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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------------
Commission file number 0-25983
First Manitowoc Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
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(State or other jurisdiction of (IRS employer identification no.)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [X] No [ ]
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at October 31, 2003, was 6,937,268 shares.
FIRST MANITOWOC BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition -
September 30, 2003 and December 31, 2002 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2003 and 2002 2
Consolidated Statements of Changes in
Stockholders' Equity
Nine Months Ended September 30, 2003 and 2002 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2003 and 2002 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 18
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
Exhibit Index 20
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, December 31,
2003 2002
---- ----
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 8,793 $ 17,139
Interest-bearing deposits 7,141 18,491
Federal funds sold 14,232 20,459
--------- ---------
Cash and cash equivalents 30,166 56,089
Securities available for sale, at fair value 132,092 135,747
Other investments (at cost) 5,003 2,858
Loans, net 360,503 340,719
Premises and equipment 8,688 8,653
Goodwill 8,968 8,968
Intangible assets 2,184 2,143
Other assets 15,931 10,633
--------- ---------
Total Assets $ 563,535 $ 565,810
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 417,731 $ 416,099
Securities sold under repurchase agreements 48,998 50,884
Borrowed funds 31,121 38,138
Other liabilities 6,899 6,405
--------- ---------
Total liabilities 504,749 511,526
--------- ---------
Shareholders' equity:
Common stock, $1.00 par value; authorized
10,000,000 shares; issued 7,583,628 shares 7,584 7,584
Retained earnings 49,239 44,387
Accumulated other comprehensive income 2,663 3,013
Treasury stock at cost-646,360 shares (700) (700)
--------- ---------
Total shareholders' equity 58,786 54,284
--------- ---------
Total Liabilities and Shareholders' Equity $ 563,535 $ 565,810
========= =========
(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,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
(In Thousands, Except Share Data)
Interest income:
Loans, including fees $ 5,331 $ 5,949 $ 16,381 $ 17,695
Federal funds sold 58 98 256 246
Securities:
Taxable 406 977 1,532 3,048
Tax exempt 796 778 2,348 2,300
-------- -------- -------- --------
Total interest income 6,591 7,802 20,517 23,289
-------- -------- -------- --------
Interest expense:
Deposits 1,662 2,193 5,529 6,783
Securities sold under repurchase agreements 308 352 953 965
Borrowed funds 324 436 1,012 1,362
-------- -------- -------- --------
Total interest expense 2,294 2,981 7,494 9,110
-------- -------- -------- --------
Net interest income 4,297 4,821 13,023 14,179
Provision for loan losses 300 325 950 1,075
-------- -------- -------- --------
Net interest income after provision for loan losses 3,997 4,496 12,073 13,104
-------- -------- -------- --------
Other income:
Trust service fees 115 132 396 414
Service charges 413 311 1,133 882
Insurance Center commissions 414 427 1,263 1,221
Loan servicing income 213 161 637 543
Income on equity investment 96 92 267 261
Gain on sales of mortgage loans 802 136 1,760 351
Other 289 236 865 698
-------- -------- -------- --------
Total other income 2,342 1,495 6,321 4,370
-------- -------- -------- --------
Other expenses:
Salaries, commissions, and employee benefits 2,173 2,137 6,365 5,894
Occupancy 223 165 700 609
Data processing 267 358 792 846
Postage, stationery and supplies 132 138 428 377
Advertising 84 69 240 273
Outside service fees 167 153 393 375
Amortization of intangibles 68 68 205 205
Other 589 543 1,691 1,857
-------- -------- -------- --------
Total other expenses 3,703 3,631 10,814 10,436
-------- -------- -------- --------
Income before provision for income taxes 2,636 2,360 7,580 7,038
Provision for income taxes 595 507 1,688 1,520
-------- -------- -------- --------
Net Income $ 2,041 $ 1,853 $ 5,892 $ 5,518
======== ======== ======== ========
Earnings per share: basic and diluted $ 0.29 $ 0.27 $ 0.85 $ 0.80
======== ======== ======== ========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
2
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, 2002
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $7,584 $38,563 $1,042 ($700) $ 46,489
Comprehensive income:
Net income --- 5,518 --- --- 5,518
Other comprehensive income --- --- 2,837 --- 2,837
-------
Total comprehensive income $ 8,355
Cash dividends ($0.1275 per share) --- (885) --- --- (885)
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $7,584 $43,196 $3,879 ($700) $53,959
====== ======= ====== ===== =======
Nine Months Ended September 30, 2003
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $7,584 $44,387 $3,013 ($700) $54,284
Comprehensive income:
Net income --- 5,892 --- --- 5,892
Other comprehensive loss --- --- (350) --- (350)
-------
Total comprehensive income 5,542
Cash dividends ($0.05 per share) --- (1,040) --- --- (1,040)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2003 $7,584 $49,239 $2,663 ($700) $58,786
====== ======= ====== ===== =======
(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,
-------------
2003 2002
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,892 $ 5,518
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 950 1,075
Depreciation of premises and equipment 604 635
Amortization of intangible assets 206 205
Amortization of securities, net 859 225
Stock dividends on FHLB stock (147) (92)
Proceeds from sale of mortgage loans 126,109 68,356
Originations of mortgage loans held for sale (124,330) (67,794)
Gain on sales of mortgage loans held for sale (1,760) (351)
Gain on sale of fixed assets (38) 2
Undistributed income of joint venture (267) (261)
(Increase) decrease in other assets (57) 764
Increase in other liabilities 494 580
--------- ---------
Net cash provided by operating activities 8,515 8,862
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 54,063 18,332
Purchases of securities available for sale (51,834) (26,072)
Net increase in loans (20,753) (18,692)
Purchases of premises and equipment (639) (221)
Proceeds from sales of premises and equipment 38 160
Purchased bank owned life insurance policies (5,000) 0
Purchased FHLB Stock (2,000) 0
--------- ---------
Net cash used in investing activities (26,125) (26,493)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 1,631 (1,476)
Net increase (decrease) in securities sold under repurchase agreements (1,886) 17,568
Proceeds from advances on borrowed funds 21,747 21,747
Repayment of borrowed funds (28,764) (25,774)
Dividends paid (1,040) (885)
--------- ---------
Net cash provided by financing activities (8,312) 11,180
--------- ---------
Net (decrease) in cash and cash equivalents (25,922) (6,451)
Cash and cash equivalents at beginning of period 56,089 39,541
--------- ---------
Cash and cash equivalents at end of period $ 30,167 $ 33,090
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,493 $ 9,714
Income taxes 1,292 1,050
(See accompanying notes to Unaudited Consolidated Financial Statements.)
4
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 (the "Corporation's") financial position,
results of operations, changes in shareholders' 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 2002 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 (the
"Bank"), a nationally chartered commercial bank. The Bank has two wholly owned
subsidiaries, FNBM Investment Corp. and Insurance Center of Manitowoc, Inc. (the
"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 September 30, 2003 presentation.
5
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, 2003
------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 14,891 $ 14,815
Obligations of states and political subdivisions 42,809 42,868
Mortgage-backed securities 70,234 74,309
Corporate notes 100 100
-------- --------
Total $128,034 $132,092
======== ========
December 31, 2002
-----------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 16,427 $ 16,603
Obligations of states and political subdivisions 62,784 66,355
Mortgage-backed securities 50,915 51,766
Corporate notes 999 1,023
-------- --------
Total $131,125 $135,747
======== ========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(Dollars In Thousands)
September 30, 2003 December 31, 2002
------------------ -----------------
Percent of Percent of
Amount Total Loans Amount Total Loans
- --------------------------------------------------------------------------------------------------------
Commercial and Agricultural $ 99,407 27.27% $ 90,374 26.26%
Commercial Real Estate 112,211 30.78% 104,042 30.24%
Residential Real Estate 130,437 35.78% 126,122 36.65%
Consumer 19,003 5.21% 20,627 6.00%
Other 3,462 0.96% 2,938 0.85%
--------- ------- --------- -------
Total $ 364,520 100.00% $ 344,103 100.00%
======= =======
Less: Allowance for Loan Loss (4,017) (3,384)
--------- ---------
Net Loans $ 360,503 $ 340,719
========= =========
6
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,
2003 2002
---- ----
(In Thousands)
- -----------------------------------------------------------------------------------------------------
Balance at beginning of period - December 31, 2002 and 2001 $ 3,384 $ 2,737
Provision charged to expense 950 1,075
Charge-offs (402) (956)
Recoveries 85 244
-------- --------
Balance at end of period $ 4,017 $ 3100
======== ========
NOTE 6: Business Segments
The Corporation, through the Bank and the Bank's 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.
Operations are managed and financial performance of these services is evaluated
on a corporation-wide basis. Accordingly, all of the Corporation's operations
are considered by management to be aggregated in one reportable operating
segment.
NOTE 7: Per Share Computations
Weighted average shares outstanding were 6,937,268 for the nine months ended
September 30, 2003 and 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE CORPORATION
First Manitowoc Bancorp, Inc. (the "Corporation") is a Wisconsin corporation and
registered bank holding company. The Corporation engages in its business through
its sole subsidiary, First National Bank in Manitowoc (the "Bank"), a national
banking association. The Bank has a wholly owned investment subsidiary, FNBM
Investment Corp. and a wholly-owned insurance subsidiary, Insurance Center of
Manitowoc, Inc. (the "Insurance Center"). The Insurance Center also operates an
office known as Gary Vincent and Associates in Green Bay, Wisconsin. The
Insurance Center is an independent agency offering commercial, personal, life
and health insurance.
The Corporation's and the Bank's main office is located at 402 North Eighth
Street, Manitowoc, Manitowoc County, Wisconsin. The Bank has twelve full service
branch offices located in Francis Creek, St. Nazianz, Two Rivers, Mishicot,
Manitowoc, Kiel, Newton, New Holstein, Plymouth, Bellevue, and Ashwaubenon,
Wisconsin. The Corporation's home page on the Internet is
www.bankfirstnational.com. The Corporation's web site content is for information
purposes only, and it should not be relied upon for investment purposes, nor is
it incorporated by reference into this Form 10-Q.
FORWARD LOOKING STATEMENTS
Forward-looking statements have been made by 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 of Financial Condition and Results of
Operations, 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.
7
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.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated 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.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses and mortgage servicing rights
valuation.
The consolidated financial statements of the Corporation are prepared in
conformity with accounting principles generally accepted in the United States of
America and follow general practices within the industries in which it operates.
This preparation requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments are based on
information available as of the date of the financial statements; accordingly,
as this information changes, actual results could differ from the estimates,
assumptions, and judgments reflected in the financial statements. Certain
policies inherently have a greater reliance on the use of estimates,
assumptions, and judgments and, as such, have a greater possibility of producing
results that could be materially different than originally reported. Management
believes the following policies are both important to the portrayal of the
Corporation's financial condition and results and require subjective or complex
judgments and, therefore, management considers the following to be critical
accounting policies.
Allowance for Loan Losses: Management's evaluation process used to determine the
adequacy of the allowance for loan losses is subject to the use of estimates,
assumptions, and judgments including management's ongoing review and grading of
the loan portfolio, consideration of past loan loss experience, trends in past
due and nonperforming loans, risk characteristics of the various classifications
of loans, existing economic conditions, the fair value of underlying collateral,
and other qualitative and quantitative factors which could affect probable
credit losses. Because current economic conditions can change and future events
are inherently difficult to predict, the anticipated amount of estimated loan
losses, and therefore the adequacy of the allowance, could change significantly.
As an integral part of their examination process, various regulatory agencies
also review the allowance for loan losses. Such agencies may require that
certain loan balances be charged off when their credit evaluations differ from
those of management, based on their judgments about information available to
them at the time of their examination. The Corporation believes the allowance
for loan losses is adequate and properly recorded in the financial statements.
See section "Allowance for Loan Losses."
Mortgage Servicing Rights Valuation: The fair value of the Corporation's
mortgage servicing rights asset is important to the presentation of the
consolidated financial statements in that mortgage servicing rights are subject
to a fair value-based impairment standard. Mortgage servicing rights do not
trade in an active open market with readily observable prices. As such, like
other participants in the mortgage banking business, the Corporation relies on
an internal estimated cash flow model to establish the fair value of its
mortgage servicing rights. While the Corporation believes that the values
produced by its internal model are indicative of the fair value of its mortgage
servicing rights portfolio, these values can change significantly depending upon
the then current interest rate environment, estimated prepayment speeds of the
underlying mortgages serviced, and other economic conditions. The proceeds that
might be received should the Corporation actually consider a sale of the
mortgage servicing rights portfolio could differ from the amounts reported at
any point in time. The Corporation believes the mortgage servicing rights asset
is properly recorded in the financial 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,
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------
Net Income $ 2,041 $ 1,853 $ 5,892 $ 5,518
Earnings Per Share - Basic & Diluted $ 0.29 $ 0.27 $ 0.85 $ 0.80
Return on Average Assets 1.44% 1.36% 1.39% 1.39%
Return on Average Equity 14.10% 14.23% 13.90% 14.79%
Weighted average shares outstanding were 6,937,268 for the nine months ended
September 30, 2003 and 2002.
Net income for the three months ended September 30, 2003 was $2,041,000 compared
to $1,853,000 for the three months ended September 30, 2002, an increase of
$188,000, or 10.1%. Interest income decreased $1,211,000 primarily as a result
of a decrease in interest yields. Interest expense decreased $687,000 mainly as
a result of a decrease in interest rates paid on deposits. Other income
increased $847,000 due to an increase in service charges and an increase in gain
on sales of mortgage loans held for sale. Other expenses increased $72,000. This
is a result of increased salaries, commissions and related benefits primarily
due to annual merit increases in wages for employees. Earnings per share for the
three months ended September 30, 2003 was $0.29 compared to $0.27 for the three
months ended September 30, 2002.
Return on average assets ("ROA") on an annualized basis for the third quarter
2003 was 1.44% compared to 1.36% for the third quarter 2002. Return on average
equity ("ROE") on an annualized basis for the third quarter 2003 was 14.10%
compared to 14.23% for the third quarter 2002.
Net income for the nine months ended September 30, 2003 was $5,892,000 compared
to $5,518,000 for the nine months ended September 30, 2002, an increase of
$374,000 or 6.78%. Interest income decreased $2,772,000 primarily as a result of
a decrease in interest yields. Interest expense decreased $1,616,000 primarily
due to a decrease in interest rates paid on deposits and borrowed funds. Other
income increased $1,951,000 as a result of increases in service charges and gain
on sales of mortgage loans held for sale. Other expense increased $378,000, a
result of increased salaries, commissions and related benefits primarily due to
annual merit increases. Earnings per share for the nine months ended September
30, 2003 was $0.85 compared to $0.80 for the nine months ended September 30,
2002.
ROA on an annualized basis for the first nine months of 2003 was 1.39%, the same
as the first nine months in 2002. ROE on an annualized basis for the first nine
months of 2003 was 13.90% compared to 14.79% for the first nine months of 2002.
The drop in ROE is due to a decrease in other comprehensive income from
unrealized gain/loss on securities.
9
AVERAGE BALANCES, YIELD AND RATES
For the Three Months For the Three Months
Ended September 30, 2003 Ended September 30, 2002
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(In Thousands) (In Thousands)
ASSETS
Interest-earning assets:
Federal funds sold $ 23,120 $ 57 0.98% $ 22,700 $ 98 1.73%
Investment securities 140,310 1,713 4.86% 141,802 2,142 6.04%
Loans 357,431 5,470 6.09% 339,697 6,192 7.29%
-------- ------ ---- -------- ------ ----
Total interest-earning assets 520,861 $7,240 5.51% 504,199 $8,432 6.69%
Other assets 44,373 39,538
-------- --------
Total Assets $565,234 $543,737
======== ========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $348,290 $1,663 1.90% $330,624 $2,193 2.65%
Repurchase agreements 49,485 308 2.48% 51,376 352 2.74%
Borrowings 33,198 325 3.89% 42,415 436 4.11%
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities $430,973 $2,296 2.12% $424,415 $2,981 2.81%
Demand deposits 69,439 60,367
Other liabilities 6,902 6,881
-------- --------
Total Liabilities 507,314 491,663
SHAREHOLDERS' EQUITY 57,920 52,074
-------- --------
Total Liabilities and
Shareholders' Equity $565,234 $543,737
======== ========
Net interest income and
interest rate spread $4,944 3.39% $5,451 3.88%
Net interest income as
a percent of earning assets (annualized) 3.77% 4.28%
==== ====
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%.
10
AVERAGE BALANCES, YIELD AND RATES
For the Nine Months For the Nine Months
Ended September 30, 2003 Ended September 30, 2002
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(In Thousands) (In Thousands)
ASSETS
Interest-earning assets:
Federal funds sold $ 29,915 $ 255 1.14% $ 19,229 $ 246 1.71%
Investment securities 141,019 5,377 5.10% 136,765 6,481 6.32%
Loans 350,197 16,775 6.40% 333,379 18,363 7.34%
-------- ------- ----- -------- ------- ----
Total interest-earning assets 521,131 $22,407 5.75% 489,373 $25,090 6.84%
Other assets 42,357 40,410
-------- --------
Total Assets $563,488 $529,783
======== ========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $350,737 $ 5,529 2.11% $326,801 $ 6,783 2.77%
Repurchase agreements 50,168 952 2.54% 46,384 965 2.78%
Federal funds purchased --- --- --- 8 --- ---
Borrowings 35,309 1,012 3.83% 43,256 1,362 4.19%
-------- ------- ----- -------- ------- ----
Total interest-bearing liabilities $436,214 $ 7,493 2.30% $416,449 $ 9,109 2.92%
Demand deposits 63,954 57,011
Other liabilities 6,818 6,582
-------- --------
Total Liabilities 506,986 480,042
SHAREHOLDERS' EQUITY 56,502 49,741
-------- --------
Total Liabilities and
Shareholders' Equity $563,488 $529,783
======== ========
Net interest income and
interest rate spread $14,914 3.45% $15,981 3.92%
Net interest income as
a percent of earning assets (annualized) 3.83% 4.37%
==== ====
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%.
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, 2003 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%.
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002:
Net interest income (on a tax equivalent basis) for the three months ended
September 30, 2003 decreased by $507,000 or 9.30% compared to the three months
ended September 30, 2002. Interest income decreased $1,192,000 as a result of a
decrease in yields. Total average loans increased from $339,697,000 for the
third quarter of 2002 to $357,431,000 for the third quarter of 2003 while
interest yield on loans decreased from 7.29% for the third quarter of 2002 to
6.09% for the third quarter of 2003. Average investment securities decreased
from $141,802,000 for the third quarter of 2002 to $140,310,000 for the third
quarter of 2003. Interest expense decreased $687,000 primarily as a result of a
decrease in interest rates paid. Total average interest-bearing deposits
increased from $424,415,000 for the third quarter of 2002 to $430,973,000 for
the third quarter of 2003 while interest rates paid on interest-bearing deposits
decreased from 2.81% for the third quarter of 2002 to 2.11% for the third
quarter of 2003. 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 3.39% for the three months ended September 30, 2003, a
decrease of 48 basis points from the interest rate spread of 3.88% for the three
months ended September 30, 2002.
Net interest margin for the three months ended September 30, 2003 was 3.77%
compared with 4.28% for the three months ended September 30, 2002.
YTD 2003 COMPARED TO YTD 2002:
Net interest income (on a tax equivalent basis) for the nine months ended
September 30, 2003 decreased by $1,067,000 or 6.68% compared to the nine months
ended September 30, 2002. Interest income decreased $2,683,000 as a result of a
decrease in yields. Total average loans increased to $350,197,000 for the first
nine months of 2003 from $333,379,000 for the first nine months of 2002. Total
average investment securities increased to $141,019,000 for the first nine
months of 2003 from $136,765,000 for the first nine months of 2002. Interest
yields fell on both loans and investment securities for the nine months ended
September 30, 2003. Interest expense decreased $1,616,000 due to a decrease in
interest rates paid. Total average interest bearing deposits increased to
$436,214,000 for the first nine months of 2003 from $416,449,000 for the first
nine months of 2002, while interest rates paid on those deposits decreased to
2.30% in 2003 from 2.92% in 2002. The interest rate spread was 3.45% for the
nine months ended September 30, 2003, a decrease of 47 basis points from the
interest rate spread of 3.92% for the nine months ended September 30, 2002.
Net interest margin for the nine months ended September 30, 2003 was 3.83%
compared with 4.37% for the nine months ended September 30, 2002.
12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the nine months ended September 30, 2003, the Bank charged $950,000 to
expense for the provision for loan loss compared to $1,075,000 for the nine
months ended September 30, 2002.
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,
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 3,860 $ 2,737 $ 3,384 $ 2,737
Charge-offs (171) (120) (402) (956)
Recoveries 28 158 85 244
------- ------- ------- -------
Net (charge-offs) recoveries (143) 38 (317) (712)
Provision for loan losses 300 325 950 1,075
------- ------- ------- -------
Balance at end of period $ 4,017 $ 3,100 $ 4,017 $ 3,100
======= ======= ======= =======
Ratio of net charge-offs during period to
average loans outstanding during period 0.04% 0.26% 0.09% 0.30%
Ratio of allowance for loan losses
to total loans 1.10% 0.90% 1.10% 0.90%
The ratio of allowance for loan losses to total loans increased to 1.10% at
September 30, 2003 from 0.90% at September 30, 2002.
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, 2003 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,
2003 2002
- ------------------------------------------------------------------
Specific Problem Loans $2,262 $1,974
Loan Type Allocation:
Commercial & Agricultural 942 1,006
Commercial Real Estate 86 31
Residential Real Estate 51 13
Consumer 196 77
------ ------
1,275 1,127
Unallocated 480 283
------ ------
Total Reserve $4,017 $3,384
====== ======
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. The typical time frame for making the
determination to put a loan in non-accrual status is 90 days. 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, 2003 were $4,246,000, an increase of
$2,443,000 from December 31, 2002. This increase includes two loans totaling
$2,300,000. One of these loans which is on non-accrual for $1,024,000 is in
the process of being restructured and put back in an accrual status, the other
loan is actively being worked with a goal of removal from non-accrual status by
the end of the first quarter 2004. The following table presents nonperforming
and nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
September 30, December 31,
2003 2002
- -------------------------------------------------------------------------------------------------------
Nonaccrual loans $4,226 $ 1,801
Accruing loans past due 90 days or more 20 2
------ -------
Total nonperforming loans $4,246 $ 1,803
Nonperforming loans as a percent of loans 1.16% 0.52%
Ratio of the allowance for loan losses to nonperforming loans 94.60% 187.00%
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,
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------
Trust service fees $ 115 $ 132 $ 396 $ 414
Service charges 413 311 1,133 882
Insurance Center commissions 414 427 1,263 1,221
Loan servicing income 213 161 637 543
Income on equity investment 96 92 267 261
Gain on sales of mortgage loans 802 136 1,760 351
Other 289 236 865 698
------ ------ ------ ------
Total other income $2,342 $1,495 $6,321 $4,370
14
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002:
Other income for the third quarter of 2003 was $2,342,000 compared to $1,495,000
for the third quarter of 2002, an increase of $847,000 or 56.7%. An increase in
the number of residential mortgage loans and refinancings processed and sold to
the Federal National Mortgage Association ("FNMA") secondary market accounted
for an increase of $666,000 in gains on sales of mortgage loans in the quarter
ended September 30, 2003. Service charges on deposit accounts and FNMA loans and
closing fees on mortgage loans also contributed to the increase.
YTD 2003 COMPARED TO YTD 2002:
Total other income for the nine months ended September 30, 2003 was $6,321,000
compared to $4,370,000 for the nine months ended September 30, 2002, an increase
of $1,951,000 or 44.6%. Service charges increased $251,000 while loan servicing
income increased $94,000. Gain on sales of mortgage loans held for sale
increased $1,409,000, resulting from an increase in the number of new
residential mortgage loans and refinancings processed and sold in the secondary
market during the first nine months of 2003. Other income increased $167,000
while Insurance Center commissions increased $42,000.
OTHER EXPENSES
Other Expenses
(In Thousands)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Salaries, commissions, and employee benefits $2,173 $2,137 $ 6,365 $ 5,894
Occupancy 223 165 700 609
Data processing 267 358 792 846
Postage, stationery and supplies 132 138 428 377
Advertising 84 69 240 273
Outside service fees 167 153 393 375
Amortization of intangibles 68 68 205 205
Other 589 543 1,691 1,857
------ ------ ------- -------
Total other expenses $3,703 $3,631 $10,814 $10,436
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002:
Other expenses for the third quarter of 2003 were $3,703,000 compared to
$3,631,000 for the third quarter of 2002, an increase of $72,000, or 2.0%. The
increase is a result of increased salaries, commissions and related benefits due
primarily to annual merit increases for employees.
YTD 2003 COMPARED TO YTD 2002:
Other expenses for the first nine months of 2003 were $10,814,000 compared to
$10,436,000 for the first nine months of 2002, an increase of $378,000 or 3.6%.
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 and increased postage
costs.
INCOME TAXES
The effective tax rate for the nine months ended September 30, 2003 was 22.27%
compared to 21.5% for the nine months ended September 30, 2002. The increase in
effective tax rates in the period is the result of taxable income increasing at
a greater rate than tax exempt income.
15
BALANCE SHEET
SEPTEMBER 30, 2003 COMPARED TO DECEMBER 31, 2002
The Corporation's total assets decreased from $565.8 million at December 31,
2002 to $563.5 million at September 30, 2003. Loans increased $19.8 million, a
result of an increase in commercial loans. The increase in other assets is due
to the purchase of a $5.0 million life insurance policy on certain officers of
the bank.
Deposits increased $1.6 million to $417.7 million at September 30, 2003 from
$416.1 million at December 31, 2002, due to increases in non-interest bearing
deposits and certificates of deposit.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Corporation to generate adequate amounts
of cash 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,
2003 2002
- ---------------------------------------------------------------------------------------------
Shareholders' Equity $58,786 $54,284
Total capital (to risk-weighted assets):
Consolidated 13.2% 12.3%
First National Bank in Manitowoc 13.0% 12.0%
Tier 1 capital (to risk-weighted assets):
Consolidated 12.2% 11.4%
First National Bank in Manitowoc 11.9% 11.1%
Tier I capital (to average assets):
Consolidated 8.4% 7.7%
First National Bank in Manitowoc 8.2% 7.5%
Dividends Per Share-This Quarter $ 0.050 $ 0.054
Dividends Per Share-Year to Date 0.150 0.183
Earnings Per Share-This Quarter $ 0.29 $ 0.22
Earnings Per Share-Year to Date 0.85 1.02
Dividend Payout Ratio-This Quarter 17.24% 24.55%
Dividend Payout Ratio-Year to Date 17.65% 17.86%
Total shareholders' equity increased $4.6 million from $54.2 million at December
31, 2002 to $58.8 million at September 30, 2003. Net income for the nine-month
period ending September 30, 2003 was $5.9 million.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of September 30, 2003 and December 31, 2002, that the
Bank meets all capital adequacy requirements to which it is subject.
16
As of September 30, 2003, the Bank's and the Corporation's ratio of Tier 1
capital to risk-weighted assets was 11.9% and 12.2%, respectively. As of
September 30, 2003, the Bank's and the Corporation's ratio of total capital to
risk-weighted assets was 13.0% and 13.2%, respectively. In addition to
risk-based capital, banks and bank holding companies are required to maintain a
minimum amount of Tier 1 capital to total assets, referred to as the leverage
capital ratio, of at least 4%. As of September 30, 2003, the Bank's and the
Corporation's leverage capital ratio was 8.2% and 8.4%, respectively.
As of September 30, 2003 and December 31, 2002, 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 such notifications that management believes have
changed the institution's category.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," as an amendment to SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value-based
method of accounting for stock-based employee compensation. The Corporation does
not use stock-based employee compensation, therefore the release of SFAS No. 148
does not affect the financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). The objective of this interpretation is to
provide guidance on how to identify a variable interest entity and determine
when the assets, liabilities, noncontrolling interests, and results of
operations of a variable interest entity need to be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity will need to consolidate the entity if the company's interest in the
variable interest entity is such that the company will absorb a majority of the
variable interest entity's losses and/or receive a majority of the entity's
expected residual returns, if they occur. FIN 46 also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders. The provisions of this interpretation are effective for the first
reporting period ending after December 15, 2003. The requirements of FIN 46 did
not have a material impact on the results of operations, financial position, or
liquidity of the Bank.
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 will not have a material impact on the
results of operations, financial position, or liquidity of the Bank.
FINANCIAL STATEMENT DISCLOSURES
Commitments to sell residential mortgage loans to FNMA and commitments to fund
such loans to individual borrowers represent the Corporation's mortgage
derivatives, the fair value of which is not material at this time. Commitments
outstanding at September 30, 2003 were $2.2 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's management is aware of no material change to the market risk
position from that disclosed as of December 31, 2002 in the Corporation's 2002
Form 10-K Annual Report.
17
ITEM 4. CONTROLS AND PROCEDURES
The Corporation's senior management, with the participation of the Corporation's
chief executive officer and chief financial officer, evaluated the effectiveness
of the Corporation's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2003. Based
on this evaluation, the Corporation's chief executive officer and chief
financial officer concluded that, as of September 30, 2003, the disclosure
controls and procedures were (1) designed to ensure that material information
relating to the Corporation, including the Bank and the Bank's wholly owned
subsidiaries, is made known to the Corporation's chief executive officer and
chief financial officer by others within those entities, particularly during the
period in which this report was being prepared and (2) effective, in that they
provide reasonable assurance that information required to be disclosed in the
reports that the Corporation files or submits under the Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
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 that 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:
Exhibit Number Exhibit Descriptions
- -------------- --------------------
(3)(1) Articles of Incorporation of First Manitowoc Bancorp, Inc. (1)
(3)(2) Amended and Restated Bylaws of First Manitowoc Bancorp, Inc. (2)
(10) First National Bank in Manitowoc Profit Sharing Plan (3)
(31.1) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (4)
18
(31.2) Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (4)
(32) Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (4)
(99) Item 3 of Part I of First Manitowoc Bancorp, Inc.'s Report
on Form 10-K filed March 18, 2003, hereby incorporated by
reference (5)
(1) Incorporated by reference to Exhibit (3)(1) filed with the
Corporation's Registration Statement on Form 10 filed May 5,
1999. Amendment filed as Exhibit (3)(2) to the Corporation's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000.
(2) Incorporated by reference to Exhibit (3)(2) filed with the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
(3) Incorporated by reference to Exhibit (10)(1) filed with the
Corporation's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2003.
(4) Filed herewith.
(5) Incorporated by reference to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.
b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the quarter ended September
30, 2003.
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 10, 2003 /s/ Thomas J. Bare
---------------------------------
Thomas J. Bare
Chief Executive Officer and Chief
Financial Officer
19