1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
------------------------------------------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
Commission file number 0-25983
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First Manitowoc Bancorp, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
- ------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
402 North Eighth Street, Manitowoc, Wisconsin 54220
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(Address of principal executive offices) (Zip code)
(920) 684-6611
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at June 30, 2001, was 3,468,634 shares.
2
FIRST MANITOWOC BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition -
June 30, 2001 and December 31, 2000 1
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2001 and 2000 2
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended June 30, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, December 31,
2001 2000
---- ----
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 20,710 $ 19,834
Federal funds sold 7,184 6,540
--------- ---------
Cash and cash equivalents 27,894 26,374
Securities available for sale, at fair value 120,223 116,852
Loans 337,264 326,571
Less: Allowance for loan losses (4,714) (3,824)
--------- ---------
Loans, net 332,550 322,747
Premises and equipment, net 9,642 9,491
Intangible assets, net of accumulated amortization of
$1,687,000 in 2001 and $1,319,000 in 2000 10,149 7,910
Other assets 12,309 12,036
--------- ---------
Total assets $ 512,767 $ 495,410
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 57,158 $ 62,774
Interest-bearing deposits 331,643 331,827
--------- ---------
Total deposits 388,801 394,601
Securities sold under repurchase agreements 33,338 29,952
Short-term borrowings 2,000 2,000
Other liabilities 6,811 6,396
Long-term borrowings 37,176 21,000
--------- ---------
Total liabilities 468,126 453,949
Stockholders' equity
Common stock, $1.00 par value; authorized 3,792 3,792
10,000,000 shares; issued 3,791,814 shares
Retained earnings 40,089 37,991
Accumulated other comprehensive income 1,460 378
Treasury stock at cost--323,180 shares (700) (700)
--------- ---------
Total stockholders' equity 44,641 41,461
--------- ---------
Total liabilities and stockholders' equity $ 512,767 $ 495,410
========= =========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
1
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------- -------
2001 2000 2001 2000
---- ---- ---- ----
(In Thousands, Except Share Data)
INTEREST INCOME
Loans, including fees $ 7,228 $ 7,020 $14,572 $13,720
Federal funds sold 118 123 206 203
Securities:
Taxable 1,047 763 2,091 1,536
Tax exempt 733 679 1,457 1,343
------- ------- ------- -------
Total interest income 9,126 8,585 18,326 16,802
INTEREST EXPENSE
Deposits 3,926 3,726 8,148 7,123
Securities sold under repurchase agreements 399 305 814 635
Borrowed funds 477 597 958 1,102
------- ------- ------- -------
Total interest expense 4,802 4,628 9,920 8,860
------- ------- ------- -------
NET INTEREST INCOME 4,324 3,957 8,406 7,942
Provision for loan losses 880 75 1,030 200
------- ------- ------- -------
Net interest income after provision for loan losses 3,444 3,882 7,376 7,742
OTHER INCOME
Trust service fees 137 142 269 261
Service charges on deposit accounts 260 244 509 469
Loan servicing income 242 71 360 188
Gain on sales of mortgage loans held for sale 70 8 101 21
Insurance commission income 424 0 757 0
Other 31 173 258 310
------- ------- ------- -------
Total other income 1,164 638 2,254 1,249
OTHER EXPENSE
Salaries, commissions and related benefits 1,589 1,330 3,560 2,853
Occupancy 420 394 924 784
Data processing 235 249 453 450
Postage, stationery and supplies 130 113 243 272
Amortization of other intangibles 160 112 368 224
Other 671 562 1,103 1,029
------- ------- ------- -------
Total other expense 3,205 2,760 6,651 5,612
------- ------- ------- -------
Income before provision for income tax 1,403 1,760 2,979 3,379
Provision for income tax 170 326 395 628
------- ------- ------- -------
NET INCOME $ 1,233 $ 1,434 $ 2,584 $ 2,751
======= ======= ======= =======
Earnings per share: basic and diluted $ 0.35 $ 0.41 $ 0.74 $ 0.79
(See accompanying notes to Unaudited Consolidated Financial Statements.)
2
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30, 2000
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock (Loss) Income Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $3,792 $33,661 ($700) ($2,247) $34,506
Net income 0 2,751 0 0 2,751
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 448 448
Income tax effect 0 0 0 (151) (151)
-------
Comprehensive income $ 3,048
Cash dividends ($ .12 per share) 0 (451) 0 0 (451)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $3,792 $35,961 ($700) ($1,950) $37,103
====== ======= ===== ======= =======
</Table>
Six Months Ended June 30, 2001
(In Thousands, Except Share Data)
<Table>
<Caption>
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock Income (Loss) Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $3,792 $37,991 ($700) $ 378 $41,461
Net income 0 2,584 0 0 2,584
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 1,660 1,659
Income tax effect 0 0 0 (578) (577)
-------
Comprehensive income $ 3,666
Cash dividends ($.14 per share) 0 (486) 0 0 (486)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 $3,792 $40,089 ($700) $1,460 $44,641
====== ======= ===== ====== =======
(See accompanying notes to Unaudited Consolidated Financial Statements.)
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
----------------------
2001 2000
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,584 $ 2,751
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,030 200
Depreciation of premises and equipment 464 430
Amortization of intangible assets 368 224
(Accretion) Amortization of securities, net (43) 9
Proceeds from sale of mortgage loans 29,595 6,987
Originations of mortgage loans held for sale (29,696) (6,867)
Gain on sales of mortgage loans held for sale 101 21
Gain on sale of fixed assets (19) 0
Undistributed income of joint venture (137) (109)
Increase in other assets (703) 110
(Decrease) Increase in other liabilities (449) 608
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,095 4,364
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 18,431 9,393
Purchases of securities available for sale (20,020) (13,504)
Net increase in loans (10,833) (18,845)
Purchases of premises and equipment (208) (1,313)
Proceeds from sales of premises and equipment 60 86
Acquisition, net of cash acquired (67) 0
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,637) (24,183)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (5,800) 7,946
Net increase (decrease) in securities sold under repurchase agreements 3,386 (4,788)
Proceeds from advances on borrowed funds 20,000 14,000
Repayment of borrowed funds (6,038) (20,000)
Dividends paid (486) (451)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 11,062 (3,293)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,520 (23,112)
Cash and cash equivalents at beginning of period 26,374 40,716
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 27,894 $ 17,604
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,683 $ 8,161
Income taxes 660 2
- -------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities not
described in the notes to the financial statements:
Loans receivable transferred to other real estate $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------------
4
7
Acquisition:
Cash paid for purchase of stock $ (733) $ ---
Cash acquired 666 ---
- -------------------------------------------------------------------------------------------------------------------
Net cash paid for acquisition (67) ---
Fair value of assets acquired 563 ---
Acquisition intangibles 2,582 ---
Liabilities assumed 1,611 ---
Notes payable to former shareholders 1,467 ---
(See accompanying notes to Unaudited Consolidated Financial Statements.)
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ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, these accompanying unaudited
consolidated financial statements contain all adjustments necessary to present
fairly First Manitowoc Bancorp, Inc.'s ("Corporation") financial position,
results of its operations, changes in stockholders' equity and cash flows for
the periods presented. All adjustments necessary for the fair presentation of
the consolidated financial statements are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. This report should be read in
conjunction with the Corporation's 2000 annual report on Form 10-K.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. The Corporation is a bank holding company that engages in its
business through its sole subsidiary, First National Bank in Manitowoc ("Bank"),
a nationally chartered commercial bank. The Bank has two wholly owned
subsidiaries, FNBM Investment Corp. and Insurance Center of Manitowoc, Inc. All
material intercompany transactions and balances are eliminated. Certain items in
the prior period consolidated financial statements have been reclassified to
conform with the June 30, 2001 presentation.
In January, the Bank acquired 100% ownership in the Insurance Center of
Manitowoc, Inc. ("Insurance Center"). Insurance Center includes Gary Vincent and
Associates in Green Bay, Wisconsin. Insurance Center is an independent agency
offering commercial, personal, life, and health insurance. It is being operated
as a wholly owned subsidiary of the Bank. Insurance Center had approximately
$563,000 in assets at date of acquisition. The transaction was accounted for
under the purchase method of accounting and goodwill of approximately $2.6
million was recorded. The Corporation's financial statements reflect the
accounts and operations of Insurance Center beginning January 1, 2001. The
Corporation recorded all Insurance Center assets and liabilities at fair value
at date of acquisition.
6
9
NOTE 3: Investment Securities
The amortized cost and fair values of investment securities available for sale
for the periods indicated are as follows:
Investment Securities
(In Thousands)
June 30, 2001
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 12,687 $ 13,050
Obligations of states and political subdivisions 61,941 63,379
Mortgage-backed securities 39,822 40,231
Corporate notes 898 927
Other securities 2,636 2,636
--------- ---------
Total $ 117,984 $ 120,223
========= =========
December 31, 2000
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 19,431 $ 19,550
Obligations of states and political subdivisions 60,708 61,428
Mortgage-backed securities 30,609 30,349
Corporate notes 948 948
Other securities 4,577 4,577
--------- ---------
Total $ 116,273 $ 116,852
========= =========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(Dollars In Thousands)
June 30, 2001 December 31, 2000
Percent of Percent of
Amount Total Loans Amount Total Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial and Agricultural $ 98,594 29.23% $ 94,886 29.05%
Commercial Real Estate 84,400 25.02% 76,478 23.42%
Residential Real Estate 129,194 38.31% 131,592 40.30%
Consumer 23,610 7.00% 22,270 6.82%
Other 1,466 .44% 1,345 .41%
--------- ------- -------- -------
Total $ 337,264 100.00% $326,571 100.00%
========= ======= ======== =======
7
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NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance at beginning of period $3,824 $3,700
Provision charged to expense 1,030 200
Charge-offs (161) (153)
Recoveries 21 23
------ ------
Balance at end of period $4,714 $3,770
====== ======
NOTE 6: Business Segments
The Corporation through the branch network of its subsidiaries provides a broad
range of financial services to individuals and companies in northeastern
Wisconsin. These services include demand, time, and savings deposits; commercial
and retail lending; ATM processing; trust services; and insurance services.
While the Corporation's chief decision maker monitors the revenue streams of the
various products and services, operations are managed and financial performance
is evaluated on a Corporate-wide basis. Accordingly, all of the Corporation's
operations are considered by management to be aggregated in one reportable
operating segment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
Forward-looking statements have been made by First Manitowoc Bancorp, Inc. (the
"Corporation") in this document and in documents incorporated by reference that
are subject to risks and uncertainties. These forward-looking statements, which
are included in Management's Discussion and Analysis, describe future plans or
strategies and include the Corporation's expectations of future results of
operations. The words "believes," "expects," "anticipates" or similar
expressions identify forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document could affect the future financial results of the
Corporation and could cause those results to differ materially from those
expressed in forward-looking statements contained in this document. These
factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting the
Corporation's banking, securities, asset management and
credit services businesses; and
- the risk that the Corporation's analyses of these risks and
forces could be incorrect and/or that the strategies developed
to address them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. The Corporation does
not undertake and specifically disclaims any obligation to update any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
8
11
EARNINGS
Net Income
(Dollars In Thousands, Except Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,233 $ 1,434 $ 2,584 $ 2,751
EPS-Basic & Diluted $ .35 $ .41 $ .74 $ .79
Return on Average Assets .98% 1.25% 1.04% 1.23%
Return on Average Equity 11.61% 16.06% 12.35% 16.37%
- ------------------------------------------------------------------------------------------------------------------------------------
All per share financial information has been adjusted to reflect the two for one
stock split effective June 30, 2000. Weighted average shares outstanding were
3,468,634 for the three months ended June 30, 2001 and 2000.
Net income for the three months ended June 30, 2001 was $1,233,000 compared to
$1,434,000 for the three months ended June 30, 2000, a decrease of $201,000, or
14.02%. Interest income increased $541,000 primarily as a result of an increase
in loans and an increase in securities. Interest expense increased $174,000
mainly as a result of an increase in deposits and an increase in interest rates
paid on deposits. Other income increased $526,000 as a result of an increase in
service charges on deposits and an increase in loan servicing income. The
largest addition to other income resulted from the Insurance Center of Manitowoc
acquisition in the form of commission income of $424,000. Other expense
increased $445,000. This is a result of increased salaries, commissions and
related benefits due to the additional compensation for employees acquired as
part of the Insurance Center acquisition and annual merit increases in wages for
employees. Occupancy expense increased as a result of the new offices obtained
in the Insurance Center acquisition. Amortization of goodwill increased as a
result of the Insurance Center acquisition. Earnings per share for the three
months ended June 30, 2001 was $0.35 compared to $0.41 for the three months
ended June 30, 2000.
Net income for the six months ended June 30, 2001 was $2,584,000 compared to
$2,751,000 for the six months ended June 30, 2000, a decrease of $167,000 or
6.07%. Interest income increased $1,524,000 primarily due to an increase in
loans and securities volume. Interest expense increased $1,060,000 primarily due
to an increase in deposits and an increase in interest rates paid on deposits.
Other income increased $1,005,000 primarily as a result of insurance commission
income from the Insurance Center acquisition. Other expense increased
$1,039,000, a result of increased salaries, commissions and related benefits for
the Insurance Center employees, and annual merit increases. Occupancy expense
increased due to the Insurance Center acquisition. Amortization of goodwill
increased as a result of the Insurance Center acquisition. Earnings per share
for the six months ended June 30, 2001 was $0.74 compared to $0.79 for the six
months ended June 30, 2000.
Lower net income for the three and six month periods ended June 30, 2001 is
primarily the result of the increase in provision for loan losses of $880,000
during the second quarter of 2001. The larger provision was made due to the
anticipated loss with one commercial loan customer. This is an isolated case and
no trend to higher loan losses is expected.
Return on average assets (ROA) on an annualized basis for the first six months
of 2001 was 1.04% compared to 1.23% for the first six months in 2000. Return on
average equity (ROE) on an annualized basis for the first six months of 2001 was
12.35% compared to 16.37% for the first six months of 2000.
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12
AVERAGE BALANCES, YIELD AND RATES
For the three months For the three months
ended June 30, 2001 ended June 30, 2000
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------
ASSETS (In Thousands) (In Thousands)
Interest earning assets:
Federal funds sold $ 10,131 $ 76 3.01% $ 8,169 $ 123 6.05%
Investment securities 121,927 2,203 7.25% 100,035 1,854 7.43%
Loans 332,876 7,263 8.75% 313,215 7,034 9.01%
--------- -------- ---- --------- ------- ----
Total interest earning assets 464,934 $ 9,542 8.23% $ 421,419 $ 9,011 8.55%
Other assets 38,626 37,152
--------- ---------
TOTAL ASSETS $ 503,560 $ 458,571
=========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $332,015 $ 3,931 4.75% $ 304,775 $ 3,729 4.91%
Repurchase agreements 29,895 397 5.33% 20,878 286 5.50%
Federal funds purchased 15 0 0.00% 0 0 0.00%
Borrowings 38,697 474 4.91% 40,007 615 6.17%
--------- -------- ---- --------- ------- ----
Total interest-bearing liabilities $ 400,622 $ 4,802 4.81% $ 365,660 $ 4,630 5.07%
Demand deposits 52,786 52,114
Other liabilities 7,656 5,077
--------- ---------
Total liabilities $ 461,064 $ 422,851
Stockholders' equity 42,496 35,720
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 503,560 $ 458,571
========= =========
Net interest income and
interest rate spread $ 4,740 3.42% $ 4,381 3.48%
Net interest income as
a percent of earning assets (annualized) 4.08% 4.16%
==== ====
10
13
AVERAGE BALANCES, YIELD AND RATES
For the six months For the six months
ended June 30, 2001 ended June 30, 2000
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------
ASSETS (In Thousands) (In Thousands)
Interest earning assets:
Federal funds sold $ 6,918 $ 140 4.08% $ 5,698 $ 176 6.19%
Investment securities 121,118 4,372 7.28% 100,103 3,714 7.42%
Loans 331,180 14,674 8.94% 308,034 13,814 9.02%
--------- -------- ---- --------- ------- ----
Total interest earning assets $ 459,216 $ 19,186 8.43% $ 413,835 $17,704 8.58%
Other assets 37,798 37,453
--------- ---------
TOTAL ASSETS $ 497,014 $ 451,288
========= =========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $ 331,966 $ 8,153 4.95% $ 299,651 $ 7,130 4.78%
Repurchase agreements 28,812 814 5.70% 20,550 548 5.36%
Federal funds purchased 1,166 32 5.53% 1,734 51 5.95%
Borrowings 33,837 925 5.51% 38,896 1,138 5.85%
--------- -------- ---- --------- ------- ----
Total interest-bearing liabilities $ 395,781 $ 9,924 5.06% $ 360,831 $ 8,867 4.93%
Demand deposits 52,128 50,736
Other liabilities 7,265 4,633
--------- ---------
Total liabilities $ 455,174 $ 416,200
Stockholders' equity 41,840 35,088
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 497,014 $ 451,288
========= =========
Net interest income and
interest rate spread $ 9,262 3.37% $ 8,837 3.65%
Net interest income as
a percent of earning assets (annualized) 4.07% 4.28%
==== ====
11
14
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the principal source of earnings for a banking company.
It represents the differences between interest and fees earned on the loan and
investment portfolios offset by the interest paid on deposits and borrowings.
The six months ended June 30, 2001 has been characterized by generally falling
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 2001.
Net interest margin is calculated as tax equivalent net interest income divided
by average earning assets and represents the Bank's net yield on its earning
assets. The tax equivalent adjustment was calculated using the statutory federal
income tax rate of 34%.
SECOND QUARTER 2001 COMPARED TO SECOND QUARTER 2000:
Net interest income (on a tax equivalent basis) for the three months ended June
30, 2001 increased by $357,000 or 8.15% compared to the three months ended June
30, 2000. Interest income increased $531,000 primarily as a result of the
increase in loans and an increase in investment securities. Total average loans
increased to $332,876,000 for the second quarter of 2001 from $313,215,000 for
the second quarter of 2000. Average investment securities increased to
$121,927,000 for the second quarter of 2001 from $100,035,000 for the second
quarter of 2000. Interest yields on loans and securities declined to 8.75% and
7.25% for the second quarter of 2001 from 9.01% and 7.43% for the second quarter
of 2000. Interest expense increased $174,000 primarily as a result of an
increase in interest bearing deposits and repurchase agreements. Total average
interest-bearing deposits increased to $332,015,000 for the second quarter of
2001 from $304,775,000 for the second quarter of 2000. Average repurchase
agreements increased to $29,895,000 for the second quarter of 2001 from
$20,878,000 for the second quarter of 2000. Interest rates fell on both interest
bearing deposits and repurchase agreements from the second quarter of 2000 to
the second quarter of 2001. The interest rate spread, which is the difference
between the average yield on interest earning assets and the average rate paid
on interest bearing liabilities, was 3.42% for the three months ended June 30,
2001, a decrease of 6 basis points from the interest rate spread of 3.48% for
the three months ended June 30, 2000.
Net interest margin for the three months ended June 30, 2001 was 4.08% compared
with 4.16% for the three months ended June 30, 2000.
YTD 2001 COMPARED TO YTD 2000:
Net interest income (on a tax equivalent basis) for the six months ended June
30, 2001 increased by $425,000 or 4.81% compared to the six months ended June
30, 2000. Interest income increased $1,482,000 primarily as a result of
increases in loans and investment securities. Total average loans increased to
$331,180,000 for the first six months of 2001 from $308,034,000 for the first
six months of 2000. Total average investment securities increased to
$121,118,000 for the first six months of 2001 from $100,103,000 for the first
six months of 2000. Interest yields fell on both loans and investment securities
for the six months ended June 30, 2001. Interest expense increased $1,060,000
primarily due to an increase in deposits and an increase in deposit yields.
Total average interest bearing deposits increased to $331,966,000 for the first
six months of 2001 from $299,651,000 for the first six months of 2000, while
interest rates paid on those deposits increased to 4.95% in the first half of
2001 from 4.78% in the first half of 2000. The interest rate spread was 3.37%
for the six months ended June 30, 2001, a decrease of 28 basis points from the
interest rate spread of 3.65% for the six months ended June 30, 2000.
Net interest margin for the six months ended June 30, 2001 was 4.07% compared
with 4.28% for the six months ended June 30, 2000.
12
15
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended June 30, 2001, the Bank charged $880,000 to expense
for the provision for loan loss compared to $75,000 for the three months ended
June 30, 2000.
Allowance for Loan Losses
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 3,888 $ 3,821 $ 3,824 $ 3,700
Charge-offs (64) (138) (161) (153)
Recoveries 10 12 21 23
------- ------- ------- -------
Net (charge-offs) recoveries (54) (126) (140) (130)
Provision for loan losses 880 75 1,030 200
------- ------- ------- -------
Balance at end of period $ 4,714 $ 3,770 $ 4,714 $ 3,770
======= ======= ======= =======
Ratio of net charge-offs during period to
average loans outstanding during period .02% .04% .04% .04%
Ratio of allowance for loan losses
to total loans 1.40% 1.19% 1.40% 1.19%
- ------------------------------------------------------------------------------------------------------------------------------------
The increase in the ratio of allowance for loan losses to total loans is
primarily a result of a higher provision for loan losses for the three months
ended June 30, 2001.
There are several factors that are included in the analysis of the adequacy of
the allowance for loan losses. Management considers loan volume trends, levels
and trends in delinquencies and non-accruals, current problem credits, national
and local economic trends and conditions, concentrations of credit by industry,
current and historical levels of charge-offs, the experience and ability of the
lending staff, and other miscellaneous factors. Management has determined the
allowance for loan losses is adequate to absorb probable loan losses in its loan
portfolio as of June 30, 2001 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.
A table showing the allocation of allowance for loan losses is shown below.
Allocation of Allowance for Loan Losses
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Specific Problem Loans $1,435 $ 625
Loan Type Allocation:
Commercial & Agricultural 2,838 2,688
Commercial Real Estate 388 436
Residential Real Estate 18 25
Consumer 35 36
------- -------
3,279 3,185
Unallocated 0 14
-------- -------
Total Reserve $ 4,714 $ 3,824
======== =======
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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.
NONPERFORMING LOANS
It is the policy of the Bank to place a loan in non-accrual status whenever
there is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. Management considers such factors as payment
history, the nature and value of collateral securing the loan and the overall
economic situation of the borrower when making a non-accrual decision.
Non-accrual loans are closely monitored by management. A non-accruing loan is
restored to current status when the prospects of future contractual payments are
no longer in doubt.
Total nonperforming loans at June 30, 2001 were $4,576,000, an increase of
$2,392,000 from December 31, 2000. The following table presents nonperforming
and nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 3,818 $ 1,765
Accruing loans past due 90 days or more 758 419
-------- --------
Total nonperforming loans $ 4,576 $ 2,184
Nonperforming loans as a percent of loans 1.36% .67%
Ratio of the allowance for loan losses to nonperforming loans 103.00% 175.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
OTHER INCOME
Other Income
(In Thousands)
<Table>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Trust Service Fees $ 137 $ 142 $ 269 $ 261
Service Charges on Deposit Accounts 260 244 509 469
Loan Servicing Income 242 71 360 188
Gain on Sales of Mortgage Loans Held for Sale 70 8 101 21
Insurance commission income 424 0 757 0
Other 31 173 258 310
------- ------ ------ ------
Total Other Income $ 1,164 $ 638 $2,254 $1,249
- ------------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2001 COMPARED TO SECOND QUARTER 2000:
Other income for the second quarter of 2001 was $1,164,000 compared to $638,000
for the second quarter of 2000, an increase of $526,000 or 82.4%. The Insurance
Center of Manitowoc acquisition accounted for $424,000 of this increase in the
form of commission income. Loan servicing income increased $171,000 in the
second quarter of 2001. An increase in the number of residential mortgage loans
and refinancings processed and sold to the FNMA secondary market accounted for
an increase of $62,000 in gains on sales of mortgage loans in the quarter ended
June 30, 2001.
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YTD 2001 COMPARED TO YTD 2000:
Other income for the six months ended June 30, 2001 was $2,254,000 compared to
$1,249,000 for the six months ended June 30, 2000, an increase of $1,005,000 or
80.5%. The increase resulted primarily from $757,000 of insurance commission
income from the Insurance Center acquisition and an increase of $172,000 in loan
servicing income. The increase in gains on sales of mortgage loans held for sale
is a result of an increase in the number of new residential mortgage loans and
refinancings processed and sold in the secondary market during the first six
months of 2001.
OTHER EXPENSE
Other Expense
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Salaries, commissions and related benefits $1,589 $ 1,330 $3,560 $2,853
Occupancy 420 394 924 784
Data Processing 235 249 453 450
Postage, Stationery and Supplies 130 113 243 272
Amortization of intangibles 160 112 368 224
Other 671 562 1,103 1,029
------ ------- ------ ------
Total Other Expense $3,205 $2, 760 $6,651 $5,612
- ------------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2001 COMPARED TO SECOND QUARTER 2000:
Other expense for the second quarter of 2001 was $3,205,000 compared to
$2,760,000 for the second quarter of 2000, an increase of $445,000, or 16.1%.
The increase is a result of increased salaries, commissions and related benefits
due to the additional compensation for employees acquired in the Insurance
Center acquisition and annual merit increases for employees. Occupancy expense
increased due to the offices obtained in the Insurance Center acquisition.
Amortization of Goodwill increased as a result of the Insurance Center
acquisition. Other expenses increased primarily due to increased collection and
repossession expense.
YTD 2001 COMPARED TO YTD 2000:
Other expense for the first six months of 2001 was $6,651,000 compared to
$5,612,000 for the first six months of 2000, an increase of $1,039,000 or 18.5%.
This increase is the result of increased salaries and employee benefits due to
additional salaries, commissions and related benefits for employees acquired as
part of the Insurance Center acquisition, and annual merit increases for
employees. Occupancy expense increased due to the offices obtained in the
Insurance Center acquisition. Amortization of goodwill increased due to the
Insurance Center acquisition. Other expenses increased primarily due to
increased collection and repossession expense, higher charge card expense, and
higher data processing expenses.
INCOME TAXES
The effective tax rate for the three months ended June 30, 2001 was 12.12 %
compared to 18.52% for the three months ended June 30, 2000. The decrease in
effective tax rates in the period is a direct result of loans and securities
transferred from the Bank to the Bank's FNBM Investment Corp. subsidiary which
are not subject to state income tax.
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BALANCE SHEET
JUNE 30, 2001 COMPARED TO DECEMBER 31, 2000
The Corporation's total assets increased from $495.4 million at December 31,
2000 to $512.8 million at June 30, 2001. Loans increased $10.7 million, a result
of customer demand for commercial real estate loans. Securities increased $3.4
million due to increases in mortgage backed securities offset by smaller
decreases in U.S. Government Agency securities.
Deposits decreased $5.8 million to $388.8 million at June 30, 2001 from $394.6
million at December 31, 2000, due to decreases in non-interest bearing deposits.
Long-term borrowings increased $16.2 million from $21 million at December 31,
2000 to $37.2 million at June 30, 2001. The increase in long-term borrowings was
a result of the borrowing of funds in order to fund the increase in loans and to
replace non-interest bearing deposits.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Bank to meet financial obligations that
arise out of the ordinary course of business. Liquidity is primarily needed to
meet borrowing and deposit withdrawal requirements of the customers of the Bank
and to fund current and planned expenditures. The Bank maintains its asset
liquidity position internally through cash and cash equivalents, short term
investments, the maturity distribution of the investment portfolio, loan
repayments and income from earning assets. A substantial portion of the
investment portfolio contains readily marketable securities that could be
converted to cash immediately. On the liability side of the balance sheet,
liquidity is affected by the timing of maturing liabilities and the ability to
generate new deposits or borrowings as needed. Other sources are available
through borrowings from the Federal Reserve Bank, the Federal Home Loan Bank and
from lines of credit approved at correspondent banks. Management knows of no
trend or event which will have a material impact on the Bank's ability to
maintain liquidity at adequate levels.
CAPITAL RESOURCES AND ADEQUACY
Capital
(Dollars In Thousands, Except Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 44,641 $ 41,461
Total capital (to risk-weighted assets):
Consolidated 11.5% 11.2%
First National Bank in Manitowoc 11.2% 10.7%
Tier 1 capital (to risk-weighted assets):
Consolidated 10.1% 10.0%
First National Bank in Manitowoc 9.7% 9.6%
Tier I capital (to average assets):
Consolidated 6.8% 7.0%
First National Bank in Manitowoc 6.5% 6.8%
Dividends Per Share-This Quarter $ .07 $ .085
Dividends Per Share-Year to Date .14 .280
Earnings Per Share-This Quarter $ .35 $ .35
Earnings Per Share-Year to Date .74 1.53
Dividend Payout Ratio-This Quarter 20.00% 24.29%
Dividend Payout Ratio-Year to Date 18.92% 18.32%
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity increased $3.1 million from $41.5 million at December
31, 2000 to $44.6 million at June 30, 2001. Net income for the six month period
ending June 30, 2001 was $2.6 million.
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Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of June 30, 2001 and December 31, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 30, 2001, the Bank's and the Company's ratio of Tier 1 capital to
risk-weighted assets was 9.7% and 10.1, respectively. As of June 30, 2001, the
Bank's and the Company's ratio of total capital to risk-weighted assets was
11.2% and 11.5%, 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
June 30, 2001, the Bank's and the Company's leverage capital ratio was 6.5% and
6.8%, respectively.
As of June 30, 2001 and December 31, 2000, the most recent notification from the
Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized and adequately capitalized,
respectively, under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no
conditions or events since that notification that management believes have
changed the institution's category.
RECENT ACCOUNTING PRONOUNCEMENTS
Future Accounting Change - In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No.
16, "Business Combinations", and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." SFAS No. 141 requires the use of the
purchase method of accounting for business combinations initiated after June 30,
2001. SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets." SFAS No.
142 addresses how intangible assets acquired outside of a business combination
should be accounted for upon acquisition and how goodwill and other intangible
assets should be accounted for after they have been initially recognized. SFAS
No. 142 eliminates the amortization for goodwill and other intangible assets
with indefinite lives. Other intangible assets with a finite life will be
amortized over their useful life. Goodwill and other intangible assets with
indefinite useful lives shall be tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset may be
impaired. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. Management, at this time, cannot determine the effect that adoption of
SFAS No. 142 may have on the financial statements of the Corporation as the
statement requires a comprehensive review of previous combinations accounted for
under the purchase accounting method and an analysis of impairment as of the
date of adoption. The impairment analysis for goodwill and other intangible
assets with an indefinite useful life has not been completed. The impairment
analysis will be completed within the timelines outlined in SFAS No. 142 which
include an initial transitional goodwill impairment test to be completed by June
30, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the market risk position from that
disclosed as of December 31, 2000 in the Corporation's 2000 Form 10-K Annual
Report.
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FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries is involved in any
pending legal proceedings involving amounts in which management believes are
material to the financial condition and results of operations of the
Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None
b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the quarter ended June 30,
2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
(Registrant)
Date: August 9, 2001 /s/ Thomas J. Bare
------------------
Thomas J. Bare
President
Date: August 9, 2001 /s/ Paul H. Wojta
-----------------
Paul H. Wojta
Senior Vice President
19