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 September 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 incorporation or organization) (IRS employer 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 October 31, 2000, was 3,468,634 shares.
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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 -
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2000 and 1999 2
Consolidated Statements of Changes in
Stockholders' Equity
Nine Months Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 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
September 30, December 31,
2000 1999
------------- ------------
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 13,603 $ 21,007
Federal funds sold and repurchase agreements 9,629 19,709
--------- ---------
Cash and cash equivalents 23,232 40,716
Securities available for sale, at fair value 109,593 97,595
Loans 323,391 298,640
Less: Allowance for loan losses (3,885) (3,700)
--------- ---------
Loans, net 319,506 294,940
Premises and equipment, net 9,528 8,872
Intangible assets, net of accumulated amortization of
$1,048,132 in 2000 and $711,661 in 1999 7,706 8,706
Accrued interest receivable and other assets 13,384 11,689
--------- ---------
Total assets $ 482,949 $ 462,518
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 56,558 $ 67,283
Interest-bearing deposits 322,549 296,003
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Total deposits 379,107 363,286
Securities sold under repurchase agreements 26,393 22,352
Short-term borrowings 2,114 2,000
Accrued interest payable and other liabilities 6,265 4,374
Long-term borrowings 30,000 36,000
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Total liabilities 443,879 428,012
Stockholders' equity
Common stock, $1.00 par value; authorized
10,000,000 shares; issued 3,791,814 shares 3,792 3,792
Retained earnings 37,088 33,662
Accumulated other comprehensive (loss) (1,110) (2,248)
Treasury stock at cost--323,180 shares (700) (700)
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Total stockholders' equity 39,070 34,506
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Total liabilities and stockholders' equity $ 482,949 $ 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands, Except Share Data)
INTEREST INCOME
Loans, including fees $ 7,158 $ 5,315 $20,941 $15,474
Federal funds sold and repurchase agreements 218 41 421 248
Securities:
Taxable 1,005 736 2,541 2,146
Tax exempt 720 669 2,063 2,005
------- ------- ------- -------
Total interest income 9,101 6,761 25,966 19,873
INTEREST EXPENSE
Deposits 4,147 2,603 11,270 7,854
Short-term borrowings 379 303 1,014 902
Long-term borrowings 474 397 1,576 1,180
------- ------- ------- -------
Total interest expense 5,000 3,303 13,860 9,936
------- ------- ------- -------
NET INTEREST INCOME 4,101 3,458 12,106 9,937
Provision for loan losses 260 150 460 450
------- ------- ------- -------
Net interest income after provision for loan losses 3,841 3,308 11,646 9,487
OTHER OPERATING INCOME
Trust service fees 123 126 384 379
Service charges on deposit accounts 266 229 781 685
Loan servicing income 93 70 281 251
Gain on sales of mortgage loans held for sale 9 23 30 120
Other 96 92 297 249
------- ------- ------- -------
Total other operating income 587 540 1,773 1,684
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,508 1,031 4,361 3,212
Occupancy 426 338 1,210 856
Data processing 202 181 652 511
Postage, stationery and supplies 98 86 370 284
Amortization of goodwill and other intangibles 112 40 336 120
Other 468 389 1,497 1,145
------- ------- ------- -------
Total other operating expense 2,814 2,065 8,426 6,128
------- ------- ------- -------
Income before income tax expense 1,614 1,783 4,993 5,043
Income tax expense 263 365 891 992
------- ------- ------- -------
NET INCOME $ 1,351 $ 1,418 $ 4,102 $ 4,051
======= ======= ======= =======
Earnings per share: basic and diluted $ 0.39 $ 0.41 $ 1.18 $ 1.17
(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)
Nine Months Ended September 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 4,051 0 0 4,051
Other comprehensive (loss) income:
Unrealized holding loss arising
during period 0 0 0 (3,836) (3,836)
Income tax effect 0 0 0 1,325 1,325
-------
Comprehensive income $ 1,540
Cash dividends ($ .18 per share) 0 (624) 0 0 (624)
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BALANCE AT SEPTEMBER 30, 1999 $3,792 $ 33,045 ($700) $ (1,336) $34,801
Nine Months Ended September 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 4,102 0 0 4,102
Other comprehensive (loss) income:
Unrealized holding gain arising
during period 0 0 0 1,739 1,739
Income tax effect 0 0 0 (601) (601)
------
Comprehensive income $ 5,240
Cash dividends ($ .195 per share) 0 (676) 0 0 (676)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 $3,792 $37,088 ($700) ($1,110) $39,070
(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)
Nine Months Ended
September 30,
-------------
2000 1999
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,102 $ 4,051
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 460 450
Depreciation of premises and equipment 665 350
Amortization of intangible assets 336 120
Amortization of securities, net 9 8
Proceeds from sale of mortgage loans held for sale 10,596 21,279
Originations of mortgage loans held for sale (10,467) (21,039)
Gain on sales of mortgage loans held for sale (30) (120)
Undistributed income of joint venture (172) (93)
Decrease (increase) in accrued interest receivable and other assets (1,603) (2,521)
Increase in accrued interest payable and other liabilities 1,891 434
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Net cash provided by operating activities 5,787 2,919
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 12,248 36,072
Purchases of securities available for sale (22,373) (42,936)
Net increase in loans (25,125) (17,098)
Purchases of premises and equipment (1,321) (1,908)
Sales of premises and equipment 0 146
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Net cash used in investing activities (36,571) (25,724)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 15,821 (3,622)
Net increase (decrease) in securities sold under repurchase agreements 4,041 (1,401)
Proceeds from advances on borrowed funds 14,114 7,375
Repayments on advances from borrowed funds (20,000) 0
Dividends paid (676) (631)
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Net cash provided by (used in) financing activities 13,300 1,721
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Net decrease in cash and cash equivalents (17,484) (21,084)
Cash and cash equivalents at beginning of period 40,716 30,838
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Cash and cash equivalents at end of period $ 23,232 $ 9,754
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,280 $ 10,053
Income taxes 783 1,233
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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 $ 169
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(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 September 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)
September 30, 2000
Amortized Cost Fair Value
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U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 16,656 $ 16,419
Obligations of states and political subdivisions 59,598 59,281
Mortgage-backed securities 31,569 30,421
Corporate notes 947 936
Other securities 2,536 2,536
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Total $111,306 $109,593
======== ========
December 31, 1999
Amortized Cost Fair Value
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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
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Total $ 101,047 $97,595
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NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(Dollars In Thousands)
September 30, 2000 December 31, 1999
Percent of Percent of
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
Commercial and Agricultural $ 98,485 30.45% $ 93,550 31.33%
Commercial Real Estate 75,280 23.28% 69,248 23.19%
Residential Real Estate 126,659 39.17% 114,176 38.23%
Consumer 21,507 6.65% 20,199 6.76%
Other 1,460 .45% 1,467 .49%
-------- ------- -------- -------
Total $323,391 100.00% $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 Nine For the Nine
Months Ended Months Ended
September 30, September 30,
2000 1999
---- ----
(In Thousands)
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Balance at beginning of period $3,700 $3,124
Provision charged to expense 460 450
Charge-offs (325) (403)
Recoveries 50 23
------ ------
Balance at end of period $3,885 $3,194
====== ======
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 Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net Income $1,351 $1,418 $4,102 $4,051
EPS-Basic & Diluted $ .39 $ .41 $ 1.18 $ 1.17
Return on Average Assets 1.18% 1.53% 1.19% 1.46%
Return on Average Equity 15.51% 16.42% 15.72% 15.73%
- ----------------------------------------------------------------------------------------------------------
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 nine months ended September 30, 2000 and 1999.
Net income for the three months ended September 30, 2000 was $1,351,000 compared
to $1,418,000 for the three months ended September 30, 1999, a decrease of
$67,000, or 4.72%. Interest income increased $2,340,000 primarily as a result of
the increase in loans from the Dairy acquisition and an increase in yields.
Interest expense increased $1,697,000 primarily as a result of the increase in
deposits from the Dairy acquisition, and an increase in interest rates. Other
operating income increased $47,000 primarily as a result of an increase in
service charges from the additional deposit accounts obtained in the Dairy
acquisition and an increase in loan servicing income. Other operating expense
increased $749,000. 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.
Net income for the nine months ended September 30, 2000 was $4,102,000 compared
to $4,051,000 for the nine months ended September 30, 1999, an increase of
$51,000 or 1.26%. Interest income increased $6,093,000 primarily due to the
increase in loans from the Dairy acquisition and an increase in interest yields.
Interest expense increased $3,924,000 primarily due to the increase in deposits
from the Dairy acquisition and an increase in interest rates. Other operating
income increased $89,000 primarily as a result of an increase in service charges
on deposit accounts and an increase in loan servicing income. Other operating
expense increased $2,298,000, 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 nine months ended September 30, 2000 was $1.18
compared to $1.17 for the nine months ended September 30, 1999.
Return on average assets (ROA) on an annualized basis for the first nine months
of 2000 was 1.19% compared to 1.46% for the first nine months in 1999. Return on
average equity (ROE) on an annualized basis for the first nine months of 2000
was 15.72% compared to 15.73% for the first nine months of 1999.
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Average Balances, Yield and Rates
For the three months For the three months
ended September 30, 2000 ended September 30, 1999
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS
Interest earning assets:
Federal funds sold $ 13,483,000 $ 205,383 6.04% $ 2,003,000 $ 40,998 8.12%
Investment securities 106,880,000 2,001,275 7.43% 100,034,000 1,752,133 6.95%
Loans 319,512,000 7,358,806 9.14% 240,480,000 5,390,475 8.89%
----------- ----------- ----------- -----------
Total interest earning assets $439,875,000 $9,565,464 8.63% $342,517,000 $7,183,606 8.32%
Other assets 37,103,000 21,386,000
----------- -----------
TOTAL ASSETS $476,978,000 $363,903,000
=========== ===========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $321,796,000 $4,139,802 5.10% $233,927,000 $2,607,295 4.42%
Repurchase agreements 24,837,000 372,669 5.95% 23,607,000 279,745 4.70%
Federal funds purchased 19,000 367 7.84% 894,000 9,107 4.04%
Borrowings 30,948,000 490,527 6.29% 29,613,000 411,398 5.51%
----------- ----------- ----------- -----------
Total interest-bearing liabilities $377,600,000 $5,003,365 5.26% $288,041,000 $3,307,545 4.56%
Demand deposits $ 55,833,000 39,300,000
Other liabilities 5,753,000 3,591,000
----------- -----------
Total liabilities $439,186,000 $330,932,000
Stockholders' equity 37,792,000 32,971,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $476,978,000 $363,903,000
=========== ===========
Net interest income and
interest rate spread $4,562,099 3.37% $3,876,061 3.77%
Net interest income as
a percent of earning assets (annualized) 4.12% 4.49%
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Average Balances, Yield and Rates
For the nine months For the nine months
ended September 30, 2000 ended September 30, 1999
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS
Interest earning assets:
Federal funds sold $ 8,319,000 $ 381,610 6.13% $ 5,290,000 $ 247,642 6.26%
Investment securities 102,364,000 5,715,366 7.46% 101,273,000 5,193,222 6.86%
Loans 311,877,000 21,172,177 9.08% 234,814,000 15,669,838 8.92%
----------- ----------- ----------- -----------
Total interest earning assets $422,560,000 $27,269,153 8.60% $341,377,000 $21,110,702 8.27%
Other assets 37,333,000 19,712,000
----------- -----------
TOTAL ASSETS $459,893,000 $361,089,000
=========== ===========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $307,083,000 $11,269,627 4.90% $233,221,000 $ 7,869,379 4.51%
Repurchase agreements 21,984,000 920,418 5.60% 23,365,000 832,493 4.76%
Federal funds purchased 1,158,000 51,821 5.96% 1,086,000 33,890 4.17%
Borrowings 36,227,000 1,628,142 6.00% 29,530,000 1,214,906 5.50%
----------- ----------- ----------- -----------
Total interest-bearing liabilities $366,452,000 $13,870,008 5.04% $287,202,000 $ 9,950,668 4.63%
Demand deposits $ 52,444,000 37,434,000
Other liabilities 5,010,000 3,502,000
----------- -----------
Total liabilities $423,906,000 $328,138,000
Stockholders' equity 35,987,000 32,951,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $459,893,000 $361,089,000
=========== ===========
Net interest income and
interest rate spread $13,399,145 3.56% $11,160,034 3.64%
Net interest income as
a percent of earning assets (annualized) 4.22% 4.37%
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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 nine months ended September 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%.
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999:
Net interest income (on a tax equivalent basis) for the three months ended
September 30, 2000 increased by $686,038 or 17.70% compared to the three months
ended September 30, 1999. Interest income increased $2,381,858 primarily as a
result of the increase in loans from the Dairy acquisition and an increase in
yields. For the third quarter of 2000, the average balance for the loans
acquired from Dairy was $53,136,000. Total average loans increased from
$240,480,000 for the third quarter of 1999 to $319,512,000 for the third quarter
of 2000 while interest rates on loans increased from 8.89% for the third quarter
of 1999 to 9.14% for the third quarter of 2000. Interest expense increased
$1,695,820 primarily as a result of the increase in deposits from the Dairy
acquisition, and an increase in interest rates on deposits. For the third
quarter of 2000, the average balance for the deposits acquired from Dairy was
$61,448,000. Total average interest-bearing deposits increased from $233,927,000
for the third quarter of 1999 to $321,796,000 for the third quarter of 2000
while interest rates paid on interest-bearing deposits increased from 4.42% for
the third quarter of 1999 to 5.10% for the third 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
3.37% for the three months ended September 30, 2000, a decrease of 40 basis
points from the interest rate spread of 3.77% for the three months ended
September 30, 1999.
Net interest margin for the three months ended September 30, 2000 was 4.12%
compared with 4.49% for the three months ended September 30, 1999.
YTD THIRD QUARTER 2000 COMPARED TO YTD THIRD QUARTER 1999:
Net interest income (on a tax equivalent basis) for the nine months ended
September 30, 2000 increased by $2,239,111 or 20.06% compared to the nine months
ended September 30, 1999. Interest income increased $6,158,451 primarily as a
result of the increase in loans from the Dairy acquisition and an increase in
interest yields. For the nine months ended September 30, 2000, the average
balance for the loans acquired from Dairy was $53,455,000. Total average loans
increased from $234,814,000 for the first nine months of 1999 to $311,877,000
for the first nine months of 2000, while interest rates on loans increased from
8.92% to 9.08% for the respective periods. Interest expense increased $3,919,340
primarily as a result of the increase in deposits from the Dairy acquisition.
For the first nine months of 2000, the average balance for the deposits acquired
from Dairy was $60,110,000. Total average interest bearing deposits increased
from $233,221,000 for the first nine months of 1999 to $307,083,000 for the
first nine months of 2000, while interest rates paid on those deposits increased
from 4.51% in the first nine months of 1999 to 4.90% in the first nine months of
2000. The interest rate spread was 3.56% for the nine months ended September 30,
2000, a decrease of 8 basis points from the interest rate spread of 3.64% for
the nine months ended September 30, 1999.
Net interest margin for the nine months ended September 30, 2000 was 4.22%
compared with 4.37% for the nine months ended September 30, 1999.
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PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended September 30, 2000, the Bank charged $260,000 to
expense for the provision for loan loss compared to $150,000 for the three
months ended September 30, 1999.
Allowance for Loan Losses
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $3,770 $3,373 $3,700 $3,124
Charge-offs (172) (334) (325) (403)
Recoveries 27 5 50 23
----- ----- ----- -----
Net (charge-offs) (145) (329) ( 275) (380)
Provision for loan losses 260 150 460 450
----- ----- ----- -----
Balance at end of period $3,885 $3,194 $3,885 $ 3,194
===== ===== ===== =====
Ratio of net charge-offs during period to
average loans outstanding during period .05% .14% .09% .16%
Ratio of allowance for loan losses
to total loans 1.20% 1.28% 1.20% 1.28%
- -------------------------------------------------------------------------------------------------------------------
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 September 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)
September 30, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Specific Problem Loans $ 820 $ 694
Loan Type Allocation:
Commercial & Agricultural 2,558 2,069
Commercial Real Estate 352 192
Residential Real Estate 35 72
Consumer 85 49
----- -----
3,030 2,382
Unallocated 35 624
----- -----
Total Reserve $3,885 $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 September 30, 2000 were $2,140,000, an increase of
$501,000 from December 31, 1999. The following table presents nonperforming and
nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Nonaccrual Loans $2,027 $1,618
Accruing Loans Past Due 90 days or More 113 21
----- -----
Total Nonperforming Loans $2,140 $1,639
Nonperforming Loans as a Percent of Loans .66% .55%
- -------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME
Other Operating Income
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Trust Service Fees $123 $126 $ 384 $ 379
Service Charges on Deposit Accounts 266 229 781 685
Loan Servicing Income 93 70 281 251
Gain on Sales of Mortgage Loans Held for Sale 9 23 30 120
Other 96 92 297 249
--- --- ----- -----
Total Other Operating Income $587 $540 $1,773 $1,684
- -------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999:
Other operating income for the third quarter of 2000 was $587,000 compared to
$540,000 for the third quarter of 1999, an increase of $47,000 or 8.7%. The
increase resulted primarily from increased service charges from the additional
deposit accounts obtained in the Dairy acquisition and an increase in loan
servicing income. 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 third quarter
2000 due to interest rate increases.
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YTD THIRD QUARTER 2000 COMPARED TO YTD THIRD QUARTER 1999:
Other operating income for the nine months ended September 30, 2000 was
$1,773,000 compared to $1,684,000 for the nine months ended September 30, 1999,
an increase of $89,000 or 5.29%. The increase resulted primarily from increased
service charges from the additional deposit accounts obtained in the Dairy
acquisition, an increase in loan servicing income, 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 nine months of 2000, due to interest rate increases.
OTHER OPERATING EXPENSE
Other Operating Expense
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Salaries and Employee Benefits $1,508 $1,031 $4,361 $3,212
Occupancy 426 338 1,210 856
Data Processing 202 181 652 511
Postage, Stationery and Supplies 98 86 370 284
Amortization of Goodwill and Other Intangibles 112 40 336 120
Other 468 389 1,497 1,145
----- ----- ----- -----
Total Other Operating Expense $2,814 $2,065 $8,426 $6,128
- -------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999:
Other operating expense for the third quarter of 2000 was $2,814,000 compared to
$2,065,000 for the third quarter of 1999, an increase of $749,000, or 36.27%.
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 THIRD QUARTER 2000 COMPARED TO YTD THIRD QUARTER 1999:
Other operating expense for the first nine months of 2000 was $8,426,000
compared to $6,128,000 for the first nine months of 1999, an increase of
$2,298,000 or 37.50%. 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 September 30, 2000 was 16.29%
compared to 20.47% for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, the effective tax rate was 17.84% compared to
19.67% for the nine months ended September 30, 1999. The decrease in effective
tax rates in both periods 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
SEPTEMBER 30, 2000 COMPARED TO DECEMBER 31, 1999
The Corporation's total assets increased from $462.5 million at December 31,
1999 to $482.9 million at September 30, 2000. Cash and federal funds sold
decreased $17.5 million while loans increased $24.8 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 $15.8 million to $379.1 million at September 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 September 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
(Dollars In Thousands, Except Share Data)
- -------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $39,069 $ 34,506
Tier 1 Capital to Risk Weighted Assets-Period End 9.4% 8.6%
Total Capital to Risk Weighted Assets-Period End 10.5% 9.8%
Tier 1 Leverage Ratio-Period End 6.6% 6.9%
Dividends Per Share-This Quarter $0.065 $ 0.075
Dividends Per Share-Year to Date 0.195 0.255
Earnings Per Share-This Quarter $ 0.39 $ 0.250
Earnings Per Share-Year to Date 1.18 1.420
Dividend Payout Ratio-This Quarter 16.67% 30.00%
Dividend Payout Ratio-Year to Date 16.53% 17.96%
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity increased $4.6 million from $34.5 million at December
31, 1999 to $39.1 million at September 30, 2000. Net income for the nine month
period ending September 30, 2000 was $4.1 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 September 30, 2000 and December 31, 1999, that the
Bank meets all capital adequacy requirements to which it is subject.
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As of September 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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27.1 Financial Data Schedule
b) Reports on Form 8-K:
On September 19, 2000, the Corporation filed Form 8-K regarding
"Changes in Registrant's Certifying Accountant." On August 22, 2000,
the Board of Directors of the Registrant determined not to retain KPMG
LLP, to audit the Registrant's financial statements for the year ending
December 31, 2000. The decision was recommended by the Audit Committee
of the Board of Directors and unanimously approved by the Board. The
firm of Wipfli Ullrich Bertelson LLP, Wausau, Wisconsin, has been
engaged to perform an audit of the Registrant's financial statements
for the fiscal year ending December 31, 2000 and to provide other
accounting services. The reason for the decision was solely the
Registrant's desire to retain a firm which would be more cost effective
for a bank holding company of Registrant's size.
There were no other reports on Form 8-K filed for the quarter ended
September 30, 2000.
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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: November 8, 2000 /s/ Thomas J. Bare
--------------------------------
Thomas J. Bare
President
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