UNITED STATES
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 March 31, 2005
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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
402 North Eighth Street, Manitowoc, Wisconsin 54220
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(920) 684-6611
---------------------------------------------------
Registrant's telephone number, including area code)
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
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 April 30, 2005, 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 -
March 31, 2005 and December 31, 2004 1
Consolidated Statements of Income -
Three Months Ended March 31, 2005 and 2004 2
Consolidated Statements of Changes in
Shareholders' Equity
Three Months Ended March 31, 2005 and 2004 3
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2005 and 2004 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 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures
Certification
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, December 31,
2005 2004
--------- ------------
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 14,111 $ 13,179
Interest-bearing deposits 423 5,345
Federal funds sold 17,456 21,349
--------- ---------
Cash and cash equivalents 31,990 39,873
Securities available for sale, at fair value 159,485 156,669
Other investments (at cost) 5,408 5,340
Loans, net 386,391 382,691
Premises and equipment 8,644 8,778
Goodwill 8,973 8,973
Intangible assets 1,851 1,936
Cash surrender value of life insurance 11,769 11,673
Other assets 7,472 6,242
--------- ---------
Total Assets $ 621,983 $ 622,175
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 435,670 $ 445,786
Securities sold under repurchase agreements 66,217 61,620
Borrowed funds 46,927 42,280
Other liabilities 6,758 6,616
--------- ---------
Total liabilities 555,572 556,302
--------- ---------
Shareholders' equity:
Common stock -- $1.00 par value; authorized -- 10,000,000 shares;
issued -- 7,583,628 shares 7,584 7,584
Retained earnings 58,602 56,866
Accumulated other comprehensive income 925 2,123
Treasury stock at cost--646,360 shares (700) (700)
--------- ---------
Total shareholders' equity 66,411 65,873
--------- ---------
Total Liabilities and Shareholders' Equity $ 621,983 $ 622,175
========= =========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
1
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended
March 31
------------------------
2005 2004
---------- ---------
Interest income:
Loans, including fees $ 5,853 $ 5,177
Federal funds sold 104 44
Securities
Taxable 679 633
Tax-exempt 909 802
Other 68 --
---------- ---------
Total interest income 7,613 6,656
---------- ---------
Interest expense:
Deposits 1,857 1,495
Securities sold under repurchase agreements 467 260
Borrowed funds 294 337
---------- ---------
Total interest expense 2,618 2,092
---------- ---------
Net interest income 4,995 4,564
Provision for loan losses 100 100
---------- ---------
Net interest income after provision for loan losses 4,895 4,464
Other income:
Trust service fees 140 157
Service charges 348 332
Commissions (The Vincent Group) 558 492
Loan servicing income 127 376
Income on equity investment 73 98
Gain on sales of mortgage loans 23 60
Other 474 538
---------- ---------
Total other income 1,743 2,053
Other expenses:
Salaries, commissions, and employee benefits 2,159 2,217
Occupancy 441 438
Data processing 287 264
Postage, stationery, and supplies 108 126
Advertising 132 111
Outside service fees 115 238
Loss on sales of other real estate 21 --
Amortization of intangibles 24 68
Other 462 267
---------- ---------
Total other expenses 3,749 3,729
---------- ---------
Income before provision for income taxes 2,889 2,788
Provision for income taxes 702 641
---------- ---------
Net income $ 2,187 $ 2,147
========== =========
Earnings per share--basic and diluted $ 0.32 $ 0.31
(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)
Three Months Ended March 31, 2004
(In Thousands)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
------- -------- ------------- -------- --------
Balance at December 31, 2003 $ 7,584 $ 50,560 $ 2,779 ($700) $ 60,223
Comprehensive income:
Net income --- 2,147 --- --- 2,147
Other comprehensive income --- --- 882 --- 882
--------
Total comprehensive income 3,029
Cash dividends ($0.055 per share) --- (381) --- --- (381)
------- -------- --------- ----- --------
BALANCE AT MARCH 31, 2004 $ 7,584 $ 52,326 $ 3,661 ($700) $ 62,871
======= ======== ========= ===== ========
Three Months Ended March 31, 2005
(In Thousands)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
------ -------- ------------- -------- --------
Balance at December 31, 2004 $7,584 $ 56,866 $ 2,123 ($700) $ 65,873
Comprehensive income:
Net income --- 2,187 --- --- 2,187
Other comprehensive income (loss) --- --- (1,198) --- (1,198)
--------
Total comprehensive income 989
Cash dividends ($0.065 per share) --- (451) --- --- (451)
------ -------- ------------- ----- --------
BALANCE AT MARCH 31, 2005 $7,584 $ 58,602 $ 925 ($700) $ 66,411
====== ======== ============= ===== ========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
3
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------
2005 2004
-------------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,187 $ 2,147
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 100 100
Depreciation of premises and equipment 203 197
Amortization of intangible assets 24 68
Amortization of securities, net of accretion 173 184
Stock dividends on FHLB stock (67) (75)
Proceeds from sale of mortgage loans 4,421 13,755
Originations of mortgage loans held for sale (4,398) (13,693)
Gain on sales of mortgage loans held for sale 23 (60)
Undistributed income of joint venture (73) (98)
Increase in other assets (589) (516)
Decrease in other liabilities 142 797
-------- --------
Net cash provided by operating activities 2,160 2,806
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 4,720 21,432
Purchases of securities available for sale (9,571) (30,585)
Net increase in loans (3,800) (1,770)
Purchases of premises and equipment (69) (311)
Proceeds from sales of premises and equipment 0 4
-------- --------
Net cash used in investing activities (8,720) (11,230)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (10,116) (6,206)
Net increase (decrease) in securities sold under repurchase agreements 4,597 (3,591)
Proceeds from advances on borrowed funds 12,000 25,892
Repayment of borrowed funds (7,353) (16,581)
Dividends paid (451) (381)
-------- --------
Net cash used in financing activities (1,323) (867)
-------- --------
Net decrease in cash and cash equivalents (7,883) (9,291)
Cash and cash equivalents at beginning of period 39,873 35,767
-------- --------
Cash and cash equivalents at end of period $ 31,990 $ 26,476
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,473 $ 2,016
Income taxes 124 20
(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 its 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 2004 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 Corporation ("FNBM") and The Vincent Group, Inc.
(previously known as Insurance Center of Manitowoc, Inc. ("ICM")). Effective
January 26, 2005, ICM's board of directors approved a name change to The Vincent
Group, Inc. ("VG"). All material intercompany transactions and balances are
eliminated. Investment in United Financial Services, Inc., the Bank's 49.8%
owned subsidiary, is accounted for under the equity method. Certain items in the
prior period consolidated financial statements have been reclassified to conform
with the March 31, 2005 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)
March 31, 2005
-----------------------------
Amortized Cost Fair Value
-------------- ----------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 3,655 $ 3,600
Obligations of states and political subdivisions 81,734 84,459
Mortgage-backed securities 72,655 71,326
Corporate notes 101 100
-------------- ----------
Total $ 158,145 $ 159,485
============== ==========
December 31, 2004
-----------------------------
Amortized Cost Fair Value
-------------- ----------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 2,974 $ 2,936
Obligations of states and political subdivisions 80,160 83,803
Mortgage-backed securities 70,232 69,829
Corporate notes 100 101
-------------- ----------
Total $ 153,466 $ 156,669
============== ==========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(In Thousands)
March 31, 2005 December 31, 2004
------------------------- -------------------------
Percent of Percent of
Amount Total Loans Amount Total Loans
-------- ----------- -------- -----------
Commercial and Agricultural $121,657 31.17% $116,145 30.05%
Commercial Real Estate 115,171 29.51% 110,972 28.71%
Residential Real Estate 134,747 34.53% 139,612 36.12%
Consumer 15,951 4.09% 16,980 4.39%
Other 2,719 0.70% 2,806 0.73%
-------- ------ -------- ------
Total $390,245 100.00% $386,515 100.00%
====== ======
Less: Allowance for Loan Loss (3,854) (3,824)
-------- --------
Net Loans $386,391 $382,691
======== ========
6
NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2005 2004
------------- -------------
(In Thousands)
Balance at beginning of period - December 31, 2004 and 2003 $ 3,824 $ 3,999
Provision charged to expense 100 100
Charge-offs (86) (65)
Recoveries 16 45
------------- -------------
Balance at end of period $ 3,854 $ 4,079
============= =============
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; insurance services and data
processing services. Operations are managed and financial performance of these
services 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.
NOTE 7: Per Share Computations
Weighted average shares outstanding were 6,937,268 for the three months ended
March 31, 2005 and 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our Consolidated
Condensed Financial Statements and accompanying Notes thereto included elsewhere
herein and with our 2004 Annual Report on Form 10-K filed with the Commission on
March 12, 2005.
THE CORPORATION
First Manitowoc Bancorp, Inc. (the "Corporation") is a Wisconsin corporation and
registered bank holding company. The Corporation has two wholly owned
subsidiaries, First National Bank in Manitowoc, a national banking association
(the "Bank") and Southeastern First Manitowoc Bancorp of Wisconsin, Inc., a
Wisconsin corporation. The Corporation engages in its business through the Bank.
The Corporation formed Southeastern on February 22, 2005, solely for purposes of
effecting a merger which will facilitate the Corporation's termination of
registration with the SEC. The terms of the merger are described in the
Transaction Statement on Schedule 13E-3 filed by the Corporation and
Southeastern with the SEC on February 20, 2005, as amended.
The Bank has a wholly owned investment subsidiary, FNBM Investment Corporation
("FNBM") and a wholly-owned insurance subsidiary, The Vincent Group, Inc.
("VG"), previously known as Insurance Center of Manitowoc, Inc. ("ICM").
Effective January 26, 2005, ICM's board of directors approved a name change to
The Vincent Group, Inc. VG is an independent agency offering commercial,
personal, life and health insurance. The Bank also owns 49.8% of the outstanding
common stock of United Financial Services, Inc. ("UFS"). UFS provides data
processing services to owner banks Baylake Bank of Sturgeon Bay and the Bank in
addition to 52 other banks located in Wisconsin.
7
The Corporation's and the Bank's main office is located at 402 North Eighth
Street, Manitowoc, Manitowoc County, Wisconsin. The Bank has thirteen full
service branch offices located in Francis Creek, St. Nazianz, Two Rivers,
Mishicot, Manitowoc, Kiel, Newton, New Holstein, Plymouth, Bellevue, and
Ashwaubenon, Wisconsin. On May 10, 2004, the Bank opened a limited service drive
through and mini lobby facility at 4712 Expo Drive in Manitowoc. 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 INFORMATION
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.
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 the 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.
8
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.
EARNINGS
Net Income
(Dollars In Thousands, Except Share Data)
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
--------- ------------
Net Income $ 2,187 $ 2,147
Earnings Per Share-Basic & Diluted $ 0.32 $ 0.31
Return on Average Assets 1.42% 1.47%
Return on Average Equity 13.46% 14.01%
Weighted average shares outstanding were 6,937,268 for the three months ended
March 31, 2005 and 2004.
Net income for the three months ended March 31, 2005 was $2,187,000 compared to
$2,147,000 for the three months ended March 31, 2004, an increase of $40,000.
Interest income increased $957,000 to $7,613,000 compared to $6,656,000 for the
three months ended March 31, 2004. Interest expense increased $526,000 to
$2,618,000. Other income decreased $310,000 or 15.1% while other expenses
increased $20,000. Earnings per share for the three months ended March 31, 2005
was $0.32 compared to $0.31 for the three months ended March 31, 2004.
Return on average assets (ROA) on an annualized basis for the first quarter of
2005 was 1.42% compared to 1.47% for the first quarter in 2004. Return on
average equity (ROE) on an annualized basis for the first quarter of 2005 was
13.46% compared to 14.01% for the first quarter of 2004.
9
Table 1 displays the average balances and a average rates paid on all major
deposit classification for the periods indicated.
AVERAGE BALANCES, YIELD AND RATES
(in thousands
TABLE 1
Three months ended Three months ended
March 31, 2005 March 31, 2004
------------------------------ ----------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- --------- ------- -------- -------- -------
ASSETS:
Interest earning assets:
Federal funds sold $ 16,919 $ 104 2.44% $ 18,155 $ 44 0.96%
investment securities:
US Treasury securities and obligations
of US government agencies $ 75,052 $ 672 3.55% $ 68,710 $ 544 3.14%
Tax exempt obligations of States
and political subdivisions $ 83,344 $ 1,381 6.57% $ 74,229 $ 1,220 6.52%
All other investment securities $ 9,682 $ 148 6.06% $ 9,450 $ 189 7.93%
--------- --------- -------- --------
Total investment securities $ 168,078 $ 2,201 5.20% $152,389 $ 1,953 5.08%
Loans net of unearned income:
Commercial loans $ 150,978 $ 2,256 5.93% $114,350 $ 1,793 6.22%
Mortgage loans $ 215,119 $ 3,258 6.01% $234,492 $ 2,989 5.06%
installment loans $ 14,468 $ 276 7.57% $ 15,915 $ 326 8.13%
Other loans $ 4,937 $ 224 18.00% $ 5,577 $ 200 14.23%
--------- --------- -------- --------
Total loans $ 385,502 $ 6,014 6.19% $370,334 $ 5,308 5.69%
TOTAL INTEREST EARNING ASSETS $ 570,499 $ 8,319 5.79% $540,878 $ 7,305 5.36%
Cash and due from banks $ 14,519 $ 12,844
Other assets $ 35,410 $ 33,626
Allowance for loan and lease losses $ (3,847) $ (4,031)
--------- --------
TOTAL ASSETS $ 616,581 $583,317
========= ========
LIABILITIES:
Interest bearing liabilities:
Savings deposits $ 46,669 $ 64 0.54% $ 44,644 $ 15 0.13%
Market Plus accounts $ 69,363 $ 253 1.45% $ 70,768 $ 125 0.70%
Super NOW accounts $ 36,973 $ 122 1.31% $ 33,067 $ 61 0.73%
Money market deposit accounts $ 19,108 $ 66 1.37% $ 17,141 $ 36 0.83%
Certificates of deposit and IRA deposits $ 193,322 $ 1,361 2.79% $188,279 $ 1,258 2.65%
Repurchase agreements $ 65,306 $ 467 2.84% $ 53,459 $ 260 1.93%
Federal funds purchased $ 287 $ 2 2.76% $ 41 $ - 0.00%
Borrowings $ 41,988 $ 283 2.67% $ 41,133 $ 337 3.25%
--------- --------- -------- --------
TOTAL INTEREST BEARING LIABILITIES $ 473,016 $ 2,618 2.20% $448,532 $ 2,092 1.85%
Demand Deposits $ 71,863 $ 67,032
Other Liabilities $ 6,718 $ 6,408
--------- --------
Total Liabilities $ 551,597 $521,972
Shareholders' Equity $ 64,984 $ 61,345
--------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 616,581 $583,317
========= ========
Recap:
Interest Income $ 8,319 5.79% $ 7,305 5.36%
Interest Expense $ 2,618 2.20% $ 2,092 1.85%
--------- --------
Net interest income/Spread $ 5,701 3.59% $ 5,213 3.51%
Contribution of Non-interest-bearing Funds 0.38% 0.32%
Net Interest Margin 3.96% 3.82%
Ratio of Average interest Earning
Assets to Average Interest-Bearing Liabilities 120.61% 120.59%
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 calculate using the
statutory federal income tax rate of 34%.
10
Table 1A sets forth the effects of changing rates and volumes on net interest
income of the Corporation for the periods indicated.
Table 1A
RATE AND VOLUME VARIANCE
ANALYSIS BASED ON AVERAGE BALANCES
(In thousands)
2005 COMPARED TO 2004
INCREASE(DECREASE) IN NET INTEREST INCOME
NET DUE TO DUE TO
CHANGE RATE VOLUME
------- ------- ------
Interest earning assets:
Federal funds sold $ 60 $ 65 $ (5)
Investment securities:
US Treasury securities and obliga-
tions of US government agencies $ 128 $ 125 $ 3
Tax exempt obligations of States
and political subdivisions $ 161 $ 155 $ 6
All other investment securities $ (41) $ (41) $ -
------- ------- -----
Total investment securities $ 248 $ 239 $ 9
Loans net of unearned income:
Commercial loans $ 463 $ 415 $ 48
Mortgage loans $ 269 $ 746 $(477)
Installment loans $ (50) $ 9 $ (59)
Other loans $ 24 $ 68 $ (44)
------- ------- -----
Total loans $ 706 $ 1,238 $(532)
TOTAL INTEREST EARNING ASSETS $ 1,014 $ 1,543 $(529)
Interest bearing liabilities:
Savings deposits $ 49 $ 49 $ -
Market Plus accounts $ 128 $ 133 $ (5)
Super NOW accounts $ 61 $ 60 $ 1
Money market deposit accounts $ 30 $ 29 $ 1
Certificates of deposit and IRA deposits $ 103 $ 102 $ 1
Repurchase agreements $ 207 $ 198 $ 9
Federal funds purchased $ 2 $ 2 $ -
Borrowings $ (54) $ (54) $ -
------- ------- -----
TOTAL INTEREST BEARING LIABILITIES $ 526 $ 519 $ 7
Net Change in Net Interest Income $ 488 $ 1,024 $(536)
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 three months ended March 31, 2005 has been characterized by rising interest
rates.
FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004: (SEE TABLE 1 AND 1A)
Net interest income (on a tax equivalent basis) for the three months ended March
31, 2005 increased by $488,000 or 9.36% compared to the three months ended March
31, 2004. Interest income increased $1,014,000 primarily as a result of an
increase in yields. Total average loans increased from $370,334,000 for the
first quarter of 2004 to $385,502,000 for the first quarter of 2005 while
interest yield on loans increased from 5.69% for the first quarter of 2004 to
6.19% for the first quarter of 2005. Average investment securities increased
from $152,389,000 for the first quarter of 2004 to $168,078,000 for the first
quarter of 2005. Interest expense increased $526,000 primarily as a result of an
increase in interest rates paid. Total average interest-bearing deposits
increased from $353,899,000 for the first quarter of 2004 to $365,435,000 for
the first quarter of 2005. Interest rates paid on interest-bearing liabilities
increased from 1.85% for the first quarter of 2004 to 2.20% for the first
quarter of 2005.
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 3.59% for the three months ended March 31, 2005, an increase of
8 basis points from the interest rate spread of 3.51% for the three months ended
March 31, 2004. Net interest margin for the three months ended March 31, 2005
was 3.97% compared with 3.82% for the three months ended March 31, 2004.
As shown in the rate/volume analysis in Table 1A, changes in the rate resulted
in a $1,023,000 increase in taxable equivalent net interest income. From a
volume perspective, earning assets decreased taxable equivalent net interest
income by $528,000 but when combined with increases in the rate of both earning
assets and liabilities; the net effect is a $488,000 increase. Commercial loan
volume grew faster than real estate loans because many of the mortgage loans
have been sold in the secondary market to FNMA.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended March 31, 2005 and March 31, 2004, the Bank charged
$100,000 to expense for the provision for loan loss.
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 nonaccruals, 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 March 31, 2005 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.
12
A table showing the allocation of allowance for loan losses is shown below.
Allocation of Allowance for Loan Losses
(In Thousands)
- -----------------------------------------------------------------------------
March 31, December 31,
2005 2004
-------- ------------
Specific Problem Loans $ 1,648 $ 1,610
Loan Type Allocation:
Commercial & Agricultural 450 698
Commercial Real Estate 77 112
Residential Real Estate 134 110
Consumer 143 182
-------- ------------
804 1,102
Unallocated 1,402 1,112
-------- ------------
Total Reserve $ 3,854 $ 3,824
======== ============
Ratio of allowance for loan losses to total loans 0.99% 0.99%
Specific problem loans includes the allocation of the allowance for specific
problem credits. Loan volume allocation includes the factor of loan volume
trends, with management's goal for this factor to maintain an adequate loan loss
reserve for outstanding loans less the specifically identified current problem
credits. The allocation of the allowance among the various loan types is based
on the average proportion of the loan types that make up the specific problem
loans. The unallocated portion of the allowance consists of the other factors
included in the analysis because those factors cannot be tied to specific loans
or loan categories. Local economic concerns continue to affect the Bank's
customers. These concerns are reflected in the increase shown in the allocation
of allowance for loan losses.
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 nonaccrual status whenever there
is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. Management considers such factors as payment
history, the nature and value of collateral securing the loan and the overall
economic situation of the borrower when making a nonaccrual decision. Nonaccrual
loans are closely monitored by management. A non-accruing loan is restored to
current status when the prospects of future contractual payments are no longer
in substantial doubt.
13
Total nonperforming loans at March 31, 2005 were $3,038,000, a decrease of
$17,000 from December 31, 2004. The following table presents nonperforming and
nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
March 31, December 31,
2005 2004
--------- ------------
Nonaccrual loans $ 3,033 $ 2,603
Accruing loans past due 90 days or more 5 452
--------- ------------
Total nonperforming loans $ 3,038 $ 3,055
Nonperforming loans as a percent of loans 0.78% 0.79%
Ratio of the allowance for loan losses to nonperforming loans 126.86% 125.00%
OTHER INCOME
Other Income
(In Thousands)
---------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Trust service fees $ 140 $ 157
Service charges 348 332
The Vincent Group commissions 558 492
Loan servicing income 127 376
Income on equity investment 73 98
Gain on sales of mortgage loans 23 60
Other 474 538
--------- ---------
Total other income $ 1,743 $ 2,053
--------- ---------
FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004:
Other income for the first quarter of 2005 was $1,743,000 compared to $2,053,000
for the first quarter of 2004, a decrease of $310,000 or 15.1%. The Vincent
Group, Inc. commissions increased $66,000 to $558,000 due to increased volume.
Loan servicing income decreased $249,000 or 66.2% as a result of the decreased
volume of loans processed as compared to the first quarter of 2004. Other
miscellaneous income decreased $64,000 due to lower contingency income from the
insurance subsidiary.
OTHER EXPENSES
Other Expenses
(In Thousands)
---------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Salaries, commissions, and employee benefits $ 2,159 $ 2,217
Occupancy 441 438
Data processing 287 264
Postage, stationery and supplies 108 126
Advertising 132 111
Outside service fees 115 238
Loss on sales of other real estate 21 ---
Amortization of intangibles 24 68
Other 462 267
--------- ---------
Total other expenses $ 3,749 $ 3,729
--------- ---------
FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004:
Other expenses for the first quarter of 2005 were $3,749,000, an increase of
$20,000 over last year's expenses of $3,729,000. Outside service fees included
$115,000 Sarbanes-Oxley internal control documentation requirements in 2004.
Other expenses increased $195,000 and is the result of additional legal expenses
associated with the planned merger of the Corporation with and into its
subsidiary, Southeastern.
14
INCOME TAXES
The effective tax rate for the three months ended March 31, 2005 was 24.3%
compared to 23.0% for the three months ended March 31, 2004. The increase in
effective tax rates in the period is the result of taxable income increasing at
a greater rate than tax exempt income.
STATE TAXATION
FNBM is incorporated in the State of Nevada, which does not currently impose a
corporate income tax. Although the earnings of FNBM are not currently subject to
taxation in the State of Wisconsin, from time to time legislation is proposed
which, if adopted, would require consolidated income tax returns for entities
headquartered in the state and result in taxation of FNBM's earnings. To date,
none of these legislative proposals have been adopted. In addition, from
time-to-time the Wisconsin Department of Revenue ("WDR") attempts to impose
income tax on out-of-state investment subsidiaries like FNBM. Indeed, in 2003
the WDR began examinations of a number of financial institutions, including the
Bank, specifically aimed at their relationships with their investment
subsidiaries. Management believes the WDR will take the position that the income
of FNBM is taxable in Wisconsin, and a number of other Wisconsin financial
institutions have entered into settlements with the WDR related to taxation of
the income of their Nevada subsidiaries. Management believes the Bank, as well
as FNBM, have complied with the tax rules relating to the income of out-of-state
subsidiaries. The WDR has indicated that it may repudiate these rulings and
management believes it is more likely than not that the WDR exam will result in
an assessment. The Bank and FNBM have held productive discussions with the WDR
and while no final agreement has been reached, management believes there is a
strong likelihood of settlement. If no settlement is reached, the Bank will
probably oppose an assessment, if any.
BALANCE SHEET
MARCH 31, 2005 COMPARED TO DECEMBER 31, 2004
Assets
The Corporation's total assets decreased from $622,175,000 at December 31, 2004
to $621,983,000 at March 31, 2005. Loans increased $3,700,000 and securities
available for sale increased $2,816,000 for the same period.
Liabilities
Deposits decreased $10,116,000 to $435,670,000 at March 31, 2005 from
$445,786,000 at December 31, 2004. Securities sold under repurchase agreements
increased $4,597,000 to $66,217,000 and borrowings increased $4,647,000 to
$46,927,000 at March 31, 2005.
Off-Balance Sheet Arrangements
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of its business in order to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and standby
letters of credit. Off-balance sheet financial instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the Statement of Financial Condition. In the event of
non-performance by the other party to a financial instrument, the Corporation's
exposure to credit loss is represented by the contractual amount of the
instrument. The Corporation uses the same credit policies in granting
commitments and letters of credit as it does for on-balance sheet financial
instruments.
Off-balance-sheet financial instruments whose contract amounts represent credit
and/or interest rate risk are as follows:
Notional Amount
-------------------------
March 31, December 31,
2005 2004
--------- ------------
(In Thousands)
Commitments to extend credit $ 81,362 $ 79,782
Credit card arrangements 6,038 6,295
Standby letters of credit 7,405 6,653
15
Commitments to extend credit and credit card arrangements are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. A portion of the
commitments are expected to be drawn upon, thus representing future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained upon extension of credit
is based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable; inventory; property, plant, and
equipment; real estate; and stocks and bonds.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Corporation holds collateral
supporting those commitments for which collateral is deemed necessary. Because
these instruments have fixed maturity dates and because many of them expire
without being drawn upon, they do not generally present any significant
liquidity risk to the Corporation.
The Corporation has no investments in nor is a party to transactions involving
derivative instruments, except mortgage-related securities which represent
minimal risk to the Corporation.
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.
16
CAPITAL RESOURCES AND ADEQUACY
The Corporation's actual capital amounts and ratios at December 31, 2004 and
March 31, 2005 are presented below:
Capital
(Dollars In Thousands, Except Share Data)
March 31, December 31,
2005 2004
--------- ------------
Shareholders' Equity $ 66,411 $ 65,873
Total capital (to risk-weighted assets):
Consolidated 13.3% 13.9%
First National Bank in Manitowoc 13.1% 13.7%
Tier 1 capital (to risk-weighted assets):
Consolidated 12.5% 13.0%
First National Bank in Manitowoc 12.3% 12.8%
Tier I capital (to average assets):
Consolidated 8.9% 9.1%
First National Bank in Manitowoc 8.7% 8.9%
Dividends Per Share-This Quarter $ 0.065 $ 0.065
Dividends Per Share-Year to Date 0.065 0.230
Earnings Per Share-This Quarter 0.320 0.280
Earnings Per Share-Year to Date 0.320 1.140
Dividend Payout Ratio-This Quarter 20.31% 23.64%
Dividend Payout Ratio-Year to Date 20.31% 20.18%
Total shareholders' equity increased $538,000 from $65,873,000 at December 31,
2004 to $66,411,000 at March 31, 2005. Net income for the three month period
ending March 31, 2005 was $2,187,000.
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 March 31, 2005 and December 31, 2004, that the Bank
meets all capital adequacy requirements to which it is subject.
As of March 31, 2005, the Bank's and the Corporation's ratio of Tier 1 capital
to risk-weighted assets was 12.3% and 12.5%, respectively. As of March 31,
2005, the Bank's and the Corporation's ratio of total capital to risk-weighted
assets was 13.1% and 13.3%, 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 4.0%. As of March 31, 2005, the Bank's and the Corporation's leverage
capital ratio was 8.7% and 8.9%, respectively.
As of March 31, 2005 and December 31, 2004, the most recent notification from
the Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation categorized the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized",
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios of 10%, 6%, and 5%, respectively. There are no conditions or
events since such notifications that management believes would result in a
change in the institution's category.
17
RECENT ACCOUNTING PRONOUNCEMENTS
None
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 March 31, 2005 were $2,379,000
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, 2004 in the Corporation's 2004
Form 10-K Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
The Corporation maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our periodic filings with
the SEC is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management. 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
Securities and Exchange Act of 1934 [the "Act"]) as of March 31, 2005. Based on
this evaluation, the Corporation's chief executive officer and chief financial
officer concluded that, as of March 31, 2005, 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.
For the quarter ended March 31, 2005, the Corporation did not make any
significant changes in, nor take any corrective actions regarding, its internal
controls or other factors that could significantly affect these controls
subsequent to the date of their evaluation.
FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is involved in various legal actions arising in the normal
course of its business. While the ultimate outcome of these various legal
proceedings cannot be predicted with certainty, it is the opinion of management
and through consultation with legal counsel that the resolution of these legal
actions will not have a material effect on the Corporation's consolidated
financial condition or results of operations.
ITEM 5. OTHER INFORMATION
(a) Effective January 26, 2005, ICM's board of directors approved a name
change to The Vincent Group, Inc. This includes the Insurance Center of
Manitowoc, Inc. and Gary Vincent & Associates, Inc. VG is an independent
agency offering commercial, personal, life and health insurance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit Number Description of Exhibit
- -------------- --------------------------------------------------------------
(2) Form of Plan of Merger approved by the board of directors of
the Corporation on February 22, 2005.
(3)(1) Articles of Incorporation of First Manitowoc Bancorp, Inc.,
incorporated by reference to 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) Amended and Restated Bylaws of First Manitowoc Bancorp, Inc.,
incorporated by reference to Exhibit (3)(2) to Report on Form
10-K filed March 18, 2003.
31.1 Certification of Thomas J. Bare pursuant to Rule 13a-14(a) or
15(d)-14(a)
31.2 Certification of Paul H. Wojta pursuant to Rule 13a-14(a) or
15(d)-14(a)
32.1 Section 1350 Certification of Thomas J. Bare and Paul H. Wojta
b) Reports on Form 8-K:
A Form 8-K was filed March 7, 2005 to announce a Temporary Suspension of
Trading Under Registrant's Employee Benefit Plans.
First Manitowoc Bancorp, Inc. ("FMB") sent a notice to its directors and
Section 16 officers dated March 6, 2005 notifying them of a blackout with
respect to the First National Bank in Manitowoc 401(k) Profit Sharing Plan
(the "Plan"). The blackout period is expected to begin March 21, 2005 and
end during the week of April 11, 2005. FMB provided the notice to the
directors and officers in accordance with Section 306 of the
Sarbanes-Oxley Act of 2002 and Rule 104 of Regulation BTR.
A Form 8-K was filed February 25, 2005, to announce the "Going Private"
Transaction.
On February 25, 2005, First Manitowoc Bancorp, Inc. ("FMB") announced that
it would be engaging in a "going private" transaction (the "Transaction")
to eliminate annual expenses in connection with compliance with the
Sarbanes-Oxley Act of 2002 and the reporting requirements of the
Securities Exchange Act of 1934. The Transaction is designed to reduce the
number of FMB's shareholders to permit FMB to terminate its registration
with the United States Securities and Exchange Commission.
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: May 10, 2005 /s/ Thomas J. Bare
------------------
Thomas J. Bare
Chief Executive Officer
Date: May 10, 2005 /s/ Paul H. Wojta
-----------------
Paul H. Wojta
Chief Financial Officer
19