1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25983
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First Manitowoc Bancorp,Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
402 North Eighth Street, Manitowoc, Wisconsin 54220
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(Address of principal executive offices) (Zip code)
(920) 684-6611
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Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at July 31, 2000, was 3,468,634 shares.
2
FIRST MANITOWOC BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition -
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Unaudited
June 30, December 31,
2000 1999
---- ----
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 15,438 $ 21,007
Federal funds sold and repurchase agreements 2,166 19,709
---------- ----------
Cash and cash equivalents 17,604 40,716
Securities available for sale, at fair value 102,134 97,595
Loans 317,256 298,640
Less: Allowance for loan losses (3,770) (3,700)
---------- ----------
Loans, net 313,486 294,940
Premises and equipment, net 9,669 8,872
Intangible assets, net of accumulated amortization of
$936,126 in 2000 and $711,661 in 1999 7,818 8,706
Accrued interest receivable and other assets 12,170 11,689
---------- ----------
Total assets $ 462,881 $ 462,518
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 56,420 $ 67,283
Interest-bearing deposits 314,812 296,003
---------- ----------
Total deposits 371,232 363,286
Securities sold under repurchase agreements 17,564 22,352
Short-term borrowings 2,000 2,000
Accrued interest payable and other liabilities 4,982 4,374
Long-term borrowings 30,000 36,000
---------- ----------
Total liabilities 425,778 428,012
Stockholders' equity
Common stock, $1.00 par value; authorized
10,000,000 shares; issued 3,791,814 shares 3,792 3,792
Retained earnings 35,962 33,662
Accumulated other comprehensive (loss) (1,951) (2,248)
Treasury stock at cost--323,180 shares (700) (700)
---------- ----------
Total stockholders' equity 37,103 34,506
---------- ----------
Total liabilities and stockholders' equity $ 462,881 $ 462,518
========== ==========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands, Except Share Data)
INTEREST INCOME
Loans, including fees $ 6,992 $ 5,112 $13,674 $10,122
Federal funds sold and repurchase agreements 123 41 203 207
Securities:
Taxable 763 716 1,536 1,410
Tax exempt 679 671 1,343 1,336
-------- -------- ------- -------
Total interest income 8,557 6,540 16,756 13,075
INTEREST EXPENSE
Deposits 3,726 2,578 7,123 5,251
Short-term borrowings 305 295 635 599
Long-term borrowings 597 394 1,102 783
-------- -------- ------- -------
Total interest expense 4,628 3,267 8,860 6,633
-------- -------- ------- -------
NET INTEREST INCOME 3,929 3,273 7,896 6,442
Provision for loan losses 75 150 200 300
-------- -------- ------- -------
Net interest income after provision for loan losses 3,854 3,123 7,696 6,142
OTHER OPERATING INCOME
Trust service fees 142 133 261 253
Service charges on deposit accounts 272 250 515 456
Loan servicing income 71 98 188 218
Gain on sales of mortgage loans held for sale 8 32 21 97
Other 173 75 310 157
-------- -------- ------- -------
Total other operating income 666 588 1,295 1,181
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,330 1,158 2,853 2,181
Occupancy 394 228 784 518
Data processing 249 172 450 330
Postage, stationery and supplies 113 96 272 198
Amortization of goodwill and other intangibles 112 40 224 80
Other 562 437 1,029 756
-------- -------- ------- -------
Total other operating expense 2,760 2,131 5,612 4,063
-------- -------- ------- -------
Income before income tax expense 1,760 1,580 3,379 3,260
Income tax expense 326 288 628 627
-------- -------- ------- -------
NET INCOME $ 1,434 $ 1,292 $ 2,751 $ 2,633
======== ======== ======= =======
Earnings per share: basic and diluted $ 0.41 $ 0.38 $ 0.79 $ 0.76
(See accompanying notes to Unaudited Consolidated Financial Statements.)
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30, 1999
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock (Loss) Income Total
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $3,792 $ 29,625 ($700) $ 1,175 $ 33,892
Cash paid for fractional shares 0 (7) 0 0 (7)
Net income 0 2,633 0 0 2,633
Other comprehensive (loss) income:
Unrealized holding loss arising
during period 0 0 0 (2,809) (2,809)
Income tax effect 0 0 0 972 972
------
Comprehensive income $ 796
Cash dividends ($ .12 per share) 0 (416) 0 0 (416)
- ---------------------------------------------------------------- ------------------ --------------- ------------------
BALANCE AT JUNE 30, 1999 $3,792 $ 31,835 ($700) $ (662) $34,265
Six Months Ended June 30, 2000
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock (Loss) Income Total
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $3,792 $33,662 ($700) $(2,248) $34,506
Net income 0 2,751 0 0 2,751
Other comprehensive (loss) income:
Unrealized holding gain arising
during period 0 0 0 448 448
Income tax effect 0 0 0 (151) (151)
-------
Comprehensive income $ 3,048
Cash dividends ($ .13 per share) 0 (451) 0 0 (451)
- ----------------------------------------------------------------- ---------------- ---------------- -----------------
BALANCE AT JUNE 30, 2000 $3,792 $35,962 ($700) $(1,951) $37,103
(See accompanying notes to Unaudited Consolidated Financial Statements.)
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
-------
2000 1999
---------- ----------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,751 $ 2,633
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 200 300
Depreciation of premises and equipment 430 245
Amortization of intangible assets 224 80
Amortization of securities, net 9 9
Proceeds from sale of mortgage loans held for sale 6,987 17,503
Originations of mortgage loans held for sale (6,867) (17,503)
Gain on sales of mortgage loans held for sale 21 97
Undistributed income of joint venture (109) (56)
Decrease (increase) in accrued interest receivable and other assets 110 (1,339)
Increase in accrued interest payable and other liabilities 608 290
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Net cash provided by operating activities 4,364 2,259
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 9,393 33,849
Purchases of securities available for sale (13,504) (36,740)
Net increase in loans (18,845) (8,698)
Purchases of premises and equipment (1,313) (1,304)
Sales of premises and equipment 86 94
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (24,183) (12,799)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 7,946 (6,013)
Net (decrease) increase in securities sold under repurchase agreements (4,788) 5,734
Proceeds from advances on borrowed funds 14,000 1,698
Repayments on advances from borrowed funds (20,000) 0
Dividends paid (451) (423)
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Net cash provided by (used in) financing activities (3,293) 996
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Net decrease in cash and cash equivalents (23,112) (9,544)
Cash and cash equivalents at beginning of period 40,716 30,838
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Cash and cash equivalents at end of period $ 17,604 $ 21,294
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,161 $ 6,802
Income taxes 552 893
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Supplemental schedule of noncash investing and financing
activities not described in the notes to the financial statements:
Loans receivable transferred to other real estate $ 0 $ 158
- -------------------------------------------------------------------------------------------------------------------
(See accompanying notes to Unaudited Consolidated Financial Statements.)
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, these accompanying unaudited
consolidated financial statements contain all adjustments necessary to present
fairly First Manitowoc Bancorp, Inc.'s ("Corporation") financial position,
results of its operations, changes in stockholders' equity and cash flows for
the periods presented. All adjustments necessary for the fair presentation of
the consolidated financial statements are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. This report should be read in
conjunction with the Corporation's 1999 annual report on Form 10-K.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. The Corporation is a bank holding company that engages in its
business through its sole subsidiary, First National Bank in Manitowoc ("Bank"),
a nationally chartered commercial bank. The Bank has a wholly owned investment
subsidiary, FNBM Investment Corp. All intercompany transactions and balances are
eliminated. Certain items in the prior period consolidated financial statements
have been reclassified to conform with the June 30, 2000 presentation.
The Corporation consummated the acquisition of Dairy State Financial Services,
Inc. ("Dairy"), a Wisconsin bank holding company, in December 1999. Dairy's
wholly-owned subsidiary, Dairy State Bank, (DSB), had two locations in Plymouth,
Wisconsin, which are now branch offices of the Bank. Dairy had approximately $66
million in assets at date of acquisition. Dairy and its wholly-owned subsidiary,
DSB, were merged into the Bank at date of acquisition. The transaction was
accounted for under the purchase method of accounting and goodwill of
approximately $7.9 million was recorded. The Company's financial statements
reflect the accounts and operations of Dairy beginning on December 1, 1999. The
Corporation recorded all Dairy assets and liabilities at fair value at date of
acquisition.
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NOTE 3: Investment Securities
The amortized cost and fair values of investment securities available for sale
for the periods indicated are as follows:
Investment Securities
(In Thousands)
June 30, 2000
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 10,779 $ 10,436
Obligations of states and political subdivisions 57,989 56,653
Mortgage-backed securities 32,925 31,623
Corporate notes 947 923
Other securities 2,499 2,499
--------- ---------
Total $ 105,139 $ 102,134
========= =========
December 31, 1999
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 10,290 $ 9,924
Obligations of states and political subdivisions 54,278 52,400
Mortgage-backed securities 33,459 32,268
Corporate notes 896 884
Other securities 2,124 2,119
--------- ---------
Total $ 101,047 $ 97,595
========= =========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(Dollars In Thousands)
June 30, 2000 December 31, 1999
Percent of Percent of
Amount Total Loans Amount Total Loans
-------- ----------- --------- -----------
Commercial and Agricultural $100,076 31.54% $ 93,550 31.33%
Commercial Real Estate 74,218 23.39% 69,248 23.19%
Residential Real Estate 120,324 37.93% 114,176 38.23%
Consumer 21,224 6.69% 20,199 6.76%
Other 1,414 .45% 1,467 .49%
-------- ----------- --------- -----------
Total $317,256 100.00% $298,640 100.00%
======== =========== ========= ===========
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NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
2000 1999
---- ----
(In Thousands)
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Balance at beginning of period $ 3,700 $ 3,124
Provision charged to expense 200 300
Charge-offs (153) (69)
Recoveries 23 18
------------ ------------
Balance at end of period $ 3,770 $ 3,373
============ ============
NOTE 6: Business Segments
The Corporation through the branch network of its subsidiaries provides a broad
range of financial services to individuals and companies in northeastern
Wisconsin. These services include demand, time, and savings deposits; commercial
and retail lending; ATM processing; and trust services. While the Corporation's
chief decision maker monitors the revenue streams of the various products and
services, operations are managed and financial performance is evaluated on a
Corporate-wide basis. Accordingly, all of the Corporation's operations are
considered by management to be aggregated in one reportable operating segment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
Forward-looking statements have been made by First Manitowoc Bancorp, Inc. (the
"Corporation") in this document and in documents incorporated by reference that
are subject to risks and uncertainties. These forward-looking statements, which
are included in Management's Discussion and Analysis, describe future plans or
strategies and include the Corporation's expectations of future results of
operations. The words "believes," "expects," "anticipates" or similar
expressions identify forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document could affect the future financial results of the
Corporation and could cause those results to differ materially from those
expressed in forward-looking statements contained in this document. These
factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting the
Corporation's banking, securities, asset management and credit
services businesses; and
- the risk that the Corporation's analyses of these risks and
forces could be incorrect and/or that the strategies developed to
address them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. The Corporation does
not undertake and specifically disclaims any obligation to update any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
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EARNINGS
Net Income
(Dollars In Thousands, Except Share Data)
- ----------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net Income $ 1,434 $ 1,292 $ 2,751 $ 2,633
EPS-Basic & Diluted $ .41 $ .38 $ .79 $ .76
Return on Average Assets 1.25% 1.42% 1.23% 1.43%
Return on Average Equity 16.06% 15.00% 16.37% 15.45%
- ----------------------------------------------------------------------------------------------------------
All per share financial information has been adjusted to reflect the five for
four stock dividend declared on April 16, 1999, and the two for one stock
dividend declared on May 23, 2000. Weighted average shares outstanding were
3,468,634 for the three months ended June 30, 2000 and 1999.
Net income for the three months ended June 30, 2000 was $1,434,000 compared to
$1,292,000 for the three months ended June 30, 1999, an increase of $142,000, or
10.99%. Interest income increased $2,017,000 primarily as a result of the
increase in loans from the Dairy acquisition and an increase in yields. Interest
expense increased $1,361,000 primarily as a result of the increase in deposits
from the Dairy acquisition, and an increase in interest rates. Other operating
income increased $78,000 primarily as a result of an increase in service charges
from the additional deposit accounts obtained in the Dairy acquisition and an
increase in earnings by the Bank's data processing center, which is a corporate
joint venture. Other operating expense increased $629,000. This is a result of
increased salaries and employee benefits expense due to the additional salaries
and wages for employees acquired as part of the Dairy acquisition, the new staff
at the Bank's new office in Ashwaubenon, Wisconsin, and annual merit increases
in wages for employees. Occupancy expense increased as a result of the new
offices obtained in the Dairy acquisition and the new office in Ashwaubenon.
Amortization of goodwill increased as a result of the Dairy acquisition. Other
expenses increased due to increased printing and supplies expense related to the
Dairy acquisition.
Net income for the six months ended June 30, 2000 was $2,751,000 compared to
$2,633,000 for the six months ended June 30, 1999, an increase of $118,000 or
4.48%. Interest income increased $3,681,000 primarily due to the increase in
loans from the Dairy acquisition and an increase in interest yields. Interest
expense increased $2,227,000 primarily due to the increase in deposits from the
Dairy acquisition and an increase in interest rates. Other operating income
increased $114,000 primarily as a result of an increase in service charges on
deposit accounts and an increase in earnings by the Bank's data processing
center. Other operating expense increased $1,549,000, a result of increased
salaries and employee benefits resulting from the Dairy acquisition, new staff
at the Bank's new office in Ashwaubenon, and annual merit increases. Occupancy
expense increased due to the Dairy acquisition and the new office in
Ashwaubenon. Amortization of goodwill and printing and supplies increased due to
the Dairy acquisition. Earnings per share for the six months ended June 30, 2000
was $0.79 compared to $0.76 for the six months ended June 30, 1999.
Return on average assets (ROA) on an annualized basis for the first six months
of 2000 was 1.23% compared to 1.43% for the first six months in 1999. Return on
average equity (ROE) on an annualized basis for the first six months of 2000 was
16.37% compared to 15.45% for the first six months of 1999.
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Average Balances, Yield and Rates
For the three months For the three months
ended June 30, 2000 ended June 30, 1999
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS
Interest earning assets:
Federal funds sold $ 8,169,000 $ 123,576 6.05% $ 3,362,000 $ 40,733 4.86%
Investment securities 100,035,000 1,853,693 7.43% 101,415,000 1,736,592 6.87%
Loans 313,215,000 7,034,003 9.01% 235,362,000 5,203,476 8.87%
------------- ----------- ------ ------------- ----------- -------
Total interest earning assets $ 421,419,000 $ 9,011,272 8.55% $ 340,139,000 $ 6,980,801 8.23%
Other assets 37,152,000 20,970,000
------------- -------------
TOTAL ASSETS $ 458,571,000 $ 361,109,000
============= =============
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $304,775,000 $3,729,119 4.91% $231,578,000 $2,583,613 4.47%
Repurchase agreements 20,878,000 286,256 5.50% 21,782,000 257,450 4.74%
Federal funds purchased 0 0 0.00% 2,659,000 24,762 3.74%
Borrowings 40,007,000 615,132 6.17% 29,676,000 405,053 5.48%
------------- ----------- ------ ------------- ----------- -------
Total interest-bearing liabilities $365,660,000 $4,630,507 5.07% $ 285,695,000 $3,270,878 4.59%
Demand deposits $ 52,114,000 37,393,000
Other liabilities 5,077,000 3,586,000
------------- -------------
Total liabilities $ 422,851,000 $ 326,674,000
Stockholders' equity 35,720,000 34,435,000
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 458,571,000 $ 361,109,000
============= =============
Net interest income and
interest rate spread $4,380,765 3.48% $3,709,923 3.64%
Net interest income as
a percent of earning assets (annualized) 4.16% 4.38%
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Average Balances, Yield and Rates
For the six months For the six months
ended June 30, 2000 ended June 30, 1999
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS
Interest earning assets:
Federal funds sold $ 5,698,000 $ 176,228 6.19% $ 6,953,000 $ 206,645 5.99%
Investment securities 100,103,000 3,714,093 7.42% 101,901,000 3,441,088 6.81%
Loans 308,034,000 13,813,367 9.02% 231,952,000 10,279,363 8.93%
------------- ------------ ------ ------------- ----------- -----
Total interest earning assets $ 413,835,000 $ 17,703,688 8.58% $ 340,806,000 $13,927,096 8.24%
Other assets 37,453,000 20,051,000
------------- -------------
TOTAL ASSETS $ 451,288,000 $ 360,857,000
============= =============
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $ 299,651,000 $ 7,129,826 4.78% $ 232,871,000 $ 5,262,087 4.56%
Repurchase agreements 20,550,000 547,749 5.36% 23,237,000 552,747 4.80%
Federal funds purchased 1,734,000 51,454 5.95% 1,188,000 24,782 4.21%
Borrowings 38,896,000 1,137,614 5.85% 29,489,000 803,508 5.49%
------------- ------------ ------ ------------- ----------- -----
Total interest-bearing liabilities $ 360,831,000 $ 8,866,643 4.93% $ 286,785,000 $ 6,643,124 4.67%
Demand deposits $ 50,736,000 36,485,000
Other liabilities 4,633,000 3,467,000
------------- -------------
Total liabilities $ 416,200,000 $ 326,737,000
Stockholders' equity 35,088,000 34,120,000
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 451,288,000 $ 360,857,000
============= =============
Net interest income and
interest rate spread $ 8,837,045 3.65% $ 7,283,972 3.57%
Net interest income as
a percent of earning assets (annualized) 4.28% 4.31%
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NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the principal source of earnings for a banking company.
It represents the differences between interest and fees earned on the loan and
investment portfolios offset by the interest paid on deposits and borrowings.
The six months ended June 30, 2000 has been characterized by generally
increasing interest rates. Because deposits and loans and other investments
reprice at different rates and as a result of changes in volume, the Bank's net
interest income, on a fully tax equivalent basis, increased in 2000 and 1999.
Net interest margin is calculated as tax equivalent net interest income divided
by average earning assets and represents the Bank's net yield on its earning
assets. The tax equivalent adjustment was calculated using the statutory federal
income tax rate of 34%.
SECOND QUARTER 2000 COMPARED TO SECOND QUARTER 1999:
Net interest income (on a tax equivalent basis) for the three months ended June
30, 2000 increased by $690,328 or 18.6% compared to the three months ended June
30, 1999. Interest income increased $2,049,957 primarily as a result of the
increase in loans from the Dairy acquisition and an increase in yields. For the
second quarter of 2000, the average balance for the loans acquired from Dairy
was $53,670,000. Total average loans increased from $235,362,000 for the second
quarter of 1999 to $313,215,000 for the second quarter of 2000 while interest
rates on loans increased from 8.87% for the second quarter of 1999 to 9.01% for
the second quarter of 2000. Interest expense increased $1,359,629 primarily as a
result of the increase in deposits from the Dairy acquisition, and an increase
in interest rates on deposits. For the second quarter of 2000, the average
balance for the deposits acquired from Dairy was $60,076,000. Total average
interest-bearing deposits increased from $231,578,000 for the second quarter of
1999 to $304,775,000 for the second quarter of 2000 while interest rates paid on
interest-bearing deposits increased from 4.47% for the second quarter of 1999 to
4.91% for the second quarter of 2000. The interest rate spread, which is the
difference between the average yield on interest earning assets and the average
rate paid on interest bearing liabilities, was 3.52% for the three months ended
June 30, 2000, a decrease of 12 basis points from the interest rate spread of
3.64% for the three months ended June 30, 1999.
Net interest margin for the three months ended June 30, 2000 was 4.19% compared
with 4.38% for the three months ended June 30, 1999.
YTD SECOND QUARTER 2000 COMPARED TO YTD SECOND QUARTER 1999:
Net interest income (on a tax equivalent basis) for the six months ended June
30, 2000 increased by $1,553,073 or 21.3% compared to the six months ended June
30, 1999. Interest income increased $3,776,592 primarily as a result of the
increase in loans from the Dairy acquisition and an increase in interest yields.
For the six months ended June 30, 2000, the average balance for the loans
acquired from Dairy was $53,807,000. Total average loans increased from
$231,952,000 for the first six months of 1999 to $308,034,000 for the first six
months of 2000, while interest rates on loans increased from 8.93% to 9.02% for
the respective periods. Interest expense increased $2,223,519 primarily as a
result of the increase in deposits from the Dairy acquisition. For the first six
months of 2000, the average balance for the deposits acquired from Dairy was
$59,565,000. Total average interest bearing deposits increased from $232,871,000
for the first six months of 1999 to $299,651,000 for the first six months of
2000, while interest rates paid on those deposits increased from 4.56% in the
first half of 1999 to 4.78% in the first half of 2000. The interest rate spread
was 3.65% for the six months ended June 30, 2000, an increase of 8 basis points
from the interest rate spread of 3.57% for the six months ended June 30, 1999.
Net interest margin for the six months ended June 30, 2000 was 4.28% compared
with 4.31% for the six months ended June 30, 1999.
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PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended June 30, 2000, the Bank charged $75,000 to expense
for the provision for loan loss compared to $150,000 for the three months ended
June 30, 1999.
Allowance for Loan Losses
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 3,821 $ 3,226 $ 3,700 $ 3,124
Charge-offs (138) (9) (153) (69)
Recoveries 12 6 23 18
---------- ----------- --------- ----------
Net (charge-offs) (126) (3) (130) (51)
Provision for loan losses 75 150 200 300
---------- ----------- --------- ----------
Balance at end of period $ 3,770 $ 3,373 $ 3,770 $ 3,373
========== =========== ========= ==========
Ratio of net charge-offs during period to
average loans outstanding during period .04% 00.% .04% .02%
Ratio of allowance for loan losses
to total loans 1.19% 1.42% 1.19% 1.42%
- -------------------------------------------------------------------------------------------------------------------
The decrease in the ratio of allowance for loan losses to total loans is
primarily a result of a lower allowance on the loans acquired from Dairy.
There are several factors that are included in the analysis of the adequacy of
the allowance for loan losses. Management considers loan volume trends, levels
and trends in delinquencies and non-accruals, current problem credits, national
and local economic trends and conditions, concentrations of credit by industry,
current and historical levels of charge-offs, the experience and ability of the
lending staff, and other miscellaneous factors. Management has determined the
allowance for loan losses is adequate to absorb estimated credit losses in its
loan portfolio as of June 30, 2000 based on its most recent evaluation of these
factors.
The factor of loan volume trends is based on actual lending activity. The loan
volume trends factor is for estimated losses that are believed to be inherently
part of the loan portfolio but that have not yet been identified as specific
problem credits. The factor current problem credits includes the exposure
believed to exist for specifically identified problem loans determined on a
loan-by-loan basis.
A table showing the allocation of allowance for loan losses is shown below.
Allocation of Allowance for Loan Losses
(In Thousands)
June 30, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Specific Problem Loans $ 770 $ 694
Loan Type Allocation:
Commercial & Agricultural 2,661 2,069
Commercial Real Estate 199 192
Residential Real Estate 42 72
Consumer 36 49
--------- -------------
2,938 2,382
Unallocated 62 624
--------- -------------
Total Reserve $ 3,770 $ 3,700
- -------------------------------------------------------------------------------------------------------------------
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Specific problem loans includes the factor of current problem credits for the
exposure of specifically identified problem loans. Loan volume allocation
includes the factor of loan volume trends, with management's goal for this
factor to maintain an adequate loan loss reserve for outstanding loans less the
specifically identified current problem credits. The allocation of the allowance
among the various loan types is based on the average proportion of the loan
types that make up the specific problem loans. The unallocated portion of the
allowance consists of the other factors included in the analysis because those
factors cannot be identified to specific loans or loan categories.
The allocation and total for the allowance for loan losses is not to be
interpreted as a single year's exposure for loss nor the loss for any specified
time period.
NONPERFORMING LOANS
It is the policy of the Bank to place a loan in non-accrual status whenever
there is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. Management considers such factors as payment
history, the nature and value of collateral securing the loan and the overall
economic situation of the borrower when making a non-accrual decision.
Non-accrual loans are closely monitored by management. A non-accruing loan is
restored to current status when the prospects of future contractual payments are
no longer in doubt.
Total nonperforming loans at June 30, 2000 were $2,994,000, an increase of
$1,355,000 from December 31, 1999. The following table presents nonperforming
and nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Nonaccrual Loans $ 2,014 $ 1,618
Accruing Loans Past Due 90 days or More 980 21
-------- ------------
Total Nonperforming Loans $ 2,994 $ 1,639
Nonperforming Loans as a Percent of Loans .94% .55%
- -------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME
Other Operating Income
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Trust Service Fees $ 142 $ 133 $ 261 $ 253
Service Charges on Deposit Accounts 272 250 515 456
Loan Servicing Income 71 98 188 218
Gain on Sales of Mortgage Loans Held for Sale 8 32 21 97
Other 173 75 310 157
----- ----- ------- -------
Total Other Operating Income $ 666 $ 588 $ 1,295 $ 1,181
- -------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2000 COMPARED TO SECOND QUARTER 1999:
Other operating income for the second quarter of 2000 was $666,000 compared to
$588,000 for the second quarter of 1999, an increase of $78,000 or 13.27%. The
increase resulted primarily from increased service charges from the additional
deposit accounts obtained in the Dairy acquisition and an increase in earnings
by the Bank's data processing center, which is a corporate joint venture. The
decrease in gains on sales of mortgage loans held for sale is a result of a
decrease in the number of new residential mortgage loans and refinancings
processed and sold in the secondary market during the second quarter 2000 due to
interest rate increases.
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YTD SECOND QUARTER 2000 COMPARED TO YTD SECOND QUARTER 1999:
Other operating income for the six months ended June 30, 2000 was $1,295,000
compared to $1,181,000 for the six months ended June 30, 1999, an increase of
$114,000 or 9.65%. The increase resulted primarily from increased service
charges from the additional deposit accounts obtained in the Dairy acquisition
and an increase in earnings by the Bank's data processing center. The decrease
in gains on sales of mortgage loans held for sale is a result of a decrease in
the number of new residential mortgage loans and refinancings processed and sold
in the secondary market during the first six months of 2000, due to interest
rate increases.
OTHER OPERATING EXPENSE
Other Operating Expense
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Salaries and Employee Benefits $1,330 $1,158 $2,853 $ 2,181
Occupancy 394 228 784 518
Data Processing 249 172 450 330
Postage, Stationery and Supplies 113 96 272 198
Amortization of Goodwill and Other Intangibles 112 40 224 80
Other 562 437 1,029 756
----- ------ ------ -------
Total Other Operating Expense $2,760 $2,131 $5,612 $ 4,063
- -------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2000 COMPARED TO SECOND QUARTER 1999:
Other operating expense for the second quarter of 2000 was $2,760,000 compared
to $2,131,000 for the second quarter of 1999, an increase of $629,000, or
29.52%. The increase is a result of increased salaries and employee benefits
expense due to the additional salaries and benefits for employees acquired as
part of the Dairy acquisition, the staff at the Bank's new office in
Ashwaubenon, Wisconsin, and annual merit increases in wages for employees.
Occupancy expense increased as a result of the new offices obtained in the Dairy
acquisition and the new office in Ashwaubenon. Amortization of goodwill
increased as a result of the Dairy acquisition. Other expenses increased due to
increased regulatory and professional fees, increased insurance expense,
increased collection and repossession expense, increased FDIC deposit insurance
expense resulting from increased deposits, increased telephone expense and the
expense related to a deferred compensation agreement the Corporation has with
one of its officers.
YTD SECOND QUARTER 2000 COMPARED TO YTD SECOND QUARTER 1999:
Other operating expense for the first six months of 2000 was $5,612,000 compared
to $4,063,000 for the first six months of 1999, an increase of $1,549,000 or
38.12%. This increase is the result of increased salaries and employee benefits
due to additional salaries and benefits for employees acquired as part of the
Dairy acquisition, the staff at the Bank's new office in Ashwaubenon, and annual
merit increases for employees. Occupancy expense increased due to the offices
obtained in the Dairy acquisition and in Ashwaubenon. Amortization of goodwill
increased due to the Dairy acquisition. Other expenses increased due to higher
regulatory and professional fees, increased insurance expense, collection and
repossession expense, increased FDIC deposit insurance expense resulting from
increased deposits, higher telephone expense and the expense related to a
deferred compensation agreement the Corporation has with one of its officers.
INCOME TAXES
The effective tax rate for the three months ended June 30, 2000 was 18.52%
compared to 18.23% for the three months ended June 30, 1999. The decrease in
effective tax rates in the period is a direct result of loans and securities
transferred from the Bank to the Bank's FNBM Investment Corp. subsidiary which
are not subject to state income tax.
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BALANCE SHEET
JUNE 30, 2000 COMPARED TO DECEMBER 31, 1999
The Corporation's total assets increased from $462.5 million at December 31,
1999 to $462.9 million at June 30, 2000. Cash and federal funds sold decreased
$23.1 million while loans increased $18.7 million. The decrease in cash and
federal funds sold is a result of lower cash balances being kept on hand after
the passing of the beginning of the Year 2000 and the payout to Dairy
stockholders relating to the Dairy acquisition. The increase in loans is a
result of customer demand for commercial and agricultural loans and commercial
real estate loans.
Deposits increased $7.9 million to $371.2 million at June 30, 2000 from $363.3
million at December 31, 1999. Long-term borrowings decreased $6.0 million from
$36.0 million at December 31, 1999 to $30.0 million at June 30, 2000. The
increase in deposits was due primarily to increases in savings accounts and
certificates of deposit. The decrease in long term borrowings resulted from
paydowns of Federal Home Loan Bank borrowings not required due to the increase
in deposits.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Bank to meet financial obligations that
arise out of the ordinary course of business. Liquidity is primarily needed to
meet borrowing and deposit withdrawal requirements of the customers of the Bank
and to fund current and planned expenditures. The Bank maintains its asset
liquidity position internally through cash and cash equivalents, short term
investments, the maturity distribution of the investment portfolio, loan
repayments and income from earning assets. A substantial portion of the
investment portfolio contains readily marketable securities that could be
converted to cash immediately. On the liability side of the balance sheet,
liquidity is affected by the timing of maturing liabilities and the ability to
generate new deposits or borrowings as needed. Other sources are available
through borrowings from the Federal Reserve Bank, the Federal Home Loan Bank and
from lines of credit approved at correspondent banks. Management knows of no
trend or event which will have a material impact on the Bank's ability to
maintain liquidity at adequate levels.
CAPITAL RESOURCES AND ADEQUACY
Capital
(Dollars In Thousands, Except Share Data)
- -------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 37,103 $ 34,506
Tier 1 Capital to Risk Weighted Assets-Period End 9.2% 8.6%
Total Capital to Risk Weighted Assets-Period End 10.4% 9.8%
Tier 1 Leverage Ratio-Period End 6.9% 6.9%
Dividends Per Share-This Quarter $ 0.065 $ 0.075
Dividends Per Share-Year to Date 0.130 0.255
Earnings Per Share-This Quarter $ 0.410 $ 0.250
Earnings Per Share-Year to Date 0.790 1.420
Dividend Payout Ratio-This Quarter 15.76% 30.00%
Dividend Payout Ratio-Year to Date 16.39% 17.96%
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity increased $2.6 million from $34.5 million at December
31, 1999 to $37.1 million at June 30, 2000. Net income for the six month period
ending June 30, 2000 was $2.8 million.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of June 30, 2000 and December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
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18
As of June 30, 2000 and December 31, 1999, the most recent notification from the
Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized and adequately capitalized,
respectively, under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no
conditions or events since that notification that management believes have
changed the institution's category.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
and Hedging Activities (SFAS 133) as amended by SFAS No. 138 establishes
accounting and reporting standards requiring that all derivative financial
instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement further requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
typically allows a derivative's gains and losses to offset related results in
the hedged item in the income statement and requires that the Corporation
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting treatment. The Corporation will adopt SFAS No. 133 and
SFAS No. 138 on January 1, 2001. Adoption is not expected to have a material
effect on financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the market risk position from that
disclosed as of December 31, 1999 in the Corporation's 1999 Form 10-K Annual
Report.
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FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries is involved in any
pending legal proceedings involving amounts in which management believes are
material to the financial condition and results of operations of the
Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Corporation held its Annual Meeting of Shareholders on April 17,
2000.
b) Directors elected at the Annual Meeting were John M. Jagemann, John M.
Webster, and Robert S. Weinert.
Directors whose term of office as a director continued after the
meeting were: Thomas J. Bare, John C. Miller, John E. Nordstrom, Craig
A. Pauly, Katherine M. Reynolds, and John J. Zimmer.
c) The results of the voting were as follows:
Matter 1
Election of the below-named nominees to the Board of Directors of the
Corporation:
FOR AGAINST WITHHELD
--- ------- --------
All Nominees: 1,061,161 71,316 57,144
By Nominee:
John M. Jagemann 1,132,477 0 57,144
John M. Webster 1,061,161 71,316 57,144
Robert S. Weinert 1,132,477 0 57,144
Matter 2
Amendment to the Company's Articles of Incorporation to increase the
number of authorized shares of the Company's common stock from
2,500,000 to 10,000,000 shares:
FOR AGAINST ABSTAIN
--- ------- -------
971,566 188,174 29,881
d) Not applicable.
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.2 Articles of Amendment to the Articles of Incorporation
27.1 Financial Data Schedule
b) Reports on Form 8-K:
On June 29, 2000, the Corporation filed Form 8-K regarding a 100% stock
dividend. The Board of Directors of Registrant had authorized a 2 for 1
stock split effected in the form of a 100% stock dividend. The dividend
distribution was made on June 30, 2000 to shareholders of record at the
close of business on June 14, 2000. The 100% stock dividend increased
the number of shares issued and outstanding from the present 1,734,317
to an aggregate of 3,468,634.
There were no other reports on Form 8-K filed for the quarter ended
June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
(Registrant)
Date: August 10, 2000 -----------------------------
Thomas J. Bare
President
18