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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO
SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
FISCAL YEAR ENDED
DECEMBER 31, 2000
FIRST MANITOWOC BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-1435359
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
402 NORTH EIGHTH STREET
MANITOWOC, WISCONSIN 54221-0010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 684-6611
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00
(Title of Class)
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 preceeding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
As of February 28, 2001, 3,468,634 shares of Common Stock were outstanding,
and the aggregate market value of the Common Stock held by non-affiliates
(excludes a total of 538,996 shares reported as beneficially owned by directors
and executive officers or held in the registrant's profit sharing 401(k) plan;
does not constitute an admission as to affiliate status) was approximately
$78,368,000.
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2000 FORM 10-K
TABLE OF CONTENTS
DESCRIPTION PAGE NO.
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PART I
ITEM 1. Business.................................................... 2
ITEM 2. Properties.................................................. 7
ITEM 3. Legal Proceedings........................................... 8
ITEM 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
ITEM 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 8
ITEM 6. Selected Financial Data..................................... 10
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
ITEM 7A Quantitative and Qualitative Disclosures about Market
Risk........................................................ 21
ITEM 8. Financial Statements and Supplementary Data................. 23
ITEM 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure........................................ 44
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 44
ITEM 11. Executive Compensation...................................... 45
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 45
ITEM 13. Certain Relationships and Related Transactions.............. 45
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 46
Signatures................................................................. 47
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PART I
ITEM 1
BUSINESS
GENERAL
First Manitowoc Bancorp, Inc. (the "Company"), a Wisconsin corporation
incorporated on April 9, 1982, became a registered bank holding company on
November 16, 1982 under the Bank Holding Company Act of 1956, as amended
("BHCA"). The Company engages in its business through its sole subsidiary, First
National Bank in Manitowoc (the "Bank"), a national banking association. The
Bank has a wholly owned investment subsidiary, FNBM Investment Corp. (FNBM
Investment Corp.). The Company acquired the Bank through the merger of the Bank
into an interim national banking association formed as a Company subsidiary for
the purpose of the merger, pursuant to a Plan of Reorganization and Agreement to
Merge (the "Plan") proposed by Bank management and approved by the Bank's
shareholders on June 12, 1982. Pursuant to the Plan, each outstanding share of
Bank common stock was exchanged for three shares of the Company's common stock.
The Bank's charter was not affected by the merger. Currently, the Company has
outstanding 3,468,634 shares of common stock, par value $1.00 per share
("Shares"). Shares were held by 588 holders of record on February 28, 2001.
On August 19, 1999, First Manitowoc Bancorp, Inc. (the "Registrant")
entered into an Agreement and Plan of Merger (the "Agreement") with Dairy State
Financial Services, Inc. ("Dairy State"), providing for the merger (the
"Merger") of Dairy State with a wholly owned subsidiary of Registrant. Following
the Merger, Dairy State was liquidated and Dairy State Bank, located in
Plymouth, Wisconsin, Dairy State's Wisconsin chartered bank subsidiary,
effective December 1, 1999 merged (the "Bank Merger") with and into First
National Bank in Manitowoc, Registrant's national bank subsidiary.
According to the terms of the Agreement, as a result of the Merger, Dairy
State Shareholders received cash in the amount of $4,662.33 for each of the
2,900 shares of outstanding common stock of Dairy State or an aggregate of
$13,520,757.00. Registrant provided the consideration from internal funds and no
borrowings by Registrant from any source were involved.
The Merger and the Bank Merger involved the acquisition by Registrant and
First National Bank in Manitowoc, its wholly-owned subsidiary, of all of the
assets of Dairy State and Dairy State Bank consisting of premises and equipment,
cash, Federal funds sold, securities and loans totaling approximately $66.6
million subject to the liabilities of Dairy State and Dairy State Bank,
consisting primarily of deposits, totaling approximately $60 million. Registrant
has continued the business of banking at the locations of Dairy State Bank as
branches of First National Bank in Manitowoc.
The Company's and the Bank's main office is located at 402 North Eighth
Street, Manitowoc, Manitowoc County, Wisconsin. The Bank has twelve full service
branch offices located in Francis Creek, St. Nazianz, Two Rivers, Mishicot,
Manitowoc, Kiel, Newton, New Holstein, Plymouth, Bellevue, and Ashwaubenon,
Wisconsin.
As of December 31, 2000, the Bank had assets of approximately $495.4
million, net loans of approximately $322.7 million, and deposits of $394.6
million. For additional financial information, see the Consolidated Financial
Statements and Notes beginning at Item 8 of this Form 10-K.
BANKING PRODUCTS AND SERVICES
The Bank has been doing business in Wisconsin since 1894 and is engaged in
both the commercial and consumer banking business. The Bank provides a wide
range of personal banking services designed to meet the needs of local
consumers. Among the services provided are checking accounts, savings and time
accounts, safe deposit boxes, and installment and other personal loans,
especially residential mortgages, as well as home equity loans, automobile and
other consumer financing. As a convenience to its customers, the Bank offers
Saturday banking hours; drive-thru teller windows; "Telebanc," a telephone
banking service; and 24-hour automated teller machines. Additionally, the Bank
offers an Internet web site, including on-line banking via Netbanc.
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The Bank is also engaged in the financing of commerce and industry by
providing credit and deposit services for small to medium sized businesses and
for the agricultural community in the Bank's market area. The Bank offers many
forms of commercial lending, including lines of credit, revolving credit, term
loans, accounts receivable financing, and commercial real estate mortgage
lending and other forms of secured financing. A full range of commercial banking
services is offered, including the acceptance of checking and savings deposits.
Additional types of real estate loans, brokerage services, credit cards and
related services are also offered through correspondent banks or other third
parties.
The Bank offers a full range of trust services that include trust under
agreement, testamentary trust, guardianships and conservatorships, probate
estates and estate planning. In addition, the Bank added financial planning to
its trust services in 1998.
To attract new business and retain existing customers, the Bank relies on
local promotional activity, personal contact by its officers, staff and
directors, referrals by current customers, extended banking hours, and
personalized service.
DEPOSIT ACTIVITIES
The Bank continues to gain market share of deposits in Manitowoc,
Sheboygan, Calumet and Brown Counties. From December 31, 1999 to December 31,
2000, deposits increased $31.3 million or 8.6% to $394.6 million. From December
31, 1998 to December 31, 1999, deposits increased $86.8 million or 31.4% to
$363.3 million. This increase includes deposits of $60 million from the Dairy
State acquisition.
No material portion of the Bank's deposits has been obtained from an
individual or a few individuals (including federal, state and local governments
and agencies) the loss of any one or more of which would have a materially
adverse effect on the Bank.
LENDING ACTIVITIES
The Bank has experienced growth in the number and dollar amount of loans as
a result of relatively low interest rates and general marketing efforts. Loans
sold and serviced for others are not included in these growth numbers. Loan
portfolio growth from December 31, 1999 to December 31, 2000 was $27.8 million
or 9.4%. In 2000, the amount of loans sold and serviced for others increased by
$8.6 million compared to 1999. The loan portfolio reflected $69.7 million or
30.5% growth in 1999. In 1999, the Bank increased the amount of loans sold and
serviced for others by $16.6 million, an increase of 33.9%. Loan growth in 1999
includes $53.6 million from the Dairy State acquisition. No material portion of
the Bank's loans is concentrated within a single industry or group of related
industries.
BANK SERVICE CORPORATIONS
The Bank owns 49.8% of the outstanding common stock of United Financial
Services, Inc. United Financial Services, Inc., located in Grafton, Wisconsin,
provides data processing services to owner banks Baylake Bank and First National
Bank in Manitowoc and to 52 other banks located in Wisconsin.
The Bank owns 100% of the outstanding common stock of FNBM Investment Corp.
FNBM Investment Corp., located in Las Vegas, Nevada, holds and manages a portion
of the bank's investment and loan portfolios.
SEASONALITY
The management of the Bank does not believe that the deposits or business
of the Bank in general are seasonal in nature. The deposits may, however, vary
with local and national economic conditions but not enough to have a material
effect on planning and policy making.
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FOREIGN OPERATIONS
The Bank does not engage in operations in foreign countries.
EMPLOYEES
As of February 28, 2001, the Bank employed 198 individuals, 82 of whom
worked part-time.
COMPETITION
The Bank offers many personalized services and attracts customers by being
responsive and sensitive to the needs of the community. The Bank relies on
goodwill and referrals from satisfied customers as well as traditional media
advertising to attract new customers. To enhance a positive image in the
community, the Bank supports and participates in many local events, such as the
Manitowoc County Fair, Manitowoc County Airport Day, First National Bank
Maritime Bay Bike Classic, Two Rivers Ethnic Festival and French Creek Days.
Employees, officers, and directors represent the Bank on many boards and local
civic and charitable organizations.
The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. Competition in the
Bank's market area may be expected to continue for the foreseeable future.
SUPERVISION AND REGULATION
General. The Company and the Bank are extensively regulated under federal
and state law. Generally, these laws and regulations are intended to protect
depositors, not stockholders. The following is a summary description of certain
provisions of certain laws which affect the regulation of bank holding companies
and banks. The discussion is qualified in its entirety by reference to
applicable laws and regulation. Changes in such laws and regulations may have a
material effect on the business and prospects of the Company and the Bank.
Financial Modernization Act. On November 12, 1999 President Clinton signed
into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Modernization Act").
The Financial Modernization Act revises the BHCA and repeals the two affiliation
provisions of the Glass-Steagall Act of 1933. As a result, a qualifying holding
company may become a financial holding company and engage in a full range of
financial activities, including banking, insurance and securities activities, as
well as merchant banking and additional activities that are determined by the
Federal Reserve to be "financial in nature or incidental to such financial
activity or are complimentary to a financial activity" so long as such
activities do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system in general. Activities that are
considered to be financial in nature include underwriting and dealing in
securities and underwriting and brokering of insurance products.
Federal Bank Holding Company Regulation and Structure. The Company is a
bank holding company within the meaning of the BHCA, as amended, and as such, it
is subject to regulation, supervision, and examination by the Federal Reserve
Board ("FRB"). The Company is required to file annual and quarterly reports with
the FRB and to provide the FRB with such additional information as the FRB may
require. The FRB may conduct examinations of the Company and its subsidiaries.
With certain limited exceptions, the Company is required to obtain prior
approval from the FRB before acquiring direct or indirect ownership or control
of more than 5% of any voting securities or substantially all of the assets of a
bank or bank holding company, or before merging or consolidating with another
bank holding company. Additionally, with certain exceptions, any person
proposing to acquire control through direct or
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indirect ownership of 25% or more of any voting securities of the Company is
required to give 60 days' written notice of the acquisition to the FRB, which
may prohibit the transaction, and to publish notice to the public.
Generally, a banking holding company may not engage in any activities other
than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the FRB, the Company may acquire more than 5% of the assets or outstanding
shares of a company engaging in non-bank activities determined by the FRB to be
closely related to the business of banking or of managing or controlling banks.
The FRB provides expedited procedures for expansion into approved categories of
non-bank activities.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries, on investments in their securities and on
the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for the payment of dividends,
interest and operating expenses. Further, subject to certain exceptions, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from itself or the Company, and may
not require that a customer promise not to obtain other services from a
competitor as a condition to and extension of credit to the customer.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary banks and to make capital injections into a
troubled subsidiary bank, and the FRB may charge the bank holding company with
engaging in unsafe and unsound practices for failure to commit resources to a
subsidiary bank when required. A required capital injection may be called for at
a time when the holding company does not have the resources to provide it.
Federal Bank Regulation. The Company's banking subsidiary is a
federally-chartered national bank regulated by the Office of Comptroller of
Currency ("OCC"). The OCC may prohibit the institutions over which it has
supervisory authority from engaging in activities or investments that the agency
believes constitutes unsafe or unsound banking practices. Federal banking
regulators have extensive enforcement authority over the institutions they
regulate to prohibit or correct activities which violate law, regulation or a
regulatory agreement or which are deemed to constitute unsafe or unsound
practices. Enforcement actions may include the appointment of a conservator or
receiver, the issuance of a cease and desist order, the termination of deposit
insurance, the imposition of civil money penalties on the institution, its
directors, officers, employees and institution-affiliated parties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the removal of or restrictions on directors, officers, employees and
institution-affiliated parties, and the enforcement of any such mechanisms
through restraining orders or other court actions.
The Bank is subject to certain restrictions on extensions of credit to
executive officers, directors, principal stockholders or any related interest of
such persons which generally require that such credit extensions be made on
substantially the same terms as are available to third persons dealing with the
Bank and not involve more than the normal risk of repayment. Other laws tie the
maximum amount which may be loaned to any one customer and its related interests
to capital levels.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the OCC, have adopted standards covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution which fails to meet those
standards may be required by the agency to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Company, on behalf of the Bank,
believes that it meets substantially all standards which have been adopted.
FDICIA also imposed new capital standards on insured depository institutions.
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Before establishing new branch offices, the Bank must meet certain minimum
capital stock and surplus requirements and the Bank must obtain OCC approval.
Deposit Insurance. As a FDIC member institution, the Bank's deposits are
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), administered by the FDIC, and each institution is required to pay
quarterly deposit insurance premium assessments to the FDIC. The BIF assessment
rates have a range of 0 cents to 27 cents for every $100 in assessable deposits.
Banks with no premium are subject to an annual statutory minimum assessment.
Capital Requirements. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit,
which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off balance sheet
items are multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities, to 100% for assets with relatively high credit risk, such as
business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
less goodwill and other intangibles, subject to certain exceptions. "Tier 2," or
supplementary capital, includes the allowance for loan and lease losses, subject
to certain limitations. Banks and bank holding companies subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1 capital
to risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31, 2000, the Bank's and the Company's ratio of Tier 1 to risk-weighted
assets was 9.6% and 10.0%, respectively. As of December 31, 2000, the Bank's and
the Company's ratio of total capital to risk-weighted assets was 10.7% and
11.2%, respectively. In addition to risk-based capital, banks and bank holding
companies are required to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage capital ratio, of at least 4%. As of
December 31, 2000, the Bank's and the Company's leverage capital ratio was 6.8%
and 7.0%, respectively.
Federal banking agencies include in their evaluations of a bank's capital
adequacy an assessment of the Bank's interest rate risk ("IRR") exposure. The
standards for measuring the adequacy and effectiveness of a banking
organization's interest rate risk management includes a measurement of board of
director and senior management oversight, and a determination of whether a
banking organization's procedures for comprehensive risk management are
appropriate to the circumstances of the specific banking organization. The Bank
has internal IRR models that are used to measure and monitor IRR.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the Company.
Federal Deposit Insurance Corporation Improvement Act of 1991. In December
1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), which substantially revised the bank regulatory and funding
provisions of the Federal Deposit Insurance Act and made significant revisions
to several other federal banking statutes. FDICIA provides for, among other
things, (i) publicly available annual financial condition and management reports
for financial institutions, including audits by independent accountants, (ii)
the establishment of uniform accounting standards by federal banking agencies,
(iii) the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with more scrutiny
and restrictions placed on depository
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institutions with lower levels of capital, (iv) additional grounds for the
appointment of a conservator or receiver, and (v) restrictions or prohibitions
on accepting brokered deposits, except for institutions which significantly
exceed minimum capital requirements. FDICIA also provided for increased funding
of the FDIC insurance funds and the implementation of risked-based premiums. See
"-- Deposit Insurance."
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-
tiered system for measuring the capital adequacy of the depository institutions
that they supervise. Under these regulations, a depository institution is
classified in one of the following capital categories: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." The Bank is classified as "well capitalized"
at December 31, 2000. An institution may be deemed by the regulators to be in a
capitalization category that is lower than is indicated by its actual capital
position if, among other things, it receives an unsatisfactory examination
rating with respect to asset quality, management, earnings or liquidity.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
Monetary Policy. The earnings of a bank holding company are affected by
the policies of regulatory authorities, including the FRB, in connection with
the FRB's regulation of the money supply. Various methods employed by the FRB
are open market operations in United States Government securities, changes in
the discount rate on member bank borrowing and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. Because of ongoing change in the national economy and in the money
markets, as well as the effect of monetary and fiscal policies of the Federal
Reserve System and Federal government, prediction cannot be made as to future
changes in interest rates, loan demand, deposit levels or the effect on the
earnings of the company.
ITEM 2
PROPERTIES
The Company owns real property at two branch locations at:
1509 Washington Street, Two Rivers, Wisconsin 54241 ("Two Rivers Branch
Office"); and
2915 Custer Street, Manitowoc, Wisconsin 54220 ("Custer Street Branch
Office").
The Bank owns real property at the location of its main office at 402 North
Eighth Street, Manitowoc, Wisconsin 54220; and at nine of its branch locations
at:
106 South Packer Drive, Francis Creek, Wisconsin 54214 ("Francis Creek
Branch Office");
109 South Fourth Avenue, St. Nazianz, Wisconsin 54232 ("St. Nazianz
Branch Office");
110 Baugniet Street, Mishicot, Wisconsin 54228 ("Mishicot Branch
Office");
108 Fremont Street, Kiel, Wisconsin 53042 ("Kiel Branch Office");
5724 CTH U, Newton, Wisconsin 53063 ("Newton Branch Office");
2210 Calumet Drive, New Holstein, Wisconsin 53061 ("New Holstein Branch
Office");
2323 Eastern Avenue, Plymouth, Wisconsin 53073 ("Plymouth East Branch
Office");
300 East Mill Street, Plymouth, Wisconsin 53073 ("Plymouth West Branch
Office"); and
2747 Manitowoc Road, Green Bay, Wisconsin 54311 ("Bellevue Branch
Office").
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The Bank leases real property at one branch location:
2865 South Ridge Road, Green Bay, Wisconsin, 54304 ("Ashwaubenon Branch
Office").
There are no encumbrances on any of these properties.
ITEM 3
LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal
course of its business. While the ultimate outcome of these various legal
proceedings cannot be predicted with certainty, it is the opinion of management
and through consultation with legal counsel that the resolution of these legal
actions will not have a material effect on the Company's consolidated financial
condition or results of operations.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for the Company's Shares.
Accordingly, there is no comprehensive record of trades or the prices of any
such trades. The following tables reflect stock prices for Company Shares to the
extent such information is made known and available to management of the
Company, and the dividends declared with respect thereto during the preceding
two years.
2000
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1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- --------------- --------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- --- ---- ---
$21.50.. $20.50 $23.00 $21.50 $25.00 $23.00 $25.50 $25.00
1999
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1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- --------------- --------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- --- ---- ---
$16.80 $16.80 $18.88 $17.50 $19.25 $18.88 $20.50 $19.25
All market information shown above has been restated for stock dividends
and stock splits.
CASH DIVIDENDS
2000
- -------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
- ----------- ----------- ----------- ----------- -----
$0.065 $0.065 $0.065 $0.085 $0.28
1999
- --------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
- ----------- ----------- ----------- ----------- -----
$0.06 $0.06 $0.06 $0.075 $0.255
All cash dividends shown above have been restated for stock dividends and
stock splits.
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HOLDERS
As of February 28, 2001 there were 588 holders of record of the Company's
Shares.
DIVIDENDS
The Company declared and paid cash dividends per share totaling $0.28 per
share or $971,000 during 2000, and $0.255 per share or $885,000 during 1999.
The holders of the Company's Shares will be entitled to dividends, when,
as, and if declared by the Company's Board of Directors, subject to the
restrictions imposed by Wisconsin law. The only statutory limitation applicable
to the Company is that dividends may not be paid if the Company is insolvent or
if the dividend would cause the Company to become insolvent. Currently, its only
source of income is from the dividends paid by the Bank to the Company.
Therefore, the dividend restrictions applicable to national banks will impact
the Company's ability to pay dividends.
Under the National Bank Act, dividends may be paid only out of retained
earnings as defined in the statute. The approval of the OCC is required if the
dividends for any year exceed the net profits, as defined, for that year plus
the retained net profits for the preceding two years. In addition, unless a
national bank's capital surplus equals or exceeds the stated capital for its
common stock, no dividends may be declared unless the bank makes transfers from
retained earnings to capital surplus.
There are no contractual restrictions that currently limit the Company's
ability to pay dividends or that the Company reasonably believes are likely to
limit materially the future payment of dividends on the Company's Shares.
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ITEM 6
SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and the related notes and with
the Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations, provided elsewhere herein.
2000 1999 1998 1997 1996
FOR THE YEAR ---- ---- ---- ---- ----
Interest income.................... $ 34,979 $ 27,097 $ 26,819 $ 25,162 $ 21,088
Interest expense................... 18,995 13,602 14,152 13,136 10,604
Net interest income................ 15,984 13,495 12,667 12,026 10,483
Provision for loan losses.......... 1,065 851 800 600 430
Net interest income after provision
for loan losses.................. 14,919 12,644 11,867 11,426 10,053
Other operating income............. 2,711 2,357 2,019 1,570 1,423
Other operating expense............ 11,428 9,077 8,052 7,404 6,553
Net income......................... 5,301 4,928 4,601 4,164 3,605
Per Share Data:*
Net income -- basic and diluted.... $ 1.53 $ 1.42 $ 1.33 $ 1.20 $ 1.04
Cash dividends declared............ $ 0.28 $ 0.255 $ 0.23 $ 0.205 $ 0.18
Book value......................... $ 11.95 $ 9.95 $ 9.77 $ 8.52 $ 7.33
Weighted average shares
outstanding...................... 3,468,634 3,468,634 3,468,634 3,468,634 3,468,634
AT YEAR END
Total assets....................... $ 495,410 $ 462,518 $ 367,828 $ 348,907 $ 300,420
Loans.............................. 326,571 298,640 228,917 226,067 203,537
Allowance for loan losses.......... 3,824 3,700 3,124 2,608 2,080
Investment securities.............. 116,852 97,595 97,197 85,578 76,403
Deposits........................... 394,601 363,286 276,495 260,466 232,766
Borrowed funds..................... 23,000 38,000 28,802 31,572 18,431
Stockholders' equity............... 41,461 34,506 33,892 29,541 25,425
AVERAGE BALANCES
Assets............................. $ 472,285 $ 390,092 $ 355,019 $ 331,984 $ 278,406
Deposits........................... 373,035 293,575 267,332 246,987 222,520
Stockholders' equity............... 37,455 34,572 32,374 27,895 24,174
FINANCIAL RATIOS
Return on average assets........... 1.12% 1.26% 1.30% 1.25% 1.30%
Return on average equity........... 14.15% 14.25% 14.21% 14.93% 14.91%
Average equity to average assets... 7.93% 8.86% 9.12% 8.40% 8.68%
Dividend payout ratio.............. 18.32% 17.96% 17.36% 17.08% 17.31%
- -------------------------
* Per share data for 1996 through 2000 is restated to reflect the 25% stock
dividends (five for four stock split) effective April 11, 1997 and April 16,
1999, and the two for one stock split effective June 30, 2000.
10
12
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Balance Sheet Analysis
December 31, 2000 compared to December 31, 1999
During the past twelve month period from December 31, 1999 to December 31,
2000, total assets increased $32.9 million or 7.1%. Investment securities
increased $19.2 million while loans increased $27.9 million.
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 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. Refer
to Note 2 in the Consolidated Financial Statements for a table showing the
maturity distribution of the Bank's securities portfolio and the related
estimated fair value. 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
satisfactory levels. See Note 9 in the Consolidated Financial Statements.
Capital Resources and Adequacy
Total stockholders' equity increased $7.0 million or 20.2% in 2000 to $41.5
million at the end of the year from $34.5 million at December 31, 1999. Net
income of $5.3 million, an increase of $2.6 million in accumulated other
comprehensive income less $971,000 dividends paid, primarily contributed to this
increase. Total stockholders' equity as of December 31, 1999 increased $614,000
from December 31, 1998.
One measure of capital adequacy is the leverage ratio which is calculated
by dividing average total assets for the most recent quarter into Tier 1
capital. The regulatory minimum for this ratio is 4%. The leverage ratio for the
years ended December 31, 2000, 1999, and 1998 was 6.8%, 6.9%, and 8.5%,
respectively.
Another measure of capital adequacy is the risk based capital ratio or the
ratio of total capital to risk adjusted assets. Total capital is composed of
both core capital (Tier 1) and supplemental capital (Tier 2) including
adjustments for off balance sheet items such as letters of credit and taking
into account the different degrees of risk among various assets. Regulators
require a minimum total risk based capital ratio of 8%. The Bank's ratio at
December 31, 2000, and for each of the two preceding years was 10.7%, 9.8%, and
13.6%, respectively. According to FDIC capital guidelines, the Bank is
considered to be "well capitalized" as of December 31, 2000.
Management knows of no other trend or event which will have a material
impact on capital. Please also refer to Note 12 in the Consolidated Financial
Statements for additional discussion of regulatory matters.
The following discussion is designed to provide a better understanding of
the results of operations of the Company and should be read in conjunction with
the Consolidated Financial Statements and Notes.
Results of Operations Overview for fiscal years 2000, 1999 and 1998
The Company reported $5,301,000 in net income for 2000 or $1.53 per share
compared to 1999 net income of $4,928,000 or $1.42 per share, and $4,601,000 or
$1.33 per share for 1998. Earnings for the year
11
13
represent a record level of performance for the Company, exceeding the previous
record of $4,928,000 achieved in 1999. The improvement was primarily attributed
to growth in net interest income and other operating income, the Company's major
income components. Return on average assets was 1.12%, 1.26% and 1.30% in 2000,
1999 and 1998, respectively. Return on average equity was 14.15% for 2000,
14.25% for 1999, and 14.21% for 1998. The acquisition of Dairy State did not
have a material impact on the results of operations in 1999.
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 and interest-bearing deposits offset by the
interest paid on deposits and borrowings. 1999 and 2000 were characterized by
generally rising 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 income (on a tax equivalent basis) for 2000 increased by
$2,704,000 or 17.7% compared to the year ended December 31, 1999, while 1999 net
interest income increased by $1,186,000 or 8.4% from the previous year ended
December 31, 1998. The higher rate of increase for 2000 is largely the result of
increased volume of earning assets. Interest rate spread is the difference
between the average yield on interest earning assets and the average rate paid
on interest bearing liabilities (deposits). Interest rate spread for the years
ended December 31, 2000, 1999 and 1998 was 3.49%, 3.65%, and 3.50%,
respectively. See the Table 1 titled "Average Balances, Yields and Rates" for
additional information.
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. For 2000, the net interest margin decreased to 4.19% from 4.38%
in 1999. The net interest margin for 1999 increased to 4.38% from 4.27% the
previous year. These changes are the result of repricing as previously discussed
and illustrated in Table 2 "Rate and Volume Variance Analysis Based on Average
Balances."
Management and the Board of Directors of the Bank monitor interest rates on
a regular basis to assess the Bank's competitive position and to maintain a
reasonable and profitable interest rate spread. The Bank also considers the
maturity distribution of loans, investments, and deposits and its effect on net
interest income as interest rates rise and fall over time.
12
14
The following Tables 1 and 2 do not include financial data for the Company
as they include only Bank financial information. In Table 1, nonaccrual loans
have been included in the average balances, loan fees are included in interest
income and the yield on tax exempt loans and securities is computed on a
tax-equivalent basis using a tax rate of 34%.
AVERAGE BALANCES, YIELD AND RATES
TABLE 1
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------- ---------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
(IN THOUSANDS)
ASSETS
Interest earning assets:
Money market investments:
Federal funds sold...................... $ 7,257 $ 493 6.77% $ 6,486 $ 369 5.69% $ 8,774 $ 526 5.99%
Investment securities:
U.S. Treasury securities and obligations
of U.S. government agencies........... 43,649 3,032 6.95% 39,492 2,538 6.43% 38,103 2,594 6.81%
Tax-exempt obligations of States and
political subdivisions................ 55,691 4,244 7.62% 55,272 4,055 7.34% 48,580 3,602 7.41%
All other investment securities......... 5,876 521 8.86% 6,919 392 5.67% 3,932 196 5.00%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total investment securities............. 105,216 7,797 7.41% 101,683 6,985 6.87% 90,615 6,392 7.05%
Loans, net of unearned income:
Commercial loans........................ 102,897 11,379 11.06% 91,372 9,471 10.22% 88,242 9,500 10.77%
Mortgage loans.......................... 188,405 14,663 7.78% 132,000 10,143 7.68% 127,483 10,174 7.98%
Installment loans....................... 18,486 1,848 10.00% 12,323 1,269 10.30% 10,771 1,073 9.96%
Other loans............................. 5,261 795 15.10% 4,560 655 14.37% 4,064 600 14.76%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total loans............................. 315,049 28,685 9.10% 240,255 21,538 8.96% 230,560 21,347 9.26%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total Interest Earning Assets........... 427,522 36,975 8.62% 348,424 $28,892 8.29% 329,949 $28,265 8.57%
Cash and due from banks................. 12,385 10,275 8,702
Other assets............................ 27,739 13,965 11,299
Allowance for loan and lease losses..... (3,760) (3,240) (2,775)
-------- -------- --------
Total Assets............................ $463,886 $369,424 $347,175
======== ======== ========
LIABILITIES
Interest-bearing liabilities:
Savings Deposits........................ $ 39,998 $ 896 2.24% $ 27,443 $ 608 2.22% $ 26,061 $ 649 2.49%
Market Plus accounts.................... 61,229 2,922 4.76% 58,425 2,507 4.29% 46,153 2,183 4.73%
Super NOW accounts...................... 18,049 493 2.72% 13,234 279 2.10% 11,698 282 2.41%
Money market deposit accounts........... 18,612 916 4.91% 7,291 204 2.80% 6,383 182 2.85%
Certificates of deposit and IRA
deposits.............................. 173,799 10,347 5.94% 132,017 7,160 5.42% 137,887 8,103 5.88%
Repurchase agreements................... 23,250 1,329 5.72% 22,902 1,095 4.78% 21,355 1,111 5.20%
Federal funds purchased................. 932 54 5.83% 919 43 4.72% 53 3 5.82%
Borrowings.............................. 33,362 2,038 6.11% 31,241 1,720 5.51% 29,993 1,662 5.54%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total Int-Bearing Liabilities........... 369,231 18,995 5.13% 293,472 $13,616 4.64% 279,583 $14,175 5.07%
Demand deposits......................... 53,433 39,145 33,856
Other liabilities....................... 5,454 3,570 3,687
-------- -------- --------
Total liabilities....................... 428,118 336,187 317,126
Stockholders' equity.................... 35,768 33,237 30,049
-------- -------- --------
Total Liabilities and Stockholders'
Equity................................ $463,886 $369,424 $347,175
======== ======== ========
Net interest income and interest rate
spread................................ $17,980 3.49% $15,276 3.65% $14,090 3.50%
Net interest income as a percent of
earning assets........................ 4.19% 4.38% 4.27%
====== ====== ======
13
15
RATE AND VOLUME VARIANCE ANALYSIS
BASED ON AVERAGE BALANCES
TABLE 2
2000 COMPARED TO 1999 1999 COMPARED TO 1998
---------------------------- ------------------------------
INCREASE CHANGE DUE TO INCREASE CHANGE DUE TO
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ---- ------ ---------- ---- ------
(IN THOUSANDS)
INTEREST INCOME
Federal funds sold.............................. $ 124 $ 79 $ 45 $ (156) $ (19) $ (137)
------ ------ ------ ------ ------- -------
U.S. Treasury securities and obligations of U.S.
government agencies........................... 494 227 267 (56) (150) 94
Tax-exempt obligations of State and political
subdivisions.................................. 189 156 33 453 (43) 496
All other investment securities................. 129 187 (58) 195 46 149
------ ------ ------ ------ ------- -------
Total investment securities..................... 812 570 242 592 (147) 739
------ ------ ------ ------ ------- -------
Commercial loans................................ 1,908 864 1,044 (479) 753 (1,232)
Mortgage loans.................................. 4,520 188 4,332 419 (1,375) 1,794
Installment loans............................... 579 (55) 634 196 41 155
Other loans..................................... 140 38 102 55 (18) 73
------ ------ ------ ------ ------- -------
Total loans..................................... 7,147 1,035 6,112 191 (599) 790
------ ------ ------ ------ ------- -------
Total interest income........................... $8,083 $1,684 $6,399 $ 627 $ (765) $ 1,392
------ ------ ------ ------ ------- -------
INTEREST EXPENSE
Savings Deposits................................ $ 288 $ 8 $ 280 $ (40) $ (75) $ 35
Market Plus accounts............................ 415 288 127 324 (256) 580
Super NOW accounts.............................. 214 112 102 (3) (40) 37
Money market deposit accounts................... 712 393 319 22 (4) 26
Certificates of deposit and IRA deposits........ 3,187 904 2,283 (943) (598) (345)
Repurchase agreements........................... 234 218 16 (16) (96) 80
Federal funds purchased......................... 11 10 1 40 (10) 50
Borrowings...................................... 318 200 118 58 (11) 69
------ ------ ------ ------ ------- -------
Total interest expense.......................... $5,379 $2,133 $3,246 $ (558) $(1,090) $ 532
------ ------ ------ ------ ------- -------
Net interest income............................. $2,704 $ (449) $3,153 $1,186 $ 325 $ 861
====== ====== ====== ====== ======= =======
The rate change was determined by taking the difference in rate times the
previous year's balance.
Provision and Allowance for Loan Losses
For the year ended December 31, 2000, the Bank recorded net charge offs of
$941,000 compared to net charge offs of $849,000 in 1999 and $284,000 in 1998.
The Bank acquired $574,000 in loan loss allowance in the acquisition of Dairy
State. Internal loan review, in particular, has been effective in identifying
problem credits and in achieving timely recognition of potential and actual
losses within the loan portfolio.
Gross charge offs amounted to $996,000 in 2000, $965,000 in 1999, and
$323,000 in 1998, the majority of which were commercial loans. Loans charged off
are subject to ongoing review and effort is made to maximize recovery of
principal, interest and related expenses. Recoveries were $55,000 in 2000,
$116,000 in 1999, and $39,000 in 1998.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated loan losses. 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
14
16
absorb probable loan losses inherent in its loan portfolio as of December 31,
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 current problem credits factor includes the
exposure believed to exist for specifically identified problem loans determined
on a loan-by-loan basis.
The allowance for loan losses of $3,124,000 as of December 31, 1998
represented 1.36% of gross loans, and as of December 31, 1999, the $3,700,000
allowance for loan losses reflected 1.24% of gross loans. The allowance for loan
losses of $3,824,000 as of December 31, 2000 amounted to 1.17% of the
outstanding loan portfolio. Analysis by internal loan review supports the
adequacy of the allowance. In management's opinion, the allowance for loan
losses is adequate as of December 31, 2000. See Note 3 in the Consolidated
Financial Statements.
The allocation of the allowance for loan losses is shown in the following
table.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
TABLE 3
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
LOANS LOANS LOANS LOANS
IN CATEGORY IN CATEGORY IN CATEGORY IN CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
2000 LOANS 1999 LOANS 1998 LOANS 1997 LOANS
---- ----------- ---- ----------- ---- ----------- ---- -----------
(IN THOUSANDS)
Specific Problem
Loans.............. $ 625 $ 694 $ 516 $ 233
Loan Type Allocation:
Commercial &
Agricultural....... 2,688 29.1 2,069 31.3 2,087 39.8 1,983 34.6
Commercial Real
Estate............. 436 23.4 192 23.2 127 16.6 182 20.2
Residential Real
Estate............. 25 40.3 72 38.2 76 37.2 68 39.3
Consumer............. 36 7.2 49 7.3 16 6.4 48 5.9
------ ------ ------ ------
3,185 2,382 2,306 2,281
Unallocated.......... 14 624 302 94
------ ------ ------ ------
Total................ $3,824 $3,700 $3,124 $2,608
====== ====== ====== ======
DECEMBER 31,
-----------------------
% OF
LOANS
IN CATEGORY
TO TOTAL
1996 LOANS
---- -----------
(IN THOUSANDS)
Specific Problem
Loans.............. $ 277
Loan Type Allocation:
Commercial &
Agricultural....... 1,477 34.8
Commercial Real
Estate............. 136 18.6
Residential Real
Estate............. 51 40.6
Consumer............. 36 6.0
------
1,700
Unallocated.......... 103
------
Total................ $2,080
======
Specific problem loans includes the allocation of the allowance for
specific problem credits. 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 tied 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.
15
17
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
TABLE 4
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
Balance at beginning of period...................... $3,700 $3,124 $2,608 $2,080 $1,819
Charge-offs:
Commercial Real Estate......................... $ 83 $ 0 $ 0 $ 0 $ 11
Residential Real Estate........................ 2 22 21 3 12
Commercial & Agricultural...................... 668 838 259 51 172
Consumer....................................... 243 105 43 53 25
------ ------ ------ ------ ------
$ 996 $ 965 $ 323 $ 107 $ 220
====== ====== ====== ====== ======
Recoveries:
Commercial Real Estate......................... $ 9 $ 13 $ 13 $ 2 $ 1
Residential Real Estate........................ 2 12 0 0 0
Commercial & Agricultural...................... 27 70 9 24 9
Consumer....................................... 17 21 17 9 41
------ ------ ------ ------ ------
$ 55 $ 116 $ 39 $ 35 $ 51
====== ====== ====== ====== ======
Net charge-offs..................................... 941 849 284 72 169
Provision for loan losses........................... 1,065 851 800 600 430
Balance related to acquisition...................... 0 574 0 0 0
------ ------ ------ ------ ------
Balance at end of period............................ $3,824 $3,700 $3,124 $2,608 $2,080
====== ====== ====== ====== ======
Ratio of net charge offs during period to average
loans outstanding during period................... .30% .35% .12% .03% .09%
Ratio of allowance for loan losses to total loans... 1.17% 1.24% 1.36% 1.15% 1.02%
The increase in the allowance for loan losses is primarily a result of the
growth in loan volume and the allowance acquired from Dairy State.
Other Operating Income
Other operating income increased $354,000, or 15.0%, from 1999 to 2000. The
growth resulted primarily from increases in service charges on the deposit
accounts obtained in the Dairy acquisition, an increase in loan servicing
income, and an increase in earnings from the Bank's data processing center. This
increase was partially offset by decreases in gain on sales of mortgage loans
held for sale which decreased due to the rising interest rate environment which
reduced loan demand and the related fee income.
Other operating income increased $338,000, or 16.7%, from 1998 to 1999. The
growth resulted primarily from increases in service charges on deposit accounts
which increased due to collection of automated teller machine fees and
assessment of service charges on negative collected balances for an entire year.
This increase was partially offset by decreases in gain on sales of mortgage
loans held for sale which decreased due to the rising interest rate environment
which reduced loan demand and the related fee income.
Other Operating Expenses
Other operating expenses increased by $2,351,000, or 25.9%, from 1999 to
2000. This change was primarily a result of increases in salaries and employee
benefits and 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 and data processing expense increased due
to the Dairy acquisition. Other expenses increased due to higher regulatory and
professional fees, increased insurance
16
18
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.
Other operating expenses increased by $1,025,000, or 12.7%, from 1998 to
1999. This change was primarily a result of increases in salaries and employee
benefits and data processing fees. Increases in salaries and employee benefits
were the result of additional employees. In 1999, 60 new employees were added
and 19 employees left the Bank's employment. Increases in salaries and employee
benefits were also the result of annual merit increases to employees. Data
processing fees increased primarily due to the costs of the Dairy State
conversion of $36,000 and overall volume increases of $44,000.
Income Taxes
The effective tax rates for the Company were 14.53%, 16.81%, and 21.13%,
for 2000, 1999, and 1998, respectively. The decrease in effective tax rates is a
direct result of additional assets held at the Bank's FNBM Investment Corp.
subsidiary. FNBM Investment Corp. is a wholly-owned subsidiary of the Bank
incorporated under the laws of Nevada and is subject to taxation in the State of
Nevada which does not currently impose a corporate income tax. See Note 10 in
the Consolidated Financial Statements.
Securities
Securities available for sale are held for an indefinite period of time and
may be sold in response to changing market and interest rate conditions as part
of the asset/liability management strategy. Securities available for sale are
carried at fair value, with unrealized holding gains and losses, net of the
related tax effect, reported as a separate component of accumulated other
comprehensive income. Securities held to maturity are those that management has
both the positive intent and ability to hold to maturity, and are reported at
amortized cost. The Bank does not own trading or held to maturity securities.
The Bank manages the investment portfolios within policies which seek to achieve
desired levels of liquidity, manage interest rate sensitivity risk, meet
earnings objectives, and provide required collateral support for deposit
activities.
Total securities amounted to $116.9 million and $97.6 million as of
December 31, 2000 and 1999, respectively. The higher level of investments in
securities resulted primarily from the increase in available funds derived from
growth in deposits over loans and the reduction of Fed Funds Sold.
The Bank manages its investment portfolios within policies which seek to
achieve desired levels of liquidity, manage interest rate sensitivity risk, meet
earnings objectives and provide required collateral support for deposit
activities. The Bank had no concentrations of securities from any single issues
that exceeded 10% of stockholders' equity. Table 5 exhibits the distribution, by
type, of the investment portfolio as of December 31. Concurrent with the
acquisition of Dairy State, the Company transferred all of Dairy State's held to
maturity securities to securities available for sale.
SECURITIES AVAILABLE FOR SALE
TABLE 5
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ----------------- -----------------
(IN THOUSANDS)
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies.................................. $ 19,431 $ 10,290 $ 5,791
Obligations of states and political
subdivisions.............................. 60,708 54,278 53,259
Mortgage-backed securities.................. 30,609 33,459 27,473
Corporate Notes............................. 948 896 0
Other securities............................ 4,577 2,124 8,894
-------- -------- -------
Total amortized cost.............. $116,273 $101,047 $95,417
======== ======== =======
Total fair value.................. $116,852 $ 97,595 $97,197
======== ======== =======
17
19
The following table presents the maturity by type of the investment
portfolio for the year ended December 31, 2000.
INVESTMENT PORTFOLIO ANALYSIS
TABLE 6
DECEMBER 31, 2000
-------------------------------------------------------------------------------------------
U.S. GOVT. MORTGAGE BACKED CORPORATE
AGENCIES MUNICIPALS SECURITIES NOTES OTHER SECURITIES
---------------- ---------------- ---------------- -------------- -----------------
BOOK AVG TE BOOK AVG TE BOOK AVG TE BOOK AVG TE BOOK AVG TE
DESCRIPTION & TERM VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
- ------------------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
(IN THOUSANDS)
0 - 12 months........ $ 2,254 5.99% $ 2,868 7.33% $ 1,656 6.11% $ 50 6.94% $2,025 7.62%
1 - 5 Years.......... 998 7.69% 7,830 7.40% 12,921 6.37% 898 6.50% 75 6.54%
5 - 10 Years......... 6,240 7.45% 17,903 7.50% 16,032 6.45% 0 n/a 0 n/a
Over 10 Years........ 9,939 7.68% 32,107 7.42% 0 n/a 0 n/a 2,477 4.41%
------- ----- ------- ----- ------- ----- ---- ----- ------ -----
Total................ $19,431 7.44% $60,708 7.44% $30,609 6.40% $948 6.81% $4,577 4.50%
======= ===== ======= ===== ======= ===== ==== ===== ====== =====
DECEMBER 31, 2000
--------------------
TOTAL TOTAL
AMORTIZED FAIR
DESCRIPTION & TERM COST VALUE
- ------------------ --------- -----
(IN THOUSANDS)
0 - 12 months........ $ 8,853 $ 8,841
1 - 5 Years.......... 22,722 22,741
5 - 10 Years......... 40,175 40,424
Over 10 Years........ 44,523 44,846
-------- --------
Total................ $116,273 $116,852
======== ========
Loan Portfolio
The Bank is actively engaged in originating loans to customers in
Manitowoc, Calumet, Sheboygan and Brown counties. The Bank has policies and
procedures designed to mitigate credit risk and to maintain the quality of the
loan portfolio. These policies include underwriting standards for new credits as
well as the continuous monitoring and reporting of asset quality and the
adequacy of the allowance for loan losses. These polices, coupled with
continuous training efforts, have provided effective checks and balances for the
risk associated with the lending process. Lending authority is based on the
level of risk, size of the loan and the experience of the lending officer.
Bank underwriting procedures are based on a process which evaluates the
management, repayment ability, collateral support, credit history, and overall
financial strength of prospective and current customers from a relationship
oriented perspective. Residential mortgage loans are predominantly underwritten
to general FNMA guidelines.
The Bank extends the following types of credit: commercial loans,
agricultural loans, real estate loans and consumer loans.
Commercial loans are often secured with first liens on accounts receivable,
inventory and/or equipment. Commercial loans generally have loan to value ratios
of 80% or less. Agricultural loans are collateralized with first liens on crops,
farm products, farm personal property and/or real estate. Agricultural loans
generally have loan to value ratios of 70% or less, except for agricultural real
estate loans which have loan to value ratios of 80% or less. Real estate loans
include commercial real estate loans and residential real estate loans. Real
estate loans are collateralized with first mortgages. Commercial real estate
loans generally have loan to value ratios of 80% or less while residential real
estate loans have loan to value ratios of 90% or less. Consumer loans include
loans to individuals for personal, family or household purposes. Consumer loans
may be secured with first lien positions or unsecured depending upon the credit
quality. The Bank will make subordinate loans in any category if the borrower's
financial position justifies it. The Bank is not involved in credit risk
insurance.
Bank management assesses the loan portfolio mix at least annually as part
of its planning and budget process. While there are no predetermined fixed
targets for various loan types established in the loan policy, general
guidelines are established annually for new loan activity based on loan
portfolio mix and credit needs in the Bank's main markets.
The risks associated with the Bank's loan categories are as follows:
Commercial and Agricultural. Credit risk is considered moderate. Past due
loans are below industry averages. Non-performing loans and net loan losses,
although higher than the previous year, remain below the
18
20
averages for banks of similar size. The portfolio is fairly diversified with no
significant concentrations within one industry and agricultural loans
representing approximately 5% of total loans.
Real Estate. Credit risk is considered low, with delinquency ratios and
non-performing loans at low levels.
Consumer. Credit risk is considered moderate, with delinquency ratios and
non-performing loans at low levels.
No loan customer exceeds the legal lending limit among the loan categories.
The Bank's legal and internal lending limit as of December 31, 2000 was
$6,609,000.
Extensions of credit used predominantly for business or agricultural
purposes are classified as commercial and agricultural loans. Commercial loans
include lines of credit for seasonal requirements of businesses, short-term
loans payable within 12 months for one time specific purposes and term loans
with maturities greater than 12 months for capital assets and fixed assets which
are amortized and repaid from cash flow. Agricultural loans include short-term
farm operating loans, intermediate term farm personal property loans and
long-term agricultural real estate loans. Agricultural real estate loans
generally are written for one to two year terms with amortizations exceeding
five years. Commercial term loans for capital assets and fixed assets and
commercial real estate loans that have maturities of more than five years are
generally arranged through government assisted financing programs such as SBA.
The increase in commercial loans and commercial real estate loans resulted
mainly from the general credit needs within the Bank's primary markets. The Bank
also made it a priority to sell residential mortgage loans to the FNMA secondary
market and term commercial real estate loans to the SBA secondary market.
Table 7 "Summary of Loan Portfolio" presents the composition of the Bank's
loan portfolio by significant concentration.
SUMMARY OF LOAN PORTFOLIO
TABLE 7
LOANS OUTSTANDING AS DECEMBER 31,
-----------------------------------------------------------------------------------
2000 1999 1998 1997
---------------------- ---------------------- ---------------------- --------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT
------ ----------- ------ ----------- ------ ----------- ------
(IN THOUSANDS)
Commercial and
Agricultural........ $94,886 29.06% $93,550 31.33% $91,122 39.81% $78,230
Commercial Real
Estate.............. 76,478 23.42% 69,248 23.19% 38,018 16.61% 45,689
Residential Real
Estate.............. 131,592 40.29% 114,175 38.23% 85,115 37.18% 88,822
Consumer............. 22,270 6.82% 20,199 6.76% 13,783 6.02% 12,503
Other................ 1,345 .41% 1,468 .49% 879 .38% 823
-------- ------- -------- ------- -------- ------- --------
Total................ $326,571 100.00% $298,640 100.00% $228,917 100.00% $226,067
======== ======= ======== ======= ======== ======= ========
LOANS OUTSTANDING AS DECEMBER 31,
------------------------------------
1997 1996
----------- ----------------------
PERCENT OF PERCENT OF
TOTAL LOANS AMOUNT TOTAL LOANS
----------- ------ -----------
(IN THOUSANDS)
Commercial and
Agricultural........ 34.61% $70,775 34.77%
Commercial Real
Estate.............. 20.21% 38,003 18.67%
Residential Real
Estate.............. 39.29% 82,538 40.55%
Consumer............. 5.53% 11,599 5.70%
Other................ .36% 622 .31%
------- -------- -------
Total................ 100.00% $203,537 100.00%
======= ======== =======
19
21
MATURITIES OF LOAN PORTFOLIO
TABLE 8
DECEMBER 31, 2000
------------------------------------------------------------------------------
COMMERCIAL & COMMERCIAL RESIDENTIAL
MATURING AGRICULTURAL REAL ESTATE REAL ESTATE CONSUMER OTHER TOTAL
- -------- ------------ ----------- ----------- -------- ----- -----
(IN THOUSANDS)
0-12 months.................... $58,372 $29,615 $ 67,527 $ 4,958 $1,345 $161,817
1-5 years...................... 31,933 39,172 61,226 17,199 0 149,530
Over 5 years................... 4,581 7,691 2,839 113 0 15,224
------- ------- -------- ------- ------ --------
Total.......................... $94,886 $76,478 $131,592 $22,270 $1,345 $326,571
======= ======= ======== ======= ====== ========
MATURING FIXED RATE ADJUSTABLE RATE TOTAL
- -------- ---------- --------------- -----
0-12 months................... $108,513 $53,304 $161,817
1-5 years..................... 146,454 3,076 149,530
Over 5 years.................. 15,224 0 15,224
-------- ------- --------
Total......................... $270,191 $56,380 $326,571
======== ======= ========
The Bank's policy is to make the majority of its loan commitments in the
market area it serves. This tends to reduce risk because management is familiar
with the credit histories of loan applicants and has an in-depth knowledge of
the risk to which a given credit is subject. The Bank had no foreign loans in
its portfolio as of December 31, 2000.
It is the policy of the Bank to place a loan in nonaccrual 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 nonaccrual decision. Nonaccrual
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. Nonaccrual loans at December 31, 2000 and 1999 were $1,765,000 and
$1,618,000, respectively. The fluctuation in the level of nonaccrual loans over
the past five years is attributed mainly to isolated credit deterioration in a
few larger account relationships. These included commercial loans, agricultural
loans and residential real estate loans. However, these were individual isolated
accounts and no trend in economic, industrial, geographical or other factors
could be identified to account for the fluctuations in the level of nonaccrual
loans. Accruing loans 90 days or more past due include loans that are both well
secured and in the process of collection.
RISK ELEMENTS OF LOAN PORTFOLIO
TABLE 9
DECEMBER 31,
------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
Nonaccrual loans....................................... $1,765 $1,618 $ 927 $211 $708
Accruing loans past due 90 days or more................ 419 21 181 84 229
------ ------ ------ ---- ----
Total nonperforming loans.............................. $2,184 $1,639 $1,108 $295 $937
Nonperforming loans as a percent of loans.............. .67% .55% .47% .13% .47%
Ratio of the allowance for loan losses to nonperforming
loans................................................ 175% 226% 282% 884% 222%
Total nonperforming loans at December 31, 2000 were $2,184,000, an increase
of $545,000 from $1,639,000 at December 31, 1999. The increase was primarily due
to an increase of $398,000 in accruing loans past due 90 days or more.
20
22
Management maintains a listing of potential problem loans. The decision of
management to place loans in this category does not necessarily indicate that
the Bank expects losses to occur, but that management recognizes that a higher
degree of risk is associated with these performing loans. At December 31, 2000,
potential problem loans totaled $9.4 million. The loans that have been reported
as potential problem loans are not concentrated in a particular industry, but
rather cover a diverse range of businesses. Management does not presently expect
significant losses from credits in the potential problem loan category.
Deposits
Deposit liabilities increased from $363.3 million at December 31, 1999 to
$394.6 million at December 31, 2000, an increase of $31.3 million, or 8.6%. Time
deposits were the main source of deposit growth. The Bank continues to
experience strong competition from other commercial banks, credit unions, the
stock market and mutual funds. There are no predetermined divisions for deposit
categories. Table 1 displays the average balances and average rates paid on all
major deposits classifications for 2000, 1999 and 1998.
The following table represents maturities of time deposits in denominations
of $100,000 or more for the years ended December 31, 2000 and 1999.
MATURITY OF TIME DEPOSITS $100,000 OR MORE
TABLE 10
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
2000 1999
---- ----
(IN THOUSANDS)
3 months or less............................................ $ 8,891 $ 6,286
3-6 months.................................................. 9,467 7,668
6-12 months................................................. 11,819 7,880
Over 12 months.............................................. 4,865 4,210
------- -------
TOTAL....................................................... $35,042 $26,044
======= =======
FHLB Advances
FHLB advances decreased from $36.0 million to $21.0 million, a decrease of
$15.0 million or 41.7%. FHLB advances are subject to a prepayment penalty if
they are repaid prior to maturity. FHLB advances are callable either six months
or one year after origination and quarterly thereafter.
Subsequent Events
On February 28, 2001, the Bank acquired 100% ownership in the Insurance
Center of Manitowoc, Inc. The Insurance Center of Manitowoc, Inc. includes Gary
Vincent and Associates in Green Bay, Wisconsin. The Insurance Center is an
independent agency offering commercial, personal, life, and health insurance. It
will be operated as a wholly owned subsidiary of the Bank.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank monitors interest rate factors on a monthly basis to assess
interest rate risk of the portfolio of assets and liabilities. Maturity terms of
assets are matched to the maturity terms of liabilities to the extent possible.
The maturity structure of the municipal securities, however, is long term to
optimize tax advantages and yield returns within an acceptable level of market
risk. In addition, based on prior experience, the average life of the mortgage
backed securities has been shorter than the scheduled maturities. There are no
interest rate caps or floors on variable rate instruments that could affect the
cash flows on those instruments. Variable
21
23
rate loans, investments and deposits reprice immediately because they are
related to changes in the prime rate of interest. Fixed rate commercial loans
reprice at least annually. Fixed rate real estate loans are scheduled for 1 to 2
years with balloon payments. Loans do not have prepayment penalty clauses. The
following table also assumes all loans and deposits will be renewed under the
same terms. Interest rates on those renewals are based on anticipated rates at
the date of renewal. There is a 10% prepayment assumption for the entire loan
portfolio based on historical trends. Reinvestment rates are assumed at 95% for
loans. Loans not renewed are assumed to be replaced by loan originations. The
table assumes that any deposits that are withdrawn are replaced by new deposit
funds. The following table shows the expected cash flows and yields for interest
earning assets and interest bearing liabilities.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
TABLE 11
EXPECTED PERIOD OF MATURITY
----------------------------------------------------------------------------------------------------
WITHIN 1 YEAR 1 -2 YEARS 2 -3 YEARS 3-4 YEARS GREATER THAN 4 YEARS
----------------- ---------------- ---------------- ------------------ ---------------------
YIELD/ YIELD/ YIELD/ YIELD/ YIELD/
DECEMBER 31, 2000 BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
- ----------------- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(IN THOUSANDS)
US Treasury, Agency and
Other securities(F)... $ 4,304 6.35% $ 75 6.54% 0 n/a 0 n/a $ 19,653 7.54%
US Treasury, Agency and
Other securities(V)... 25 7.52% 0 n/a 897 6.50% 0 n/a 0 n/a
Mortgage backed
Securities(F)......... 1,656 6.05% 2,072 6.04% 1,046 6.86% 8,827 6.25% 14,767 6.48%
Mortgage backed
Securities(V)......... 2,241 6.41% 0 n/a 0 n/a 0 n/a 0 n/a
Municipal
securities(F)......... 2,868 4.84% 2,973 4.97% 1,180 4.64% 1,959 5.09% 51,728 5.01%
Commercial loans(F).... 39,898 8.91% 27,454 9.06% 15,543 8.88% 10,152 8.28% 22,304 8.08%
Commercial loans(V).... 41,780 10.33% 350 9.69% 0 n/a 224 9.63% 0 n/a
Residential real
estate(F)............. 62,400 8.39% 46,459 8.73% 7,407 8.68% 7,233 8.23% 9,212 9.48%
Residential Real
estate(V)............. 11,087 9.67% 1,360 8.16% 1,141 7.88% 0 n/a 0 n/a
Consumer loans(F)...... 4,817 9.20% 3,590 10.11% 5,203 9.73% 4,727 9.18% 3,791 9.29%
Consumer loans(V)...... 439 10.93% 0 n/a 0 n/a 0 n/a 0 n/a
-------- ------ ------- ------ ------- ------ ------- ------ -------- ------
Total interest
earning
assets........ $171,515 8.93% $84,333 8.69% $32,417 8.65% $33,122 7.68% $121,455 6.63%
======== ====== ======= ====== ======= ====== ======= ====== ======== ======
Interest bearing
deposits(F)........... $156,230 6.38% $27,402 6.07% $ 7,616 6.36% $ 1,032 5.52% $ 447 6.50%
Interest bearing
deposits(V)........... 139,100 4.21% 0 n/a 0 n/a 0 n/a 0 n/a
Short term
borrowings(F)......... 10,069 5.41% 0 n/a 0 n/a 0 n/a 0 n/a
Short term
borrowings(V)......... 21,883 4.23% 0 n/a 0 n/a 0 n/a 0 n/a
Long term
Borrowings(V)......... 16,000 6.54% 5,000 6.47% 0 n/a 0 n/a 0 n/a
-------- ------ ------- ------ ------- ------ ------- ------ -------- ------
Total interest
bearing
liabilities... $343,282 5.34% $32,402 6.13% $ 7,616 6.36% $ 1,032 5.52% $ 447 6.50%
======== ====== ======= ====== ======= ====== ======= ====== ======== ======
EXPECTED PERIOD OF MATURITY
----------------------------
TOTAL
----------------- FAIR
YIELD/ MARKET
DECEMBER 31, 2000 BALANCE RATE VALUE
- ----------------- ------- ------ ------
(IN THOUSANDS)
US Treasury, Agency and
Other securities(F)... $ 24,032 7.34% $ 24,153
US Treasury, Agency and
Other securities(V)... 922 7.52% 922
Mortgage backed
Securities(F)......... 28,368 6.37% 28,108
Mortgage backed
Securities(V)......... 2,241 6.41% 2,241
Municipal
securities(F)......... 60,708 4.99% 61,428
Commercial loans(F).... 115,351 8.76% 114,702
Commercial loans(V).... 42,354 10.32% 42,354
Residential real
estate(F)............. 132,711 8.60% 132,711
Residential Real
estate(V)............. 13,588 9.37% 13,588
Consumer loans(F)...... 22,128 9.48% 22,128
Consumer loans(V)...... 439 10.93% 439
-------- ------ --------
Total interest
earning
assets........ $442,842 8.16% $442,774
======== ====== ========
Interest bearing
deposits(F)........... $192,727 6.33% $194,479
Interest bearing
deposits(V)........... 139,100 4.21% 139,100
Short term
borrowings(F)......... 10,069 5.41% 10,086
Short term
borrowings(V)......... 21,883 4.23% 21,883
Long term
Borrowings(V)......... 21,000 6.52% 21,079
-------- ------ --------
Total interest
bearing
liabilities... $384,779 5.43% $386,627
======== ====== ========
- -------------------------
(V) Variable repricing terms
(F) Fixed repricing terms
22
24
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Manitowoc Bancorp, Inc.
Manitowoc, Wisconsin
We have audited the accompanying consolidated balance sheet of First
Manitowoc Bancorp, Inc. and Subsidiaries as of December 31, 2000, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements of First Manitowoc Bancorp, Inc. and Subsidiaries as of and for each
of the two years in the period ended December 31, 1999, were audited by other
auditors whose report dated February 4, 2000, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Manitowoc Bancorp, Inc. and Subsidiaries at December 31, 2000, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Wipfli Ullrich Bertelson LLP
Green Bay, Wisconsin
February 2, 2001
23
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Manitowoc Bancorp, Inc.
Manitowoc, Wisconsin
We have audited the accompanying consolidated balance sheet of First
Manitowoc Bancorp, Inc. and subsidiaries as of December 31, 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the two-year period ended December 31, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Manitowoc Bancorp, Inc. and subsidiaries at December 31, 1999, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Milwaukee, Wisconsin
February 4, 2000
24
26
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
(IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 19,834 $ 21,007
Federal fund sold........................................... 6,540 19,709
-------- --------
Cash and cash equivalents................................... 26,374 40,716
Securities available for sale, at fair value................ 116,852 97,595
Loans, net.................................................. 322,747 294,940
Premises and equipment...................................... 9,491 8,872
Intangible assets, net of accumulated amortization of
$1,319,000 in 2000 and $860,000 in 1999................... 7,910 8,706
Other assets................................................ 12,036 11,689
-------- --------
Total assets................................................ $495,410 $462,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................... $394,601 $363,286
Securities sold under repurchase agreements................. 29,952 22,352
Borrowed funds.............................................. 23,000 38,000
Other liabilities........................................... 6,396 4,374
-------- --------
Total liabilities........................................... 453,949 428,012
-------- --------
Commitments and contingencies (Note 15).....................
-------- --------
Stockholders' equity:
Common stock -- $1 par value: authorized -- 10,000,000
shares issued -- 3,791,814 shares...................... 3,792 3,792
Retained earnings......................................... 37,991 33,661
Accumulated other comprehensive income (loss)............. 378 (2,247)
Treasury stock at cost -- 323,180 shares in 2000 and 1999... (700) (700)
-------- --------
Total stockholders' equity.................................. 41,461 34,506
-------- --------
Total liabilities and stockholders' equity.................. $495,410 $462,518
======== ========
See accompanying notes to consolidated financial statements.
25
27
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Interest income:
Loans, including fees..................................... $28,388 $21,273 $21,184
Federal funds sold........................................ 493 369 526
Securities:
Taxable................................................ 3,306 2,788 2,740
Tax-exempt............................................. 2,792 2,667 2,369
------- ------- -------
Total interest income............................. 34,979 27,097 26,819
------- ------- -------
Interest expense:
Deposits.................................................. 15,574 10,738 11,398
Securities sold under repurchase agreements............... 1,329 1,095 1,111
Borrowed funds............................................ 2,092 1,769 1,643
------- ------- -------
Total interest expense............................ 18,995 13,602 14,152
------- ------- -------
Net interest income......................................... 15,984 13,495 12,667
Provision for loan losses................................... 1,065 851 800
------- ------- -------
Net interest income after provision for loan losses......... 14,919 12,644 11,867
------- ------- -------
Other income:
Trust service fees........................................ 511 499 483
Service charges on deposit accounts....................... 1,039 905 616
Loan servicing income..................................... 378 326 313
Gain on sales of mortgage loans........................... 44 138 201
Other..................................................... 739 489 406
------- ------- -------
Total other income................................ 2,711 2,357 2,019
------- ------- -------
Other expenses:
Salaries and employee benefits............................ 5,971 4,958 4,055
Occupancy................................................. 1,684 1,107 1,138
Data processing........................................... 897 718 639
Postage, stationery, and supplies......................... 485 420 360
Amortization of intangibles............................... 459 241 234
Other..................................................... 1,932 1,633 1,626
------- ------- -------
Total other expenses.............................. 11,428 9,077 8,052
------- ------- -------
Income before provision for income taxes.................... 6,202 5,924 5,834
Provision for income taxes.................................. 901 996 1,233
------- ------- -------
Net income.................................................. $ 5,301 $ 4,928 $ 4,601
======= ======= =======
Earnings per share -- Basic and diluted..................... $1.53 $1.42 $1.33
======= ======= =======
See accompanying notes to consolidated financial statements.
26
28
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE TREASURY
STOCK EARNINGS INCOME (LOSS) STOCK TOTAL
------ -------- ------------- -------- -----
(IN THOUSANDS)
Balance, January 1, 1998..................... $3,792 $25,815 $ 634 $(700) $29,541
Comprehensive income:
Net income.............................. 4,601 4,601
Other comprehensive income.............. 541 541
-------
Total comprehensive income......... 5,142
Cash dividends ($0.23 per share)........... (791) (791)
------ ------- ------- ----- -------
Balance, December 31, 1998................... 3,792 29,625 1,175 (700) 33,892
Comprehensive income:
Net income.............................. 4,928 4,928
Other comprehensive loss................ (3,422) (3,422)
-------
Total comprehensive income......... 1,506
Cash dividends ($0.26 per share)........... (885) (885)
Cash paid for fractional shares............ (7) (7)
------ ------- ------- ----- -------
Balance, December 31, 1999................... 3,792 33,661 (2,247) (700) 34,506
Comprehensive income:
Net income.............................. 5,301 5,301
Other comprehensive income.............. 2,625 2,625
-------
Total comprehensive income......... 7,926
Cash dividends ($0.28 per share)........... (971) (971)
------ ------- ------- ----- -------
Balance, December 31, 2000................... $3,792 $37,991 $ 378 $(700) $41,461
====== ======= ======= ===== =======
See accompanying notes to consolidated financial statements.
27
29
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 5,301 $ 4,928 $ 4,601
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 1,065 851 800
Depreciation and amortization of premises and
equipment............................................. 789 485 473
Amortization of intangibles............................. 459 241 234
Amortization of securities.............................. -- 25 44
Proceeds from sales of mortgage loans................... 15,481 25,077 35,098
Originations of mortgage loans held for sale............ (15,338) (24,899) (33,287)
Gain on sales of mortgage loans......................... (44) (138) (201)
Undistributed income of joint venture................... (247) (142) (50)
Increase in other assets................................ (1,113) (147) (2,147)
Increase (decrease) in other liabilities................ 2,022 (792) 627
-------- -------- --------
Total adjustments.................................. 3,074 561 1,591
-------- -------- --------
Net cash provided by operating activities................... 8,375 5,489 6,192
-------- -------- --------
Cash flows from investing activities:
Proceeds from maturities of securities available for
sale.................................................... 15,038 45,489 30,769
Purchases of securities available for sale................ (30,264) (51,845) (41,395)
Net increase in loans..................................... (29,027) (16,120) (4,743)
Bank acquisition, net of cash acquired.................... -- (4,258) --
Purchases of premises and equipment....................... (1,408) (2,084) (726)
Proceeds from sale of assets.............................. -- -- 55
-------- -------- --------
Net cash used in investing activities....................... (45,661) (28,818) (16,040)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits.................................. 31,315 26,942 16,029
Net increase (decrease) in securities sold under
repurchase agreements................................... 7,600 (2,041) 685
Proceeds from advances of borrowed funds.................. 21,000 28,698 4,000
Repayment of borrowed funds............................... (36,000) (19,500) (6,771)
Dividends paid............................................ (971) (885) (791)
Cash paid for fractional shares........................... -- (7) --
-------- -------- --------
Net cash provided by financing activities................... 22,944 33,207 13,152
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (14,342) 9,878 3,304
Cash and cash equivalents at beginning...................... 40,716 30,838 27,534
-------- -------- --------
Cash and cash equivalents at end............................ $ 26,374 $ 40,716 $ 30,838
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 17,184 $ 13,341 $ 14,225
Income taxes.............................................. 931 965 1,649
Supplemental schedule of noncash activities:
Loans transferred to foreclosed properties................ 56 144 66
Transfer of securities from held to maturity to available
for sale................................................ -- 659 --
Acquisition:
Fair value of assets acquired............................. -- 67,130 --
Liabilities assumed....................................... -- 60,934 --
Cash paid for purchase of stock........................... -- (13,520) --
Cash acquired............................................. -- 9,262 --
--------
Net cash paid for acquisition............................. -- 4,258 --
========
See accompanying notes to consolidated financial statements.
28
30
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Manitowoc Bancorp, Inc. and
Subsidiaries (the "Corporation") conform to generally accepted accounting
principles and general practices within the financial institution industry.
Significant accounting and reporting policies are summarized below.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of First Manitowoc Bancorp, Inc., its wholly
owned subsidiary, First National Bank in Manitowoc (the "Bank"), and the Bank's
wholly owned subsidiary, FNBM Investment Corp. All significant intercompany
balances and transactions have been eliminated. Investment in the Bank's 49.8%
owned subsidiary, which is not material, is accounted for on the equity method.
In 1999, the Corporation consummated the acquisition of Dairy State
Financial Services, Inc. ("Dairy"), a Wisconsin bank holding company, for a cash
price of approximately $13,520,000. Dairy's wholly owned subsidiary, Dairy State
Bank (DSB), has two locations in Plymouth, Wisconsin. Dairy had approximately
$66 million in assets at date of acquisition. Dairy and its wholly owned
subsidiary, DSB, were merged into the Corporation 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 Corporation's
consolidated 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.
Business -- The Corporation provides a full range of financial services to
individual and corporate customers in Northeastern Wisconsin through First
National Bank in Manitowoc. The Corporation is subject to competition from other
traditional and nontraditional financial institutions and is also subject to the
regulations of certain federal agencies and undergoes periodic examinations by
those regulatory authorities.
Use of Estimates in Preparation of Financial Statements -- The preparation
of the accompanying consolidated financial statements of First Manitowoc
Bancorp, Inc. and Subsidiaries in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that directly
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results may differ from these estimates.
Cash and Cash Equivalents -- For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
The Bank is required to maintain non-interest-bearing deposits on hand or
with the Federal Reserve Bank. At December 31, 2000, those required reserves of
$3,026,000 were satisfied by currency and coin holdings.
Investment Securities -- The Company's securities are classified and
accounted for as securities available for sale. Available-for-sale securities
are stated at fair value with the unrealized gains and losses, net of tax,
reported as accumulated other comprehensive income (loss) within stockholders'
equity until realized. Interest and dividends are included in interest income
from securities as earned, and premiums and discounts are recognized in interest
income using the interest method over the period to maturity. Realized gains and
losses and declines in value judged to be other than temporary are included in
net gains and losses from sales of investment and mortgage-related securities.
The cost of securities sold is based on the specific-identification method.
29
31
Fair values of many securities are estimates based on financial methods or
prices paid for similar securities. It is possible interest rates could change
considerably resulting in a material change in the estimated fair value.
Loans Held for Sale -- Loans held for sale consist of the current
origination of certain fixed-rate mortgage loans which are recorded at the lower
of aggregate cost or fair value. A gain or loss is recognized at the time of the
sale reflecting the present value of the difference between the contractual
interest rate of the loans sold and the yield to the investor, adjusted for the
initial value of mortgage servicing rights.
Loans and Related Interest Income -- Loans are carried at their unpaid
principal balance. Interest on loans is calculated by using the simple interest
method on daily balances of the principal amount outstanding and is recognized
in the period earned.
Interest on loans is accrued and credited to income as earned. Accrual of
interest is generally discontinued either when reasonable doubt exists as to the
full, timely collection of interest or principal or when a loan becomes
contractually past due by 90 days or more with respect to interest or principal.
At that time, any accrued but uncollected interest is reversed and additional
income is recorded only to the extent that payments are received and the
collection of principal is reasonably assured. Loans are restored to accrual
status when the obligation is brought current, has performed in accordance with
the contractual terms for a reasonable period of time, and the ultimate
collectibility of the total contractual principal and interest is reasonably
assured.
Allowance for Loan Losses -- The allowance for loan losses is provided for
based on past experience and prevailing market conditions. Management's
evaluation of loss considers various factors including, but not limited to,
general economic conditions, loan portfolio composition, and prior loss
experience. This evaluation is inherently subjective since it requires material
estimates that may be susceptible to significant change. Loans are charged
against the allowance for loan losses when management believes the
collectibility of the principal is unlikely. In addition, various regulatory
agencies periodically review the allowance for loan losses. These agencies may
require additions to the allowance for loan losses based on their judgments of
collectibility.
The Corporation considers loans secured by one- to four-unit residential
properties and all consumer loans to be large groups of smaller-balance
homogenous loans. These loans are collectively evaluated in the analysis of the
adequacy of the allowance for loan losses.
The Corporation's commercial portfolio is subject to a loan-by-loan
analysis of the adequacy of the allowance for loan losses and impairment. These
loans are considered impaired when, based on current information, it is probable
the Corporation will not collect all amounts due in accordance with the
contractual terms of the loan agreement. The value of impaired loans is based on
discounted cash flows of expected future payments using the loan's internal
effective interest rate or the fair value of the collateral if the loan is
collateral dependent. Interest income on impaired loans is recorded when cash is
received and only if principal is considered to be fully collectible.
In management's judgment, the allowance for loan losses is adequate to
cover probable losses relating to specifically identified loans, as well as
probable losses inherent in the balance of the loan portfolio.
Mortgage Servicing Rights -- The Corporation recognizes mortgage-servicing
rights on loans that are originated and subsequently sold or securitized and
servicing is retained. A portion of the cost of the loans is required to be
allocated to the servicing rights based on the relative fair values of the loans
and the servicing rights. The Corporation amortizes these mortgage servicing
rights over the period of estimated net servicing revenue. Impairment of
mortgage servicing rights is assessed based on the fair value of those rights.
Fair values are estimated using discounted cash flows based on a current market
interest rate.
Premises and Equipment -- Premises and equipment are stated at cost.
Maintenance and repair costs are charged to expense as incurred. Gains or losses
on disposition of premises and equipment are reflected in income or expense,
respectively. Depreciation is computed on the straight-line method and is based
on the estimated useful lives of the assets.
30
32
Foreclosed Properties -- Foreclosed properties acquired by the Corporation
through foreclosure or deed in lieu of foreclosure on loans for which the
borrowers have defaulted as to the payment of principal and interest are
initially recorded at the lower of the fair value of the asset, less the
estimated costs to sell the asset or the carrying value of the related loan
balance. Costs relating to the development and improvement of the property are
capitalized. Income and expenses incurred in connection with holding and
operating the property are charged to expense. Valuations are periodically
performed by management and third parties and a charge to expense is taken for
the excess of the carrying value of a property over its fair value less costs to
sell.
Intangible Assets -- Intangible assets attributable to the value of core
deposits and the excess of the purchase price over the fair value of net assets
(goodwill) acquired are stated at cost less accumulated amortization. Goodwill
is amortized on a straight-line basis over periods of 15 to 25 years. Core
deposits are amortized on a straight-line basis over a period of 10 years. The
Corporation reviews intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Adjustments are recorded if it is determined that the benefit of
the intangible asset has decreased.
Income Taxes -- The Corporation files one consolidated federal income tax
return. Federal income tax expense (credit) is allocated to each subsidiary
based on an intercompany tax sharing agreement. The subsidiaries file separate
state tax returns as applicable.
Deferred income taxes have been provided under the liability method.
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the current enacted tax rates which will be in effect when these
differences are expected to reverse. Deferred tax expense (benefit) is the
result of changes in the deferred tax asset and liability.
Advertising Costs -- Advertising costs are expensed as incurred.
Comprehensive Income -- Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income includes unrealized gains
and losses on securities available for sale, net of tax, which are recognized as
a separate component of equity, accumulated other comprehensive income (loss).
Per Share Computations -- All per share financial information and equity
accounts have been adjusted to reflect the 2-for-1 stock split declared in June
2000 and the 5-for-4 stock split declared on April 1, 1999. Weighted average
shares outstanding were 3,468,634 for the years ended December 31, 2000, 1999,
and 1998.
Reclassifications -- Certain reclassifications have been made to the 1999
and 1998 consolidated financial statements to conform to the 2000
classifications.
Future Accounting Change -- In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. This statement requires an entity to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and the
resulting designation. This statement is effective for fiscal years beginning
after June 15, 2000, as amended by SFAS No. 137. The Corporation's adoption of
SFAS No. 133 on January 1, 2001, did not have a material impact on the
consolidated financial statements as of the date of adoption.
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33
NOTE 2 SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of securities available for
sale are as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
DECEMBER 31, 2000
U.S. Treasury securities and obligations of
U.S government corporations and agencies... $ 19,431 $ 260 $ (141) $ 19,550
Obligations of states and political
subdivisions............................... 60,708 1,093 (373) 61,428
Mortgage-backed securities................... 30,609 187 (447) 30,349
Corporate notes.............................. 948 -- -- 948
Other securities............................. 4,577 -- -- 4,577
-------- ------ ------- --------
Total........................................ $116,273 $1,540 $ (961) $116,852
======== ====== ======= ========
DECEMBER 31, 1999
U.S. Treasury securities and obligations of
U.S government corporations and agencies... $ 10,290 $ -- $ (365) $ 9,925
Obligations of states and political
subdivisions............................... 54,278 149 (2,027) 52,400
Mortgage-backed securities................... 33,459 57 (1,249) 32,267
Corporate notes.............................. 896 -- (13) 883
Other securities............................. 2,124 -- (4) 2,120
-------- ------ ------- --------
Total........................................ $101,047 $ 206 $(3,658) $ 97,595
======== ====== ======= ========
The amortized cost and fair value of securities at December 31, 2000, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
Due in one year or less..................................... $ 7,197 $ 7,197
Due after one year through five years....................... 9,801 9,887
Due after five years through ten years...................... 24,143 24,572
Due after ten years......................................... 44,523 44,847
-------- --------
85,664 86,503
Mortgage-backed securities.................................. 30,609 30,349
-------- --------
Total....................................................... $116,273 $116,852
======== ========
There were no sales of securities in 2000, 1999, or 1998.
The amortized cost and estimated fair value of investment securities
available for sale pledged to secure public deposits, short-term borrowings, and
for other purposes required by law were $45,630,000 and $45,409,000,
respectively, as of December 31, 2000.
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NOTE 3 LOANS
The composition of loans at December 31 follows:
2000 1999
---- ----
(IN THOUSANDS)
Commercial and agricultural................................. $ 94,886 $ 93,550
Commercial real estate...................................... 76,478 69,248
Residential real estate..................................... 131,592 114,175
Consumer.................................................... 22,270 20,199
Other....................................................... 1,345 1,468
-------- --------
Subtotals................................................. 326,571 298,640
Allowance for loan losses................................... (3,824) (3,700)
-------- --------
Loans, net.................................................. $322,747 $294,940
======== ========
An analysis of the allowance for loan losses for the years ended December
31 follows:
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Balance at beginning........................................ $3,700 $3,124 $2,608
Balance related to acquisition.............................. -- 574 --
Provision for loan losses................................... 1,065 851 800
Loans charged off........................................... (996) (965) (323)
Recoveries on loans......................................... 55 116 39
------ ------ ------
Balance at end.............................................. $3,824 $3,700 $3,124
====== ====== ======
The aggregate amount of nonperforming loans was approximately $1,765,000
and $1,618,000 at December 31, 2000 and 1999, respectively. Nonperforming loans
are those which are contractually past due 90 days or more as to interest or
principal payments, on nonaccrual of interest status, or loans the terms of
which have been renegotiated to provide a reduction or deferral of interest or
principal. If nonaccrual loans had been current, approximately $297,000,
$187,000, and $128,000 of interest income would have been recorded for the years
ended December 31, 2000, 1999, and 1998, respectively. Interest income on
nonaccrual loans of $101,000, $98,000 and $43,000 was recognized for cash
payments received in 2000, 1999, and 1998.
Information regarding impaired loans as of December 31 follows:
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
AS OF DECEMBER 31:
Impaired loans for which an allowance has been provided..... $1,088 $1,506 $ 626
Impaired loans for which no allowance has been provided..... 379 -- --
Impairment reserve (included in allowance for loan
losses)................................................... 140 368 119
FOR THE YEARS ENDED DECEMBER 31:
Average investment in impaired loans........................ 1,690 1,157 625
Interest income that would have been recognized on an
accrual basis............................................. 308 170 102
Cash-basis interest income recognized....................... 91 78 29
The Bank in the ordinary course of banking business grants loans to the
Corporation's executive officers and directors, including their families and
firms in which they are principal owners. Substantially all loans to employees,
officers, directors, and stockholders owning 5% or more of the Corporation were
made on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others and did not
involve more than the normal risk of collectibility or present other unfavorable
features.
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Activity in such loans during 2000 is summarized below (in thousands):
Loans outstanding, December 31, 1999........................ $ 2,416
New loans................................................... 6,580
Repayments.................................................. (6,801)
-------
Loans outstanding, December 31, 2000........................ $ 2,195
=======
NOTE 4 LOAN SERVICING
Mortgage loans of $74,087,000 and $65,443,000 as of December 31, 2000 and
1999, respectively, were serviced for others. These loans are not included in
the accompanying consolidated balance sheets. Mortgage servicing rights are
capitalized when the serviced loans are sold. This asset is amortized over the
estimated period that servicing income is recognized. The following is an
analysis of changes in mortgage servicing rights:
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Balance, January 1.......................................... $491 $386 $249
Capitalized amounts......................................... 207 179 211
Amortization................................................ (74) (74) (74)
---- ---- ----
Balance, December 31........................................ $624 $491 $386
==== ==== ====
No impairment of mortgage servicing rights existed at December 31, 2000 or
1999; therefore, no valuation allowance was recorded.
The carrying value of the mortgage servicing rights is included with other
assets and approximates fair market value at December 31, 2000 and 1999.
NOTE 5 PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of the following:
2000 1999
---- ----
(IN THOUSANDS)
Land........................................................ $ 1,323 $ 1,197
Buildings and improvements.................................. 7,439 6,821
Furniture and equipment..................................... 4,562 4,948
------- -------
Cost........................................................ 13,324 12,966
Less -- Accumulated depreciation and amortization........... 3,833 4,094
------- -------
Net depreciated value....................................... $ 9,491 $ 8,872
======= =======
NOTE 6 INVESTMENT IN CORPORATE JOINT VENTURE
The Bank owns 49.8% of the stock of a corporate joint venture ("venture")
whose business is developing and providing data processing services to the Bank
and other financial institutions. The venture has total assets of $3,058,000 and
liabilities of $930,000. The Bank guarantees a $461,000 loan used for the
construction of the venture's new facility. The Bank's earnings from its
investment in the venture were approximately $247,000, $142,000, and $50,000 for
the years ended December 31, 2000, 1999, and 1998, respectively. Data processing
service fees paid by the Bank to the venture were approximately $812,000,
$534,000, and $502,000 for the years ended December 31, 2000, 1999, and 1998,
respectively.
The Bank has a long-term cancelable contract with the venture that extends
through September 2002. At that time, the contract is automatically renewed for
a period of 60 months. The Bank has the option to terminate the contract at any
time, but would incur a termination penalty of three times the average monthly
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fees over the prior three months. A termination penalty is not incurred if the
Bank provides 180 days notice and continues processing up to the end of that
period.
NOTE 7 DEPOSITS
The distribution of deposits at December 31 is as follows:
2000 1999
---- ----
(IN THOUSANDS)
Non-interest-bearing demand deposits........................ $ 62,774 $ 67,283
Interest-bearing demand deposits............................ 42,470 36,936
Savings deposits............................................ 103,015 100,628
Time deposits............................................... 186,342 158,439
-------- --------
Total deposits.............................................. $394,601 $363,286
======== ========
Time deposits of $100,000 or more were approximately $35,042,000 and
$26,044,000 at December 31, 2000 and 1999, respectively. Interest expense on
time deposits of $100,000 or more was approximately $1,614,000, $1,082,000, and
$1,158,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
At December 31, 2000, the scheduled maturities of time deposits are as
follows (in thousands):
2001........................................................ $149,809
2002........................................................ 27,421
2003........................................................ 7,615
2004........................................................ 1,032
Thereafter.................................................. 465
--------
Total....................................................... $186,342
========
NOTE 8 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase have contractual maturities
up to one year from the transaction date with variable and fixed-rate terms. The
agreements to repurchase securities requires that the Corporation (seller)
repurchase identical securities as those that are sold. The securities
underlying the agreements were under the Corporation's control.
Information concerning securities sold under agreements to repurchase
consist of the following:
2000 1999 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
Outstanding balance at the end of the year.................. $29,952 $22,352 $24,694
Weighted average interest rate at the end of the year....... 6.03% 4.89% 4.90%
Average balance during the year............................. $23,009 $22,902 $21,355
Average interest rate during the year....................... 5.70% 4.79% 5.21%
Maximum month-end balance during the year................... $29,952 $24,988 $25,667
======= ======= =======
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NOTE 9 BORROWINGS
Borrowed funds are summarized as follows at December 31:
2000 1999
---- ----
(DOLLARS IN
THOUSANDS)
FHLB adjustable-rate advance, maturing March 2001, 6.47% at
December 31, 2000......................................... $ 5,000 $ 0
FHLB adjustable-rate advance, maturing May 2001, 6.77% at
December 31, 2000......................................... 11,000 --
FHLB adjustable-rate advance, maturing October 2002, 6.41%
at December 31, 2000...................................... 5,000 --
FHLB advance, 5.71% due June 2002........................... -- 9,000
FHLB advance, 4.91% due October 2004........................ -- 5,000
FHLB advance, 5.45% due October 2004........................ -- 13,000
FHLB advance, 5.50% due October 2004........................ -- 5,000
FHLB advance, 5.57% due November 2004....................... -- 4,000
------- -------
Subtotals................................................. 21,000 36,000
Treasury, tax, and loan account............................. 2,000 2,000
------- -------
Total borrowed funds........................................ $23,000 $38,000
======= =======
The Corporation is a Treasury, Tax & Loan (TT&L) depository for the Federal
Reserve Bank (FRB), and as such it accepts TT&L deposits. The Corporation is
allowed to borrow these funds until they are called. The average rate paid on
the treasury, tax, and loan account was 6.15% in 2000, 5.60% in 1999, and 5.24%
in 1998. U.S. Agency Securities with a face value greater than or equal to the
amount borrowed are pledged as a condition of borrowing TT&L deposits.
FHLB advances are subject to a prepayment penalty if they are repaid prior
to maturity. The FHLB advances are callable either six months or one year after
origination and quarterly thereafter. The Corporation is required to maintain as
collateral unencumbered first mortgage loans in its portfolio aggregating at
least 167% of the amount of outstanding advances from the Federal Home Loan
Bank. The FHLB advances are also collateralized by $2,160,000 and $1,800,000 of
FHLB stock owned by the Corporation and included in other securities at December
31, 2000 and 1999, respectively.
Scheduled maturities of FHLB borrowings outstanding at December 31, 2000,
are as follows (in thousands):
2001........................................................ $ 16,000
2002........................................................ 5,000
----------
$ 21,000
==========
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NOTE 10 INCOME TAXES
The provision for income taxes consists of the following:
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Current tax expense:
Federal................................................... $1,078 $945 $1,359
State..................................................... -- -- 114
------ ---- ------
Total current............................................. 1,078 945 1,473
------ ---- ------
Deferred tax expense (credit):
Federal................................................... (82) 124 (209)
State..................................................... (95) (73) (31)
------ ---- ------
Total deferred............................................ (177) 51 (240)
------ ---- ------
Total provision for income taxes............................ $ 901 $996 $1,233
====== ==== ======
A summary of the source of differences between income taxes at the federal
statutory rate and the provision for income taxes for the years ended December
31 follows:
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Tax expense at federal statutory rate....................... $ 2,109 $2,087 $1,984
Increase (decrease) in taxes resulting from:
Tax-exempt interest....................................... (1,008) (824) (754)
State income taxes -- Net of federal tax benefit.......... (63) (41) 55
Cash surrender value of life insurance.................... (78) (66) (61)
Income of joint venture................................... (84) (48) (17)
Other..................................................... 25 (112) 26
------- ------ ------
Provision for income taxes.................................. $ 901 $ 996 $1,233
======= ====== ======
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Corporation's assets and
liabilities. The major components of net deferred tax assets at December 31 are
as follows:
2000 1999
---- ----
(IN THOUSANDS)
Deferred tax assets:
Deferred compensation..................................... $ 550 $ 399
Allowance for loan losses................................. 1,270 1,268
Unrealized loss on securities available for sale.......... -- 1,205
Intangibles............................................... 110 89
Accrued vacation.......................................... 96 102
State net operating loss carryforward..................... 167 74
Alternative minimum tax credits........................... 125 34
Other..................................................... 81 66
------- ------
Total deferred tax assets................................. 2,399 3,237
------- ------
Deferred tax liabilities:
Investment acquisition and discount accretion............. (111) (51)
Mortgage servicing rights................................. (245) (192)
Depreciation.............................................. (462) (442)
Unrealized gain on securities available for sale.......... (201) --
Other..................................................... (67) (10)
------- ------
Total deferred tax liabilities............................ (1,086) (695)
------- ------
Net deferred tax asset...................................... $ 1,313 $2,542
======= ======
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The Bank has state net operating loss carryforwards of approximately
$3,194,000. The Bank's net operating losses begin to expire in 2014.
NOTE 11 BENEFIT PLANS
The Corporation has a defined contribution profit sharing 401(k) plan which
is available to all employees after completion of six months of service.
Employees may elect to contribute up to 10% of their compensation. The
Corporation may make discretionary contributions up to the limits established by
IRS regulations. The discretionary match was 35% of participant tax deferred
contributions in 2000, 1999, and 1998. The Corporation made additional
discretionary contributions to the plan of $65,000, $94,000, and $0 in 2000,
1999, and 1998, respectively. All discretionary contributions are at the
discretion of the Board of Directors. Expense associated with the plan was
approximately $189,000, $177,000, and $91,000 in 2000, 1999, and 1998,
respectively.
The Corporation also has a defined contribution money purchase pension plan
which is available to all employees after completion of six months of service
provided that they are employed on the last day of the fiscal year. The
Corporation contributed 4%, 4%, and 3% of the qualified employee compensation
for 2000, 1999, and 1998, respectively. Expense associated with the plan was
approximately $175,000, $141,000 and $91,000 in 2000, 1999, and 1998,
respectively.
The Corporation has a deferred compensation agreement with one of its
officers. Under the terms of the agreement, benefits to be received in the
future vest over each year until the officer reaches retirement age. The
benefits are generally payable beginning with the date of the termination of
employment with the Corporation. The agreement requires an annual payment of
$80,600 over 15 years. Related expense for this agreement was approximately
$107,000 and $214,000 for the years ended December 31, 2000 and 1999,
respectively. Included in other liabilities is the vested present value of
future payments of approximately $321,000 and $214,000 at December 31, 2000 and
1999, respectively.
The Corporation has a nonqualified deferred directors' fee compensation
plan which permits directors to defer a portion of their compensation. The
benefits are generally payable beginning with the earlier of attaining age 70 or
termination of employment with the Corporation. Included in other liabilities is
the estimated present value of future payments of approximately $1,081,000 and
$1,017,000 at December 31, 2000 and 1999, respectively. Expense associated with
this plan was approximately $171,000, $165,000, and $128,000 in 2000, 1999, and
1998, respectively.
NOTE 12 STOCKHOLDERS' EQUITY
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31, 2000, that
the Corporation meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, the most recent notification from the regulatory
agencies categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
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The Corporation's actual and regulatory capital amounts and ratios are as
follows:
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTION PROVISIONS
ACTUAL -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
DECEMBER 31, 2000:
Total capital (to risk-weighted
assets):
Consolidated.................. $36,935 11.2% >=$26,402 >=8.0% N/A
First National Bank in
Manitowoc.................. $35,709 10.7% >=$26,695 >=8.0% >=$33,368 >=10.0%
Tier I capital (to risk-weighted
assets):
Consolidated.................. $33,111 10.0% >=$13,201 >=4.0% N/A
First National Bank in
Manitowoc.................. $31,885 9.6% >=$13,347 >=4.0% >=$20,021 >=6.0%
Tier I capital (to average
assets):
Consolidated.................. $33,111 7.0% >=$18,891 >=4.0% N/A
First National Bank in
Manitowoc.................. $31,885 6.8% >=$18,846 >=4.0% >=$23,558 >=5.0%
DECEMBER 31, 1999:
Total capital (to risk-weighted
assets):
Consolidated.................. $32,053 10.5% >=$24,495 >=8.0% N/A
First National Bank in
Manitowoc.................. $30,454 9.8% >=$24,919 >=8.0% >=$31,149 >=10.0%
Tier I capital (to risk-weighted
assets):
Consolidated.................. $28,353 9.3% >=$12,248 >=4.0% N/A
First National Bank in
Manitowoc.................. $26,754 8.6% >=$12,460 >=4.0% >=$18,689 >=6.0%
Tier I capital (to average
assets):
Consolidated.................. $28,353 7.3% >=$15,464 >=4.0% N/A
First National Bank in
Manitowoc.................. $26,754 6.9% >=$15,417 >=4.0% >=$19,271 >=5.0%
At December 31, 2000, the Bank could have paid approximately $13,492,000 of
additional dividends to the Corporation without prior regulatory approval. The
payment of dividends is restricted by certain statutory and regulatory
limitations and may be further limited because of the need for the Bank to
maintain capital ratios satisfactory to applicable regulatory agencies.
39
41
NOTE 13 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income is shown in the consolidated statements of
stockholders' equity. The Corporation's accumulated other comprehensive income
(loss) is comprised of the unrealized gain or loss on securities available for
sale. The following shows the activity in accumulated other comprehensive income
(loss):
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Accumulated other comprehensive income (loss) at
beginning................................................. $(2,247) $ 1,175 $ 634
------- ------- ------
Activity:
Unrealized gain (loss) on securities available for sale... 4,031 (5,233) 809
Tax impact................................................ (1,406) 1,811 (268)
------- ------- ------
Other comprehensive income.................................. 2,625 (3,422) 541
------- ------- ------
Accumulated other comprehensive income (loss) at end........ $ 378 $(2,247) $1,175
======= ======= ======
NOTE 14 SEGMENT INFORMATION
First Manitowoc Bancorp, Inc., through a branch network of its subsidiary,
First National Bank in Manitowoc, provides a full range of consumer and
commercial financial institution services to individuals and businesses in
Northeastern Wisconsin. These services include demand, time, and savings
deposits; ATM processing; and trust services.
While the Corporation's chief decision-makers monitor the revenue streams
of various Corporation products and services, operations are managed and
financial performance is evaluated on a Corporationwide basis. Accordingly, all
of the Corporation's financial institution operations are considered by
management to be aggregated in one reportable operating segment.
NOTE 15 COMMITMENTS AND CONTINGENCIES
The Corporation is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets. The contract amounts reflect the extent of
involvement the Corporation has in the particular class of financial instrument.
The Corporation's maximum exposure to credit loss for commitments to extend
credit is represented by the contract amount of those instruments.
Off-balance-sheet financial instruments whose contract amounts represent
credit and/or interest rate risk at December 31 are as follows:
NOTIONAL AMOUNT
------------------
2000 1999
---- ----
(IN THOUSANDS)
Commitments to extend credit................................ $49,592 $44,730
Credit card arrangements.................................... 6,878 6,104
Standby letters of credit................................... 2,273 1,711
Commitments to extend credit and credit card arrangements are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. A portion of the
commitments are expected to be drawn upon, thus representing future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained upon extension of credit
is based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable; inventory; property, plant, and
equipment; real estate; and stocks and bonds.
40
42
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Corporation holds
collateral supporting those commitments for which collateral is deemed
necessary. Because these instruments have fixed maturity dates and because many
of them expire without being drawn upon, they do not generally present any
significant liquidity risk to the Corporation.
The Corporation has no investments in nor is a party to transactions
involving derivative investments, except mortgage-related securities which
represent minimal risk to the Corporation.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions for the Corporation's
financial instruments are summarized below.
Cash and Cash Equivalents -- The carrying values approximate the fair
values for these assets.
Securities Available for Sale -- Fair values are based on quoted market
prices where available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans and Loans Held for Sale -- For certain homogeneous categories of
loans, such as fixed-rate residential mortgages, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings.
The methodology in determining fair value of nonaccrual loans is to average
them into the blended interest rate at 0% interest. This has the effect of
decreasing the carrying amount below the risk-free rate amount and therefore
discounts the estimated fair value.
Impaired loans are measured at the estimated fair value of the expected
future cash flows at the loan's effective interest rate or the fair value of the
collateral for loans which are collateral dependent. Therefore, the carrying
values of impaired loans approximate the estimated fair values for these assets.
Deposits -- The fair value of deposits with no stated maturity, such as
passbooks, negotiable order of withdrawal accounts, and variable rate insured
money market accounts, is the amount payable on demand on the reporting date.
The fair value of fixed-rate, fixed-maturity, certificate accounts is estimated
using discounted cash flows with discount rates at interest rates currently
offered for deposits of similar remaining maturities.
Securities Sold Under Repurchase Agreements -- The fair value of securities
sold under repurchase agreements with variable rates or due on demand is the
amount payable at the reporting date. The fair value of securities sold under
repurchase agreements with fixed terms is estimated using discounted cash flows
with discount rates at interest rates currently offered for securities sold
under repurchase agreements of similar remaining maturities.
Borrowings -- Rates currently available to the Corporation for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt. The fair value of borrowed funds due on demand is the amount
payable at the reporting date. The fair value of borrowed funds with fixed terms
is estimated using discounted cash flows with discount rates at interest rates
currently offered by lenders for similar remaining maturities.
Off-Balance-Sheet Instruments -- The fair value of commitments is estimated
using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements, the current interest rates, and
the present creditworthiness of the counterparties. Since this amount is
immaterial, no amounts for fair value are presented.
41
43
The carrying amount and estimated fair value of financial instruments at
December 31 were as follows:
2000 1999
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
Financial assets:
Cash and cash equivalents......................... $ 26,374 $ 26,374 $ 40,716 $ 40,716
Securities........................................ 116,852 116,852 97,595 97,595
Loans -- Net...................................... 322,747 325,922 294,940 297,690
-------- -------- -------- --------
Total financial assets.............................. $465,973 $469,148 $433,251 $436,001
======== ======== ======== ========
Financial liabilities:
Deposits.......................................... $394,601 $396,353 $363,286 $363,286
Securities sold under repurchase agreements....... 29,952 29,969 22,352 22,352
Borrowed funds.................................... 23,000 23,079 38,000 38,277
-------- -------- -------- --------
Total financial liabilities......................... $447,553 $449,401 $423,638 $423,915
======== ======== ======== ========
Limitations -- Fair value estimates are made at a specific point in time
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Corporation's entire holdings of a
particular instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters that
could affect the estimates. Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate the value
of anticipated future business and the value of assets and liabilities that are
not considered financial instruments. Deposits with no stated maturities are
defined as having a fair value equivalent to the amount payable on demand. This
prohibits adjusting fair value derived from retaining those deposits for an
expected future period of time. This component, commonly referred to as a
deposit base intangible, is neither considered in the above amounts nor is it
recorded as an intangible asset on the consolidated balance sheet. Significant
assets and liabilities that are not considered financial assets and liabilities
include premises and equipment. In addition, the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the estimates.
42
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NOTE 17 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
BALANCE SHEETS
DECEMBER 31
------------------
2000 1999
---- ----
(IN THOUSANDS)
ASSETS
Cash........................................................ $ 2 $ 12
Repurchase agreements with Bank............................. 102 286
Investment in Bank.......................................... 40,235 33,039
Premises and equipment...................................... 1,131 1,172
------- -------
TOTAL ASSETS................................................ $41,470 $34,509
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities......................................... $ 9 $ 3
------- -------
Total liabilities......................................... 9 3
------- -------
Stockholders' equity:
Common stock.............................................. 3,792 3,792
Retained earnings......................................... 37,991 33,661
Accumulated other comprehensive income (loss)............. 378 (2,247)
Treasury stock, at cost................................... (700) (700)
------- -------
Total stockholders' equity................................ 41,461 34,506
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $41,470 $34,509
======= =======
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
--------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Dividends received from Bank................................ $ 720 $ 720 $ 720
Rental income received from Bank............................ 129 99 99
Interest and other income................................... 15 20 26
Equity in earnings of subsidiaries.......................... 4,571 4,200 3,870
------ ------ ------
Total income...................................... 5,435 5,039 4,715
------ ------ ------
Other operating expenses.................................... 128 105 106
------ ------ ------
Income before provision for income taxes.................... 5,307 4,934 4,609
Provision for income taxes.................................. 6 6 8
------ ------ ------
Net income.................................................. $5,301 $4,928 $4,601
====== ====== ======
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STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
-----------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 5,301 $ 4,928 $ 4,601
------- ------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 41 41 39
Equity in earnings of subsidiary....................... (4,571) (4,200) (3,870)
Change in other operating liabilities.................. 6 1 (5)
------- ------- -------
Total adjustments................................. (4,524) (4,158) (3,836)
------- ------- -------
Net cash provided by operating activities................... 777 770 765
------- ------- -------
Cash flows from investing activities:
Net purchases of premises and equipment................... -- (48) 34
(Increase) decrease in repurchase agreements.............. 184 180 (50)
Proceeds from sale of land to Bank........................ -- -- 107
Change in investment...................................... -- -- (12)
------- ------- -------
Net cash provided by investing activities................... 184 132 79
------- ------- -------
Cash flows from financing activities:
Cash dividends paid....................................... (971) (885) (791)
Payments on borrowed funds................................ -- -- (58)
Other..................................................... -- (7) --
------- ------- -------
Net cash used in financing activities....................... (971) (892) (849)
------- ------- -------
Net increase (decrease) in cash............................. (10) 10 (5)
Cash at beginning........................................... 12 2 7
------- ------- -------
Cash at end................................................. $ 2 $ 12 $ 2
======= ======= =======
ITEM 9
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
A change in the Company's independent public accountants occurred during
2000 as has been previously reported on Form 8-K dated August 22, 2000.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the Corporation's definitive Proxy Statement, prepared
for the 2001 Annual Meeting of Shareholders, which contains information
concerning directors of the Corporation, under the caption "Election of
Directors," and the information concerning executive officers of the registrant,
under the caption "Executive Officers Who Are Not Directors," is incorporated
herein by reference.
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46
ITEM 11
EXECUTIVE COMPENSATION
The information in the Corporation's definitive Proxy Statement, prepared
for the 2001 Annual Meeting of Shareholders, which contains information
concerning this item, under the caption "Compensation of Executive Officers and
Directors," is incorporated herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the Corporation's definitive Proxy Statement, prepared
for the 2001 Annual Meeting of Shareholders, which contains information
concerning this item, under the caption "Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management," is incorporated herein by reference.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note 3 in the Consolidated Financial Statements.
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PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedules are
included under a separate caption "Financial Statements and Supplementary Data"
in Part II, Item 8 hereof and are incorporated herein by reference.
Independent Auditors' Reports
Consolidated Balance Sheets--December 31, 2000 and 1999
Consolidated Statements of Income--For the Years Ended December 31, 2000,
1999, and 1998
Consolidated Statements of Stockholders' Equity--For the Years Ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows--For the Years Ended December 31,
2000, 1999, and 1998
Notes to Consolidated Financial Statements
(a)(3) Exhibits
EXHIBIT NUMBER SEQUENTIAL PAGE NUMBER OR INCORPORATE BY REFERENCE TO
-------------- -----------------------------------------------------
(3)(1) Articles of Incorporation Filed as Exhibit (3)(1) to Report on Form 10 filed
May 5, 1999.
(3)(2) Bylaws Filed as Exhibit (3)(2) to Report on Form 10 filed
May 5, 1999.
(11) Statement Re Computation of Per Share See Note 1 in Part II Item 8
Earnings
(21) Subsidiaries of the Company Filed herewith
(23) Consent of Independent Auditors Filed herewith
(23)(a) Consent of Independent Auditors Filed herewith
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
Date: March 16, 2001 By: /s/ THOMAS J. BARE
------------------------------------
Thomas J. Bare
President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ THOMAS J. BARE /s/ ROBERT S. WEINERT
- ----------------------------------------------------- -----------------------------------------------------
Thomas J. Bare, President and Treasurer Robert S. Weinert, Chairman
Date: March 16, 2001 Date: March 16, 2001
/s/ JOHN J. ZIMMER /s/ JOHN M. JAGEMANN
- ----------------------------------------------------- -----------------------------------------------------
John J. Zimmer, Vice President John M. Jagemann, Director
Date: March 16, 2001 Date: March 16, 2001
/s/ JOHN C. MILLER /s/ JOHN E. NORDSTROM
- ----------------------------------------------------- -----------------------------------------------------
John C. Miller, Director John E. Nordstrom, Director
Date: March 16, 2001 Date: March 16, 2001
/s/ CRAIG A. PAULY /s/ KATHERINE M. REYNOLDS
- ----------------------------------------------------- -----------------------------------------------------
Craig A. Pauly, Director Katherine M. Reynolds, Director
Date: March 16, 2001 Date: March 16, 2001
/s/ JOHN M. WEBSTER
- -----------------------------------------------------
John M. Webster, Director
Date: March 16, 2001
47