SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25983
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First Manitowoc Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
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(State or other jurisdiction (IRS employer identification no.)
of incorporation or organization)
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 _____
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at July 31, 2002, 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 -
June 30, 2002 and December 31, 2001 1
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2002 and 2001 2
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended June 30, 2002 and 2001 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 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 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, December 31,
2002 2001
---- ----
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 18,544 $ 27,112
Federal funds sold 20,997 12,784
--------- ---------
Cash and cash equivalents 39,541 39,896
Securities available for sale, at fair value 136,534 129,387
Loans held for sale 118 211
Loans 336,053 327,440
Less: Allowance for loan losses (2,737) (2,737)
--------- ---------
Loans, net 333,316 324,703
Premises and equipment, net 9,164 9,431
Intangible assets, net of accumulated amortization of
$2,096,000 in 2002 and $1,959,000 in 2001 9,692 9,829
Other assets 14,528 13,847
--------- ---------
Total assets $ 542,893 $ 527,304
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 62,557 $ 60,033
Interest-bearing deposits 326,158 334,059
--------- ---------
Total deposits 388,715 394,092
Securities sold under repurchase agreements 53,139 33,108
Other liabilities 6,662 6,436
Borrowed funds 43,166 47,179
--------- ---------
Total liabilities 491,682 480,815
Stockholders' equity
Common stock, $1.00 par value; authorized
10,000,000 shares; issued 3,791,814 shares 3,792 3,792
Retained earnings 45,430 42,355
Accumulated other comprehensive income 2,689 1,042
Treasury stock at cost--323,180 shares (700) (700)
--------- ---------
Total stockholders' equity 51,211 46,489
--------- ---------
Total liabilities and stockholders' equity $ 542,893 $ 527,304
========= =========
(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 Six Months Ended
June 30, June 30,
------- -------
2002 2001 2002 2001
---- ---- ---- ----
(In Thousands, Except Share Data)
INTEREST INCOME
Loans, including fees $ 6,043 $ 7,228 $12,185 $14,572
Federal funds sold 76 118 148 206
Securities:
Taxable 1,016 1,047 2,071 2,091
Tax exempt 775 733 1,522 1,457
------- ------- ------- -------
Total interest income 7,910 9,126 15,926 18,326
INTEREST EXPENSE
Deposits 2,219 3,926 4,590 8,148
Securities sold under repurchase agreements 346 399 613 814
Borrowed funds 433 477 926 958
------- ------- ------- -------
Total interest expense 2,998 4,802 6,129 9,920
------- ------- ------- -------
NET INTEREST INCOME 4,912 4,324 9,797 8,406
Provision for loan losses 525 880 750 1,030
------- ------- ------- -------
Net interest income after provision for loan losses 4,387 3,444 9,047 7,376
OTHER INCOME
Trust service fees 150 137 281 269
Service charges on deposit accounts 256 260 500 509
Loan servicing income 137 242 337 360
Gain on sales of mortgage loans held for sale 68 70 215 101
Insurance commission income 444 424 794 757
Other 139 31 309 258
------- ------- ------- -------
Total other income 1,194 1,164 2,436 2,254
OTHER EXPENSE
Salaries, commissions and related benefits 1,787 1,589 3,757 3,560
Occupancy 437 420 921 924
Data processing 246 235 488 453
Postage, stationery and supplies 121 130 239 243
Amortization of other intangibles 69 160 137 368
Other 632 671 1,263 1,103
------- ------- ------- -------
Total other expense 3,292 3,205 6,805 6,651
------- ------- ------- -------
Income before provision for income tax 2,289 1,403 4,678 2,979
Provision for income tax 493 170 1,013 395
------- ------- ------- -------
NET INCOME $ 1,796 $ 1,233 $ 3,665 $ 2,584
======= ======= ======= =======
Earnings per share: basic and diluted $ 0.52 $ 0.35 $ 1.06 $ 0.74
(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)
Six Months Ended June 30, 2001
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock (Loss) Income 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) (578)
-------
Comprehensive income $ 3,666
Cash dividends ($0.14 per share) 0 (486) 0 0 (486)
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BALANCE AT JUNE 30, 2001 $3,792 $40,089 ($700) $1,460 $44,641
====== ======= ====== ====== =======
Six Months Ended June 30, 2002
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock Income (Loss) Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $3,792 $42,355 ($700) $1,042 $46,489
Net income 0 3,665 0 0 3,665
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 2,530 2,530
Income tax effect 0 0 0 (883) (883)
------
Comprehensive income $1,647
Cash dividends ($0.17 per share) 0 (590) 0 0 (590)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002 $3,792 $45,430 ($700) $2,689 $51,211
====== ======= ====== ====== =======
(See accompanying notes to Unaudited Consolidated Financial Statements.)
3
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
--------
2002 2001
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,665 $ 2,584
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 750 1,030
Depreciation of premises and equipment 440 464
Amortization of intangible assets 137 368
Amortization (accretion) of securities, net 83 (43)
Stock dividends on FHLB stock (63) (72)
Proceeds from sale of mortgage loans 39,002 29,595
Originations of mortgage loans held for sale (38,694) (29,696)
Gain on sales of mortgage loans held for sale (215) 101
Gain on sale of fixed assets 0 (19)
Undistributed income of joint venture (169) (137)
(Increase) decrease in other assets (1,395) (631)
Increase (decrease) in other liabilities 226 (449)
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Net cash provided by (used in) operating activities 3,767 3,095
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 12,631 18,431
Purchases of securities available for sale (17,469) (20,020)
Net (increase) in loans (9,162) (10,833)
Purchases of premises and equipment (173) (208)
Proceeds from sales of premises and equipment 0 60
Acquisition, net of cash acquired 0 (67)
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Net cash used in investing activities (14,173) (12,637)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (5,377) (5,800)
Net increase in securities sold under repurchase agreements 20,031 3,386
Proceeds from advances on borrowed funds 21,747 20,000
Repayment of borrowed funds (25,760) (6,038)
Dividends paid (590) (486)
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Net cash provided by financing activities 10,051 11,062
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Net increase in cash and cash equivalents (355) 1,520
Cash and cash equivalents at beginning of period 39,896 26,374
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Cash and cash equivalents at end of period $ 39,541 $ 27,894
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,826 $ 10,683
Income taxes 573 660
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Supplemental schedule of noncash activities:
Investments reclassified as loans $ 201 $ 0
Loans transferred to foreclosed properties 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 2001 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.
("Insurance Center"). 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, 2002 presentation.
In January 2001, the Bank acquired 100% ownership in the Insurance Center of
Manitowoc, Inc. Insurance Center also operates an office known as 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)
June 30, 2002
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 16,468 $ 16,739
Obligations of states and political subdivisions 64,035 66,596
Mortgage-backed securities 48,155 49,420
Corporate notes 999 1,034
Other securities 2,745 2,745
-------- --------
Total $132,402 $136,534
======== ========
December 31, 2001
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 6,067 $ 6,337
Obligations of states and political subdivisions 62,657 63,434
Mortgage-backed securities 55,153 55,667
Corporate notes 999 1,040
Other securities 2,909 2,909
-------- --------
Total $127,785 $129,387
======== ========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(Dollars In Thousands)
June 30, 2002 December 31, 2001
Percent of Percent of
Amount Total Loans Amount Total Loans
- ------------------------------------------------------------------------------------------------------------
Commercial and Agricultural $ 92,673 27.57% $ 86,565 26.44%
Commercial Real Estate 93,827 27.91% 85,036 25.97%
Residential Real Estate 126,360 37.59% 131,362 40.12%
Consumer 22,175 6.60% 23,213 7.09%
Other 1,136 0.33% 1,264 0.38%
--------- ------ --------- ------
Total $ 336,171 100.00% $ 327,440 100.00%
========= ====== ========= ======
7
NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
2002 2001
---- ----
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $2,737 $3,824
Provision charged to expense 750 1,030
Charge-offs (835) (161)
Recoveries 85 21
------ ------
Balance at end of period $2,737 $4,714
====== ======
NOTE 6: Business Segments
The Corporation through the bank and the bank branch network 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 president 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. Statements containing certain terms including, but not limited to,
the words "believes," "expects," "anticipates" or similar expressions constitute
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;
- 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;
- general market rates;
- general economic conditions;
- changes by the Federal government in monetary and fiscal
policies; and
- changes in composition of our loan portfolio.
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 Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $1,796 $1,233 $3,665 $2,584
EPS-Basic & Diluted $ 0.52 $ 0.35 $ 1.06 $ 0.74
Return on Average Assets 1.37% 0.98% 1.41% 1.04%
Return on Average Equity 14.63% 11.61% 15.22% 12.35%
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding were 3,468,634 for the six months ended June
30, 2002 and 2001.
Net income for the three months ended June 30, 2002 was $1,796,000 compared to
$1,233,000 for the three months ended June 30, 2001, an increase of $563,000, or
45.7%. Interest income decreased $1,216,000 primarily as a result of a decrease
in interest yields. Interest expense decreased $1,804,000 mainly as a result of
a decrease in interest rates paid on deposits. Other income increased $30,000
mainly as a result of an increase in loan servicing income and an increase in
gain on sale of mortgage loans held for sale. Other expense increased $87,000.
This is a result of increased salaries, commissions and related benefits
primarily due to annual merit increases in wages for employees. Other increases
in expense include data processing, software, and marketing. Earnings per share
for the three months ended June 30, 2002 was $0.52 compared to $0.35 for the
three months ended June 30, 2001.
Return on average assets (ROA) on an annualized basis for the second quarter
2002 was 1.37% compared to 0.98% for the second quarter 2001. Return on average
equity (ROE) on an annualized basis for the second quarter 2002 was 14.63%
compared to 11.61% for the second quarter 2001.
Net income for the six months ended June 30, 2002 was $3,665,000 compared to
$2,584,000 for the six months ended June 30, 2001, an increase of $1,081,000 or
41.8%. Interest income decreased $2,400,000 primarily as a result of a decrease
in interest yields. Interest expense decreased $3,791,000 primarily due to a
decrease in interest rates paid on deposits. Other income increased $182,000
primarily as a result of insurance commission income and gain on sales of
mortgage loans held for sale. Other expense increased $154,000, a result of
increased salaries, commissions and related benefits primarily due to annual
merit increases. Amortization of goodwill decreased as a result of the adoption
of FASB 142. Earnings per share for the six months ended June 30, 2002 was $1.06
compared to $0.74 for the six months ended June 30, 2001.
Return on average assets (ROA) on an annualized basis for the first six months
of 2002 was 1.41% compared to 1.04% for the first six months in 2001. Return on
average equity (ROE) on an annualized basis for the first six months of 2002 was
15.22% compared to 12.35% for the first six months of 2001.
9
AVERAGE BALANCES, YIELD AND RATES
For the three months For the three months
ended June 30, 2002 ended June 30, 2001
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS (In Thousands) (In Thousands)
Interest-earning assets:
Federal funds sold $ 19,049 $ 76 1.60% $ 10,131 $ 76 3.01%
Investment securities 135,190 2,149 6.38% 121,927 2,203 7.25%
Loans 332,522 6,043 7.29% 332,876 7,263 8.75%
-------- ------ ---- -------- ------ ----
Total interest earning assets 486,761 $8,268 6.81% 464,934 $9,542 8.23%
Other assets 40,769 38,626
-------- --------
TOTAL ASSETS $527,530 $503,560
======== ========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $321,981 $2,219 2.76% $332,015 $3,931 4.75%
Repurchase agreements 50,048 346 2.77% 29,895 397 5.33%
Federal funds purchased 0 0 0.00% 15 0 0%
Borrowings 41,945 433 4.14% 38,697 474 4.91%
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities $413,974 $2,998 2.90% $400,622 $4,802 4.81%
Noninterest-bearing deposits 57,612 $ 52,786
Other liabilities 6,708 7,656
-------- --------
Total liabilities 478,294 $461,064
Stockholders' equity 49,236 42,496
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $527,530 $503,560
======== ========
Net interest income and
interest rate spread $5,270 3.91% $4,740 3.42%
Net interest income as
a percent of earning assets (annualized) 4.34% 4.08%
==== ====
10
AVERAGE BALANCES, YIELD AND RATES
For the six months For the six months
ended June 30, 2002 ended June 30, 2001
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS (In Thousands) (In Thousands)
Interest-earning assets:
Federal funds sold $ 17,454 $ 148 1.71% $ 6,918 $ 140 4.08%
Investment securities 134,218 4,339 6.52% 121,118 4,372 7.28%
Loans 330,186 12,185 7.44% 331,180 14,674 8.94%
-------- ------- ---- -------- ------- ----
Total interest earning assets 481,858 $16,672 6.98% 459,216 $19,186 8.43%
Other assets 40,849 37,798
-------- --------
TOTAL ASSETS $522,707 $497,014
======== ========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $324,871 $ 4,590 2.85% $331,966 $ 8,153 4.95%
Repurchase agreements 43,838 613 2.82% 28,812 814 5.70%
Federal funds purchased 12 0 0.00% 1,166 32 5.53%
Borrowings 43,683 926 4.27% 33,837 925 5.51%
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities $412,404 $ 6,129 3.00% $395,781 $ 9,924 5.06%
Noninterest-bearing deposits 55,314 52,128
Other liabilities 6,433 7,265
-------- --------
Total liabilities 474,151 $455,174
Stockholders' equity 48,556 41,840
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $522,707 $497,014
======== ========
Net interest income and
interest rate spread $10,543 3.98% $ 9,262 3.37%
Net interest income as
a percent of earning assets (annualized) 4.41% 4.07%
==== ====
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 six months ended June 30, 2002 has been characterized by fairly stable
interest rates.
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 2002 COMPARED TO SECOND QUARTER 2001:
Net interest income (on a tax equivalent basis) for the three months ended June
30, 2002 increased by $530,000 or 11.2% compared to the three months ended June
30, 2001. Interest income decreased $1,274,000 primarily as a result of a
decrease in yields. Total average loans decreased from $332,876,000 for the
second quarter of 2001 to $332,522,000 for the second quarter of 2002 while
interest yield on loans decreased from 8.75% for the second quarter of 2001 to
7.29% for the second quarter of 2002. Average investment securities increased
from $121,927,000 for the second quarter of 2001 to $135,190,000 for the second
quarter of 2002. Interest expense decreased $1,804,000 primarily as a result of
a decrease in interest rates paid. Total average interest-bearing deposits
decreased from $332,015,000 for the second quarter of 2001 to $321,981,000 for
the second quarter of 2002 while interest rates paid on interest-bearing
deposits decreased from 4.75% for the second quarter of 2001 to 2.76% for the
second quarter of 2002. 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 3.91% for the three months ended June 30,
2002, an increase of 49 basis points from the interest rate spread of 3.42% for
the three months ended June 30, 2001.
Net interest margin for the three months ended June 30, 2002 was 4.34% compared
with 4.08% for the three months ended June 30, 2001.
YTD 2002 COMPARED TO YTD 2001:
Net interest income (on a tax equivalent basis) for the six months ended June
30, 2002 increased by $1,281,000 or 13.8% compared to the six months ended June
30, 2001. Interest income decreased $2,514,000 primarily as a result of a
decrease in yields. Total average loans decreased to $330,186,000 for the first
six months of 2002 from $331,180,000 for the first six months of 2001. Total
average investment securities increased to $134,218,000 for the first six months
of 2002 from $121,118,000 for the first six months of 2001. Interest yields fell
on both loans and investment securities for the six months ended June 30, 2002.
Interest expense decreased $3,795,000 primarily due to a decrease in interest
rates paid on deposits and borrowings. Total average interest bearing deposits
decreased to $324,871,000 for the first six months of 2002 from $331,966,000 for
the first six months of 2001, while interest rates paid on those deposits
decreased to 2.85% in the first half of 2002 from 4.95% in the first half of
2001. The interest rate spread was 3.98% for the six months ended June 30, 2002,
an increase of 61 basis points from the interest rate spread of 3.37% for the
six months ended June 30, 2001.
Net interest margin for the six months ended June 30, 2002 was 4.41% compared
with 4.07% for the six months ended June 30, 2001.
12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the six months ended June 30, 2002, the Bank charged $750,000 to expense for
the provision for loan loss compared to $1,030,000 for the six months ended June
30, 2001.
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,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $2,827 $3,888 $2,737 $3,824
Charge-offs (658) (64) (835) (161)
Recoveries 43 10 85 21
------ ------ ------ ------
Net (charge-offs) recoveries (615) (54) (750) (140)
Provision for loan losses 525 880 750 1,030
------ ------ ------ ------
Balance at end of period $2,737 $4,714 $2,737 $4,714
====== ====== ====== ======
Ratio of net charge-offs during period to
average loans outstanding during period 0.18% 0.02% 0.23% 0.04%
Ratio of allowance for loan losses
to total loans 0.81% 1.40% 0.81% 1.40%
- ------------------------------------------------------------------------------------------------------------------------------------
The decrease in the ratio of allowance for loan losses to total loans is
primarily a result of higher charge-offs in December 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, 2002 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,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Specific Problem Loans $1,361 $ 843
Loan Type Allocation:
Commercial & Agricultural 1,160 1,476
Commercial Real Estate 26 103
Residential Real Estate 11 19
Consumer 79 12
------ ------
1,276 1,610
Unallocated 100 284
------ ------
Total Reserve $2,737 $2,737
====== ======
Ratio of allowance for loan losses to total loans 0.81% 0.84%
13
Specific problem loans includes the allocation of the allowance for specific
problem credits. Loan type 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, 2002 were $2,391,000, a decrease of
$450,000 from December 31, 2001. The following table presents nonperforming and
nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $2,263 $2,312
Accruing loans past due 90 days or more 128 529
------ ------
Total nonperforming loans $2,391 $2,841
Nonperforming loans as a percent of loans 0.71% 0.87%
Ratio of the allowance for loan losses to nonperforming loans 114% 96%
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Other Income
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Trust Service Fees $ 150 $ 137 $ 281 $ 269
Service Charges on Deposit Accounts 256 260 500 509
Loan Servicing Income 137 242 337 360
Gain on Sales of Mortgage Loans Held for Sale 68 70 215 101
Insurance commission income 444 424 794 757
Other 139 31 309 258
------ ------ ------ ------
Total Other Income $1,194 $1,164 $2,436 $2,254
- ------------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001:
Other income for the second quarter of 2002 was $1,194,000 compared to
$1,164,000 for the second quarter of 2001, an increase of $30,000 or 2.6%. Trust
service fees increased $13,000. Loan servicing income decreased $105,000 for the
second quarter of 2002. Other income increased $108,000.
14
YTD 2002 COMPARED TO YTD 2001:
Other income for the six months ended June 30, 2002 was $2,436,000 compared to
$2,254,000 for the six months ended June 30, 2001, an increase of $182,000 or
8.1%. Gain on sales of mortgage loans held for sale increased $114,000,
resulting from 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 2002. Insurance commission income increased $37,000 during the six
months ended June 30, 2002.
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,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Salaries, commissions and related benefits $1,787 $1,589 $3,757 $3,560
Occupancy 437 420 921 924
Data Processing 246 235 488 453
Postage, Stationery and Supplies 121 130 239 243
Amortization of intangibles 69 160 137 368
Other 632 671 1,263 1,103
------ ------ ------ ------
Total Other Expense $3,292 $3,205 $6,805 $6,651
- ------------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001:
Other expense for the second quarter of 2002 was $3,292,000 compared to
$3,205,000 for the second quarter of 2001, an increase of $87,000, or 2.7%. The
increase is a result of increased salaries, commissions and related benefits due
primarily to annual merit increases for employees.
YTD 2002 COMPARED TO YTD 2001:
Other expense for the first six months of 2002 was $6,805,000 compared to
$6,651,000 for the first six months of 2001, an increase of $154,000 or 2.3%.
The increase is a result of increased salaries, commissions, and related
benefits due primarily to annual merit increases for employees. Other expenses
increased primarily due to increased software amortization, other real estate
expense, legal and professional fees, and marketing expense.
INCOME TAXES
The effective tax rate for the six months ended June 30, 2002 was 21.7% compared
to 13.3% for the six months ended June 30, 2001. The increase in effective tax
rates in the period is the result of taxable income increasing at a greater rate
than tax exempt income.
BALANCE SHEET
JUNE 30, 2002 COMPARED TO DECEMBER 31, 2001
The Corporation's total assets increased from $527.3 million at December 31,
2001 to $542.9 million at June 30, 2002. Loans increased $8.6 million, a result
of an increase in commercial loans. Securities increased $7.1 million mainly due
to increases in U.S. Government Agency securities. Fed Funds sold increased and
cash and due from banks decreased due to conversion of interest bearing deposits
to Fed Funds.
Deposits decreased $5.4 million to $388.7 million at June 30, 2002 from $394.1
million at December 31, 2001, due to decreases in non-interest bearing deposits
and certificates of deposit. Securities sold under repurchase agreements
increased $20.0 million and borrowed funds decreased $4.0 million at June 30,
2002.
15
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,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $51,211 $46,489
Total capital (to risk-weighted assets):
Consolidated 12.0% 11.6%
First National Bank in Manitowoc 11.7% 11.3%
Tier 1 capital (to risk-weighted assets):
Consolidated 11.2% 10.7%
First National Bank in Manitowoc 10.9% 10.4%
Tier I capital (to average assets):
Consolidated 7.4% 7.0%
First National Bank in Manitowoc 7.3% 6.8%
Dividends Per Share-This Quarter $0.085 $ 0.09
Dividends Per Share-Year to Date 0.170 0.30
Earnings Per Share-This Quarter $0.520 $ 0.34
Earnings Per Share-Year to Date 1.060 1.56
Dividend Payout Ratio-This Quarter 16.43% 26.47%
Dividend Payout Ratio-Year to Date 16.10% 19.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity increased $4.7 million from $46.5 million at December
31, 2001 to $51.2 million at June 30, 2002. Net income for the six month period
ending June 30, 2002 was $1.8 million.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of June 30, 2002 and December 31, 2001, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 30, 2002, the Bank's and the Corporation's ratio of Tier 1 capital to
risk-weighted assets was 10.9% and 11.2%, respectively. As of June 30, 2002, the
Bank's and the Corporation's ratio of total capital to risk-weighted assets was
11.7% and 12.0%, 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, 2002, the Bank's and the Corporation's leverage capital ratio was 7.3%
and 7.4%, respectively.
16
As of June 30, 2002 and December 31, 2001, 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
In June 2001, the Financial Accounting Standards Board 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. The Corporation adopted SFAS
No. 142 and passed step one of the goodwill impairment test on January 1, 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, 2001 in the Corporation's 2001 Form 10-K Annual
Report.
FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiary 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
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit Number Sequential Page Number or Incorporate
by Reference to
(3)(1) Articles of Incorporation Filed as Exhibit (3)(1) to Report on
Form 10 filed May 5, 1999. Amendment
filed as Exhibit (3)(2) to Form 10-Q
filed August 14, 2000.
(3)(2) Bylaws Filed as Exhibit (3)(2) to Report on
Form 10 filed May 5, 1999.
(99)(1) CEO and CFO Certification Filed as Exhibit (99)(1)
b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the quarter ended June 30,
2002.
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: August 14, 2002 /s/ Thomas J. Bare
------------------
Thomas J. Bare
President
Date: August 14, 2002 /s/ Paul H. Wojta
-----------------
Paul H. Wojta
Senior Vice President and
Principal Financial Officer
19