instruments provide the Company with ready
liquidity to provide for loan funding requirements. Management believes that the
investment portfolio is adequately diversified.
As of March 31, 2001, loans were $121.04 million compared to $120.59 million as
of December 31, 2000. Residential mortgage loans originated for sale on the
secondary market totaled $650,000 as of March 31, 2001 compared to $100,000 as
of December 31, 2000. Excluding the mortgage loans originated for sale, the
allowance for loan losses remained at approximately 1.5% of gross loans,
totaling $1.89 million at March 31, 2001 and $1.81 million at year end 2000. In
addition to loans outstanding, the Company had gross unfunded loan commitments
outstanding totaling $27.62 million as of March 31, 2001, of which $5.07 million
will be participated to The Middleton Doll Company and other third party
lenders. Loan growth during the year will be limited based upon the Company's
regulatory capital requirements and the projected economic slowdown. The Company
intends to remain well-capitalized based upon its regulatory capital
requirements.
Other assets at March 31, 2001 totaled $2.89 million compared to $2.74 million
at December 31, 2000. Other assets at March 31, 2001 included net furniture and
equipment of $187,000, accrued interest receivable on loans and investments of
$995,000, excess servicing assets of $113,000 relating to loans sold to a third
party, deferred tax assets of $702,000, cash surrender value on a life insurance
policy of $625,000, a receivable relating to another life insurance policy of
$174,000 and other miscellaneous assets of $90,000.
Liabilities
Total deposits decreased 2% to $126.22 million at March 31, 2001 from $128.80
million as of year end 2000. Indexed money market accounts comprised 47% of the
deposit base totaling $59.30 million as of March 31, 2001 compared to $60.41
million as of December 31, 2000. Time certificates of deposit comprised 45% of
the deposit base totaling $56.52 million as of March 31, 2001 compared to $58.17
million as of year end. Time deposits include brokered CDs with terms ranging
from three months to three years and totaled $10.57 million and $12.50 million
as of March 31, 2001 and December 31, 2000, respectively. In order for the
Company to facilitate loan growth, management expects to continue to
aggressively market and competitively price its money market and certificate of
deposit products. Other deposits as of March 31, 2001 included non-interest
bearing accounts totaling $8.37 million and interest bearing checking accounts
(NOW accounts) of $2.03 million.
In addition to deposits, the Bank periodically borrows funds via its
correspondent banking relationships. As of March 31, 2001 and December 31, 2000,
there were not any federal funds purchased.
Other liabilities increased to $4.03 million as of March 31, 2001 from $3.94
million at December 31, 2000. Subordinated debt owed to The Middleton Doll
Company totaled $2.5 million at March 31, 2001 and December 31, 2000. Other
liabilities as of March 31, 2001 consisted primarily of accrued interest payable
totaling $1.27 million as
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well as accrued expenses payable of $160,000 and retained loan discount
relating to loans sold to a third party totaling $100,000.
CAPITAL RESOURCES
Capital ratios applicable to the Bank and the Company at March 31, 2001 and
December 31, 2000 were as follows:
Total Tier I
Risk-based Risk-based Leverage
Capital Capital Ratio
Regulatory Capital Requirements:
Minimum 8.0% 4.0% 4.0%
Well-capitalized 10.0% 6.0% 5.0%
At March 31, 2001
Bank 10.1% 8.8% 7.6%
Company 10.1% 6.8% 5.9%
At December 31, 2000
Bank 10.0% 8.8% 7.8%
Company 10.0% 6.7% 6.0%
Management intends to maintain capital levels in excess of minimums established
by the regulatory authorities. The Company exceeds all regulatory requirements
regarding the maintenance of capital and was categorized as "well capitalized"
under the regulatory framework for capital adequacy as of March 31, 2001 and
December 31, 2000.
The application for a bank charter and for federal deposit insurance stated that
the Bank would retain its earnings during the first three years of operation. As
such, no cash dividends were paid by the Company to the shareholders during that
period which ended in September, 2000. The Company expects that future earnings
will also be retained to finance the growth of the Company and the Bank and that
no cash dividends will be paid in the near future.
Liquidity
The liquidity of a financial institution reflects its ability to provide funds
to meet loan requests, accommodate possible deposit withdrawals, and take
advantage of interest rate market opportunities in a cost effective manner.
Although primary sources of funds are deposits and repayments of loan principal,
the Company also maintains a significant level of liquid assets to provide for
potential funding needs. In addition to cash balances as of March 31, 2001, the
Company held $6.80 million of marketable securities and $650,000 of residential
mortgage loans originated and intended for sale in the secondary market. Should
an immediate need for funds arise, these assets may be readily liquidated with
nominal risk of principal loss.
Additionally, the Company has access to various off-balance sheet sources of
funds including the purchase of federal funds from correspondent banks, the sale
of commercial loans, and the acquisition of brokered deposits. Currently, the
Company has correspondent banking relationships with four institutions which
collectively have approved federal funds lines for the Bank totaling $7.5
million. The Company also has the ability to sell loan participations to
correspondents and affiliates. Further, the Company has the ability to acquire
funds via the brokered certificate of deposit market. Management has
periodically purchased certificates of deposit through approved brokers, as
market conditions dictate, to fill funding gaps. The Bank has been approved by
the Federal Reserve Bank of Chicago to borrow funds from the Discount Window on
a secured basis. This will allow the Bank to borrow up to $10 million on a
short-term basis in the event of an unexpected liquidity shortfall. The actual
amount the Bank will be able to borrow will depend on total capital and on the
amount of assets the Bank will pledge. Currently, the Bank has pledged enough
assets to borrow up to $10 million. Management believes that
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current liquidity levels are sufficient to meet anticipated loan demand as well
as to absorb potential deposit withdrawals.
Asset/Liability Management
The primary function of asset/liability management is to identify, measure and
control the extent to which changes in interest rates, commodity prices or
equity prices adversely impact a financial institution's earnings or economic
capital. The Company's strategy is to optimize and stabilize net income across a
wide range of interest rate cycles while maintaining adequate liquidity and
conforming to all applicable capital and other regulatory requirements.
Changes in net interest income other than volume related changes, arise when
interest rates on assets reprice in a time frame or interest rate environment
that is different from the repricing period for liabilities. Changes in net
interest income also arise from changes in the mix of interest earning assets
and interest bearing liabilities.
In the normal course of business, the Bank engages in off-balance sheet activity
to hedge interest rate risk. As of March 31, 2001, the Bank had three interest
rate swap agreements outstanding with a notional value totaling $11.9 million
structured as a hedge of specific fixed-rate deposits whose terms coincide with
the terms of the swap agreement. The swap agreements are structured so that the
Bank receives a fixed interest rate and pays a variable rate. The variable rate
on one swap agreement is based on the federal funds rate and the other two
agreements are based upon LIBOR. These instruments allow management to more
closely balance the repricing opportunities of the Bank's assets and liabilities
and thereby, reduce potential interest rate risk exposure. Although swaps reduce
interest rate risk, the potential for profit or loss on interest rate swaps
still exists depending upon fluctuations in interest rates.
The Company does not expect to experience any significant fluctuations in its
net interest income as a consequence of changes in interest rates.
Unlike most industries, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance and results of operations than
the effect of general levels of inflation. Interest rates do not necessarily
move in the same direction or magnitude as the prices of goods and services as
measured by the Consumer Price Index. As discussed previously, the Company's
interest rate gap position in conjunction with the direction of the movement in
interest rates is an important factor in the Company's operating results.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identifiable by the use of the words "may", "will", "could", "believe",
"expect", "intend", "anticipate", "estimate", "project" or similar expressions.
The Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on the operations and future prospects of the Company and the
subsidiaries include, but are not limited to, changes in: interest rates,
general economic conditions, including the condition of the local real estate
market, legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, demand for the Company's consumer products, its
implementation of new technologies, its ability to develop and maintain secure
and reliable electronic systems, and accounting principles and policies. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AVERAGE BALANCE SHEETS
FOR THREE MONTHS ENDED FOR YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
Cash and Due From Banks $ 2,715,869 $ 2,470,855
Federal Funds Sold 877,000 1,663,732
Investment Securities (Taxable) 9,996,040 8,208,254
Loans:
Commercial 34,081,501 26,630,429
Commercial Real Estate 58,982,964 44,618,345
Residential Real Estate 27,684,014 21,759,343
Industrial Revenue Bonds 2,667,178 2,655,569
Leases 1,211,794 141,836
Installment and Consumer 446,289 221,432
------------ ------------
Total Loans 125,073,740 96,026,954
Less: Allowance for Loan Losses (1,831,651) (940,425)
------------ ------------
Net Loans 123,242,089 95,086,529
Fixed Assets 97,358 79,491
Other Assets 2,497,634 1,183,610
------------ ------------
Total Assets $139,425,990 $108,692,471
============ ============
Demand Deposits $ 6,901,017 $ 6,670,805
Interest Bearing Deposits
NOW 2,001,659 1,573,632
Money Market 60,312,107 45,961,910
Time Deposits 57,141,088 42,967,959
------------ ------------
Total Deposits 126,355,871 97,174,306
Federal Funds Purchased 1,008,333 684,044
Subordinated Note 2,500,000 1,693,989
Other Liabilities 1,511,519 1,084,293
------------ ------------
Total Liabilities 131,375,723 100,636,632
Equity Capital 8,050,267 8,000,481
------------ ------------
Total Liabilities and Capital $139,425,990 $108,637,113
============ ============
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or its subsidiaries are a party.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
11 Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2001.
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SIGNATURE
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 thereunder duly authorized.
INVESTORSBANCORP, INC.
(Registrant)
Date: May 14, 2001 /s/ George R. Schonath
----------------------
George R. Schonath
Chief Executive Officer
Date: May 14, 2001 /s/ Susan J. Hauke
------------------
Susan J. Hauke
Vice President Finance and
Chief Accounting Officer
15