Ixonia Annual Report 2017

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Message from the CEOs April, 2018 Shareholders, In 2017, Ixonia Bank continued to make investments in the talent and resources it will need to profitably grow in 2018 and beyond. Ixonia Bancshares’ consolidated net income in 2017 before taxes was $1,180,000. That number, though, was after $503,000 of “growth expenses” over the year that will benefit earnings in future years. A major part of these growth expenses in 2017 was adding talent in lending and credit support. Because of the lead time necessary for new senior commercial lenders to source, produce, document and book new lending business, as expected, the new lenders did not have a major impact on the Bank’s revenue in 2017, but all have begun producing profitable loan volume for the bank as of the date of this letter. We will further discuss our investment in people later in this letter. Another major part of the growth expenses in 2017 was to provide the infrastructure for growth in terms of equipment, technology, and facilities that a larger Ixonia Bank will need. This includes the expenditures necessary to reopen the Bank’s Lakes Plaza Branch. This branch, which was closed in January of 2012 and reopened in January of 2018, is located in an area of Oconomowoc that enjoys high growth and income demographics and will provide the Bank an opportunity to further serve its marketplace. Of note, while the tax reform act that was signed into law in the last days of 2017 is considered positive for the business community, including Ixonia Bancshares, accounting rules required the write down of the Bank's deferred tax asset in 2017. This non-cash write down of $3.7 million of net operating loss carry forwards does not reflect an inability of Ixonia Bancshares to utilize these past losses to shield future income from taxation, but simply reflects that the lower tax rates going forward will require a longer recovery period and thus a lower present value of these loss carry forwards. The amount of the write down is reflected in the enclosed financial statement for 2017 as part of the Bank’s $4.0 million tax expense, although these are not, in actuality taxes paid. Finally, it should be noted, that the Bank’s net income reflects a noncash write down to a parcel of real estate that the Bank has been holding for several years. The Bank acquired this property in settlement of a loan relationship and it has been offered for sale since its acquisition. It appears that the property will be sold early in 2018 at a price lower than its appraised value, and, as such, management determined to take a write down of $375,000 in 2017, reflecting the agreed upon anticipated sales price. Adjusting the company’s 2017 pretax income of $1,180,000 for the aforementioned growth expenses and the write down of the property value would produce an adjusted pretax income of $2,058,000 for 2017. The enclosed financial results for the first quarter of 2018 reflect that the Bank is fully on pace to meet its projected net income of $3 million for the full year. While the first quarter income before taxes of $475,000 reflects the Bank’s typical 1
seasonal low quarter, net income in each subsequent quarter will increase as its loans grow. Furthermore, the company earned $81,000 more in the first quarter of 2018 than in the same quarter of 2017, which did not include any of the previously discussed growth expenses. 2018 is the 100-Year Anniversary of Ixonia Bank, which was founded in 1918. We are certain the Founders would be pleased if they were here to see where we are today. We intend to celebrate our 100 th birthday all of this year and we will keep you informed of our anniversary events. " Most importantly, if the founders were here and knew our long-term plan and strategy it would leave them in awe. Simply stated, our targets include growth to $1 billion of assets. We will reach this size with a combination of organic growth and, if possible, acquisitions. Our All great businesses are based on the character and experience of their people." financial targets are to reach a 15% pretax return on capital and an efficiency ratio of 50%. This ratio is a measure of cost to total income. We believe we need $1billion of assets to reach these target levels of earnings. As you know, Ixonia Bank’s headquarters is located halfway between Madison and Milwaukee in the Milwaukee-Madison corridor. We intend to establish a branch in each of these two cities. We have already established a loan production office in Madison. These are the two largest cities in Wisconsin and together they represent about half of Wisconsin’s total population. All great businesses are based on the character and experience of their people. Both of us can attest to you that we came to Ixonia Bank because we recognized the high-quality and hardworking nature of the people that were here. We have continued to complement this group with additional senior leadership. In early 2018, we were fortunate to have Beth Wnuk join the Bank in an executive leadership position. Beth previously served as the Wisconsin Regional President of PNC, one of the nation’s largest banks. She brings exceptional talent and experience to Ixonia Bank and will primarily focus on consumer banking, marketing, and wealth management. Beth will be instrumental in positioning the Bank as it continues on its growth trajectory. As we go forward, a key driver of our earnings will be the continued growth of the Bank’s loan portfolio. Ixonia Bank was able to add three very experienced senior commercial bankers in 2017. Doug Ortyn joined Ixonia Bank from a large regional bank, where he served as the leader of its commercial banking efforts in Wisconsin and Michigan. Doug will spearhead our commercial presence in Milwaukee. Dennis Sampson came to Ixonia Bank from a prominent local bank where he served in a leadership role in that company’s commercial banking division. Mike Jones also joined us in 2017, following a successful career of over 20 years in commercial banking in the Madison market. The addition of these three senior leaders will not only fortify our already strong commercial banking group, but also will provide valuable insights regarding the Bank’s strategy and development. Sincerely yours, Sheldon B. Lubar President and CEO |Ixonia Bancshares, Inc. Daniel L. Westrope Chairman and CEO | Ixonia Bank 2
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Ixonia Annual Report 2017

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