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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, 2002
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25983
---------------------------------
First Manitowoc Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
- --------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
402 North Eighth Street, Manitowoc, Wisconsin 54220
- --------------------------------------------------------------------------------------------------------
(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 October 31, 2002, 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, 2002 and December 31, 2001 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2002 and 2001 2
Consolidated Statements of Changes in
Stockholders' Equity
Nine Months Ended September 30, 2002 and 2001 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certification
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, December 31,
2002 2001
--------- ---------
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 18,318 $ 27,112
Federal funds sold 15,127 12,784
--------- ---------
Cash and cash equivalents 33,445 39,896
Securities available for sale, at fair value 141,325 129,387
Loans held for sale 0 211
Loans 345,420 327,440
Less: Allowance for loan losses (3,100) (2,737)
--------- ---------
Loans, net 342,320 324,703
Premises and equipment, net 8,855 9,431
Intangible assets, net of accumulated amortization of
$2,027,000 in 2002 and $1,959,000 in 2001 9,624 9,829
Other assets 11,850 13,847
--------- ---------
Total assets $ 547,419 $ 527,304
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 62,282 $ 60,033
Interest-bearing deposits 330,334 334,059
--------- ---------
Total deposits 392,616 394,092
Securities sold under repurchase agreements 50,676 33,108
Other liabilities 7,016 6,436
Borrowed funds 43,152 47,179
--------- ---------
Total liabilities 493,460 480,815
Stockholders' equity
Common stock, $1.00 par value; authorized
10,000,000 shares; issued 3,791,814 shares 3,792 3,792
Retained earnings 46,988 42,355
Accumulated other comprehensive income 3,879 1,042
Treasury stock at cost--323,180 shares (700) (700)
--------- ---------
Total stockholders' equity 53,959 46,489
--------- ---------
Total liabilities and stockholders' equity $ 547,419 $ 527,304
========= =========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
1
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2002 2001 2002 2001
------- ------- ------- -------
(In Thousands, Except Share Data)
INTEREST INCOME
Loans, including fees $ 6,179 $ 6,951 $18,364 $21,523
Federal funds sold 98 105 246 311
Securities:
Taxable 977 1,145 3,048 3,236
Tax exempt 778 750 2,300 2,207
Total interest income 8,032 8,951 23,958 27,277
------- ------- ------- -------
INTEREST EXPENSE
Deposits 2,193 3,516 6,783 11,664
Securities sold under repurchase agreements 352 376 965 1,190
Borrowed funds 436 471 1,362 1,429
------- ------- ------- -------
Total interest expense 2,981 4,363 9,110 14,283
------- ------- ------- -------
NET INTEREST INCOME 5,051 4,588 14,848 12,994
Provision for loan losses 325 470 1,075 1,500
------- ------- ------- -------
Net interest income after provision for loan losses 4,726 4,118 13,773 11,494
OTHER INCOME
Trust service fees 132 114 414 383
Service charges on deposit accounts 287 432 787 941
Loan servicing income 137 158 473 518
Gain on sales of mortgage loans held for sale 137 70 351 171
Insurance commission income 426 352 1,221 1,109
Other 146 142 455 400
------- ------- ------- -------
Total other income 1,265 1,268 3,701 3,522
OTHER EXPENSE
Salaries, commissions and related benefits 2,057 1,873 5,814 5,433
Occupancy 579 501 1,501 1,425
Data processing 253 243 741 696
Postage, stationery and supplies 124 105 363 348
Amortization of other intangibles 69 160 205 528
Other 549 479 1,812 1,582
------- ------- ------- -------
Total other expense 3,631 3,361 10,436 10,012
------- ------- ------- -------
Income before provision for income tax 2,360 2,025 7,038 5,004
Provision for income tax 507 377 1,520 772
------- ------- ------- -------
NET INCOME $ 1,853 $ 1,648 $ 5,518 $ 4,232
------- ------- ------- -------
Earnings per share: basic and diluted $ 0.53 $ 0.48 $ 1.59 $ 1.22
(See accompanying notes to Unaudited Consolidated Financial Statements.)
2
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, 2001
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock (Loss) Income Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $3,792 $37,991 ($700) $378 $41,461
Net income 0 4,232 0 0 4,232
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 3,170 3,170
Income tax effect 0 0 0 (1,093) (1,093)
-------
Comprehensive income $ 6,309
Cash dividends ($0.21 per share) 0 (729) 0 0 (676)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2001 $3,792 $41,494 ($700) $2,455 $47,041
====== ======= ====== ====== =======
Nine Months Ended September 30, 2002
(In Thousands, Except Share Data)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Earnings Stock Income (Loss) Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $3,792 $42,355 ($700) $ 1,042 $46,489
Net income 0 5,518 0 0 5,518
Other comprehensive income:
Unrealized holding gain arising
during period 0 0 0 4,331 4,331
Income tax effect 0 0 0 (1,494) (1,494)
-------
Comprehensive income $8,355
Cash dividends ($0.255 per share) 0 (885) 0 0 (885)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $3,792 $46,988 ($700) $3,879 $53,959
====== ======= ====== ====== =======
(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,
-------------
2002 2001
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,518 $ 4,232
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,075 1,500
Depreciation of premises and equipment 635 711
Amortization of intangible assets 205 528
(Accretion) Amortization of securities, net 225 (210)
Stock dividends on FHLB stock (92) (118)
Proceeds from sale of mortgage loans 68,356 50,114
Originations of mortgage loans held for sale (67,794) (49,943)
Gain on sales of mortgage loans held for sale (351) (171)
Gain on sale of fixed assets 2 (19)
Undistributed income of joint venture (261) (207)
(Increase) decrease in other assets 764 (588)
Increase (decrease) in other liabilities 580 (168)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,862 5,661
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 18,332 25,107
Purchases of securities available for sale (26,072) (29,091)
Net increase in loans (18,692) (8,796)
Purchases of premises and equipment (221) (345)
Proceeds from sales of premises and equipment 160 60
Acquisition, net of cash acquired 0 (67)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,493) (13,132)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (1,476) (5,486)
Net increase in securities sold under repurchase agreements 17,568 6,788
Proceeds from advances on borrowed funds 21,747 20,000
Repayment of borrowed funds (25,774) (6,275)
Dividends paid (885) (729)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,180 14,298
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,451) 6,827
Cash and cash equivalents at beginning of period 39,541 26,374
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $33,090 $33,201
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,714 $15,064
Income taxes 1,050 1,085
- -------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities not
described in the notes to the financial statements:
4
Acquisition:
Cash paid for purchase of stock --- $ (733)
Cash acquired --- 666
- -------------------------------------------------------------------------------------------------------------------
Net cash paid for acquisition --- (67)
Fair value of assets acquired --- 563
Acquisition intangibles --- 2,582
Liabilities assumed --- 1,611
Notes payable to former shareholders --- 1,467
(See accompanying notes to Unaudited Consolidated Financial Statements.)
5
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, these accompanying unaudited
consolidated financial statements contain all adjustments necessary to present
fairly First Manitowoc Bancorp, Inc.'s ("Corporation") financial position,
results of its operations, changes in stockholders' equity and cash flows for
the periods presented. All adjustments necessary for the fair presentation of
the consolidated financial statements are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. This report should be read in
conjunction with the Corporation's 2001 annual report on Form 10-K.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. The Corporation is a bank holding company that engages in its
business through its sole subsidiary, First National Bank in Manitowoc ("Bank"),
a nationally chartered commercial bank. The Bank has two wholly owned
subsidiaries, FNBM Investment Corp. and Insurance Center of Manitowoc, Inc.
("Insurance Center"). All material intercompany transactions and balances are
eliminated. Certain items in the prior period consolidated financial statements
have been reclassified to conform with the September 30, 2002 presentation.
In January 2001, the Bank acquired 100% ownership in the Insurance Center of
Manitowoc, Inc. Insurance Center also operates an office known as Gary Vincent
and Associates in Green Bay, Wisconsin. Insurance Center is an independent
agency offering commercial, personal, life, and health insurance. It is being
operated as a wholly owned subsidiary of the Bank. Insurance Center had
approximately $563,000 in assets at date of acquisition. The transaction was
accounted for under the purchase method of accounting and goodwill of
approximately $2.6 million was recorded. The Corporation's financial statements
reflect the accounts and operations of Insurance Center beginning January 1,
2001. The Corporation recorded all Insurance Center assets and liabilities at
fair value at date of acquisition.
6
NOTE 3: Investment Securities
The amortized cost and fair values of investment securities available for sale
for the periods indicated are as follows:
Investment Securities
(In Thousands)
September 30, 2002
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 16,433 $ 16,700
Obligations of states and political subdivisions 64,210 68,916
Mortgage-backed securities 50,872 51,800
Corporate notes 999 1,031
Other securities 2,878 2,878
-------- --------
Total $135,392 $141,325
======== ========
December 31, 2001
Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 6,067 $ 6,337
Obligations of states and political subdivisions 62,657 63,434
Mortgage-backed securities 55,153 55,667
Corporate notes 999 1,040
Other securities 2,909 2,909
-------- --------
Total $127,785 $129,387
======== ========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(Dollars In Thousands)
September 30, 2002 December 31, 2001
Percent of Percent of
Amount Total Loans Amount Total Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial and Agricultural $102,534 29.68% $ 86,565 26.44%
Commercial Real Estate 100,260 29.03% 85,036 25.97%
Residential Real Estate 129,065 37.36% 131,362 40.12%
Consumer 10,317 2.99% 23,213 7.09%
Other 3,243 0.94% 1,264 0.38%
-------- ------- -------- -------
Total $345,420 100.00% $327,440 100.00%
======== ======= ======== =======
7
NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
2002 2001
---- ----
(In Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $2,737 $3,824
Provision charged to expense 1,075 1,500
Charge-offs (956) (1,044)
Recoveries 244 32
------ ------
Balance at end of period $3,100 $4,312
====== ======
NOTE 6: Business Segments
The Corporation through the bank and bank branch network provides a broad range
of financial services to individuals and companies in northeastern Wisconsin.
These services include demand, time, and savings deposits; commercial and retail
lending; ATM processing; trust services; and insurance services. While the
Corporation's president monitors the revenue streams of the various products and
services, operations are managed and financial performance is evaluated on a
Corporate-wide basis. Accordingly, all of the Corporation's operations are
considered by management to be aggregated in one reportable operating segment.
NOTE 7: Per Share Computations
Weighted average shares outstanding were 3,468,634 for the three months ended
September 30, 2002 and 2001 and for the nine months ended September 30, 2002 and
2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
Forward-looking statements have been made by First Manitowoc Bancorp, Inc. (the
"Corporation") in this document and in documents incorporated by reference that
are subject to risks and uncertainties. These forward-looking statements, which
are included in Management's Discussion and Analysis, describe future plans or
strategies and include the Corporation's expectations of future results of
operations. Statements containing certain terms including, but not limited to,
the words "believes," "expects," "anticipates" or similar expressions constitute
forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document could affect the future financial results of the
Corporation and could cause those results to differ materially from those
expressed in forward-looking statements contained in this document. These
factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting the
Corporation's banking, securities, asset management and credit
services businesses;
- the risk that the Corporation's analyses of these risks and forces
could be incorrect and/or that the strategies developed to address
them could be unsuccessful;
- general market rates;
- general economic conditions;
8
- 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.
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,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $1,853 $1,648 $5,518 $4,232
EPS-Basic & Diluted $ 0.53 $ 0.48 $ 1.59 $ 1.22
Return on Average Assets 1.36% 1.29% 1.39% 1.13%
Return on Average Equity 14.23% 14.74% 14.79% 13.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding were 3,468,634 for the three months ended
September 30, 2002 and 2001.
Net income for the three months ended September 30, 2002 was $1,853,000 compared
to $1,648,000 for the three months ended September 30, 2001, an increase of
$205,000, or 12.44%. Interest income decreased $919,000 to $8,032,000 primarily
as a result of a decrease in loan interest due to lower interest rates. Interest
expense decreased $1,382,000 to $2,981,000 mainly as a result of a decrease in
interest rates paid on deposits. Total other expense increased $270,000 to
$3,631,000. This is a result of increased salaries, commissions and related
benefits due to annual merit increases in wages for employees. Earnings per
share for the three months ended September 30, 2002 was $0.53 compared to $0.48
for the three months ended September 30, 2001.
Net income for the nine months ended September 30, 2002 was $5,518,000 compared
to $4,232,000 for the nine months ended September 30, 2001, an increase of
$1,286,000 or 30.39%. Interest income decreased $3,319,000 to $23,958,000
primarily due to a decrease in interest rates. Interest expense decreased
$5,173,000 to $9,110,000 primarily due to lower interest rates paid on deposits.
Other income increased $179,000 to $3,701,000 primarily as a result of an
insurance commission income increase of $112,000. Other expense increased
$424,000 as a result of increased salaries, commissions, and annual merit
increases. Earnings per share for the nine months ended September 30, 2002 was
$1.59 compared to $1.22 for the nine months ended September 30, 2001.
Return on average assets (ROA) on an annualized basis for the first nine months
of 2002 was 1.39% compared to 1.13% for the first nine months in 2001. Return on
average equity (ROE) on an annualized basis for the first nine months of 2002
was 14.79% compared to 13.22% for the first nine months of 2001.
9
AVERAGE BALANCES, YIELD AND RATES
For the three months For the three months
ended September 30, 2002 ended September 30, 2001
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS (In Thousands) (In Thousands)
Interest-earning assets:
Federal funds sold $ 22,700 $ 98 1.73% $ 10,992 $ 105 3.79%
Investment securities 141,802 2,142 6.04% 124,936 2,286 7.26%
Loans 339,697 6,192 7.29% 334,935 7,174 8.50%
-------- -------- ---- ---------- ------- ----
Total interest-earning assets 504,199 $ 8,432 6.69% $ 470,863 $ 9,565 8.06%
Other assets 39,538 37,614
-------- ----------
TOTAL ASSETS $543,737 $ 508,477
======== ==========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $330,624 $ 2,193 2.65% $ 330,010 $ 3,516 4.23%
Repurchase agreements 51,376 352 2.74% 32,996 376 4.52%
Federal funds purchased 0 0 --- 0 0 0.00%
Borrowings 42,415 436 4.11% 38,358 472 4.88%
-------- -------- ---- ---------- ------- ----
Total interest-bearing liabilities $424,415 $ 2,981 2.81% $ 401,364 $ 4,364 4.31%
Demand deposits 60,367 55,618
Other liabilities 6,881 7,146
-------- ----------
Total liabilities 491,663 $ 464,128
Stockholders' equity 52,074 44,349
-------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $543,737 $ 508,477
======== ==========
Net interest income and
interest rate spread $ 5,451 3.88% $ 5,201 3.75%
Net interest income as
a percent of earning assets (annualized) 4.28% 4.38%
==== ====
10
AVERAGE BALANCES, YIELD AND RATES
For the nine months For the nine months
ended September 30, 2002 ended September 30, 2001
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS (In Thousands) (In Thousands)
Interest-earning assets:
Federal funds sold $ 19,229 $ 246 1.71% $ 8,282 $ 311 5.02%
Investment securities 136,765 6,481 6.32% 122,406 6,591 7.20%
Loans 333,379 18,363 7.34% 332,449 21,849 8.79%
-------- -------- ---- ---------- --------- ----
Total interest-earning assets 489,373 $25,090 6.84% $ 463,137 $ 28,751 8.30%
Other assets 40,410 37,727
-------- ----------
TOTAL ASSETS $529,783 $ 500,864
======== ==========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $326,801 $ 6,783 2.77% $ 331,305 $ 11,669 4.71%
Repurchase agreements 46,384 965 2.78% 30,217 1,190 5.27%
Federal funds purchased 8 --- --- 773 32 5.02%
Borrowings 43,256 1,362 4.19% 35,360 1,397 5.28%
-------- -------- ---- ---------- --------- ----
Total interest-bearing liabilities $416,449 $ 9,109 2.92% $ 397,655 $ 14,288 4.80%
Demand deposits 57,011 53,300
Other liabilities 6,582 7,229
-------- ----------
Total liabilities $480,042 $ 458,184
Stockholders' equity 49,741 42,680
-------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $529,783 $ 500,864
======== ==========
Net interest income and
interest rate spread $ 15,981 3.92% $ 14,463 3.50%
Net interest income as
a percent of earning assets (annualized) 4.37% 4.18%
==== ====
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, 2002 has been characterized by generally
falling 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 2002 COMPARED TO THIRD QUARTER 2001:
Net interest income (on a tax equivalent basis) for the three months ended
September 30, 2002 increased by $250,000 or 4.81% compared to the three months
ended September 30, 2001. Interest income for the three months ended September
30, 2002 decreased by $1,133,000 primarily as a result of lower interest rates.
Total average loans increased to $339,697,000 for the third quarter of 2002 from
$334,835,000 for the third quarter of 2001. Average investment securities
increased to $141,802,000 for the third quarter of 2002 from $124,936,000 for
the third quarter of 2001. Interest yields on loans and securities declined to
7.29% and 6.04% for the third quarter of 2002 from 8.50% and 7.26% for the third
quarter of 2001. Interest expense decreased $1,383,000 primarily as a result of
lower interest rates paid on deposits and repurchase agreements. Total average
interest-bearing deposits increased to $330,624,000 for the third quarter of
2002 from $330,010,000 for the third quarter of 2001. Average repurchase
agreements increased to $51,376,000 for the third quarter of 2002 from
$32,996,000 for the third quarter of 2001. Interest rates fell on both interest
bearing deposits and repurchase agreements from the third quarter of 2001 to the
third quarter of 2002. The interest rate spread, which is the difference between
the average yield on interest earning assets and the average rate paid on
interest bearing liabilities, was 3.88% for the three months ended September 30,
2002, an increase of 13 basis points from the interest rate spread of 3.75% for
the three months ended September 30, 2001.
Net interest margin for the three months ended September 30, 2002 was 4.28%
compared with 4.38% for the three months ended September 30, 2001.
YTD 2002 COMPARED TO YTD 2001:
Net interest income (on a tax equivalent basis) for the nine months ended
September 30, 2002 increased by $1,518,000 or 10.50% compared to the nine months
ended September 30, 2001. Interest income decreased $3,661,000 primarily as a
result of lower interest rates. Total average loans increased to $333,379,000
for the first nine months of 2002 from $332,449,000 for the first nine months of
2001. Total average investment securities increased to $136,765,000 for the
first nine months of 2002 from $122,406,000 for the first nine months of 2001.
Interest yields fell on both loans and investment securities for the nine months
ended September 30, 2002. The yield on total interest earning assets declined to
6.84% for the nine months ended September 30, 2002 from 8.30% for the nine
months ended September 30, 2001. Interest expense decreased $5,179,000 primarily
due to lower interest rates on interest bearing deposits. Total average interest
bearing deposits decreased to $326,801,000 for the first nine months of 2002
from $321,305,000 for the first nine months of 2001, while repurchase agreements
increased to $46,384,000 from $30,217,000 in the first nine months of 2001. The
rate on total interest bearing liabilities fell to 2.92% for the nine months
ended September 30, 2002, from 4.80% for the nine months ended September 30,
2001. The interest rate spread was 3.92% for the nine months ended September 30,
2002, an increase of 42 basis points from the interest rate spread of 3.50% for
the nine months ended September 30, 2001.
Net interest margin for the nine months ended September 30, 2002 was 4.37%
compared with 4.18% for the nine months ended September 30, 2001.
12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended September 30, 2002, the Bank charged $325,000 to
expense for the provision for loan loss compared to $470,000 for the three
months ended September 30, 2001.
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,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $2,737 $4,714 $2,737 $3,824
Charge-offs (120) (883) (956) (1,044)
Recoveries 158 11 244 32
------ ------ ------ ------
Net (charge-offs) recoveries 38 (872) (712) (1,012)
Provision for loan losses 325 470 1,075 1,500
------ ------ ------ ------
Balance at end of period $3,100 $4,312 $3,100 $4,312
====== ====== ====== ======
Ratio of net charge-offs during period to
average loans outstanding during period 0.26% 0.26% 0.30% 0.30%
Ratio of allowance for loan losses
to total loans 0.90% 1.29% 0.90% 1.29%
- ------------------------------------------------------------------------------------------------------------------------------------
The decrease in the ratio of allowance for loan losses to total loans is
primarily a result of higher charge-offs in December 2001.
There are several factors that are included in the analysis of the adequacy of
the allowance for loan losses. Management considers loan volume trends, levels
and trends in delinquencies and 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 September 30, 2002 based on its most recent evaluation of these
factors.
The factor of loan volume trends is based on actual lending activity. The loan
volume trends factor is for estimated losses that are believed to be inherently
part of the loan portfolio but that have not yet been identified as specific
problem credits. The current problem credits factor includes the exposure
believed to exist for specifically identified problem loans determined on a
loan-by-loan basis.
A table showing the allocation of allowance for loan losses is shown below.
Allocation of Allowance for Loan Losses
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Specific Problem Loans $ 1,708 $ 843
Loan Type Allocation:
Commercial & Agricultural $ 1,157 $1,476
Commercial Real Estate 32 103
Residential Real Estate 14 19
Consumer 89 12
-------- ------
1,292 1,610
Unallocated 100 284
-------- ------
Total Reserve $ 3,100 $2,737
======== ======
Ratio of allowance for loan losses to total loans 0.90% 0.84%
13
Specific problem loans includes the allocation of the allowance for specific
problem credits. Loan type allocation includes the factor of loan volume trends,
with management's goal for this factor to maintain an adequate loan loss reserve
for outstanding loans less the specifically identified current problem credits.
The allocation of the allowance among the various loan types is based on the
average proportion of the loan types that make up the specific problem loans.
The unallocated portion of the allowance consists of the other factors included
in the analysis because those factors cannot be tied to specific loans or loan
categories.
The allocation and total for the allowance for loan losses is not to be
interpreted as a single year's exposure for loss nor the loss for any specified
time period.
NONPERFORMING LOANS
It is the policy of the Bank to place a loan in nonaccrual status whenever there
is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. Management considers and discusses with the
borrower 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
nonaccruing loan is restored to current status when the prospects of future
contractual payments are no longer in substantial doubt.
Total nonperforming loans at September 30, 2002 were $2,074,000, a decrease of
$767,000 from December 31, 2001. The following table presents nonperforming and
nonaccrual loan information as of the dates indicated.
Nonperforming Loans
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $1,860 $2,312
Accruing loans past due 90 days or more 214 529
------ ------
Total nonperforming loans $2,074 $2,841
Nonperforming loans as a percent of loans 0.60% 0.87%
Ratio of the allowance for loan losses to nonperforming loans 149% 96%
- ------------------------------------------------------------------------------------------------------------------------------------
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,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Trust Service Fees $ 132 $ 114 $ 414 $ 383
Service Charges on Deposit Accounts 287 432 787 941
Loan Servicing Income 137 158 473 518
Gain on Sales of Mortgage Loans Held for Sale 137 70 351 171
Insurance commission income 426 352 1,221 1,109
Other 146 142 455 400
------ ------ ------ ------
Total Other Income $1,265 $1,268 $3,701 $3,522
- ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2002 COMPARED TO THIRD QUARTER 2001:
Other income for the third quarter of 2002 was $1,265,000 compared to $1,268,000
for the third quarter of 2001, a decrease of $3,000 or 0.24%.
14
YTD 2002 COMPARED TO YTD 2001:
Other income for the nine months ended September 30, 2002 was $3,701,000
compared to $3,522,000 for the nine months ended September 30, 2001, an increase
of $179,000 or 5.1%. The increase resulted primarily from an increase of
$112,000 in insurance commission income.
OTHER EXPENSE
Other Expense
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Salaries, commissions and related benefits $2,057 $1,873 $ 5,814 $ 5,433
Occupancy 579 501 1,501 1,425
Data Processing 253 243 741 696
Postage, Stationery and Supplies 124 105 363 348
Amortization of intangibles 69 160 205 528
Other 549 479 1,812 1,582
------ ------ ------- -------
Total Other Expense $3,631 $3,361 $10,436 $10,012
- ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2002 COMPARED TO THIRD QUARTER 2001:
Other expense for the third quarter of 2002 was $3,631,000 compared to
$3,361,000 for the third quarter of 2001, an increase of $270,000, or 8.0%. The
increase is a result of increased salaries, commissions and related benefits
due to annual merit increases in wages for employees.
YTD 2002 COMPARED TO YTD 2001:
Other expense for the first nine months of 2002 was $10,436,000 compared to
$10,012,000 for the first nine months of 2001, an increase of $424,000 or 4.2%.
This increase is the result of increased salaries and employee benefits due to
additional salaries, commissions, and annual merit increases for employees.
Legal expense increased due to collection and repossession-related expenses.
INCOME TAXES
The effective tax rate for the three months ended September 30, 2002 was 21.5%
compared to 18.6% for the three months ended September 30, 2001.
15
BALANCE SHEET
SEPTEMBER 30, 2002 COMPARED TO DECEMBER 31, 2001
The Corporation's total assets increased from $527.3 million at December 31,
2001 to $547.4 million at September 30, 2002. Loans increased $18.0 million, a
result of an increase in commercial loans and offset by a decrease in consumer
loans. Securities increased $11.9 million primarily as a result of an increase
in U.S. Treasury securities and obligations of U.S. Government Corporation
agencies.
Deposits decreased $1.5 million to $392.6 million at September 30, 2002 from
$394.1 million at December 31, 2001, due to decreases in interest-bearing
deposits. Repurchase agreements increased $17.6 million primarily due to
municipality funds. Long-term borrowings decreased $4.0 million from $47.2
million at December 31, 2001 to $43.1 million at September 30, 2002. The
decrease in long-term borrowings was a result of paying off a long-term
borrowing with FHLB.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Bank to meet financial obligations that
arise out of the ordinary course of business. Liquidity is primarily needed to
meet borrowing and deposit withdrawal requirements of the customers of the Bank
and to fund current and planned expenditures. The Bank maintains its asset
liquidity position internally through cash and cash equivalents, short term
investments, the maturity distribution of the investment portfolio, loan
repayments and income from earning assets. A substantial portion of the
investment portfolio contains readily marketable securities that could be
converted to cash immediately. On the liability side of the balance sheet,
liquidity is affected by the timing of maturing liabilities and the ability to
generate new deposits or borrowings as needed. Other sources are available
through borrowings from the Federal Reserve Bank, the Federal Home Loan Bank and
from lines of credit approved at correspondent banks. Management knows of no
trend or event which will have a material impact on the Bank's ability to
maintain liquidity at adequate levels.
CAPITAL RESOURCES AND ADEQUACY
Capital
(Dollars In Thousands, Except Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $53,959 $46,489
Total capital (to risk-weighted assets):
Consolidated 12.4% 11.6%
First National Bank in Manitowoc 12.1% 11.3%
Tier 1 capital (to risk-weighted assets):
Consolidated 11.5% 10.7%
First National Bank in Manitowoc 11.2% 10.4%
Tier I capital (to average assets):
Consolidated 7.6% 7.0%
First National Bank in Manitowoc 7.3% 6.8%
Dividends Per Share-This Quarter $ 0.085 $ 0.09
Dividends Per Share-Year to Date 0.255 0.30
Earnings Per Share-This Quarter $ 0.53 $ 0.34
Earnings Per Share-Year to Date 1.59 1.56
Dividend Payout Ratio-This Quarter 16.04% 26.47%
Dividend Payout Ratio-Year to Date 16.04% 19.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity increased $7.5 million from $46.5 million at December
31, 2001 to $54.0 million at September 30, 2002. Net income for the nine month
period ending September 30, 2002 was $5.5 million.
16
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of September 30, 2002 and December 31, 2001, that the
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 2002, the Bank's and the Corporation's ratio of Tier 1
capital to risk-weighted assets was 11.2% and 11.5%, respectively. As of
September 30, 2002, the Bank's and the Corporation's ratio of total capital to
risk-weighted assets was 12.1% and 12.4%, 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 September 30, 2002, the Bank's and the
Corporation's leverage capital ratio was 7.3% and 7.6%, respectively.
As of September 30, 2002 and December 31, 2001, the most recent notification
from the Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios. There are no conditions or events since that notification that
management believes have changed the institution's category.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes
Accounting Principles Board (APB) Opinion No. 16, "Business Combinations", and
SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." SFAS No. 141 requires the use of the purchase method of accounting
for business combinations initiated after June 30, 2001. SFAS No. 142 supersedes
APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible
assets acquired outside of a business combination should be accounted for upon
acquisition and how goodwill and other intangible assets should be accounted for
after they have been initially recognized. SFAS No. 142 eliminates the
amortization for goodwill and other intangible assets with indefinite lives.
Other intangible assets with a finite life will be amortized over their useful
life. Goodwill and other intangible assets with indefinite useful lives shall be
tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset may be impaired. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001. The Corporation adopted SFAS
No. 142 and passed step one of the goodwill impairment test on January 1, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the market risk position from that
disclosed as of December 31, 2001 in the Corporation's 2001 Form 10-K Annual
Report.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the Corporation's disclosure controls and procedures (as
defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the
"Act") was carried out under the supervision and with the participation of the
Corporation's Chief Executive Officer, Chief Financial Officer and several other
members of the Corporation's senior management within the 90-day period
preceding the filing date of this quarterly report. The Corporation's Chief
Executive Officer and Chief Financial Officer concluded that the Corporation's
disclosure controls and procedures as currently in effect are effective in
ensuring that the information required to be disclosed by the Corporation in the
reports it files or submits under the Act is (i) accumulated and communicated to
the Corporation's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
In the quarter ended September 30, 2002, 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.
17
FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiary is involved in any pending
legal proceedings involving amounts in which management believes are material to
the financial condition and results of operations of the Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None
Exhibit Number Sequential Page Number or
Incorporate by Reference to
(3)(1) Articles of Incorporation Filed as Exhibit (3)(1) to
Report on Form 10 filed May
5, 1999.
Amendment filed as Exhibit
(3)(2) to Form 10-Q filed
August 14, 2000.
(3)(2) Bylaws Filed as Exhibit (3)(2) to
Report on Form 10 filed May
5, 1999.
(11) Statement Re: Computation
of Per Share Earnings See Note 7 in Part I Item 1
(99)(1) CEO and CFO Certification Filed as Exhibit (99)(1)
b) Reports on Form 8-K:
On August 19, 2002, the Corporation filed Form 8-K regarding
declaration of a stock dividend.
There were no other reports on Form 8-K filed for the quarter ended
September 30, 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
(Registrant)
Date: November 13, 2002 /s/ Thomas J. Bare
-------------------
Thomas J. Bare
President
Date: November 13, 2002 /s/ Thomas J. Bare
-------------------
Thomas J. Bare
Principal Financial Officer
19
CERTIFICATION
I, Thomas J. Bare, certify that:
1. I have reviewed this quarterly report on Form 10Q of First Manitowoc
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Thomas J. Bare
------------------------------------
Thomas J. Bare
Chief Executive Officer
/s/ Thomas J. Bare
------------------------------------
Thomas J. Bare
Chief Financial Officer
20