SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25983
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First Manitowoc Bancorp, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
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(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
402 North Eighth Street, Manitowoc, Wisconsin 54220
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(Address of principal executive offices) (Zip code)
(920) 684-6611
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at September 30, 2001, was 3,468,634 shares.
FIRST MANITOWOC BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition -
September 30, 2001 and December 31, 2000 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2001 and 2000 2
Consolidated Statements of Changes in
Stockholders' Equity
Nine Months Ended September 30, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, December 31,
2001 2000
---- ----
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 16,195 $ 19,834
Federal funds sold 17,006 6,540
--------- ---------
Cash and cash equivalents 33,201 26,374
Securities available for sale, at fair value 124,331 116,852
Loans 334,355 326,571
Less: Allowance for loan losses (4,312) (3,824)
--------- ---------
Loans, net 330,043 322,747
Premises and equipment, net 9,532 9,491
Intangible assets, net of accumulated amortization of
$1,847,000 in 2001 and $1,319,000 in 2000 9,989 7,910
Other assets 11,831 12,036
--------- ---------
Total assets $ 518,927 $ 495,410
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 58,613 $ 62,774
Interest-bearing deposits 330,502 331,827
--------- ---------
Total deposits 389,115 394,601
Securities sold under repurchase agreements 36,740 29,952
Short-term borrowings 2,000 2,000
Other liabilities 7,092 6,396
Long-term borrowings 36,939 21,000
--------- ---------
Total liabilities 471,886 453,949
Stockholders' equity
Common stock, $1.00 par value; authorized
10,000,000 shares; issued 3,791,814 shares 3,792 3,792
Retained earnings 41,494 37,991
Accumulated other comprehensive income 2,455 378
Treasury stock at cost--323,180 shares (700) (700)
--------- ---------
Total stockholders' equity 47,041 41,461
--------- ---------
Total liabilities and stockholders' equity $ 518,927 $ 495,410
========= =========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
1
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
2001 2000 2001 2000
------- ------- ------- -------
(In Thousands, Except Share Data)
INTEREST INCOME
Loans, including fees $ 6,951 $ 7,158 $21,523 $20,941
Federal funds sold 105 218 311 421
Securities:
Taxable 1,145 1,005 3,236 2,541
Tax exempt 750 720 2,207 2,063
------- ------- ------- -------
Total interest income 8,951 9,101 27,277 25,966
INTEREST EXPENSE
Deposits 3,516 4,147 11,664 11,270
Securities sold under repurchase agreements 376 379 1,190 1,014
Borrowed funds 471 474 1,429 1,576
------- ------- ------- -------
Total interest expense 4,363 5,000 14,283 13,860
------- ------- ------- -------
NET INTEREST INCOME 4,588 4,101 12,994 12,106
Provision for loan losses 470 260 1,500 460
------- ------- ------- -------
Net interest income after provision for loan losses 4,118 3,841 11,494 11,646
OTHER INCOME
Trust service fees 114 123 383 384
Service charges on deposit accounts 432 266 941 781
Loan servicing income 158 93 518 281
Gain on sales of mortgage loans held for sale 70 9 171 30
Insurance commission income 352 0 1,109 0
Other 142 96 400 297
------- ------- ------- -------
Total other income 1,268 587 3,522 1,773
OTHER EXPENSE
Salaries, commissions and related benefits 1,873 1,508 5,433 4,361
Occupancy 501 426 1,425 1,210
Data processing 243 202 696 652
Postage, stationery and supplies 105 98 348 370
Amortization of other intangibles 160 112 528 336
Other 479 468 1,582 1,497
------- ------- ------- -------
Total other expense 3,361 2,814 10,012 8,426
------- ------- ------- -------
Income before provision for income tax 2,025 1,614 5,004 4,993
Provision for income tax 377 263 772 891
------- ------- ------- -------
NET INCOME $ 1,648 $ 1,351 $ 4,232 $ 4,102
======= ======= ======= =======
Earnings per share: basic and diluted $ 0.48 $ 0.39 $ 1.22 $ 1.18
(See accompanying notes to Unaudited Consolidated Financial Statements.)
2
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, 2000
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock (Loss) Income Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $3,792 $33,662 ($700) ($2,248) $ 34,506
Net income 0 4,102 0 0 4,102
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 1,739 1,739
Income tax effect 0 0 0 (601) (601)
--------
Comprehensive income $ 5,240
Cash dividends ($ .195 per share) 0 (676) 0 0 (676)
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BALANCE AT SEPTEMBER 30, 2000 $3,792 $37,088 ($700) ($1,110) $39,070
===== ====== ====== ======== ======
Nine Months Ended September 30, 2001
(In Thousands, Except Share Data)
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 4,232 0 0 4,232
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 3,170 3,170
Income tax effect 0 0 0 (1,093) (1,093)
-------
Comprehensive income $6,309
Cash dividends ($ .21 per share) 0 (729) 0 0 (729)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2001 $3,792 $41,494 ($700) $2,455 $47,041
===== ====== ====== ===== ======
(See accompanying notes to Unaudited Consolidated Financial Statements.)
3
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
------------
2001 2000
----------------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,232 $ 4,102
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,500 460
Depreciation of premises and equipment 711 665
Amortization of intangible assets 528 336
(Accretion) Amortization of securities, net (210) 9
Proceeds from sale of mortgage loans 50,114 10,596
Originations of mortgage loans held for sale (49,943) (10,467)
Gain on sales of mortgage loans held for sale (171) (30)
Gain on sale of fixed assets (19) 0
Undistributed income of joint venture (207) (172)
Increase in other assets (706) (1,603)
Increase in other liabilities (168) 1,891
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Net cash provided by operating activities 5,661 5,787
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 25,107 12,248
Purchases of securities available for sale (29,091) (22,373)
Net increase in loans (8,796) (25,125)
Purchases of premises and equipment (345) (1,321)
Proceeds from sales of premises and equipment 60 0
Acquisition, net of cash acquired (67) 0
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Net cash used in investing activities (13,132) (36,571)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (5,486) 15,821
Net increase in securities sold under repurchase agreements 6,788 4,041
Proceeds from advances on borrowed funds 20,000 14,114
Repayment of borrowed funds (6,275) (20,000)
Dividends paid (729) (676)
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Net cash provided by (used in) financing activities 14,298 13,300
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Net increase (decrease) in cash and cash equivalents 6,827 (17,484)
Cash and cash equivalents at beginning of period 26,374 40,716
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Cash and cash equivalents at end of period $ 33,201 $ 23,232
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,064 $ 12,280
Income taxes 1,085 783
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Supplemental schedule of noncash investing and financing
activities not described in the notes to the financial statements:
Loans receivable transferred to other real estate $ 0 $ 0
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4
Acquisition:
Cash paid for purchase of stock $ (733) $ ---
Cash acquired 666 ---
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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.)
5
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 September 30, 2001 presentation.
In January 2001, 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
NOTE 3: Investment Securities
The amortized cost and fair values of investment securities available for sale
for the periods indicated are as follows:
Investment Securities
(In Thousands)
September 30, 2001
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 7,817 $ 8,259
Obligations of states and political subdivisions 63,372 65,847
Mortgage-backed securities 43,722 44,508
Corporate notes 898 940
Other securities 4,773 4,777
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Total $ 120,582 $ 124,331
========= =========
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)
September 30, 2001 December 31, 2000
Percent of Percent of
Amount Total Loans Amount Total Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial and Agricultural $ 97,123 29.05% $ 94,886 29.05%
Commercial Real Estate 83,284 24.91% 76,478 23.42%
Residential Real Estate 129,056 38.60% 131,592 40.30%
Consumer 23,471 7.02% 22,270 6.82%
Other 1,421 .42% 1,345 .41%
--------- ---------- --------- ----------
Total $ 334,355 100.00% $ 326,571 100.00%
========= ========== ========= ==========
7
NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
2001 2000
---- ----
(In Thousands)
Balance at beginning of period $ 3,824 $ 3,700
Provision charged to expense 1,500 460
Charge-offs (1,044) (325)
Recoveries 32 50
------- -------
Balance at end of period $ 4,312 $ 3,885
======= =======
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
EARNINGS
Net Income
(Dollars In Thousands, Except Share Data)
- --------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net Income $1,648 $1,351 $4,232 $4,102
EPS-Basic & Diluted $ .48 $ .39 $ 1.22 $ 1.18
Return on Average Assets 1.29% 1.18% 1.13% 1.19%
Return on Average Equity 14.74% 15.51% 13.22% 15.72%
- --------------------------------------------------------------------------------------------------------------------------
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 September 30, 2001 and 2000.
Net income for the three months ended September 30, 2001 was $1,648,000 compared
to $1,351,000 for the three months ended September 30, 2000, an increase of
$297,000, or 21.98%. Interest income decreased $150,000 primarily as a result of
a decrease in loan interest due to lower interest rates. Interest expense
decreased $637,000 mainly as a result of a decrease in interest rates paid on
deposits. Other income increased $681,000 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 $352,000. Other expense
increased $547,000. 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 September 30, 2001 was $0.48 compared to $0.39 for the three months
ended September 30, 2000.
Net income for the nine months ended September 30, 2001 was $4,232,000 compared
to $4,102,000 for the nine months ended September 30, 2000, an increase of
$130,000 or 3.17%. Interest income increased $1,311,000 primarily due to an
increase in loans and securities volume. Interest expense increased $423,000
primarily due to increases in repurchase agreements and long term borrowings.
Other income increased $1,749,000 primarily as a result of insurance commission
income of $1,109,000 from the Insurance Center acquisition. Other income
increased $397,000 as a result of an increase in service charges on deposits and
an increase in loan servicing income. Other expense increased $1,586,000, 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 nine months
ended September 30, 2001 was $1.22 compared to $1.18 for the nine months ended
September 30, 2000.
The relatively small increase in net income for the nine month period ended
September 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 nine months
of 2001 was 1.13% compared to 1.19% for the first nine months in 2000. Return on
average equity (ROE) on an annualized basis for the first nine months of 2001
was 13.22% compared to 15.72% for the first nine months of 2000.
9
AVERAGE BALANCES, YIELD AND RATES
For the three months For the three months
ended September 30, 2001 ended September 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 $ 10,992 $ 105 3.79% $ 13,483 $ 205 6.04%
Investment securities 124,936 2,286 7.26% 106,880 2,001 7.43%
Loans 334,935 7,174 8.50% 319,512 7,359 9.14%
----------- ---------- ---- ----------- --------- ----
Total interest earning assets $ 470,863 $ 9,565 8.06% $ 439,875 $ 9,565 8.63%
Other assets 37,614 37,103
----------- -----------
TOTAL ASSETS $ 508,477 $ 476,978
=========== ===========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $ 330,010 $ 3,516 4.23% $ 321,796 $ 4,140 5.10%
Repurchase agreements 32,996 376 4.52% 24,837 373 5.95%
Federal funds purchased 0 0 0.00% 19 0 0.00%
Borrowings 38,358 472 4.88% 30,948 490 6.29%
----------- ---------- ---- ----------- --------- ----
Total interest-bearing liabilities $ 401,364 $ 4,364 4.31% $ 377,600 $ 5,003 5.26%
Demand deposits 55,618 55,833
Other liabilities 7,146 5,753
----------- -----------
Total liabilities $ 464,128 $ 439,186
Stockholders' equity 44,349 37,792
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 508,477 $ 476,978
=========== ===========
Net interest income and
interest rate spread $ 5,201 3.75% $ 4,562 3.37%
Net interest income as
a percent of earning assets (annualized) 4.38% 4.12%
==== ====
10
AVERAGE BALANCES, YIELD AND RATES
For the nine months For the nine months
ended September 30, 2001 ended September 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 $ 8,282 $ 311 5.02% $ 8,319 $ 382 6.13%
Investment securities 122,406 6,591 7.20% 102,364 5,715 7.46%
Loans 332,449 21,849 8.79% 311,877 21,172 9.08%
----------- ---------- ---- ---------- --------- ----
Total interest earning assets $ 463,137 $ 28,751 8.30% $ 422,560 $ 27,269 8.60%
Other assets 37,727 37,333
----------- ----------
TOTAL ASSETS $ 500,864 $ 459,893
=========== ==========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $ 331,305 $ 11,669 4.71% $ 307,083 $ 11,270 4.90%
Repurchase agreements 30,217 1,190 5.27% 21,984 920 5.60%
Federal funds purchased 773 32 5.02% 1,158 52 5.96%
Borrowings 35,360 1,397 5.28% 36,227 1,628 6.00%
----------- ---------- ---- ---------- --------- ----
Total interest-bearing liabilities $ 397,655 $ 14,288 4.80% $ 366,452 $ 13,870 5.04%
Demand deposits 53,300 52,444
Other liabilities 7,229 5,010
----------- ----------
Total liabilities $ 458,184 $ 423,906
Stockholders' equity 42,680 35,987
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 500,864 $ 459,893
=========== ==========
Net interest income and
interest rate spread $ 14,463 3.50% $ 13,399 3.56%
Net interest income as
a percent of earning assets (annualized) 4.18% 4.22%
==== ====
11
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the principal source of earnings for a banking company.
It represents the differences between interest and fees earned on the loan and
investment portfolios offset by the interest paid on deposits and borrowings.
The nine months ended September 30, 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%.
THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000:
Net interest income (on a tax equivalent basis) for the three months ended
September 30, 2001 increased by $639,000 or 14.01% compared to the three months
ended September 30, 2000. Interest income was equal to that of the prior year's
third quarter interest income at 9,565,000. Total average loans increased to
$334,935,000 for the third quarter of 2001 from $319,512,000 for the third
quarter of 2000. Average investment securities increased to $124,936,000 for the
third quarter of 2001 from $106,880,000 for the third quarter of 2000. Interest
yields on loans and securities declined to 8.50% and 7.26% for the third quarter
of 2001 from 9.14% and 7.43% for the third quarter of 2000. Interest expense
decreased $639,000 primarily as a result of lower interest rates paid on
deposits and repurchase agreements. Total average interest-bearing deposits
increased to $330,010,000 for the third quarter of 2001 from $321,796,000 for
the third quarter of 2000. Average repurchase agreements increased to
$32,996,000 for the third quarter of 2001 from $24,837,000 for the third quarter
of 2000. Interest rates fell on both interest bearing deposits and repurchase
agreements from the third quarter of 2000 to the third 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 3.75% for the three months ended September 30, 2001, an
increase of 38 basis points from the interest rate spread of 3.37% for the three
months ended September 30, 2000.
Net interest margin for the three months ended September 30, 2001 was 4.38%
compared with 4.12% for the three months ended September 30, 2000.
YTD 2001 COMPARED TO YTD 2000:
Net interest income (on a tax equivalent basis) for the nine months ended
September 30, 2001 increased by $1,064,000 or 7.94% compared to the nine months
ended September 30, 2000. Interest income increased $1,482,000 primarily as a
result of increases in loans and investment securities. Total average loans
increased to $332,449,000 for the first nine months of 2001 from $311,877,000
for the first nine months of 2000. Total average investment securities increased
to $122,406,000 for the first nine months of 2001 from $102,364,000 for the
first nine months of 2000. Interest yields fell on both loans and investment
securities for the nine months ended September 30, 2001. The yield on total
interest earning assets declined to 8.30% for the nine months ended September
30, 2001 from 8.60% for the nine months ended September 30, 2000. Interest
expense increased $418,000 primarily due to an increase in deposits and an
increase in repurchase agreements. Total average interest bearing deposits
increased to $331,305,000 for the first nine months of 2001 from $307,083,000
for the first nine months of 2000, while repurchase agreements increased to
$30,217,000 from $21,984,000 in the first nine months of 2000. The rate on total
interest bearing liabilities fell to 4.80% for the nine months ended September
30, 2001, from 5.04% for the nine months ended September 30, 2000. The interest
rate spread was 3.50% for the nine months ended June 30, 2001, a decrease of 6
basis points from the interest rate spread of 3.56% for the nine months ended
September 30, 2000.
Net interest margin for the nine months ended September 30, 2001 was 4.18%
compared with 4.22% for the nine months ended September 30, 2000.
12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended September 30, 2001, the Bank charged $470,000 to
expense for the provision for loan loss compared to $260,000 for the three
months ended September 30, 2000.
Allowance for Loan Losses
(In Thousands)
- --------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 4,714 $ 3,770 $ 3,824 $ 3,700
Charge-offs (883) (172) (1,044) (325)
Recoveries 11 27 32 50
------- ------- -------- -------
Net (charge-offs) recoveries (872) (145) (1,012) (275)
Provision for loan losses 470 260 1,500 460
------- ------- -------- -------
Balance at end of period $ 4,312 $ 3,885 $ 4,312 $ 3,885
======= ======= ======== =======
Ratio of net charge-offs during period to
average loans outstanding during period .26% .05% .30% .09%
Ratio of allowance for loan losses
to total loans 1.29% 1.20% 1.29% 1.20%
- --------------------------------------------------------------------------------------------------------------------
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 September 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)
- --------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Specific Problem Loans $1,697 $ 625
Loan Type Allocation:
Commercial & Agricultural $2,190 $2,688
Commercial Real Estate 375 436
Residential Real Estate 25 25
Consumer 25 36
-------- -------
2,615 3,185
Unallocated 0 14
-------- -------
Total Reserve $4,312 $3,824
======== =======
13
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 September 30, 2001 were $3,246,000, an increase of
$1,062,000 from December 31, 2000. The following table presents nonperforming
and nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
- --------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $2,863 $1,765
Accruing loans past due 90 days or more 383 419
------ ------
Total nonperforming loans $3,246 $2,184
Nonperforming loans as a percent of loans .97% .67%
Ratio of the allowance for loan losses to nonperforming loans 132.84% 175.00%
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Other Income
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Trust Service Fees $ 114 $ 123 $ 383 $ 384
Service Charges on Deposit Accounts 432 266 941 781
Loan Servicing Income 158 93 518 281
Gain on Sales of Mortgage Loans Held for Sale 70 9 171 30
Insurance commission income 352 0 1,109 0
Other 142 96 400 297
------ ------ ------ ------
Total Other Income $1,268 $ 587 $3,522 $1,773
- -------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000:
Other income for the third quarter of 2001 was $1,268,000 compared to $587,000
for the third quarter of 2000, an increase of $681,000 or 116.0%. The Insurance
Center of Manitowoc acquisition accounted for $352,000 of this increase in the
form of commission income. Loan servicing income increased $65,000 in the third
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 $61,000 in gains on sales of mortgage loans in the quarter ended
September 30, 2001.
14
YTD 2001 COMPARED TO YTD 2000:
Other income for the nine months ended September 30, 2001 was $3,522,000
compared to $1,773,000 for the nine months ended September 30, 2000, an increase
of $1,749,000 or 98.6%. The increase resulted primarily from $1,109,000 of
insurance commission income from the Insurance Center acquisition and an
increase of $237,000 in loan servicing income. The increase of $141,000 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 nine months of 2001.
OTHER EXPENSE
Other Expense
(In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Salaries, commissions and related benefits $1,873 $ 1,508 $ 5,433 $4,361
Occupancy 501 426 1,425 1,210
Data Processing 243 202 696 652
Postage, Stationery and Supplies 105 98 348 370
Amortization of intangibles 160 112 528 336
Other 479 468 1,582 1,497
------ ------- ------- ------
Total Other Expense $3,361 $ 2,814 $10,012 $8,426
- ---------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000:
Other expense for the third quarter of 2001 was $3,361,000 compared to
$2,814,000 for the third quarter of 2000, an increase of $547,000, or 19.4%. 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 nine months of 2001 was $10,012,000 compared to
$8,426,000 for the first nine months of 2000, an increase of $1,586,000 or
18.8%. 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 and higher charge card expense.
INCOME TAXES
The effective tax rate for the three months ended September 30, 2001 was 18.6%
compared to 16.3% for the three months ended September 30, 2000.
15
BALANCE SHEET
SEPTEMBER 30, 2001 COMPARED TO DECEMBER 31, 2000
The Corporation's total assets increased from $495.4 million at December 31,
2000 to $518.9 million at September 30, 2001. Loans increased $7.8 million, a
result of customer demand for commercial real estate loans. Securities increased
$7.5 million due to increases in mortgage backed securities offset by smaller
decreases in U.S. Government Agency securities.
Deposits decreased $5.5 million to $389.1 million at September 30, 2001 from
$394.6 million at December 31, 2000, due to decreases in non-interest bearing
deposits. Long-term borrowings increased $15.9 million from $21 million at
December 31, 2000 to $36.9 million at September 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)
- -------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 47,041 $ 41,461
Total capital (to risk-weighted assets):
Consolidated 11.8% 11.2%
First National Bank in Manitowoc 11.5% 10.7%
Tier 1 capital (to risk-weighted assets):
Consolidated 10.6% 10.0%
First National Bank in Manitowoc 10.3% 9.6%
Tier I capital (to average assets):
Consolidated 7.0% 7.0%
First National Bank in Manitowoc 6.8% 6.8%
Dividends Per Share-This Quarter $ .07 $ .085
Dividends Per Share-Year to Date .21 .280
Earnings Per Share-This Quarter $ .48 $ .35
Earnings Per Share-Year to Date 1.22 1.53
Dividend Payout Ratio-This Quarter 14.75% 24.29%
Dividend Payout Ratio-Year to Date 17.23% 18.32%
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity increased $5.5 million from $41.5 million at December
31, 2000 to $47.0 million at September 30, 2001. Net income for the nine month
period ending September 30, 2001 was $4.2 million.
16
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of September 30, 2001 and December 31, 2000, that the
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 2001, the Bank's and the Company's ratio of Tier 1 capital
to risk-weighted assets was 10.3% and 10.6%, respectively. As of September 30,
2001, the Bank's and the Company's ratio of total capital to risk-weighted
assets was 11.5% and 11.8%, 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 September 30, 2001, the Bank's and the Company's leverage
capital ratio was 6.8% and 7.0%, respectively.
As of September 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 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.
17
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 September
30, 2001.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
(Registrant)
Date: November 13, 2001 /s/ Thomas J. Bare
------------------
Thomas J. Bare
President
Date: November 13, 2001 /s/ Paul H. Wojta
-----------------
Paul H. Wojta
Senior Vice President
19