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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, 1999
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
--------- ----------
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
W239 N1700 Busse Road
P.O. Box 190 53072-0190
Pewaukee, Wisconsin ----------
------------------- (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 523-1000
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
--- ---
As of May 7, 1999, the Issuer had 1,000,000 shares of $0.01 par value Common
Stock issued and outstanding.
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INVESTORSBANCORP, INC.
FORM 10-QSB INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
and December 31, 1998 .............................................3
Consolidated Statements of Income - For the Three Months Ended
March 31, 1999 and March 31, 1998 (Unaudited) .....................4
Consolidated Statements of Changes in Shareholders' Equity -
For the Three Months Ended March 31, 1999 and March 31, 1998
(Unaudited) .......................................................6
Consolidated Statements of Cash Flows - For the Three Months
Ended March 31, 1999 and March 31, 1998 (Unaudited) ..............7
Notes to the Consolidated Financial Statements (Unaudited).........8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................9-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................17
Item 2. Changes in Securities................................................17
Item 3. Defaults Upon Senior Securities......................................17
Item 4. Submission of Matters to a Vote of Security Holders..................17
Item 5. Other Information....................................................17
Item 6. Exhibits and Reports on Form 8-K.....................................17
Signatures........................................................18
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, December 31,
1999 1998
----------- -----------
ASSETS
Cash and due from banks $ 2,330,637 $ 1,049,145
Federal funds sold 3,100,000 540,000
Available for sale securities 10,995,000 14,980,000
Held to maturity securities, fair value of $3,980,493 -- 3,980,493
Loans, less allowance for loan losses of $503,573 and
$395,804, respectively 49,853,738 39,184,712
Mortgage loans held for sale -- 2,232,657
Furniture and equipment, net 122,835 126,760
Accrued interest receivable and other assets 749,273 1,007,615
----------- -----------
TOTAL ASSETS $67,151,483 $63,101,382
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 2,355,942 $ 2,616,842
Savings and NOW accounts 43,529,212 37,172,478
Time 13,483,663 15,215,270
----------- -----------
TOTAL DEPOSITS 59,368,817 55,004,590
Accrued interest payable and other liabilities 580,177 912,551
----------- -----------
TOTAL LIABILITIES 59,948,994 55,917,141
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; shares authorized
1,000,000; no shares issued and outstanding -- --
Common stock, $0.01 par value; shares authorized
9,000,000; shares issued and outstanding 1,000,000 10,000 10,000
Additional paid in capital 6,979,900 6,979,900
Retained earnings 212,589 194,341
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 7,202,489 7,184,241
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $67,151,483 $63,101,382
=========== ===========
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
INTEREST INCOME:
Interest and fees on loans $ 948,456 $ 322,507
Interest on available for sale securities 193,748 19,066
Interest on federal funds sold 31,194 79,931
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TOTAL INTEREST INCOME 1,173,398 421,504
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INTEREST EXPENSE - INTEREST ON DEPOSITS 671,268 197,782
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NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES 502,130 223,722
PROVISION FOR LOAN LOSSES 107,769 88,695
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 394,361 135,027
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NONINTEREST INCOME:
Service charges 6,978 2,287
Service release premiums 191,703 85,679
Management service fees 213,411 190,452
Other income 32,020 1,921
---------- ----------
TOTAL NONINTEREST INCOME 444,112 280,339
---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 469,083 348,364
Occupancy expenses 21,540 22,216
Equipment expenses 13,071 15,577
Other expenses 124,568 110,652
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TOTAL NONINTEREST EXPENSE 628,262 496,809
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INCOME (LOSS) BEFORE INCOME TAXES 210,211 (81,443)
INCOME TAX EXPENSE (BENEFIT) 80,250 (49,300)
---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 129,961 (32,143)
---------- ----------
CUMULATIVE EFFECT OF EXPENSING START-UP COSTS
AS INCURRED, NET OF INCOME TAXES 111,713 --
---------- ----------
NET INCOME (LOSS) $ 18,248 $ (32,143)
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
PER SHARE AMOUNTS:
BASIC EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $0.13 $(0.03)
Cumulative effect of expensing start-up
costs as incurred (0.11) --
----- ------
Net income (loss) $0.02 $(0.03)
===== ======
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $0.13 $(0.03)
Cumulative effect of expensing start-up
costs as incurred (0.11) --
----- ------
Net income (loss) $0.02 $(0.03)
===== ======
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
RETAINED TOTAL
COMMON EARNINGS SHAREHOLDERS'
STOCK SURPLUS (DEFICIT) EQUITY
----------- ----------- ----------- -------------
BALANCE, December 31, 1997 $ 10,000 $ 6,979,900 $ (102,900) $ 6,887,000
Net loss for first quarter of 1998 -- -- (32,143) (32,143)
----------- ----------- ----------- -----------
BALANCE, March 31, 1998 $ 10,000 $ 6,979,900 $ (135,043) $ 6,854,857
=========== =========== =========== ===========
BALANCE, December 31, 1998 $ 10,000 $ 6,979,900 $ 194,341 $ 7,184,241
Net income for first quarter of 1999 -- -- 18,248 18,248
----------- ----------- ----------- -----------
BALANCE, March 31, 1999 $ 10,000 $ 6,979,900 $ 212,589 $ 7,202,489
=========== =========== =========== ===========
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INVESTORSBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,248 $ (32,143)
Adjustments to reconcile net income to
net cash used in operating loans
Depreciation 10,043 6,320
Provision for loan loss 107,769 88,695
Amortization of organizational costs -- 12,183
Benefit for deferred taxes (53,100) (49,300)
Net decrease in mortgage loans held for sale 2,232,657 --
(Increase) decrease in assets:
Interest receivable (35,725) (32,833)
Other assets 347,167 (88,820)
Increase (decrease) in liabilities:
Accrued interest (122,734) 63,373
Taxes payable (47,337) --
Other liabilities (162,303) 49,472
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,294,685 16,947
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in federal funds (2,560,000) (2,198,000)
Proceeds from sales of available for sale securities 7,180,000 3,775,000
Purchase of available for sale securities (3,195,000) (6,050,000)
Proceeds from maturity of held to maturity securities 3,980,493 --
Purchase of furniture and equipment (6,118) (4,045)
Net increase in loans (10,776,795) (8,869,007)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (5,377,420) (13,346,052)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,364,227 12,768,022
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,364,227 12,768,022
------------ ------------
Net increase (decrease) in cash and due from banks 1,281,492 (561,083)
Cash and due from banks, beginning of period 1,049,145 1,248,803
------------ ------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 2,330,637 $ 687,720
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 794,002 $ 134,408
============ ============
Income taxes $ 108,670 $ 50
============ ============
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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.
NOTE 2: Accounting Policies
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles 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, 1999 and
December 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 1999 have been made. Such adjustments consisted only of
normal recurring items. Operating results for the three months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. 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, 1998.
Principles of Consolidation - The consolidated financial statements as of and
for the periods presented include the accounts of the Company and the Bank, its
wholly owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
NOTE 3: Change in Accounting Principles
In 1998, the American Institute of Certified Public Accountants issued Statement
of Position 98-5 which requires all entities to expense start-up costs as
incurred. During the first quarter of 1999, the Company adopted this Statement
of Position and has expensed all remaining start-up costs. Adoption of this
statement has no effect on prior year's shareholders' equity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion provides additional analysis of the financial
statements and should be read in conjunction with this information. This
discussion focuses on significant factors which affected the Company's financial
performance during the quarter ended March 31, 1999, with comparisons to the
quarter ended March 31, 1998. As of March 31, 1999, the Bank was the only
subsidiary of the Company and its operations contributed all of the revenue and
expenses for the year.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
During the quarter ended March 31, 1999, the Company reported net
income of $18,248 or $0.02 per share, as compared to a net loss of $32,143 or
($0.03) per share for the quarter ended March 31, 1998. Net income as of March
31, 1999 included the cumulative effect of a change in accounting principle that
totaled $111,713 after income taxes. The Company adopted Statement of Position
98-5 that requires all entities to expense start-up costs as incurred. Income
before cumulative effect of a change in accounting principle was $129,961 or
$0.13 per share for the quarter ended March 31, 1999 compared to a net loss of
$32,143 or ($0.03) per share for the same quarter last year. This enhanced
profitability was primarily attributable to a significant increase in earning
assets and the absence of certain non-recurring expenses incurred during the
Company's initial development stage.
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 to
$502,130 for the quarter ended March 31, 1999 from $223,722 for the quarter
ended March 31, 1998. Significantly higher loan volumes resulted in a
substantial increase in interest and fee income on loans which totaled $948,456
for the first quarter in 1999 compared to $322,507 for the first quarter in
1998. The majority of interest income on loans was derived from the commercial
and commercial real estate loan portfolios which, in aggregate, comprised 83.7%
of total loans at March 31, 1999. Interest earned on investment securities and
federal funds sold totaling $193,748 and $31,194, 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 proportionally with the
projected growth of the loan portfolio and other investments.
Interest expense similarly increased to $671,268 for the quarter ended
March 31, 1999 from $197,782 for the quarter ended March 31, 1998. Interest
expense consisted predominantly of interest paid on money market accounts
totaling $467,630 and certificates of deposit totaling $203,073 as of the
quarter ended March 31, 1999. Interest expense is anticipated to continue to
rise in 1999 as management expects these deposit instruments will remain the
primary funding sources utilized by the Company to fund additional growth.
PROVISION FOR LOAN LOSSES
The allowance for loan losses increased to $503,573 as of March 31,
1999 from $395,804 as of December 31, 1998. The allowance for loan losses is
established through a provision for loan losses charged to expense. Due to
substantial loan growth, loan loss provisions of $107,769 were expensed in first
quarter 1999, as compared to $88,695 during the first quarter of 1998, to
maintain the allowance for loan losses at 1.00% of total loans, net of
residential mortgage loans held for sale on the secondary market.
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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 evaluation 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 may affect the borrower's ability to repay.
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.
There were no loan charge-offs or recoveries, nor any impaired loans
for the periods ended March 31, 1999 and December 31, 1998. 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 is at an adequate level, based on the composition of the portfolio as
well as regulatory guidelines.
NON-INTEREST INCOME AND EXPENSE
Non-interest income for the quarter ended March 31, 1999 totaled
$444,112 as compared to $280,339 for the quarter ended March 31, 1998.
Management service fees totaled $213,411 for the quarter ended March 31, 1999
compared to $190,452 in the first quarter of 1998. The Company charges Bando
McGlocklin Capital Corporation (BMCC), 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. As of March 31,
1999, BMCC had loans under management totaling $123,367,637 and leased
properties of $22,133,903. Other sources of non-interest income include $191,703
of service release fees received in first quarter 1999 compared to $85,679 in
1998's first quarter from the sale of residential mortgages originated for the
secondary market. In addition, service charges related to deposit accounts
totaled $6,978 and other income totaled $32,020 during the quarter ended March
31, 1999 compared to $2,287 and $1, 921, respectively, for the quarter ended
March 31, 1998.
Non-interest expense increased to $628,262 for the quarter ended March
31, 1999 as compared to $496,809 for the quarter ended March 31, 1998. The
increase of $131,453 was primarily due to salaries and employee benefits expense
increasing $120,719 due to additional employees and regular compensation
increases. The Company as of March 31, 1999 had 28 full time equivalent
employees and as of March 31, 1998, there were approximately 18 full time
equivalents. Salaries and employee benefits totaled $469,083 and $348,364 for
the quarters ended March 31, 1999 and 1998, respectively. These amounts included
salaries that were reimbursed through the management services fee noted above.
The other operating expenses, which included occupancy and fixed asset expense,
data processing fees, advertising, investor communications, and professional
fees, increased $10,734.
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
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loan losses, depreciation, and operating loss carryforwards that will be used to
offset future net operating income.
For the quarter ended March 31, 1999, the Company recorded federal and
state income tax expense of $80,250 before the cumulative effect of expensing
start-up costs as incurred. The Company also has a deferred tax asset of
$146,688. For the quarter ended March 31, 1998, the Company recorded a federal
and state income benefit of $49,300 and had a deferred tax asset of $115,750.
Management believes it is more likely than not that the deferred tax asset will
be fully realized. The effective rate for income tax expense for the quarter
ended March 31, 1999 was 38.2%.
FINANCIAL CONDITION
The Company reported total assets of $67,151,483 as of March 31, 1999
versus $63,101,382 as of December 31, 1998. Cash and due from banks and federal
funds sold increased to $5,430,637 as of March 31, 1999 from $1,589,145 at
December 31, 1998. The Company's investment securities portfolio decreased to
$10,995,000 as of March 31, 1999 from $18,960,493 at year end.
As of March 31,1999, investment securities consisted of $10,995,000 of
taxable variable rate demand notes secured by irrevocable letters of credit from
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.
Loans continued to grow during the quarter. As of March 31, 1999, loans
were $50,357,311 compared to $39,580,516 as of year end 1998. While most of the
growth occurred in the commercial, industrial, and commercial real estate
segments of the loan portfolio, residential real estate loans, including home
equity credit facilities, also grew considerably. As of March 31, 1999, the
Company had no mortgage loans held for sale. As of December 31, 1998,
residential mortgage loans originated for sale on the secondary market totaled
$2,232,657. Excluding the mortgage loans originated for sale, the allowance for
loan losses remained at 1.00% of gross loans, totaling $503,573 at March 31,
1999 and $395,804 at year end 1998. In addition to loans outstanding, the
Company had unfunded loan commitments totaling $24,530,798 as of March 31, 1999,
although the Bank will participate $7,425,199 of those loans to BMCC. Loan
demand continues to remain strong for both commercial and residential loans in
the Company's trade area.
Other assets at March 31, 1999 totaled $872,108 compared to $1,134,375
at December 31, 1998. Other assets at March 31, 1999 included net furniture and
equipment of $122,835, accrued interest receivable on loans and investments of
$362,061, excess servicing assets of $139,195 relating to loans sold to a third
party, deferred tax asset of $146,688 and other miscellaneous assets of
$101,329. A significant portion of the decrease in other assets was attributable
to the adoption of Statement of Position 98-5 which required the Company to
expense in the first quarter the remaining organizational and start-up costs of
$183,780 and the decrease of $143,406 in a receivable from a related company.
Total deposits increased to $59,368,817 at March 31, 1998 from
$55,004,590 as of year end 1998. Indexed money market accounts comprised the
largest portion of the deposit base totaling $42,311,601 as of March 31, 1999
compared to $35,842,546 as of December 31, 1998. Time certificates of deposit
decreased to $13,483,663 compared to $15,215,270 as of year end. Time deposits
included retail brokered deposits with maturities ranging from 1 to 3 years of
$6,577,000 and $9,645,000 as of March 31,1999 and December 31, 1998,
respectively. In order for the Company to facilitate continued loan growth,
management expects to continue to aggressively market and competitively price
its money market and certificate of deposit products.
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Other deposits outstanding as of March 31, 1999 included non-interest bearing
accounts totaling $2,355,942 and interest bearing checking accounts (NOW
accounts) of $1,217,611.
Other liabilities decreased to $580,177 as of March 31, 1999 from
$912,551 at December 31, 1998. Other liabilities as of March 31, 1999 consisted
primarily of accrued interest payable totaling $330,317, as well as accrued
expenses payable of $103,676, retained loan discount relating to loans sold to a
third party totaling $122,606, and other miscellaneous liabilities of $23,578.
The decrease was the result of lower accrued interest payable and lower accrued
expenses.
CAPITAL RESOURCES
Capital ratios applicable to the Bank and the Company at March 31, 1999 and
December 31, 1998 are as follows:
TIER I
TOTAL RISK-BASED RISK-BASED LEVERAGE
CAPITAL CAPITAL RATIO
---------------- ---------- --------
Regulatory Capital Requirements:
Minimum 8.00% 4.00% 4.00%
Well-capitalized 10.00% 6.00% 5.00%
At March 31, 1999:
Bank 14.6% 13.6% 11.0%
Company 14.6% 13.6% 11.0%
At December 31, 1998:
Bank 15.3% 14.5% 16.7%
Company 15.3% 14.5% 16.7%
Management anticipates its capital ratios will continue to decline in
1999 as additional loan growth occurs; however, management intends to maintain
capital levels well in excess of minimums established by the regulatory
authorities. The Bank has committed to the FDIC that the ratio of Tier 1 capital
to total assets will not be less than 8% for the first three years of operations
commencing September 8, 1997.
The applications 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 dividends will be paid by the Company to the shareholders
during that period. The Company expects that all earnings will be retained to
finance the growth of the Company and the Bank and that no cash dividends will
be paid for the foreseeable 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 repayment of loan
principal, the Company maintains a significant level of liquid assets to provide
for potential funding needs. In addition to federal funds sold and cash balances
as of March 31, 1999, the Company held $10,995,000 of marketable securities.
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 alternative sources of funds including the purchase of federal funds
from correspondent banks, the sale of commercial loans, and the acquisition of
brokered deposits. Further, the Bank has a $3,000,000 revolving line of credit
with one of its correspondent
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banks. There was no outstanding balance on the note as of March 31, 1999.
Management believes that current liquidity levels are sufficient to meet
anticipated loan demand, as well as absorb 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 affect 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 Company engages in off-balance
sheet activity to hedge interest rate risk. On April 24, 1998, the Company had
entered into two interest rate swap agreements with a notional value totaling
$6,103,000, structured as hedges of specific fixed-rate deposits whose terms
coincide with the terms of the swap agreements. The swap agreements are
structured so that the Company receives a fixed interest rate and pays a
variable rate which is based on the federal funds rate. These instruments allow
management to more closely balance the repricing opportunities of the Company's
assets and liabilities, and thereby, reduce potential interest rate risk
exposure.
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.
YEAR 2000
The Year 2000 has posed a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by early
programmers, many software applications and operation programs may be unable to
distinguish the Year 2000 from the Year 1900. If not effectively addressed, this
problem could result in the production of inaccurate data, or, in the worst
cases, the inability of the systems to continue to function altogether.
Financial institutions are particularly vulnerable due to the industry's
dependence on electronic data processing systems.
In 1997, the Company moved into a newly constructed building. The move
helped to make the Year 2000 problem manageable because most of the Company's
systems were new purchases and the Year 2000 problem was factored into the
Company's decisions. The move also started the process of identifying the
hardware and software issues required to assure Year 2000 compliance. The
Company began by assessing the issues related to the Year 2000 and the potential
for those issues to adversely affect the Company's operations.
The Company has established a Year 2000 management committee to deal
with this issue. It is the mission of this committee to identify areas subject
to complication related to the Year 2000 and to initiate
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remedial measures designed to eliminate any adverse effects on the Company's
operations. The committee has identified all mission-critical software and
hardware that may be adversely affected by the Year 2000 and has required
vendors to represent that the systems and products provided are or will be Year
2000 compliant.
The Company licenses all software used in conducting its business from
third party vendors. None of the Company's software has been internally
developed. The Company has developed a comprehensive list of all software, all
hardware and all service providers used by the Company. Every vendor has been
contacted regarding the Year 2000 issue. The vendor of the primary software in
use at the Company released its Year 2000 complaint software in September 1998.
Testing at the Company, using test scripts developed by the vendor, was
completed on October 3, 1998. The vendor will be conducting ongoing proxy
testing and seminars and will report its progress monthly to the Company using a
management report. In addition, the Company continues to monitor all other major
vendors of services to the Company for Year 2000 issues in order to avoid
shortages of supplies and services in the coming months.
There are three third party utilities with which the Company has an
important relationship, Ameritech, U S Xchange (phone service) and Wisconsin
Electric Company (gas and electric service). The Company has not identified any
practical, long-term alternatives for these basic utility services. In the event
that the utilities significantly curtail or interrupt their services to the
Company, it would have a significant adverse effect on the Company's ability to
conduct its business.
The Company also has tested all heating and air conditioning units,
vault doors, alarms systems, networks, etc. and is not aware of any significant
problems with such systems.
The Company's cumulative costs of the Year 2000 project through the
quarter ended March 31, 1999 totaled $12,500. At the present time, no situations
that will require material cost expenditures to become fully compliant have been
identified. However, the Year 2000 problem is pervasive and complex and can
potentially affect any computer process. Accordingly, no assurance can be given
that Year 2000 compliance can be achieved without additional unanticipated
expenditures and uncertainties that might affect future financial results. The
estimated total cost of the Year 2000 project is currently $20,000. This
includes costs to upgrade software and replace equipment specifically for the
purpose of Year 2000 compliance and certain administrative expenditures.
It is not possible at this time to quantify the estimated future costs
due to possible business disruption caused by vendors, suppliers, customers, or
even the possible loss of electric power or phone service; however, such costs
could be a substantial.
The Company is committed to a plan for achieving compliance, focusing
not only on its own data processing systems, but also on its loan customers. The
management committee has proposed policy and procedure changes to help identify
potential risks to the Company and to gain an understanding of how customers are
managing the risks associated with the Year 2000. The Company is assessing the
impact, if any, the Year 2000 will have on its credit risk and loan
underwriting. In connection with potential credit risk related to the Year 2000
issue, the Company has contacted its commercial loan customers regarding their
level of preparedness for the Year 2000.
The Company has developed contingency plans for various Year 2000
problems and continues to revise those plans based on testing results and vendor
notifications.
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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 Exchange Act. The Company intends such forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities 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 use of
the words "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, 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.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AVERAGE BALANCE SHEETS
FOR QUARTER ENDED FOR YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Cash and due from bank $ 1,062,364 $ 900,146
Federal funds sold 2,875,500 6,131,460
Investment Securities 15,601,664 6,245,720
Loans:
Commercial 3,181,274 8,793,611
Commercial Real Estate 33,842,363 13,519,798
Residential Real Estate 8,486,995 5,787,793
Installment and consumer 208,536 121,804
------------ ------------
Total loans 45,719,168 28,223,006
Less allowance for loan losses (429,611) (233,614)
------------ ------------
Net loans 45,289,557 27,989,392
Fixed assets 123,725 124,374
Other assets 736,503 722,592
------------ ------------
Total assets $ 65,689,313 $ 42,113,684
============ ============
Demand deposits $ 3,077,106 $ 2,157,659
Interest bearing deposits
NOW 1,091,367 781,378
Money market 38,999,803 22,515,705
Time deposits 14,525,183 9,220,705
------------ ------------
Total deposits 57,693,459 34,675,447
Other liabilities 779,900 525,487
------------ ------------
Total liabilities 58,473,359 35,200,934
Equity capital 7,215,954 6,912,750
------------ ------------
Total liabilities and capital $ 65,689,313 $ 42,113,684
============ ============
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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 subsidiary is 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
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended March 31, 1999.
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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)
/s/ George R. Schonath
-----------------------------
Date: May 7, 1999 George R. Schonath
President
/s/ Susan J. Hauke
-----------------------------
Date: May 7, 1999 Susan J. Hauke
Chief Accounting Officer
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