SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
SCHEDULE 13E-3
(Rule 13e-100)
RULE 13-E TRANSACTION STATEMENT UNDER SECTION 13(e) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _________)
INVESTORSBANCORP, INC.
(Name of the Issuer)
INVESTORSBANCORP, INC.
INVESTORS SUBSIDIARY, INC.
GEORGE R. SCHONATH, JENN SCHONATH, SARAH SCHONATH, EMILY SCHONATH,
THOMAS EVANS, EMILY A. SCHONATH IRREVOCABLE TRUST, DATED DECEMBER 31, 1996 AND
SARAH E. SCHONATH IRREVOCABLE TRUST, DATED DECEMBER 31, 1996
(Name of the Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
461833105
(CUSIP Number of Class of Securities)
John E. Freechack
Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
(312) 984-3100
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities
Act of 1933.
c. [ ] A tender offer.
d. [X] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [ ]
Check the following box if the filing is a final amendment reporting the results
of the transaction. [ ]
CALCULATION OF FILING FEE
Transaction Valuation* Amount Of Filing Fee
- ------------------------------------------------------------------------
$5,697,817.80 $460.95
* For purposes of calculating the filing fee only. Determined by (1) multiplying
398,259 shares of common stock, par value $.01 per share, of InvestorsBancorp,
Inc. by $14.20 per share, and (2) adding thereto $42,540.00 anticipated to be
paid to certain persons holding options to acquire shares of common stock in
consideration of cancellation of such options (assuming an aggregate of 6,200
options are cancelled in exchange for cash in the transaction).
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-1l(a)(2) and identify the filing with which the offsetting fee
was previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount previously paid Filing party:
Form or registration no.: Date filed:
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
MERITS OR FAIRNESS OF THIS TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
SUMMARY TERM SHEET............................................................................................... 1
The Parties................................................................................................... 1
Overview of The Merger........................................................................................ 1
Background of the Merger...................................................................................... 2
Reasons for the Merger; Fairness of the Merger................................................................ 2
Valuation of Financial Advisor................................................................................ 3
Purpose and Structure of the Merger........................................................................... 3
Certain Effects of the Merger................................................................................. 4
Voting Requirements........................................................................................... 4
Appraisal Rights.............................................................................................. 4
Interests of Certain Persons in the Merger.................................................................... 4
Financing of the Merger....................................................................................... 5
Certain Federal Income Tax Consequences....................................................................... 5
The Merger Agreement.......................................................................................... 6
INTRODUCTION..................................................................................................... 7
The Parties................................................................................................... 7
The Merger.................................................................................................... 8
SPECIAL FACTORS.................................................................................................. 9
Background of the Merger...................................................................................... 9
Reasons for the Merger; Fairness of the Merger................................................................ 16
Valuation of Financial Advisor................................................................................ 22
Purpose and Structure of the Merger........................................................................... 28
Certain Effects of the Merger; Plans or Proposals after the Merger............................................ 28
Effects of the Merger on Shareholders of InvestorsBancorp..................................................... 30
Voting Requirements........................................................................................... 32
Appraisal Rights.............................................................................................. 33
Interests of Certain Persons in the Merger.................................................................... 33
Financing of the Merger....................................................................................... 35
Certain Federal Income Tax Consequences of the Merger......................................................... 36
CERTAIN TERMS OF THE MERGER...................................................................................... 37
The Merger Agreement.......................................................................................... 37
Regulatory Requirements....................................................................................... 42
Accounting Treatment.......................................................................................... 42
Fees and Expenses............................................................................................. 42
FINANCIAL INFORMATION............................................................................................ 43
Selected Historical Financial Data............................................................................ 43
MARKET PRICE OF INVESTORSBANCORP COMMON STOCK AND DIVIDEND INFORMATION........................................... 44
Comparative Market Price Data................................................................................. 44
Dividends..................................................................................................... 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................... 45
COMMON STOCK PURCHASE INFORMATION................................................................................ 46
Prior Stock Purchases......................................................................................... 46
Recent Transactions........................................................................................... 48
INFORMATION ABOUT THE DIRECTORS, OFFICERS AND SCHONATH SHAREHOLDERS.............................................. 48
Information about the Directors and Executive Officers of InvestorsBancorp.................................... 48
Information about the Directors and Executive Officers of Investors Subsidiary................................ 50
Information about the Schonath Shareholders................................................................... 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................... 53
Related Transactions.......................................................................................... 53
Agreements Involving InvestorsBancorp's Securities............................................................ 53
OTHER MATTERS.................................................................................................... 54
Reports, Opinions, Appraisals and Negotiations................................................................ 54
Forward Looking Statements.................................................................................... 54
Where You Can Find More Information........................................................................... 54
Information Incorporated by Reference......................................................................... 55
TRANSACTION STATEMENT............................................................................................ 56
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SUMMARY TERM SHEET
This summary highlights selected information from this transaction
statement about the proposed merger between InvestorsBancorp, Inc. and Investors
Subsidiary, Inc. and may not include all of the information that may be
important to you. To better understand the merger and for a more complete
description of the terms of the merger, you should read this entire document and
the documents to which it refers carefully.
In this transaction statement, "InvestorsBancorp," "we," "our," "ours,"
"us" and the "company" refer to InvestorsBancorp, Inc. We use the term
"Investors Subsidiary" to refer to Investors Subsidiary, Inc., and "merger
agreement" to refer to the Agreement and Plan of Merger between InvestorsBancorp
and Investors Subsidiary. The term "Schonath shareholders" means George R.
Schonath, Jenn Schonath, Sarah E. Schonath, Emily A. Schonath, Thomas Evans, the
Emily A. Schonath Irrevocable Trust and the Sarah E. Schonath Irrevocable Trust.
The term "non-continuing shareholders" of InvestorsBancorp means all holders of
common stock of InvestorsBancorp other than the Schonath shareholders.
References to "common stock" or "shares" refer to InvestorsBancorp's common
stock, par value $0.01 per share.
THE PARTIES
(see pages ___ and pages ___)
The parties to the merger are:
- InvestorsBancorp, a Wisconsin corporation and a registered bank
holding company under the Bank Holding Company Act of 1956, as
amended, with a business address of W239 N1700 Busse Road,
Waukesha, Wisconsin, 53188-1160, and a business telephone number
of (262) 523-1000; and
- Investors Subsidiary, a newly-formed Wisconsin corporation
organized as a wholly-owned subsidiary of InvestorsBancorp for the
sole purpose of the merger, with a business address of W239 N1700
Busse Road, Waukesha, Wisconsin, 53188-1160, and a business
telephone number of (262) 523-1000.
In addition to InvestorsBancorp and Investors Subsidiary, the Schonath
shareholders, some of whom were involved in structuring the transaction and who
will remain shareholders of InvestorsBancorp following the merger, are filing
this Rule 13e-3 transaction statement on Schedule 13e-3. For more information
about the Schonath shareholders, please see "Information About the Directors,
Officers and Schonath Shareholders--Information about the Schonath Shareholders"
on pages ___ through ___.
OVERVIEW OF THE MERGER
(see page ____)
On March 25, 2003, InvestorsBancorp and Investors Subsidiary entered
into the merger agreement, under which it is anticipated that Investors
Subsidiary will merge with and into InvestorsBancorp. In the merger,
- each share of common stock owned of record by non-continuing
shareholders of InvestorsBancorp will be converted into, and will
represent the right to receive, $14.20 in cash; and
- each share of common stock owned of record by the Schonath
shareholders will continue to represent one share of common stock
of InvestorsBancorp following the merger, except for 5,743 shares
held in individual retirement accounts by certain of the Schonath
shareholders and 5,375 shares held by George Schonath and Jenn
Schonath, each of which will be converted into the right to
receive $14.20 in cash.
The merger is expected to be consummated in July 2003.
A copy of the Agreement and Plan of Merger, dated as of March 25, 2003,
between InvestorsBancorp and Investors Subsidiary is attached as Appendix A to
this transaction statement.
BACKGROUND OF THE MERGER
(see pages ______)
For a description of the events leading to the approval of the merger
agreement by our board of directors and the reasons for their approval, you
should refer to "Special Factors--Background of the Merger," "--Reasons for the
Merger; Fairness of the Merger" and "--Purpose and Structure of the Merger" on
pages ___.
REASONS FOR THE MERGER; FAIRNESS OF THE MERGER
(see pages ______)
InvestorsBancorp's primary reasons for the merger include the
following:
- we will realize cost savings because we will no longer be required
to make periodic public reports under the Securities Exchange Act,
and will no longer incur the expenses relating to shareholder
communications;
- continuing as a public company offers few advantages to us or our
shareholders, in that there is little liquidity for our common
stock, and, because our earnings are sufficient to support growth,
we do not depend on raising capital in the public market;
- the merger allows the non-continuing shareholders to receive fair
value for their shares in an illiquid market;
- following the merger, we will be able to make an election under
Subchapter S of the Internal Revenue Code, substantially reducing
corporate level income taxation, which will reduce our expenses
and increase cash flow;
- management will be able to refocus time spent on shareholder
administrative duties to our banking subsidiary, InvestorsBank;
- operating as a private company will allow George Schonath, the
controlling shareholder and Chief Executive Officer of
InvestorsBancorp, to focus on financial and business goals that
may differ from those of the non-continuing shareholders; and
- the merger will allow us to "go private" more quickly and less
expensively than other structures considered by our board of
directors.
With the exception of George R. Schonath, who recused himself from
voting on any matters relating to InvestorsBancorp's going private transaction,
the board of directors of InvestorsBancorp
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unanimously determined that the merger agreement and the merger are in the best
interests of InvestorsBancorp's shareholders, including the non-continuing
shareholders, and unanimously approved the merger agreement and the merger.
In the course of determining that the merger agreement and the merger
are in the best interests of InvestorsBancorp's shareholders, including the
non-continuing shareholders, the board, after consulting with legal and
financial advisors, considered a number of factors in making their
determination. To review the reasons for the merger in greater detail, please
see pages ___ through ___.
In addition, under the federal securities laws, Investors Subsidiary
and the Schonath shareholders are required to join in the filing of this
transaction statement. All of those persons adopt the analyses and conclusions
of the InvestorsBancorp board of directors. Please see pages ___ through ___.
VALUATION OF FINANCIAL ADVISOR
(see pages ___)
In contemplation of the merger, our board of directors retained and
considered a valuation of our common stock prepared by Wipfli Ullrich Bertelson
LLP, a financial advisory and consulting firm that, among other things,
regularly provides valuations to financial institutions. InvestorsBancorp
retained Wipfli because of its expertise in providing valuations to financial
institutions.
After considering all relevant factors, Wipfli concluded that, in its
opinion, the fair value of InvestorsBancorp as a going concern was approximately
$14.5 million, or $13.71 per share, as of January 3, 2003, and approximately
$15.0 million, or $14.20 per share, as of March 19, 2003. The Wipfli valuation
is not a fairness opinion.
On April 16, 2003, Wipfli provided a corrected valuation to the board,
which indicated that the fair value of InvestorsBancorp as a going concern as of
January 3, 2003 was approximately $14.1 million, or $13.37 per share. The
corrected valuation had no effect on the fair value of InvestorsBancorp as of
March 19, 2003.
We have attached Wipfli's valuation and corrected valuation to this
transaction statement as Appendix B-1 and Appendix B-2, respectively. You should
read them completely to understand the assumptions made, matters considered and
limitations of the review made by Wipfli in providing its valuation.
PURPOSE AND STRUCTURE OF THE MERGER
(see page ____)
The primary purpose of the merger is to consolidate ownership of all of
the common stock of InvestorsBancorp in the Schonath shareholders, which will
discontinue InvestorsBancorp's SEC reporting requirements, allow
InvestorsBancorp to make an election under Subchapter S of the Internal Revenue
Code, and allow InvestorsBancorp management to refocus time spent on shareholder
administrative duties to operational and business goals.
The going private transaction has been structured as a
parent/subsidiary merger because InvestorsBancorp's board of directors believes
that this structure represents the most cost-effective and efficient way of
achieving its objectives in going private.
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CERTAIN EFFECTS OF THE MERGER
(see page _____)
The merger is a going private transaction for InvestorsBancorp. As a
result of the merger, among other things:
- because of the reduction of the total number of holders of the
shares of common stock to less than 300, InvestorsBancorp will
terminate its status as a reporting company with the SEC;
- InvestorsBancorp's common stock will no longer be traded over the
OTC Bulletin Board;
- the non-continuing shareholders will no longer have an interest in
or be shareholders of InvestorsBancorp, and, therefore, will not
be able to participate in InvestorsBancorp's future earnings and
growth, if any; and
- InvestorsBancorp's regulatory capital will be reduced from
approximately $15.5 million as of June 30, 2003 on a historical
basis to approximately $8.8 million on a pro forma basis;
For a further description of how the merger will affect the
shareholders of InvestorsBancorp, including the different effects on the
non-continuing shareholders and the Schonath shareholders, please see "Special
Factors--Effects of the Merger on Shareholders of InvestorsBancorp" on pages
_____.
VOTING REQUIREMENTS
(see page ____)
The boards of directors of each of InvestorsBancorp and Investors
Subsidiary have approved the merger agreement and the merger. You do not have
the right to vote on the merger.
APPRAISAL RIGHTS
(see page _____)
You do not have appraisal rights in connection with the merger. For a
description of Wisconsin law governing this transaction see pages ____.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(see pages ____)
You should be aware that InvestorsBancorp's directors, executive
officers and controlling shareholders have interests in the merger that may
present actual or potential, or the appearance of actual or potential, conflicts
of interest in connection with the merger, including the following:
- as of May 15, 2003, two members of our board of directors and our
executive officers, other than George Schonath, collectively owned
7,571 shares of the outstanding common stock, excluding options,
which entitles them to receive an aggregate of approximately
$108,000 in merger consideration;
- as of May 15, 2003, the executive officers of InvestorsBancorp
were entitled to purchase an aggregate of 6,200 shares of common
stock upon the exercise of options having exercise prices ranging
from $6.75 to $8.10, and are therefore entitled to receive an
aggregate of approximately $43,000 in cash in exchange for their
options;
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- the Chief Executive Officer and controlling shareholder of
InvestorsBancorp, George Schonath, and various of his family
members and affiliates will continue as the sole shareholders of
InvestorsBancorp following the merger, and therefore will continue
to have the opportunity to participate in any future growth and
earnings of InvestorsBancorp; and
- George Schonath, who will continue to own stock in
InvestorsBancorp following the merger as a Schonath shareholder,
in his capacity as Chief Executive Officer of InvestorsBancorp was
involved in structuring the transaction, although he recused
himself from all board votes taken with respect to the
going-private transaction.
The board of directors, throughout its consideration of the
going-private transaction, recognized that the interests of the non-continuing
shareholders and the Schonath shareholders are different and possibly in
conflict. The non-continuing shareholders may wish to remain shareholders of a
public company and, in the merger, may have the goal of obtaining the highest
value for their shares, while the Schonath shareholders, as continuing
shareholders, may have the goal of retaining cash for the future operation of
InvestorsBancorp. See "Special Factors--Background of the Merger" and "--Reasons
for the Merger; Fairness of the Merger" for a discussion of how the board of
directors addressed this situation.
FINANCING OF THE MERGER
(see pages _____)
We estimate that the total funds required to fund the payment of the
merger consideration to the non-continuing shareholders and to pay fees and
expenses relating to the merger will be approximately $5,931,000.
InvestorsBancorp is financing the merger through a $5.0 million
offering of subordinated securities and through the infusion of $1.0 million in
capital by two of the Schonath shareholders, which was a condition to the
subordinated debt offering. On March 25, 2003, the Emily A. Schonath Irrevocable
Trust and the Sarah E. Schonath Irrevocable Trust together purchased an
aggregate of 70,422 shares of newly-issued InvestorsBancorp common stock at a
price of $14.20 per share, for total consideration of approximately $1.0
million. InvestorsBancorp received the proceeds of the $5.0 million subordinated
debt issuance on April 10, 2003.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
(see pages _____)
The merger will be a taxable transaction to the non-continuing
shareholders. For United States federal income tax purposes, you will generally
recognize gain or loss in the merger in an amount determined by the difference
between the cash you receive and your tax basis in InvestorsBancorp common
stock.
BECAUSE DETERMINING THE TAX CONSEQUENCES OF THE MERGER CAN BE
COMPLICATED, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR IN ORDER TO UNDERSTAND
FULLY HOW THE MERGER WILL AFFECT YOU.
5
THE MERGER AGREEMENT
STRUCTURE OF THE MERGER
(see page __)
Under the terms and conditions of the merger agreement, Investors
Subsidiary, a wholly-owned subsidiary of InvestorsBancorp, will be merged with
and into InvestorsBancorp, with InvestorsBancorp continuing as the surviving
corporation.
MERGER CONSIDERATION
(see page __)
Upon completion of the merger, in general, each share of
InvestorsBancorp common stock held by non-continuing shareholders will be
converted into the right to receive $14.20 in cash, without interest. Shares of
common stock held by the Schonath shareholders will continue to represent shares
of common stock of InvestorsBancorp as the surviving corporation, except for
5,743 shares held in individual retirement accounts by certain of the Schonath
shareholders and 5,375 shares held by George Schonath and Jenn Schonath, each of
which will be converted into the right to receive $14.20 in cash, without
interest.
EXCHANGE OF SHARES
(see pages _____)
As soon as practicable after completion of the merger, LaSalle Bank
National Association, as paying agent, will mail a letter of transmittal with
instructions as to the procedure for surrendering share certificates in exchange
for the $14.20 per share cash merger consideration to all non-continuing
shareholders as of the time of completion of the merger. YOU SHOULD NOT SEND US
YOUR CERTIFICATES UNTIL YOU HAVE RECEIVED THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS.
CONDITIONS TO THE MERGER
(see pages ___)
The completion of the merger depends on the satisfaction or waiver of
the following conditions:
- receipt of any required regulatory clearances and consents;
- no material inaccuracies in the representations and warranties of
either InvestorsBancorp or Investors Subsidiary;
- compliance by InvestorsBancorp and Investors Subsidiary in all
material respects with all of their respective obligations under
the merger agreement;
- no legal proceedings brought or threatened against
InvestorsBancorp or Investors Subsidiary that challenge the
merger, that would reasonably be expected to have the effect of
preventing or delaying the merger, or that would be reasonably
likely to have a material adverse effect on InvestorsBancorp or
Investors Subsidiary; and
- no regulatory action or injunction prohibiting the merger.
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TERMINATION OF THE MERGER AGREEMENT
(see page _____)
InvestorsBancorp and Investors Subsidiary may mutually agree to
terminate the merger agreement at any time prior to its consummation.
INTRODUCTION
This transaction statement on Schedule 13E-3 is being filed jointly by
InvestorsBancorp, Inc., a Wisconsin corporation, Investors Subsidiary, Inc., a
Wisconsin corporation and a wholly-owned subsidiary of InvestorsBancorp, George
R. Schonath, Jenn M. Schonath, Emily A. Schonath, Sarah E. Schonath, Thomas
Evans, the Emily A. Schonath Irrevocable Trust and the Sarah E. Schonath
Irrevocable Trust pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended, and Rule 13e-3 thereunder. In addition, this transaction
statement is being filed with the Office of the Commissioner of Securities of
the state of Wisconsin in accordance with the requirements of Section 6.05 of
Chapter DFI of the Wisconsin Administrative Code.
This transaction statement is being filed in connection with the
Agreement and Plan of Merger by and between InvestorsBancorp and Investors
Subsidiary. A copy of the merger agreement is attached as Appendix A to this
transaction statement.
THE PARTIES
INVESTORSBANCORP, INC.
InvestorsBancorp is a Wisconsin corporation and a registered bank
holding company, and was organized on June 12, 1996 to be the holding company of
InvestorsBank, a Wisconsin state bank located in Pewaukee, Wisconsin.
InvestorsBank commenced business on September 8, 1997. On September 6, 1997, The
Middleton Doll Company, which was formerly known as Bando McGlocklin Capital
Corporation and was the former principal shareholder of InvestorsBancorp,
distributed all of the 880,000 shares of InvestorsBancorp common stock it held
to its shareholders. In connection with the distribution, InvestorsBancorp filed
a Form 10SB with the Securities and Exchange Commission to register its shares
of common stock under the Securities Exchange Act of 1934.
InvestorsBancorp's banking subsidiary, InvestorsBank, offers a complete
line of financial services to small businesses and individuals in the community
of Waukesha and in southeastern Wisconsin. Some of InvestorsBank's additional
services are as follows:
- Pursuant to a management services agreement, InvestorsBank manages
the commercial loan and leased properties portfolio of Bando
McGlocklin Small Business Lending Corporation, a subsidiary of The
Middleton Doll Company;
- InvestorsBank offers a broad range of deposit services, including
checking accounts, money market accounts and certificates of
deposit, as well as a full range of short to intermediate term
personal and commercial loans;
- InvestorsBank makes personal loans directly to individuals for
various purposes, including first mortgage loans and home equity
lines of credit; and
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- InvestorsBank offers credit cards, debit cards, cashier's checks,
money orders and traveler's checks.
InvestorsBancorp's principal executive office is located at W239 N1700
Busse Road, Waukesha, Wisconsin, 53188-1160, and its telephone number at that
address is (262) 523-1000.
INVESTORS SUBSIDIARY, INC.
Investors Subsidiary, Inc. is a newly-formed Wisconsin corporation and
is a wholly-owned subsidiary of InvestorsBancorp. Investors Subsidiary was
organized solely for the purpose of facilitating the merger transaction. In the
merger, Investors Subsidiary will merge into InvestorsBancorp, and will cease to
exist after the merger. Investors Subsidiary has not conducted any activities
other than those incident to its formation, its negotiation and execution of the
merger agreement, and its assistance in preparing various SEC and state filings
relating to the proposed going private transaction. Investors Subsidiary has no
significant assets or liabilities.
Investors Subsidiary's principal executive office is located at W239
N1700 Busse Road, Waukesha, Wisconsin, 53188-1160, and its telephone number at
that address is (262) 523-1000.
SCHONATH SHAREHOLDERS
In addition to InvestorsBancorp and Investors Subsidiary, the Schonath
shareholders, some of whom were involved in structuring the transaction and all
of whom will remain shareholders, or will continue to hold warrants to purchase
shares, of InvestorsBancorp following the merger, are filing this Rule 13e-3
Transaction Statement on Schedule 13e-3. For more information about the Schonath
shareholders, please see "Information About the Directors, Officers and Schonath
Shareholders--Information about the Schonath Shareholders" on pages ___ through
___.
THE MERGER
Pursuant to an Agreement and Plan of Merger dated as of March 25, 2003
by and between InvestorsBancorp and Investors Subsidiary, Investors Subsidiary
will merge with and into InvestorsBancorp, with InvestorsBancorp continuing as
the surviving corporation. In the merger, each outstanding share of common stock
held by the non-continuing shareholders will cease to be outstanding and will be
converted into the right to receive from InvestorsBancorp a cash payment in the
amount of $14.20. Except for 5,743 shares held in individual retirement accounts
by certain of the Schonath shareholders and 5,375 shares held by George Schonath
and Jenn Schonath, which will be converted into the right to receive $14.20 per
share in the merger, the Schonath shareholders will not receive cash in exchange
for their shares of common stock of Investors Bancorp. Instead, their remaining
shares of InvestorsBancorp common stock will continue to represent shares of
InvestorsBancorp as the surviving corporation.
The merger does not require the approval of the shareholders of
InvestorsBancorp. See "Special Factors--Voting Requirements." This transaction
statement is being disseminated to InvestorsBancorp's shareholders, along with
financial information, in accordance with the requirements of the Securities
Exchange Act of 1934, as amended, and the requirements of the Wisconsin
Administrative Code.
8
SPECIAL FACTORS
BACKGROUND OF THE MERGER
InvestorsBancorp was organized on June 12, 1996, to be the holding
company of InvestorsBank, a Wisconsin state bank located in Pewaukee, Wisconsin.
On September 6, 1997, the Middleton Doll Company, formerly known as Bando
McGlocklin Capital Corporation, the former principal shareholder of
InvestorsBancorp, distributed all of the 880,000 shares of InvestorsBancorp it
held to its shareholders. In connection with this distribution, InvestorsBancorp
filed a Form 10SB with the Securities and Exchange Commission to register its
shares of common stock under the Securities Exchange Act. At the time of the
distribution, George R. Schonath and his affiliates owned 120,000 shares of
InvestorsBancorp, representing 12% of our outstanding shares, which shares were
initially sold to Mr. Schonath and his affiliates with the approval of the
InvestorsBancorp board of directors, with the specific intent that Mr. Schonath
hold, directly or indirectly, a substantial equity interest in InvestorsBancorp.
As an SEC reporting company, we are required to prepare and file with
the SEC, among other items, the following:
- Annual Reports on Form 10-KSB;
- Quarterly Reports on Form 10-QSB; and
- Proxy Statements and related materials as required by Regulation
14A under the Securities Exchange Act.
In addition to the burden on management, the costs associated with
these reports and other filing obligations comprise a significant corporate
overhead expense. These costs include securities counsel fees, auditor fees,
costs of printing and mailing the shareholder documents, and word processing,
specialized software and filing costs. These registration and reporting related
costs have been increasing over the years, and we believe they will continue to
increase, particularly as a result of the additional reporting and disclosure
obligations imposed on public companies by the recently enacted Sarbanes-Oxley
Act of 2002.
As of May 15, 2003, there were 990,529 shares of InvestorsBancorp
common stock issued and outstanding, held by approximately 570 current record
shareholders and, to our knowledge, approximately 885 persons who hold their
shares in "street name" through brokers or other intermediaries. Of our
approximately 1,455 shareholders, InvestorsBancorp believes approximately 85%
hold 500 or fewer shares. Our board of directors believes that the recurring
expense and burden of maintaining so many small shareholder accounts, coupled
with the SEC reporting costs outlined above, are not cost efficient for
InvestorsBancorp. Going private will allow InvestorsBancorp to avoid these costs
and expenses.
The Schonath shareholders own approximately 60.9% of the outstanding
common stock, and 64.3% of the common stock on a fully-diluted basis taking into
account outstanding warrants and options to purchase common stock. The board of
directors recognizes that, as the controlling shareholders, the Schonath
shareholders may have different financial and business goals than those of
minority shareholders, in that the Schonath shareholders, who include George R.
Schonath, the Chief Executive Officer of InvestorsBancorp, may want to focus on
the ongoing business operations of the company, while minority shareholders may
likely be interested in the rapid growth and subsequent sale of the company.
9
There can be many advantages to being a public company, including stock
value, stock liquidity, and use of company stock to raise capital or make
acquisitions. However, there is a limited market for our common stock, and
therefore we have not effectively taken advantage of these benefits. For
example, we believe that in recent years the public marketplace has had less
interest in public companies with a small market capitalization and a limited
amount of securities available for trading in the public marketplace. We believe
it is highly speculative whether our common stock would ever achieve significant
market value with an active and liquid market. In addition, as a result of our
limited trading market, we are unlikely to be in a position to use our public
company status to raise capital through sales of our common stock in a public
offering in the future or to acquire other business entities using our stock as
consideration. Moreover, our limited trading market makes it difficult for our
shareholders to liquidate their holdings. The cash-out merger will also allow
our small shareholders to do so without typical transaction costs. In addition,
reducing the shareholder base could allow the company to register for status as
a Subchapter S corporation under the Internal Revenue Code, which would
eliminate corporate-level taxation, thereby reducing taxes and increasing cash
flow. Therefore, our board of directors has concluded that the benefits of being
a registered public company are substantially outweighed by the burden on
management and the expense related to the SEC reporting obligations. Please
refer to "--Reasons for the Merger; Fairness of the Merger" for a further
discussion of the reasons supporting the merger.
Considering the factors outlined above, starting in early 2001, George
R. Schonath began weighing the advantages and disadvantages of InvestorsBancorp
continuing as a publicly-traded company with a broad shareholder base against
the advantages and disadvantages of becoming a private company and reducing
InvestorsBancorp's shareholder base. After assessing these advantages and
disadvantages, Mr. Schonath preliminarily determined that InvestorsBancorp would
be better off as a privately-held company, had discussions from time to time
with individual directors and with the full board of directors regarding a going
private transaction, and, on behalf of InvestorsBancorp, began to seek the
advice of financial advisors and legal counsel on how to structure a transaction
that would permit InvestorsBancorp to cease reporting as a public company with
the SEC and achieve its objective of becoming a Subchapter S corporation.
On January 23, 2003, Mr. Schonath and Greg Mieske, our Vice President -
Operations, met with three potential financial advisors, Howe Barnes
Investments, Inc., Keefe, Bruyette & Woods, Inc., and Wipfli Ullrich Bertelson
LLP, to discuss alternative methods for a going private transaction. In
particular, management recognized the need to effectuate a transaction in a
cost-efficient manner, as well as the need to adequately compensate shareholders
of InvestorsBancorp who would no longer continue to be shareholders after the
going-private transaction was completed. Following those meetings, Mr. Schonath
had several follow-up discussions by telephone with each prospective financial
advisor.
At a meeting held on February 18, 2003, the board of directors met with
counsel to consider the commencement of a going private transaction. At this
meeting, Mr. Schonath discussed with the board the idea of pursuing a going
private transaction that would result in the Schonath shareholders surviving as
the sole shareholders of InvestorsBancorp, outlining and discussing with the
board the benefits of such a transaction, including the decreased costs to the
company as a result of eliminating SEC reporting requirements, the benefit to
shareholders of immediate liquidity for their common stock, and the benefits to
the Schonath shareholders, who had, since the company went public in 1997,
always retained a significant position as shareholders, of being able to focus
on the business direction of InvestorsBank.
At this meeting, Mr. Schonath informed the board of the discussions he
had with the prospective financial advisors at and following the January 23
meeting. In the course of relaying these discussions to the board, Mr. Schonath
outlined the proposals made by each of the three potential financial advisors,
10
and indicated that, in his opinion, all three advisors had proposed using
largely the same valuation analysis. Because the three advisors had
substantially the same level of expertise, and would be performing the same
types of analyses, Mr. Schonath recommended that Wipfli be retained to perform a
valuation of InvestorsBancorp's common stock, because their proposal indicated
that they would be able to do so at a lower cost to the company, thereby
retaining cash that could be paid to non-continuing shareholders as well as
retained in the company for future operations. The board discussed at length the
qualifications and recommendations of each of the three prospective financial
advisors and considered Mr. Schonath's recommendations.
Also at this meeting, Barack Ferrazzano Kirschbaum Perlman & Nagelberg
LLC, legal counsel to InvestorsBancorp, presented to the board of directors a
number of issues associated with a going private transaction, including
alternative methods of structuring the transaction, the methods of financing of
the transaction, the possible need for approval of the transaction by the Board
of Governors of the Federal Reserve System and other banking regulatory
authorities, and the necessity of making SEC filings in connection with the
transaction. In addition, counsel discussed at length the various voting
provisions under Wisconsin law that would be applicable to a going-private
merger transaction, including the following:
- Generally, the merger of InvestorsBancorp with a wholly owned
subsidiary does not require shareholder consent.
- Under Wisconsin's "fair price" provisions, certain "business
combinations" not meeting specified price standards must be
approved by the vote of at least 80% of the outstanding voting
shares of InvestorsBancorp voting together as a class and by 2/3
of the votes entitled to be cast by shareholders other than the
Schonath shareholders. The fair price provisions are not
applicable to parent/subsidiary mergers.
- Under Wisconsin's "interested shareholder" provisions, certain
business combinations with an "interested shareholder" may require
approval of a majority of InvestorsBancorp's outstanding voting
shares, other than those held by the Schonath shareholders, unless
certain price considerations are met.
For a further discussion of the voting requirements under Wisconsin
law, please see "--Voting Requirements" below.
At the February 18 meeting, the board considered whether, if it
determined that a going private transaction was in the best interests of its
shareholders and if it determined that a merger was the appropriate structure,
such a merger should be structured as a merger with a newly-created wholly-owned
subsidiary or a merger with a stand-alone corporation owned by the Schonath
shareholders. The board considered that a merger with a stand-alone corporation
would require approval of InvestorsBancorp's shareholders, which in turn would
require InvestorsBancorp to file a proxy statement and solicit shareholder votes
on the transaction. In considering a parent/subsidiary merger, the board
considered that, although a parent/subsidiary merger would require the
distribution of a transaction statement on Schedule 13e-3 to InvestorsBancorp's
shareholders, and the filing of the transaction statement with the SEC, a
parent/subsidiary merger would not require shareholder approval, allowing the
transaction to be consummated in a timelier and more cost-efficient manner.
In addition to the merger structure, management and the board
considered and evaluated other possible means of effectuating a transaction, as
follows:
11
- An open-market share repurchase. The board felt that a share
repurchase in the open market was a less efficient use of capital,
and was uncertain as to whether this method would result in the
company being able to acquire the entire stock holdings from a
sufficient number of record shareholders to accomplish the going
private objective.
- A self tender offer. In a self tender offer, InvestorsBancorp
would make an offer to all shareholders to purchase a specified
number of shares of stock, either within a specified price range
or at a fixed price. The board felt that a tender offer would be
more expensive than a cash-out merger, could take many months to
complete, and again would provide no assurance that a sufficient
number of shareholders would tender their shares. If the tender
offer was not successful to reduce the number of shareholders, the
company would then likely have to conduct a second step merger to
complete the going private transaction, which would add to the
cost and length of the transaction. The board considered an
odd-lot tender offer for holders of fewer than 100 shares;
however, even if all shareholders holding fewer than 100 shares
tendered, the transaction would not achieve the stated goal of
reducing the number of record shareholders to below 300, and would
not achieve the goal of consolidating ownership in the Schonath
shareholders.
- A reverse stock split. In a reverse stock split, InvestorsBancorp,
through an amendment to its Articles of Incorporation, would
reduce the number of issued and outstanding shares of common
stock, such that shareholders owning a certain number of shares
would own less than one full share of InvestorsBancorp common
stock, and InvestorsBancorp would distribute cash for the
resulting fractional share interests. Because a reverse stock
split would require an amendment to InvestorsBancorp's Articles of
Incorporation and would therefore require the vote of
InvestorsBancorp's shareholders in order to be effectuated, this
method would be more expensive and could take longer to complete
than a merger with a wholly-owned subsidiary, which does not
require approval under Wisconsin law. In addition, a reverse stock
split would not accomplish the goal of consolidating ownership in
the Schonath shareholders, because some of the Schonath
shareholders individually have small stock holdings and would
therefore be cashed out in the transaction.
Also at the February 18 meeting, the board of directors, in evaluating
the going-private transaction proposed by Mr. Schonath, considered the formation
of a special committee of the board of directors for the purpose of evaluating
and pursuing a transaction. The board recognized that the interests of the
non-continuing shareholders and the Schonath shareholders are different and
possibly in conflict. The non-continuing shareholders may wish to remain
shareholders of a public company and, in the merger, may have the goal of
obtaining the highest value for their shares, while the Schonath shareholders,
as continuing shareholders, may have the goal of retaining cash for the future
operation of InvestorsBancorp. However, InvestorsBancorp's board of directors is
comprised of five individuals, four of whom are fully independent and only two
of whom hold any common stock, the aggregate amount of which is relatively
insignificant in that it amounts to less than 1% of the outstanding shares. In
addition, Mr. Schonath made clear to the rest of the board that he was willing,
given his potential and actual divergent interests in the transaction, to recuse
himself from any director vote with respect to the transaction. Therefore, the
board felt that it could adequately evaluate the transaction, taking into
account the interests of shareholders who would be cashed out in the
transaction, without forming a separate committee. With respect to the retention
of an independent representative to act solely on behalf of the non-continuing
shareholders, the board did not feel such a representative was warranted or
customary, given that the board intended to obtain a valuation from an
independent advisor that would assess the going-concern value of
InvestorsBancorp, which would allow InvestorsBancorp to fairly compensate the
non-continuing shareholders.
12
At the February 18 meeting, after considering the presentation by Mr.
Schonath and evaluating the alternative going private transaction structures
presented by counsel, the board approved a resolution authorizing management to
proceed with its investigation of a cash-out parent/subsidiary merger, including
retaining Wipfli to conduct a valuation of the company, exploring funding
opportunities and engaging in discussions with the Federal Reserve regarding
whether any regulatory approval may be required. Mr. Schonath, because of his
position as a Schonath shareholder, abstained from voting on this resolution,
and all other directors voted in favor of the resolution.
On February 21, 2003, InvestorsBancorp retained Wipfli as its financial
advisor to provide it with a valuation of InvestorsBancorp's common stock,
pursuant to the resolutions adopted at the February 18 board meeting.
Based on its preliminary analyses, InvestorsBancorp anticipated that
the purchase of the shares of common stock held by the non-continuing
shareholders would total approximately $6.0 million. InvestorsBancorp determined
to fund the proposed stock repurchase with $5.0 million of subordinated debt
raised in an offering through Citigroup Global Markets Inc., formerly Salomon
Smith Barney Inc., as placement agent, and $1.0 million of new capital
contributed to InvestorsBancorp by certain of the Schonath shareholders through
the purchase of newly-issued common stock at a price equal to the price per
share to be paid to shareholders in the going private transaction. The $1.0
million investment would, in addition to providing funds necessary to consummate
the merger, satisfy the capitalization condition for InvestorsBancorp's
participation in the subordinated debt offering. On February 21,
InvestorsBancorp entered into an engagement letter with Citigroup Global Markets
relating to the subordinated debt offering, and on March 4 the board adopted
resolutions by unanimous written consent authorizing the issuance of the
subordinated debt securities and the execution of the related documents. See
"--Financing of the Merger" below. In determining to participate in the
subordinated debt offering at this time, the board took into account that the
interest rate on the debt securities was favorable to InvestorsBancorp, and
determined that the proceeds could be used as working capital in the event the
going-private transaction did not proceed.
The board of directors again met with counsel on March 11, 2003 to
further discuss the proposed going private transaction. At this meeting, the
board again reviewed the proposed structure of the transaction and discussed the
proposed financing of the merger, including the subordinated debt offering and
the common stock subscription. In addition, the board discussed materials to be
presented to the Federal Reserve in connection with the proposed transaction,
copies of which had been provided to the board in advance of the meeting. Based
on counsel's review of the applicable regulations, the board believed that
InvestorsBancorp would not be required to seek the approval of the Federal
Reserve in connection with the proposed transaction, but InvestorsBancorp felt
that a meeting with the Federal Reserve would be desirable in order to ensure
their comfort with the transaction. The board also reviewed a draft merger
agreement that had been prepared by counsel and provided to the board in advance
of the meeting, which included the terms and conditions under which a
newly-formed, wholly-owned subsidiary of InvestorsBancorp would be merged with
and into InvestorsBancorp. Also at the meeting, a representative of Wipfli made
a presentation to the board to explain to the full board the valuation methods
that would be used in assessing the value of InvestorsBancorp's common stock.
On March 17, 2003, InvestorsBancorp, together with counsel, met with
representatives of the Federal Reserve to initiate discussions regarding the
proposed going private transaction and disclosed to the Federal Reserve pro
forma capital and financial information prepared by InvestorsBancorp and plans
regarding control of InvestorsBancorp by the Schonath shareholders following
the transaction.
13
On March 19, 2003, in contemplation of the proposed merger, Investors
Subsidiary was formed under Wisconsin law as a wholly-owned subsidiary of
InvestorsBancorp.
On March 25, 2003, the board of directors again met to consider the
proposed transaction. At this meeting, the board discussed the status of the
subordinated debt offering, which was expected to price in the coming days, and
the infusion of $1.0 million in capital by the Emily A. Schonath Irrevocable
Trust and the Sarah E. Schonath Irrevocable Trust. Counsel discussed the results
of its meeting with the Federal Reserve, and informed the board that the Federal
Reserve had requested additional information about the Schonath shareholders
that would be holding the company's stock following the merger. Counsel
indicated that they were working with the Schonath shareholders to comply with
this request. Counsel also summarized the key terms of the proposed transaction,
and discussed at length with the board the alternative structures for cash-out
mergers and the voting requirements and appraisal rights under Wisconsin law,
including the fact that, under Wisconsin law, a parent/subsidiary merger would
not require a shareholder vote, nor would it entitle shareholders to an
appraisal remedy. However, the board felt that the parent/subsidiary merger
remained the best alternative to conduct the going private transaction and would
adequately protect the interests of the shareholders, including the
non-continuing shareholders, in light of a number of reasons, including the
following:
- the numerous benefits to going private as compared to remaining a
public company;
- the relative cost-effectiveness of a parent/subsidiary merger;
- the fact that a parent/subsidiary merger might be consummated much
more quickly than the other alternatives available to the company,
thereby enabling the shareholders to receive value for their
shares more quickly; and
- the fact that the company was obtaining a valuation of the fair
value of the company as a going concern from an independent third
party with expertise in valuing the common stock of financial
institutions, and fair value is the statutory standard of value
that would apply if shareholders were entitled to appraisal
rights.
See "--Voting Requirements" and "--Appraisal Rights" below.
After the legal presentation, Wipfli made its financial presentation,
informing the board that, after considering all relevant factors, in its
opinion, the fair value of InvestorsBancorp as a going concern was approximately
$14.5 million, or $13.71 per share as of January 3, 2003, and approximately
$15.0 million, or $14.20 per share as of March 19, 2003, a date close in time to
the board's consideration of the transaction. The Wipfli valuation is not a
fairness opinion.
The board believed that Wipfli's valuation, in that it would assess the
fair value of InvestorsBancorp as a going concern, would adequately balance the
interests of both the non-continuing shareholders and the shareholders who would
remain shareholders after the merger, and therefore felt that the Wipfli
valuation was appropriate under the circumstances. In addition, in determining
to retain Wipfli, the board considered that Wipfli's proposal had indicated that
they would be performing largely the same valuation analysis as the other
investment banking firms, considered that Wipfli had the same level of expertise
in performing valuations as the other firms, and that Wipfli's valuation
proposal indicated that they would be able to do their analysis at a lower cost
to the company, thereby retaining cash that could be used both to pay merger
consideration to the non-continuing shareholders and to fund future operations.
14
After considering all relevant factors, the board approved a resolution
to enter into the merger agreement, a revised draft of which had been provided
to the directors in advance of the meeting, and to proceed with the cash-out
merger under the terms of the merger agreement, which included setting the value
of the cash merger consideration to be paid to the non-continuing shareholders
at $14.20 per share. Once again, Mr. Schonath recused himself from the vote, and
all of the independent directors voted unanimously to approve the transaction.
The board did not consider any alternatives to a going private
transaction. The board did not consider a possible sale of InvestorsBancorp, as
no firm offers had been presented to the board and no determination had been
made that such a sale would be in the best interest of the shareholders.
Further, the board did not view a sale as an alternative that could achieve the
benefits of a going private transaction, including providing liquidity for those
shareholders being paid cash in the merger while allowing the Schonath
shareholders to retain their position as controlling shareholders of
InvestorsBancorp.
Also on March 25, in connection with raising the financing necessary
for the merger, the Emily A. Schonath Irrevocable Trust and the Sarah E.
Schonath Irrevocable Trust purchased a total of 70,422 shares of newly-issued
common stock of InvestorsBancorp for $14.20 per share, or aggregate
consideration of approximately $1.0 million. The purchase of these shares
provided an additional $1.0 million of capital that would be used to help
finance the going-private merger, and also satisfied the capitalization
conditions for InvestorsBancorp's participation in the $5.0 million private
offering of subordinated debt securities through Citigroup Global Markets, the
proceeds of which would also be used to effectuate the proposed merger.
InvestorsBancorp publicly announced the proposed merger on March 26,
2003.
On March 31, 2003, in anticipation of the merger, Mr. Schonath cashed
in his existing stock options by (a) exercising each of the options, and (b)
immediately reselling the securities back to the company at a price equal to the
$14.20 merger consideration. The number of shares subject to each of his
options, and their exercise prices, were as follows:
Number of Shares Exercise Price
- ---------------- --------------
4,150 $ 6.75
4,400 $ 7.00
5,940 $10.10
The effect of Mr. Schonath's actions to cash in his stock options is
the same as the treatment he would have received pursuant to the merger
agreement. See "Certain Terms of the Merger--The Merger Agreement--Stock Options
and Warrants."
On April 16, 2003, Wipfli provided a corrected valuation to the board,
which indicated that the fair value of InvestorsBancorp as a going concern as of
January 3, 2003 was approximately $14.1 million, or $13.37 per share. The
corrected valuation had no effect on the fair value of InvestorsBancorp as of
March 19, 2003.
Prior to the merger, Schonath Family Partnership, a limited
partnership, which holds 132,943 shares of common stock of InvestorsBancorp and
warrants to purchase an additional 105,000 shares, will distribute all of its
shares of common stock and the warrants to its general and limited partners, all
of whom are Schonath shareholders, on a pro-rata basis.
15
REASONS FOR THE MERGER; FAIRNESS OF THE MERGER
INVESTORSBANCORP'S REASONS FOR THE MERGER
InvestorsBancorp's reasons for the merger include the following:
- we will realize cost savings by eliminating the requirement to
make periodic public reports and reducing the expenses of
shareholder communications, including printing, postage, data
entry, stock transfer and other administrative expenses,
necessitated by a large group of shareholders that hold a small
interest in the outstanding shares of common stock;
- in the board of directors' judgment, no justification exists for
the continuing direct and indirect costs of registration with the
SEC, given the low trading volume in our common stock and given
that our earnings are sufficient to support growth and we
therefore do not depend on raising capital in the public market;
- following the merger, we will be able to make an election under
Subchapter S of the Internal Revenue Code, which will
substantially reduce corporate level income tax, which in turn
will reduce our expenses and increase cash flow to the company;
- the merger proposal allows the non-continuing shareholders to
realize the fair value of their investment in InvestorsBancorp at
a price that represents a premium over the average market price of
our common stock during the months prior to the public
announcement of our plans to take InvestorsBancorp private;
- operating as a private company will allow management to better
focus its efforts on the operations of InvestorsBank, our banking
subsidiary, as a result of the reduced burden on management
arising from the significant reduction in the number of
shareholders and the elimination of the SEC reporting
requirements, which will benefit our customers and the communities
in which we operate; and
- the merger proposal allows us to go private, and allows the
non-continuing shareholders to receive fair value and liquidity
for their shares in the quickest and most cost-effective manner,
particularly given the possible ineffectiveness and inefficiencies
of a tender offer, a reverse stock split, or an open market share
repurchase.
We considered that some shareholders may prefer to continue as
shareholders of InvestorsBancorp as a public company, which is a factor weighing
against the going private merger. However, we believe that the disadvantages of
remaining a public company outweigh any advantages. We have no present intention
to raise capital through sales of securities in a public offering in the future
or to acquire other business entities using stock as the consideration for such
acquisition. Accordingly, we are not likely to make use of any advantage that
our status as a public company may offer.
In addition, we noted that the $14.20 merger consideration was slightly
below the $14.40 trading price of our common stock on the day we entered into
the merger agreement. However, given that this was the only time since our
public offering that our high closing price exceeded $14.00, and given the low
trading volume in our common stock, we did not believe this aberration is an
accurate indication of the value our shareholders could expect to receive in the
future, and therefore, determined that this should not affect our decision to
pursue the merger at this time at the $14.20 price. See "--Valuation of
Financial Advisor" above.
16
In view of the wide variety of factors considered in connection with
their evaluation of the merger, our board of directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors it considered in reaching their determinations.
The merger, if consummated, will have different effects on the
non-continuing shareholders and the Schonath shareholders. You should read the
discussions under "--InvestorsBancorp's Position as to the Fairness of the
Merger" and "--Effects of the Merger on Shareholders of InvestorsBancorp" for
more information regarding these effects of the merger.
InvestorsBancorp considered various alternative transactions to
accomplish the proposed going-private transaction, but ultimately elected to
proceed with the cash-out merger described in this transaction statement. For a
description of the alternatives considered by the board and the reasons for
structuring the transaction, please see "--Background of the Merger" and
"--Purpose and Structure of the Merger."
INVESTORSBANCORP'S POSITION AS TO THE FAIRNESS OF THE MERGER
Based on a careful review of the facts and circumstances relating to
the merger, the board of directors of InvestorsBancorp believes that the merger
and the terms and provisions of the merger agreement, including the merger
consideration to be paid to the non-continuing shareholders, are substantively
and procedurally fair to its shareholders, including the non-continuing
shareholders. With the exception of George R. Schonath, who abstained from
voting on the transaction because of his interest as a Schonath shareholder, the
board of directors of InvestorsBancorp unanimously approved the merger.
In concluding that the merger and the terms and conditions of the
merger agreement, including the consideration to be paid to the non-continuing
shareholders, are substantively fair to the shareholders of InvestorsBancorp,
including the non-continuing shareholders, the board of directors considered a
number of factors. The factors that InvestorsBancorp's board of directors
considered positive for all of its shareholders, including the non-continuing
shareholders, included the following:
- the fact that the cash price of $14.20 offered in the merger
represents a 5.72% premium over our 30-day average trading price
and a 6.79% premium over our 60-day average trading price prior to
March 26, 2003, the day we announced the merger, although our
board acknowledges that, given the relatively low number of trades
in our common stock, market price is not necessarily the most
applicable measure of our fair value;
- the fact that the cash price of $14.20 represents a 38% premium
over our book value of our common stock as of February 28, 2003;
- the fact that the common stock of InvestorsBancorp traded
infrequently, with reported trades occurring on only 119 days in
the 12 months prior to the public announcement of the proposed
merger with an average trading volume of approximately 1,200
shares per day, or approximately 0.1% of our outstanding common
stock, a volume that the board felt did not provide sufficient
liquidity for its shareholders, particularly as a large volume of
these trades, representing a total of approximately 25,000 shares,
were the result of transactions effected by the Schonath
shareholders.
In addition to the positive factors applicable to all InvestorsBancorp
shareholders set forth above, the factors that the board of directors considered
positive for the non-continuing shareholders included:
17
- the fact that the merger consideration is all cash, which provides
certainty of value to those shareholders and immediate liquidity
for them; and
- the fact that no brokerage or other transaction costs are to be
incurred by them.
In addition to the positive factors applicable to all InvestorsBancorp
shareholders set forth above, the factors that the board of directors considered
positive for the Schonath shareholders included:
- the fact that they will continue to have the opportunity to
participate in the future growth and earnings of InvestorsBancorp;
- the fact that they will realize the potential benefits of
termination of registration of the common stock, including reduced
expenses as a result of no longer needing to comply with SEC
reporting requirements; and
- the fact that they will realize the potential tax benefits of
InvestorsBancorp as a Subchapter S corporation beginning in 2004.
The InvestorsBancorp board considered each of the foregoing factors to
weigh in favor of the substantive fairness of the merger.
The board is aware of, and has considered, the impact of certain
potentially countervailing factors on the substantive fairness of the merger. In
particular, the factors that the InvestorsBancorp board of directors considered
as potentially negative for the non-continuing shareholders included:
- the fact that the merger consideration was slightly below the
closing price of our common stock on the day we entered into the
merger agreement; however, as noted, the board believes that the
lack of liquidity of our common stock makes market price an
unreliable indicator of our true fair value, particularly the
market price on a single day as opposed to over a longer period,
and additionally notes that, under Wisconsin law, the courts have
not equated "fair value" to "fair market value," particularly in
situations where there is not an established market for the common
stock;
- the fact that they will not have the opportunity to participate in
any future growth and earnings of InvestorsBancorp; and
- the fact that they will be required to pay income tax on the
receipt of cash in the merger.
The factors that the InvestorsBancorp board of directors considered as
potentially negative for the Schonath shareholders included:
- the fact that, upon the effectiveness of an election to qualify
under Subchapter S of the Internal Revenue Code, the Schonath
shareholders will have tax liability based on their pro rata share
of InvestorsBancorp's income, but InvestorsBancorp may not be able
to pay the Schonath shareholders a dividend in an amount
sufficient to satisfy their respective tax liabilities; and
- the fact that the Schonath shareholders, following the merger and
the Subchapter S election, will have restrictions on their ability
to transfer their shares of InvestorsBancorp common stock, and
there will not be a public market for InvestorsBancorp common
stock.
18
Our board of directors believes that the foregoing potentially
countervailing factors did not, individually or in the aggregate, outweigh the
overall substantive fairness of the merger, and that the foregoing factors are
outweighed by, the positive factors previously described.
We believe that the merger is procedurally fair to our shareholders. In
concluding that the merger and the terms and conditions of the merger agreement,
including the consideration to be paid to the non-continuing shareholders, are
procedurally fair to the shareholders of InvestorsBancorp, including the
non-continuing shareholders, the board of directors considered a number of
factors. The factors that InvestorsBancorp's board of directors considered
positive for all of its shareholders, including the non-continuing shareholders,
included the following:
- the fact that the merger is being effected in accordance with all
applicable requirements of Wisconsin law, including the applicable
"fair price" provisions of its merger statutes;
- the fact that, with the exception of George Schonath, the board of
directors is comprised entirely of independent persons, two of
whom own no shares and two of whom would be cashed out in the
merger, and all of whom were not employed or otherwise controlled
by InvestorsBancorp, and, accordingly, there was no need to form a
special committee or retain any unaffiliated representative(s) to
represent the shareholders who would be cashed out in the merger,
as the board was able to adequately balance the competing
interests of the non-continuing shareholders and the Schonath
shareholders;
- the fact that George Schonath recused himself from voting on any
matter with respect to the going-private transaction;
- the fact that the board obtained a valuation from an independent
third party concerning InvestorsBancorp and its common stock, and
the board imposed no limitations upon Wipfli with respect to the
investigation made or procedures followed in rendering its
valuation of the common stock;
- the fact that the board retained and received advice from legal
counsel in evaluating the terms of the going private transaction
and the merger agreement;
- the fact that management and the board considered alternatives to
the merger, each of which was determined to be impractical, more
expensive than the merger, or potentially ineffective in achieving
the goals of providing liquidity and value to the non-continuing
shareholders as soon as possible, eliminating the costs and
burdens of public company status and allowing the Schonath
shareholders to acquire control of all of the outstanding shares;
and
- the fact that InvestorsBancorp had undertaken the necessary
actions in order to finance the going-private transaction.
The board of directors considered each of the foregoing factors to
weigh in favor of the procedural fairness of the merger.
The board is aware of, and has considered, the impact of the following
potentially countervailing factors on the procedural fairness of the merger:
- although the interests of the Schonath shareholders are different
from the interests of the non-continuing shareholders and may
create actual or potential conflicts of interest in
19
connection with the merger, the board did not retain an
independent representative to act solely on behalf of the
non-continuing shareholders for the purpose of negotiating the
terms of the merger agreement or preparing a report concerning the
fairness of the merger proposal solely as to non-continuing
shareholders;
- the merger does not require the approval of the shareholders of
InvestorsBancorp; however, after consideration of the positive
factors described above, the board of directors believes that the
transaction is both substantively and procedurally fair
notwithstanding the absence of a shareholder approval requirement;
and
- the shareholders of InvestorsBancorp are not entitled to appraisal
rights in connection with the merger; however, the board noted
that the $14.20 per share merger consideration was based on our
financial advisor's determination of our "fair value," which is
the statutory standard of value that would be applicable if
dissenting shareholders were entitled to appraisal rights.
The board of directors believes that the foregoing potentially
countervailing factors did not, individually or in the aggregate, outweigh the
overall procedural fairness of the merger, and the foregoing factors are
outweighed by, the procedural safeguards previously described.
We therefore believe that the merger is substantively and procedurally
fair to our shareholders for the reasons and factors described above. In
reaching this determination, we have not assigned specific weights to particular
factors, and we considered all factors as a whole. None of the factors that we
considered led us to believe that the merger is unfair to our shareholders.
No firm offers, other than in conjunction with the merger, have been
made by an unaffiliated person during the preceding two years for the merger or
consolidation of InvestorsBancorp with or into such person, the sale or other
transfer of all or any substantial part of the assets of InvestorsBancorp, or
the purchase of a number of shares of common stock that would enable the holder
thereof to exercise control of InvestorsBancorp.
In determining the independent going concern valuation of
InvestorsBancorp for purposes of determining the fairness of the merger, we
relied upon the financial analyses performed by Wipfli, which took into account
current and historical market prices, including prices paid in previous
purchases by the Schonath shareholders, net book value, going concern value and
liquidation value. Wipfli's analyses are summarized in "Special
Factors--Valuation of Common Stock." In determining the fairness of the merger,
we have adopted these analyses.
None of the members of our board of directors received any reports,
opinions or appraisals from any outside party relating to the merger or the
fairness of the merger consideration to be received by our shareholders, other
than those received from Wipfli.
InvestorsBancorp has not made any provision in connection with the
merger to grant unaffiliated shareholders access to InvestorsBancorp's corporate
files or to obtain counsel or appraisal services at InvestorsBancorp's expense,
or to structure the merger so as to require the approval of the shareholders of
InvestorsBancorp. With respect to non-continuing shareholders' access to
InvestorsBancorp's corporate files, the board of directors determined that this
transaction statement, together with its other filings with the SEC, provide
adequate information for non-continuing and unaffiliated shareholders. With
respect to obtaining counsel or appraisal services solely for non-continuing
shareholders at InvestorsBancorp's expense, the board did not consider these
necessary or customary. The board of
20
directors also considered the fact that under Wisconsin corporate law, and
subject to certain conditions set forth under Wisconsin law, shareholders have
the right to review InvestorsBancorp's relevant books and records of account.
INVESTORS SUBSIDIARY'S REASONS FOR THE MERGER
Investors Subsidiary serves exclusively as the acquisition entity by
which the Schonath shareholders will take InvestorsBancorp private. Investors
Subsidiary's reasons for engaging in the merger transaction are the same as
those of InvestorsBancorp, its sole shareholder. See "--InvestorsBancorp's
Reasons for the Merger."
INVESTORS SUBSIDIARY'S POSITION AS TO THE FAIRNESS OF THE MERGER
Investors Subsidiary's sole director believes that the merger is fair
to, and in the best interests of, each of InvestorsBancorp's shareholders,
including the non-continuing shareholders. In reaching this conclusion,
Investors Subsidiary's director relied upon the factors considered by and the
analyses and conclusions of the InvestorsBancorp board of directors, as well as
the analysis and conclusions of InvestorsBancorp's financial advisor, Wipfli,
and Investors Subsidiary adopts such analysis as its own. See
"--InvestorsBancorp's Position as to the Fairness of the Merger." The merger
agreement has been approved by Investors Subsidiary's sole director.
THE SCHONATH SHAREHOLDERS' REASONS FOR THE MERGER
The Schonath shareholders' primary reason for the merger is to take
InvestorsBancorp private and become the sole shareholders of the company. As the
controlling shareholders of InvestorsBancorp, with an approximate 60.9% interest
of the outstanding common stock, and an approximate 64.3% interest on a
fully-diluted basis, the Schonath shareholders feel that there would be
significant benefits to eliminating the expenses related to attending to the
large number of shareholders that hold a small interest in the outstanding
shares of common stock. In addition, as the Chief Executive Officer of
InvestorsBancorp, Mr. Schonath recognizes that his financial and business goals
may be different than those of the minority shareholders, in that, in the
absence of an active market for the company's shares, minority shareholders are
likely more interested in the rapid growth and subsequent sale of
InvestorsBancorp, while the Schonath shareholders are more interested in the
long-term growth of the company. Going private and eliminating the interests of
the minority shareholders will allow management to refocus the time spent on
shareholder administrative duties to the business concerns of InvestorsBank. In
addition, consolidating the shareholder base so as to enable InvestorsBancorp to
qualify as a corporation under Subchapter S of the Internal Revenue Code will
enable the company to achieve additional cost savings and increase its cash
flow.
THE SCHONATH SHAREHOLDERS' POSITION AS TO THE FAIRNESS OF THE MERGER
The rules of the SEC require the Schonath shareholders to express their
belief as to the substantive and procedural fairness of the merger to the
non-continuing shareholders. Each of the Schonath shareholders believes that the
merger is fair to, and in the best interests of, each of InvestorsBancorp's
shareholders, including the non-continuing shareholders. In reaching this
conclusion, the Schonath shareholders relied upon the factors considered by and
the analyses and conclusions of the InvestorsBancorp board of directors, as well
as the analysis and conclusions of InvestorsBancorp's financial advisor, Wipfli,
and each of the Schonath shareholders adopts such analysis as its own. See
"--InvestorsBancorp's Position as to the Fairness of the Merger."
21
VALUATION OF FINANCIAL ADVISOR
INTRODUCTION
On February 21, 2003, the board of directors of InvestorsBancorp
retained Wipfli as its financial advisor in connection with the proposed
going-private transaction. Wipfli is a certified public accounting and
consulting firm, and was primarily retained to perform a valuation analysis to
determine a going concern value of InvestorsBancorp and its common stock and to
present its valuation to the board.
Wipfli was selected as InvestorsBancorp's financial advisor based upon
its qualifications, expertise and reputation and its specialty in working with
financial institutions and valuing financial institutions and other industries.
Wipfli specializes in advising and providing services to businesses of all
sizes, including advising on and effecting mergers and acquisitions, and,
related to these services, Wipfli provides valuations to financial institutions
and their shareholders for a variety of purposes, including stock redemptions.
On March 25, 2003, Wipfli presented its valuation report to the board,
indicating that it had determined the fair value of InvestorsBancorp as a going
concern to be $13.71 per share as of January 3, 2003, and $14.20 per share as of
March 19, 2003. Wipfli provided a written valuation to the members of the board
of directors, which sets forth the factors used in and the basis for its fair
value determinations, and the assumptions and limitations used in making the
valuation.
On April 16, 2003, Wipfli provided a corrected valuation report to the
board of directors, which indicated that the fair value of InvestorsBancorp as a
going concern as of January 3, 2003 was $13.37 per share. This corrected figure
will be used throughout this summary. The corrected valuation had no effect on
the fair value of InvestorsBancorp as of March 19, 2003.
The full text of Wipfli's presentation made on March 25, 2003, which
sets forth a description of the procedures followed, assumptions made, matters
considered and limits on the review undertaken in connection with its valuation,
is attached as Appendix B-1 to this transaction statement, and is incorporated
herein by reference. The full text of Wipfli's corrected valuation report dated
April 16, 2003 is attached as Appendix B-2 to this transaction statement, and is
incorporated herein by reference. Shareholders are urged to review these
materials in their entirety. This summary of Wipfli's valuation is qualified in
its entirety by reference to the full text of the valuation included in Appendix
B-1 and Appendix B-2.
The Wipfli valuation is directed to the InvestorsBancorp board of
directors, relates only to the fair value of our common stock on a going concern
basis, and does not address any other aspect of the merger or any related
transaction. It is not a fairness opinion.
DEFINITION OF "FAIR VALUE"
The term "fair value" is a legally created standard of value that
applies to certain specific transactions. In Wisconsin, "fair value" is the
statutory standard of value that would be applicable in cases of dissenting
shareholders' appraisal rights, and, more specifically, is meant to capture "the
value of shares immediately before the effectuation of the corporate action . .
.. excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable." Although there is no clearly
recognized consensus regarding the interpretation of fair value, published
precedents established in a number of states, including Wisconsin, have not
equated fair value with fair market
22
value, but instead have defined fair value using a broader standard. In
particular, in Wisconsin, the Wisconsin Supreme Court indicated that, with
respect to minority shareholders, fair value should encompass "the proportionate
interest of his or her minority shares in the going concern of the entire
company." Accordingly, Wipfli determined the fair value of InvestorsBancorp on a
marketable, majority interest basis. However, fair value assumes a hypothetical
situation with many built in conditions and assumptions.
SCOPE OF FINANCIAL ADVISOR'S ANALYSIS
To determine InvestorsBancorp's fair value as of March 19, 2003, Wipfli
used three alternative methods of valuation. Wipfli:
- reviewed InvestorsBancorp's 30-day closing average on the OTC
Bulletin Board; and applied a premium to reflect the attributes of
control;
- compared the market prices of similar publicly traded
Midwest-based bank holding companies and used price/earnings and
price/book ratios to determine the fair value of InvestorsBancorp;
and applied a premium to reflect the attributes of control; and
- examined announced sales of control of Midwest-based bank holding
companies, using price/earnings and price/book ratios to determine
the fair value of InvestorsBancorp.
Based on these analyses and its experience in valuing financial
institutions, Wipfli concluded the fair value of the Company as a going concern
to be $13.37 per share as of January 3, 2003, and $14.20 per share as of March
19, 2003, based on a fully diluted 1,055,906 shares issued and outstanding.
In connection with its valuation, Wipfli reviewed a draft of the merger
agreement, and assumed that it would correspond in all material respects to the
final merger agreement entered into by InvestorsBancorp. In addition, Wipfli
reviewed InvestorsBancorp's historical and current business operations and
organization, regulatory relations, financial condition and prospects, and such
other matters as Wipfli deemed relevant. Wipfli also took into account its
assessment of general economic, industry and financial conditions, on a
national, state and local level, and its knowledge of financial institutions,
including banks and bank holding companies. The valuation is based upon
conditions as they existed, and should be evaluated as of the date of the
valuation.
In conducting its review and arriving at its opinion, Wipfli relied
upon, and did not independently verify, any information provided to it or
publicly available that it used in its analysis and its assumptions. A valuation
requires subjective decisions as to which methods of financial analysis to use.
Therefore, Wipfli's valuation of the fair value of InvestorsBancorp is
subjective and is based on Wipfli's experience and judgment, and is not merely
the result of mathematical analysis. You should not view the analyses and
resulting values described below as indicative of actual value or as
constituting advice for any specific action. Wipfli did not independently
appraise InvestorsBancorp's assets or liabilities, and did not examine any
individual loan files.
STOCK PRICE ANALYSIS
Wipfli's first method of valuation was to review InvestorsBancorp's
average closing price on the OTC Bulletin Board for the 30 trading days prior to
the valuation date. Wipfli chose the 30-day average because of the thinness in
trading of the company's stock and one buyer, the Schonath family, accounting
for a large portion of the stock purchases. The 30-day average for the period
prior to January 3, 2003,
23
was $12.64, and the 30-day average for the period prior to March 19, 2003, was
$13.02. Because the 30-day average represents a marketable, minority basis of
value, a control premium of 20% was added, resulting in a fair value under this
method of $15.17 per share as of January 3, 2003, and $15.62 per share as of
March 19, 2003.
In determining the control premium, Wipfli utilized a published study
regarding control premiums paid in stock market transactions, and evaluated
specific factors that may influence the premium paid, including the existing
management, the ability to replace management, restrictions on transfers of
interest, leverage, company size, the number of shareholders, concentration of
control, the size of the block being valued, the volatility of assets, and the
life of the company. Taking all of these factors into consideration, Wipfli
determined that the control premium of 20% would be the appropriate level.
GUIDELINE COMPANY ANALYSIS
Wipfli's second method of valuation was a guideline company analysis.
Wipfli reviewed InvestorsBancorp's service area, financial condition,
performance, level of competition, and other factors. InvestorsBancorp's
results, including its growth, profitability, and capital strength, were
compared to Midwest-based, publicly traded bank holding companies. Wipfli
selected nine bank holding companies that were similar to InvestorsBancorp. The
nine banks were selected based on size in relation to InvestorsBancorp,
location, and the subject bank's return on assets and return on equity in
comparison to InvestorsBancorp, and other factors.
After that review and comparison, Wipfli analyzed the valuations placed
on the guideline companies. Wipfli selected the price/earnings and price/book
ratios as valuation measures. The ratios chosen were appropriate based on the
appraiser's judgment, past experience, and the following considerations. Wipfli
gave consideration to InvestorsBancorp's reliance on a key employee, its
reliance on brokered certificates of deposit, the single location of its banking
subsidiary, the bank's reliance on the fees generated from the commercial loan
and leased properties portfolios of Bando McGlocklin Small Business Lending
Corporation, and the size of InvestorsBancorp in comparison to the guideline
companies. An adjustment to the price/earnings and price/book multiples was made
for these attributes based on the appraiser's judgment and past experience.
However, a control premium was necessary to convert the marketable, minority
conclusion to fair value. This control premium was calculated as determined
above.
Adjustments to reflect the exercise of the stock options and warrants
and remove InvestorsBancorp's trust preferred securities were also made.
The following are Wipfli's calculations for InvestorsBancorp's fair
value as of January 3, 2003.
InvestorsBancorp's 2002 earnings $ 1,672,000
Price/earnings multiple 8.4
------------
Fair market value of InvestorsBancorp determined on a minority, marketable basis 14,077,161
Less: Trust preferred securities (5,000,000)
------------
Fair market value of common stock 9,077,161
Control premium (20%) 1,815,432
Plus: Cash from exercising options and warrants 972,000
------------
24
------------
Adjusted fair value of InvestorsBancorp's common stock 11,864,593
Number of shares outstanding - fully diluted / 1,055,996
------------
Fair value per share of InvestorsBancorp's common stock $ 11.24
============
Estimate of InvestorsBancorp's common stock book value at January 3, 2003 $ 10,357.00
Price/book multiple 1.06
------------
Fair market value of common stock, minority, marketable 10,956,512
Control premium (20%) 2,191,302
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp's common stock 14,119,814
Number of shares outstanding - fully diluted basis / 1,055,996
------------
Fair value per share of InvestorsBancorp's common stock $ 13.37
============
Fair value at January 3, 2003 using guideline company method $ 12.31
============
* Please note that the multiples are rounded to two decimal places for
purposes of this discussion. As a result, numbers may vary slightly.
The following are Wipfli's calculations for InvestorsBancorp's fair
value as of March 19, 2003.
InvestorsBancorp's 2002 earnings $ 1,672,000
Price/earnings multiple 9.52
------------
Fair market value of InvestorsBancorp determined on a minority, marketable basis 15,921,321
Less: Trust preferred securities (5,000,000)
------------
Fair market value of common stock 10,921,321
Control premium (20%) 2,184,264
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp's common stock 14,077,585
Number of shares outstanding - fully diluted / 1,055,996
------------
Fair value per share of InvestorsBancorp's common stock $ 13.33
============
Estimate of InvestorsBancorp's common stock book value at March 19, 2003 $ 10,915,000
Price/book multiple 1.12
------------
Fair market value of common stock, minority, marketable 12,176,847
Control premium (20%) 2,435,369
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp's common stock 15,584,216
Number of shares outstanding - fully diluted basis / 1,055,996
------------
Fair value per share of InvestorsBancorp's common stock $ 14.76
============
Fair value at March 19, 2003 using guideline company method $ 14.05
============
* Please note that the multiples are rounded to two decimal places for
purposes of this discussion. As a result, numbers may vary slightly.
25
GUIDELINE TRANSACTION ANALYSIS
Wipfli's third method of valuation was based upon announced sales of
bank holding companies in the Midwest. From these values, Wipfli adjusted the
multiples derived from the analysis due to InvestorsBancorp's reliance on a key
employee, its reliance on brokered certificates of deposit, the single location
of its banking subsidiary, and the bank's reliance on the fees generated from
the commercial and leased properties portfolios of Bando McGlocklin Small
Business Lending Corporation. Wipfli also considered that the buyers of these
bank holding companies may have been willing to pay a premium due to the
synergies and benefits of a merger with another financial institution.
Wipfli selected five Midwest transactions based on size, location, and
subjects' return on assets and return on equity in comparison to
InvestorsBancorp and other factors. The size of the financial institutions
ranged from $47 million to $207 million.
The following are Wipfli's calculations for the fair values of
InvestorsBancorp at January 3, 2003 utilizing this approach.
InvestorsBancorp's 2002 earnings $ 1,672,000
Price/earnings multiple 10.3
------------
Unadjusted fair market value of InvestorsBancorp determined on a majority, marketable basis 17,292,660
Less: Trust preferred securities (5,000,000)
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp common stock 13,264,660
Number of shares outstanding - fully diluted / 1,055,996
------------
Fair value per share of InvestorsBancorp common stock $ 12.56
============
Estimate of InvestorsBancorp common stock book value at January 3, 2003 10,357,000
Price/book multiple 1.2
------------
Unadjusted fair market value of InvestorsBancorp determined on a majority, marketable basis 12,428,400
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp 13,400,400
Number of shares outstanding - fully diluted basis / 1,055,996
------------
Fair value per share of InvestorsBancorp common stock $ 12.69
============
Fair value at January 3, 2003 using guideline transaction method $ 12.63
============
* Please note that the multiples are rounded to two decimal places for
purposes of this discussion. As a result, numbers may vary slightly.
The following are Wipfli's calculations for the fair values of
InvestorsBancorp at March 19, 2003 utilizing this approach.
InvestorsBancorp's 2002 earnings $ 1,672,000
Price/earnings multiple 10.3
------------
Unadjusted fair market value of InvestorsBancorp determined on a majority, marketable basis 17,292,660
Less: Trust preferred securities (5,000,000)
26
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp common stock 13,264,660
Number of shares outstanding - fully diluted / 1,055,996
------------
Fair value per share of InvestorsBancorp common stock $ 12.56
============
Estimate of InvestorsBancorp common stock book value at March 19, 2003 $ 10,915,000
Price/book multiple 1.2
------------
Unadjusted fair market value of InvestorsBancorp determined on a majority, marketable basis 13,098,000
Plus: Cash from exercising options and warrants 972,000
------------
Adjusted fair value of InvestorsBancorp 14,070,000
Number of shares outstanding - fully diluted basis / 1,055,996
------------
Fair value per share of InvestorsBancorp common stock $ 13.32
============
Fair value at March 19, 2003 using guideline transaction method $ 12.94
============
* Please note that the multiples are rounded to two decimal places for
purposes of this discussion. As a result, numbers may vary slightly.
CONCLUSION
As a final step, Wipfli gave what was, in its judgment, the appropriate
weights to the values obtained from each of its three analyses. Because Wipfli
felt that each of the analyses should carry equal weight in determining fair
value, it averaged the three methods, as follows:
January 3, 2003 March 19, 2003
--------------- --------------
Historical Price Method $ 15.17 $ 15.62
Guideline Company Method 12.31 14.05
Guideline Transaction Method 12.63 12.94
--------------- --------------
Conclusion $ 13.37 $ 14.20
=============== ==============
Considering all of the relevant factors, Wipfli determined, in its
opinion, the fair value per share of InvestorsBancorp at January 3, 2003 was
$13.37, and at March 19, 2003 was $14.20, based on 1,055,906 shares issued and
outstanding.
The above summary provides a description of the material analyses
performed by Wipfli, and does not purport to be a complete description of
Wipfli's analyses in connection with its valuation. The preparation of a
valuation report involves numerous determinations as to the most appropriate and
relevant methods of financial analyses and the application of these methods to
the particular circumstances, and therefore is not necessarily amenable to
partial analysis or summary description.
In performing its analyses, Wipfli made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of InvestorsBancorp. Wipfli
selected comparable public companies and comparable transactions on the basis of
various factors, including the size and similarity of selected companies, their
business mix, and similar characteristics of the transactions; however, no
company or transaction utilized as a comparison in the analyses summarized above
is identical to InvestorsBancorp or to the merger. Wipfli's
27
valuation was only one of the factors taken into consideration by the board of
directors in making its determination to approve the merger.
Pursuant to the engagement letter with Wipfli, InvestorsBancorp has
paid Wipfli a financial advisory fee based on time required by the individuals
performing its engagement, plus direct expenses, all totaling approximately
$16,000. Wipfli's fee is not contingent upon, or affected by, its valuation
conclusion.
PURPOSE AND STRUCTURE OF THE MERGER
The purposes of the merger are to:
- take InvestorsBancorp private in order to discontinue
InvestorsBancorp's SEC reporting requirements and thereby achieve
significant cost savings;
- put InvestorsBancorp in a position where it will be able to make
an election under Subchapter S of the Internal Revenue Code, which
will substantially reduce corporate level income taxation and
reduce expenses and increase cash flow;
- allow InvestorsBancorp to refocus time spent on shareholder
administrative duties to its banking subsidiary, InvestorsBank;
and
- allow George Schonath, the Chief Executive Officer of
InvestorsBancorp, who, together with his family affiliates is
currently the controlling shareholder of InvestorsBancorp, to
focus on financial and business goals that may differ from those
of the non-continuing shareholders.
For further background on the reasons for the merger, see "Special
Factors--Background of the Merger" and "Special Factors--Reasons for the Merger;
Fairness of the Merger."
The proposed transaction has been structured as a going private
transaction to permit the Schonath shareholders to own 100% of a privately-owned
corporation, and has been structured as a cash merger in order to provide the
non-continuing shareholders with cash for their shares. The reason the
going-private transaction has been structured as a parent/subsidiary merger is
because InvestorsBancorp's board of directors believes that this structure
represents the most cost-effective and efficient way of accomplishing the above
objectives. For further background on the alternative structures considered by
the board of directors, see "Special Factors--Background of the Merger."
CERTAIN EFFECTS OF THE MERGER; PLANS OR PROPOSALS AFTER THE MERGER
The merger will have various effects on InvestorsBancorp, which are
described below.
TERMINATION OF SECURITIES EXCHANGE ACT REGISTRATION AND REPORTING REQUIREMENTS
Upon the consummation of the merger, the InvestorsBancorp common stock
will be held by fewer than 300 shareholders of record. Accordingly, our
obligation to continue to file periodic reports with the SEC will terminate
pursuant to Rule 12h-3 of the Securities Exchange Act.
The termination of the filing requirement will substantially reduce the
information required to be furnished by InvestorsBancorp to its shareholders and
to the SEC. Therefore, we estimate that we will eliminate costs and expenses
associated with the filing requirements, which we estimate to be approximately
$115,000 on an annual basis. These costs are broken down as follows:
28
Independent Auditors $ 5,000
SEC Counsel $ 17,000
Executive time (including general counsel's office) $ 71,000
Transfer agent $ 9,000
Printing and Mailing $ 13,000
Total $ 115,000
InvestorsBancorp will apply for termination as soon as practicable
following completion of the merger.
EFFECT ON TRADING OF COMMON STOCK
Our common stock is traded on the OTC Bulletin Board on a limited
basis. Once we stop filing reports with the SEC, our common stock will no longer
be eligible for quotation on the OTC Bulletin Board.
ELIMINATION OF NON-CONTINUING SHAREHOLDERS
As a result of the merger, all shares held by non-continuing
shareholders will be converted into the right to receive $14.20 in cash. The
Schonath Shareholders, who collectively own approximately 60.9% of the
outstanding common stock, 64.3% on an fully-diluted basis taking into account
all options and warrants, will, following the merger, own 100% of
InvestorsBancorp. As a result, the non-continuing shareholders will not have the
opportunity to participate in the earnings and growth of InvestorsBancorp after
the merger. Similarly, the non-continuing shareholders will not face the risk of
losses generated by InvestorsBancorp's operations or any decline in the value of
InvestorsBancorp after the merger. For more effects of the merger on
InvestorsBancorp's shareholders, see "--Effects of the Merger on Shareholders of
InvestorsBancorp" below.
REDUCTION IN CAPITAL
As a result of the merger, InvestorsBancorp's capital will be reduced,
although we anticipate that we will remain "well capitalized" for bank
regulatory purposes. For example, it is estimated that Tier 1 capital as of June
30, 2003 will decrease from approximately $15.0 million on a historical basis to
approximately $8.8 million on a pro forma basis.
OTHER FINANCIAL EFFECTS OF THE MERGER
InvestorsBancorp expects that the merger and the use of approximately
$5,931,000 in cash to complete the merger, which includes approximately
$5,655,000 to be paid in to non-continuing shareholders in exchange for their
shares, approximately $43,000 to be paid to holders of options, and
approximately $233,000 in professional fees and other expenses payable by
InvestorsBancorp related to the transaction, will not have any material adverse
effect on InvestorsBancorp's capital adequacy, liquidity, results of operations
or cash flow. See "The Merger--Fees and Expenses" for a description of the fees
and expenses InvestorsBancorp expects to incur in connection with the going
private transaction. See "--Financing of the Merger" below for a description of
how the merger will be financed.
29
EFFECT ON BUSINESS OF INVESTORSBANCORP
The consummation of the merger is not anticipated to have any effect on
the conduct of InvestorsBancorp's business and operations. However,
InvestorsBancorp and the Schonath shareholders do intend for Investors Bancorp
to elect Subchapter S corporation status under the Internal Revenue Code,
effective January 1, 2004. As a corporation with Subchapter S status, federal
income tax at the InvestorsBancorp corporate level will be eliminated, which
will reduce tax expense and increase cash flow for InvestorsBancorp, which can
be used to fund future growth opportunities. However, these benefits will be
offset to some degree by increased distributions to shareholders.
EFFECT ON DIRECTORS AND OFFICERS OF INVESTORSBANCORP
Investors Subsidiary currently has as its sole director George R.
Schonath. However, it is anticipated that prior to the merger the current
directors of InvestorsBancorp will be appointed as directors of Investors
Subsidiary. Under the terms of the merger agreement, the directors of Investors
Subsidiary will become the directors of the surviving corporation as of the
effective time of the merger, and the officers of InvestorsBancorp will remain
the officers of InvestorsBancorp as the surviving corporation. For information
about these individuals, see "Information about the Directors, Officers and
Schonath Shareholders--Information about the Directors and Executive Officers of
InvestorsBancorp" and "Information about the Directors, Officers and Schonath
Shareholders--Information about the Directors and Executive Officers of
Investors Subsidiary."
PLANS OR PROPOSALS
Other than as described in this transaction statement, neither
InvestorsBancorp nor its management has any current plans or proposals to effect
any extraordinary corporate transaction, such as a merger, reorganization or
liquidation, to sell or transfer any material amount of its assets, to change
its board of directors or management, to change materially its indebtedness or
capitalization, or otherwise to effect any material change in its corporate
structure or business. As stated throughout this transaction statement,
InvestorsBancorp believes there are significant advantages to it in effecting
the merger proposal and going private. Although management does not presently
have any intent to enter into any transaction described above, nor is management
in negotiations with respect to any such transaction, there is always a
possibility that InvestorsBancorp may enter into such an arrangement or
transaction in the future, including, but not limited to, entering into a merger
or acquisition transaction, making any public or private offering for its
shares, or entering into any other arrangement or transaction as it may deem
appropriate. In such event, the Schonath shareholders, as the remaining
shareholders of InvestorsBancorp, may receive payment for their shares in any
such transaction lower than, equal to or in excess of the amount paid to the
non-continuing shareholders in the merger.
EFFECTS OF THE MERGER ON SHAREHOLDERS OF INVESTORSBANCORP
The merger will have various effects on the non-continuing shareholders
and the Schonath shareholders, as described below.
EFFECTS OF THE MERGER ON THE NON-CONTINUING SHAREHOLDERS
The merger will have both positive and negative effects on the
non-continuing shareholders. The board of directors of InvestorsBancorp
considered each of the following effects in determining to approve the merger.
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Positive Effects:
As a result of the merger, the non-continuing shareholders will:
- have the right to receive a cash payment of $14.20 per share for
their shares of InvestorsBancorp common stock, which gives them a
premium over the 30- and 60-day average trading prices of our
common stock, and allows them to obtain cash for their shares in
an illiquid market; and
- be able to immediately liquidate their holdings without having to
pay brokerage fees or commissions, which the board felt
particularly important given the relatively illiquid market for
shares of InvestorsBancorp's common stock.
Negative Effects:
As a result of the merger, the non-continuing shareholders will:
- no longer be able to participate in any future earnings and growth
of InvestorsBancorp; and
- be required to pay federal and, if applicable, state and local
income taxes on the cash they receive in the merger. For further
discussion, see the section of this transaction statement entitled
"Certain Federal Income Tax Consequences of the Merger."
In addition, the non-continuing shareholders do not have the right to
vote on the merger and will not have dissenters' appraisal rights in connection
with the merger. See "--Voting Requirements" and "--Appraisal Rights" below.
EFFECTS OF THE MERGER ON THE SCHONATH SHAREHOLDERS
The merger will have both positive and negative effects on the
non-continuing shareholders. The board of directors of InvestorsBancorp
considered each of the following effects in determining to approve the merger.
Positive Effects:
As a result of the merger:
- any future earnings and growth of InvestorsBancorp will be solely
for the benefit of the Schonath shareholders;
- as the Schonath shareholders have, since InvestorsBancorp became a
public company, retained a significant ownership interest in the
company, the going private merger will allow them to continue
their controlling position and allow them to focus their pursuits
on the business of InvestorsBancorp; and
- because InvestorsBancorp expects to be a corporation with
Subchapter S status, the federal income tax of InvestorsBancorp
will be eliminated, which will reduce the tax expense and increase
cash flow for InvestorsBancorp, which can be used to fund future
growth opportunities.
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Negative Effects:
As a result of the merger:
- the common stock of InvestorsBancorp following the merger will
lack liquidity; and
- upon InvestorsBancorp's election to be treated as a Subchapter S
corporation under the Internal Revenue Code, the Schonath
shareholders will be taxed on the income of InvestorsBancorp,
regardless of whether InvestorsBancorp makes a cash distribution
to them.
VOTING REQUIREMENTS
The board of directors of each of InvestorsBancorp and Investors
Subsidiary has approved the merger. The merger does not require the approval of
the holders of InvestorsBancorp common stock, either under the Wisconsin
Business Corporation Law or under our Articles of Incorporation.
Our Articles of Incorporation offer no voting rights to shareholders in
connection with a merger transaction, other than voting rights granted generally
under Wisconsin law.
Under Section 180.1104 of the Wisconsin Business Corporation Law, where
a parent corporation holds at least 90% of the outstanding stock of its
subsidiary, the subsidiary may be merged into the parent, with the parent
continuing as the surviving corporation, upon the action of the board of
directors without shareholder approval of either the parent corporation or the
subsidiary corporation. Therefore, because InvestorsBancorp owns 100% of the
outstanding stock of Investors Subsidiary, the merger of Investors Subsidiary
into InvestorsBancorp does not require shareholder approval.
The Wisconsin Business Corporation Law contains certain additional
provisions that require supermajority or special approval of shareholders to
business combinations in some instances, although neither statute mandates
supermajority approval of our shareholders in the merger.
- Fair Price Provisions. Sections 180.1130 through 180.1133 of the
Wisconsin Business Corporation Law provide that certain business
combinations, including mergers, not meeting specified price
standards, must be approved by at least 80% of the votes entitled
to be cast by outstanding voting shares of the corporation, voting
together as a single voting group, and by two-thirds of the votes
entitled to be cast by shareholders other than a "significant
shareholder," generally defined to be a person who beneficially
owns 10% or more of the outstanding voting shares, who is a party
to the transaction. These fair price provisions specifically do
not apply to parent/subsidiary mergers effectuated pursuant to
Section 180.1104 of the Wisconsin Business Corporation Law.
Therefore, they do not apply to the merger of Investors Subsidiary
with and into InvestorsBancorp.
- Business Combination Provisions. Sections 180.1140 to 180.1144 of
the Wisconsin Business Corporation law provide that a Wisconsin
corporation may not engage in business combinations, including
mergers, with an "interested stockholder," which is generally
defined to be a person who beneficially owns at least 10% of the
outstanding stock of the corporation, for three years after the
date the interested stockholder acquired his 10% interest, unless
the business combination or the acquisition of the 10% interest
was approved before the stockholder acquired his 10% interest.
After the three-year period, a business combination with the
interested stockholder may be consummated only if the acquisition
of the 10% interest was approved by the board of directors before
the stockholder acquired his
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10% interest, the business combination is approved by a majority
of the outstanding voting shares not held by the interested
stockholder, or the business combination is made by a specified
price formula intended to provide a fair price for the shares held
by non-interested stockholders. Because the Schonath family's
initial 12% ownership interest in InvestorsBancorp was approved by
the Board of Directors of InvestorsBancorp, shareholder consent is
not required for the merger under the business combination
provisions.
APPRAISAL RIGHTS
Holders of shares of InvestorsBancorp common stock will not have
appraisal rights in connection with the merger, either under the Wisconsin
Business Corporation Law or under our Articles of Incorporation. Pursuant to
Section 180.1302 of the Wisconsin Business Corporation Law, shareholders are
entitled to dissent from and seek appraisal rights with respect to, the
consummation of a plan of merger if either of the following applies:
- shareholder approval of the merger is required by Section 180.1103
of the Wisconsin Business Corporation law or by the Articles of
Incorporation of the subject company; or
- the issuer corporation is a subsidiary that is merged with its
parent under Section 180.1104 of the Wisconsin Business
Corporation Law.
As discussed above under "--Voting Rights," shareholder approval of the
merger is not required either under the Wisconsin Business Corporation Law or
under our Articles of Incorporation. In addition, because the "issuer
corporation," InvestorsBancorp, is not a subsidiary that is being merged with
its parent, rather, it is the parent corporation that is surviving the merger,
no appraisal rights are available.
The board considered, in its evaluation of the structure of the
transaction, the availability of appraisal rights to its shareholders. However,
the board felt that, in light of (a) the numerous benefits to going private as
compared to remaining a public company, (b) the relative cost-effectiveness of a
parent/subsidiary merger, (c) the fact that InvestorsBancorp might be able to
consummate a parent/subsidiary merger more quickly than the other alternatives
available to the company, thereby enabling the shareholders to receive value for
their shares more quickly, and (d) the fact that the company was obtaining a
valuation of the common stock from an independent third party with expertise in
valuing the common stock of financial institutions, and this valuation would
evaluate the "fair value" of our common stock, which is the statutory standard
of value that would be applicable if dissenting shareholders had appraisal
rights, the parent/subsidiary merger remained the best alternative structure of
the transaction and would adequately protect the interests of the shareholders,
including the non-continuing shareholders. See "--Background of the Merger"
above.
Although our shareholders will not have appraisal rights in connection
with the merger, they may pursue all available remedies under applicable law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The officers and directors of InvestorsBancorp who are also
shareholders other than George Schonath, our Chief Executive Officer, will
participate in the merger in the same manner and to the same extent as all of
the other non-continuing shareholders of InvestorsBancorp. However, the
directors and officers of InvestorsBancorp have interests in the merger or have
relationships, including
33
those referred to below, that present actual or potential, or the appearance of
actual or potential, conflicts of interest in connection with the merger. These
actual and potential conflicts include the following:
- as of May 15, 2003, Donald L. Menefee and Donald E. Sydow, two
members of our board of directors, collectively owned 325 and
4,201 shares, respectively, of our outstanding common stock,
excluding options, which will entitle them to receive
approximately $4,600 and $59,600, respectively, in merger
consideration;
- as of May 15, 2003, Susan Hauke, our Chief Financial Officer,
Controller, Vice President-Finance and Secretary, (a) owned 2,625
shares of common stock, which will entitle her to receive
approximately $37,300 in merger consideration, and (b) was
entitled to purchase 2,625 shares of common stock upon the
exercise of options having an exercise price of $7.33, which will
entitle her to receive approximately $18,000 in cash in exchange
for her options;
- as of May 15, 2003, Greg Mieske, our Vice President-Operations and
Compliance Officer, (a) owned 210 shares of our common stock,
which will entitle him to receive approximately $3,000 in merger
consideration, and (b) was entitled to purchase 500 shares of
common stock upon the exercise of options having an exercise price
of $6.75, which will entitle him to receive approximately $3,700
in cash in exchange for his options;
- as of May 15, 2003, Glenn Michaelsen, one of our Senior Vice
Presidents, was entitled to purchase 1,575 shares of common stock
upon the exercise of options having an exercise price of $8.10,
and 500 shares of common stock upon the exercise of options having
an exercise price of $6.75, which will entitle him to receive
approximately $13,300 in cash in exchange for his options;
- as of May 15, 2003, Kim DeMartino, one of our Senior Vice
Presidents, (a) owned 210 shares of our common stock, which will
entitle her to receive approximately $3,000 in merger
consideration, and (b) was entitled to purchase 1,000 shares of
common stock upon the exercise of options having an exercise price
of $6.75, which will entitle her to receive approximately $7,500
in cash in exchange for her options;
- The Schonath shareholders, in exchange for the 5,743 shares held
by them in individual retirement accounts and the 5,375 shares
held by George Schonath and Jenn Schonath individually that will
be cashed out in the merger, will be entitled to receive an
aggregate of approximately $158,000 in merger consideration.
- the Chief Executive Officer of InvestorsBancorp, George Schonath,
and various of his family affiliates will continue as the sole
shareholders of InvestorsBancorp following the merger, and
therefore will have the opportunity to participate in any future
growth and earnings of InvestorsBancorp; and
- George Schonath, who will continue to own stock in
InvestorsBancorp following the merger as a Schonath shareholder,
in his capacity as Chief Executive Officer of InvestorsBancorp,
was involved in structuring the transaction, although he did
recuse himself from any board action taken with respect to the
going-private transaction.
Except as set forth above, none of our directors or executive officers,
other than George Schonath, own any shares or hold any options or warrants to
acquire shares of our common stock.
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The board of directors of InvestorsBancorp was aware of these actual or
potential conflicts of interest and considered them along with the other matters
that have been described in this transaction statement under the captions
"--Background of the Merger; " "--Reasons for the Merger; Fairness of the
Merger; and "--Effects of the Merger on Shareholders of InvestorsBancorp."
In addition, the board of directors, throughout its consideration of
the going-private transaction, recognized that the interests of the
non-continuing shareholders and the Schonath shareholders are different and
possibly in conflict. The non-continuing shareholders may wish to remain
shareholders of a public company, and, in the merger, may have the goal of
obtaining the highest value for their shares, while the Schonath shareholders,
as continuing shareholders, may have the goal of retaining cash for future
operations of InvestorsBancorp. See "Special Factors--Background of the Merger"
and "--Reasons for the Merger; Fairness of the Merger" for a discussion of how
the board of directors addressed this situation.
FINANCING OF THE MERGER
InvestorsBancorp expects that the merger will require approximately
$5,931,000 in cash, which includes approximately $5,655,000 to be paid to
non-continuing shareholders in exchange for their shares, approximately $43,000
to be paid to holders of options, and approximately $233,000 in professional
fees and other expenses payable by InvestorsBancorp related to the transaction.
See "The Merger--Fees and Expenses" for a breakdown of the expenses associated
with the merger.
InvestorsBancorp is financing the merger with $5.0 million of
subordinated debt raised in an offering through Citigroup Global Markets Inc.,
formerly Salomon Smith Barney Inc., as placement agent, and $1.0 million of new
capital contributed to InvestorsBancorp by certain of the Schonath shareholders
through the purchase of newly-issued common stock. In addition to helping to
finance the merger, the $1.0 million capital contribution was a condition to
InvestorsBancorp's participation in the subordinated debt offering. On February
18 the board authorized management to explore financing opportunities for the
transaction, and InvestorsBancorp entered into an engagement letter with
Citigroup relating to the subordinated debt offering on February 21, and on
March 4 our board adopted resolutions by unanimous written consent authorizing
the issuance of the subordinated debt securities and the execution of the
related documents. On March 28, 2003, InvestorsBancorp entered into a placement
agreement with Citigroup Capital Markets, pursuant to which InvestorsBancorp
agreed to issue and sell $5.0 million principal amount of Floating Rate
Subordinated Debt Securities due 2013, bearing a variable interest rate per
annum reset quarterly, equal to LIBOR plus 3.20%, through Citigroup as its
exclusive placement agent. Also on March 28, 2003, InvestorsBancorp entered into
a Subordinated Debt Securities Subscription Agreement with MM Community Funding
IX, Ltd., pursuant to which MM Community Funding IX agreed to purchase the full
amount of the subordinated debt securities. The issuance and sale of the
securities, which is a transaction exempt from registration under the United
States securities laws, closed on April 10, 2003.
On March 12, 2003, the Emily A. Schonath Irrevocable Trust and the
Sarah E. Schonath Irrevocable Trust each obtained a loan from U.S. Bank National
Association in the amount of $500,000, for aggregate loan proceeds of $1.0
million. Each loan is guaranteed by George R. Schonath, and is collateralized by
a pledge of all of the common stock of InvestorsBancorp held by the Emily A.
Schonath Trust and the Sarah E. Schonath Trust, respectively. Each trust used
the proceeds of the loan to purchase 35,211 newly-issued shares of common stock
of InvestorsBancorp at a price of $14.20 per share, for aggregate consideration
of approximately $1.0 million, on March 25, 2003.
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Additional funds, if any, required to fund the merger, will be paid
from our working capital. Because all of the financing for the merger has been
obtained, the consummation of the merger is not subject to any financing
contingencies.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences to InvestorsBancorp and the shareholders of the merger. This
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as amended, existing and proposed Treasury regulations thereunder,
published administrative rulings and court decisions, all of which are subject
to change or a change in interpretation. Any such change, which may or may not
be retroactive, could alter the tax consequences as described herein. It is
assumed that the shares of InvestorsBancorp stock are held as capital assets by
United States persons (i.e., a citizen or resident of the United States or a
domestic corporation). This discussion does not address all aspects of United
States federal income taxation that may be relevant to a particular
InvestorsBancorp shareholder in light of such shareholder's personal
circumstances or those InvestorsBancorp shareholders subject to special
treatment under United States federal income tax laws (for example, financial
institutions; real estate investment trusts; regulated investment companies;
insurance companies; broker-dealers; persons who are not citizens or residents
of the United States or who are foreign corporations, partnerships, estates or
trusts; tax exempt entities or traders in securities that elect to
mark-to-market), or investors who hold their InvestorsBancorp stock as a
position in a straddle, as part of a hedge or synthetic security, as part of a
conversion transaction or other integrated transaction or investors whose
functional currency is not the U.S. dollar. This discussion does not address the
tax consequences of the alternative minimum tax or the tax consequences to
shareholders who acquired their stock through the exercise of an employee stock
option or other compensation arrangements. This discussion does not address any
aspect of state, local or foreign taxation.
No opinion of counsel has been sought or obtained with respect to any
tax consequences described herein. No rulings or determinations of the Internal
Revenue Service or any other tax authorities have been or will be sought or
obtained with respect to any tax consequences described herein. The discussion
below is not binding upon the Internal Revenue Service or such other
authorities. No assurance can be given that the Internal Revenue Service would
not assert, or that a court would not sustain, a different position from any
discussed herein. You are urged to consult your tax advisor regarding the
federal, state, local and foreign tax consequences of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO NON-CONTINUING SHAREHOLDERS
The receipt of cash in exchange for InvestorsBancorp's common stock in
the merger will be a taxable transaction for U.S. federal income tax purposes.
In general, a U.S. holder will recognize capital gain or loss equal to the
difference between the amount of cash received and the U.S. holder's tax basis
in the InvestorsBancorp common stock exchanged in the merger. This capital gain
or loss will be long-term capital gain or loss if the U.S. holder held the
InvestorsBancorp common stock for more than one year as of the effective time of
the reorganization. Certain limitations apply to the deductibility of capital
losses by U.S. holders.
FEDERAL INCOME TAX CONSEQUENCES TO SCHONATH SHAREHOLDERS
Because the Schonath shareholders will (1) continue to hold
InvestorsBancorp common stock immediately after the merger, and (2) receive no
cash as a result of the merger, they will not recognize any gain or loss in the
merger, and will have the same adjusted tax basis and holding period in their
InvestorsBancorp common stock as they had in the stock immediately prior to the
merger.
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FEDERAL INCOME TAX CONSEQUENCES TO INVESTORSBANCORP AND INVESTORS SUBSIDIARY
Neither InvestorsBancorp nor Investors Subsidiary will recognize gain
or loss for federal income tax purposes as a result of the merger.
BACKUP WITHHOLDING
Certain of the InvestorsBancorp shareholders may be subject to backup
withholding at a 30% rate on the cash payments received for their shares of
InvestorsBancorp common stock. Backup withholding will not apply, however, if
you:
- furnish to InvestorsBancorp a correct taxpayer identification
number and certify that you are not subject to backup withholding
on the substitute Form W-9 included in the letter of transmittal
to be delivered to you following the date of the merger;
- provide a certificate of foreign status on Form W-8; or
- establish that you are exempt from withholding.
Backup withholding is not an additional tax but is credited against the
federal income tax liability of the taxpayer subject to the withholding. If
backup withholding results in an overpayment of a taxpayer's federal income
taxes, that taxpayer may obtain a refund from the Internal Revenue Service.
THIS SECTION DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS
TO DETERMINE THE UNITED STATES FEDERAL, STATE AND LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO YOU IN VIEW OF YOUR OWN PARTICULAR CIRCUMSTANCES.
CERTAIN TERMS OF THE MERGER
THE MERGER AGREEMENT
The following is a summary of certain provisions of the merger
agreement. The following summary does not purport to be complete and is
qualified in its entirety by reference to the merger agreement, which is
attached as Appendix A to this transaction statement and is incorporated herein
by reference. You are urged to read the merger agreement in its entirety.
GENERAL
The merger agreement provides that, following the satisfaction or
waiver of the terms and conditions contained in the merger agreement, Investors
Subsidiary will be merged with and into InvestorsBancorp, and InvestorsBancorp
will be the surviving corporation. The merger will become effective upon the
filing of articles of merger with the Secretary of State of Wisconsin. We expect
to complete the merger in July 2003.
ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS
In the merger, InvestorsBancorp's articles of incorporation and bylaws
will be amended and restated, and, as so amended and restated, will be the
articles of incorporation and bylaws of the surviving corporation. The directors
of Investors Subsidiary will become the directors of the surviving
37
corporation as of the effective time of the merger, and the officers of
InvestorsBancorp will be the officers of the surviving corporation. For
information about the directors and executive officers of InvestorsBancorp and
Investors Subsidiary, respectively, see "Information about the Directors,
Officers and Schonath Shareholders--Information about the Directors and
Executive Officers of InvestorsBancorp" and "Information about the Directors,
Officers and Schonath Shareholders--Information about the Directors and
Executive Officers of Investors Subsidiary."
CONVERSION OF COMMON STOCK
At the effective time of the merger:
- each share of InvestorsBancorp issued and outstanding immediately
prior to the effective time, excluding shares held by the Schonath
shareholders, will be converted into the right to receive $14.20
in cash, without interest;
- all shares of InvestorsBancorp common stock that are owned by the
Schonath shareholders will represent one share of common stock of
InvestorsBancorp as the surviving corporation; and
- all shares of common stock of Investors Subsidiary will be
canceled, and InvestorsBancorp, as the sole holder of these
shares, will be entitled to receive $1.00 in cash per share of
Investors Subsidiary stock.
EXCHANGE OF SHARES
At the effective time of the merger, each certificate representing
shares of InvestorsBancorp common stock outstanding, other than shares owned by
the Schonath shareholders, will represent only the right to receive $14.20 per
share cash merger consideration. At the effective time, all of these shares will
be canceled and cease to exist, and each holder of a certificate formerly
representing any InvestorsBancorp shares, other than the Schonath shareholders,
will cease to have any voting or other rights with respect to those shares,
except the right to receive the merger consideration, without interest.
InvestorsBancorp has designated LaSalle Bank National Association to
act as paying agent for purposes of making the cash payments provided by the
merger agreement. Simultaneously with the effective time of the merger,
InvestorsBancorp will deposit, or cause to be deposited, with the paying agent
immediately available funds in an aggregate amount necessary to pay the $14.20
per share merger consideration to all shareholders entitled to receive the
merger consideration. The paying agent will use these funds for the sole purpose
of paying the non-continuing shareholders the merger consideration. The paying
agent will, in accordance with irrevocable instructions, deliver to the
non-continuing shareholders the merger consideration according to the procedure
summarized below.
Simultaneously with the effective time of the merger, InvestorsBancorp
will cause the paying agent to mail to non-continuing shareholders a letter of
transmittal and instructions advising them of the effectiveness of the merger
and the procedure for surrendering to the paying agent certificates in exchange
for payment of the $14.20 merger consideration. Upon the surrender for
cancellation to the paying agent of the certificates, together with a letter of
transmittal, duly executed and completed in accordance with its instructions,
and any other items specified by the letter of transmittal, the paying agent
will pay to the non-continuing shareholders the $14.20 per share merger
consideration, and the surrendered certificates will be canceled. Payments of
merger consideration will be reduced by applicable withholding taxes, and no
interest will be paid or accrued on the merger consideration.
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InvestorsBancorp recommends that certificates for common stock and
letters of transmittal be sent only by registered U.S. mail, return receipt
requested, appropriately insured. Holders of common stock whose certificates are
lost may be required to make an affidavit identifying the lost certificate or
certificates as lost, stolen or destroyed and, if required, to post a bond in
such amount as may reasonably be required to indemnify InvestorsBancorp and the
paying agent against any claim that may be made with respect to the lost
certificate.
SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE PAYING AGENT
WITHOUT A LETTER OF TRANSMITTAL.
At and after the effective time of the merger, the non-continuing
shareholders will cease to have any rights as shareholders, except the right to
surrender their certificates, according to the procedure described in this
section and in the letter of transmittal, in exchange for payment of the $14.20
per share merger consideration, without interest, less any required withholding
taxes.
At the effective time of the merger, InvestorsBancorp's stock ledger
will be closed, and no further registrations or transfers of the shares will be
made.
After 180 days following the effective time of the merger,
InvestorsBancorp may cause the paying agent to deliver to it all cash that has
not been distributed in payment of the merger consideration, plus any accrued
interest, and the paying agent's duties will terminate. After that time,
shareholders may surrender their certificates to InvestorsBancorp and receive
the $14.20 per share merger consideration, without interest, less any required
withholding taxes. However, shareholders will have no greater rights against
InvestorsBancorp than may be accorded to general creditors of InvestorsBancorp
under applicable law. InvestorsBancorp will not be liable to any non-continuing
shareholder for any merger consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
STOCK OPTIONS AND WARRANTS
Immediately prior to the effective time of the merger, each outstanding
option to purchase InvestorsBancorp common stock will become fully vested and
exercisable and will be canceled and:
- the holder of each option with a per share exercise price of less
than $14.20 will receive an amount in cash equal to the product
of:
(a) the difference between $14.20 and the per share exercise price
of the option, and
(b) the number of shares of InvestorsBancorp common stock subject
to the option, which, net of applicable withholding taxes,
will be due and paid at the effective time of the merger; and
- each option with a per share exercise price of $14.20 or above
will be deemed not to have any rights after the effective time of
the merger.
At the effective time, the warrants held by the Schonath shareholders
exercisable for the purchase of 105,000 shares of InvestorsBancorp common stock,
will remain outstanding and will be an obligation of InvestorsBancorp as the
surviving corporation.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of
InvestorsBancorp with respect to it relating to, among other things:
- its organization, qualification, corporate power, capitalization
and similar corporate matters;
- the authorization and enforceability of the merger agreement;
- the absence of required consents of regulatory authorities, other
than filings with the SEC required for going private transactions,
filings and consents required by the Federal Reserve, the filing
of the merger agreement and articles of merger with corporate and
regulatory authorities, and other non-material consents, filings
or notifications;
- its compliance with applicable laws;
- the absence of injunctions, orders and legal proceedings;
- the exemption of the merger from any applicable "fair price,"
"business combination," "control share" or other anti-takeover
laws; and
- the determination by the board of directors that the merger is
fair to and in the best interests of the shareholders of
InvestorsBancorp and the receipt of the approval of the board of
directors of the merger agreement.
The merger agreement contains representations and warranties of
Investors Subsidiary with respect to it relating to, among other things:
- its organization, qualification, corporate power, capitalization
and similar corporate matters;
- the authorization and enforceability of the merger agreement;
- the absence of required consents of regulatory authorities, other
than filings with the SEC required for going private transactions,
filings and consents required by the Federal Reserve, the filing
of the merger agreement and articles of merger with corporate and
regulatory authorities, and other non-material consents, filings
or notifications;
- its compliance with applicable laws;
- the absence of injunctions, orders and legal proceedings;
- the exemption of the merger from any applicable "fair price,"
"business combination," "control share" or other anti-takeover
laws; and
- the receipt of the approval of the board of directors of the
merger agreement.
The representations and warranties of each of InvestorsBancorp and
Investors Subsidiary are subject, in some cases, to specified exceptions and
qualifications. The representations and warranties expire upon and will not
survive completion of the merger.
40
COVENANTS
Under the merger agreement, InvestorsBancorp and Investors Subsidiary
agreed, among other things:
- to file, together with their affiliates engaging in the
transaction, a Rule 13e-3 Transaction Statement on Schedule 13e-3
with the SEC;
- to file any reports required to be filed with regulatory
authorities prior to the effective time;
- to cooperate with each other and use their reasonable efforts to
prepare and file any necessary documentation and to obtain as
promptly as practicable all consents of all regulatory authorities
that are necessary or advisable in connection with the merger; and
- to use their respective best efforts to take all actions and do
all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by the merger agreement.
CONDITIONS TO THE MERGER
The obligation of InvestorsBancorp to complete the merger is subject to
a number of conditions, each of which may be waived by InvestorsBancorp,
including the following:
- the accuracy of the representations and warranties of Investors
Subsidiary in all material respects;
- the performance in all material respects of Investors Subsidiary's
obligations under the merger agreement;
- no proceedings involving any challenge to the merger, that would
reasonably be expected to delay the merger, or that would
reasonably be expected to have a material adverse effect on
Investors Subsidiary;
- the receipt of any consents required or otherwise reasonably
necessary to consummate the merger; and
- no injunction or governmental order preventing the merger being in
effect.
The obligation of Investors Subsidiary to complete the merger is
subject to a number of conditions, each of which may be waived by Investors
Subsidiary, including the following:
- the accuracy of the representations and warranties of
InvestorsBancorp in all material respects;
- the performance in all material respects of InvestorsBancorp's
obligations under the merger agreement;
- no proceedings involving any challenge to the merger, that would
reasonably be expected to delay the merger, or that would
reasonably be expected to have a material adverse effect on
InvestorsBancorp;
41
- the receipt of any consents required or otherwise reasonably
necessary to consummate the merger; and
- no injunction or governmental order preventing the merger being in
effect.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the transactions
contemplated by the merger agreement may be abandoned at any time by the mutual
consent of the boards of directors of InvestorsBancorp and Investors Subsidiary.
If the merger agreement is terminated, it shall be of no further force and
effect.
AMENDMENT
The merger agreement may be amended by the parties at any time, but no
amendment will be valid unless it is in writing and signed by both
InvestorsBancorp and Investors Subsidiary.
REGULATORY REQUIREMENTS
In connection with the merger, InvestorsBancorp will be required to
make a number of filings with and obtain a number of approvals from various
federal and state governmental agencies, including:
- filing of a certificate of merger with the Secretary of State of
Wisconsin in accordance with Wisconsin law;
- complying with federal and state securities laws, including filing
by InvestorsBancorp, Investors Subsidiary and the Schonath
shareholders this transaction statement on Schedule 13e-3 with the
SEC and the Office of the Commissioner of Securities of Wisconsin;
and
- notifying the Federal Reserve of the merger.
ACCOUNTING TREATMENT
InvestorsBancorp anticipates that it will account for the transaction
by treating the shares repurchased in the merger as canceled and retired.
FEES AND EXPENSES
InvestorsBancorp will be responsible for paying the merger-related fees
and expenses, consisting primarily of fees and expenses of its financial
advisor, attorneys and accountants, and other related charges. InvestorsBancorp
estimates that its expenses will total approximately $233,000, assuming the
merger is completed. This amount consists of the following estimated fees:
42
Description Amount
============================== ===========
Advisory fees and expenses $ 16,000
Legal fees and expenses 175,000
Accounting fees and expenses 10,000
Paying agent fees and expenses 12,000
SEC filing fees 461
Printing and mailing costs 15,000
Miscellaneous expenses 5,000
-----------
Total $ 233,461
FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL DATA
Set forth below is the selected historical consolidated financial
information of InvestorsBancorp and our subsidiaries. The historical financial
information was derived from the audited consolidated financial statements
included in our Annual Report on Form 10-KSB for the fiscal year ended December
31, 2002, from the unaudited consolidated financial statements included in our
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2003, as
amended, and from other information and data contained in the Annual Report and
the Quarterly Report. More comprehensive financial information is included in
the Annual Report and the Quarterly Report. The financial information that
follows is qualified in its entirety by reference to, and should be read in
conjunction with, the Annual Report, the Quarterly Report and all of the
financial statements and related notes contained in the Annual Report and the
Quarterly Report, copies of which may be obtained as set forth below under the
caption "Where You Can Find More Information."
43
INVESTORSBANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
FISCAL YEAR ENDED
THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED
2001 2002 MARCH 31, 2002
--------------- --------------- ---------------
Cash, investments and cash equivalents $ 7,352,190 $ 4,803,094 $ 6,915,193
Loans 123,436,530 154,516,551 164,043,003
Other assets 2,855,049 8,420,304 7,497,262
--------------- --------------- ---------------
Total assets $ 133,643,769 $ 167,739,949 $ 178,455,458
Deposits $ 120,021,734 $ 135,940,742 $ 135,982,125
Other borrowings 3,815,000 20,075,000 29,400,000
Other liabilities 915,620 1,367,413 1,145,438
--------------- --------------- ---------------
Total liabilities $ 124,752,354 $ 157,383,155 $ 166,527,563
Interest income $ 10,056,012 $ 8,184,035 $ 2,147,832
Interest expense (5,835,761) (3,526,306) (799,566)
Loan loss provision (847,235) (471,537) (41,432)
--------------- --------------- ---------------
Net interest income $ 3,373,016 $ 4,186,192 $ 1,306,834
Net income from continuing operations $ 1,473,048 $ 1,672,193 $ 571,109
Basic earnings per share $ 1.53 $ 1.79 $ 0.62
Diluted earnings per share $ 1.51 $ 1.70 $ 0.58
Book value per share at March 31, 2003 $ 12.00
994,187 shares outstanding
MARKET PRICE OF INVESTORSBANCORP
COMMON STOCK AND DIVIDEND INFORMATION
COMPARATIVE MARKET PRICE DATA
InvestorsBancorp common stock was held by approximately 570 holders of
record as of May 15, 2003, and is quoted on the OTC Bulletin Board under the
symbol "INVB." The following table shows for the periods indicated, the high and
low closing prices per share of transactions in InvestorsBancorp's common stock
as quoted on the OTC Bulletin Board. Certain other private transactions may have
occurred during the period indicated of which InvestorsBancorp has no knowledge.
The following prices represent inter-dealer prices without retail markups,
markdowns or commissions.
44
CLOSING PRICE PER SHARE
QUARTER ENDING: HIGH LOW
March 31, 2003 $14.40 $12.70
December 31, 2002 $12.75 $12.55
September 30, 2002 $12.95 $12.50
June 30, 2002 $13.00 $11.00
March 31, 2002 $13.00 $10.10
December 31, 2001 $11.00 $ 8.30
September 30, 2001 $ 8.85 $ 6.75
June 30, 2001 $ 8.25 $ 5.00
March 31, 2001 $ 8.00 $ 7.00
DIVIDENDS
No cash dividends were declared or paid during the years ended December
31, 2002 and 2001. InvestorsBancorp expects that all of its and InvestorsBank's
earnings, if any, will be retained to finance the growth of InvestorsBancorp and
InvestorsBank, and that no cash dividends will be paid for the foreseeable
future. If and when dividends are declared, InvestorsBancorp will probably be
largely dependent upon dividends paid by InvestorsBank for funds to pay
dividends on its common stock. It is also possible, however, that
InvestorsBancorp will pay dividends in the future generated from investment
income and other activities. Upon the effectiveness of InvestorsBancorp's
election to be treated as a Subchapter S corporation, it is expected that
InvestorsBancorp will pay dividends to its shareholders in an amount sufficient
to enable them to pay the taxes they incur on the income, if any, of
InvestorsBancorp.
The Wisconsin Business Corporation Law prohibits InvestorsBancorp from
paying dividends if it is insolvent or if the payment of dividends would render
it unable to pay its debts as they come due in the ordinary course of business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of common stock at May 15, 2003, by the Schonath
shareholders, by each person known by us to be the beneficial owner of more than
five percent of the outstanding common stock, by each director and by all
directors and executive officers of InvestorsBancorp as a group.
45
NAME OF INDIVIDUAL AND AMOUNT AND NATURE OF
NUMBER OF PERSONS IN GROUP BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
-------------------------- ---------------------- ----------------
SCHONATH SHAREHOLDERS
George R. Schonath 460,075(2) 42.0%
Jenn Schonath 1,263(3) *
Sarah E. Schonath 3,078(4) *
Emily A. Schonath 3,058(5) *
Thomas Evans 242,178(6) 24.4%
All Schonath shareholders as a group 708,389 64.7%
OTHER DIRECTORS AND 5% SHAREHOLDERS
Terry L. Mather -- --
Jon McGlocklin -- --
Donald L. Menefee 325 *
Donald E. Sydow 4,201 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A 473,846(7) 43.0%
GROUP (10 PERSONS)
* Less than one percent (1%)
- ----------
(1) Information contained in this column is based upon information furnished
to us by the persons named above and the members of the designated group,
except as set forth in the footnotes below. The nature of beneficial
ownership for shares shown in this column is sole voting and investment
power, except as set forth in the footnotes below. Inclusion of shares
shall not constitute an admission of beneficial ownership or voting and
investment power over included shares. Pursuant to the rules and
regulations of the Securities and Exchange Commission and the Securities
Exchange Act of 1934, as amended, share amounts include shares obtainable
through the exercise of stock options or warrants within 60 days of the
date of information contained in this table.
(2) Includes 215,289 shares held in his self-directed 401(k) account, 1,664
shares held in his IRA, and 132,943 shares and warrants to purchase
105,000 shares held by the Schonath Family Partnership, of which Mr.
Schonath is the general partner. Also, includes 1,263 shares over which
Mr. Schonath shares voting and investment power with his spouse, Mrs.
Jenn Schonath. Excludes 230,150 shares held in irrevocable trusts for the
benefit of his daughters and 6,136 shares held directly by his daughters.
(3) Includes 1,206 shares held in her IRA. Mrs. Schonath shares voting and
investment power with her spouse, Mr. George Schonath.
(4) Includes 620 shares held in her IRA. Excludes 115,075 shares held in
irrevocable trust for the benefit of Ms. Schonath.
(5) Includes 600 shares held in her IRA. Excludes 115,075 shares held in
irrevocable trust for the benefit of Ms. Schonath.
(6) Includes 115,075 shares held by the Emily A. Schonath Irrevocable Trust,
115,075 shares held by the Sarah E. Schonath Irrevocable Trust. Mr. Evans
is the trustee of the trusts. Also includes 1,653 shares held in his IRA.
(7) Includes 6,200 shares obtainable through the exercise of options.
COMMON STOCK PURCHASE INFORMATION
PRIOR STOCK PURCHASES
The following table sets forth information with respect to purchases of
shares of InvestorsBancorp common stock, if any, by InvestorsBancorp, Investors
Subsidiary, the directors and
46
executive officers of InvestorsBancorp and Investors Subsidiary, and the
Schonath shareholders during the past two years.
QUARTER ENDED NUMBER OF SHARES PRICE RANGE(s) AVERAGE PRICE PAID
- ------------- ---------------- -------------- ------------------
JUNE 30, 2003 (through May 15, 2003)
InvestorsBancorp 3,658 $ 14.20 $ 14.20
MARCH 31, 2003
George R. Schonath 401(k) Account 500 $ 12.825 $12.825
George R. Schonath 14,490(1) $ 6.75-10.10 $ 8.20
InvestorsBancorp 14,490 $ 14.20 $ 14.20
Emily A. Schonath Irrevocable Trust 35,211 $ 14.20 $ 14.20
Sarah E. Schonath Irrevocable Trust 35,211 $ 14.20 $ 14.20
DECEMBER 31, 2002
InvestorsBancorp 12,919 $12.63-12.83 $ 12.70
George R. Schonath 401(k) Account 11,899 $ 12.67 $ 12.67
SEPTEMBER 30, 2002
InvestorsBancorp 3,316 $12.80-12.97 $ 12.88
George R. Schonath 715 $ 12.75 $ 12.75
George R. Schonath 401(k) Account 7,369 $12.70-12.95 $ 12.81
Emily A. Schonath Irrevocable Trust 4,250 $ 12.60 $ 12.60
Sarah E. Schonath Irrevocable Trust 4,250 $ 12.60 $ 12.60
JUNE 30, 2002
George R. Schonath 765 $ 12.26 $ 12.26
George R. Schonath 401(k) Account 3,779 $12.15-12.26 $ 12.26
Emily A. Schonath Irrevocable Trust 1,739 $12.50-12.70 $ 12.56
Sarah E. Schonath Irrevocable Trust 1,739 $12.50-12.70 $ 12.56
MARCH 31, 2002
None
DECEMBER 31, 2001
George R. Schonath 401(k) Account 1,376 $ 8.25-8.37 $ 8.25
SEPTEMBER 30, 2001
George R. Schonath 401(k) Account 4,591 $ 7.13-8.60 $ 8.13
JUNE 30, 2001
InvestorsBancorp 66,349 $ 7.50 $ 7.50
George R. Schonath 401(k) Account 21,303 $ 6.63-7.50 $ 7.30
Emily A. Schonath Irrevocable Trust 8,000 $ 7.00 $ 7.00
Sarah E. Schonath Irrevocable Trust 8,000 $ 7.00 $ 7.00
MARCH 31, 2001
InvestorsBancorp 6,300 $ 7.97 $ 7.97
George R. Schonath 401(k) Account 8,499 $ 7.13-7.38 $ 7.21
Emily A. Schonath Irrevocable Trust 5,170 $ 7.00 $ 7.00
Sarah E. Schonath Irrevocable Trust 5,170 $ 7.00 $ 7.00
- --------------------
(1) These shares were purchased pursuant to the exercise of options held by
Mr. Schonath. After exercising the options, Mr. Schonath immediately
resold the shares back to InvestorsBancorp for $14.20 per share. The
effect was therefore the same as the treatment his options would have
received under the merger agreement.
47
RECENT TRANSACTIONS
Since March 15, 2003, InvestorsBancorp, Investors Subsidiary and the
Schonath shareholders and their affiliates have made the following purchases of
InvestorsBancorp common stock at the prices indicated:
NUMBER OF
PURCHASER DATE SHARES PRICE PER SHARE TRANSACTION
--------- ---- --------- --------------- -----------
Thomas Evans, Trustee 3/25/03 70,422(1) $14.20 New subscription
George R. Schonath 3/31/03 4,150 $ 6.75 Exercise of options(2)
George R. Schonath 3/31/03 4,400 $ 7.00 Exercise of options(2)
George R. Schonath 3/31/03 5,940 $10.10 Exercise of options(2)
InvestorsBancorp 3/31/03 14,490 $14.20 Cash repurchase of options(2)
InvestorsBancorp 4/4/03 735 $14.20 Cash repurchase from 401(k)
account of Mary Block
InvestorsBancorp 4/7/03 2,725 $14.20 Cash repurchase from 401(k)
account of Susan Hauke
InvestorsBancorp 4/7/03 198 $14.20 Cash repurchase from Sarah E.
Schonath
Sarah E. Schonath 4/7/03 198 $14.20 Sale to InvestorsBancorp
- --------------------
(1) Includes 35,211 shares purchased by the Emily A. Schonath Irrevocable
Trust and 35,211 shares purchased by the Sarah E. Schonath Irrevocable
Trust, of which Mr. Evans is the sole trustee.
(2) On March 31, 2003, in anticipation of the merger, Mr. Schonath cashed in
his existing stock options by (a) exercising each of the options, and (b)
immediately reselling the securities back to the company at a price equal
to the $14.20 merger consideration. The effect of these option exercises
and the cash repurchase is the same as the treatment Mr. Schonath would
have received pursuant to the merger agreement.
Other than as described above, there have been no transactions in
InvestorsBancorp common stock by InvestorsBancorp, Investors Subsidiary, the
directors and officers of InvestorsBancorp and Investors Subsidiary, and the
Schonath Shareholders since March 15, 2003, which is the 60th day prior to the
initial filing of this transaction statement.
Prior to the merger, Schonath Family Partnership, a limited
partnership, which holds 132,943 shares of common stock of InvestorsBancorp and
warrants to purchase an additional 105,000 shares, will distribute all of its
shares of common stock and the warrants to its general and limited partners, all
of whom are Schonath shareholders, on a pro-rata basis.
INFORMATION ABOUT THE DIRECTORS, OFFICERS AND SCHONATH SHAREHOLDERS
INFORMATION ABOUT THE DIRECTORS AND EXECUTIVE OFFICERS OF INVESTORSBANCORP
Set forth in the table below are the (i) name, (ii) address, (iii)
current principal occupation or employment, and the name, principal business and
address of any corporation or other organization in which the employment or
occupation is conducted, and (iv) material occupations, positions, offices or
48
employment during the past five years, and the name, principal business and
address of any corporation or other organization in which the occupation,
position, office or employment was carried on, of each of the directors and
executive officers of InvestorsBancorp. Each person identified below is a United
States citizen. Unless otherwise indicated, each person's principal address is
W239 N1700 Busse Road, Waukesha, Wisconsin 53188.
DIRECTORS OF INVESTORSBANCORP
Current Principal Occupation or Employment and
Name Material Positions Held During the Past Five Years
---- --------------------------------------------------
Terry L. Mather Mr. Mather has been a partner of Critical Solutions, Inc., a business consulting firm
headquartered in Milwaukee, Wisconsin, since 1992. Mr. Mather's principal address is c/o Laacke
& Joys, 1433 N. Water Street, Milwaukee, Wisconsin 53202.
Jon McGlocklin Mr. McGlocklin has been the president of Healy Awards, Inc. in Menomonee Falls, Wisconsin,
since 1997, and an announcer for the Milwaukee Bucks since 1976. He was also a senior vice
president of InvestorsBancorp and InvestorsBank from their establishment in 1997 until
February, 2001. In July, 1997, Mr. McGlocklin was appointed senior vice president of Bando
McGlocklin Capital Corporation, now known as the Middleton Doll Company, which primarily makes
mortgage loans to small businesses and which also has a small subsidiary that is a doll
manufacturer, and in November 2001 his title was changed to vice president. Mr. McGlocklin's
principal address is 5281 North Hwy 83, Hartland, Wisconsin 53029.
Donald L. Menefee Mr. Menefee has been the president and chief executive officer of Silent Partners, a management
consulting firm based in Door County, Wisconsin, since he founded the company in 1996. Mr.
Menefee's principal address is 3073 N. Shepard Ave., Milwaukee, WI 53211.
George R. Schonath Mr. Schonath has been the President and Chief Executive Officer of InvestorsBancorp and
InvestorsBank since they were established in 1997. In July 1997, Mr. Schonath was appointed
president of Bando McGlocklin Capital Corporation and also currently serves as its Chief
Executive Officer. In May 2001, Mr. Schonath returned to his position as a director of The
Middleton Doll Company, where he had served as a director from 1980 through 1997 and as
Chairman of the Board from 1984 through 1997. Mr. Schonath is also the sole director and the
president of Investors Subsidiary.
Donald E. Sydow Mr. Sydow has been the president of Oconomowoc Manufacturing Corp., a ball-bearing manufacturer
located in Oconomowoc, Wisconsin, since 1982. Mr. Sydow's principal address is 425 South Lapham
Street, Oconomonoc, Wisconsin 53066-3911.
To the knowledge of InvestorsBancorp, none of the foregoing directors
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or has been a party to any judicial or administrative
proceeding (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting
49
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.
EXECUTIVE OFFICERS
Current Principal Occupation or Employment and
Name Material Positions Held During the Past Five Years
---- --------------------------------------------------
George R. Schonath See the information given for Mr. Schonath above under "--Directors."
Susan J. Hauke Ms. Hauke has been InvestorsBancorp's controller and vice-president-finance since 1997, was
elected secretary in 1999, and was elected chief financial officer in 2002. Ms. Hauke also
serves as vice president-finance, controller, and treasurer of InvestorsBank. In addition, she
is the chief financial officer, vice president-finance, secretary and treasurer of The
Middleton Doll Company. Ms. Hauke is also the vice president and treasurer of Investors
Subsidiary.
Glenn A. Michaelsen Mr. Michaelsen was elected as a senior vice president of InvestorsBancorp and InvestorsBank in
October, 2002. Mr. Michaelsen also serves as the senior vice president of The Middleton Doll
Company. Mr. Michaelsen joined InvestorsBancorp in June, 1998.
Greg A. Mieske Mr. Mieske was elected vice president-operations and compliance officer of InvestorsBancorp and
InvestorsBank in October 1999. He also serves as secretary of InvestorsBank. Mr. Mieske joined
InvestorsBancorp in December 1998, and prior to that served as a financial examiner for the
Department of Financial Institutions of the State of Wisconsin from 1987 until 1998. Mr. Mieske
is also the vice president and secretary of Investors Subsidiary.
Kim E. DeMartino Ms. DeMartino was elected senior vice president of InvestorsBancorp and InvestorsBank in
February 2001. She has served as a mortgage officer since joining InvestorsBancorp in 1997.
To the knowledge of InvestorsBancorp, none of the foregoing executive
officers has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or has been a party to any judicial or
administrative proceeding (except for matters that were dismissed without
sanction or settlement) that resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal or state
securities laws.
INFORMATION ABOUT THE DIRECTORS AND EXECUTIVE OFFICERS OF INVESTORS SUBSIDIARY
Set forth in the table below are the (i) name, (ii) address, (iii)
current principal occupation or employment, and the name, principal business and
address of any corporation or other organization in which the employment or
occupation is conducted, and (iv) material occupations, positions, offices or
employment during the past five years, and the name, principal business and
address of any corporation or other organization in which the occupation,
position, office or employment was carried on, of each of the directors and
executive officers of Investors Subsidiary. Each person identified below is a
United
50
States citizen. Unless otherwise indicated, each person's principal address is
W239 N1700 Busse Road, Waukesha, Wisconsin 53188.
DIRECTORS
Current Principal Occupation or Employment and
Name Material Positions Held During the Past Five Years
---- --------------------------------------------------
George R. Schonath See the information given for Mr. Schonath above under "Information about the
Directors and Executive Officers of InvestorsBancorp--Directors."
To the knowledge of Investors Subsidiary, Mr. Schonath has not been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or has been a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
It is anticipated that prior to the merger the current directors of
InvestorsBancorp will be appointed as directors of Investors Subsidiary and
under the terms of the merger agreement will continue as directors of
InvestorsBancorp after the merger. See the information given for these persons
above under "Information about the Directors and Executive Officers of
InvestorsBancorp--Directors."
EXECUTIVE OFFICERS
Current Principal Occupation or Employment and
Name Material Positions Held During the Past Five Years
---- --------------------------------------------------
George R. Schonath See the information given for Mr. Schonath above under "Information about the Directors and
Executive Officers of InvestorsBancorp--Directors."
Susan J. Hauke See the information given for Ms. Hauke above under "Information about the Directors and
Executive Officers of InvestorsBancorp--Executive Officers."
Greg A. Mieske See the information given for Mr. Mieske above under "Information about the Directors and
Executive Officers of InvestorsBancorp--Executive Officers."
To the knowledge of Investors Subsidiary, none of the foregoing
executive officers has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or has been a party to any judicial
or administrative proceeding (except for matters that were dismissed without
sanction or settlement) that resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal or state
securities laws.
51
INFORMATION ABOUT THE SCHONATH SHAREHOLDERS
Current Principal Occupation or Employment and
Name Material Positions Held During the Past Five Years
---- --------------------------------------------------
George R. Schonath See the information for George R. Schonath given above under "Information about the
Directors and Executive Officers of InvestorsBancorp--Directors."
Jenn M. Schonath Mrs. Schonath is the wife of George Schonath, and is a homemaker. Mrs. Schonath's principal
address is 200 Monastary Hill, Oconomowoc, Wisconsin 53006.
Sarah E. Schonath Ms. Schonath is an adult daughter of Mr. Schonath. She is employed as a senior accountant
with NeuroSource, Inc. and her business address is 515 North State Street, Suite 1700,
Chicago, Illinois 60610. From May 1998 through February 2002, she was employed as an
accountant by the public accounting firm Arthur Andersen LLP.
Emily A. Schonath Ms. Schonath is an adult daughter of Mr. Schonath. She is employed as an analyst for Unitrin
- Property and Casualty Insurance Group, and her business address is 10000 North Central
Expressway, Dallas, Texas 75231. From August 1997 through May 2001, she was a full-time
student at the University of Iowa.
Thomas Evans Mr. Evans is a citizen of the United States whose principal address is 132 Coy Street,
Mankato, Minnesota 56001. Mr. Evans is a postal clerk with the United States Post Office and
is the brother of Mrs. Jenn Schonath.
The Emily A. Schonath Irrevocable The Emily A. Schonath Irrevocable Trust dated December 31, 1996 is a trust organized under
Trust dated December 31, 1996 the laws of the state of Wisconsin, whose principal address is c/o Thomas Evans, trustee,
132 Coy Street, Mankato, Minnesota 56001.
The Sarah E. Schonath Irrevocable The Sarah E. Schonath Irrevocable Trust dated December 31, 1996 is a trust organized under
Trust dated December 31, 1996 the laws of the state of Wisconsin, whose principal address is c/o Thomas Evans, trustee,
132 Coy Street, Mankato, Minnesota 56001.
During the past five years, none of the Schonath shareholders has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or has been a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED TRANSACTIONS
The directors and officers of InvestorsBancorp and InvestorsBank, and
their associates, have been customers of and had transactions with
InvestorsBancorp and InvestorsBank. InvestorsBank and The Middleton Doll Company
also purchase loan participations from each other from time to time and,
pursuant to a management services and allocation of expenses agreement,
InvestorsBank performs certain loan servicing and administration services to The
Middleton Doll Company. Additional transactions may be expected to take place in
the future.
All outstanding loans, commitments to make loans, transactions in
repurchase agreement and certificates of deposit and depository and loan
participation and servicing relationships, in the opinion of management, were
made in the ordinary course of business, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable features.
InvestorsBank received an aggregate of approximately $1.0 million in loan
servicing and administration fees from The Middleton Doll Company in 2002.
InvestorsBancorp and InvestorsBank leased space for their main offices from The
Middleton Doll Company for ten months during 2002. The rent during that period,
including real estate taxes and furnishings, was approximately $90,000. During
October 2002, InvestorsBank purchased the premises from The Middleton Doll
Company for $2.4 million based on the current fair market value of the premises.
After the purchase of the building, InvestorsBank received $9,666 in rental
income from The Middleton Doll Company.
During 2002, a $2.5 million subordinated note to The Middleton Doll
Company was repaid and a $500,000 subordinated note to the Schonath Family
Partnership was repaid. Both of these notes were on substantially the same terms
and conditions as could be obtained from unrelated third parties.
Other than as disclosed in this transaction statement, there are no
other relationships or transactions outstanding.
AGREEMENTS INVOLVING INVESTORSBANCORP'S SECURITIES
It is contemplated that, following the merger, Mr. Schonath and the
Schonath shareholders will enter into a shareholders' agreement under which Mr.
Schonath will control the voting of all of the outstanding shares of the
Company's stock. Additionally, it is contemplated that the shareholders'
agreement will contain transfer restrictions on the outstanding shares of the
Company's stock. The transfer restrictions will be designed to prevent transfers
of shares of the Company's stock to third parties without the Company's approval
by giving the Company a right of first refusal before any shares may be sold to
anyone who is not a party to the shareholders' agreement. The principal reasons
for these transfer restrictions is to maintain control of the Company's
outstanding stock by the Schonath family and to avoid an inadvertent termination
of the Company's Subchapter S status through a sale of shares of Company stock
to a holder that would not meet the qualifications established by applicable tax
laws to be a shareholder in a Subchapter S corporation.
53
OTHER MATTERS
REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS
Other than as disclosed in this transaction statement,
InvestorsBancorp, Investors Subsidiary and the Schonath shareholders have not
received any report, opinion or appraisal from an outside party that is
materially related to the merger.
FORWARD LOOKING STATEMENTS
This transaction statement includes and incorporates by reference
statements that are not historical facts. These statements are `forward-looking
statements' (as defined in the Private Securities Litigation Reform Act of 1995)
based on our current plans and expectations relating to analyses of value,
expectations for anticipated growth in the future and future success under
various efforts, and, as such, these forward-looking statements involve
uncertainty and risk. These forward-looking statements should be read in
conjunction with our Annual Report on Form 10-KSB for the year ended December
31, 2002. Our Form 10-KSB is on file with the Securities and Exchange
Commission, a copy of which is available without charge upon written request to:
InvestorsBancorp, W239 N1700 Busse Road, Waukesha, Wisconsin 53188, Attention:
Corporate Secretary. In addition, actual results of InvestorsBancorp's
operations and the transactions contemplated by this transaction statement could
differ materially from the forward-looking statements contained in this proxy
statement because of many factors, such as the inability to consummate the
merger; actions of the U.S., foreign or local governments; costs related to the
merger; fluctuations in currency values; competitive pricing; changes in demand
for our products; costs; political and social conditions in the economies and
environments where InvestorsBancorp operates; the economic environment of the
document management industry; and the general economic environment.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. We do not undertake any obligation to update the forward-looking
statements contained or incorporated in this transaction statement to reflect
actual results, changes in assumptions, or changes in other factors affecting
these forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
InvestorsBancorp is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended. We file reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy these reports, proxy statements and other information at
the Securities and Exchange Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains an Internet web site, located at www.sec.gov, that contains reports,
proxy statements and other information regarding companies and individuals that
file electronically with the Securities and Exchange Commission.
Copies of any of these documents without their exhibits are also
available without charge to any person to whom we deliver this document. You
must make a written or oral request to InvestorsBancorp, Inc., W239 N1700 Busse
Road, Waukesha, Wisconsin 53188, Attention: Corporate Secretary (telephone:
(262) 523-1000). In order to ensure timely delivery of the documents, any
request should be made by ______________, 2003.
54
INFORMATION INCORPORATED BY REFERENCE
The rules and regulations of the SEC allow InvestorsBancorp to
incorporate into this document by reference certain reports and other
information, which means that important information may be disclosed to you by
referring you to another report or other information filed separately by
InvestorsBancorp with the SEC. The reports and other information incorporated
into this document by reference are deemed to be part of this document, except
for any information superseded by information contained in, or incorporated by
reference into, this document. This document hereby incorporates by reference
the reports listed below, which have been previously filed by InvestorsBancorp
with the SEC, provided that any reference to any claim of reliance on the
Private Securities Litigation Reform Act's forward looking statement safe harbor
contained in such documents is excluded, and is not incorporated herein by
reference. The following reports contains information about InvestorsBancorp and
its financial condition, results of operations and business that are important
to you, and we encourage you to read them carefully in connection with your
review of this document.
(1) Annual Report on Form 10-KSB, filed by InvestorsBancorp with
the SEC on March 28, 2003; and
(2) Quarterly Report on Form 10-QSB, filed by InvestorsBancorp
with the SEC on May 13, 2003, as amended on May 16, 2003;
(3) Current Report on Form 8-K, filed by InvestorsBancorp with the
SEC on March 26, 2003; and
(4) Current Report on Form 8-K, filed by InvestorsBancorp with the
SEC on May 2, 2003.
InvestorsBancorp is also incorporating by reference all additional
reports and other information filed by InvestorsBancorp with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act between the
date of this document and the date of consummation of the merger.
InvestorsBancorp has supplied all information contained in or
incorporated by reference in this document relating to InvestorsBancorp,
provided that any reference to any claim of reliance on the Private Securities
Litigation Reform Act's forward looking statement safe harbor contained in any
such document is excluded, and is not incorporated herein by reference.
YOU MAY HAVE BEEN SENT SOME OF THE REPORTS AND OTHER INFORMATION
INCORPORATED BY REFERENCE IN THIS DOCUMENT BY INVESTORSBANCORP, BUT YOU CAN ALSO
OBTAIN ANY OF THEM THROUGH THE SEC AT THE LOCATIONS DESCRIBED ABOVE, OR THROUGH
INVESTORSBANCORP AT THE ADDRESS BELOW. INVESTORSBANCORP WILL PROVIDE TO YOU,
WITHOUT CHARGE, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY OF ANY WRITTEN OR ORAL REQUEST BY YOU, A COPY OF ANY REPORT OR
OTHER INFORMATION INCORPORATED BY REFERENCE IN THIS DOCUMENT BY
INVESTORSBANCORP. YOU SHOULD DIRECT YOUR REQUEST TO THE FOLLOWING ADDRESS:
INVESTORSBANCORP, INC., W239 N1700 BUSSE ROAD, WAUKESHA, WISCONSIN 53188,
ATTENTION: CORPORATE SECRETARY.
55
TRANSACTION STATEMENT
ITEM 1. SUMMARY TERM SHEET.
Regulation M-A Item 1001
The information set forth in the section above captioned "Summary Term
Sheet" is incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION.
Regulation M-A Item 1002
(a) The information set forth in the section above
captioned "Introduction--The
Parties--InvestorsBancorp" is incorporated herein by
reference.
(b) The exact title of the class of equity securities
subject to this Transaction Statement is Common
Stock, par value $0.01 per share. As of May 15, there
were 990,529 shares of common stock outstanding.
(c) The information set forth in the section above
captioned "Market Price of InvestorsBancorp Common
Stock and Dividend Information--Comparative Market
Price Data" is incorporated herein by reference.
(d) The information set forth in the section above
captioned "Market Price of InvestorsBancorp Common
Stock and Dividend Information--Dividends" is
incorporated herein by reference.
(e) None of the filing parties has made an underwritten
public offering of InvestorsBancorp common stock for
cash during the past three years that was registered
under the Securities Act of 1933 or exempt from
registration thereunder pursuant to Regulation A.
(f) The information set forth in the section above
captioned "Common Stock Purchase Information--Prior
Stock Purchases" is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON.
Regulation M-A Item 1003 (a) through (c)
(a)-(c) The information set forth in the sections above
captioned "Introduction--The Parties" and
"Information about the Directors, Officers and
Schonath Shareholders" is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
Regulation M-A Item 1004 (a) and (c) through (f)
(a)(1) Not applicable.
(a)(2)(i) The information set forth in the sections above
captioned "Summary Term Sheet," "Introduction--The
Merger" and "Certain Terms of the Merger--The Merger
Agreement" is incorporated herein by reference.
56
(a)(2)(ii) The information set forth in the sections above
captioned "Summary Term Sheet" and "Certain Terms of
the Merger--The Merger Agreement" is incorporated
herein by reference.
(a)(2)(iii) The information set forth in the sections above
captioned "Special Factors--Background of the
Merger," "Special Factors--Reasons for the Merger;
Fairness of the Merger' and "Special
Factors--Purchase and Structure of the Merger" is
incorporated herein by reference.
(a)(2)(iv) The information set forth in the section above
captioned "Special Factors--Voting Requirements" is
incorporated herein by reference.
(a)(2)(v) The information set forth in the sections above
captioned "Special Factors--Certain Effects of the
Merger; Plans or Proposals after the Merger; "Special
Factors--Effects of the Merger on Shareholders of
InvestorsBancorp" and "Special Factors--Interests of
Certain Persons in the Merger" is incorporated herein
by reference.
(a)(2)(vi) The information set forth in the section above
captioned "Special Factors--Accounting Treatment" is
incorporated herein by reference.
(a)(2)(vii) The information set forth in the section above
captioned "Special Factors--Certain Federal Income
Tax Consequences of the Merger" is incorporated
herein by reference.
(c) The information set forth in the sections above
captioned "Special Factors--Certain Effects of the
Merger; Plans or Proposals After the Merger" and
"Special Factors--Effects of the Merger on
Shareholders of InvestorsBancorp" is incorporated
herein by reference.
(d) The information set forth in the section above
captioned "Special Factors--Appraisal Rights" is
incorporated herein by reference.
(e) None.
(f) Not applicable.
ITEM 5. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
Regulation M-A Item 1005 (a) through (c) and (e)
(a) The information set forth in the section above
captioned "Certain Relationships and Related
Transactions" is incorporated herein by reference.
(b) The information set forth in the section above
captioned "Special Factors--Background of the Merger"
is incorporated herein by reference.
(c) The information set forth in the section above
captioned "Special Factors--Background of the Merger"
is incorporated herein by reference.
(e) The information set forth in the section above
captioned "Certain Relationships and Related
Transactions" is incorporated herein by reference.
57
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Regulation M-A Item 1006 (b) and (c)(1) through (8)
(b) The information set forth in the section above
captioned "Special Factors--Background of the
Merger," "Special Factors--Reasons for the Merger;
Fairness of the Merger' and "Special Factors--Purpose
and Structure of the Merger" is incorporated herein
by reference.
(c)(1)-(8) The information set forth in the sections above
captioned "Special Factors--Background of the Merger"
and "Special Factors--Certain Effects of the Merger;
Plans or Proposals after the Merger" incorporated
herein by reference.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
Regulation M-A Item 1013
(a)-(c) The information set forth in the sections above
captioned "Special Factors--Background of the
Merger," "Special Factors--Reasons for the Merger;
Fairness of the Merger" and "Special Factors--Purpose
and Structure of the Merger" is incorporated herein
by reference.
(d) The information set forth in the Proxy Statement
under "Special Factors--Certain Effects of the
Merger; Plans or Proposals after the Merger,"
"Special Factors--Effects of the Merger on
Shareholders of InvestorsBancorp" and "Special
Factors--Certain Federal Income Tax Consequences of
the Merger".
ITEM 8. FAIRNESS OF THE TRANSACTION.
Regulation M-A Item 1014
(a)-(b) The information set forth in the sections above
captioned "Special Factors--Background of the Merger"
and "Special Factors--Reasons for the Merger;
Fairness of the Merger" is incorporated herein by
reference.
(c) The information set forth in the sections above
captioned "Special Factors--Voting Requirements" is
incorporated herein by reference.
(d)-(e) The information set forth in the sections above
captioned "Special Factors--Background of the Merger"
and "Special Factors--Reasons for the Merger;
Fairness of the Merger" is incorporated herein by
reference.
(f) None.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS.
Regulation M-A Item 1015
(a)-(b) The information set forth in the sections above
captioned "Special Factors--Background of the
Merger," and "Special Factors--Reasons for the
Merger; Fairness of the Merger" is incorporated
herein by reference.
(c) The information set forth in the sections above
captioned "Other Matters--Where You Can Find More
Information" is incorporated herein by reference. The
valuation
58
of Wipfli Ullrich Bertelson LLP in addition to being
attached as Appendix B-1 and Appendix B-2 of the
transaction statement will be made available for
inspection and copying at the principal executive
offices of InvestorsBancorp during its regular
business hours by any interested equity security
holder of InvestorsBancorp or representative who has
been so designated in writing.
ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Regulation M-A Item 1007
(a)-(d) The information set forth in the sections above
captioned "Special Factors--Background of the
Merger," Special Factors--Financing of the Merger"
and "Certain Terms of the Merger--Fees and Expenses"
is incorporated herein by reference.
ITEM 11. INTERESTS IN SECURITIES OF THE SUBJECT COMPANY.
Regulation M-A Item 1008
(a) The information set forth in the section above
captioned "Security Ownership" is incorporated herein
by reference.
(b) The information set forth in the section above
captioned "Common Stock Purchase Information--Recent
Transactions" is incorporated herein by reference.
ITEM 12. THE SOLICITATION OR RECOMMENDATION.
Regulation M-A Item 1012(d) and (e)
(d) Not applicable.
(e) Not applicable.
ITEM 13. FINANCIAL STATEMENTS.
Regulation M-A Item 1010(a) through (b)
(a) The required information is incorporated herein by
reference to (a) the Consolidated Financial
Statements, and the notes thereto, of
InvestorsBancorp as of and for its fiscal year ended
December 31, 2002, set forth under Item 7 of
InvestorsBancorp's Form 10-KSB for the year ended
December 31, 2002 (filed March 28, 2003) (File No.
000-29400), and (b) the information set forth in the
section above captioned "Financial Statements--Select
Historical Financial Data."
(b) Not applicable.
ITEM 14. PERSON/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Regulation M-A Item 1009
(a) Not applicable.
(b) The information in the sections above captioned
"Special Factors--Background of the Merger" and
"Special Factors--Financing of the Merger" is
incorporated herein by reference.
59
ITEM 15. ADDITIONAL INFORMATION.
Regulation M-A Item 1011(b)
(b) The information set forth in the transaction
statement is incorporated herein by reference.
ITEM 16. EXHIBITS.
Regulation M-A Item 1016(a) through (d), (f) and (g)
(a) None.
(b) None.
(c)(1) Valuation of Wipfli Ullrich Bertelson LLP dated March
20, 2003 (included as Appendix B-1 to this
transaction statement).
(c)(2) Corrected valuation of Wipfli Ullrich Bertelson LLP
dated April 16, 2003 (included as Appendix B-2 to
this transaction statement).
(d) Agreement and Plan of Merger by and between
InvestorsBancorp and Investors Subsidiary (included
as Appendix A to this transaction statement).
(f) Not applicable.
(g) Not applicable.
60
SIGNATURES
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated May 19, 2003
InvestorsBancorp Inc.
By: /s/ George R. Schonath
-----------------------------
Name: George R. Schonath
Title: Chief Executive Officer
Investors Subsidiary, Inc.
By: /s/ George R. Schonath
-----------------------------
Name: George R. Schonath
Title: President
/s/ George R. Schonath
--------------------------------
George Schonath
/s/ Jenn Schonath
--------------------------------
Jenn Schonath
/s/ Sarah E. Schonath
--------------------------------
Sarah E. Schonath
/s/ Emily A. Schonath
--------------------------------
Emily A. Schonath
/s/ Thomas Evans
--------------------------------
Thomas Evans
/s/ Thomas Evans
--------------------------------
Thomas Evans, as trustee of the
Sarah E. Schonath
Irrevocable Trust dated December
31, 1996
/s/ Thomas Evans
--------------------------------
Thomas Evans, as trustee of the
Emily A. Schonath
Irrevocable Trust dated December
31, 1996
2
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
(c)(1) Valuation of Wipfli Ullrich Bertelson LLP dated March 20, 2003 (included as Appendix B-1 to
this transaction statement.)
(c)(2) Corrected valuation of Wipfli Ullrich Bertelson LLP dated April 16, 2003 (included as
Appendix B-2 to this transaction statement.)
(d) Agreement and Plan of Merger by and between InvestorsBancorp and Investors Subsidiary
(included as Appendix A to this transaction statement).
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of March 25, 2003, by and between InvestorsBancorp, Inc., a
Wisconsin corporation ("INVB"), and Investors Subsidiary, Inc., a Wisconsin
corporation ("NEWCO").
RECITALS
A. INVB is a corporation duly organized and existing under the
laws of the State of Wisconsin, having authorized capital stock consisting of
9,000,000 shares of common stock, par value $0.01 per share (the "INVB COMMON
STOCK"), of which 994,187 shares are currently issued and outstanding, and
1,000,000 shares of preferred stock, par value $0.01 per share (the "INVB
PREFERRED STOCK"), of which no shares are currently issued and outstanding.
B. Newco is a newly-formed, wholly-owned subsidiary of INVB, duly
organized and existing under the laws of the State of Wisconsin, having
authorized capital stock consisting of 100 shares of common stock, par value
$0.01 per share (the "NEWCO STOCK"), of which one share is currently issued and
outstanding.
C. The boards of directors of INVB and Newco deem it advisable
and to the benefit of INVB and Newco and their respective shareholders that INVB
and Newco participate in a merger (the "MERGER") in accordance with the
provisions of Section 180.1104 of the Wisconsin Business Corporation Law (the
"WBCL"), pursuant to which Newco shall merge with and into INVB and the separate
corporate existence of Newco shall cease.
In consideration of the foregoing premises and the mutual promises,
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to those terms defined
throughout this Agreement, the following terms, when used herein, shall have the
following meanings.
(a) "AFFILIATE" means with respect to a particular
Person, any other Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person.
(b) "BUSINESS DAY" means any day except Saturday, Sunday
and any day on which InvestorsBank is authorized or required by law or other
government action to close.
(c) "CODE" means the United States Internal Revenue Code
of 1986.
(d) "CONTRACT" means any agreement, contract, obligation,
promise or understanding (whether written or oral and whether express or
implied) that is legally binding.
(e) "CONSENT" means any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant to
any Contract, Legal Requirement, Order or permit.
(f) "DEFAULT" means (i) any breach or violation of,
default under, contravention of, or conflict with, any Contract, Legal
Requirement, Order or permit, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a breach or
violation of, default under, contravention of, or conflict with, any Contract,
Legal Requirement, Order or permit, or (iii) any occurrence of any event that,
with or without the passage of time or the giving of notice or both, would give
rise to a right of any Person to exercise any remedy or obtain any relief under,
terminate or revoke, suspend, cancel, or modify or change the current terms of,
or renegotiate, or to accelerate the maturity or performance of, or to increase
or impose any liability under, any Contract, Legal Requirement, Order or permit,
where, in any such event, such Default is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on INVB or Newco, as
applicable.
(g) "EXCHANGE ACT" means the Securities Exchange Act of
1934.
(h) "GAAP" means U.S. generally accepted accounting
principles, consistently applied during the periods involved.
(i) "INDIVIDUAL AFFILIATE" means, with respect to an
individual, (i) such individual's spouse and their respective siblings, (ii)
such individual's children, and grandchildren, and any of their respective
spouses, (iii) any trust primarily for the benefit of any of the foregoing, and
(iv) any profit sharing or similar plan or trust or retirement account in which
such individual participates.
(j) "KNOWLEDGE" with respect to:
(i) an individual means that such person will be deemed
to have "Knowledge" of a particular fact or other matter if such
individual is actually aware of such fact or other matter; and
(ii) a Person (other than an individual) means that such
Person will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving as a director or officer or
manager of such Person (or in any similar capacity) has Knowledge of
such fact or other matter.
(k) "LEGAL REQUIREMENT" means any federal, state, local,
municipal, foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty, including the United States banking laws, rules and regulations and the
banking laws, rules and regulations of the State of Wisconsin.
(l) "MATERIAL ADVERSE EFFECT," with respect to any
Person, means any event, change or occurrence that, individually or together
with any other event, change of occurrence, has a material adverse impact on (i)
the financial position, business, or results of operations of such Person and
its subsidiaries, taken as a whole, or (ii) the ability of such Person to
perform its obligations under this Agreement or to consummate the Merger, in
each case other than any change, effect, event or occurrence to the extent
arising from or relating to (A) the United States or the banking industry in
general, (B) changes in GAAP or regulatory accounting principals generally
applicable to banks and their holding companies, (C) actions taken pursuant to
the obligations of the parties expressly set forth in this Agreement or (D)
general economic conditions.
(m) "ORDER" means any award, decision, directive,
injunction, judgment, memorandum, order, regulatory agreement, ruling, subpoena
or verdict entered, issued, made or rendered
A-2
by any court, administrative or other governmental agency, including any
Regulatory Authority, or by any arbitrator.
(n) "PERSON" means any individual, corporation (including
any non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or any Regulatory Authority.
(o) "PROCEEDING" means any action, arbitration, audit,
hearing, investigation, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any judicial or governmental
authority, including a Regulatory Authority, or arbitrator, but shall not
include regular, periodic examinations of depository institutions and their
Affiliates by Regulatory Authorities.
(p) "REGULATORY AUTHORITIES" means any federal, state or
local governmental body, agency or authority that under applicable statutes and
regulations: (i) has supervisory, judicial, administrative, police, taxing or
other power or authority over Newco or INVB; (ii) is required to approve, or
give its Consent to the Merger; or (iii) with which a filing must be made in
connection therewith, including in any case, the SEC, the Board of Governors of
the Federal Reserve System and the Federal Deposit Insurance Corporation.
(q) "SCHONATH SHARES" means the shares of INVB Common
Stock held by George Schonath and his Individual Affiliates.
(r) "SEC" means the United States Securities and Exchange
Commission.
(s) "THREATENED" means a claim, Proceeding, dispute,
action or other matter for which any demand or statement has been made (orally
or in writing) or any notice has been given (orally or in writing).
SECTION 1.2 PRINCIPLES OF CONSTRUCTION.
(a) In this Agreement, unless otherwise stated or the
context otherwise requires, the following uses apply: (i) actions permitted
under this Agreement may be taken at any time and from time to time in the
actor's sole discretion; (ii) references to a statute shall refer to the statute
and any successor statute, as amended from time to time, and to all regulations
promulgated under or implementing the statute or successor, as in effect at the
relevant time; (iii) in computing periods from a specified date to a later
specified date, the words "from" and "commencing on" (and the like) mean "from
and including," and the words "to," "until" and "ending on" (and the like) mean
"to, but excluding"; (iv) references to a governmental or quasi-governmental
agency, authority or instrumentality shall also refer to a regulatory body that
succeeds to the functions of the agency, authority or instrumentality; (v)
indications of time of day mean Waukesha, Wisconsin time; (vi) "including" means
"including, but not limited to"; (vii) all references to sections, schedules and
exhibits are to sections, schedules and exhibits in or to this Agreement unless
otherwise specified; (viii) all words used in this Agreement will be construed
to be of such gender or number as the circumstances require; and (ix) the
captions and headings of articles, sections, schedules and exhibits appearing in
or attached to this Agreement have been inserted solely for convenience of
reference and shall not be considered a part of this Agreement nor shall any of
them affect the meaning or interpretation of this Agreement or any of its
provisions.
(b) All accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
A-3
ARTICLE II
BASIC TERMS OF TRANSACTION
SECTION 2.1 THE MERGER. Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined below), Newco shall be merged
with and into INVB pursuant to the provisions of Section 180.1104 of the WBCL,
with INVB continuing as the surviving corporation (INVB, as the surviving
corporation resulting from the Merger, the "SURVIVING CORPORATION").
SECTION 2.2 TIME OF CLOSING. The closing of the transactions
contemplated hereby (the "CLOSING") will take place at 10:00 a.m., Central time,
on the date that the Effective Time occurs, or at such other time as the parties
may mutually agree. The Closing shall be held at such location as may be
mutually agreed by the parties.
SECTION 2.3 EFFECTIVE TIME. The Merger and the other transactions
contemplated by this Agreement shall become effective on the date and at the
time (the "EFFECTIVE TIME") the Articles of Merger ("ARTICLES OF MERGER")
reflecting the Merger shall become effective with the Secretary of State of the
State of Wisconsin.
SECTION 2.4 WBCL. At and after the Effective Time, the Merger
shall have the effects as set forth in the applicable provisions of the WBCL,
this Agreement and the Articles of Merger. From and after the Effective Time,
the Surviving Corporation shall possess all of the rights, powers, privileges
and franchises and be subject to all of the obligations, liabilities,
restrictions and disabilities of INVB and Newco, all as provided under the WBCL,
this Agreement and the Articles of Merger.
SECTION 2.5 ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of INVB, as in effect immediately prior to the
Effective Time, shall be amended and restated in the form attached as Exhibit A,
by operation of this Agreement and by virtue of the Merger, without any further
action by the shareholders or directors of INVB and, as so amended, such
Articles of Incorporation shall be the Articles of Incorporation of the
Surviving Corporation, until duly amended in accordance with the terms thereof
and the WBCL.
SECTION 2.6 BYLAWS. At the Effective Time, the bylaws of INVB, as
in effect immediately prior to the Effective Time, shall be amended and restated
in the form attached as Exhibit B, by operation of this Agreement and by virtue
of the Merger, without any further action by the shareholders or directors of
INVB and, as so amended, such bylaws shall be the bylaws of the Surviving
Corporation, until duly amended in accordance with the terms thereof, the
Articles of Incorporation of the Surviving Corporation and the WBCL.
SECTION 2.7 DIRECTORS AND OFFICERS. The directors of Newco
holding office immediately prior to the Effective Time and the officers of INVB
holding office immediately prior to the Effective Time shall, from and after the
Effective Time, be the initial directors and officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified, or until their earlier death, resignation or removal, in accordance
with the Surviving Corporation's Articles of Incorporation and bylaws.
SECTION 2.8 OFFICES. The offices and facilities of INVB
immediately prior to the Merger shall be the offices and facilities of the
Surviving Corporation immediately following the Merger.
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ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF INVB AND NEWCO
SECTION 3.1 INVB STOCK. Subject to the provisions of this
Agreement, by virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time, (a) each share of INVB Common Stock owned
of record by each shareholder of INVB, other than any Schonath Shares, shall
cease to be outstanding and shall be converted into the right to receive from
INVB a cash payment in the amount of $14.20 (less any required payment of taxes,
the "CASH PAYMENT"); and (b) each of the Schonath Shares will represent one
share of common stock of the Surviving Corporation.
SECTION 3.2 NEWCO STOCK. Subject to the provisions of this
Agreement, by virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time, each share of Newco Stock will be
canceled, and the holder thereof will be entitled to receive $1.00 in cash per
share of Newco Stock.
SECTION 3.3 OPTIONS.
(a) INVB shall take all actions necessary to provide
that, immediately prior to the Effective Time, (i) each then outstanding option
(each, an "OPTION" and collectively, the "OPTIONS") to purchase or acquire
shares of INVB Common Stock under the InvestorsBancorp Inc. 1997 Equity
Incentive Plan (the "EQUITY PLAN"), whether or not then exercisable or vested,
shall become fully exercisable and vested, (ii) each Option which is then
outstanding shall be canceled as of the Effective Time and (iii) in
consideration of such cancellation, each Option shall, as of the Effective Time,
represent for all purposes only the right to receive in cash, with respect to
each Option, an amount (net of any applicable withholding tax) equal to the
differences between the Cash Payment and the per share exercise price of such
Option to the extent such difference is a positive number, multiplied by the
number of shares of INVB Common Stock subject to such Option (such amount in
cash as described above being hereinafter referred to as the "OPTION PAYMENT"),
payable as provided in SECTION 3.3(b).
(b) Upon the Effective Time, INVB shall pay to each
holder of an Option the Option Payment (net of any applicable withholding tax
and without any interest thereon) in respect thereof; provided, however, that
with respect to any Person subject to Section 16(a) of the Exchange Act, such
Option Payment shall not be payable until the first date payment can be made
without liability to such Person under Section 16(b) of the Exchange Act, but
shall be paid as soon as practicable thereafter. No interest shall be paid or
accrued on the Option Payment. Until settled in accordance with the provisions
of this SECTION 3.3(b), each Option shall be deemed at any time after the
Effective Time to represent for all purposes only the right to receive the
Option Payment.
(c) Prior to the Effective Time, INVB shall take all
action necessary (including causing the Board of Directors of INVB or any
subsidiary (or any respective committees thereof) to take such actions) as are
allowed by the Equity Plan to ensure that (i) following the Effective Time, no
holder of an Option nor any party to or participant in the Equity Plan shall
have any right thereunder to acquire equity securities of INVB or any subsidiary
and (ii) the Equity Plan shall terminate as of the Effective Time.
SECTION 3.4 WARRANTS. At the Effective Time, the warrant (the
"WARRANT") issued to the Schonath Family Partnership, a limited partnership, and
exercisable for the purchase of 105,000 shares of INVB Common Stock, shall
remain outstanding and become an obligation of the Surviving Corporation.
SECTION 3.5 STOCK TRANSFER BOOKS. At the Effective Time, the
stock transfer books of INVB shall be closed and there shall be no further
registration of transfers of shares of INVB Common Stock thereafter on the
records of INVB.
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ARTICLE IV
EXCHANGE OF SHARES
SECTION 4.1 PAYING AGENT. Prior to the Effective Time, INVB shall
appoint a United States bank or trust company to act as paying agent (the
"PAYING AGENT") for the payment of funds in amounts and at times necessary for
the payment of the Cash Payment to the shareholders of INVB, and immediately
following the Effective Time, the Surviving Corporation shall deposit, or shall
cause to be deposited, with the Paying Agent the funds, in amounts and at times
necessary for the payment of the Cash Payment to the shareholders of INVB, in a
separate fund (the "PAYMENT FUND") established for the benefit of the
shareholders of INVB, for payment in accordance with this ARTICLE IV, through
the Paying Agent. If for any reason the Payment Fund is inadequate to pay the
amounts to which holders of shares of INVB Common Stock shall be entitled under
this Agreement, the Surviving Corporation shall take all steps necessary to
deposit, or cause to be deposited, in trust additional cash with the Paying
Agent sufficient to make all payments required under this Agreement, and the
Surviving Corporation shall in any event be liable for payment thereof. The
Payment Fund shall not be used for any purpose except as expressly provided in
this Agreement.
SECTION 4.2 EXCHANGE PROCEDURES.
(a) Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record of a
certificate or certificates that represented shares of INVB Common Stock
immediately prior to the Effective Time (the "CERTIFICATES") appropriate
transmittal materials and instructions (which shall specify that delivery shall
be effected, and risk of loss and title to such Certificates shall pass, only
upon proper delivery of such Certificates to the Paying Agent). Upon surrender
of a Certificate for cancellation to the Paying Agent together with such letter
of transmittal, duly executed, or an "agents message" in the case of a book
entry transfer, and such other customary documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in respect thereof cash in an amount equal to the product of (a) the
number of shares of INVB Common Stock formerly represented by such Certificate,
multiplied by (b) the Cash Payment, less any required withholding taxes, and the
Certificate so surrendered shall forthwith be cancelled. No interest shall be
paid or accrued on the Cash Payment payable upon the surrender of any
Certificate. If any holder of a Certificate shall be unable to surrender such
holder's Certificate because such Certificate has been lost, mutilated or
destroyed, such holder may deliver in lieu thereof an affidavit and indemnity
bond in form and substance and with surety reasonably satisfactory to the
Surviving Corporation and the Paying Agent. If payment is to be made to a Person
other than the Person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the Person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a Person other than the registered holder of the surrendered
Certificate or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable.
SECTION 4.3 DEDUCTIONS/WITHHOLDING. Each of the Surviving
Corporation and the Paying Agent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder of
shares of INVB Common Stock such amounts, if any, as it is required to deduct
and withhold with respect to the making of such payment under the Code or any
provision of state, local or foreign tax law. To the extent that any amounts are
so withheld by the Surviving Corporation or the Paying Agent, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of INVB Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation or
the Paying Agent, as the case may be.
SECTION 4.4 TERMINATION OF PAYMENT FUND; INTEREST. Any portion of
the Payment Fund that remains undistributed to the holders of shares of INVB
Common Stock for 180 days after the Effective
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Time shall be delivered to the Surviving Corporation, upon demand, and any
holder of INVB Common Stock who has not theretofore complied with this ARTICLE
IV and the instructions set forth in the letter of transmittal mailed to such
holder after the Effective Time shall thereafter look only to the Surviving
Corporation for payment of the Cash Payment to which such holder is entitled.
All interest accrued in respect of the Payment Fund shall inure to the benefit
of and be paid to the Surviving Corporation.
SECTION 4.5 LIMITATION OF LIABILITY. Any other provision of this
Agreement notwithstanding, neither the Surviving Corporation nor the Paying
Agent shall be liable to a holder of INVB Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INVB
SECTION 5.1 CORPORATE ORGANIZATION, AUTHORIZATION, ETC. INVB is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Wisconsin and has full corporate power and authority to conduct
its business as it is now being conducted and to own, lease and operate its
material assets. INVB is duly registered with the Board of Governors of the
Federal Reserve System as a bank holding company under the Bank Holding Company
Act of 1956. INVB is duly qualified or licensed to do business as a foreign
corporation and is in good standing in the states of the United States and
foreign jurisdictions where the character of its assets or the nature or conduct
of its business makes such qualification or licensing necessary, except for
jurisdictions in which the failure to be so qualified, licensed and in good
standing would not have a Material Adverse Effect on INVB. INVB has full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by INVB and is a valid and binding agreement of INVB in accordance
with its terms, subject to laws relating to creditors' rights generally.
SECTION 5.2 AUTHORIZED AND OUTSTANDING STOCK. The authorized
capital stock of INVB consists of 9,000,000 shares of INVB Common Stock, and
1,000,000 shares of INVB Preferred Stock. As of the date hereof, (i) 994,187
shares of INVB Common Stock are outstanding, and all of such shares are fully
paid, validly issued and nonassessable, and (ii) no shares of INVB Preferred
Stock are outstanding. As of the date hereof, 100,000 shares of INVB Common
Stock are reserved for issuance pursuant to the Equity Plan, of which 20,690
were subject to outstanding Options, and 105,000 shares of INVB Common Stock are
reserved for issuance in connection with the Warrant. Except as otherwise
provided herein, INVB does not have outstanding, and is not bound by, any
subscriptions, options, warrants, calls, commitments or agreements to issue any
additional shares of its capital stock, including any right of conversion or
exchange under any outstanding security or other instrument, and INVB is not
obligated to issue any shares of its capital stock for any purpose. There are no
unsatisfied preemptive rights with respect to INVB Stock.
SECTION 5.3 CONSENTS OF REGULATORY AUTHORITIES. Other than (i)
filings with the SEC required for "going private" transactions; (ii) filings and
Consents required by the Board of Governors of the Federal Reserve System; (iii)
the filing of this Agreement or Articles of Merger with corporate and Regulatory
Authorities, as appropriate; and (iv) other Consents, filings or notifications
that, if not obtained or made, are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on INVB, no notice to, filing
with, or Consent of, any public body or authority is necessary for the
consummation by INVB of the Merger and the other transactions contemplated by
this Agreement.
SECTION 5.4 NO BREACH. Neither the execution and delivery of this
Agreement by INVB, nor the consummation by INVB of the transactions contemplated
hereby, nor compliance by INVB with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of INVB's Articles of
Incorporation or bylaws or any resolution adopted by the board of directors or
the shareholders of INVB, or
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(ii) constitute or result in a Default under or result in the creation of any
lien on any asset of INVB under, any Contract or permit of INVB, where such
Default or lien is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on INVB.
SECTION 5.5 COMPLIANCE WITH LAWS. INVB has in effect all permits
necessary for it to own, lease or operate its material assets and to carry on
its business as now conducted, except for those permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on INVB, and there has occurred no Default under any such permit,
other than Defaults which could not reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect on INVB. INVB:
(a) is not in Default under any of the provisions of its
Articles of Incorporation or bylaws;
(b) is not in Default under any Legal Requirement, Order
or permit applicable to its business, except for Defaults that could not
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect on INVB; and
(c) since January 1, 2001, has not received any
notification or communication from any agency or department of federal, state or
local government or any Regulatory Authority or the staff thereof (i) asserting
that INVB is not, or may not be, in compliance with any Legal Requirement, where
such noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on INVB, (ii) threatening to revoke any
permits, the revocation of which is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on INVB, or (iii) requiring INVB to
enter into or consent to the issuance of a cease and desist order, injunction,
formal agreement, directive, commitment, or memorandum of understanding, or to
adopt any board resolution or similar undertaking, which restricts materially
the conduct of its business, or in any manner relates to its employment
decisions, its employment safety practices, its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
SECTION 5.6 PROCEEDINGS. There is no Proceeding instituted or
pending, or, to the Knowledge of INVB, Threatened (or unasserted but considered
probable of assertion and that if asserted would have at least a reasonable
possibility of an unfavorable outcome) against INVB, or against any director or
officer in their capacities as such, or against any asset, interest, or right of
any of them that is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on INVB, nor are there any Orders outstanding against
INVB that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on INVB.
SECTION 5.7 TAKEOVER LAWS. INVB has taken all necessary action to
exempt the transactions contemplated by this Agreement from, or if necessary to
challenge the validity or applicability of, any applicable "fair price,"
"business combination," "control share," or other anti-takeover laws
(collectively, "TAKEOVER LAWS").
SECTION 5.8 BOARD ACTION. The Board of Directors of INVB, at a
meeting duly called and held, has determined that this Agreement and the
transactions contemplated hereby, including the Merger, are fair to and in the
best interests of the shareholders of INVB, and approved this Agreement and the
transactions contemplated hereby, including the Merger.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to INVB that:
SECTION 6.1 CORPORATE ORGANIZATION, AUTHORIZATION, ETC. Newco is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Wisconsin and has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. Newco is duly qualified or licensed to do business as a foreign
corporation and is in good standing in the states of the United States and
foreign jurisdictions where the character of its assets or the nature or conduct
of its business makes such qualification or licensing necessary, except for
jurisdictions in which the failure to be so qualified, licensed and in good
standing would have a Material Adverse Effect on Newco. This Agreement has been
duly executed and delivered by Newco and is a valid and binding agreement of
Newco in accordance with its terms, subject to laws relating to creditors'
rights generally.
SECTION 6.2 AUTHORIZED AND OUTSTANDING STOCK. The authorized
capital stock of Newco consists of 100 shares of common stock, par value $0.01
per share. As of the date hereof, one share of Newco Stock outstanding, and SUCH
share is fully paid, validly issued and nonassessable. Newco does not have
outstanding, and is not bound by, any subscriptions, options, warrants, calls,
commitments or agreements to issue any additional shares of its capital stock,
including any right of conversion or exchange under any outstanding security or
other instrument, and Newco is not obligated to issue any shares of its capital
stock for any purpose. There are no unsatisfied preemptive rights in respect of
Newco Stock.
SECTION 6.3 CONSENTS OF REGULATORY AUTHORITIES. Other than (i)
filings with the SEC required for "going private" transactions; (ii) the filing
of this Agreement or Articles of Merger with corporate and Regulatory
Authorities, as appropriate; and (iii) other Consents, filings or notifications
that, if not obtained or made are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Newco, no notice to, filing with,
or Consent of, any public body or authority is necessary for the consummation by
Newco of the Merger and the transactions contemplated by this Agreement.
SECTION 6.4 NO BREACH. Neither the execution and delivery of this
Agreement by Newco, nor the consummation by Newco of the transactions
contemplated hereby, nor compliance by Newco with any of the provisions hereof,
will (i) conflict with or result in a breach of any provisions of Newco'
Articles of Incorporation or bylaws, or (ii) constitute or result in a Default
under or result in the creation of any lien on any asset of Newco under, any
Contract or permit of Newco, where such Default or lien is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Newco.
SECTION 6.5 COMPLIANCE WITH LAWS. Newco:
(a) is not in Default under any of the provisions of its
Articles of Incorporation or bylaws;
(b) is not in Default under any Legal Requirement, except
for Defaults that could not reasonably be anticipated to have, individually or
in the aggregate, a Material Adverse Effect on Newco; and
(c) since its incorporation, has not received any
notification or communication from any agency or department of federal, state,
or local government or any Regulatory Authority or the staff thereof asserting
that Newco is not, or may not be, in compliance with any Legal Requirement,
where such noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Newco.
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SECTION 6.6 PROCEEDINGS. There is no Proceeding instituted or
pending, or, to the Knowledge of Newco, Threatened (or unasserted but considered
probable of assertions and that if asserted would have at least a reasonable
possibility of an unfavorable outcome) against Newco, or against any director or
officer in their capacities as such, or against any asset, interest, or right of
Newco that is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Newco, nor are there any Orders outstanding against
Newco, that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Newco.
SECTION 6.7 TAKEOVER LAWS. Newco has taken all necessary action
to exempt the transactions contemplated by this Agreement from, or if necessary
to challenge the validity or applicability of, any applicable Takeover Laws.
SECTION 6.8 BOARD ACTION. The Board of Directors of Newco, at a
meeting duly called and held, has by unanimous vote of the directors present
(who constitute all of the directors then in office) adopted this Agreement and
the transactions contemplated hereby, including the Merger.
ARTICLE VII
OBLIGATIONS PRIOR AND SUBSEQUENT TO EFFECTIVE TIME
SECTION 7.1 SCHEDULE 13E-3. As promptly as practicable following
the date of this Agreement, INVB and Newco shall file with the SEC, and shall
use their reasonable best efforts to cause any of their Affiliates engaging in
this transaction to file with the SEC, a Rule 13E-3 Transaction Statement on
Schedule 13E-3.
SECTION 7.2 REPORTS. Each of INVB and Newco shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other party
copies of all such reports promptly after the same are filed. As of their
respective dates, any such reports will comply in all material respects with all
Legal Requirements and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
SECTION 7.3 CONSENTS OF REGULATORY AUTHORITIES. INVB and Newco
shall cooperate with each other and use their reasonable efforts to promptly
prepare and file all necessary documentation, to effect all applications,
notices, petitions and filings and to obtain as promptly as practicable all
Consents of all Regulatory Authorities and other Persons that are necessary or
advisable to consummate the transactions contemplated by this Agreement,
including the Merger. The parties agree that they will consult with each other
with respect to the obtaining of all Consents of all Regulatory Authorities and
other Persons necessary or advisable to consummate the transactions contemplated
by this Agreement and each party will keep the other apprised of the status of
matters relating to contemplation of the transactions contemplated herein. Each
party also shall promptly advise the other upon receiving any communication from
any Regulatory Authority whose Consent is required for consummation of the
transactions contemplated by this Agreement that causes such party to believe
that there is a reasonable likelihood that any requisite Consent will not be
obtained or that the receipt of any such Consent will be materially delayed.
SECTION 7.4 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the
terms and conditions of this Agreement, each of INVB and Newco agrees to use,
and to cause its subsidiaries, if any, to use, its reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper, or advisable under applicable Legal Requirements to
consummate and make effective, as soon as reasonably practicable after the date
of this Agreement, the transactions contemplated by this Agreement, including
using its reasonable efforts to lift or rescind any Order adversely affecting
its ability to consummate the transactions contemplated herein and to cause to
be satisfied the conditions referred to in
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ARTICLE VIII; provided, however, that nothing herein shall preclude either party
from exercising its rights under this Agreement.
SECTION 7.5 PRESS RELEASES. INVB and Newco shall consult with
each other as to the form and substance of any press release or other public
disclosure materially related to this Agreement; provided, however, that nothing
in this SECTION 7.5 shall prohibit any party from making any disclosure that is
necessary or advisable in order to comply with such party's disclosure
obligations under any applicable Legal Requirements.
SECTION 7.6 FURTHER ASSURANCES. Each party hereto agrees to
execute and deliver such instruments and take such other party may reasonably
require in order to carry out the intent of this Agreement. Each party shall use
its best efforts to perform and fulfill all conditions and obligations on its
part to be performed or fulfilled under this Agreement and to effect the Merger
in accordance with the terms and conditions of this Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF INVB
The obligation of INVB to consummate the Merger and to take the other
actions required to be taken by INVB at the Effective Time are subject to the
satisfaction of each of the following conditions (any of which may be waived by
INVB, in whole or in part):
SECTION 8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties of Newco set forth in this Agreement shall be
true and correct in all material respects with the same force and effect as if
all of such representations and warranties were made at the Effective Time,
provided, however, that to the extent such representations and warranties
expressly relate to an earlier date, such representations shall be true and
correct in all material respects on and as of such earlier date, and provided
further, that to the extent that such representations and warranties are made in
this Agreement subject to a standard of materiality or Knowledge, such
representations and warranties shall be true and correct in all respects.
SECTION 8.2 NEWCO'S PERFORMANCE. Newco shall have performed or
complied in all material respects with all of the covenants and obligations to
be performed or complied with by it under the terms of this Agreement on or
prior to the Effective Time, provided, however, that to the extent performance
and compliance with such covenants and obligations are subject in this Agreement
to a standard of materiality, Newco shall have performed and complied in all
respects with such covenants and obligations.
SECTION 8.3 DOCUMENTS SATISFACTORY. All proceedings, corporate or
other, to be taken by Newco in connection with the Merger, and all documents
incident thereto, shall be reasonably satisfactory in form and substance to
INVB, and Newco shall have made available to INVB for examination the originals
or true and correct copies of all records and documents relating to the business
and affairs of Newco that INVB may reasonably request in connection with said
transactions.
SECTION 8.4 NO PROCEEDINGS. Since the date of this Agreement,
there must not have been commenced or Threatened against Newco or INVB, or
against any of the Affiliates of INVB any Proceeding: (a) involving any
challenge to, or seeking damages or other relief in connection with, the Merger;
or (b) that would reasonably be expected to have the effect of preventing,
delaying, making illegal or otherwise interfering with the Merger; or (c) that
would reasonably be expected to have a Material Adverse Effect on Newco.
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SECTION 8.5 CONSENTS. Any Consents required to be secured by
either party by the terms of this Agreement or otherwise reasonably necessary in
the opinion of INVB to consummate the Merger and all necessary regulatory
approvals shall have been obtained and shall be reasonably satisfactory to INVB,
and all applicable waiting periods shall have expired.
SECTION 8.6 NO INJUNCTION. There shall be no Legal Requirement or
any injunction or other Order that has been adopted or issued, or has otherwise
become effective, since the date of this Agreement that prohibits the Merger.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF NEWCO
Newco's obligation to consummate the Merger and to take the other
actions required to be taken by Newco at the Closing are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Newco, in whole or in part):
SECTION 9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties of INVB set forth in this Agreement shall be
true and correct in all material respects with the same force and effect as if
all of such representations and warranties were made at the Effective Time,
provided, however, that to the extent such representations and warranties
expressly relate to an earlier date, such representations shall be true and
correct in all material respects on and as of such earlier date, and provided
further, that to the extent that such representations and warranties are made in
this Agreement subject to a standard of materiality or Knowledge, such
representations and warranties shall be true and correct in all respects.
SECTION 9.2 INVB'S PERFORMANCE. INVB shall have performed or
complied in all material respects with all of the covenants and obligations to
be performed or complied with by it, under the terms of this Agreement on or
prior to the Effective Time, provided, however, that to the extent performance
and compliance with such covenants and obligations are subject in this Agreement
to a standard of materiality.
SECTION 9.3 DOCUMENTS SATISFACTORY. All proceedings, corporate or
other, to be taken by INVB in connection with the Merger, and all documents
incident thereto, shall be reasonably satisfactory in form and substance to
Newco.
SECTION 9.4 NO PROCEEDINGS. Since the date of this Agreement,
there must not have been commenced or Threatened against Newco or INVB, or
against any of the Affiliates of Newco any Proceeding: (a) involving any
challenge to, or seeking damages or other relief in connection with, the Merger;
or (b) that would reasonably be expected to have the effect of preventing,
delaying, making illegal or otherwise interfering with the Merger; or (c) that
would reasonably be expected to have a Material Adverse Effect on INVB.
SECTION 9.5 CONSENTS. Any Consents required to be secured by
either party by the terms of this Agreement or otherwise reasonably necessary in
the opinion of Newco to consummate the Merger and all necessary regulatory
approvals shall have been obtained and shall be reasonably satisfactory to
Newco, and all applicable waiting periods shall have expired.
SECTION 9.6 NO INJUNCTION. There shall be no Legal Requirement or
any injunction or other Order that has been adopted or issued, or has otherwise
become effective, since the date of this Agreement that prohibits the Merger.
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ARTICLE X
TERMINATION
SECTION 10.1 RIGHT OF TERMINATION. Anything herein to the contrary
notwithstanding, prior to filing of this Agreement or Articles of Merger with
the Secretary of State of the State of Wisconsin, this Agreement may be
terminated and the transactions contemplated hereby may be abandoned at any time
by the mutual consent in writing of the boards of directors of INVB and Newco.
SECTION 10.2 EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to this ARTICLE X, the same shall be of no further force or
effect and there shall be no liability by reason of this Agreement or the
termination thereof on the part of Newco, INVB or any of the directors,
officers, employees, or agents, or shareholders of any of them, except as to any
liability for breach of any duty, representation, warranty or obligation under
this Agreement arising prior to the date of termination.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 GOVERNING LAW. All questions concerning the
construction, validity and interpretation of this Agreement, and the performance
of the obligations imposed by this Agreement shall be governed by the State of
Wisconsin applicable to Contracts made and wholly to be performed in such state
without regard to conflicts of laws.
SECTION 11.2 BROKERS. Except for Wipfli Ullrich Bertelson LLP,
each of INVB and Newco represents and warrants that neither it not any of its
officers, directors, employees or Affiliates has employed any broker or finder
or incurred any liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions or finders' fees in connection with this
Agreement or the transactions contemplated hereby.
SECTION 11.3 ASSIGNMENTS, SUCCESSORS AND NO THIRD PARTY RIGHTS. No
party may assign any of its rights under this Agreement to any other Person
without the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. Subject to the preceding sentence, this
Agreement and every representation, warranty, covenant, agreement and provision
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
SECTION 11.4 WAIVER. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable law: (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
A-13
SECTION 11.5 MODIFICATION. This Agreement may only be amended by
a written agreement executed by both parties.
SECTION 11.6 NOTICES. All notices, consents, waivers and other
communications under this Agreement must be in writing (which shall include
telecopy communication) and will be deemed to have been duly given if delivered
by hand or by nationally recognized overnight delivery service (receipt
requested), mailed by certified mail (return receipt requested) with first class
postage prepaid or by facsimile if confirmed immediately thereafter by also
mailing a copy of any notice, request or other communication by mail as required
in this Section:
(a) If to INVB, to:
InvestorsBancorp, Inc.
W239 N1700 Busse Road
Waukesha, WI 53188-1160
Attention: Mr. George R. Schonath
Facsimile: (262) 523-4193
(b) if to Newco, to:
Investors Subsidiary, Inc.
W239 N1700 Busse Road
Waukesha, WI 53188-1160
Attention: Mr. George R. Schonath
Facsimile: (262) 523-4193
with a copy to:
Barack Ferrazzano Kirschbaum
Perlman & Nagelberg LLC
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Facsimile: (312) 984-3150
Attention: John E. Freechack, Esq.
or to such other Person or place as INVB or Newco shall furnish in writing.
Except as otherwise provided herein, all such notices, consents, waivers and
other communications shall be effective: (a) if delivered by hand, when
delivered; (b) if mailed in the manner provided in this Section, five (5)
Business Days after deposit with the United States Postal Service; (c) if
delivered by overnight express delivery service, on the next Business Day after
deposit with such service; and (d) if by facsimile, on the next Business Day if
also confirmed by mail in the manner provided in this Section.
SECTION 11.7 ENTIRE AGREEMENT. This Agreement and any documents
executed by the parties pursuant to this Agreement and referred to herein
constitute a complete and exclusive statement of the entire understanding and
agreement of the parties hereto with respect to their subject matter and
supersede all other prior agreements and understandings, written or oral,
relating to such subject matter between the parties.
SECTION 11.8 SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective
A-14
only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement unless
the consummation of the Merger is adversely affected thereby.
SECTION 11.9 COUNTERPARTS. This Agreement and any amendments
thereto may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
agreement.
SECTION 11.10 SURVIVAL. None of the representations and warranties
set forth in this Agreement shall survive the Effective Time.
[THIS SPACE LEFT INTENTIONALLY BLANK]
A-15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the day and year first written
above.
INVB: NEWCO:
INVESTORSBANCORP, INC., a Wisconsin INVESTORS SUBSIDIARY, INC., a Wisconsin
corporation corporation
By: /s/ George R. Schonath By: /s/ George R. Schonath
----------------------------------- ------------------------------
Name: George R. Schonath Name: George R. Schonath
Title: Chief Executive Officer Title: President
APPENDIX B-1
[LETTER HEAD OF WIPFLI ULLRICH BERTELSON LLP]
March 20, 2003
Ms. Susan Hauke
InvestorsBancorp, Inc. and Subsidiaries
P.O. Box 190
Waukesha, WI 53188-0190
Dear Susan:
Enclosed please find six copies of our valuation of InvestorsBancorp, Inc. (the
"Holding Company") and Subsidiaries performed as of January 3, 2003. Please note
that we have arrived at a fair value of $13.71 per share based on 1,055,906
shares issued and outstanding.
In accordance with your authorization, I have also performed limited valuation
procedures to "roll forward" the fair value as of January 3, 2003 to March 19,
2003. The roll forward was performed by updating our various models for newly
available information. The newly available information included updating the
guideline companies' 30- day average closing prices through March 19, 2003,
estimating the guideline companies' increase in book value for estimated
earnings through March 19, 2003, and increasing the book value of the Holding
Company for estimated earnings through March 19, 2003.
The table below shows the value determined under each of the three approaches
and final conclusion for the original valuation and the roll-forward date.
January 3, 2003 March 19, 2003
--------------- --------------
Historical Prices Paid Method $ 15.17 $ 15.62
Guideline Companies Method 13.32 14.05
Guideline Transaction Method 12.63 12.94
------- -------
CONCLUSION $ 13.71 $ 14.20
======= =======
The following pages show the support for the roll-forward number.
If you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ Kevin M. Janke
Kevin M. Janke, CPA/ABV, ASA
Partner
Business Valuation/M&A Services
KMJ/ka
Encs.
cc: Sarah Bernstein
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
CORRELATION
Historical price method $15.62
======
Guideline company method $14.05
======
Guideline transaction method $12.94
======
Conclusion- average of three methods $14.20
======
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
30 day average of the Holding Company's closing price $ 13.02
Premium for control (20%) 2.60
-------
Fair value at March 19, 2003 utilizing this method $ 15.62
=======
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE COMPANY METHOD
(amounts in thousands)
THE HOLDING COMPANY'S HISTORICAL AND ADJUSTED EARNINGS
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
Net Income for the Year ended 1998 1999 2000 2001 2002
--------------------------------------------------------------
Income from operations $ 379,000 $ 956,000 $ 834,000 $2,140,000 $2,554,000
Current taxes (as reported) $ 82,000 $ 362,000 $ 272,000 $ 668,000 $ 882,000
--------------------------------------------------------------
Adjusted Historical Earnings $ 297,000 $ 594,000 $ 562,000 $1,472,000 $1,672,000
==============================================================
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
Estimated Ongoing Earnings (most recent period - rounded) $ 1,672,000
Capital to Earnings Multiple based on Guideline Public Company Method 9.52
------------
Fair Market Value of the Holding Company $ 15,921,321
Less: Outstanding Trust Preferred Securities $ (5,000,000)
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 10,921,321
Add: Control Premium (20%) $ 2,184,264
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 14,077,585
Divided by: Number of shares outstanding - fully 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority diluted basis interest basis $ 13.33
============
II. Holding Company's Book Value as of March 19, 2003 $ 10,915,000
Price to Book Multiple based on Guideline Transaction Method 1.12
------------
Fair Market Value of the Holding Company $ 12,176,847
Less: Outstanding Trust Preferred Securities $ 0
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 12,176,847
Add: Control Premium (20%) $ 2,435,369
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 15,584,216
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 14.76
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 14.05
============
GUIDELINE COMPANY DATA
AS OF MARCH 19, 2003
30 day avg
Total closing Outstanding Market Trust
Ticker Assets Price through Shares Capitalization Preferred
Name / Location Symbol (in thousands) 3/19/2003 (millions) (millions) (millions)
- -------------------------------------------------------------------------------------------------------------------------------
Baylake Corp.
Sturgeon Bay, WI BYLK.OB $ 904,656 $ 13.38 7.48 $ 100.08 $ 16.10
Commercial National Financial Corp
Ithaca, MI CEFC.OB $ 228,849 $ 11.74 3.63 $ 42.62 $ 0.00
Heartland Financial USA
Dubuque, IA HTLF.OB $ 1,785,979 $ 21.33 9.86 $ 210.31 $ 0.00
Horizon Bancorp
Michigan City, IN HBNC $ 720,100 $ 28.49 1.98 $ 56.41 $ 12.00
Iowa First Bancshares Corp.
Muscatine, IA IFST $ 378,705 $ 24.29 1.44 $ 34.98 $ 0.00
Mahaska Investment Company
Oskaloosa, IA OSKY $ 540,787 $ 16.27 3.92 $ 63.78 $ 10.00
Mid-Wisconsin Financial Services Inc
Medford, WI MWFS.OB $ 368,040 $ 27.46 1.69 $ 46.41 $ 0.00
Monroe Bancorp
Bloomington, IN MROE $ 533,317 $ 13.60 6.10 $ 82.96 $ 0.00
Princeton National Bancorp
Princeton, IL PNBC $ 587,525 $ 21.91 3.23 $ 70.77 $ 0.00
Average
Median
Selected Multiple *
Trailing Twelve Months Price Capital Estimated Price to
------------------------------- to TTM to TTM 19-Mar-03 Book
Name / Location ROA ROE Earnings Earnings Earnings Book Value Value
- -----------------------------------------------------------------------------------------------------------------------------
Baylake Corp.
Sturgeon Bay, WI 1.00% 13.98% $ 1.15 11.63 13.51 $ 8.87 3.32
Commercial National Financial Corp
Ithaca, MI 1.33% 13.13% $ 0.78 15.05 15.05 $ 6.33 1.85
Heartland Financial USA
Dubuque, IA 1.13% 16.44% $ 1.68 12.70 12.70 $ 12.97 1.64
Horizon Bancorp
Michigan City, IN 0.83% 14.21% $ 2.75 10.36 12.56 $ 21.49 1.33
Iowa First Bancshares Corp.
Muscatine, IA 0.93% 13.55% $ 2.48 9.79 9.79 $ 21.03 1.15
Mahaska Investment Company
Oskaloosa, IA 1.03% 10.73% $ 1.41 11.54 13.35 $ 13.95 1.17
Mid-Wisconsin Financial Services Inc
Medford, WI 1.30% 14.56% $ 2.65 10.36 10.36 $ 19.69 1.39
Monroe Bancorp
Bloomington, IN 1.17% 14.32% $ 1.00 13.60 13.60 $ 7.47 1.82
Princeton National Bancorp
Princeton, IL 1.08% 12.37% $ 1.86 11.78 11.78 $ 16.20 1.35
---------------- ----------------- ----
Average 1.09% 13.70% 11.87 12.52 1.67
================ ================= ====
Median 1.08% 13.98% 11.63 12.70 1.39
================ ================= ====
Selected Multiple * 9.52 1.12
==== ====
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE TRANSACTION METHOD
(amounts in thousands)
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
I. Historical Earnings (most recent period) $ 1,672,000
Price to Earnings Multiple based on Guideline Transaction Method 10.3
------------
Fair Market Value of the Holding Company, on a marketable, majority basis $ 17,292,660
Less: Outstanding Trust Preferred Securities $ (5,000,000)
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Market Value of the Holding Company, on a majority, marketable basis $ 13,264,660
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 12.56
============
II. Holding Company's Book Value as of March 19, 2003 $ 10,915,000
Price to Book Multiple based on Guideline Transaction Method 1.2
------------
Fair Market Value of the Holding Company, on a marketable, majority basis $ 13,098,000
Less: Outstanding Trust Preferred Securities $ 0
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Market Value of the Holding Company, on a majority, marketable basis $ 14,070,000
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 13.32
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 12.94
============
GUIDELINE TRANSACTION DATA
AS OF MARCH 19, 2003
Total Equity / NPAs / Trailing Twelve Months TTM Price to
Assets Assets Assets ---------------------- Price to Book
Seller Name / Location (in thousands) (%) (%) ROA ROE Earnings Value
- ---------------------------------------------------------------------------------------------------------------------
Fortress Bancshares, Inc.
Westby, WI $ 206,802 6.75 n/a 0.89% 13.35% 12.35 1.50
Waunakee Bank Shares, Inc.
Waunakee, WI $ 103,141 6.07 1.68 -0.23% -3.87% n/m 1.43
Bancorp Inc.
Cedarburg, WI $ 46,707 10.66 0.18 1.16% 10.57% 14.41 1.28
Northern Plains Bancshares
Thief River Falls, MN $ 46,946 7.43 0.20 1.06% 13.91% 13.17 1.67
Marquette Bank Illinois
Galesburg, IL $ 140,730 9.45 0.18 1.04% 12.12% 15.27 1.77
----------------------------------------------------------------------------
Average 8.07 0.56 0.78% 9.22% 13.80 1.53
=========================================================
Median 7.43 0.19 1.04% 12.12% 13.79 1.50
=========================================================
Selected Multiples ( the median) * 10.3 1.20
===============
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE COMPANY METHOD
(amounts in thousands)
THE HOLDING COMPANY'S HISTORICAL AND ADJUSTED EARNINGS
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
Net Income for the Year ended 1998 1999 2000 2001 2002
--------------------------------------------------------------
Income from operations $ 379,000 $ 956,000 $ 834,000 $ 2,140,000 $ 2,554,000
Current taxes (as reported) $ 82,000 $ 362,000 $ 272,000 $ 668,000 $ 882,000
--------------------------------------------------------------
Adjusted Historical Earnings $ 297,000 $ 594,000 $ 562,000 $ 1,472,000 $ 1,672,000
==============================================================
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
Estimated Ongoing Earnings (most recent period - rounded) $ 1,672,000
Capital to Earnings Multiple based on Guideline Public Company Method 8.4
------------
Fair Market Value of the Holding Company $ 14,077,161
Less: Outstanding Trust Preferred Securities $ (5,000,000)
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 9,077,161
Add: Control Premium (20%) $ 1,815,432
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 11,864,593
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 11.24
============
II. Holding Company's Book Value as of December 31, 2002 $ 10,357,000
Price to Book Multiple based on Guideline Transaction Method 1.23
------------
Fair Market Value of the Holding Company $ 12,739,110
Less: Outstanding Trust Preferred Securities $ 0
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 12,739,110
Add: Control Premium (20%) $ 2,547,822
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 16,258,932
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 15.40
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 13.32
============
GUIDELINE COMPANY DATA
AS OF DECEMBER 31, 2002
30 day avg
Total closing Outstanding Market Trust
Ticker Assets Price through Shares Capitalization Preferred
Name / Location Symbol (in thousands) 12/31/2002 (millions) (millions) (millions)
- ---------------------------------------------------------------------------------------------------------------------------------
Baylake Corp.
Sturgeon Bay, WI BYLK.OB $ 904,656 $ 13.13 7.48 $ 98.21 $ 16.10
Commercial National Financial Corp
Ithaca, MI CEFC.OB $ 228,849 $ 11.77 3.63 $ 42.73 $ 0.00
Heartland Financial USA
Dubuque, IA HTLF.OB $ 1,785,979 $ 15.76 9.86 $ 155.39 $ 0.00
Horizon Bancorp
Michigan City, IN HBNC $ 720,100 $ 24.49 1.98 $ 48.49 $ 12.00
Iowa First Bancshares Corp.
Muscatine, IA IFST $ 378,705 $ 22.92 1.44 $ 33.00 $ 0.00
Mahaska Investment Company
Oskaloosa, IA OSKY $ 540,787 $ 15.10 3.92 $ 59.19 $ 10.00
Mid-Wisconsin Financial Services Inc
Medford, WI MWFS.OB $ 368,040 $ 27.07 1.69 $ 45.75 $ 0.00
Monroe Bancorp
Bloomington, IN MROE $ 533,317 $ 13.19 6.10 $ 80.46 $ 0.00
Princeton National Bancorp
Princeton, IL PNBC $ 587,525 $ 20.88 3.23 $ 67.44 $ 0.00
Average
Median
Selected Multiple *
Trailing Twelve Months Price Capital Last Price to
--------------------------- to TTM to TTM Qtr End Book
Name / Location ROA ROE Earnings Earnings Earnings Book Value Value
- ----------------------------------------------------------------------------------------------------------------------
Baylake Corp.
Sturgeon Bay, WI 1.00% 13.98% $ 1.15 11.42 13.29 $ 8.62 1.52
Commercial National Financial Corp
Ithaca, MI 1.33% 13.13% $ 0.78 15.09 15.09 $ 6.16 1.91
Heartland Financial USA
Dubuque, IA 1.13% 16.44% $ 1.68 9.38 9.38 $ 12.60 1.25
Horizon Bancorp
Michigan City, IN 0.83% 14.21% $ 2.75 8.91 11.11 $ 20.89 1.17
Iowa First Bancshares Corp.
Muscatine, IA 0.93% 13.55% $ 2.48 9.24 9.24 $ 20.49 1.12
Mahaska Investment Company
Oskaloosa, IA 1.03% 10.73% $ 1.41 10.71 12.52 $ 13.64 1.11
Mid-Wisconsin Financial Services Inc
Medford, WI 1.30% 14.56% $ 2.65 10.22 10.22 $ 19.11 1.42
Monroe Bancorp
Bloomington, IN 1.17% 14.32% $ 1.00 13.19 13.19 $ 7.25 1.82
Princeton National Bancorp
Princeton, IL 1.08% 12.37% $ 1.86 11.23 11.23 $ 15.79 1.32
--------------- ---------------- ----
Average 1.09% 13.70% 11.04 11.70 1.40
=============== ================ ====
Median 1.08% 13.98% 10.71 11.23 1.32
=============== ================ ====
Selected Multiple * 8.42 1.06
==== ====
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
INVESTORSBANCORP, INC. AND
SUBSIDIARIES
WAUKESHA, WISCONSIN
FAIR VALUE BUSINESS VALUATION
AS OF JANUARY 3, 2003
Prepared By:
WIPFLI ULLRICH BERTELSON LLP
500 Third St.
P.O. Box 8010
Wausau, WI 54402-8010
(715) 845-3111
Fax: (715) 845-1189
Wipfli Ullrich Bertelson LLP
TABLE OF CONTENTS
Valuation Consultant's Report............................................................................... 1
DESCRIPTIVE INFORMATION
Background Business Information...................................................................... 6
General Economic Perspective......................................................................... 9
Industry Information................................................................................. 17
Loan Portfolio Disclaimer............................................................................ 21
Review of Financial Position and Performance......................................................... 22
VALUATION
Book Value........................................................................................... 30
Determination of Fair Value.......................................................................... 31
Specific Approaches to Valuation..................................................................... 32
Correlation and Conclusion........................................................................... 41
STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS.................................................... 42
EXHIBITS
A - Certificate of Valuation Consultant
B - Information Sources Used In Valuation
C - Comparative Balance Sheets
D - Comparative Income Statements
E - Adjusted Historical Earnings
F - Guideline Company Data
G - Guideline Transaction Data
InvestorsBancorp, Inc.
Wipfli Ullrich Bertelson LLP
VALUATION CONSULTANT'S REPORT
Mr. George Schonath
InvestorsBancorp, Inc. and Subsidiaries
P.O. Box 190
Waukesha, Wisconsin 53188-0190
RE: Business Valuation
Fair value as of January 3, 2003
InvestorsBancorp, Inc. and Subsidiary
In accordance with your authorization, we have appraised a majority,
marketable ownership interest of the common stock of InvestorsBancorp, Inc. and
its wholly owned subsidiaries, as of January 3, 2003. We are pleased to submit
the results of our findings in the following report.
OBJECTIVE AND PURPOSE OF THE APPRAISAL
The objective of the appraisal is to express an opinion of the fair
value of the common stock of InvestorsBancorp, Inc.'s common stock, as of
January 3, 2003, determined on a majority, marketable basis.
The purpose of the appraisal is to value InvestorsBancorp, Inc. to
assist the Board of Directors in setting a price per share to be used in
management planning.
Throughout the remainder of this report, InvestorsBancorp, Inc. may be
referred to as the "Holding Company" and InvestorsBank may be referred to as the
"Bank."
DEFINITION AND PREMISE OF VALUE
The term fair value is a legally created standard of value that applies
to certain specific transactions. In most states, fair value is the statutory
standard of value applicable in cases of dissenting shareholders' appraisal
rights. In these states, if a corporation merges, sells out, or takes certain
other major actions, and the owner of a minority interest believes that he is
being forced to receive less than adequate consideration for his stock, he has
the right to have his shares appraised and to receive fair value in cash. In
states that have adopted the Uniform Business Corporation Act, including
Wisconsin, the definition of fair value is fairly similar. Section 180.1301(4)
of the Wisconsin Statutes defines fair value as follows:
"With respect to a dissenter's shares, other than in a
business combination, means the value of the shares
immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable."
InvestorsBancorp, Inc.
1
Wipfli Ullrich Bertelson LLP
VALUATION CONSULTANT'S REPORT
Even in states that have adopted language similar to the standard
definition for fair value, there is usually no clearly recognized consensus
regarding the interpretation of fair value, however, published precedents
established in various state courts certainly have not equated fair value to
fair market value. Generally, states have defined fair value using a broader
standard than simply fair market value. Even when a proportionate share of
enterprise value is an indicated interpretation of "fair value," precedent as to
which factors to consider and the relative weights to accord each varies
considerably between states.
In HMO-W Incorporated v. SSM Health Care System and the Neillsville
Clinic, S.C. (case 98-2834), the Wisconsin Supreme Court reviewed a decision of
the Court of Appeals regarding dissenters' rights. In its opinion filed June 7,
2000, the Wisconsin Supreme Court stated:
"The legislature clearly did not intend to render fair value synonymous
with fair market value when appraising dissenters' shares in a
nonbusiness combination... Examining the purpose of dissenters' rights
statutes; we conclude that the application of a minority discount in
determining the fair value of a dissenter's shares frustrates the
equitable purpose to protect minority shareholders. A dissenting
shareholder is thus entitled to the proportionate interest of his or
her minority shares in the going concern of the entire company."
Accordingly, based on this recent Wisconsin Supreme Court opinion, we have
determined the fair value of the Company's stock on a marketable, majority
interest basis.
Fair value assumes a hypothetical situation with many built-in
conditions and assumptions. Some of those assumptions are incorporated into the
definitions above. Other assumptions and conditions are discussed or are implied
or expressed in the attached Statement of General Assumptions and Limiting
Conditions. IT SHOULD BE CLEAR THAT WHENEVER ANY OF THOSE CONDITIONS DO NOT
APPLY OR WHEN SPECIAL "TERMS" ARE NEGOTIATED, THEN THE PRICE CAN VARY FROM THE
ESTIMATED FAIR VALUE.
CONCLUSION:
Based on the premises as outlined above and the investigation and
analysis detailed in the attached narrative report and for the purpose as
stated, it is concluded that the per share fair value of the common stock of
InvestorsBancorp, Inc. determined on a majority, marketable basis, as of January
3, 2003, based on 1,055,906 shares outstanding on a fully diluted basis, is
reasonably estimated at:
THIRTEEN DOLLARS AND SEVENTY ONE CENTS $13.71
InvestorsBancorp, Inc.
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VALUATION CONSULTANT'S REPORT
VALUATION PROCEDURES:
In conjunction with this valuation, there are many factors that must be
considered in the valuation of a business enterprise. Among them are the pattern
of historical performance and earnings, the Bank's competitive market position,
experience and quality of management, marketability, and others. Some of these
factors are outlined in Revenue Ruling 59-60 as the pertinent factors to
consider in the valuation of closely held businesses or securities in those
businesses. The Internal Revenue Service issued Revenue Ruling 59-60 (1959-1
C.B. 237) to indicate its viewpoint on the valuation of closely held securities.
This ruling, as amended by Revenue Ruling 65-192 & 65-193 (1965-2 C.B. 259 &
370), has been accepted by the courts and the appraisal community as a basic
guideline to the process.
In the following report, we have given consideration to the eight
pertinent factors discussed in Revenue Ruling 59-60 to the extent they are
relevant for this valuation.
The eight factors which we have considered are as follows:
1. The nature of the business and the history of the enterprise from its
inception.
2. The economic outlook in general and the condition and outlook of the
specific industry in particular.
3. The value of the tangible assets as represented on the books of the
company and financial condition of the business.
4. The potential earnings capacity of the business and its ability to pay
a fair return on an investment.
5. The actual dividends or the ability of the business to pay dividends.
6. The presence of goodwill and other intangible assets in the overall
enterprise value.
7. The size of the company or size of the block of stock or security being
valued; transactions or sales of similar securities, if available.
8. Market data of similar businesses including actual sales and offerings;
relevant financial and sale data of securities in publicly traded
comparable companies.
It should be noted that the above definition does not cover all
possible values of a business. For example, the assumed buyer is a person who
comes to the business and who buys it on the basis of its own financial
strength. Some buyers, however, may have other motives for purchasing a
business, such as the elimination of competition or the combination of two
operations, that will provide a greater profit than each business could provide
separately.
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VALUATION CONSULTANT'S REPORT
Under these circumstances, there is information available to the buyer
which is not available to the seller. Although these buyers may be willing to
pay a particular premium to buy a business, an appraiser generally is not privy
to this information unless specifically doing the valuation for the purpose of
such a sale. We know of no such sale being imminent and thus do not further
consider this particular situation in forming an opinion of value.
VALUATION TERMS AND CONDITIONS
This report is intended for use only in connection with the stated
purpose. No other purpose is intended or should be inferred.
The following narrative report and exhibits further describe the
analyses performed and conclusions reached during this appraisal. In addition,
the statement of general assumptions and limiting conditions and certificate of
valuation consultant are integral parts of this valuation opinion. This report
should be read only in conjunction with them.
We take no responsibility in updating this report for events and
circumstances occurring after the date of the valuation.
Sincerely,
/s/ Wipfli Ullrich Bertelson LLP
-------------------------------------
Wipfli Ullrich Bertelson LLP
Date: /s/ March 20, 2003
-------------------------------------
Wausau, Wisconsin
InvestorsBancorp, Inc.
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NARRATIVE REPORT
InvestorsBancorp, Inc.
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DESCRIPTIVE INFORMATION
BACKGROUND BUSINESS INFORMATION
HISTORY
InvestorsBancorp, Inc. is a one-bank holding company that owns 100% of
the stock of the InvestorsBank, which is located on the northern edge of
Waukesha, Wisconsin. Waukesha is a community of approximately 40,000 people
located approximately 20 miles directly west of downtown Milwaukee, in Waukesha
County in southeastern Wisconsin. Waukesha County is part of the four-county
Milwaukee Metropolitan Area.
InvestorsBank was formed in September 1997 as a spin-off from The
Middleton Doll Company, which was formerly known as Bando McGlocklin Capital
Corporation. The Bank offers a complete line of financial services to small
businesses and individuals in the community of Waukesha and in southeastern
Wisconsin. Pursuant to a management services agreement, the Bank also manages
the commercial loan and leased properties portfolios of Bando McGlocklin Small
Business Lending Corporation (BMSBLC), a subsidiary of The Middleton Doll
Company.
The Bank originally rented its 4,750 square foot facility at W239 N1700
Busse Road, Waukesha, Wisconsin, under a triple net lease from BMSBLC, which has
its main office in the same building. In the fourth quarter of 2002, the Bank
purchased this facility from BMSBLC for approximately $2.4 million. The Bank's
facilities are adequate to meet the needs of the Holding Company and the Bank
for the foreseeable future.
InvestorsBancorp, Inc. was formed as a subsidiary of The Middleton Doll
Company in June 1996 to hold the assets to be acquired by the Bank upon its
spin-off from The Middleton Doll Company. On September 6, 1997, The Middleton
Doll Company distributed all 880,000 shares of the Holding Company's outstanding
stock to its shareholders and, on September 8, 1997, the Bank commenced
business. On January 15, 2000, the Holding Company paid a 5% stock dividend. The
Holding Company has not paid any cash dividends since its formation, and the
Holding Company and the Bank believe that all future earnings will be retained
to finance the growth of the Bank and that no cash dividends will be paid in the
foreseeable future.
On September 19, 2000, the Bank formed a wholly owned subsidiary,
Investors Business Credit, Inc., which was incorporated under Nevada State law.
The subsidiary was formed to hold the Bank's long-term securities and certain
commercial loans to take advantage of state tax law provisions that result in
the Bank paying lower taxes to the State of Wisconsin.
On June 20, 2002, InvestorsBancorp Capital Trust I (the "Trust") was
incorporated under Delaware law as a wholly owned subsidiary of the Holding
Company to issue and sell Capital Trust I Floating Rate Cumulative Trust
Preferred Securities. The Company issued a debenture to the Trust in exchange
for the proceeds from the sale of the securities on June 27, 2002. The
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BACKGROUND BUSINESS INFORMATION
Trust issued 5,000 shares of Trust Preferred Securities with a liquidation value
of $1,000 per share. The proceeds from this transaction were used by the Company
to pay off $3.0 million of subordinated debt and to increase the capital of the
Bank. The Trust Preferred Securities debt is due on June 30, 2032, with interest
payable quarterly beginning on September 30, 2002. The interest rate is based on
the three-month LIBOR rate plus 365 basis points (5.03% as of January 3, 2003)
and resets quarterly with a maximum rate of 12% prior to June 30, 2007. The net
$5.0 million of Trust Preferred Securities is considered tier 1 capital for
regulatory purposes.
ORGANIZATION
As of the valuation date, the Bank had 21 employees, three of whom were
shared with BMSBLC. The Bank receives payment for the time its employees spend
on BMSBLC activities. As of the valuation date, the Bank's management included:
Name Age Title
---- --- -----
George R. Schonath 61 President and Chief Executive Officer
Glen Michaelsen 40 Senior Vice President - Commercial Lending
Kim DeMartino 42 Senior Vice President - Mortgage Lending
Susan J. Hauke 36 Vice President - Finance, Controller
Greg Mieske 42 Vice President - Operations
COMMON STOCK OWNERSHIP
As of the valuation date, the shareholders of InvestorsBancorp, Inc. were as
follows:
SHAREHOLDER SHARES PERCENT
- -------------------------------------------------------------------------------------------
George R. Schonath 241,870.180 22.905%
Schonath Family Partnership 237,943.131 22.533%
Thomas Evans, Trustee for the Sarah E. Schonath Irrevocable
Trust dated December 31, 1996 79,863.950 7.563%
Thomas Evans, Trustee for the Emily A Schonath Irrevocable
Trust dated December 31, 1996 79,863.950 7.563%
Sarah Schonath 3,275.560 0.310%
Emily Schonath 3,057.560 0.290%
Jenn Schonath 1,262.490 0.120%
------------- -------
Total - Schonath Family 647,136.821 61.284%
Other Shareholders 408,829.000 38.716%
------------- -------
Total Shares Outstanding 1,055,965.821 100.000%
============= =======
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DESCRIPTIVE INFORMATION
BACKGROUND BUSINESS INFORMATION
The shares noted above are on a fully diluted basis including 27,201
stock options to an employee of the Bank and 105,000 warrants issued to the
Schonath Family Partnership.
COMPETITORS
Competitors include a number of financial institutions located near the
Bank's Waukesha location as well as banks throughout the Milwaukee Metropolitan
Area that focus on small business lending. The following were the largest
commercial banks located in Waukesha County as of June 30, 2002, the last date
this information was available from the FDIC:
- --------------------------------------------------------------------------------
TOTAL LOCAL PERCENT OF
BANK / NUMBER OF LOCATIONS DEPOSITS TOTAL
- --------------------------------------------------------------------------------
M&I Marshall & Illsley Bank
16 Offices $ 1,323,396 21.10%
- -----------------------------------------------------------------------------
Bank One Wisconsin
14 Offices $ 644,804 10.28%
- -----------------------------------------------------------------------------
Associated Bank, N.A.
19 Offices $ 521,417 8.31%
- -----------------------------------------------------------------------------
U.S. Bank, N.A.
14 Offices $ 487,795 7.78%
- -----------------------------------------------------------------------------
Waukesha State Bank
14 Offices $ 434,690 6.93%
- -----------------------------------------------------------------------------
Citizens Bank of Mukwonago
10 Offices $ 302,128 4.82%
- -----------------------------------------------------------------------------
First Bank Financial Centre
5 Offices $ 200,824 3.20%
- -----------------------------------------------------------------------------
Park Bank
2 Offices $ 123,678 1.97%
- -----------------------------------------------------------------------------
InvestorsBank
1 Office $ 121,378 1.94%
- -----------------------------------------------------------------------------
Delafield State Bank
1 Office $ 113,539 1.81%
- -----------------------------------------------------------------------------
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
In the valuation of any company, the general economic factors
prevailing at the date of the appraisal must be considered in order to gain
insight into the economic climate in which investors are dealing. Although
individual factors may or may not have a direct impact on a particular industry,
the overall economy and the outlook for it, strongly influence how investors
perceive the investment opportunities in all industries. In our analysis of the
Holding Company and Bank, we have considered the general economic climate that
prevailed at the date of this appraisal, as well as the outlook for the future.
SUMMARY - U.S. OUTLOOK
The economy is staging a slow recovery that will gather steam as the
year progresses. After suffering through a two-and-one-half-year bout of
below-capacity growth (sometimes called a growth recession), real gross domestic
product (GDP) should post growth of 3.0% this year, followed by 4.6% in 2004.
This encouraging outlook assumes that the United States wages a short and
successful war to unseat Saddam Hussein beginning in late February or
mid-to-late-March. Also, tax cuts and increased military spending to replenish
the equipment and supplies used up in the war will give the economy an extra
boost during the second half of 2003 and early 2004. After increasing by 0.7% in
the fourth quarter of 2002, real GDP is expected to increase 3.0% in the first
quarter and 3.3% in the second quarter of 2003.
In the near term, however, the unemployment rate will continue to rise
as labor-force growth outstrips new hiring and as productivity gains slow the
need for new workers. Inflation should accelerate slightly, to 2.0% this year
and next, after coming in at 1.6% in 2002. Because inflation is expected to
remain tame, the first Federal Reserve move to tighten interest rates is not
expected until the August FOMC (Federal Open Market Committee) meeting. Bond
yields will anticipate the tightening, and the stock market will begin a modest
recovery.
The dollar is expected to continue to fall modestly, but the current
account deficit will widen as the U.S. grows faster than its trading partners.
Corporate profits, which have been essentially flat for four years, should
improve this year, but will not exceed their prior peak until 2004. Wage and
salary gains will likely slow dramatically this year as employers try to control
labor costs in the face of rapidly rising health insurance costs.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
RECENT EVIDENCE
Real GDP growth during the final quarter of 2002 was as weak as
expected, with the growth rate coming in at a mere 0.7%. The major components of
GDP in the fourth quarter contained no surprises. There were increases in
consumer and government spending, a modest rise in business spending on
equipment and software, and a strong gain in residential construction. The drag
came from a slowdown in inventory building, plus further declines in
nonresidential construction and net trade. Imports fell, but exports fell
proportionately more. The trade numbers were distorted by the West Coast dock
strike, however, and should not be interpreted as typical.
A long lasting productivity boom came to an end in the fourth quarter
of 2002. Output per hour declined at a 0.2% rate in the nonfarm business sector,
as total hours increased more than output. For the year as a whole, however, the
improvement in productivity was the best in over 50 years. The 4.2% jump in
productivity held unit labor costs to a mere 0.3% increase.
Employers are becoming more tight-fisted as they wrestle with sluggish
demand growth and strong competition. Payroll employment declined 0.1% in the
fourth quarter, declining 0.9% for the year. The employment cost index showed an
increase of only 0.4% in private-sector wages and salaries in the fourth
quarter, the same as in the third. For the year, the wage and salary index
increased only 2.7%; although soaring benefit costs boosted the increase in
total compensation to 3.3%. The pressure on wages also shows in average hourly
earnings, which posted a 12-month increase of only 2.7% in January, the least
since 1995.
Consumers continued their spending habits at the end of last year.
Excluding sales of new light vehicles, consumer spending increased at a 2.5%
annual rate in the fourth quarter, the same as in the third. Total consumer
spending increased only 1.0% in the fourth quarter because of the sharp slowdown
in vehicle sales. On a year-to-year basis, personal consumption increased 3.7%
in the third quarter of 2002 before declining by 2.5% in the last quarter.
Business spending on equipment is on the recovery track. Nonresidential
fixed investment increased 1.5% in the fourth quarter, after declining 0.8% in
the third. On a year-to-year basis, nonresidential fixed investment declined by
1.9% in the fourth quarter of 2002. Investment in information processing
equipment continued to grow, increasing by 3.9% in the fourth quarter. New
computer systems are beginning to show up in offices, software spending is
recovering, and auto fleet sales have improved. The weakest segment remains
aircraft production. Spending on aircraft and parts has rebounded from its
trough, but is still extremely
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
depressed. It will likely be the last to see a real recovery, since the airline
industry itself is in crisis, and U.S. aircraft manufacturers are facing
vigorous overseas competition.
Residential construction ended the year in overdrive. Low mortgage
rates have kept buyers in the housing market, despite concerns over jobs and
income, and are allowing prices to keep rising. Existing house sales grew by a
29.6% annual rate in the fourth quarter to 5.73 million units. Once mortgage
rates turn up, sales will slow down. The home improvement business could
accelerate, however, as owners decide it is better to remodel or add on than
relocate.
INCOME, SPENDING, AND EMPLOYMENT
Personal income increased by 3.0% in 2002. It is expected to increase
by 4.7% in 2003 and by 6.0% in 2004.
Strong consumer spending is likely to continue. Excluding sales of new
light vehicles, consumer spending will increase at about a 2.5% annual rate in
the first half of 2003. This rate jumps to 4.5% at year-end, when tax cuts and
rebates begin to flow, and could accelerate further in early 2004. Personal
consumption is expected to increase by 2.5% for all of 2003, and by 4.6% in
2004.
After declining 0.1% in the last quarter of 2002, payroll employment is
expected to decline an additional 0.2% in the first quarter of 2003, before it
increases by 0.5% in the second quarter. For the year as a whole, payroll
employment is expected to increase by 0.4% in 2003, following a decline of 0.9%
in 2002. The labor market is expected to further recover in 2004, as employment
increases by 2.3%. The unemployment rate is expected to reach its maximum level
of 6.3% in the second quarter of 2003, then decline to an average 5.3% in 2004
and 5.0% in 2005.
HOUSING
Residential investment is heading into 2003 on an exceptionally strong
note. Builders are rushing to get projects to the selling stage before mortgage
rates rise. Housing starts are expected to slip from their fourth quarter pace
of 1.747 million to 1.677 million in 2003 and 1.642 million 2004. Residential
construction will become a drag on GDP growth over the course of the year
despite a high level of activity.
Some of the strength in single-family housing, however, will be offset
by a slowdown in the multi-family sector because rental vacancy rates are rising
rapidly.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
BUSINESS INVESTMENT
Business spending on equipment is on the recovery track. Total
nonresidential fixed investment is expected to increase by 3.6% in 2003, after a
decline of 5.8% in 2002. Overall, the current forecast calls for real spending
on producers' durable equipment to jump nearly 6% in 2003 and 12% in 2004. The
growth in equipment spending will be more than enough to offset the slump in
nonresidential construction. Business spending on structures is expected to drop
by 3.6% this year after falling by 16.4% in 2002.
GOVERNMENT SPENDING
Behind the forecast is the assumption that Congress will enact a
package of tax cuts worth about $80 billion on an accrual basis in 2003. On a
cash basis, much of the benefit will be felt in early 2004. There will likely be
another round of rebate checks, but only a small portion will be spent
immediately.
Although state and local governments were still increasing purchases at
the end of 2002, some serious trimming in the remainder of 2003 is probable.
With fewer than six months left in most states' fiscal years and budgets running
in the red, painful cuts can no longer be avoided. The easy cuts have been made
and rainy-day funds have been depleted. Layoffs are occurring, consultants are
being cut loose, and fees are being raised. Tax increases will be next, but
probably not before 2004.
INTERNATIONAL TRADE AND THE DOLLAR
The strong dollar and the poor global economy are hurting American
exports. Although the dollar has fallen from its peak, it has not dropped far
enough to significantly assist U.S. exporters. In addition, the delay of the
European Central Bank in cutting interest rates and the failure of European
governments to pursue more simulative fiscal policies, as well as Japan's
reluctance to modernize its financial sector, all restrict the global market for
U.S. goods and services.
Exports are expected to advance by 4.4% in 2003, followed by 9.1%
growth in each of the next two years. Imports will grow faster than exports in
2003, adding to the current account deficit.
The deficit on the current account balance of payments is expected to
deteriorate further to ($547.0) billion in 2003, from ($500.5) billion in 2002.
Despite a continuing decline in the value of the dollar, the current account
deficit is projected to widen to ($614.8) billion in 2004 and ($653.3) billion
in 2005.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
SUMMARY - WISCONSIN OUTLOOK
The Wisconsin economy will struggle this year to achieve positive
employment growth. The previous forecast in November 2002 used employment
estimates through September as a base for projecting employment growth of 1.4%
this year. Now, due to large employment benchmark revisions and a lower national
forecast, Wisconsin employment growth this year is expected to show only a small
positive change of 0.2% over 2001. Labor markets are still quite weak, consumer
spending has slowed, and business investment plans remain on hold until some
clarity is given to the Iraqi and terrorist situations.
Personal income growth in Wisconsin is now expected to advance by 3.3%
in 2003, after a gain of 3.0% in 2002. Because inflation is expected to
accelerate slightly this year, real personal income growth is expected to slow
to 1.2% in 2003 after a 1.6% gain in 2002.
The outlook for the longer term is better than the outlook for the next
few months. If a war in Iraq is both quick and successful, the national economy
is poised to begin a recovery phase that should last into 2004 and 2005. The
Wisconsin economy will follow suit. Employment growth for 2004 is now projected
to be 2.3%, followed by growth of 2.1% in 2005. Personal income growth is
expected to be 4.9% in 2004 and 5% in 2005.
The newly revised data on Wisconsin employment now show that total wage
and salary employment growth has remained below zero since the second quarter of
2001. At the time of the last forecast in November, it was thought that
employment growth had already turned the corner into positive territory. Now,
employment data show that Wisconsin entered the 2001 recession before the U.S.
and has remained below the U.S. employment growth path up to the present.
EMPLOYMENT OUTLOOK
The relatively large downward revision to total employment has altered
the expectations for near-term employment growth in Wisconsin. The current
forecast calls for a small decline (0.2%) annual rate, in total nonfarm
employment during the first quarter of 2003. The weakness will continue into
spring when total job growth is expected to be 0.4% at an annualized rate.
Employment growth is expected to accelerate during the last two quarters of
2003, growing by 1.1% in the third quarter and by 2.4% in the fourth. For all of
2003, total employment should average 0.2% higher than the average for 2002. The
unemployment rate, at 5.3% in the last quarter of 2002, may bump up to 5.8% by
mid-year before beginning to slide back down to an average of 4.7% in 2004 and
4.4% in 2005.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
Wisconsin manufacturing industries continue to bleed jobs and are
expected to show continued declines through the third quarter of this year. The
number of manufacturing jobs was 523,700 in the fourth quarter, down 2.9% from
the third quarter. It is now expected that the number of manufacturing jobs will
fall to a level of 510,500 before growth resumes in the fourth quarter. The
growth of manufacturing jobs is expected to be 1.2% in 2004 and 2.9% in 2005. On
a year-over-year basis, the growth in manufacturing jobs is expected to catch up
to growth in total employment by the end of 2004 and then decelerate along with
total employment growth to a rate of 1.3% to 1.4% at the end of 2006.
INCOME OUTLOOK
Wisconsin personal income grew at a 5.1% annual rate in the third
quarter of 2002, up from a revised rate of 3.2% in the second quarter.
Year-over-year gains in personal income have shown steady improvement since the
2.0% posting for fourth quarter of 2001. Year-over-year growth in total personal
income has been 2.3%, 2.8%, and 3.4%, respectively, for the first through third
quarters of 2002. Based on preliminary estimates of employment for the last
quarter of 2002, we estimate that the growth in personal income in the October
through December period was estimated to be 0.3% at an annualized rate. The
year-over-year growth continues to improve, however, to 3.6%.
The outlook for personal income growth is for continued moderate gains
for the next two quarters until employment gains begin to boost income growth
above 4% in the last quarter of 2003 and above 5% for most of 2004 and 2005.
Personal income growth is expected to average 3.3% for all of 2003 and move up
to 5.0% growth in 2004, followed by 5.1% growth in 2005.
Wages and salaries grew by 2.7% in 2002 and are estimated to grow by
2.4% in 2003. When employment growth resumes in 2004 and 2005, wage and salary
income growth bumps up to 4.9% in 2004 and 5.0% in 2005. Other labor income, a
category of income that includes fringe benefits such as employer's
contributions to employee health plans, has been growing quite rapidly recently.
Other labor income grew by 7.6% in 2002 and is expected to grow by 6.8% this
year. The forecast for growth in other labor income remains robust in 2004 at
7.2% and in 2005 at 6.5%.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
LOCAL OUTLOOK
The Bank's office is located in Waukesha, Wisconsin, which is located
in Waukesha County. Accordingly, we will look at the economic outlook for this
county.
WAUKESHA COUNTY - The total population in Waukesha County grew by
nearly 51,000 people, or 16.7%, between the 1990 census and January 1, 2000,
when the county's total population was 360,767. Waukesha County grew an
additional 1.7% from 2000 to 2001. This growth rate is higher than the state
rate of 8.5% and the national rate of 8.7%. From a metropolitan perspective,
this growth rate in the 1990s was behind Washington County, 20.8%, but ahead of
both Ozaukee County, 12.3%, and Milwaukee County, (0.5%). Through July 1, 2001,
Waukesha County's population growth continued with an increase of 1.7%; which
was higher than the state's growth rate of 0.7% during this period.
While the unemployment rate in Waukesha County closely mirrors
fluctuations within the state of Wisconsin, the Waukesha County rate has
remained significantly lower than either the national or the state unemployment
rate over the past five years. In 2001, the unemployment rate in Waukesha County
averaged 3.3%, compared to 4.7% in the state of Wisconsin and 4.8% in the
nation. During 2002, Waukesha County's unemployment rate peaked at 5.0% in
February and declined to a low of 3.9% in May, increased to 4.4% in June, and
then declined to 3.4% in October. Waukesha County's unemployment rate in
December 2002 was 3.8%, which was significantly less than the state of
Wisconsin's rate of 4.9%.
Waukesha County's nonfarm wage and salary employment one-year growth
rate of 0.8% was less than the state job growth rate of 2.4%, however, the
five-year growth rate of 14.3% exceeded the state growth rate of 11.8%. Waukesha
County employers added 28,600 jobs from 1996 to 2001. Employers from the
services industries added over 22,800 jobs during this period, while
manufacturers added nearly 5,800 jobs during this period. Over the past five
years, the industries experiencing the highest growth rates in the county
included construction; retail trade; finance, insurance, and real estate; and
miscellaneous services; meanwhile, the largest decline was in the
transportation, communications, and utilities industries. In 2001, the largest
employers in Waukesha County (all employing greater than 1,000 persons) include
Kohl's Department Stores, Quad/Graphics, General Electric Medical Systems,
Waukesha Memorial Hospital, The Gap, Target Stores, Cooper Power Systems,
Wal-Mart, United Parcel Service, and Community Memorial Hospital of Menomonee
Falls.
In 2000, the median household income of Waukesha County was $62,839,
which was the highest in the four county metropolitan area. The per capita
personal income (PCPI)
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GENERAL ECONOMIC PERSPECTIVE
includes total income from wages and self-employment, assets, and transfer
payments divided by total population. In 2000, the PCPI in Waukesha County of
$39,659 was the second highest county in the state of Wisconsin and equaled 141%
of the state's PCPI.
SUMMARY
The current economic outlook affects the Bank in two primary ways. The
negative economic climate may hamper continued growth. Unemployment has risen
and manufacturing slowed in many parts of the country, including southeast
Wisconsin. In addition, decreasing interest rates have caused an increase in the
number of people refinancing their mortgages, upgrading their houses or building
homes. The fees generated from the refinancings are not expected to be
recurring, however. The Bank is also located in one of the most prosperous
counties in the state of Wisconsin. The outlook for the Bank, from an economic
standpoint, is neutral.
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DESCRIPTIVE INFORMATION
INDUSTRY INFORMATION
INDUSTRY BACKGROUND
Bank chains were originally formed on an informal basis as a group or
chain of banks to control the banking atmosphere in an area. The chains were
comparatively informal banking organizations which were formed by individuals or
partnerships who had acquired a substantial interest in two or more banks. Bank
holding companies on the other hand, were formerly organized and chartered as
corporations. There was no formal regulation of the banking chains and bank
holding companies until the Banking Act of 1933. However, the 1933 regulation
did not regulate the formation or expansion of holding companies, but merely
required the establishment of certain reserves and the publishing of financial
statements on a periodic basis.
The next significant legislation was the Bank Holding Company Act of
1956, which applied to corporations controlling 25% or more of the voting shares
of two or more banks. It did not apply to individuals, partnerships nor
corporations owning a single bank. The 1956 Act formulated standards for the
development of bank holding companies and specified that the companies confine
their activities to banking and closely related services. The holding companies
were forced to divest themselves of ownership or control of other kinds of
business. The major significance of the Bank Holding Company Act of 1956 was
that corporations controlling multiple banking units were to be fully regulated
by Federal law.
There was no further legislation concerning the bank holding companies
until 1966 when the Bank Holding Company Act amendments of 1966 were approved by
Congress. Perhaps the most important element of the 1966 law concerned bank
acquisitions and the anti-trust laws. The amendment paralleled action taken by
Congress earlier in the year in enacting the Bank Merger Act of 1966. The basic
goal of the amendments to the Bank Holding Company Act was to establish uniform
standards for the bank agencies and the courts in evaluating the legality of
bank holding company acquisitions. Since bank holding companies had to control
two or more banks, many banks thought of establishing one-bank holding
companies. A one-bank holding company offered new and profitable outlets for the
investment of funds.
The substantial growth in the number of one-bank holding companies
formed between 1965 and 1969 led to the Bank Holding Company Act Amendments of
1970. The final version of the law ended the exemption to the Bank Holding
Company Act that one-bank holding companies had enjoyed since 1956. In addition,
the new law modified provisions of the 1956 Act covering the activities closely
related to banking in which the bank holding companies could engage. The
activities permissible for bank holding companies were to be closely related to
banking and could be expected to produce benefits to the public. Congressional
intent behind
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DESCRIPTIVE INFORMATION
INDUSTRY INFORMATION
the Bank Holding Company Act is clearly to regulate the ownership of bank shares
and bank holding company entry into activities relating to the banking business.
More recent changes in banking regulation include passage of the
Financial Institutions Reform Act of 1989 ("FIRREA") which expanded the
authority of regulators to demand corrective actions at banks and to recover
FDIC losses from bank-affiliated parties. The FDIC Improvement Act of 1991
("FDICIA") gave the FDIC greater authority over bank capital requirements and
bank operations, including restricting state-chartered bank activities to those
allowed by federally-chartered banks. The Riegle-Neal Interstate Banking and
Branch Efficiency Act of 1994 allowed bank holding companies to expand to all
states and for banks to acquire a bank in another state and turn the acquired
offices into their own branches. The Gramm-Leach-Bliley Act of 1999 allowed bank
holding companies to become financial holding companies and to engage in a
greater range of non-bank activities, such as securities brokerage and
insurance, repealing provisions of the Glass-Steagall Act of 1933 that had kept
banks out of the securities business.
CURRENT CONDITIONS
According to the FDIC's Quarterly Banking Profile, insured commercial
banks and savings institutions earned $25.6 billion in the fourth quarter of
2002, a 16.0% increase over the fourth quarter of 2001. The average return on
assets was 1.23% in the fourth quarter, compared to 1.12% in the fourth quarter
of 2001. The improvement in earnings in the fourth quarter had many sources
including lower expenses for credit losses and higher gains on the sale of
securities, which was the result of lower interest rates. In addition, gains on
asset sales and increased service charges lifted noninterest income, and strong
growth in interest-bearing assets boosted net interest income.
Net interest income was up by $2.5 billion, 3.7%, from a year earlier,
even though net interest margins were narrower, because interest-earning assets
were 7.4% higher than a year ago. The average net interest margin in the fourth
quarter was 3.92%, down from 4.03% in the fourth quarter of 2001. With
short-term interest rates falling during the fourth quarter, margins declined
from third-quarter levels at small banks and thrifts, because their liabilities
are less interest sensitive than their assets in the current low-rate
environment.
Banks and thrifts set aside $13.7 billion in provisions for loan losses
in the fourth quarter, $2.5 billion, 15.7%, less than a year earlier, when large
banks had sizable provisions for
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DESCRIPTIVE INFORMATION
INDUSTRY INFORMATION
troubled loans to large corporate and foreign borrowers. This is the first
year-over-year decline in quarterly loss provisions in more than three years,
since the third quarter of 1999.
Sales of securities produced gains totaling $4.2 billion, an increase
of $1.6 billion, 58.7%, from the fourth quarter of 2001, and the second-highest
quarterly total ever, after the $4.3 billion in gains realized in the third
quarter of 2002. Noninterest income was up by $3.3 billion, 7.7%, as gains on
loan sales rose by $1.5 billion, 83.7%, and gains on sales of other assets
increased by $707 million. In addition, income from service charges on deposit
accounts increased by $578 million, 7.8%. These improvements outweighed declines
in other categories of noninterest income, such as trading revenue, which was
down 24.7% and fiduciary income, which was 8.5% lower.
Net loan charge-offs were $12.2 billion in loans and leases during the
fourth quarter, $1.4 billion, 10.0%, less than a year earlier. The improvement
came from a $1.8 billion, 29.7%, decline in charge-offs to commercial and
industrial ("C&I") borrowers. Meanwhile net charge-offs on leases increased by
$299 million, 177.1%, compared to the fourth quarter of 2001. Net charge-offs on
consumer loans other than credit cards were $129 million, 7.1%, higher than a
year earlier. However, growth in noncurrent loans (loans 90 days or more past
due or in nonaccrual status) declined by $21 million during the fourth quarter.
Although small, this represented the first quarterly decline in noncurrent loans
since the fourth quarter of 1999.
The number of insured commercial banks and thrifts reporting financial
results declined from 8,080 to 7,887 during 2002. During the year, ten
commercial banks failed, while 297 were absorbed in mergers with other financial
institutions, and 91 new banks reported financial results. The number of
commercial banks that failed is the highest since 1994. In the fourth quarter,
the total number of banks and thrifts on the FDIC's "problem list" decreased
from 146 to 136, and the total assets of the "problem institutions" declined
from $42 billion to $39 billion.
CONCLUSION
The outlook for the banking industry improved slightly during the
fourth quarter of 2002. While the recent loan growth and mortgage refinancing
boom will help increase bank fees in the short term, the longer-term outlook is
not as good. A sizeable percent of the gains in the quarter are based on the
high levels of gains on the sales of securities and one-time fees from the sale
of mortgages and other assets. However, loan quality appears to be improving,
and higher levels of earnings assets and higher noninterest income levels
resulted in strong earnings in the
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DESCRIPTIVE INFORMATION
INDUSTRY INFORMATION
fourth quarter. With the stabilized level of noncurrent loans being offset by
continued uncertainty with the economy, the overall outlook for the industry is
now considered neutral.
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DESCRIPTIVE INFORMATION
LOAN PORTFOLIO DISCLAIMER
We have not examined the loan portfolio of the Bank. Direct examination
would have been beyond the scope of this valuation assignment. Management
represented that the valuation reserve for loan losses was adequate as of
January 3, 2003. The valuation conclusion of this report is rendered in direct
reliance upon the representations by management.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
We have reviewed the financial position and performance of the Bank
over the relevant period of analysis. This review entailed an analysis of the
Bank's current financial statements in comparison with prior years and
conversation with management that enhanced our understanding of the business
reasons for changes in the financial statements. Results of this review that
have specific valuation implications are noted below or at the appropriate point
in the valuation section of this report. The financial statements used are from
December 31, 1998 to 2002, which are included in Exhibits C and D of this
report.
OVERVIEW
The Bank's total assets grew at a compound annual growth rate (CAGR) of
27.5% since 1998. Total assets were $63.2 million at December 31, 1998, $86.5
million at December 31, 1999, and then grew at a much more rapid pace in the
next three years to $167.2 million at December 31, 2002 mainly due to the
injection of additional capital in 2000 and 2002, which allowed the Bank to
increase total assets without raising regulatory concerns.
Between December 31, 1998 and 2002, investments decreased at a compound
annual rate of (43.1%) and net loans grew at a CAGR of 39.2%. Investments and
net loans had balances at December 31, 2002 of $2.0 million and $155.7 million,
respectively. Deposits have grown at a CAGR of 25.4% between 1998 and 2002.
Deposits totaled $55.1 million at December 31, 1998 and $136.1 million at
December 31, 2002. Fed funds purchased and securities sold have traditionally
been a small source of funds for the Bank with balances of $925,000 on December
31, 1999, $815,000 on December 31, 2001, and $1,475,000 on December 31, 2002.
Likewise, other borrowed money has traditionally been a small portion of
funding, however, beginning in 2002, the Bank became a member of the Federal
Home Loan Bank of Chicago and had a balance of $13.6 million as of December 31,
2002.
The Bank's return on average assets ("ROA") and return on equity (ROE)
are shown below. This and the other bank performance ratios were obtained from
the Uniform Bank Performance Reports available on the FDIC's Web site. The peer
group net income data has been adjusted to include tax-effecting earnings of
subchapter S banks. The Bank and peer group data for 2002 is as of September 30,
2002, the date of the most recent available data.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
RETURN ON ASSETS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 1.32% 1.23% 0.62% 0.67% 0.71%
Peer Group 1.10% 1.01% 1.17% 0.98% 1.07%
RETURN ON EQUITY
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 13.89% 15.02% 7.18% 6.56% 4.26%
Peer Group 12.36% 11.32% 13.13% 11.24% 11.72%
The Bank's return on assets declined slightly between 1998 and 2000 and
showed strong improvement in 2001 and 2002. The Bank's return on equity improved
between 1998 and 2001 as its earnings grew faster than equity and declined in
2002 as its earnings growth slowed while its equity increased with another
capital injection from the Holding Company.
HISTORICAL BALANCE SHEETS
The following discussion focuses on components of the Bank's balance
sheet including earning assets, the loan and investment portfolios, fixed
assets, deposits, and capital adequacy.
EARNING ASSETS
Asset utilization, as measured by the ratio of average earning assets
to average total assets, has been as follows for the Bank over the last five
years. The Bank has historically been higher that its peer group in this
measure, however, in the fourth quarter of 2002, the Bank purchased its building
for almost $2.4 million, resulting in its investment in premises increasing by a
significant amount, causing this ratio to decrease, which is not reflected in
the ratios below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 97.93 97.83 97.43 97.67 96.71
Peer Group 94.12 94.22 94.45 93.21 93.19
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
LOAN PORTFOLIO
The composition of the loan portfolio by loan type for InvestorsBank at
December 31, 2002 is:
Construction and Land Development $ 8,661 5.5%
Residential Mortgages 41,093 26.1%
Commercial and Other Mortgages 77,466 49.1%
-------- -----
Total Real Estate Loans 127,220 80.7%
Commercial / Industrial 28,280 17.9%
Other (including consumer,
municipal, and other loans) 2,191 1.4%
-------- -----
Total $157,691 100.0%
======== =====
INVESTMENT PORTFOLIO
Investment decisions are made within the policy approved by the Board
of Directors and are a function of the lending and liquidity needs of the Bank.
The portfolio contains a variety of securities that are selected based on
maximizing yield while maintaining a low level of risk. All of the Bank's
securities are classified as available for sale. The composition of the
investment portfolio by type of security for the Bank as of December 31, 2002
is:
Corporate Bonds $1,295 65.3%
FHLB Stock 689 34.7%
------ ------
Total $1,984 100.0%
====== ======
FIXED ASSETS
The Bank operates from headquarters located in Waukesha, Wisconsin.
After leasing its location for about five years, the Bank purchased its building
for approximately $2.4 million in the fourth quarter of 2002. The Bank's
facilities are adequate to meet the needs of the Holding Company and the Bank
for the foreseeable future.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
DEPOSITS
At December 31, 2002, the Bank's total deposits were $136.1 million.
Historical demand deposits as a percentage of total deposits for the bank are
summarized below:
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Demand Deposits $ 8,625 $ 6,246 $ 8,033 $ 4,273 $ 2,766
As a % of Total Deposits 6.3% 5.2% 6.2% 5.6% 5.0%
A large portion of the Bank's deposits are in the form of brokered CDs.
CAPITAL ADEQUACY
Capital adequacy as measured by the tier one leverage capital ratio for
the Bank has improved over the past two years compared to its peer group
average, as listed below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 9.79% 8.80% 7.79% 9.37% 11.91%
Peer Group 9.58% 9.60% 9.63% 9.60% 9.53%
HISTORICAL INCOME STATEMENTS
The following discussion focuses on the components of basic operating
income including net interest income, noninterest income, noninterest expense,
and securities gains (losses).
NET INTEREST INCOME
Until recently, the Bank's average yield on its earning assets has been
very similar to its peer group average. However, the Bank's net interest spread
(net interest income to average earning assets) continues to be lower than the
peer group, as shown below.
INTEREST INCOME (TE) TO AVERAGE EARNING ASSETS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 5.87% 7.62% 8.85% 7.85% 8.24%
Peer Group 6.58% 7.71% 8.41% 8.07% 8.32%
NET INTEREST SPREAD
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 3.46% 3.40% 3.40% 3.46% 3.91%
Peer Group 4.21% 4.13% 4.43% 4.60% 4.65%
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
NONINTEREST INCOME
Noninterest income as a percent of average assets over the time period
of 1998 to 2002 for the Bank follows. The Bank continues to report higher than
peer levels of noninterest income due to its commercial loan and mortgage
service fees. However, its commercial loan servicing fees have declined as the
size of the Bank increased and the size of the BMSBLC portfolio continues to
decrease. The fees are at risk, since this portfolio could be transferred to
another institution at any point. The loss of George Schonath could result in
the loss of this portfolio, because it is his relationship with BMSBLC that is
so important to the Bank keeping the portfolio.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 1.18% 1.35% 1.42% 2.13% 3.30%
Peer Group 0.70% 0.66% 0.69% 0.69% 0.77%
NONINTEREST EXPENSES
The Bank's overhead expenses as a percent of average assets has
improved over the past five years from being higher than peer in 1998 to being
much lower than the peer group average in 2002, as shown below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 2.20% 2.23% 2.81% 3.63% 5.25%
Peer Group 2.81% 2.89% 2.88% 3.33% 3.31%
SECURITIES TRANSACTIONS
During the last five years, the Bank had reported no gains or losses on
the sale of investment securities.
DIVIDENDS AT THE BANK LEVEL
Dividend policy is a function of the profitability and capital
requirements of the Bank. Over the past five years, the Bank has paid dividends
as shown below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank $835 $300 $157 $ 0 $ 0
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
HOLDING COMPANY FINANCIALS
As of December 31, 2002, in addition to its investment in the Bank, the
Holding Company's other assets included $126,000 of cash on deposit at the Bank,
$269,000 of income taxes receivable, and $159,000 of capitalized legal and
placement fees relating to the Trust Preferred Securities. On the valuation
date, the Holding Company had $2,000 of accounts payable and $5,155,000 due from
a special purpose subsidiary that issued Trust Preferred Securities, which is
considered to be capital on a consolidated basis for regulatory purposes. The
Trust Preferred Securities were issued in June 2002, the proceeds of which were
used to redeem $3.0 million of notes payable and inject $1.95 million of capital
into the Bank.
The main source of the Holding Company's income is dividends received
from the Bank. The Holding Company's expenses include interest expense on its
outstanding Trust Preferred Securities and professional fees. The Holding
Company has not paid any dividends to its shareholders in any of the past five
years, as shown on the following page.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
A summary of the Holding Company's consolidated financial statements
are found below.
COMPARATIVE BALANCE SHEETS - CONSOLIDATED Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands) 2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
ASSETS
Total cash and due from banks $ 2,819 $ 2,005 $ 3,454 $ 2,281 $ 1,049
Investment portfolio 2,664 5,347 14,391 6,260 18,960
Fed funds sold 1,250 540
Net loans and leases 154,517 123,437 118,779 76,307 39,185
Loans held for sale 1,188 284 100 566 2,232
Premises and fixed assets 2,527 182 87 94 127
Other assets 3,854 2,505 2,759 1,001 1,008
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 167,569 $ 133,760 $ 140,820 $ 86,509 $ 63,101
========= ========= ========= ========= =========
LIABILITIES AND EQUITY
LIABILITIES
Deposits $ 135,283 $ 120,014 $ 128,803 $ 76,788 $ 55,005
Fed funds purchased and sec sold 1,475 815 925
Other borrowed money 13,600 3,000 2,500
Other liabilities 1,854 1,040 1,551 1,129 912
--------- --------- --------- --------- ---------
TOTAL LIABILITIES 152,212 124,869 132,854 78,842 55,917
========= ========= ========= ========= =========
STOCKHOLDERS' EQUITY
Common stock 11 11 11 11 10
Preferred stock 5,000
Paid in capital 7,317 7,317 7,317 7,317 6,980
Undivided profits and reserves 4,046 2,374 901 339 194
Less: Treasury stock (1,017) (811) (263)
--------- --------- --------- --------- ---------
TOTAL EQUITY 15,357 8,891 7,966 7,667 7,184
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND EQUITY $ 167,569 $ 133,760 $ 140,820 $ 86,509 $ 63,101
========= ========= ========= ========= =========
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
COMPARATIVE INCOME STATEMENTS Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands) 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Total interest income $ 8,200 $ 10,063 $ 9,323 $ 5,531 $ 3,261
Total interest expense 3,786 5,836 5,944 3,089 1,766
Provision for loan and lease loss 471 847 1,038 375 300
-------- -------- -------- -------- --------
Net interest income after provision 3,943 3,380 2,341 2,067 1,195
-------- -------- -------- -------- --------
Noninterest income 1,329 1,828 1,556 1,512 1,386
Noninterest expenses (2,718) (3,068) (3,063) (2,623) (2,202)
-------- -------- -------- -------- --------
Total noninterest (expenses) income (1,389) (1,240) (1,507) (1,111) (816)
-------- -------- -------- -------- --------
Income from operations 2,554 2,140 834 956 379
Current taxes 882 668 272 362 82
-------- -------- -------- -------- --------
Net income $ 1,672 $ 1,472 $ 562 $ 594 $ 297
======== ======== ======== ======== ========
Cash dividends paid $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ======== ======== ========
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VALUATION
BOOK VALUE
The book value (shareholders' equity or net worth) of a company is not
always definitive of the fair value for that company. Many analysts however, use
book value as a benchmark for comparison over time and in comparison with other
companies currently.
The reported book value of the Holding Company's common stock as of
December 31, 2002 was $10,357,000. After exercising the options and warrants,
the book value would increase by $972,000. The adjusted book value would be
$11,329,000. The adjusted book value per share would be $10.73 based on
1,055,966 shares issued and outstanding on a fully diluted basis. We did not
consider any asset valuation adjustments in this report.
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VALUATION
DETERMINATION OF FAIR VALUE
GENERAL APPROACH OF VALUATION
The performance of the Bank has been discussed at length above.
Consequently, we have determined that it is appropriate to develop the valuation
conclusion of the Holding Company directly based upon the consolidated earnings
power of the Holding Company and the Bank.
Valuation is ultimately a matter of informed judgment, based upon a
full consideration of all relevant data, as well as the purposes of the
valuation. Based upon our overall review, we have considered three primary
valuation methods in the determination of value for the Holding Company and
Bank. The valuation methods considered are discussed in the following sections.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
The purpose and function of the valuation and the definition of fair
value was given in the Valuation Consultant's Report. The valuation procedures
and techniques must be consistent with the purpose of the valuation and the
definition of fair value.
The discussion in this section is intended to provide an overview of
the three basic valuation approaches available that may be used in the valuation
process. While all of these methods are not used in every case, consideration
has been given to three methods which are deemed to be appropriate for the
company in arriving at our opinion of value.
The methods discussed in this section are presented to demonstrate
methods which may be used to value the total equity business enterprise, or 100%
of a business.
In the valuation of any property or business, there are generally three
approaches to value which may be examined as indicators of value. These three
approaches are as follows:
1. The Income Approach
2. The Market Approach
3. The Cost Approach
In the income approach, value is dependent on the present worth of
future economic benefits to be derived from ownership. Value indications are
developed by discounting future net cash flows available for distribution to
their present worth at market-based rates of return.
Value estimates are established in a market approach by an analysis of
recent sales or offerings of comparable property.
The cost approach considers the value of a property to be that amount
required to erect or to construct a facility of equal utility. As applied to the
valuation of the common stock of a company which sells products or services, the
cost approach calls for a summation of the net book values of the company's
assets and a reduction of that aggregate by the total of the company's
liabilities.
Each of the described approaches may be used to develop an indication
of the fair value of the owners' equity of a business enterprise; however, the
appropriateness of these approaches varies with the type of business being
appraised. For asset-rich companies, such as real estate holding companies, the
underlying assets are key elements in the success of the enterprise. As a
result, the cost and income approaches generally provide the best indications of
value since these approaches emphasize the current depreciated value of the
assets and their long-range earning power.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
For manufacturing and service companies, the income and market
approaches would generally be most appropriate because the value of these
companies is more dependent on their ability to generate earnings than on the
value of the underlying assets used in production or service.
In this valuation, all three approaches were considered to value the
Holding Company, however, three methods of a market approach were utilized.
The methods considered under the Market Approach are based upon
historical prices paid for the Holding Company's stock, comparisons with a
selected group of guideline public companies, and comparison with a selected
group of guideline bank transactions.
The Income Approach, which might consider methods such as the
Historical Capitalized Cash Flow Method or the Discounted Future Earnings
Method, is not considered specifically in this appraisal. In our opinion, given
the existence of the group of guideline companies and guideline transactions
described in Exhibit F, the capitalization of earning power as developed in the
market approach is an appropriate and sufficient earnings-based methodology for
the current appraisal, taken in combination with the other valuation methods
considered.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
HISTORICAL PRICES PAID METHOD
The determination of value based on the historical prices paid for the
Holding Company's stock is shown on page 36. To determine the fair value of the
Holding Company's stock based on historical prices, we must determine the
appropriate control premium to add to the price paid in the public market. By
adding a control premium to the public market value for the Holding Company's
stock, we effectively convert the value on a marketable, minority interest basis
into a marketable, majority interest basis, which we previously determined would
equal the fair value of the Holding Company's stock.
DETERMINATION OF THE CONTROL PREMIUM
To realize the full value of a property, whether through continued use
or through sale, an investor must hold a controlling interest in the
partnership, corporation, or ownership group that holds the asset. Evidence of
this can be found in the fact that the acquisition of a publicly traded
corporation usually is effected at a premium to the minority share price
observed prior to the transaction announcement. Therefore, a property interest
carrying rights and prerogatives inferior to those of full control must be less
valuable, on a per share basis, than a controlling interest in the same
property. A controlling interest provides substantial benefits including the
ability to:
1. select directors and appoint management;
2. determine management compensation;
3. set the policies of the company;
4. determine the course of the business;
5. make acquisitions or sell the business;
6. declare dividends; and
7. change the articles of incorporation or bylaws.
As a result of these benefits, the controlling shareholder usually reaps more
rewards from the ownership of the business than minority shareholders.
Consequently, substantial value has been placed on these benefits in the
marketplace in the form of a control premium.
To determine a reasonable control premium applicable to an interest in
the Holding Company, we utilized a study by Mercer Capital. Transactions in the
stock market almost always represent small minority interests. When a tender
offer is made, the person making the offer is seeking control. The premium that
the purchaser pays is considered to be a premium for control. The study
performed by Mercer Capital arrived at a median of 29.1%. The premium paid in
many cases also reflects a premium paid as a result of a strategic acquirer.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
Additionally, there are several factors that can influence the premium
paid. These include, but are not limited to:
- The holding company's management
- The ability to replace management
- Restriction on transfer of interest
- Leverage of the holding company
- The holding company's size
- Number of shareholders
- Concentration of control
- Size of block being valued
- Volatility of assets
- Time of termination of entity
The Holding Company's management appears good. However, the loss of
George Schonath, the Bank's president and key employee would have a negative
affect on the business until an appropriate replacement was found. The risk
involved in the possible death of Mr. Schonath is in part mitigated by an
insurance policy, however. The insurance policy is worthless if Mr. Schonath
were to leave his employment. Other members of the Bank's management may be
replaced by someone with industry experience. A large portion of the Holding
Company's revenue is due to fee income from a formerly related company. The loss
of this fee income would dramatically affect the earnings of the Holding
Company. Additionally, the Bank's use of brokered CDs presents a risk.
There are currently no restrictions on the sale or transfer of the
Holding Company's common stock. The Holding Company is not overly leveraged. The
Holding Company's size is approximately $167 million in total assets, which is
on the small size for the banking industry in a major metropolitan area. As of
January 3, 2003, the Bank's president owned 22.9% of the Holding Company's
common stock, and a related entity controlled an additional 22.5% of the Holding
Company's common stock. Combined, the Bank's president and various family
members controlled a total of 61.3% of the Holding Company's outstanding fully
diluted shares.
The Bank's assets have historically grown at a rapid pace. This is no
guarantee of this type of growth in the future and a large amount of fees were
due to refinancing, which in all likelihood will not occur in the immediate
future. The termination date of the entity is not in the foreseeable future.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
Taking all of these factors into consideration, we feel that a control
premium of 20% would be appropriate for the Holding Company.
VALUE DETERMINATION USING THE HISTORICAL PRICE METHOD
As of the valuation date, the Holding Company traded under the symbol
INVB.OB on the NASDAQ over-the-counter system. The 30 day closing average was
$12.64. Due to the thinness in trading of the Holding Company's stock and due to
one buyer accounting for most transactions, we utilized the 30 day closing
average. Since this results in a marketable, minority basis of value, we added a
20% control premium to this figure resulting in the fair value of the common
stock of InvestorsBancorp, Inc. of $15.17 per share for a marketable, majority
interest, based on 1,055,996 fully diluted shares outstanding.
GUIDELINE COMPANY METHOD
One of the generally accepted methods of determining a capitalization
factor is through the use of comparisons with similar companies whose stocks are
publicly traded. The comparative method is used below. We should mention,
however, three major limitations of this approach. First, it is virtually
impossible to find perfect guideline companies. All of the companies listed in
Exhibit F are bank holding companies, with operations centered in the Midwest.
The comparable group is used either to provide an indication of how the public
markets would treat InvestorsBancorp, Inc. if the market for its stock were
active and public or to provide guidelines for developing appropriate
capitalization rates.
Second, required disclosure for public companies notwithstanding, we
are not privy to "inside" information for any of the guideline companies.
Consequently, we use reported financial information without any adjustments. We
believe this is proper because the impersonal market makes all necessary
adjustments and reflects them in the market prices of each stock. Abnormal
valuation indications from the marketplace are eliminated based upon the
analysis of the comparable group below.
The third limitation results from the first two: It is left to the
analyst to derive an appropriate capitalization rate for the Holding Company
based upon a review of the Holding Company and the group of guideline companies.
By convention, analysts express the relationship between the price of a
stock and its earnings in the form of the ratio of current market price to
earnings (i.e., the price/earnings ratio) and current market price to book
(i.e., the price-to-book ratio). If the industry guideline group is
InvestorsBancorp, Inc.
36
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VALUATION
SPECIFIC APPROACHES TO VALUATION
sufficiently homogeneous with respect to the companies selected, their recent
performances, projected performances, and the public market's reaction to their
performance, analysts typically calculate some form of average price/earnings
ratio as representative of the group. We have chosen regional bank holding
companies with a majority of their operations located in Midwest states, which
would face similar challenges with local economic conditions as the Holding
Company. Information on these companies is presented in Exhibit F.
Based upon the group selected, as well as our experience in following
financial institutions, we believe the group of regional bank holding companies
presented in Exhibit F is sufficiently representative of the region's financial
institutions for use in developing market-based capitalization factors (earnings
multiples) in the present valuation of InvestorsBancorp, Inc. The objective is
to determine the multiple at which the Holding Company's shares would trade for
if its shares traded in the same range as other Midwest bank holding companies.
Since the Holding Company has $5.0 million of outstanding Trust
Preferred Securities and just three of the ten guideline companies has similar
issues of Trust Preferred Securities, we adjusted the traditional price to
earnings multiple to reflect this difference. We feel this is important since
the holders of the Trust Preferred Securities have liquidation preference over
common stock.
The determination of value using the guideline company method is shown
below. Under this valuation method, first a determination of ongoing earning
power of the Holding Company must be made and then a rate must be identified
with which to capitalize these earnings.
DETERMINATION OF ONGOING EARNING POWER
In our opinion, the adjusted ongoing earning power of the Holding
Company is equal to the adjusted earnings for 2002. While we would normally use
a weighted average of several prior years, due to the Holding Company's strong
growth rate and significantly higher earnings in 2001 and 2002, we believe the
most recent earnings are the most reflective of the Holding Company's ongoing
earning power.
Based on adjusted 2002 earnings, the determination of adjusted ongoing
net income as presented in Exhibit E is $1,672,000. We believe this amount
reasonably estimates the Bank's projected ongoing earning power. The
determination of ongoing earning power is capitalized based on the Guideline
Public Company method.
InvestorsBancorp, Inc.
37
Wipfli Ullrich Bertelson LLP
VALUATION
SPECIFIC APPROACHES TO VALUATION
VALUATION DETERMINATION USING THE GUIDELINE COMPANIES METHOD
The median capital (common stock plus Trust Preferred Securities) to
earnings multiple for the publicly traded companies was 11.23 times earnings.
The average capital to earnings multiple was 11.70. Based on our overall
analysis, we have considered the median capital to earnings multiple of the
group of 11.23 as our base capitalization factor in the present valuation.
While the Holding Company is in a metropolitan area and has a strong
growth rate, the growth is expected to slow and there is significant competition
in the Milwaukee area. Additionally, there is reliance on a key person, the Bank
relies on brokered CDs for deposits, the Bank has one location, and the Bank
relies significantly on the fee income from BMSBLC. The servicing agreement has
annual renewals that allow for either party to withdraw upon written notice at
least 60 days in advance of the termination date. Accordingly, based on our
analysis, we selected a capitalization factor of 8.42 (See Exhibit F) to apply
to the Holding Company's financials.
Since we used a capitalization factor based on the capital to earnings
ratios of publicly traded companies, the results must be adjusted by the $5.0
million of outstanding Trust Preferred Securities. In addition, since this
capitalization factor was based on marketable, minority interests in publicly
traded companies, we must also add the previously determined 20% control premium
to this figure. Additionally, the cash from exercising the options and warrants
must be added. This calculation results in the fair value of the common stock of
InvestorsBancorp, Inc., of $11.24 per share for a marketable, majority interest,
based on 1,055,996 fully diluted shares outstanding.
PRICE TO BOOK MULTIPLE
The median and average price to book ratio of the guideline companies
selected were 1.32 and 1.40, respectively. Based on the analysis discussed
earlier, the median price to book multiple was reduced to 1.06. Adding a control
premium, and adding the cash from exercising the options and warranties, the
fair value per share using this method is $15.40.
Averaging the two publicly traded methods proves a conclusion of $13.32
per share. See Exhibit E for additional information.
InvestorsBancorp, Inc.
38
Wipfli Ullrich Bertelson LLP
VALUATION
SPECIFIC APPROACHES TO VALUATION
GUIDELINE TRANSACTION METHOD
We also looked to transactions (sales or purchases) of bank holding
companies located in the upper Midwest to determine a value for the Holding
Company. Through the review of the transaction database compiled by SNL
Securities Corp., we selected five of the 27 transactions announced in 2002 that
involved targets that were the most similar to the Holding Company. In addition,
we eliminated five transactions where complete information on the purchase price
was not available. Information regarding the five guideline transactions is
shown in Exhibit F.
PRICE TO EARNINGS MULTIPLE
The transaction data in Exhibit E indicates that the average and median
price to earnings multiples paid were 13.80 and 13.79, respectively. In
selecting an appropriate price to earnings multiple, it is also helpful to note
the inverse relationship that exists between return on average equity and price
to earnings multiples. Due to the Bank's reliance on a key person, the reliance
on brokered CDs for deposits, the Bank's one location, the Bank's reliance on
the fee income from BMSBLC and strong competition, but offset by the
metropolitan area and strong growth, we decreased the multiple to 10.3.
The Holding Company's adjusted 2002 earnings were $1,672,000, which is
multiplied by the selected price to earnings multiple of 10.3. We then adjusted
for the Holding Company's Trust Preferred Securities and the cash to be received
from the exercise of the options and warrants before dividing by the number of
fully diluted shares. The conclusion reached was $12.56. Since the multiple is
based on sales of bank holding companies, its result is an enterprise control
value; therefore, we did not need to add a control premium to the result.
PRICE TO BOOK VALUE MULTIPLE
The transaction data in Exhibit E indicates the average and median
price to book value multiples paid were 1.53 and 1.50, respectively. Based on
our analysis, we selected the median price-to-book value multiple of 1.50 as a
starting point. As a result of the reasons listed in the guideline transaction
method price-to-earnings multiple, we reduced the multiple to 1.2.
The Holding Company's shareholder's equity on December 31, 2002 was
$10,357,000, which was multiplied by the selected price to earnings multiple of
1.2. We then added back the cash to be received for the exercise of the options
and warrants before dividing by the number of fully diluted shares. The
conclusion was $12.69. In addition, since the multiple is based on
InvestorsBancorp, Inc.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
sales of bank holding companies, its result is an enterprise control value;
therefore, we did not need to add a control premium to the result.
VALUATION DETERMINATION USING THE GUIDELINE TRANSACTIONS METHOD
Averaging the two guideline companies' methods yields a conclusion of
$12.63 per share. See Exhibit E for additional information.
InvestorsBancorp, Inc.
40
Wipfli Ullrich Bertelson LLP
VALUATION
CORRELATION AND CONCLUSION
The choice of valuation approaches used in a given situation depends
upon a number of different factors. The choice is determined by the type of
business being valued, the reason for the valuation, and the availability of
necessary information. For the subject Holding Company, the following
indications of value for the Holding Company on a marketable, majority interest
basis, was estimated using the various valuation methods as previously described
in this report and indicated below:
Per Share
Valuation Method Value
---------------- ---------
Historical Prices Paid Method $15.17
Guideline Companies Method $13.32
Guideline Transactions Method $12.63
------
CONCLUDED VALUE OF STOCKHOLDERS' EQUITY,
MARKETABLE, MAJORITY INTEREST BASIS $13.71
======
Based on these valuation methods, we believe a reasonable estimate of
the per share fair value for the common stock on a marketable, majority interest
basis, of InvestorsBancorp, Inc. to be $13.71 as of January 3, 2003.
Throughout this valuation, we have attempted to analyze the subject
property and financial data in the same manner as a prospective purchaser would.
The valuation analysis is subject to assumptions and conditions specified in
this report and in the attached Statement of General Assumptions and Limiting
Conditions. The reasoning and procedures employed have been set forth in the
preceding valuation report. The analysis and conclusions are supported to a
greater degree in the working papers.
The valuation analysis included discussions with management concerning
the history and nature of the business, a study of the economic status and
prospects of the business, and a review and analysis of historical financial
information and other pertinent records and documents furnished to us. The
financial statements and other records and documents were accepted, without
investigation, as properly representing the Bank, the Holding Company, their
operations, and condition.
Based on the investigation and premises as outlined, it is concluded
that, at January 3, 2003, the fair value per share of the common stock of
InvestorsBancorp, Inc. determined as a majority, marketable basis based on
1,055,966 fully diluted shares outstanding is:
THIRTEEN DOLLARS AND SEVENTY ONE CENTS $13.71
InvestorsBancorp, Inc.
41
Wipfli Ullrich Bertelson LLP
STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
The service provided by Wipfli Ullrich Bertelson LLP has been performed
in accordance with recognized professional valuation standards, the Code of
Ethics of the American Society of Appraisers (ASA), and the Institute of
Business Appraisers (IBA). Our compensation is not contingent upon our
conclusions of value. We assume, without independent verification, the accuracy
of all data provided to us. All files, working papers or documents developed
during the course of the assignment shall be our property. We will retain this
data for at least five years.
Opinions are subjective and can be greatly altered by a change in
underlying assumptions or conditions. The valuation consultant's opinion does
not constitute advice for any specific action. The valuation consultant instead
offers an opinion of value under the assumptions and conditions which are
expressed or implied. The client has been made aware of these assumptions and
conditions, and accordingly accepts responsibility and liability for subsequent
actions they take. In accepting this document, the client agrees that he or she
understands and accepts this provision. The valuation consultant's opinion is
subject, further, to the following assumptions and conditions:
1. The property or business has been valued assuming responsible ownership
and good management unless otherwise set forth in the report. Any
assumed liabilities are shown in the report, and it is assumed that no
contingent liabilities exist unless otherwise noted.
2. The valuation consultant has not considered the impact of unknown legal
contingencies, taxes, or costs payable on a sale, or other matters
outside the scope of this valuation engagement. The titles of all real
estate and improvements are assumed to be good and in marketable
condition.
3. No right is given to publish all or part of the valuation report or
attachments without the valuation consultant's consent. No right to
expert testimony is included unless agreed in advance.
4. The valuation consultant has no present interest or contemplated
interest in the property being valued. Neither his employment nor his
fee are contingent upon the value opinion given.
5. The valuation consultant has gathered information from sources thought
to be reliable. While the data cannot be guaranteed, the valuation
consultant certifies that to the best of his knowledge and belief, the
statements, information, source data, and materials contained in this
valuation and working papers are correct.
6. Data supporting the valuation consultant's opinion is more fully
documented in the valuation consultant's working papers. Those papers
are located in the confidential file at the valuation consultant's
office and are available for reference as necessary.
InvestorsBancorp, Inc.
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Wipfli Ullrich Bertelson LLP
STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
7. The valuation is valid only for the purpose stated herein. Any other
use or reliance by the client or third parties is invalid.
8. This valuation opinion is given for the benefit of the client. The
opinion shall not be revealed to unauthorized third parties without the
consent of the valuation consultant. In that case, the entire opinion
shall be revealed including all attachments and this Statement of
General Assumptions and Limiting Conditions. The valuation consultant
shall assume no liability for any actions, which third parties may
take, based upon their interpretation of this opinion.
9. The opinion given in this engagement assumes that the business will
continue to be operated in its present form. In this context, we have
valued the business as a closely-held business giving due consideration
to the risks and limitations as appropriate.
10. Synergies relating to a sale have not been considered.
11. The value estimate is predicated on the assumption that there is no
hazardous material on or in the property that would cause a loss in
value. The valuation consultant, however, is not qualified to detect
potentially hazardous materials which may affect the value of the
property. No responsibility is assumed for any such conditions, or for
any expertise or engineering knowledge required to discover them. The
client is urged to retain an expert in this field, if desired.
12. This appraisal is valid only for the appraisal date or dates specified
herein and only for the appraisal purpose or purposes specified herein.
The client warrants that any reports, analysis, or other documents
prepared for it by the appraiser will be used only in compliance with
all applicable laws and regulations.
InvestorsBancorp, Inc.
43
INDEX TO EXHIBITS
Certificate of Valuation Consultant........................................... Exhibit A
Information Sources Used In Valuation......................................... Exhibit B
Comparative Balance Sheets.................................................... Exhibit C
Comparative Income Statements................................................. Exhibit D
Adjusted Historical Earnings.................................................. Exhibit E
Guideline Company Data........................................................ Exhibit F
Guideline Transaction Data.................................................... Exhibit G
EXHIBIT A
CERTIFICATE OF VALUATION CONSULTANT
Wipfli Ullrich Bertelson LLP
CERTIFICATE OF VALUATION CONSULTANT
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
However, please review the "information sources" exhibit for a more
detailed explanation of the data used. You will note that I have not
audited, or in any other manner attempted to verify, the data presented
to me.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions and are my personal,
unbiased professional analyses, opinions, and conclusions.
I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
My employment and compensation in connection with this report are not
contingent on any action or event resulting from the analyses,
opinions, or conclusions in or the use of this report.
My analyses, opinions, and conclusions were developed, and this report
has been prepared in conformity with the Uniform Standards of
Professional Appraisal Practice.
This report sets forth general assumptions and limiting conditions
affecting the analysis, values, and conclusions. No other assumptions
and limiting conditions were expressed verbally or are implied.
No persons other than the undersigned prepared the analyses, values, or
conclusions set forth in this report.
All Accredited Senior Appraisers (ASAs) employed by Wipfli Ullrich
Bertelson LLP are in compliance with the requirements of the American
Society of Appraisers' mandatory recertification program.
/s/ William D. Thumstedter Dated: /s/ March 20, 2003
- ------------------------------------------
William D. Thumstedter, MBA
Manager, Business Valuation/M&A Services
/s/ Kevin M. Janke Dated: /s/ March 20, 2003
- ------------------------------------------
Kevin M. Janke, CPA/ABV, ASA
Partner, Business Valuation/M&A Services
InvestorsBancorp, Inc.
Wipfli Ullrich Bertelson LLP
PROFILE OF APPRAISER
WILLIAM D. THUMSTEDTER
PROFESSIONAL HISTORY
Bill joined Wipfli Ullrich Bertelson LLP in 2002 and is a client service
professional in our Eau Claire office. Bill specializes in the valuation of
closely held businesses.
Prior to joining Wipfli, Bill worked for approximately five years as an
appraiser in the business valuation field. This included experience at a
regional correspondent bank completing appraisals of banks and bank holding
companies and at a regional accounting firm in the upper Midwest completing
valuations of companies in a variety of industries. His prior experience
includes working as a commercial bank examiner with the State of Wisconsin, a
consumer compliance examiner for the Federal Reserve Bank of Minneapolis, and a
financial analyst in the applications section of the Federal Reserve Bank of
Minneapolis.
Bill works exclusively on valuation-related engagements for a variety of
purposes including estate planning, gifting, buying or selling a business, and
divorce. In addition to the above, his services have included preparation of
projections, forecasts, and cash flow analyses.
LICENSES AND PROFESSIONAL MEMBERSHIPS
Bill has successfully completed the four business valuation courses of the
American Society of Appraisers' appraiser certification program as well as
passed the required ethics and USPAP examinations. To obtain a designation from
the ASA, he needs to submit two appraisal reports that can pass the close
scrutiny of a senior appraiser.
EDUCATION
University of Wisconsin-Madison, B.B.A. in Accounting, 1986
Carlson School of Management at the University of Minnesota, M.B.A. in Finance,
1991
InvestorsBancorp, Inc.
Wipfli Ullrich Bertelson LLP
PROFILE OF APPRAISER
KEVIN M. JANKE
PROFESSIONAL HISTORY
Kevin has been with Wipfli Ullrich Bertelson LLP since 1990 and is currently a
partner in our Wausau office. For his first three years, he performed and then
managed audit engagements for clients in manufacturing, financial services, and
other industries including SEC clients.
After the first three years, Kevin began to specialize in litigation support and
valuation of closely held businesses. He now works exclusively with attorneys
for various accounting- and valuation-related litigation support and with
clients that require business appraisal services for purposes of buying or
selling their business, divorce, estate planning, or gifting.
In addition to the above, his services have also included preparation of
projections, forecasts, and cash flow analysis, assistance in obtaining
financing for various business ventures, and economic damages analysis.
LICENSES AND PROFESSIONAL MEMBERSHIPS
Certified Public Accountant, Accredited Senior Appraiser with the American
Society of Appraisers, Accredited in Business Valuation through the American
Institute of Certified Public Accountants.
Member of the American Institute of Certified Public Accountants, Wisconsin
Institute of Certified Public Accountants, American Society of Appraisers, and
Estate Planners Forum of Marathon County.
EDUCATION
University of Wisconsin-La Crosse, B.S. in Accounting
InvestorsBancorp, Inc.
EXHIBIT B
INFORMATION SOURCES USED IN VALUATION
Wipfli Ullrich Bertelson LLP
INFORMATION SOURCES USED IN VALUATION
Many sources of information were used when preparing this valuation.
The information included data obtained in a personal interview with key
individuals from the Holding Company and Bank.
The sources of information used and considered for this valuation
included the following:
1. Financial statements per FDIC for 1998 through 2001.
2. Internal financial statements and regulatory filings for 2002.
3. Uniform Bank Performance Report for September 30, 2002.
4. Stockholders' list as of January 3, 2003.
5. Key personnel list.
6. Trade associations and industry sources.
7. Information on the U.S. economy, regional economy, state
economy, and local economy gathered from various trade
publications, reports, and articles.
8. Industry information gathered from The Wall Street Journal,
Encyclopedia of American Industries, FDIC's Quarterly Banking
Profile, trade publications, reports and articles.
9. Information for the guideline companies method was gathered
from CBS Marketwatch, Yahoo! Finance, and SEC filings found on
EDGAR.
10. Information for the guideline transactions method was
purchased from SNL Securities Corporation.
11. Various other information.
Note that Wipfli Ullrich Bertelson LLP has not performed a separate compilation,
review, or audit for this valuation, but has accepted the financial information
as previously presented. The financial data summarized in this report is for
valuation purposes only. The financial data is not to be relied on for other
purposes. Refer to the compiled financial statements for other purposes.
InvestorsBancorp, Inc.
EXHIBIT C
COMPARATIVE BALANCE SHEETS
INVESTORSBANCORP
WAUKESHA, WISCONSIN
COMPARATIVE BALANCE SHEETS - PARENT COMPANY ONLY Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands) 2002 2001 2000 1999
------- ------- ------- -------
ASSETS
Total cash and due from banks $ 180 $ 427 $ 355 $ 300
Investment in the Bank 8,724 8,149 7,633 5,988
Receivable from subsidiary 3 12
Loan Participations 370 272 325 401
Premises and fixed assets 37 37 38 75
------- ------- ------- -------
TOTAL ASSETS $ 9,311 $ 8,888 $ 8,363 $ 6,764
======= ======= ======= =======
LIABILITIES AND EQUITY
LIABILITIES
Note payable - short-term
Note payable - long-term 494 639 840
Other liabilities 2 2 54 29
------- ------- ------- -------
TOTAL LIABILITIES 2 496 693 869
------- ------- ------- -------
STOCKHOLDERS' EQUITY
Common stock 2,164 2,164 2,164 923
Retained earnings 7,447 6,881 5,499 5,058
Accum other comprehensive income 341 159 7 (86)
Less: ESOP loan (643) (812)
------- ------- ------- -------
TOTAL EQUITY 9,309 8,392 7,670 5,895
------- ------- ------- -------
TOTAL LIABILITIES AND EQUITY $ 9,311 $ 8,888 $ 8,363 $ 6,764
======= ======= ======= =======
INVESTORSBANK
WAUKESHA, WISCONSIN
5 year
COMPARATIVE BALANCE SHEETS Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average CAGR
(in thousands) 2002 2001 2000 1999 1998 1998 - 2002 1998 - 2002
-------- -------- -------- -------- -------- ----------- -----------
ASSETS
Total cash and due from banks $ 2,819 $ 2,005 $ 3,454 $ 2,281 $ 1,049 $ 2,322 28.0%
Portfolio investments 1,984 5,347 14,391 6,260 18,960 9,388 -43.1%
Fed funds sold 1,250 540 358 -100.0%
Net loans and leases 155,705 123,721 118,879 76,873 41,499 103,335 39.2%
Premises and fixed assets 2,527 182 87 93 127 603 111.2%
Other assets 4,122 2,387 2,649 1,001 1,008 2,233 42.2%
-------- -------- -------- -------- -------- -------- ------
TOTAL ASSETS $167,157 $133,642 $140,710 $ 86,508 $ 63,183 $118,240 27.5%
======== ======== ======== ======== ======== ======== ======
LIABILITIES AND EQUITY
LIABILITIES
Deposits $136,067 $120,029 $128,812 $ 76,788 $ 55,088 $103,357 25.4%
Fed funds purchased and sec sold 1,475 815 925 643 n/a
Other borrowed money 13,600 2,720 n/a
Other liabilities 1,236 997 1,465 1,128 911 1,147 7.9%
-------- -------- -------- -------- -------- -------- ------
TOTAL LIABILITIES 152,378 121,841 130,277 78,841 55,999 107,867 28.4%
-------- -------- -------- -------- -------- -------- ------
STOCKHOLDERS' EQUITY
Common stock 100 100 100 100 100 100 0.0%
Surplus 11,100 9,150 9,140 6,890 6,890 8,634 12.7%
Undivided profits and reserves 3,579 2,551 1,193 677 194 1,639 107.2%
-------- -------- -------- -------- -------- -------- ------
TOTAL EQUITY 14,779 11,801 10,433 7,667 7,184 10,373 19.8%
-------- -------- -------- -------- -------- -------- ------
TOTAL LIABILITIES AND EQUITY $167,157 $133,642 $140,710 $ 86,508 $ 63,183 $118,240 27.5%
======== ======== ======== ======== ======== ======== ======
INVESTORSBANK
WAUKESHA, WISCONSIN
5 year
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average
COMMON SIZE BALANCE SHEETS 2002 2001 2000 1999 1998 1997-2001
------- ------- ------- ------- ------- ---------
ASSETS
Total cash and due from banks 1.7 1.5 2.5 2.6 1.7 2.0
Portfolio investments 1.2 4.0 10.2 7.2 30.0 10.5
Fed funds sold 0.0 0.0 0.9 0.0 0.9 0.4
Net loans and leases 93.1 92.6 84.4 88.9 65.6 84.9
Premises and fixed assets 1.5 0.1 0.1 0.1 0.2 0.4
Other assets 2.5 1.8 1.9 1.2 1.6 1.8
----- ----- ----- ----- ----- -----
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
LIABILITIES AND EQUITY
LIABILITIES
Deposits 81.4 89.8 91.4 88.7 87.2 87.7
Fed funds purchased and sec sold 0.9 0.6 0.0 1.1 0.0 0.5
Other borrowed money 8.1 0.0 0.0 0.0 0.0 1.6
Other liabilities 0.7 0.7 1.0 1.3 1.4 1.0
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES 91.2 91.2 92.6 91.1 88.6 90.9
----- ----- ----- ----- ----- -----
EQUITY
Common stock 0.1 0.1 0.1 0.1 0.2 0.1
Surplus 6.6 6.8 6.5 8.0 10.9 7.8
Undivided profits and reserves 2.1 1.9 0.8 0.8 0.3 1.2
----- ----- ----- ----- ----- -----
TOTAL EQUITY 8.8 8.8 7.4 8.9 11.4 9.1
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES AND EQUITY 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
EXHIBIT D
COMPARATIVE INCOME STATEMENTS
INVESTORSBANCORP
WAUKESHA, WISCONSIN
COMPARATIVE INCOME STATEMENTS - PARENT COMPANY ONLY Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands) 2002 2001 2000 1999
------- ------- ------- -------
Dividend income from the Bank $ 702 $ 522 $ 301 $ 301
Other income from the Bank 30 46 67 74
Other income 28 55 76 73
------ ------ ------ ------
Total income 760 623 444 448
------ ------ ------ ------
Interest expense 8 37 60 64
Other expenses 24 52 44 49
------ ------ ------ ------
Total noninterest income 32 89 104 113
------ ------ ------ ------
Net income before taxes and equity in
undistributed net income of the Bank 728 534 340 335
Provision for income taxes 24 9
------ ------ ------ ------
Net income before equity in undistributed
net income of the Bank 728 534 316 326
Equity in undist. net income of the Bank 393 364 310 338
------ ------ ------ ------
Net income $1,121 $ 898 $ 626 $ 664
====== ====== ====== ======
Cash dividends paid $ 557 $ 447 $ 249 $ 242
INVESTORSBANK
WAUKESHA, WISCONSIN
5 year
COMPARATIVE INCOME STATEMENTS Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average CAGR
(in thousands) 2002 2001 2000 1999 1998 1998 - 2002 1998 - 2002
-------- -------- -------- -------- -------- ----------- -----------
Total interest income $ 8,200 $ 10,064 $ 9,317 $ 5,508 $ 3,261 $ 7,270 25.9%
Total interest expense 3,282 5,582 5,757 3,090 1,761 3,894 16.8%
Provision for loan and lease loss 472 847 1,038 375 300 606 12.0%
-------- -------- -------- -------- -------- -------- ----
Net interest income after provision 4,446 3,635 2,522 2,043 1,200 2,769 38.7%
-------- -------- -------- -------- -------- -------- ----
Noninterest income 1,797 1,826 1,542 1,534 1,386 1,617 6.7%
Gains (losses) on sale of securities n/m
Noninterest expenses 3,400 3,024 3,048 2,620 2,207 2,860 11.4%
-------- -------- -------- -------- -------- -------- ----
Total noninterest expenses (1,603) (1,198) (1,506) (1,086) (821) (1,243) 18.2%
-------- -------- -------- -------- -------- -------- ----
Income from operations 2,843 2,437 1,016 957 379 1,526 65.5%
Current taxes 980 769 343 362 82 507 85.9%
-------- -------- -------- -------- -------- -------- ----
Net income $ 1,863 $ 1,668 $ 673 $ 595 $ 297 $ 1,019 58.3%
======== ======== ======== ======== ======== ======== ====
Cash dividends paid $ 835 $ 300 $ 157 $ 0 $ 0 $ 258 n/m
Dividends as a % of net income 44.8% 18.0% 23.3% 0.0% 0.0% 17.2% n/m
INVESTORSBANK
WAUKESHA, WISCONSIN
5 year
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average
COMMON SIZE INCOME STATEMENTS 2002 2001 2000 1999 1998 1997-2001
------- ------- ------- ------- ------- ---------
Total interest income 100.0 100.0 100.0 100.0 100.0 100.0
Total interest expense 40.0 55.5 61.8 56.1 54.0 53.6
Provision for loan and lease loss 5.8 8.4 11.1 6.8 9.2 8.3
----- ----- ----- ----- ----- -----
Net interest income 54.2 36.1 27.1 37.1 36.8 38.1
----- ----- ----- ----- ----- -----
Noninterest income 21.9 18.1 16.6 27.9 42.5 22.2
Gains (losses) on sale of securities
Noninterest expenses 41.5 30.0 32.7 47.6 67.7 39.3
----- ----- ----- ----- ----- -----
Total noninterest expenses (19.5) (11.9) (16.2) (19.7) (25.2) (17.1)
----- ----- ----- ----- ----- -----
Income from operations 34.7 24.2 10.9 17.4 11.6 21.0
Current taxes 12.0 7.6 3.7 6.6 2.5 7.0
----- ----- ----- ----- ----- -----
Net income 22.7 16.6 7.2 10.8 9.1 14.0
===== ===== ===== ===== ===== =====
EXHIBIT E
ADJUSTED HISTORICAL EARNINGS
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE COMPANY METHOD
(amounts in thousands)
THE HOLDING COMPANY'S HISTORICAL AND ADJUSTED EARNINGS
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
Net Income for the Year ended 1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
Income from operations $ 379,000 $ 956,000 $ 834,000 $2,140,000 $2,554,000
Current taxes (as reported) $ 82,000 $ 362,000 $ 272,000 $ 668,000 $ 882,000
---------- ---------- ---------- ---------- ----------
Adjusted Historical Earnings $ 297,000 $ 594,000 $ 562,000 $1,472,000 $1,672,000
========== ========== ========== ========== ==========
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
Estimated Ongoing Earnings (most recent period - rounded) $ 1,672,000
Capital to Earnings Multiple based on Guideline Public Company Method 8.4
------------
Fair Market Value of the Holding Company $ 14,077,161
Less: Outstanding Trust Preferred Securities ($ 5,000,000)
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 9,077,161
Add: Control Premium (20%) $ 1,815,432
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 11,864,593
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 11.24
============
II. Holding Company's Book Value as of December 31, 2002 $ 10,357,000
Price to Book Multiple based on Guideline Transaction Method 1.23
------------
Fair Market Value of the Holding Company $ 12,739,110
Less: Outstanding Trust Preferred Securities $ 0
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 12,739,110
Add: Control Premium (20%) $ 2,547,822
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 16,258,932
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 15.40
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 13.32
============
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE TRANSACTION METHOD
(amounts in thousands)
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
I. Historical Earnings (most recent period) $ 1,672,000
Price to Earnings Multiple based on Guideline Transaction Method 10.3
------------
Fair Market Value of the Holding Company, on a marketable, majority basis $ 17,292,660
Less: Outstanding Trust Preferred Securities ($ 5,000,000)
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Market Value of the Holding Company, on a majority, marketable basis $ 13,264,660
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 12.56
============
II. Holding Company's Book Value as of December 31, 2002 $ 10,357,000
Price to Book Multiple based on Guideline Transaction Method 1.2
------------
Fair Market Value of the Holding Company, on a marketable, majority basis $ 12,428,400
Less: Outstanding Trust Preferred Securities $ 0
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Market Value of the Holding Company, on a majority, marketable basis $ 13,400,400
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 12.69
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 12.63
============
EXHIBIT F
GUIDELINE COMPANY DATA
GUIDELINE COMPANY DATA
AS OF DECEMBER 31, 2002
30 day avg
Total closing Outstanding Market Trust
Ticker Assets Price through Shares Capitalization Preferred
Name / Location Symbol (in thousands) 12/31/2002 (millions) (millions) (millions)
- --------------------------------------------------------------------------------------------------------------------------
Baylake Corp. BYLK.OB $ 904,656 $13.13 7.48 $ 98.21 $16.10
Sturgeon Bay, WI
Commercial National Financial Corp CEFC.OB $ 228,849 $11.77 3.63 $ 42.73 $ 0.00
Ithaca, MI
Heartland Financial USA HTLF.OB $1,785,979 $15.76 9.86 $155.39 $ 0.00
Dubuque, IA
Horizon Bancorp HBNC $ 720,100 $24.49 1.98 $ 48.49 $12.00
Michigan City, IN
Iowa First Bancshares Corp. IFST $ 378,705 $22.92 1.44 $ 33.00 $ 0.00
Muscatine, IA
Mahaska Investment Company OSKY $ 540,787 $15.10 3.92 $ 59.19 $10.00
Oskaloosa, IA
Mid-Wisconsin Financial Services MWFS.OB $ 368,040 $27.07 1.69 $ 45.75 $ 0.00
Inc
Medford, WI
Monroe Bancorp MROE $ 533,317 $13.19 6.10 $ 80.46 $ 0.00
Bloomington, IN
Princeton National Bancorp PNBC $ 587,525 $20.88 3.23 $ 67.44 $ 0.00
Princeton, IL
Average
Median
Selected Multiple *
Trailing Twelve Months Price Capital Last Price to
---------------------------------- to TTM to TTM Qtr End Book
Name / Location ROA ROE Earnings Earnings Earnings Book Value Value
- -------------------------------------------------------------------------------------------------------------------------
Baylake Corp. 1.00% 13.98% $1.15 11.42 13.29 $ 8.62 3.39
Sturgeon Bay, WI
Commercial National Financial Corp 1.33% 13.13% $0.78 15.09 15.09 $ 6.16 1.91
Ithaca, MI
Heartland Financial USA 1.13% 16.44% $1.68 9.38 9.38 $12.60 1.25
Dubuque, IA
Horizon Bancorp 0.83% 14.21% $2.75 8.91 11.11 $20.89 1.17
Michigan City, IN
Iowa First Bancshares Corp. 0.93% 13.55% $2.48 9.24 9.24 $20.49 1.12
Muscatine, IA
Mahaska Investment Company 1.03% 10.73% $1.41 10.71 12.52 $13.64 1.11
Oskaloosa, IA
Mid-Wisconsin Financial Services Inc 1.30% 14.56% $2.65 10.22 10.22 $19.11 1.42
Medford, WI
Monroe Bancorp 1.17% 14.32% $1.00 13.19 13.19 $ 7.25 1.82
Bloomington, IN
Princeton National Bancorp 1.08% 12.37% $1.86 11.23 11.23 $15.79 1.32
Princeton, IL
------------------ ----------------- ----
Average 1.09% 13.70% 11.04 11.70 1.61
================== ================= ====
Median 1.08% 13.98% 10.71 11.23 1.32
================== ================= ====
Selected Multiple * 8.42 1.06
===== ====
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
EXHIBIT G
GUIDELINE TRANSACTION DATA
GUIDELINE TRANSACTION DATA
AS OF DECEMBER 31, 2002
Total Equity / NPAs / Trailing Twelve Months TTM Price to
Assets Assets Assets ---------------------- Price to Book
Seller Name / Location (in thousands) (%) (%) ROA ROE Earnings Value
- --------------------------------------------------------------------------------------------------------------------------------
Fortress Bancshares, Inc. $206,802 6.75 n/a 0.89% 13.35% 12.35 1.50
Westby, WI
Waunakee Bank Shares, Inc. $103,141 6.07 1.68 -0.23% -3.87% n/m 1.43
Waunakee, WI
Bancorp Inc. $ 46,707 10.66 0.18 1.16% 10.57% 14.41 1.28
Cedarburg, WI
Northern Plains Bancshares $ 46,946 7.43 0.20 1.06% 13.91% 13.17 1.67
Thief River Falls, MN
Marquette Bank Illinois $140,730 9.45 0.18 1.04% 12.12% 15.27 1.77
Galesburg, IL
------------------------------------------------------------------
Average 8.07 0.56 0.78% 9.22% 13.80 1.53
==================================================================
Median 7.43 0.19 1.04% 12.12% 13.79 1.50
==================================================================
Selected Multiples * 10.3 1.20
================
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
Wipfli Ullrich Bertelson LLP APPENDIX B-2
500 Third Street
Wausau, WI 54403
PO Box 8010
Wausau, WI 54402-8010
715.845.3111
fax 715.845.1189
wipfli.com
April 16, 2003
Mr. George Schonath
InvestorsBancorp, Inc.
P.O. Box 190
Waukesha, WI 53188-0190
Dear George:
As I mentioned on the telephone Monday, I found a mistake in my valuation of
InvestorsBancorp, Inc. as of January 3, 2003. I apologize for this mistake and
any inconvenience it may have caused. I am enclosing new reports for you and the
rest of the Board of Directors. The correction of this mistake causes the
valuation as of January 3, 2003 to decrease from $13.71 per share to $13.37. The
mistake was in the guideline companies' method. The price-to-book multiple that
was explained on page 38 that I intended to use was not used; rather an
incorrect multiple was used.
Additionally, the guideline company, Baylake Corp.'s price-to-book value
multiple was incorrectly calculated. This change has NO affect on the January 3,
2003 or March 19, 2003 report. This lowers the average but not the median
multiple. We used the median.
Fortunately, these changes do NOT affect the conclusion of $14.20 that we
reached as of March 19, 2003. Once again, I apologize for any inconvenience this
may have caused. If the Board of Directors would like to discuss, I would be
more than happy to discuss the change.
Please call to discuss if you have any questions or would like to discuss.
Sincerely,
/s/ Kevin M. Janke
Kevin M. Janke, CPA/ABV, ASA
Partner
Business Valuation/M&A Services
KMJ/ka
Enc.
cc: Sarah Bernstein
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
Correlation
Historical price method $15.62
======
Guideline company method $14.05
======
Guideline transaction method $12.94
======
Conclusion- average of three methods $14.20
======
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
30 day average of the Holding Company's closing price $13.02
Premium for control (20%) 2.60
------
Fair value at March 19, 2003 utilizing this method $15.62
======
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE COMPANY METHOD
(amounts in thousands)
THE HOLDING COMPANY'S HISTORICAL AND ADJUSTED EARNINGS
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
Net Income for the Year ended 1998 1999 2000 2001 2002
--------------------------------------------------------
Income from operations $379,000 $956,000 $834,000 $2,140,000 $2,554,000
Current taxes (as reported) $ 82,000 $362,000 $272,000 $ 668,000 $ 882,000
--------------------------------------------------------
Adjusted Historical Earnings $297,000 $594,000 $562,000 $1,472,000 $1,672,000
========================================================
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
Estimated Ongoing Earnings (most recent period - rounded) $ 1,672,000
Capital to Earnings Multiple based on Guideline Public Company Method 9.52
-----------
Fair Market Value of the Holding Company $15,921,321
Less: Outstanding Trust Preferred Securities ($ 5,000,000)
-----------
Fair Market Value of the Holding Company, on a minority, marketable basis $10,921,321
Add: Control Premium (20%) $ 2,184,264
Add: Cash from exercising options and warrants $ 972,000
-----------
Fair Value of the Holding Company, on a marketable, majority interest basis $14,077,585
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
-----------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 13.33
===========
II. Holding Company's Book Value as of March 19, 2003 $10,915,000
Price to Book Multiple based on Guideline Transaction Method 1.12
-----------
Fair Market Value of the Holding Company $12,176,847
Less: Outstanding Trust Preferred Securities $ 0
-----------
Fair Market Value of the Holding Company, on a minority, marketable basis $12,176,847
Add: Control Premium (20%) $ 2,435,369
Add: Cash from exercising options and warrants $ 972,000
-----------
Fair Value of the Holding Company, on a marketable, majority interest basis $15,584,216
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
-----------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 14.76
===========
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 14.05
===========
GUIDELINE COMPANY DATA
AS OF MARCH 19, 2003
30 day avg
Total closing Outstanding Market Trust
Ticker Assets Price through Shares Capitalization Preferred
Name / Location Symbol (in thousands) 3/19/2003 (millions) (millions) (millions)
- --------------------------------------------------------------------------------------------------------------------------------
Baylake Corp. BYLK.OB $ 904,656 $13.38 7.48 $100.08 $16.10
Sturgeon Bay, WI
Commercial National Financial Corp CEFC.OB $ 228,849 $11.74 3.63 $42.62 $ 0.00
Ithaca, MI
Heartland Financial USA HTLF.OB $1,785,979 $21.33 9.86 $210.31 $ 0.00
Dubuque, IA
Horizon Bancorp HBNC $ 720,100 $28.49 1.98 $56.41 $12.00
Michigan City, IN
Iowa First Bancshares Corp. IFST $ 378,705 $24.29 1.44 $34.98 $ 0.00
Muscatine, IA
Mahaska Investment Company OSKY $ 540,787 $16.27 3.92 $63.78 $10.00
Oskaloosa, IA
Mid-Wisconsin Financial Services MWFS.OB $ 368,040 $27.46 1.69 $46.41 $ 0.00
Inc Medford, WI
Monroe Bancorp MROE $ 533,317 $13.60 6.10 $82.96 $ 0.00
Bloomington, IN
Princeton National Bancorp PNBC $ 587,525 $21.91 3.23 $70.77 $ 0.00
Princeton, IL
Average
Median
Selected Multiple *
Trailing Twelve Months Price Capital Estimated Price to
-------------------------- to TTM to TTM 19-Mar-03 Book
Name / Location ROA ROE Earnings Earnings Earnings Book Value Value
- ------------------------------------------------------------------------------------------------------------------------
Baylake Corp. 1.00% 13.98% $1.15 11.63 13.51 $ 8.87 1.51
Sturgeon Bay, WI
Commercial National Financial Corp 1.33% 13.13% $0.78 15.05 15.05 $ 6.33 1.85
Ithaca, MI
Heartland Financial USA 1.13% 16.44% $1.68 12.70 12.70 $12.97 1.64
Dubuque, IA
Horizon Bancorp 0.83% 14.21% $2.75 10.36 12.56 $21.49 1.33
Michigan City, IN
Iowa First Bancshares Corp. 0.93% 13.55% $2.48 9.79 9.79 $21.03 1.15
Muscatine, IA
Mahaska Investment Company 1.03% 10.73% $1.41 11.54 13.35 $13.95 1.17
Oskaloosa, IA
Mid-Wisconsin Financial Services Inc 1.30% 14.56% $2.65 10.36 10.36 $19.69 1.39
Medford, WI
Monroe Bancorp 1.17% 14.32% $1.00 13.60 13.60 $ 7.47 1.82
Bloomington, IN
Princeton National Bancorp 1.08% 12.37% $1.86 11.78 11.78 $16.20 1.35
Princeton, IL
------------- --------------- ----
Average 1.09% 13.70% 11.87 12.52 1.47
============= =============== ====
Median 1.08% 13.98% 11.63 12.70 1.39
============= =============== ====
Selected Multiple * 9.52 1.12
===== ====
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE TRANSACTION METHOD
(amounts in thousands)
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
I. Historical Earnings (most recent period) $ 1,672,000
Price to Earnings Multiple based on Guideline Transaction Method 10.3
-----------
Fair Market Value of the Holding Company, on a marketable, majority basis $17,292,660
Less: Outstanding Trust Preferred Securities ($ 5,000,000)
Add: Cash from exercising options and warrants $ 972,000
-----------
Fair Market Value of the Holding Company, on a majority, marketable basis $13,264,660
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
-----------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 12.56
===========
II. Holding Company's Book Value as of March 19, 2003 $10,915,000
Price to Book Multiple based on Guideline Transaction Method 1.2
-----------
Fair Market Value of the Holding Company, on a marketable, majority basis $13,098,000
Less: Outstanding Trust Preferred Securities $ 0
Add: Cash from exercising options and warrants $ 972,000
-----------
Fair Market Value of the Holding Company, on a majority, marketable basis $14,070,000
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
-----------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 13.32
===========
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 12.94
===========
GUIDELINE TRANSACTION DATA
AS OF MARCH 19, 2003
Total Equity / NPAs / Trailing Twelve Months TTM Price to
Assets Assets Assets ---------------------- Price to Book
Seller Name / Location (in thousands) (%) (%) ROA ROE Earnings Value
- --------------------------------------------------------------------------------------------------------------------------------
Fortress Bancshares, Inc. $206,802 6.75 n/a 0.89% 13.35% 12.35 1.50
Westby, WI
Waunakee Bank Shares, Inc. $103,141 6.07 1.68 -0.23% -3.87% n/m 1.43
Waunakee, WI
Bancorp Inc. $ 46,707 10.66 0.18 1.16% 10.57% 14.41 1.28
Cedarburg, WI
Northern Plains Bancshares $ 46,946 7.43 0.20 1.06% 13.91% 13.17 1.67
Thief River Falls, MN
Marquette Bank Illinois $140,730 9.45 0.18 1.04% 12.12% 15.27 1.77
Galesburg, IL
------------------------------------------------------------------
Average 8.07 0.56 0.78% 9.22% 13.80 1.53
==================================================================
Median 7.43 0.19 1.04% 12.12% 13.79 1.50
==================================================================
Selected Multiples ( the median) * 10.3 1.20
================
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent
growth.
INVESTORSBANCORP, INC. AND
SUBSIDIARIES
WAUKESHA, WISCONSIN
FAIR VALUE BUSINESS VALUATION
AS OF JANUARY 3, 2003
Prepared By:
WIPFLI ULLRICH BERTELSON LLP
500 Third St.
P.O. Box 8010
Wausau, WI 54402-8010
(715) 845-3111
Fax: (715) 845-1189
Wipfli Ullrich Bertelson LLP
TABLE OF CONTENTS
Valuation Consultant's Report............................. 1
DESCRIPTIVE INFORMATION
Background Business Information...................... 6
General Economic Perspective......................... 9
Industry Information................................. 17
Loan Portfolio Disclaimer............................ 21
Review of Financial Position and Performance......... 22
VALUATION
Book Value........................................... 30
Determination of Fair Value.......................... 31
Specific Approaches to Valuation..................... 32
Correlation and Conclusion........................... 41
STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS.. 42
EXHIBITS
A - Certificate of Valuation Consultant
B - Information Sources Used In Valuation
C - Comparative Balance Sheets
D - Comparative Income Statements
E - Adjusted Historical Earnings
F - Guideline Company Data
G - Guideline Transaction Data
InvestorsBancorp, Inc.
Wipfli Ullrich Bertelson LLP
VALUATION CONSULTANT'S REPORT
Mr. George Schonath
InvestorsBancorp, Inc. and Subsidiaries
P.O. Box 190
Waukesha, Wisconsin 53188-0190
RE: Business Valuation
Fair value as of January 3, 2003
InvestorsBancorp, Inc. and Subsidiary
In accordance with your authorization, we have appraised a majority,
marketable ownership interest of the common stock of InvestorsBancorp, Inc. and
its wholly owned subsidiaries, as of January 3, 2003. We are pleased to submit
the results of our findings in the following report.
OBJECTIVE AND PURPOSE OF THE APPRAISAL
The objective of the appraisal is to express an opinion of the fair
value of the common stock of InvestorsBancorp, Inc.'s common stock, as of
January 3, 2003, determined on a majority, marketable basis.
The purpose of the appraisal is to value InvestorsBancorp, Inc. to
assist the Board of Directors in setting a price per share to be used in
management planning.
Throughout the remainder of this report, InvestorsBancorp, Inc. may be
referred to as the "Holding Company" and InvestorsBank may be referred to as the
"Bank."
DEFINITION AND PREMISE OF VALUE
The term fair value is a legally created standard of value that applies
to certain specific transactions. In most states, fair value is the statutory
standard of value applicable in cases of dissenting shareholders' appraisal
rights. In these states, if a corporation merges, sells out, or takes certain
other major actions, and the owner of a minority interest believes that he is
being forced to receive less than adequate consideration for his stock, he has
the right to have his shares appraised and to receive fair value in cash. In
states that have adopted the Uniform Business Corporation Act, including
Wisconsin, the definition of fair value is fairly similar. Section 180.1301(4)
of the Wisconsin Statutes defines fair value as follows:
"With respect to a dissenter's shares, other than in a
business combination, means the value of the shares
immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable."
InvestorsBancorp, Inc.
1
Wipfli Ullrich Bertelson LLP
VALUATION CONSULTANT'S REPORT
Even in states that have adopted language similar to the standard
definition for fair value, there is usually no clearly recognized consensus
regarding the interpretation of fair value, however, published precedents
established in various state courts certainly have not equated fair value to
fair market value. Generally, states have defined fair value using a broader
standard than simply fair market value. Even when a proportionate share of
enterprise value is an indicated interpretation of "fair value," precedent as to
which factors to consider and the relative weights to accord each varies
considerably between states.
In HMO-W Incorporated v. SSM Health Care System and the Neillsville
Clinic, S.C. (case 98-2834), the Wisconsin Supreme Court reviewed a decision of
the Court of Appeals regarding dissenters' rights. In its opinion filed June 7,
2000, the Wisconsin Supreme Court stated:
"The legislature clearly did not intend to render fair value synonymous
with fair market value when appraising dissenters' shares in a
nonbusiness combination... Examining the purpose of dissenters' rights
statutes; we conclude that the application of a minority discount in
determining the fair value of a dissenter's shares frustrates the
equitable purpose to protect minority shareholders. A dissenting
shareholder is thus entitled to the proportionate interest of his or
her minority shares in the going concern of the entire company."
Accordingly, based on this recent Wisconsin Supreme Court opinion, we have
determined the fair value of the Company's stock on a marketable, majority
interest basis.
Fair value assumes a hypothetical situation with many built-in
conditions and assumptions. Some of those assumptions are incorporated into the
definitions above. Other assumptions and conditions are discussed or are implied
or expressed in the attached Statement of General Assumptions and Limiting
Conditions. IT SHOULD BE CLEAR THAT WHENEVER ANY OF THOSE CONDITIONS DO NOT
APPLY OR WHEN SPECIAL "TERMS" ARE NEGOTIATED, THEN THE PRICE CAN VARY FROM THE
ESTIMATED FAIR VALUE.
CONCLUSION:
Based on the premises as outlined above and the investigation and
analysis detailed in the attached narrative report and for the purpose as
stated, it is concluded that the per share fair value of the common stock of
InvestorsBancorp, Inc. determined on a majority, marketable basis, as of January
3, 2003, based on 1,055,906 shares outstanding on a fully diluted basis, is
reasonably estimated at:
THIRTEEN DOLLARS AND THIRTY SEVEN CENTS $13.37
InvestorsBancorp, Inc.
2
Wipfli Ullrich Bertelson LLP
VALUATION CONSULTANT'S REPORT
VALUATION PROCEDURES:
In conjunction with this valuation, there are many factors that must be
considered in the valuation of a business enterprise. Among them are the pattern
of historical performance and earnings, the Bank's competitive market position,
experience and quality of management, marketability, and others. Some of these
factors are outlined in Revenue Ruling 59-60 as the pertinent factors to
consider in the valuation of closely held businesses or securities in those
businesses. The Internal Revenue Service issued Revenue Ruling 59-60 (1959-1
C.B. 237) to indicate its viewpoint on the valuation of closely held securities.
This ruling, as amended by Revenue Ruling 65-192 & 65-193 (1965-2 C.B. 259 &
370), has been accepted by the courts and the appraisal community as a basic
guideline to the process.
In the following report, we have given consideration to the eight
pertinent factors discussed in Revenue Ruling 59-60 to the extent they are
relevant for this valuation.
The eight factors which we have considered are as follows:
1. The nature of the business and the history of the enterprise from its
inception.
2. The economic outlook in general and the condition and outlook of the
specific industry in particular.
3. The value of the tangible assets as represented on the books of the
company and financial condition of the business.
4. The potential earnings capacity of the business and its ability to pay
a fair return on an investment.
5. The actual dividends or the ability of the business to pay dividends.
6. The presence of goodwill and other intangible assets in the overall
enterprise value.
7. The size of the company or size of the block of stock or security being
valued; transactions or sales of similar securities, if available.
8. Market data of similar businesses including actual sales and offerings;
relevant financial and sale data of securities in publicly traded
comparable companies.
It should be noted that the above definition does not cover all
possible values of a business. For example, the assumed buyer is a person who
comes to the business and who buys it on the basis of its own financial
strength. Some buyers, however, may have other motives for purchasing a
business, such as the elimination of competition or the combination of two
operations, that will provide a greater profit than each business could provide
separately.
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VALUATION CONSULTANT'S REPORT
Under these circumstances, there is information available to the buyer
which is not available to the seller. Although these buyers may be willing to
pay a particular premium to buy a business, an appraiser generally is not privy
to this information unless specifically doing the valuation for the purpose of
such a sale. We know of no such sale being imminent and thus do not further
consider this particular situation in forming an opinion of value.
VALUATION TERMS AND CONDITIONS
This report is intended for use only in connection with the stated
purpose. No other purpose is intended or should be inferred.
The following narrative report and exhibits further describe the
analyses performed and conclusions reached during this appraisal. In addition,
the statement of general assumptions and limiting conditions and certificate of
valuation consultant are integral parts of this valuation opinion. This report
should be read only in conjunction with them.
We take no responsibility in updating this report for events and
circumstances occurring after the date of the valuation.
Sincerely,
/s/ Wipfli Ullrich Bertelson LLP
-------------------------------------
Wipfli Ullrich Bertelson LLP
Date: /s/ March 20, 2003
-------------------------------
Wausau, Wisconsin
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NARRATIVE REPORT
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DESCRIPTIVE INFORMATION
BACKGROUND BUSINESS INFORMATION
HISTORY
InvestorsBancorp, Inc. is a one-bank holding company that owns 100% of
the stock of the InvestorsBank, which is located on the northern edge of
Waukesha, Wisconsin. Waukesha is a community of approximately 40,000 people
located approximately 20 miles directly west of downtown Milwaukee, in Waukesha
County in southeastern Wisconsin. Waukesha County is part of the four-county
Milwaukee Metropolitan Area.
InvestorsBank was formed in September 1997 as a spin-off from The
Middleton Doll Company, which was formerly known as Bando McGlocklin Capital
Corporation. The Bank offers a complete line of financial services to small
businesses and individuals in the community of Waukesha and in southeastern
Wisconsin. Pursuant to a management services agreement, the Bank also manages
the commercial loan and leased properties portfolios of Bando McGlocklin Small
Business Lending Corporation (BMSBLC), a subsidiary of The Middleton Doll
Company.
The Bank originally rented its 4,750 square foot facility at W239 N1700
Busse Road, Waukesha, Wisconsin, under a triple net lease from BMSBLC, which has
its main office in the same building. In the fourth quarter of 2002, the Bank
purchased this facility from BMSBLC for approximately $2.4 million. The Bank's
facilities are adequate to meet the needs of the Holding Company and the Bank
for the foreseeable future.
InvestorsBancorp, Inc. was formed as a subsidiary of The Middleton Doll
Company in June 1996 to hold the assets to be acquired by the Bank upon its
spin-off from The Middleton Doll Company. On September 6, 1997, The Middleton
Doll Company distributed all 880,000 shares of the Holding Company's outstanding
stock to its shareholders and, on September 8, 1997, the Bank commenced
business. On January 15, 2000, the Holding Company paid a 5% stock dividend. The
Holding Company has not paid any cash dividends since its formation, and the
Holding Company and the Bank believe that all future earnings will be retained
to finance the growth of the Bank and that no cash dividends will be paid in the
foreseeable future.
On September 19, 2000, the Bank formed a wholly owned subsidiary,
Investors Business Credit, Inc., which was incorporated under Nevada State law.
The subsidiary was formed to hold the Bank's long-term securities and certain
commercial loans to take advantage of state tax law provisions that result in
the Bank paying lower taxes to the State of Wisconsin.
On June 20, 2002, InvestorsBancorp Capital Trust I (the "Trust") was
incorporated under Delaware law as a wholly owned subsidiary of the Holding
Company to issue and sell Capital Trust I Floating Rate Cumulative Trust
Preferred Securities. The Company issued a debenture to the Trust in exchange
for the proceeds from the sale of the securities on June 27, 2002. The
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BACKGROUND BUSINESS INFORMATION
Trust issued 5,000 shares of Trust Preferred Securities with a liquidation value
of $1,000 per share. The proceeds from this transaction were used by the Company
to pay off $3.0 million of subordinated debt and to increase the capital of the
Bank. The Trust Preferred Securities debt is due on June 30, 2032, with interest
payable quarterly beginning on September 30, 2002. The interest rate is based on
the three-month LIBOR rate plus 365 basis points (5.03% as of January 3, 2003)
and resets quarterly with a maximum rate of 12% prior to June 30, 2007. The net
$5.0 million of Trust Preferred Securities is considered tier 1 capital for
regulatory purposes.
ORGANIZATION
As of the valuation date, the Bank had 21 employees, three of whom were
shared with BMSBLC. The Bank receives payment for the time its employees spend
on BMSBLC activities. As of the valuation date, the Bank's management included:
Name Age Title
---- --- -----
George R. Schonath 61 President and Chief Executive Officer
Glen Michaelsen 40 Senior Vice President - Commercial Lending
Kim DeMartino 42 Senior Vice President - Mortgage Lending
Susan J. Hauke 36 Vice President - Finance, Controller
Greg Mieske 42 Vice President - Operations
COMMON STOCK OWNERSHIP
As of the valuation date, the shareholders of InvestorsBancorp, Inc.
were as follows:
SHAREHOLDER SHARES PERCENT
- --------------------------------------------------------------------------------
George R. Schonath 241,870.180 22.905%
Schonath Family Partnership 237,943.131 22.533%
Thomas Evans, Trustee for the Sarah E. Schonath 79,863.950 7.563%
Irrevocable Trust dated December 31, 1996
Thomas Evans, Trustee for the Emily A Schonath 79,863.950 7.563%
Irrevocable Trust dated December 31,1996
Sarah Schonath 3,275.560 0.310%
Emily Schonath 3,057.560 0.290%
Jenn Schonath 1,262.490 0.120%
--------- -----
Total - Schonath Family 647,136.821 61.284%
Other Shareholders 408,829.000 38.716%
----------- ------
Total Shares Outstanding 1,055,965.821 100.000%
============= =======
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DESCRIPTIVE INFORMATION
BACKGROUND BUSINESS INFORMATION
The shares noted above are on a fully diluted basis including 27,201
stock options to an employee of the Bank and 105,000 warrants issued to the
Schonath Family Partnership.
COMPETITORS
Competitors include a number of financial institutions located near the
Bank's Waukesha location as well as banks throughout the Milwaukee Metropolitan
Area that focus on small business lending. The following were the largest
commercial banks located in Waukesha County as of June 30, 2002, the last date
this information was available from the FDIC:
TOTAL LOCAL PERCENT OF
BANK / NUMBER OF LOCATIONS DEPOSITS TOTAL
- --------------------------------------------------------------------------------
M&I Marshall & Illsley Bank
16 Offices $1,323,396 21.10%
Bank One Wisconsin
14 Offices $ 644,804 10.28%
Associated Bank, N.A.
19 Offices $ 521,417 8.31%
U.S. Bank, N.A.
14 Offices $ 487,795 7.78%
Waukesha State Bank
14 Offices $ 434,690 6.93%
Citizens Bank of Mukwonago
10 Offices $ 302,128 4.82%
First Bank Financial Centre
5 Offices $ 200,824 3.20%
Park Bank
2 Offices $ 123,678 1.97%
InvestorsBank
1 Office $ 121,378 1.94%
Delafield State Bank
1 Office $ 113,539 1.81%
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
In the valuation of any company, the general economic factors
prevailing at the date of the appraisal must be considered in order to gain
insight into the economic climate in which investors are dealing. Although
individual factors may or may not have a direct impact on a particular industry,
the overall economy and the outlook for it, strongly influence how investors
perceive the investment opportunities in all industries. In our analysis of the
Holding Company and Bank, we have considered the general economic climate that
prevailed at the date of this appraisal, as well as the outlook for the future.
SUMMARY - U.S. OUTLOOK
The economy is staging a slow recovery that will gather steam as the
year progresses. After suffering through a two-and-one-half-year bout of
below-capacity growth (sometimes called a growth recession), real gross domestic
product (GDP) should post growth of 3.0% this year, followed by 4.6% in 2004.
This encouraging outlook assumes that the United States wages a short and
successful war to unseat Saddam Hussein beginning in late February or
mid-to-late-March. Also, tax cuts and increased military spending to replenish
the equipment and supplies used up in the war will give the economy an extra
boost during the second half of 2003 and early 2004. After increasing by 0.7% in
the fourth quarter of 2002, real GDP is expected to increase 3.0% in the first
quarter and 3.3% in the second quarter of 2003.
In the near term, however, the unemployment rate will continue to rise
as labor-force growth outstrips new hiring and as productivity gains slow the
need for new workers. Inflation should accelerate slightly, to 2.0% this year
and next, after coming in at 1.6% in 2002. Because inflation is expected to
remain tame, the first Federal Reserve move to tighten interest rates is not
expected until the August FOMC (Federal Open Market Committee) meeting. Bond
yields will anticipate the tightening, and the stock market will begin a modest
recovery.
The dollar is expected to continue to fall modestly, but the current
account deficit will widen as the U.S. grows faster than its trading partners.
Corporate profits, which have been essentially flat for four years, should
improve this year, but will not exceed their prior peak until 2004. Wage and
salary gains will likely slow dramatically this year as employers try to control
labor costs in the face of rapidly rising health insurance costs.
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GENERAL ECONOMIC PERSPECTIVE
RECENT EVIDENCE
Real GDP growth during the final quarter of 2002 was as weak as
expected, with the growth rate coming in at a mere 0.7%. The major components of
GDP in the fourth quarter contained no surprises. There were increases in
consumer and government spending, a modest rise in business spending on
equipment and software, and a strong gain in residential construction. The drag
came from a slowdown in inventory building, plus further declines in
nonresidential construction and net trade. Imports fell, but exports fell
proportionately more. The trade numbers were distorted by the West Coast dock
strike, however, and should not be interpreted as typical.
A long lasting productivity boom came to an end in the fourth quarter
of 2002. Output per hour declined at a 0.2% rate in the nonfarm business sector,
as total hours increased more than output. For the year as a whole, however, the
improvement in productivity was the best in over 50 years. The 4.2% jump in
productivity held unit labor costs to a mere 0.3% increase.
Employers are becoming more tight-fisted as they wrestle with sluggish
demand growth and strong competition. Payroll employment declined 0.1% in the
fourth quarter, declining 0.9% for the year. The employment cost index showed an
increase of only 0.4% in private-sector wages and salaries in the fourth
quarter, the same as in the third. For the year, the wage and salary index
increased only 2.7%; although soaring benefit costs boosted the increase in
total compensation to 3.3%. The pressure on wages also shows in average hourly
earnings, which posted a 12-month increase of only 2.7% in January, the least
since 1995.
Consumers continued their spending habits at the end of last year.
Excluding sales of new light vehicles, consumer spending increased at a 2.5%
annual rate in the fourth quarter, the same as in the third. Total consumer
spending increased only 1.0% in the fourth quarter because of the sharp slowdown
in vehicle sales. On a year-to-year basis, personal consumption increased 3.7%
in the third quarter of 2002 before declining by 2.5% in the last quarter.
Business spending on equipment is on the recovery track. Nonresidential
fixed investment increased 1.5% in the fourth quarter, after declining 0.8% in
the third. On a year-to-year basis, nonresidential fixed investment declined by
1.9% in the fourth quarter of 2002. Investment in information processing
equipment continued to grow, increasing by 3.9% in the fourth quarter. New
computer systems are beginning to show up in offices, software spending is
recovering, and auto fleet sales have improved. The weakest segment remains
aircraft production. Spending on aircraft and parts has rebounded from its
trough, but is still extremely
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
depressed. It will likely be the last to see a real recovery, since the airline
industry itself is in crisis, and U.S. aircraft manufacturers are facing
vigorous overseas competition.
Residential construction ended the year in overdrive. Low mortgage
rates have kept buyers in the housing market, despite concerns over jobs and
income, and are allowing prices to keep rising. Existing house sales grew by a
29.6% annual rate in the fourth quarter to 5.73 million units. Once mortgage
rates turn up, sales will slow down. The home improvement business could
accelerate, however, as owners decide it is better to remodel or add on than
relocate.
INCOME, SPENDING, AND EMPLOYMENT
Personal income increased by 3.0% in 2002. It is expected to increase
by 4.7% in 2003 and by 6.0% in 2004.
Strong consumer spending is likely to continue. Excluding sales of new
light vehicles, consumer spending will increase at about a 2.5% annual rate in
the first half of 2003. This rate jumps to 4.5% at year-end, when tax cuts and
rebates begin to flow, and could accelerate further in early 2004. Personal
consumption is expected to increase by 2.5% for all of 2003, and by 4.6% in
2004.
After declining 0.1% in the last quarter of 2002, payroll employment is
expected to decline an additional 0.2% in the first quarter of 2003, before it
increases by 0.5% in the second quarter. For the year as a whole, payroll
employment is expected to increase by 0.4% in 2003, following a decline of 0.9%
in 2002. The labor market is expected to further recover in 2004, as employment
increases by 2.3%. The unemployment rate is expected to reach its maximum level
of 6.3% in the second quarter of 2003, then decline to an average 5.3% in 2004
and 5.0% in 2005.
HOUSING
Residential investment is heading into 2003 on an exceptionally strong
note. Builders are rushing to get projects to the selling stage before mortgage
rates rise. Housing starts are expected to slip from their fourth quarter pace
of 1.747 million to 1.677 million in 2003 and 1.642 million 2004. Residential
construction will become a drag on GDP growth over the course of the year
despite a high level of activity.
Some of the strength in single-family housing, however, will be offset
by a slowdown in the multi-family sector because rental vacancy rates are rising
rapidly.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
BUSINESS INVESTMENT
Business spending on equipment is on the recovery track. Total
nonresidential fixed investment is expected to increase by 3.6% in 2003, after a
decline of 5.8% in 2002. Overall, the current forecast calls for real spending
on producers' durable equipment to jump nearly 6% in 2003 and 12% in 2004. The
growth in equipment spending will be more than enough to offset the slump in
nonresidential construction. Business spending on structures is expected to drop
by 3.6% this year after falling by 16.4% in 2002.
GOVERNMENT SPENDING
Behind the forecast is the assumption that Congress will enact a
package of tax cuts worth about $80 billion on an accrual basis in 2003. On a
cash basis, much of the benefit will be felt in early 2004. There will likely be
another round of rebate checks, but only a small portion will be spent
immediately.
Although state and local governments were still increasing purchases at
the end of 2002, some serious trimming in the remainder of 2003 is probable.
With fewer than six months left in most states' fiscal years and budgets running
in the red, painful cuts can no longer be avoided. The easy cuts have been made
and rainy-day funds have been depleted. Layoffs are occurring, consultants are
being cut loose, and fees are being raised. Tax increases will be next, but
probably not before 2004.
INTERNATIONAL TRADE AND THE DOLLAR
The strong dollar and the poor global economy are hurting American
exports. Although the dollar has fallen from its peak, it has not dropped far
enough to significantly assist U.S. exporters. In addition, the delay of the
European Central Bank in cutting interest rates and the failure of European
governments to pursue more simulative fiscal policies, as well as Japan's
reluctance to modernize its financial sector, all restrict the global market for
U.S. goods and services.
Exports are expected to advance by 4.4% in 2003, followed by 9.1%
growth in each of the next two years. Imports will grow faster than exports in
2003, adding to the current account deficit.
The deficit on the current account balance of payments is expected to
deteriorate further to ($547.0) billion in 2003, from ($500.5) billion in 2002.
Despite a continuing decline in the value of the dollar, the current account
deficit is projected to widen to ($614.8) billion in 2004 and ($653.3) billion
in 2005.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
SUMMARY - WISCONSIN OUTLOOK
The Wisconsin economy will struggle this year to achieve positive
employment growth. The previous forecast in November 2002 used employment
estimates through September as a base for projecting employment growth of 1.4%
this year. Now, due to large employment benchmark revisions and a lower national
forecast, Wisconsin employment growth this year is expected to show only a small
positive change of 0.2% over 2001. Labor markets are still quite weak, consumer
spending has slowed, and business investment plans remain on hold until some
clarity is given to the Iraqi and terrorist situations.
Personal income growth in Wisconsin is now expected to advance by 3.3%
in 2003, after a gain of 3.0% in 2002. Because inflation is expected to
accelerate slightly this year, real personal income growth is expected to slow
to 1.2% in 2003 after a 1.6% gain in 2002.
The outlook for the longer term is better than the outlook for the next
few months. If a war in Iraq is both quick and successful, the national economy
is poised to begin a recovery phase that should last into 2004 and 2005. The
Wisconsin economy will follow suit. Employment growth for 2004 is now projected
to be 2.3%, followed by growth of 2.1% in 2005. Personal income growth is
expected to be 4.9% in 2004 and 5% in 2005.
The newly revised data on Wisconsin employment now show that total wage
and salary employment growth has remained below zero since the second quarter of
2001. At the time of the last forecast in November, it was thought that
employment growth had already turned the corner into positive territory. Now,
employment data show that Wisconsin entered the 2001 recession before the U.S.
and has remained below the U.S. employment growth path up to the present.
EMPLOYMENT OUTLOOK
The relatively large downward revision to total employment has altered
the expectations for near-term employment growth in Wisconsin. The current
forecast calls for a small decline (0.2%) annual rate, in total nonfarm
employment during the first quarter of 2003. The weakness will continue into
spring when total job growth is expected to be 0.4% at an annualized rate.
Employment growth is expected to accelerate during the last two quarters of
2003, growing by 1.1% in the third quarter and by 2.4% in the fourth. For all of
2003, total employment should average 0.2% higher than the average for 2002. The
unemployment rate, at 5.3% in the last quarter of 2002, may bump up to 5.8% by
mid-year before beginning to slide back down to an average of 4.7% in 2004 and
4.4% in 2005.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
Wisconsin manufacturing industries continue to bleed jobs and are
expected to show continued declines through the third quarter of this year. The
number of manufacturing jobs was 523,700 in the fourth quarter, down 2.9% from
the third quarter. It is now expected that the number of manufacturing jobs will
fall to a level of 510,500 before growth resumes in the fourth quarter. The
growth of manufacturing jobs is expected to be 1.2% in 2004 and 2.9% in 2005. On
a year-over-year basis, the growth in manufacturing jobs is expected to catch up
to growth in total employment by the end of 2004 and then decelerate along with
total employment growth to a rate of 1.3% to 1.4% at the end of 2006.
INCOME OUTLOOK
Wisconsin personal income grew at a 5.1% annual rate in the third
quarter of 2002, up from a revised rate of 3.2% in the second quarter.
Year-over-year gains in personal income have shown steady improvement since the
2.0% posting for fourth quarter of 2001. Year-over-year growth in total personal
income has been 2.3%, 2.8%, and 3.4%, respectively, for the first through third
quarters of 2002. Based on preliminary estimates of employment for the last
quarter of 2002, we estimate that the growth in personal income in the October
through December period was estimated to be 0.3% at an annualized rate. The
year-over-year growth continues to improve, however, to 3.6%.
The outlook for personal income growth is for continued moderate gains
for the next two quarters until employment gains begin to boost income growth
above 4% in the last quarter of 2003 and above 5% for most of 2004 and 2005.
Personal income growth is expected to average 3.3% for all of 2003 and move up
to 5.0% growth in 2004, followed by 5.1% growth in 2005.
Wages and salaries grew by 2.7% in 2002 and are estimated to grow by
2.4% in 2003. When employment growth resumes in 2004 and 2005, wage and salary
income growth bumps up to 4.9% in 2004 and 5.0% in 2005. Other labor income, a
category of income that includes fringe benefits such as employer's
contributions to employee health plans, has been growing quite rapidly recently.
Other labor income grew by 7.6% in 2002 and is expected to grow by 6.8% this
year. The forecast for growth in other labor income remains robust in 2004 at
7.2% and in 2005 at 6.5%.
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DESCRIPTIVE INFORMATION
GENERAL ECONOMIC PERSPECTIVE
LOCAL OUTLOOK
The Bank's office is located in Waukesha, Wisconsin, which is located
in Waukesha County. Accordingly, we will look at the economic outlook for this
county.
WAUKESHA COUNTY - The total population in Waukesha County grew by
nearly 51,000 people, or 16.7%, between the 1990 census and January 1, 2000,
when the county's total population was 360,767. Waukesha County grew an
additional 1.7% from 2000 to 2001. This growth rate is higher than the state
rate of 8.5% and the national rate of 8.7%. From a metropolitan perspective,
this growth rate in the 1990s was behind Washington County, 20.8%, but ahead of
both Ozaukee County, 12.3%, and Milwaukee County, (0.5%). Through July 1, 2001,
Waukesha County's population growth continued with an increase of 1.7%; which
was higher than the state's growth rate of 0.7% during this period.
While the unemployment rate in Waukesha County closely mirrors
fluctuations within the state of Wisconsin, the Waukesha County rate has
remained significantly lower than either the national or the state unemployment
rate over the past five years. In 2001, the unemployment rate in Waukesha County
averaged 3.3%, compared to 4.7% in the state of Wisconsin and 4.8% in the
nation. During 2002, Waukesha County's unemployment rate peaked at 5.0% in
February and declined to a low of 3.9% in May, increased to 4.4% in June, and
then declined to 3.4% in October. Waukesha County's unemployment rate in
December 2002 was 3.8%, which was significantly less than the state of
Wisconsin's rate of 4.9%.
Waukesha County's nonfarm wage and salary employment one-year growth
rate of 0.8% was less than the state job growth rate of 2.4%, however, the
five-year growth rate of 14.3% exceeded the state growth rate of 11.8%. Waukesha
County employers added 28,600 jobs from 1996 to 2001. Employers from the
services industries added over 22,800 jobs during this period, while
manufacturers added nearly 5,800 jobs during this period. Over the past five
years, the industries experiencing the highest growth rates in the county
included construction; retail trade; finance, insurance, and real estate; and
miscellaneous services; meanwhile, the largest decline was in the
transportation, communications, and utilities industries. In 2001, the largest
employers in Waukesha County (all employing greater than 1,000 persons) include
Kohl's Department Stores, Quad/Graphics, General Electric Medical Systems,
Waukesha Memorial Hospital, The Gap, Target Stores, Cooper Power Systems,
Wal-Mart, United Parcel Service, and Community Memorial Hospital of Menomonee
Falls.
In 2000, the median household income of Waukesha County was $62,839,
which was the highest in the four county metropolitan area. The per capita
personal income (PCPI)
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GENERAL ECONOMIC PERSPECTIVE
includes total income from wages and self-employment, assets, and transfer
payments divided by total population. In 2000, the PCPI in Waukesha County of
$39,659 was the second highest county in the state of Wisconsin and equaled 141%
of the state's PCPI.
SUMMARY
The current economic outlook affects the Bank in two primary ways. The
negative economic climate may hamper continued growth. Unemployment has risen
and manufacturing slowed in many parts of the country, including southeast
Wisconsin. In addition, decreasing interest rates have caused an increase in the
number of people refinancing their mortgages, upgrading their houses or building
homes. The fees generated from the refinancings are not expected to be
recurring, however. The Bank is also located in one of the most prosperous
counties in the state of Wisconsin. The outlook for the Bank, from an economic
standpoint, is neutral.
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INDUSTRY INFORMATION
INDUSTRY BACKGROUND
Bank chains were originally formed on an informal basis as a group or
chain of banks to control the banking atmosphere in an area. The chains were
comparatively informal banking organizations which were formed by individuals or
partnerships who had acquired a substantial interest in two or more banks. Bank
holding companies on the other hand, were formerly organized and chartered as
corporations. There was no formal regulation of the banking chains and bank
holding companies until the Banking Act of 1933. However, the 1933 regulation
did not regulate the formation or expansion of holding companies, but merely
required the establishment of certain reserves and the publishing of financial
statements on a periodic basis.
The next significant legislation was the Bank Holding Company Act of
1956, which applied to corporations controlling 25% or more of the voting shares
of two or more banks. It did not apply to individuals, partnerships nor
corporations owning a single bank. The 1956 Act formulated standards for the
development of bank holding companies and specified that the companies confine
their activities to banking and closely related services. The holding companies
were forced to divest themselves of ownership or control of other kinds of
business. The major significance of the Bank Holding Company Act of 1956 was
that corporations controlling multiple banking units were to be fully regulated
by Federal law.
There was no further legislation concerning the bank holding companies
until 1966 when the Bank Holding Company Act amendments of 1966 were approved by
Congress. Perhaps the most important element of the 1966 law concerned bank
acquisitions and the anti-trust laws. The amendment paralleled action taken by
Congress earlier in the year in enacting the Bank Merger Act of 1966. The basic
goal of the amendments to the Bank Holding Company Act was to establish uniform
standards for the bank agencies and the courts in evaluating the legality of
bank holding company acquisitions. Since bank holding companies had to control
two or more banks, many banks thought of establishing one-bank holding
companies. A one-bank holding company offered new and profitable outlets for the
investment of funds.
The substantial growth in the number of one-bank holding companies
formed between 1965 and 1969 led to the Bank Holding Company Act Amendments of
1970. The final version of the law ended the exemption to the Bank Holding
Company Act that one-bank holding companies had enjoyed since 1956. In addition,
the new law modified provisions of the 1956 Act covering the activities closely
related to banking in which the bank holding companies could engage. The
activities permissible for bank holding companies were to be closely related to
banking and could be expected to produce benefits to the public. Congressional
intent behind
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INDUSTRY INFORMATION
the Bank Holding Company Act is clearly to regulate the ownership of bank shares
and bank holding company entry into activities relating to the banking business.
More recent changes in banking regulation include passage of the
Financial Institutions Reform Act of 1989 ("FIRREA") which expanded the
authority of regulators to demand corrective actions at banks and to recover
FDIC losses from bank-affiliated parties. The FDIC Improvement Act of 1991
("FDICIA") gave the FDIC greater authority over bank capital requirements and
bank operations, including restricting state-chartered bank activities to those
allowed by federally-chartered banks. The Riegle-Neal Interstate Banking and
Branch Efficiency Act of 1994 allowed bank holding companies to expand to all
states and for banks to acquire a bank in another state and turn the acquired
offices into their own branches. The Gramm-Leach-Bliley Act of 1999 allowed bank
holding companies to become financial holding companies and to engage in a
greater range of non-bank activities, such as securities brokerage and
insurance, repealing provisions of the Glass-Steagall Act of 1933 that had kept
banks out of the securities business.
CURRENT CONDITIONS
According to the FDIC's Quarterly Banking Profile, insured commercial
banks and savings institutions earned $25.6 billion in the fourth quarter of
2002, a 16.0% increase over the fourth quarter of 2001. The average return on
assets was 1.23% in the fourth quarter, compared to 1.12% in the fourth quarter
of 2001. The improvement in earnings in the fourth quarter had many sources
including lower expenses for credit losses and higher gains on the sale of
securities, which was the result of lower interest rates. In addition, gains on
asset sales and increased service charges lifted noninterest income, and strong
growth in interest-bearing assets boosted net interest income.
Net interest income was up by $2.5 billion, 3.7%, from a year earlier,
even though net interest margins were narrower, because interest-earning assets
were 7.4% higher than a year ago. The average net interest margin in the fourth
quarter was 3.92%, down from 4.03% in the fourth quarter of 2001. With
short-term interest rates falling during the fourth quarter, margins declined
from third-quarter levels at small banks and thrifts, because their liabilities
are less interest sensitive than their assets in the current low-rate
environment.
Banks and thrifts set aside $13.7 billion in provisions for loan losses
in the fourth quarter, $2.5 billion, 15.7%, less than a year earlier, when large
banks had sizable provisions for
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DESCRIPTIVE INFORMATION
INDUSTRY INFORMATION
troubled loans to large corporate and foreign borrowers. This is the first
year-over-year decline in quarterly loss provisions in more than three years,
since the third quarter of 1999.
Sales of securities produced gains totaling $4.2 billion, an increase
of $1.6 billion, 58.7%, from the fourth quarter of 2001, and the second-highest
quarterly total ever, after the $4.3 billion in gains realized in the third
quarter of 2002. Noninterest income was up by $3.3 billion, 7.7%, as gains on
loan sales rose by $1.5 billion, 83.7%, and gains on sales of other assets
increased by $707 million. In addition, income from service charges on deposit
accounts increased by $578 million, 7.8%. These improvements outweighed declines
in other categories of noninterest income, such as trading revenue, which was
down 24.7% and fiduciary income, which was 8.5% lower.
Net loan charge-offs were $12.2 billion in loans and leases during the
fourth quarter, $1.4 billion, 10.0%, less than a year earlier. The improvement
came from a $1.8 billion, 29.7%, decline in charge-offs to commercial and
industrial ("C&I") borrowers. Meanwhile net charge-offs on leases increased by
$299 million, 177.1%, compared to the fourth quarter of 2001. Net charge-offs on
consumer loans other than credit cards were $129 million, 7.1%, higher than a
year earlier. However, growth in noncurrent loans (loans 90 days or more past
due or in nonaccrual status) declined by $21 million during the fourth quarter.
Although small, this represented the first quarterly decline in noncurrent loans
since the fourth quarter of 1999.
The number of insured commercial banks and thrifts reporting financial
results declined from 8,080 to 7,887 during 2002. During the year, ten
commercial banks failed, while 297 were absorbed in mergers with other financial
institutions, and 91 new banks reported financial results. The number of
commercial banks that failed is the highest since 1994. In the fourth quarter,
the total number of banks and thrifts on the FDIC's "problem list" decreased
from 146 to 136, and the total assets of the "problem institutions" declined
from $42 billion to $39 billion.
CONCLUSION
The outlook for the banking industry improved slightly during the
fourth quarter of 2002. While the recent loan growth and mortgage refinancing
boom will help increase bank fees in the short term, the longer-term outlook is
not as good. A sizeable percent of the gains in the quarter are based on the
high levels of gains on the sales of securities and one-time fees from the sale
of mortgages and other assets. However, loan quality appears to be improving,
and higher levels of earnings assets and higher noninterest income levels
resulted in strong earnings in the
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DESCRIPTIVE INFORMATION
INDUSTRY INFORMATION
fourth quarter. With the stabilized level of noncurrent loans being offset by
continued uncertainty with the economy, the overall outlook for the industry is
now considered neutral.
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DESCRIPTIVE INFORMATION
LOAN PORTFOLIO DISCLAIMER
We have not examined the loan portfolio of the Bank. Direct examination
would have been beyond the scope of this valuation assignment. Management
represented that the valuation reserve for loan losses was adequate as of
January 3, 2003. The valuation conclusion of this report is rendered in direct
reliance upon the representations by management.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
We have reviewed the financial position and performance of the Bank
over the relevant period of analysis. This review entailed an analysis of the
Bank's current financial statements in comparison with prior years and
conversation with management that enhanced our understanding of the business
reasons for changes in the financial statements. Results of this review that
have specific valuation implications are noted below or at the appropriate point
in the valuation section of this report. The financial statements used are from
December 31, 1998 to 2002, which are included in Exhibits C and D of this
report.
OVERVIEW
The Bank's total assets grew at a compound annual growth rate (CAGR) of
27.5% since 1998. Total assets were $63.2 million at December 31, 1998, $86.5
million at December 31, 1999, and then grew at a much more rapid pace in the
next three years to $167.2 million at December 31, 2002 mainly due to the
injection of additional capital in 2000 and 2002, which allowed the Bank to
increase total assets without raising regulatory concerns.
Between December 31, 1998 and 2002, investments decreased at a compound
annual rate of (43.1%) and net loans grew at a CAGR of 39.2%. Investments and
net loans had balances at December 31, 2002 of $2.0 million and $155.7 million,
respectively. Deposits have grown at a CAGR of 25.4% between 1998 and 2002.
Deposits totaled $55.1 million at December 31, 1998 and $136.1 million at
December 31, 2002. Fed funds purchased and securities sold have traditionally
been a small source of funds for the Bank with balances of $925,000 on December
31, 1999, $815,000 on December 31, 2001, and $1,475,000 on December 31, 2002.
Likewise, other borrowed money has traditionally been a small portion of
funding, however, beginning in 2002, the Bank became a member of the Federal
Home Loan Bank of Chicago and had a balance of $13.6 million as of December 31,
2002.
The Bank's return on average assets ("ROA") and return on equity (ROE)
are shown below. This and the other bank performance ratios were obtained from
the Uniform Bank Performance Reports available on the FDIC's Web site. The peer
group net income data has been adjusted to include tax-effecting earnings of
subchapter S banks. The Bank and peer group data for 2002 is as of September 30,
2002, the date of the most recent available data.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
RETURN ON ASSETS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 1.32% 1.23% 0.62% 0.67% 0.71%
Peer Group 1.10% 1.01% 1.17% 0.98% 1.07%
RETURN ON EQUITY
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 13.89% 15.02% 7.18% 6.56% 4.26%
Peer Group 12.36% 11.32% 13.13% 11.24% 11.72%
The Bank's return on assets declined slightly between 1998 and 2000 and
showed strong improvement in 2001 and 2002. The Bank's return on equity improved
between 1998 and 2001 as its earnings grew faster than equity and declined in
2002 as its earnings growth slowed while its equity increased with another
capital injection from the Holding Company.
HISTORICAL BALANCE SHEETS
The following discussion focuses on components of the Bank's balance
sheet including earning assets, the loan and investment portfolios, fixed
assets, deposits, and capital adequacy.
EARNING ASSETS
Asset utilization, as measured by the ratio of average earning assets
to average total assets, has been as follows for the Bank over the last five
years. The Bank has historically been higher that its peer group in this
measure, however, in the fourth quarter of 2002, the Bank purchased its building
for almost $2.4 million, resulting in its investment in premises increasing by a
significant amount, causing this ratio to decrease, which is not reflected in
the ratios below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 97.93 97.83 97.43 97.67 96.71
Peer Group 94.12 94.22 94.45 93.21 93.19
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
LOAN PORTFOLIO
The composition of the loan portfolio by loan type for InvestorsBank at
December 31, 2002 is:
Construction and Land Development $ 8,661 5.5%
Residential Mortgages 41,093 26.1%
Commercial and Other Mortgages 77,466 49.1%
--------- -----
Total Real Estate Loans 127,220 80.7%
Commercial / Industrial 28,280 17.9%
Other (including consumer, municipal,
and other loans)
2,191 1.4%
--------- -----
Total $ 157,691 100.0%
========= =====
INVESTMENT PORTFOLIO
Investment decisions are made within the policy approved by the Board
of Directors and are a function of the lending and liquidity needs of the Bank.
The portfolio contains a variety of securities that are selected based on
maximizing yield while maintaining a low level of risk. All of the Bank's
securities are classified as available for sale. The composition of the
investment portfolio by type of security for the Bank as of December 31, 2002
is:
Corporate Bonds $ 1,295 65.3%
FHLB Stock 689 34.7%
------- -----
Total $ 1,984 100.0%
======= =====
FIXED ASSETS
The Bank operates from headquarters located in Waukesha, Wisconsin.
After leasing its location for about five years, the Bank purchased its building
for approximately $2.4 million in the fourth quarter of 2002. The Bank's
facilities are adequate to meet the needs of the Holding Company and the Bank
for the foreseeable future.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
DEPOSITS
At December 31, 2002, the Bank's total deposits were $136.1 million.
Historical demand deposits as a percentage of total deposits for the bank are
summarized below:
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Demand Deposits $ 8,625 $ 6,246 $ 8,033 $ 4,273 $ 2,766
As a % of Total Deposits 6.3% 5.2% 6.2% 5.6% 5.0%
A large portion of the Bank's deposits are in the form of brokered
CDs.
CAPITAL ADEQUACY
Capital adequacy as measured by the tier one leverage capital ratio for
the Bank has improved over the past two years compared to its peer group
average, as listed below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 9.79% 8.80% 7.79% 9.37% 11.91%
Peer Group 9.58% 9.60% 9.63% 9.60% 9.53%
HISTORICAL INCOME STATEMENTS
The following discussion focuses on the components of basic operating
income including net interest income, noninterest income, noninterest expense,
and securities gains (losses).
NET INTEREST INCOME
Until recently, the Bank's average yield on its earning assets has been
very similar to its peer group average. However, the Bank's net interest spread
(net interest income to average earning assets) continues to be lower than the
peer group, as shown below.
INTEREST INCOME (TE) TO AVERAGE EARNING ASSETS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 5.87% 7.62% 8.85% 7.85% 8.24%
Peer Group 6.58% 7.71% 8.41% 8.07% 8.32%
NET INTEREST SPREAD
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 3.46% 3.40% 3.40% 3.46% 3.91%
Peer Group 4.21% 4.13% 4.43% 4.60% 4.65%
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
NONINTEREST INCOME
Noninterest income as a percent of average assets over the time period
of 1998 to 2002 for the Bank follows. The Bank continues to report higher than
peer levels of noninterest income due to its commercial loan and mortgage
service fees. However, its commercial loan servicing fees have declined as the
size of the Bank increased and the size of the BMSBLC portfolio continues to
decrease. The fees are at risk, since this portfolio could be transferred to
another institution at any point. The loss of George Schonath could result in
the loss of this portfolio, because it is his relationship with BMSBLC that is
so important to the Bank keeping the portfolio.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 1.18% 1.35% 1.42% 2.13% 3.30%
Peer Group 0.70% 0.66% 0.69% 0.69% 0.77%
NONINTEREST EXPENSES
The Bank's overhead expenses as a percent of average assets has
improved over the past five years from being higher than peer in 1998 to being
much lower than the peer group average in 2002, as shown below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank 2.20% 2.23% 2.81% 3.63% 5.25%
Peer Group 2.81% 2.89% 2.88% 3.33% 3.31%
SECURITIES TRANSACTIONS
During the last five years, the Bank had reported no gains or losses on
the sale of investment securities.
DIVIDENDS AT THE BANK LEVEL
Dividend policy is a function of the profitability and capital
requirements of the Bank. Over the past five years, the Bank has paid dividends
as shown below.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
InvestorsBank $ 835 $ 300 $ 157 $ 0 $ 0
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
HOLDING COMPANY FINANCIALS
As of December 31, 2002, in addition to its investment in the Bank, the
Holding Company's other assets included $126,000 of cash on deposit at the Bank,
$269,000 of income taxes receivable, and $159,000 of capitalized legal and
placement fees relating to the Trust Preferred Securities. On the valuation
date, the Holding Company had $2,000 of accounts payable and $5,155,000 due from
a special purpose subsidiary that issued Trust Preferred Securities, which is
considered to be capital on a consolidated basis for regulatory purposes. The
Trust Preferred Securities were issued in June 2002, the proceeds of which were
used to redeem $3.0 million of notes payable and inject $1.95 million of capital
into the Bank.
The main source of the Holding Company's income is dividends received
from the Bank. The Holding Company's expenses include interest expense on its
outstanding Trust Preferred Securities and professional fees. The Holding
Company has not paid any dividends to its shareholders in any of the past five
years, as shown on the following page.
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
A summary of the Holding Company's consolidated financial statements
are found below.
COMPARATIVE BALANCE SHEETS - CONSOLIDATED
(in thousands) Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
2002 2001 2000 1999 1998
-------------------------------------------------------
ASSETS
Total cash and due from banks $ 2,819 $ 2,005 $ 3,454 $ 2,281 $ 1,049
Investment portfolio 2,664 5,347 14,391 6,260 18,960
Fed funds sold 1,250 540
Net loans and leases 154,517 123,437 118,779 76,307 39,185
Loans held for sale 1,188 284 100 566 2,232
Premises and fixed assets 2,527 182 87 94 127
Other assets 3,854 2,505 2,759 1,001 1,008
-------------------------------------------------------
TOTAL ASSETS $ 167,569 $ 133,760 $ 140,820 $ 86,509 $ 63,101
=======================================================
LIABILITIES AND EQUITY
LIABILITIES
Deposits $ 135,283 $ 120,014 $ 128,803 $ 76,788 $ 55,005
Fed funds purchased and sec sold 1,475 815 925
Other borrowed money 13,600 3,000 2,500
Other liabilities 1,854 1,040 1,551 1,129 912
-------------------------------------------------------
TOTAL LIABILITIES 152,212 124,869 132,854 78,842 55,917
-------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 11 11 11 11 10
Preferred stock 5,000
Paid in capital 7,317 7,317 7,317 7,317 6,980
Undivided profits and reserves 4,046 2,374 901 339 194
Less: Treasury stock (1,017) (811) (263)
-------------------------------------------------------
TOTAL EQUITY 15,357 8,891 7,966 7,667 7,184
-------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 167,569 $ 133,760 $ 140,820 $ 86,509 $ 63,101
=======================================================
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DESCRIPTIVE INFORMATION
REVIEW OF FINANCIAL POSITION AND PERFORMANCE
COMPARATIVE INCOME STATEMENTS Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands) 2002 2001 2000 1999 1998
---------------------------------------------------
Total interest income $ 8,200 $ 10,063 $ 9,323 $ 5,531 $ 3,261
Total interest expense 3,786 5,836 5,944 3,089 1,766
Provision for loan and lease loss 471 847 1,038 375 300
---------------------------------------------------
Net interest income after provision 3,943 3,380 2,341 2,067 1,195
---------------------------------------------------
Noninterest income 1,329 1,828 1,556 1,512 1,386
Noninterest expenses (2,718) (3,068) (3,063) (2,623) (2,202)
---------------------------------------------------
Total noninterest (expenses) income (1,389) (1,240) (1,507) (1,111) (816)
---------------------------------------------------
Income from operations 2,554 2,140 834 956 379
Current taxes 882 668 272 362 82
---------------------------------------------------
Net income $ 1,672 $ 1,472 $ 562 $ 594 $ 297
Cash dividends paid $ 0 $ 0 $ 0 $ 0 $ 0
======= ======== ======= ======= =======
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VALUATION
BOOK VALUE
The book value (shareholders' equity or net worth) of a company is not
always definitive of the fair value for that company. Many analysts however, use
book value as a benchmark for comparison over time and in comparison with other
companies currently.
The reported book value of the Holding Company's common stock as of
December 31, 2002 was $10,357,000. After exercising the options and warrants,
the book value would increase by $972,000. The adjusted book value would be
$11,329,000. The adjusted book value per share would be $10.73 based on
1,055,966 shares issued and outstanding on a fully diluted basis. We did not
consider any asset valuation adjustments in this report.
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VALUATION
DETERMINATION OF FAIR VALUE
GENERAL APPROACH OF VALUATION
The performance of the Bank has been discussed at length above.
Consequently, we have determined that it is appropriate to develop the valuation
conclusion of the Holding Company directly based upon the consolidated earnings
power of the Holding Company and the Bank.
Valuation is ultimately a matter of informed judgment, based upon a
full consideration of all relevant data, as well as the purposes of the
valuation. Based upon our overall review, we have considered three primary
valuation methods in the determination of value for the Holding Company and
Bank. The valuation methods considered are discussed in the following sections.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
The purpose and function of the valuation and the definition of fair
value was given in the Valuation Consultant's Report. The valuation procedures
and techniques must be consistent with the purpose of the valuation and the
definition of fair value.
The discussion in this section is intended to provide an overview of
the three basic valuation approaches available that may be used in the valuation
process. While all of these methods are not used in every case, consideration
has been given to three methods which are deemed to be appropriate for the
company in arriving at our opinion of value.
The methods discussed in this section are presented to demonstrate
methods which may be used to value the total equity business enterprise, or 100%
of a business.
In the valuation of any property or business, there are generally three
approaches to value which may be examined as indicators of value. These three
approaches are as follows:
1. The Income Approach
2. The Market Approach
3. The Cost Approach
In the income approach, value is dependent on the present worth of
future economic benefits to be derived from ownership. Value indications are
developed by discounting future net cash flows available for distribution to
their present worth at market-based rates of return.
Value estimates are established in a market approach by an analysis of
recent sales or offerings of comparable property.
The cost approach considers the value of a property to be that amount
required to erect or to construct a facility of equal utility. As applied to the
valuation of the common stock of a company which sells products or services, the
cost approach calls for a summation of the net book values of the company's
assets and a reduction of that aggregate by the total of the company's
liabilities.
Each of the described approaches may be used to develop an indication
of the fair value of the owners' equity of a business enterprise; however, the
appropriateness of these approaches varies with the type of business being
appraised. For asset-rich companies, such as real estate holding companies, the
underlying assets are key elements in the success of the enterprise. As a
result, the cost and income approaches generally provide the best indications of
value since these approaches emphasize the current depreciated value of the
assets and their long-range earning power.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
For manufacturing and service companies, the income and market
approaches would generally be most appropriate because the value of these
companies is more dependent on their ability to generate earnings than on the
value of the underlying assets used in production or service.
In this valuation, all three approaches were considered to value the
Holding Company, however, three methods of a market approach were utilized.
The methods considered under the Market Approach are based upon
historical prices paid for the Holding Company's stock, comparisons with a
selected group of guideline public companies, and comparison with a selected
group of guideline bank transactions.
The Income Approach, which might consider methods such as the
Historical Capitalized Cash Flow Method or the Discounted Future Earnings
Method, is not considered specifically in this appraisal. In our opinion, given
the existence of the group of guideline companies and guideline transactions
described in Exhibit F, the capitalization of earning power as developed in the
market approach is an appropriate and sufficient earnings-based methodology for
the current appraisal, taken in combination with the other valuation methods
considered.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
HISTORICAL PRICES PAID METHOD
The determination of value based on the historical prices paid for the
Holding Company's stock is shown on page 36. To determine the fair value of the
Holding Company's stock based on historical prices, we must determine the
appropriate control premium to add to the price paid in the public market. By
adding a control premium to the public market value for the Holding Company's
stock, we effectively convert the value on a marketable, minority interest basis
into a marketable, majority interest basis, which we previously determined would
equal the fair value of the Holding Company's stock.
DETERMINATION OF THE CONTROL PREMIUM
To realize the full value of a property, whether through continued use
or through sale, an investor must hold a controlling interest in the
partnership, corporation, or ownership group that holds the asset. Evidence of
this can be found in the fact that the acquisition of a publicly traded
corporation usually is effected at a premium to the minority share price
observed prior to the transaction announcement. Therefore, a property interest
carrying rights and prerogatives inferior to those of full control must be less
valuable, on a per share basis, than a controlling interest in the same
property. A controlling interest provides substantial benefits including the
ability to:
1. select directors and appoint management;
2. determine management compensation;
3. set the policies of the company;
4. determine the course of the business;
5. make acquisitions or sell the business;
6. declare dividends; and
7. change the articles of incorporation or bylaws.
As a result of these benefits, the controlling shareholder usually
reaps more rewards from the ownership of the business than minority
shareholders. Consequently, substantial value has been placed on these benefits
in the marketplace in the form of a control premium.
To determine a reasonable control premium applicable to an interest in
the Holding Company, we utilized a study by Mercer Capital. Transactions in the
stock market almost always represent small minority interests. When a tender
offer is made, the person making the offer is seeking control. The premium that
the purchaser pays is considered to be a premium for control. The study
performed by Mercer Capital arrived at a median of 29.1%. The premium paid in
many cases also reflects a premium paid as a result of a strategic acquirer.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
Additionally, there are several factors that can influence the premium
paid. These include, but are not limited to:
- The holding company's management
- The ability to replace management
- Restriction on transfer of interest
- Leverage of the holding company
- The holding company's size
- Number of shareholders
- Concentration of control
- Size of block being valued
- Volatility of assets
- Time of termination of entity
The Holding Company's management appears good. However, the loss of
George Schonath, the Bank's president and key employee would have a negative
affect on the business until an appropriate replacement was found. The risk
involved in the possible death of Mr. Schonath is in part mitigated by an
insurance policy, however. The insurance policy is worthless if Mr. Schonath
were to leave his employment. Other members of the Bank's management may be
replaced by someone with industry experience. A large portion of the Holding
Company's revenue is due to fee income from a formerly related company. The loss
of this fee income would dramatically affect the earnings of the Holding
Company. Additionally, the Bank's use of brokered CDs presents a risk.
There are currently no restrictions on the sale or transfer of the
Holding Company's common stock. The Holding Company is not overly leveraged. The
Holding Company's size is approximately $167 million in total assets, which is
on the small size for the banking industry in a major metropolitan area. As of
January 3, 2003, the Bank's president owned 22.9% of the Holding Company's
common stock, and a related entity controlled an additional 22.5% of the Holding
Company's common stock. Combined, the Bank's president and various family
members controlled a total of 61.3% of the Holding Company's outstanding fully
diluted shares.
The Bank's assets have historically grown at a rapid pace. This is no
guarantee of this type of growth in the future and a large amount of fees were
due to refinancing, which in all likelihood will not occur in the immediate
future. The termination date of the entity is not in the foreseeable future.
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VALUATION
SPECIFIC APPROACHES TO VALUATION
Taking all of these factors into consideration, we feel that a control
premium of 20% would be appropriate for the Holding Company.
VALUE DETERMINATION USING THE HISTORICAL PRICE METHOD
As of the valuation date, the Holding Company traded under the symbol
INVB.OB on the NASDAQ over-the-counter system. The 30 day closing average was
$12.64. Due to the thinness in trading of the Holding Company's stock and due to
one buyer accounting for most transactions, we utilized the 30 day closing
average. Since this results in a marketable, minority basis of value, we added a
20% control premium to this figure resulting in the fair value of the common
stock of InvestorsBancorp, Inc. of $15.17 per share for a marketable, majority
interest, based on 1,055,996 fully diluted shares outstanding.
GUIDELINE COMPANY METHOD
One of the generally accepted methods of determining a capitalization
factor is through the use of comparisons with similar companies whose stocks are
publicly traded. The comparative method is used below. We should mention,
however, three major limitations of this approach. First, it is virtually
impossible to find perfect guideline companies. All of the companies listed in
Exhibit F are bank holding companies, with operations centered in the Midwest.
The comparable group is used either to provide an indication of how the public
markets would treat InvestorsBancorp, Inc. if the market for its stock were
active and public or to provide guidelines for developing appropriate
capitalization rates.
Second, required disclosure for public companies notwithstanding, we
are not privy to "inside" information for any of the guideline companies.
Consequently, we use reported financial information without any adjustments. We
believe this is proper because the impersonal market makes all necessary
adjustments and reflects them in the market prices of each stock. Abnormal
valuation indications from the marketplace are eliminated based upon the
analysis of the comparable group below.
The third limitation results from the first two: It is left to the
analyst to derive an appropriate capitalization rate for the Holding Company
based upon a review of the Holding Company and the group of guideline companies.
By convention, analysts express the relationship between the price of a
stock and its earnings in the form of the ratio of current market price to
earnings (i.e., the price/earnings ratio) and current market price to book
(i.e., the price-to-book ratio). If the industry guideline group is
InvestorsBancorp, Inc.
36
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VALUATION
SPECIFIC APPROACHES TO VALUATION
sufficiently homogeneous with respect to the companies selected, their recent
performances, projected performances, and the public market's reaction to their
performance, analysts typically calculate some form of average price/earnings
ratio as representative of the group. We have chosen regional bank holding
companies with a majority of their operations located in Midwest states, which
would face similar challenges with local economic conditions as the Holding
Company. Information on these companies is presented in Exhibit F.
Based upon the group selected, as well as our experience in following
financial institutions, we believe the group of regional bank holding companies
presented in Exhibit F is sufficiently representative of the region's financial
institutions for use in developing market-based capitalization factors (earnings
multiples) in the present valuation of InvestorsBancorp, Inc. The objective is
to determine the multiple at which the Holding Company's shares would trade for
if its shares traded in the same range as other Midwest bank holding companies.
Since the Holding Company has $5.0 million of outstanding Trust
Preferred Securities and just three of the ten guideline companies has similar
issues of Trust Preferred Securities, we adjusted the traditional price to
earnings multiple to reflect this difference. We feel this is important since
the holders of the Trust Preferred Securities have liquidation preference over
common stock.
The determination of value using the guideline company method is shown
below. Under this valuation method, first a determination of ongoing earning
power of the Holding Company must be made and then a rate must be identified
with which to capitalize these earnings.
DETERMINATION OF ONGOING EARNING POWER
In our opinion, the adjusted ongoing earning power of the Holding
Company is equal to the adjusted earnings for 2002. While we would normally use
a weighted average of several prior years, due to the Holding Company's strong
growth rate and significantly higher earnings in 2001 and 2002, we believe the
most recent earnings are the most reflective of the Holding Company's ongoing
earning power.
Based on adjusted 2002 earnings, the determination of adjusted ongoing
net income as presented in Exhibit E is $1,672,000. We believe this amount
reasonably estimates the Bank's projected ongoing earning power. The
determination of ongoing earning power is capitalized based on the Guideline
Public Company method.
InvestorsBancorp, Inc.
37
Wipfli Ullrich Bertelson LLP
VALUATION
SPECIFIC APPROACHES TO VALUATION
VALUATION DETERMINATION USING THE GUIDELINE COMPANIES METHOD
The median capital (common stock plus Trust Preferred Securities) to
earnings multiple for the publicly traded companies was 11.23 times earnings.
The average capital to earnings multiple was 11.70. Based on our overall
analysis, we have considered the median capital to earnings multiple of the
group of 11.23 as our base capitalization factor in the present valuation.
While the Holding Company is in a metropolitan area and has a strong
growth rate, the growth is expected to slow and there is significant competition
in the Milwaukee area. Additionally, there is reliance on a key person, the Bank
relies on brokered CDs for deposits, the Bank has one location, and the Bank
relies significantly on the fee income from BMSBLC. The servicing agreement has
annual renewals that allow for either party to withdraw upon written notice at
least 60 days in advance of the termination date. Accordingly, based on our
analysis, we selected a capitalization factor of 8.42 (See Exhibit F) to apply
to the Holding Company's financials.
Since we used a capitalization factor based on the capital to earnings
ratios of publicly traded companies, the results must be adjusted by the $5.0
million of outstanding Trust Preferred Securities. In addition, since this
capitalization factor was based on marketable, minority interests in publicly
traded companies, we must also add the previously determined 20% control premium
to this figure. Additionally, the cash from exercising the options and warrants
must be added. This calculation results in the fair value of the common stock of
InvestorsBancorp, Inc., of $11.24 per share for a marketable, majority interest,
based on 1,055,996 fully diluted shares outstanding.
PRICE TO BOOK MULTIPLE
The median and average price to book ratio of the guideline companies
selected were 1.32 and 1.40, respectively. Based on the analysis discussed
earlier, the median price to book multiple was reduced to 1.06. Adding a control
premium, and adding the cash from exercising the options and warranties, the
fair value per share using this method is $13.37.
Averaging the two publicly traded methods proves a conclusion of $12.31
per share. See Exhibit E for additional information.
InvestorsBancorp, Inc.
38
Wipfli Ullrich Bertelson LLP
VALUATION
SPECIFIC APPROACHES TO VALUATION
GUIDELINE TRANSACTION METHOD
We also looked to transactions (sales or purchases) of bank holding
companies located in the upper Midwest to determine a value for the Holding
Company. Through the review of the transaction database compiled by SNL
Securities Corp., we selected five of the 27 transactions announced in 2002 that
involved targets that were the most similar to the Holding Company. In addition,
we eliminated five transactions where complete information on the purchase price
was not available. Information regarding the five guideline transactions is
shown in Exhibit F.
PRICE TO EARNINGS MULTIPLE
The transaction data in Exhibit E indicates that the average and median
price to earnings multiples paid were 13.80 and 13.79, respectively. In
selecting an appropriate price to earnings multiple, it is also helpful to note
the inverse relationship that exists between return on average equity and price
to earnings multiples. Due to the Bank's reliance on a key person, the reliance
on brokered CDs for deposits, the Bank's one location, the Bank's reliance on
the fee income from BMSBLC and strong competition, but offset by the
metropolitan area and strong growth, we decreased the multiple to 10.3.
The Holding Company's adjusted 2002 earnings were $1,672,000, which is
multiplied by the selected price to earnings multiple of 10.3. We then adjusted
for the Holding Company's Trust Preferred Securities and the cash to be received
from the exercise of the options and warrants before dividing by the number of
fully diluted shares. The conclusion reached was $12.56. Since the multiple is
based on sales of bank holding companies, its result is an enterprise control
value; therefore, we did not need to add a control premium to the result.
PRICE TO BOOK VALUE MULTIPLE
The transaction data in Exhibit E indicates the average and median
price to book value multiples paid were 1.53 and 1.50, respectively. Based on
our analysis, we selected the median price-to-book value multiple of 1.50 as a
starting point. As a result of the reasons listed in the guideline transaction
method price-to-earnings multiple, we reduced the multiple to 1.2.
The Holding Company's shareholder's equity on December 31, 2002 was
$10,357,000, which was multiplied by the selected price to earnings multiple of
1.2. We then added back the cash to be received for the exercise of the options
and warrants before dividing by the number of fully diluted shares. The
conclusion was $12.69. In addition, since the multiple is based on
InvestorsBancorp, Inc.
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Wipfli Ullrich Bertelson LLP
VALUATION
SPECIFIC APPROACHES TO VALUATION
sales of bank holding companies, its result is an enterprise control value;
therefore, we did not need to add a control premium to the result.
VALUATION DETERMINATION USING THE GUIDELINE TRANSACTIONS METHOD
Averaging the two guideline companies' methods yields a conclusion of
$12.63 per share. See Exhibit E for additional information.
InvestorsBancorp, Inc.
40
Wipfli Ullrich Bertelson LLP
VALUATION
CORRELATION AND CONCLUSION
The choice of valuation approaches used in a given situation depends
upon a number of different factors. The choice is determined by the type of
business being valued, the reason for the valuation, and the availability of
necessary information. For the subject Holding Company, the following
indications of value for the Holding Company on a marketable, majority interest
basis, was estimated using the various valuation methods as previously described
in this report and indicated below:
Per Share
Valuation Method Value
---------------- -----------
Historical Prices Paid Method $15.17
Guideline Companies Method $12.31
Guideline Transactions Method $12.63
------
CONCLUDED VALUE OF STOCKHOLDERS' EQUITY,
MARKETABLE, MAJORITY INTEREST BASIS $13.37
======
Based on these valuation methods, we believe a reasonable estimate of
the per share fair value for the common stock on a marketable, majority interest
basis, of InvestorsBancorp, Inc. to be $13.37 as of January 3, 2003.
Throughout this valuation, we have attempted to analyze the subject
property and financial data in the same manner as a prospective purchaser would.
The valuation analysis is subject to assumptions and conditions specified in
this report and in the attached Statement of General Assumptions and Limiting
Conditions. The reasoning and procedures employed have been set forth in the
preceding valuation report. The analysis and conclusions are supported to a
greater degree in the working papers.
The valuation analysis included discussions with management concerning
the history and nature of the business, a study of the economic status and
prospects of the business, and a review and analysis of historical financial
information and other pertinent records and documents furnished to us. The
financial statements and other records and documents were accepted, without
investigation, as properly representing the Bank, the Holding Company, their
operations, and condition.
Based on the investigation and premises as outlined, it is concluded
that, at January 3, 2003, the fair value per share of the common stock of
InvestorsBancorp, Inc. determined as a majority, marketable basis based on
1,055,966 fully diluted shares outstanding is:
THIRTEEN DOLLARS AND THIRTY SEVEN CENTS $13.37
InvestorsBancorp, Inc.
41
Wipfli Ullrich Bertelson LLP
STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
The service provided by Wipfli Ullrich Bertelson LLP has been performed
in accordance with recognized professional valuation standards, the Code of
Ethics of the American Society of Appraisers (ASA), and the Institute of
Business Appraisers (IBA). Our compensation is not contingent upon our
conclusions of value. We assume, without independent verification, the accuracy
of all data provided to us. All files, working papers or documents developed
during the course of the assignment shall be our property. We will retain this
data for at least five years.
Opinions are subjective and can be greatly altered by a change in
underlying assumptions or conditions. The valuation consultant's opinion does
not constitute advice for any specific action. The valuation consultant instead
offers an opinion of value under the assumptions and conditions which are
expressed or implied. The client has been made aware of these assumptions and
conditions, and accordingly accepts responsibility and liability for subsequent
actions they take. In accepting this document, the client agrees that he or she
understands and accepts this provision. The valuation consultant's opinion is
subject, further, to the following assumptions and conditions:
1. The property or business has been valued assuming responsible ownership
and good management unless otherwise set forth in the report. Any
assumed liabilities are shown in the report, and it is assumed that no
contingent liabilities exist unless otherwise noted.
2. The valuation consultant has not considered the impact of unknown legal
contingencies, taxes, or costs payable on a sale, or other matters
outside the scope of this valuation engagement. The titles of all real
estate and improvements are assumed to be good and in marketable
condition.
3. No right is given to publish all or part of the valuation report or
attachments without the valuation consultant's consent. No right to
expert testimony is included unless agreed in advance.
4. The valuation consultant has no present interest or contemplated
interest in the property being valued. Neither his employment nor his
fee are contingent upon the value opinion given.
5. The valuation consultant has gathered information from sources thought
to be reliable. While the data cannot be guaranteed, the valuation
consultant certifies that to the best of his knowledge and belief, the
statements, information, source data, and materials contained in this
valuation and working papers are correct.
6. Data supporting the valuation consultant's opinion is more fully
documented in the valuation consultant's working papers. Those papers
are located in the confidential file at the valuation consultant's
office and are available for reference as necessary.
InvestorsBancorp, Inc.
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Wipfli Ullrich Bertelson LLP
STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
7. The valuation is valid only for the purpose stated herein. Any other
use or reliance by the client or third parties is invalid.
8. This valuation opinion is given for the benefit of the client. The
opinion shall not be revealed to unauthorized third parties without the
consent of the valuation consultant. In that case, the entire opinion
shall be revealed including all attachments and this Statement of
General Assumptions and Limiting Conditions. The valuation consultant
shall assume no liability for any actions, which third parties may
take, based upon their interpretation of this opinion.
9. The opinion given in this engagement assumes that the business will
continue to be operated in its present form. In this context, we have
valued the business as a closely-held business giving due consideration
to the risks and limitations as appropriate.
10. Synergies relating to a sale have not been considered.
11. The value estimate is predicated on the assumption that there is no
hazardous material on or in the property that would cause a loss in
value. The valuation consultant, however, is not qualified to detect
potentially hazardous materials which may affect the value of the
property. No responsibility is assumed for any such conditions, or for
any expertise or engineering knowledge required to discover them. The
client is urged to retain an expert in this field, if desired.
12. This appraisal is valid only for the appraisal date or dates specified
herein and only for the appraisal purpose or purposes specified herein.
The client warrants that any reports, analysis, or other documents
prepared for it by the appraiser will be used only in compliance with
all applicable laws and regulations.
InvestorsBancorp, Inc.
43
INDEX TO EXHIBITS
Certificate of Valuation Consultant........................................... Exhibit A
Information Sources Used In Valuation......................................... Exhibit B
Comparative Balance Sheets.................................................... Exhibit C
Comparative Income Statements................................................. Exhibit D
Adjusted Historical Earnings.................................................. Exhibit E
Guideline Company Data........................................................ Exhibit F
Guideline Transaction Data.................................................... Exhibit G
EXHIBIT A
CERTIFICATE OF VALUATION CONSULTANT
Wipfli Ullrich Bertelson LLP
CERTIFICATE OF VALUATION CONSULTANT
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
However, please review the "information sources" exhibit for a more
detailed explanation of the data used. You will note that I have not
audited, or in any other manner attempted to verify, the data presented
to me.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions and are my personal,
unbiased professional analyses, opinions, and conclusions.
I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
My employment and compensation in connection with this report are not
contingent on any action or event resulting from the analyses,
opinions, or conclusions in or the use of this report.
My analyses, opinions, and conclusions were developed, and this report
has been prepared in conformity with the Uniform Standards of
Professional Appraisal Practice.
This report sets forth general assumptions and limiting conditions
affecting the analysis, values, and conclusions. No other assumptions
and limiting conditions were expressed verbally or are implied.
No persons other than the undersigned prepared the analyses, values, or
conclusions set forth in this report.
All Accredited Senior Appraisers (ASAs) employed by Wipfli Ullrich
Bertelson LLP are in compliance with the requirements of the American
Society of Appraisers' mandatory recertification program.
/s/ William D. Thumstedter Dated: /s/ March 20, 2003
- ------------------------------------------ ----------------------------
William D. Thumstedter, MBA
Manager, Business Valuation/M&A Services
/s/ Kevin M. Janke Dated: /s/ March 20, 2003
- ------------------------------------------ ----------------------------
Kevin M. Janke, CPA/ABV, ASA
Partner, Business Valuation/M&A Services
InvestorsBancorp, Inc.
Wipfli Ullrich Bertelson LLP
PROFILE OF APPRAISER
WILLIAM D. THUMSTEDTER
PROFESSIONAL HISTORY
Bill joined Wipfli Ullrich Bertelson LLP in 2002 and is a client service
professional in our Eau Claire office. Bill specializes in the valuation of
closely held businesses.
Prior to joining Wipfli, Bill worked for approximately five years as an
appraiser in the business valuation field. This included experience at a
regional correspondent bank completing appraisals of banks and bank holding
companies and at a regional accounting firm in the upper Midwest completing
valuations of companies in a variety of industries. His prior experience
includes working as a commercial bank examiner with the State of Wisconsin, a
consumer compliance examiner for the Federal Reserve Bank of Minneapolis, and a
financial analyst in the applications section of the Federal Reserve Bank of
Minneapolis.
Bill works exclusively on valuation-related engagements for a variety of
purposes including estate planning, gifting, buying or selling a business, and
divorce. In addition to the above, his services have included preparation of
projections, forecasts, and cash flow analyses.
LICENSES AND PROFESSIONAL MEMBERSHIPS
Bill has successfully completed the four business valuation courses of the
American Society of Appraisers' appraiser certification program as well as
passed the required ethics and USPAP examinations. To obtain a designation from
the ASA, he needs to submit two appraisal reports that can pass the close
scrutiny of a senior appraiser.
EDUCATION
University of Wisconsin-Madison, B.B.A. in Accounting, 1986
Carlson School of Management at the University of Minnesota, M.B.A. in Finance,
1991
InvestorsBancorp, Inc.
Wipfli Ullrich Bertelson LLP
PROFILE OF APPRAISER
KEVIN M. JANKE
PROFESSIONAL HISTORY
Kevin has been with Wipfli Ullrich Bertelson LLP since 1990 and is currently a
partner in our Wausau office. For his first three years, he performed and then
managed audit engagements for clients in manufacturing, financial services, and
other industries including SEC clients.
After the first three years, Kevin began to specialize in litigation support and
valuation of closely held businesses. He now works exclusively with attorneys
for various accounting- and valuation-related litigation support and with
clients that require business appraisal services for purposes of buying or
selling their business, divorce, estate planning, or gifting.
In addition to the above, his services have also included preparation of
projections, forecasts, and cash flow analysis, assistance in obtaining
financing for various business ventures, and economic damages analysis.
LICENSES AND PROFESSIONAL MEMBERSHIPS
Certified Public Accountant, Accredited Senior Appraiser with the American
Society of Appraisers, Accredited in Business Valuation through the American
Institute of Certified Public Accountants.
Member of the American Institute of Certified Public Accountants, Wisconsin
Institute of Certified Public Accountants, American Society of Appraisers, and
Estate Planners Forum of Marathon County.
EDUCATION
University of Wisconsin-La Crosse, B.S. in Accounting
InvestorsBancorp, Inc.
EXHIBIT B
INFORMATION SOURCES USED IN VALUATION
Wipfli Ullrich Bertelson LLP
INFORMATION SOURCES USED IN VALUATION
Many sources of information were used when preparing this valuation.
The information included data obtained in a personal interview with key
individuals from the Holding Company and Bank.
The sources of information used and considered for this valuation
included the following:
1. Financial statements per FDIC for 1998 through 2001.
2. Internal financial statements and regulatory filings for 2002.
3. Uniform Bank Performance Report for September 30, 2002.
4. Stockholders' list as of January 3, 2003.
5. Key personnel list.
6. Trade associations and industry sources.
7. Information on the U.S. economy, regional economy, state
economy, and local economy gathered from various trade
publications, reports, and articles.
8. Industry information gathered from The Wall Street Journal,
Encyclopedia of American Industries, FDIC's Quarterly Banking
Profile, trade publications, reports and articles.
9. Information for the guideline companies method was gathered
from CBS Marketwatch, Yahoo! Finance, and SEC filings found on
EDGAR.
10. Information for the guideline transactions method was
purchased from SNL Securities Corporation.
11. Various other information.
Note that Wipfli Ullrich Bertelson LLP has not performed a separate compilation,
review, or audit for this valuation, but has accepted the financial information
as previously presented. The financial data summarized in this report is for
valuation purposes only. The financial data is not to be relied on for other
purposes. Refer to the compiled financial statements for other purposes.
InvestorsBancorp, Inc.
EXHIBIT C
COMPARATIVE BALANCE SHEETS
INVESTORSBANCORP
WAUKESHA, WISCONSIN
COMPARATIVE BALANCE SHEETS - PARENT COMPANY ONLY
(in thousands)
Dec 31, Dec 31, Dec 31, Dec 31,
2002 2001 2000 1999
---------------------------------------
ASSETS
Total cash and due from banks $ 180 $ 427 $ 355 $ 300
Investment in the Bank 8,724 8,149 7,633 5,988
Receivable from subsidiary 3 12
Loan Participations 370 272 325 401
Premises and fixed assets 37 37 38 75
---------------------------------------
TOTAL ASSETS $ 9,311 $ 8,888 $ 8,363 $ 6,764
=======================================
LIABILITIES AND EQUITY
LIABILITIES
Note payable - short-term
Note payable - long-term 494 639 840
Other liabilities 2 2 54 29
---------------------------------------
TOTAL LIABILITIES 2 496 693 869
---------------------------------------
STOCKHOLDERS' EQUITY
Common stock 2,164 2,164 2,164 923
Retained earnings 7,447 6,881 5,499 5,058
Accum other comprehensive income 341 159 7 (86)
Less: ESOP loan (643) (812)
---------------------------------------
TOTAL EQUITY 9,309 8,392 7,670 5,895
---------------------------------------
TOTAL LIABILITIES AND EQUITY $ 9,311 $ 8,888 $ 8,363 $ 6,764
=======================================
INVESTORSBANK
WAUKESHA, WISCONSIN
COMPARATIVE BALANCE SHEETS
(in thousands)
5 year
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average CAGR
2002 2001 2000 1999 1998 1998 - 2002 1998 - 2002
---------------------------------------------------- ------------------------
ASSETS
Total cash and due from banks $ 2,819 $ 2,005 $ 3,454 $ 2,281 $ 1,049 $ 2,322 28.0%
Portfolio investments 1,984 5,347 14,391 6,260 18,960 9,388 -43.1%
Fed funds sold 1,250 540 358 -100.0%
Net loans and leases 155,705 123,721 118,879 76,873 41,499 103,335 39.2%
Premises and fixed assets 2,527 182 87 93 127 603 111.2%
Other assets 4,122 2,387 2,649 1,001 1,008 2,233 42.2%
---------------------------------------------------- --------------------
TOTAL ASSETS $167,157 $133,642 $140,710 $ 86,508 $ 63,183 $118,240 27.5%
==================================================== ====================
LIABILITIES AND EQUITY
LIABILITIES
Deposits $136,067 $120,029 $128,812 $ 76,788 $ 55,088 $103,357 25.4%
Fed funds purchased and sec sold 1,475 815 925 643 n/a
Other borrowed money 13,600 2,720 n/a
Other liabilities 1,236 997 1,465 1,128 911 1,147 7.9%
---------------------------------------------------- --------------------
TOTAL LIABILITIES 152,378 121,841 130,277 78,841 55,999 107,867 28.4%
---------------------------------------------------- --------------------
STOCKHOLDERS' EQUITY
Common stock 100 100 100 100 100 100 0.0%
Surplus 11,100 9,150 9,140 6,890 6,890 8,634 12.7%
Undivided profits and reserves 3,579 2,551 1,193 677 194 1,639 107.2%
---------------------------------------------------- --------------------
TOTAL EQUITY 14,779 11,801 10,433 7,667 7,184 10,373 19.8%
---------------------------------------------------- --------------------
TOTAL LIABILITIES AND EQUITY $167,157 $133,642 $140,710 $ 86,508 $ 63,183 $118,240 27.5%
==================================================== ====================
INVESTORSBANK
WAUKESHA, WISCONSIN
COMMON SIZE BALANCE SHEETS
5 year
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average
2002 2001 2000 1999 1998 1997-2001
---------------------------------------------------------------
ASSETS
Total cash and due from banks 1.7 1.5 2.5 2.6 1.7 2.0
Portfolio investments 1.2 4.0 10.2 7.2 30.0 10.5
Fed funds sold 0.0 0.0 0.9 0.0 0.9 0.4
Net loans and leases 93.1 92.6 84.4 88.9 65.6 84.9
Premises and fixed assets 1.5 0.1 0.1 0.1 0.2 0.4
Other assets 2.5 1.8 1.9 1.2 1.6 1.8
------------------------------------------------------------
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0
============================================================
LIABILITIES AND EQUITY
LIABILITIES
Deposits 81.4 89.8 91.4 88.7 87.2 87.7
Fed funds purchased and sec sold 0.9 0.6 0.0 1.1 0.0 0.5
Other borrowed money 8.1 0.0 0.0 0.0 0.0 1.6
Other liabilities 0.7 0.7 1.0 1.3 1.4 1.0
------------------------------------------------------------
TOTAL LIABILITIES 91.2 91.2 92.6 91.1 88.6 90.9
------------------------------------------------------------
EQUITY
Common stock 0.1 0.1 0.1 0.1 0.2 0.1
Surplus 6.6 6.8 6.5 8.0 10.9 7.8
Undivided profits and reserves 2.1 1.9 0.8 0.8 0.3 1.2
------------------------------------------------------------
TOTAL EQUITY 8.8 8.8 7.4 8.9 11.4 9.1
------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 100.0 100.0 100.0 100.0 100.0 100.0
============================================================
EXHIBIT D
COMPARATIVE INCOME STATEMENTS
INVESTORSBANCORP
WAUKESHA, WISCONSIN
COMPARATIVE INCOME STATEMENTS - PARENT COMPANY ONLY
(in thousands)
Dec 31, Dec 31, Dec 31, Dec 31,
2002 2001 2000 1999
----------------------------------------
Dividend income from the Bank $ 702 $ 522 $ 301 $ 301
Other income from the Bank 30 46 67 74
Other income 28 55 76 73
---------------------------------------
Total income 760 623 444 448
---------------------------------------
Interest expense 8 37 60 64
Other expenses 24 52 44 49
---------------------------------------
Total noninterest income 32 89 104 113
---------------------------------------
Net income before taxes and equity in
undistributed net income of the Bank 728 534 340 335
Provision for income taxes 24 9
---------------------------------------
Net income before equity in undistributed
net income of the Bank 728 534 316 326
Equity in undist. net income of the Bank 393 364 310 338
---------------------------------------
Net income $1,121 $ 898 $ 626 $ 664
=======================================
Cash dividends paid $ 557 $ 447 $ 249 $ 242
INVESTORSBANK
WAUKESHA, WISCONSIN
5 year
COMPARATIVE INCOME STATEMENTS Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average CAGR
(in thousands) 2002 2001 2000 1999 1998 1998 - 2002 1998 - 2002
---------------------------------------------------------------- ------------------------
Total interest income $ 8,200 $ 10,064 $ 9,317 $ 5,508 $ 3,261 $ 7,270 25.9%
Total interest expense 3,282 5,582 5,757 3,090 1,761 3,894 16.8%
Provision for loan and lease loss 472 847 1,038 375 300 606 12.0%
---------------------------------------------------------------- --------------------
Net interest income after provision 4,446 3,635 2,522 2,043 1,200 2,769 38.7%
---------------------------------------------------------------- --------------------
Noninterest income 1,797 1,826 1,542 1,534 1,386 1,617 6.7%
Gains (losses) on sale of securities n/m
Noninterest expenses 3,400 3,024 3,048 2,620 2,207 2,860 11.4%
---------------------------------------------------------------- --------------------
Total noninterest expenses (1,603) (1,198) (1,506) (1,086) (821) (1,243) 18.2%
---------------------------------------------------------------- --------------------
Income from operations 2,843 2,437 1,016 957 379 1,526 65.5%
Current taxes 980 769 343 362 82 507 85.9%
---------------------------------------------------------------- --------------------
Net income $ 1,863 $ 1,668 $ 673 $ 595 $ 297 $ 1,019 58.3%
================================================================ ====================
Cash dividends paid $ 835 $ 300 $ 157 $ 0 $ 0 $ 258 n/m
Dividends as a % of net income 44.8% 18.0% 23.3% 0.0% 0.0% 17.2% n/m
INVESTORSBANK
WAUKESHA, WISCONSIN
5 Year
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Average
COMMON SIZE INCOME STATEMENTS 2002 2001 2000 1999 1998 1997-2001
--------------------------------------------------- ---------
Total interest income 100.0 100.0 100.0 100.0 100.0 100.0
Total interest expense 40.0 55.5 61.8 56.1 54.0 53.6
Provision for loan and lease loss 5.8 8.4 11.1 6.8 9.2 8.3
------------------------------------------------- -------
Net interest income 54.2 36.1 27.1 37.1 36.8 38.1
------------------------------------------------- -------
Noninterest income 21.9 18.1 16.6 27.9 42.5 22.2
Gains (losses) on sale of securities
Noninterest expenses 41.5 30.0 32.7 47.6 67.7 39.3
------------------------------------------------- -------
Total noninterest expenses (19.5) (11.9) (16.2) (19.7) (25.2) (17.1)
------------------------------------------------- -------
Income from operations 34.7 24.2 10.9 17.4 11.6 21.0
Current taxes 12.0 7.6 3.7 6.6 2.5 7.0
------------------------------------------------- -------
Net income 22.7 16.6 7.2 10.8 9.1 14.0
================================================= =======
EXHIBIT E
ADJUSTED HISTORICAL EARNINGS
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE COMPANY METHOD
(amounts in thousands)
THE HOLDING COMPANY'S HISTORICAL AND ADJUSTED EARNINGS
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
Net Income for the Year ended 1998 1999 2000 2001 2002
--------------------------------------------------------------------
Income from operations $ 379,000 $ 956,000 $ 834,000 $ 2,140,000 $ 2,554,000
Current taxes (as reported) $ 82,000 $ 362,000 $ 272,000 $ 668,000 $ 882,000
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Adjusted Historical Earnings $ 297,000 $ 594,000 $ 562,000 $ 1,472,000 $ 1,672,000
====================================================================
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
Estimated Ongoing Earnings (most recent period - rounded) $ 1,672,000
Capital to Earnings Multiple based on Guideline Public Company Method 8.4
------------
Fair Market Value of the Holding Company $ 14,077,161
Less: Outstanding Trust Preferred Securities ($ 5,000,000)
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 9,077,161
Add: Control Premium (20%) $ 1,815,432
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 11,864,593
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 11.24
============
II. Holding Company's Book Value as of December 31, 2002 $ 10,357,000
Price to Book Multiple based on Guideline Transaction Method 1.06
------------
Fair Market Value of the Holding Company $ 10,956,512
Less: Outstanding Trust Preferred Securities $ 0
------------
Fair Market Value of the Holding Company, on a minority, marketable basis $ 10,956,512
Add: Control Premium (20%) $ 2,191,302
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Value of the Holding Company, on a marketable, majority interest basis $ 14,119,814
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 13.37
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 12.31
============
INVESTORSBANCORP, INC.
WAUKESHA, WISCONSIN
VALUATION OF THE HOLDING COMPANY - GUIDELINE TRANSACTION METHOD
(amounts in thousands)
DETERMINATION OF THE ESTIMATED FAIR MARKET VALUE OF THE HOLDING COMPANY
I. Historical Earnings (most recent period) $ 1,672,000
Price to Earnings Multiple based on Guideline Transaction Method 10.3
------------
Fair Market Value of the Holding Company, on a marketable, majority basis $ 17,292,660
Less: Outstanding Trust Preferred Securities ($ 5,000,000)
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Market Value of the Holding Company, on a majority, marketable basis $ 13,264,660
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 12.56
============
II. Holding Company's Book Value as of December 31, 2002 $ 10,357,000
Price to Book Multiple based on Guideline Transaction Method 1.2
------------
Fair Market Value of the Holding Company, on a marketable, majority basis $ 12,428,400
Less: Outstanding Trust Preferred Securities $ 0
Add: Cash from exercising options and warrants $ 972,000
------------
Fair Market Value of the Holding Company, on a majority, marketable basis $ 13,400,400
Divided by: Number of shares outstanding - fully diluted basis 1,055,996
------------
Per Share Fair Value of the Holding Company, on a marketable, majority interest basis $ 12.69
============
AVERAGE OF THE TWO VALUE DETERMINATIONS UNDER THIS METHOD $ 12.63
============
EXHIBIT F
GUIDELINE COMPANY DATA
GUIDELINE COMPANY DATA
AS OF DECEMBER 31, 2002
30 day avg
Total closing Outstanding Market Trust
Ticker Assets Price through Shares Capitalization Preferred
Name / Location Symbol (in thousands) 12/31/2002 (millions) (millions) (millions)
- -------------------------------------------------------------------------------------------------------------------------------
Baylake Corp. BYLK.OB $ 904,656 $ 13.13 7.48 $ 98.21 $ 16.10
Sturgeon Bay, WI
Commercial National Financial Corp CEFC.OB $ 228,849 $ 11.77 3.63 $ 42.73 $ 0.00
Ithaca, MI
Heartland Financial USA HTLF.OB $1,785,979 $ 15.76 9.86 $ 155.39 $ 0.00
Dubuque, IA
Horizon Bancorp HBNC $ 720,100 $ 24.49 1.98 $ 48.49 $ 12.00
Michigan City, IN
Iowa First Bancshares Corp. IFST $ 378,705 $ 22.92 1.44 $ 33.00 $ 0.00
Muscatine, IA
Mahaska Investment Company OSKY $ 540,787 $ 15.10 3.92 $ 59.19 $ 10.00
Oskaloosa, IA
Mid-Wisconsin Financial Services Inc MWFS.OB $ 368,040 $ 27.07 1.69 $ 45.75 $ 0.00
Medford, WI
Monroe Bancorp MROE $ 533,317 $ 13.19 6.10 $ 80.46 $ 0.00
Bloomington, IN
Princeton National Bancorp PNBC $ 587,525 $ 20.88 3.23 $ 67.44 $ 0.00
Princeton, IL
Average
Median
Selected Multiple *
Trailing Twelve Months Price Capital Last Price to
------------------------------- to TTM to TTM Qtr End Book
Name / Location ROA ROE Earnings Earnings Earnings Book Value Value
- -------------------------------------------------------------------------------------------------------------------------------
Baylake Corp. 1.00% 13.98% $ 1.15 11.42 13.29 $ 8.62 1.52
Sturgeon Bay, WI
Commercial National Financial Corp 1.33% 13.13% $ 0.78 15.09 15.09 $ 6.16 1.91
Ithaca, MI
Heartland Financial USA 1.13% 16.44% $ 1.68 9.38 9.38 $12.60 1.25
Dubuque, IA
Horizon Bancorp 0.83% 14.21% $ 2.75 8.91 11.11 $20.89 1.17
Michigan City, IN
Iowa First Bancshares Corp. 0.93% 13.55% $ 2.48 9.24 9.24 $20.49 1.12
Muscatine, IA
Mahaska Investment Company 1.03% 10.73% $ 1.41 10.71 12.52 $13.64 1.11
Oskaloosa, IA
Mid-Wisconsin Financial Services Inc 1.30% 14.56% $ 2.65 10.22 10.22 $19.11 1.42
Medford, WI
Monroe Bancorp 1.17% 14.32% $ 1.00 13.19 13.19 $ 7.25 1.82
Bloomington, IN
Princeton National Bancorp 1.08% 12.37% $ 1.86 11.23 11.23 $15.79 1.32
Princeton, IL
------------------ ------------------ ----
Average 1.09% 13.70% 11.04 11.70 1.40
================== ================== ====
Median 1.08% 13.98% 10.71 11.23 1.32
================== ================== ====
Selected Multiple * 8.42 1.06
===== ====
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent growth.
EXHIBIT G
GUIDELINE TRANSACTION DATA
GUIDELINE TRANSACTION DATA
AS OF DECEMBER 31, 2002
Total Equity / NPAs / Trailing Twelve Months TTM Price to
Assets Assets Assets ---------------------- Price to Book
Seller Name / Location (in thousands) (%) (%) ROA ROE Earnings Value
- ---------------------------------------------------------------------------------------------------------------------------------
Fortress Bancshares, Inc. $206,802 6.75 n/a 0.89% 13.35% 12.35 1.50
Westby, WI
Waunakee Bank Shares, Inc. $103,141 6.07 1.68 -0.23% -3.87% n/m 1.43
Waunakee, WI
Bancorp Inc. $ 46,707 10.66 0.18 1.16% 10.57% 14.41 1.28
Cedarburg, WI
Northern Plains Bancshares $ 46,946 7.43 0.20 1.06% 13.91% 13.17 1.67
Thief River Falls, MN
Marquette Bank Illinois $140,730 9.45 0.18 1.04% 12.12% 15.27 1.77
Galesburg, IL
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Average 8.07 0.56 0.78% 9.22% 13.80 1.53
=====================================================================
Median 7.43 0.19 1.04% 12.12% 13.79 1.50
=====================================================================
Selected Multiples * 10.3 1.20
====================
* This multiple was adjusted downwards for the reliance on a key employee, the
use of brokered CD's for deposits, the Bank's one location, the amount of fee
income from BMSBLC, and other factors offset by the Bank's strong recent growth.