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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2004
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 54221-0010
(Address of principal executive offices) (Zip Code)
(920) 684-6611
(Registrant's telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock, Par Value $1.00
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ x ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [x] No [ ]
The aggregate market value of registrant's common stock, par value $1.00 per
share, held by non-affiliates (excludes a total of 1,461,000 shares reported as
beneficially owned by directors and executive officers or held in the
registrant's profit sharing 401(k) plan; does not constitute an admission as to
affiliate status), as of June 30, 2004, was approximately $84,882,154
As of February 28, 2005, 6,937,268 shares of registrant's common stock, par
value $1.00 per share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of First Manitowoc Bancorp, Inc.'s Definitive Proxy Statement for
the 2005 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Form 10-K.
2004 FORM 10-K TABLE OF CONTENTS
DESCRIPTION PAGE NO.
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PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 67
ITEM 9A. CONTROLS AND PROCEDURES 67
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 67
ITEM 11. EXECUTIVE COMPENSATION 67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDERS MATTERS 67
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 68
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 68
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 68
SIGNATURES
PART I
FORWARD-LOOKING STATEMENTS
Statements made in this Report on Form 10-K and in documents that are
incorporated by reference which are not purely historical are forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
including any statements regarding descriptions of management's plans,
objectives, or goals for future operations, products or services, and forecasts
of its revenues, earnings, or other measures of performance. Forward-looking
statements are based on current management expectations and, by their nature,
are subject to risks and uncertainties. These statements may be identified by
the use of words such as believe, expect, anticipate, plan, estimate, should,
will, intend, or similar expressions.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents that are incorporated by
reference, could affect the future financial results of First Manitowoc Bancorp,
Inc. (the "Corporation") and could cause those results to differ materially from
those expressed in forward-looking statements contained or incorporated by
reference in this document. These factors, many of which are beyond the
Corporation's control, include, but are not limited to:
- General economic conditions, either nationally or the state in which the
Corporation does business;
- Legislation or regulatory changes which adversely affect the businesses in
which the Corporation is engaged;
- Changes in the interest rate environment which increase or decrease
interest rate margins;
- Changes in securities markets with respect to the market value of
financial assets and the level of volatility in certain markets such as
foreign exchange;
- Significant increases in competition in the banking and financial services
industry resulting from industry consolidation, regulatory changes and
other factors, as well as actions taken by particular competitors;
- Changes in consumer spending, borrowing and savings habits;
- Technological changes;
- Acquisitions and unanticipated occurrences which delay or reduce the
expected benefits of acquisitions;
- The Corporation's ability to increase market share and control expenses;
- The effect of compliance with legislation or regulatory changes;
- The effect of changes in accounting policies and practices;
- The costs and effects of unanticipated litigation and of unexpected or
adverse outcomes in such litigation; and
- The factors discussed in Item 1 in this report and in the Management's
Discussion and Analysis in Item 7, as well as those discussed elsewhere in
this report and the documents incorporated herein by reference.
All forward-looking statements contained in this report are based upon
information presently available and the Corporation assumes no obligation to
update any forward-looking statements.
ITEM 1. BUSINESS
GENERAL
First Manitowoc Bancorp, Inc. is a Wisconsin corporation and registered bank
holding company. The Corporation engages in its business through its sole
subsidiary, First National Bank in Manitowoc (the "Bank"), a national banking
association. The Bank has a wholly owned investment subsidiary, FNBM Investment
Corp. and a wholly-owned insurance subsidiary, Insurance Center of Manitowoc,
Inc. ("ICM"). Insurance Center of Manitowoc, Inc. also operates an office known
as Gary Vincent and Associates in Green Bay, Wisconsin. Effective January 26,
2005, ICM's board of directors approved a name change to "The Vincent Group,
Inc." The Insurance Center is an independent agency offering commercial,
personal, life and health insurance.
The Corporation acquired the Bank through the merger of the Bank into an interim
national banking association formed as a Corporation subsidiary for the purpose
of the merger, pursuant to a Plan of Reorganization and Agreement to Merge (the
"Plan") proposed by Bank management and approved by the Bank's shareholders in
1982. Pursuant to the Plan, each outstanding share of Bank common stock was
exchanged for three shares of the Corporation's common stock. The Bank's charter
was not affected by the merger. Currently, the Corporation has outstanding
6,937,268 shares of common stock, par value $1.00 per share ("Shares"). Shares
were held by 665 holders of record on February 28, 2005.
As of December 31, 2004, the Corporation had assets of approximately $622.2
million, net loans of approximately $382.7 million, and deposits of $445.8
million. For additional financial information, see the Consolidated Financial
Statements and Notes beginning at Item 8 of this Form 10-K.
The Corporation's and the Bank's main office is located at 402 North Eighth
Street, Manitowoc, 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. 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-K.
Throughout this Form 10-K information from parts of other documents filed with
the Securities and Exchange Commission ("SEC") is incorporated by reference. The
SEC allows us to disclose important information by referring to it in this
manner, and you should review this information.
We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and proxy statement for our annual shareholders' meeting, as
well as any amendments to those reports filed pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, available free of charge
through our web site as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. Our SEC reports can be
accessed through the "Investor Relations, SEC web site" link of our web site.
The SEC also maintains a web site at www.sec.gov that contains reports, proxy
statements and other information regarding SEC registrants.
STATEMENT ON CORPORATE GOVERNANCE
We have reviewed the provisions of the Sarbanes-Oxley Act of 2002 and the SEC
rules regarding corporate governance policies and processes and are in
compliance with the rules and listing standards. We have adopted a Code of
Business Conduct and Ethics which is applicable to all of our directors,
officers and employees. You can access our Nominating Committee Charter, Audit
Committee Charter and Code of Business Conduct and Ethics on our Website at
http://www.bankfirstnational.com or by writing to us at 402 North Eighth Street,
Manitowoc, Wisconsin 54221 Attention: Rachel Wiegert, Secretary.
BUSINESS STRATEGY
The Bank's strategy is to provide high quality financial products and services
to individuals, businesses, and governmental entities. The Bank employs a
well-trained, qualified staff and maximizes automation to provide fast,
efficient, convenient delivery of its products and services.
BANKING PRODUCTS AND SERVICES
The Bank has been doing business in Wisconsin since 1894 and is engaged in both
the commercial and consumer banking business. The Bank provides a wide range of
personal banking services designed to meet the needs of local consumers. As a
convenience to its customers, the Bank offers Saturday banking hours; drive-thru
teller windows; "Telebanc," a telephone banking service; and 24-hour automated
teller machines. Additionally, the Bank offers an Internet web site, which
includes on-line banking, bill payment, e-mail statements, account transfers,
check ordering, and check copies among other services. Services provided include
checking accounts, savings and time accounts, and safe deposit boxes.
The Bank makes loans in the following categories: Commercial and Agricultural
loans, Commercial Real Estate, Residential Real Estate, and Consumer and Other
loans.
COMMERCIAL AND AGRICULTURAL BUSINESS LENDING
As of December 31, 2004, commercial and agricultural business loans accounted
for approximately 30.05% of the Bank's gross loans. These loans may take the
form of lines of credit, single payment loans, or term payment loans, and may be
secured or unsecured depending on the creditworthiness of the borrower. The Bank
operates under a commercial business lending policy that establishes guidelines
for management in making commercial lending decisions. Among these guidelines
are the purpose of the loan, the source of repayment, and an alternate source of
repayment (generally in the form of collateral or guarantee). Applications for
commercial and agricultural business loans are accepted at the Bank's main and
branch offices. It is the Bank's general policy to restrict its commercial and
agricultural business lending to a market area defined as within a 100-mile
radius of any office location where business banking products and services are
sold.
Commercial and agricultural business loans are generally made for business
expansion or ongoing business needs. The purpose of commercial and agricultural
business loans can include the purchase of equipment or the provision of
operating capital for the financing of accounts receivable and inventory.
Commercial business loans are not generally made for the purpose of acquiring
real estate, although real estate may occasionally be accepted as incidental
collateral on a loan made for another business purpose. Agricultural business
loans, however, may include loans for farmland, including a farm residence and
other improvements.
Credit risk is controlled and monitored through active asset quality management
and the use of lending standards, thorough review of potential borrowers, and
active asset quality administration. Active asset quality administration,
including early problem loan identification and timely resolution of problems,
further ensures appropriate management of credit risk and minimization of loan
losses.
The Bank occasionally participates in commercial business loans originated by
third-party financial institutions. The Corporation, however, does not generally
service such loans.
The Bank believes that the higher yields earned on commercial business loans
compensate for the increased risk associated with such loans and that commercial
business loans are important to the Bank's efforts to increase the interest rate
sensitivity and shorten the average maturity of its loan portfolio.
COMMERCIAL REAL ESTATE LENDING
Non-residential real estate loans accounted for approximately 28.71% of the
Bank's gross loans as of December 31, 2004. Such loans are subject to the
general policies and procedures outlined in "Commercial Business Lending",
below. It is the Bank's general policy to restrict its commercial real estate
lending to loans secured by properties located within a 100-mile radius of
Manitowoc. There are no policy restrictions on the amount of loan funds secured
by types of property or collateral.
Applications for commercial real estate loans are generally obtained from
existing borrowers, direct contacts by loan officers, and referrals. In general,
these loans have amortization periods ranging from 10 to 25 years, mature in
five years or less, and have interest rates which are fixed or variable.
Loan-to-value ratios on the Bank's commercial real estate loans follow OCC
requirements. It is also the Bank's general policy to obtain personal guarantees
on its commercial real estate loans and, when such guarantees cannot be
obtained, to impose more stringent loan-to-value ratios, debt coverage ratios,
and other underwriting requirements.
From time-to-time the Bank originates loans to construct multi-family
residential and non-residential real estate properties. Construction loans are
generally considered to involve a higher degree of risk than mortgage loans on
completed properties. The Bank's risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction, the reputation of the contractor, the
estimated cost of construction, and the borrower's ability to advance additional
construction funds if such should become necessary.
Commercial real estate lending is generally considered to involve a higher level
of risk than single-family residential lending. This is due to the concentration
of principal in a limited number of loans and borrowers, and the effects of
general economic conditions on real estate developers and managers and on income
producing properties. In addition, loans secured by properties located outside
of the Corporation's immediate market area may involve a higher degree of risk.
This is because the Bank may not be as familiar with market conditions and other
relevant factors as it would be in the case of loans secured by properties
located within its market areas. The Bank does not have a material concentration
of commercial real estate loans outside of its immediate market area.
RESIDENTIAL REAL ESTATE LENDING
Single-family residential loans accounted for approximately 36.12% of the Bank's
gross loans as of December 31, 2004. Applications for single-family residential
loans are accepted by qualified lenders at all offices except the Plymouth West
office and the Expo Drive office. The Bank makes predominantly fixed-rate loans
for terms ranging from ten to thirty years, but does also make loans that
provide for periodic adjustments of the interest rate ("adjustable rate loans").
In general, the Bank looks to sell to the secondary market but will do an in
house loan on occasion.
Although the Corporation generally does not retain residential loans in its
portfolio, it continues to originate and service residential loans in order to
provide a full range of products to its customers. In general, such loans are
originated only under terms, conditions, and documentation standards that make
such loans eligible for sale to the Federal National Mortgage Association
("Fannie Mae" or "FNMA"). Sales or securitizations of mortgage loans through
Fannie Mae have generally been under terms that do not provide for any recourse
against the Bank by the investor. The Bank generally sells these loans at the
time they are originated, but continues to service these loans for its
customers. Sales of mortgage loans provide additional funds for lending and
other business purposes.
The Bank's general policy is to lend up to 80% of the independently appraised
value of the property (referred to as the "loan-to-value ratio"). The Bank will
occasionally lend in excess of an 80% loan-to-value ratio on a first mortgage
loan, but will generally require the borrower to obtain private mortgage
insurance on the portion of the loan that exceeds 80%.
The Bank also originates loans to individuals to construct single-family
residences. The borrower must have take-out commitments for permanent financing
on hand at the time of origination. Construction loans generally have a maturity
of 6 to 12 months and a fixed rate of interest, with payments being made monthly
on an interest-only basis. Construction loans are otherwise underwritten and
approved in the same manner as other single-family residential loans.
Construction loans, however, are generally considered to involve a higher degree
of risk than conventional residential mortgage loans. This is because the risk
of loss is largely dependent on the accuracy of the initial estimate of the
property's value at completion of construction, the reputation of the
contractor, the estimated cost of construction, and the borrower's ability to
advance additional construction funds, if necessary. This risk has not had any
adverse effect on the Bank to date, although no assurances can be made with
respect to future periods.
The Bank continues to service most of the loans that it sells to third-party
investors (commonly referred to as "loans serviced for others"). Servicing
mortgage loans, whether for its own portfolio or for others, includes such
functions as collecting monthly principal and interest payments from borrowers,
maintaining escrow accounts for real estate taxes and insurance, and making such
payments on behalf of borrowers when they are due. When necessary, servicing of
mortgage loans also includes functions related to the collection of delinquent
principal and interest payments, loan foreclosure proceedings, and disposition
of foreclosed real estate. As of December 31, 2004, loans serviced for others
were $181.3 million. The amount of capitalized mortgage servicing rights as of
December 31, 2004 was $1.8 million.
When the Bank services loans for others, it is compensated for these services
through the retention of a servicing fee from borrowers' monthly payments. The
Bank pays the third-party investors an agreed-upon yield on the loans, which is
generally less than the interest agreed to be paid by the borrowers. The
difference is retained by the Bank and recognized as servicing fee income over
the lives of the loans, net of amortization of capitalized mortgage servicing
rights. The Bank also receives fees and interest income from ancillary sources
such as delinquency charges and float on escrow and other funds.
Management believes that servicing mortgage loans for third parties provides a
natural hedge against other risks inherent in the Bank's mortgage banking
operations. That is, fluctuations in volumes of mortgage loan originations and
resulting gains on sales of such loans caused by changes in market interest
rates will generally be offset in part by an opposite change in loan servicing
fee income. These fluctuations are usually the result of actual loan prepayment
activity that is different from that which was anticipated when the related
servicing rights were originally recorded. However, fluctuations in the value of
mortgage servicing rights may also be caused by lower of cost or market
adjustments under generally accepted accounting principles ("GAAP"). That is,
the value of servicing rights may fluctuate because of changes in the future
prepayment assumptions or discount rates used to periodically value servicing
rights. Although management believes that most of the Bank's loans that prepay
are replaced by a new loan to the same customer or even a different customer
(thus preserving the future servicing cash flow), GAAP requires mark-to-market
gains or losses resulting from a change in future prepayment assumptions to be
recorded in the period in which the change occurs. However, the offsetting gain
on the sale of the new loan, if any, cannot be recorded under GAAP until the
customer actually prepays the old loan and the new loan is sold in the secondary
market. Mortgage servicing rights are particularly susceptible to unfavorable
mark-to-market adjustments during periods of declining interest rates during
which prepayment activity typically accelerates to levels above that which had
been anticipated when the servicing rights were originally recorded. During
periods of rising rates, mark-to-market adjustments tend to result in gains to
the value of servicing rights as the assumption is adjusted to reflect a
deceleration in payments.
CONSUMER AND OTHER LENDING
The Bank offers consumer and other loans in order to provide a full range of
financial services to its customers. Such loans accounted for approximately
5.12% of the Corporation's gross loans as of December 31, 2004. Most of the
Bank's consumer loan portfolio consists of second mortgage loans and home equity
lines of credit, but also includes automobile loans, recreational vehicle and
mobile home loans, deposit account secured loans, and unsecured lines of credit
or signature loans. The Bank services all of its own consumer loans.
Applications for consumer loans are taken at all of the Bank's offices except
the Expo Drive office. Applications for automobile loans are also accepted
through relationships established with a limited number of qualifying automobile
dealerships ("indirect automobile lending"). The majority of consumer loans are
underwritten, approved, and serviced on an on-going basis by loan officers.
Consumer loans generally have shorter terms and higher rates of interest than
conventional mortgage loans, but typically involve more credit risk than such
loans because of the nature of the collateral and, in some instances, the
absence of collateral. In general, consumer loans are more dependent upon the
borrower's continuing financial stability, are more likely to be affected by
adverse personal circumstances, and are often secured by rapidly depreciating
personal property such as automobiles. In addition, various laws, including
bankruptcy and insolvency laws, may limit the amount that may be recovered from
a borrower. However, such risks are mitigated to some extent in the case of
second mortgage loans and home-equity lines of credit. These types of loans are
secured in part or in full by a second mortgage on the borrower's residence.
The Bank believes that the higher yields earned on consumer loans compensate for
the increased risk associated with such loans and that consumer loans are
important to the Bank's efforts to increase the interest rate sensitivity and
shorten the average maturity of its loan portfolio. Furthermore, the Bank's net
charge-offs on consumer loans as a percentage of gross loans have not been
significant in recent years, despite the risks inherent in consumer lending.
In conjunction with its consumer lending activities, the Corporation offers
customers credit life and disability insurance products. The Bank and its loan
officers receive commission revenue related to the sales of these products. In
addition, a wholly-owned subsidiary of the Bank receives premium revenue in
exchange for the portion of the insurance risk it has reinsured on these sales.
Refer to "Subsidiaries", below, for additional discussion.
The Bank offers a full range of trust services that include trust under
agreement, testamentary trust, guardianships and conservatorships, probate
estates, estate planning, and financial planning. The Bank employs a licensed
investment representative who provides a variety of investment and insurance
products through arrangements with other service providers. These products
include mutual funds, stocks, bonds, annuities, and life insurance products.
Insurance products, including commercial, personal, life, and health insurance,
are offered through Insurance Center of Manitowoc, Inc. Effective January 26,
2005, Insurance Center's board of directors approved a name change to "The
Vincent Group, Inc."
To attract new business and retain existing customers, the Bank relies on local
marketing promotions, personal contact by its officers, staff and directors,
referrals by current customers, extended banking hours, personalized service,
and contact with on-line customers via the Bank's website or e-mail statements.
NON-PERFORMING AND OTHER CLASSIFIED ASSETS
Loans are generally placed on non-accrual status and considered "non-performing"
when, in the judgment of management, the probability of collection of principal
or interest is deemed to be insufficient to warrant further accrual of interest.
When a loan is placed on non-accrual and/or non-performing status, previously
accrued but unpaid interest is deducted from interest income. In general, the
Bank does not record accrued interest on loans 90 or more days past due. For
additional information, refer to Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 1 and 3 of
the Corporation's Audited Consolidated Financial Statements, included herein
under Part II, Item 8, "Financial Statements and Supplementary Data".
When a loan is placed on non-accrual and/or non-performing status, the Bank
generally institutes foreclosure or other collection proceedings. Real estate
acquired by the Bank as a result of foreclosure or deed-in-lieu of foreclosure
is classified as "other real estate" and is considered "non-performing" until
sold. Other property acquired through adverse judgment, such as automobiles and
other depreciable assets, are generally classified as "other personal property".
The Bank has internal policies and procedures in place to evaluate risk ratings
on all loans. In addition, in connection with examinations of banks, federal
examiners have authority to classify problem assets as "Substandard",
"Doubtful", or "Loss". An asset is classified as "Substandard" if it is
determined to involve a distinct possibility that the Bank could sustain some
loss if deficiencies associated with the loan are not corrected. An asset is
classified as "Doubtful" if full collection is highly questionable or
improbable. An asset is classified as "Loss" if it is considered uncollectible,
even if a partial recovery could be expected in the future. If an asset or
portion thereof is classified as "Loss", the Bank must either establish a
specific allowance for the portion of the asset classified as "Loss", or charge
off such amount. Refer to Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," for additional discussion.
ALLOWANCES FOR LOSSES ON LOANS AND REAL ESTATE
The Bank's policy is to establish allowances for estimated losses on specific
loans and real estate when it determines that losses are probable and estimable.
In addition, the Corporation maintains a general loss allowance against its loan
and real estate portfolios that is based on its own loss experience,
management's ongoing assessment of current economic conditions, the credit risk
inherent in the portfolios, and the experience of the financial services
industry. For additional information, refer to Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 1 and 3 of the Corporation's Audited Consolidated Financial Statements,
included herein under Part II, Item 8, "Financial Statements and Supplementary
Data".
Management of the Bank believes that the current allowances established by the
Bank are adequate to cover probable and estimable losses in the Bank's loan and
real estate portfolios. However, future adjustments to these allowances may be
necessary and the Bank's results of operations could be adversely affected if
circumstances differ substantially from the assumptions used by management in
making its determinations in this regard.
SOURCES OF FUNDS
DEPOSIT LIABILITIES
The Bank's current deposit products include regular savings accounts, checking
accounts, money market deposit accounts, individual retirement accounts, and
certificates of deposit ranging in terms from three months to five years. As of
December 31, 2004, deposit liabilities accounted for approximately 71.6% of the
Corporation's total liabilities and equity.
In addition to serving as the Bank's primary source of funds, deposit
liabilities (especially checking accounts) are a substantial source of
non-interest income. This income is generally received in the form of overdraft
fees, periodic service charges, automated teller machine ("ATM") and debit card
fees, and other transaction charges. The Bank's extensive branch network also
creates opportunities for sales of non-deposit products such as tax-deferred
annuities, mutual funds, and other investment products. In exchange for these
sales, the Bank receives commission revenue from the third-party providers of
the financial products and/or services.
The principal methods used by the Bank to attract deposit accounts include
offering a variety of products and services, competitive interest rates, and
convenient office locations and hours. All of the Bank's offices have drive-up
facilities and the Bank owns twelve ATM machines, all of which are located in
the Bank's primary markets. Depositors may also obtain a debit card from the
Bank, which allows them to purchase goods and services directly from merchants.
The same debit card also provides access to the ATM network.
FEDERAL HOME LOAN BANK ADVANCES
The Bank obtains advances from the FHLB secured by certain of its home mortgage
loans and mortgage-related securities, as well as stock in the FHLB, a minimum
amount of which the Bank is required to own. Such advances may be made pursuant
to several different credit programs, each with its own interest rate and range
of maturity dates. As of December 31, 2004, FHLB advances accounted for
approximately 6.4% of the Bank's total liabilities and equity.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank regularly enters into sales of securities under agreements to
repurchase. In form, these transactions are an arrangement in which the sale of
securities is accompanied by a simultaneous agreement to repurchase the
identical securities (or substantially the same securities) at a future date. In
substance, however, these arrangements are borrowings secured by high-quality,
highly-liquid securities such as Fannie Mae or Freddie Mac Mortgage Backed
Securities. Accordingly, these arrangements are accounted for as borrowings in
the Bank's financial statements.
FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS
The Corporation has lines of credit with three financial institutions. These
lines, which amount to $25 million in the aggregate, permit the overnight
purchase of federal funds. As of December 31, 2004, there were no outstanding
borrowings against these lines of credit.
BANK SUBSIDIARY CORPORATIONS
FNBM Investment Corporation. FNBM Investment Corporation ("FNBM") was
incorporated in the State of Nevada in December 1993. FNBM is located in Las
Vegas, Nevada. The Bank owns 100% of the outstanding common stock of FNBM. FNBM
was formed to consolidate and improve the efficiency, management, safekeeping,
and operations of the Bank's investment securities portfolio and certain other
holdings.
Insurance Center of Manitowoc, Inc. Insurance Center of Manitowoc, Inc. ("ICM")
was incorporated in the State of Wisconsin in 1932. Bank acquired 100% of the
outstanding common stock of the ICM in January 2001. ICM has an office in
Manitowoc, Wisconsin that operates under the trade name Insurance Center of
Manitowoc, Inc. and an office in Green Bay, Wisconsin that operates under the
trade name Gary Vincent & Associates, Inc. ICM is a regional independent agency
offering commercial, personal, life, and health insurance. ICM provides various
bank-related insurance coverages for the Bank including Directors & Officers
Liability, Trust, and Blanket Bond.
In April of 2004, Professional Insurance Advantage, Incorporated joined Gary
Vincent & Associates. This Green Bay agency consisting of three employees offers
group and individual life, health, dental, vision, disability, long-term care,
401(k) retirement plans, and investment services in addition to property and
casualty insurance.
Effective January 26, 2005, ICM's board of directors approved a name change to
The Vincent Group, Inc.
United Financial Services, Inc. United Financial Services, Inc. ("UFS") was
incorporated in the State of Wisconsin in September 1991. UFS is located in
Grafton, Wisconsin. The Bank owns 49.8% of the outstanding common stock of UFS.
The subsidiary, UFS, was formed to provide data processing services to the
banking industry. UFS provides data processing services to owner banks Baylake
Bank and the Bank in addition to 52 other banks located in Wisconsin. The Bank's
investment in UFS is accounted for under the equity method.
SEASONALITY
The management of the Bank does not believe that the deposits or business of the
Bank in general are seasonal in nature. The deposits may, however, vary with
local and national economic conditions but not enough to have a material effect
on planning and policy making.
FOREIGN OPERATIONS
The Bank does not engage in operations in foreign countries.
EMPLOYEES
As of February 28, 2005, the Corporation employed 233 individuals, 76 of whom
worked part-time.
COMPETITION
The Bank offers many personalized services and attracts customers by being
responsive and sensitive to the needs of the community. The Bank relies on
goodwill and referrals from satisfied customers as well as traditional media
advertising to
attract new customers. To enhance a positive image in the community, the Bank
supports and participates in many local events, such as the Manitowoc County
Fair, Manitowoc County Airport Day, First National Bank Maritime Bay Bike
Classic, Two Rivers Ethnic Festival, and French Creek Days. Employees, officers,
and directors represent the Bank on many boards and local civic and charitable
organizations.
The primary factors in competing for deposits are interest rates, personalized
services, the quality and range of financial services, convenience of office
locations and office hours. Competition for deposits comes primarily from other
commercial banks, savings associations, credit unions, money market funds and
other investment alternatives. The primary factors in competing for loans are
interest rates, loan origination fees, the quality and range of lending services
and personalized services. Competition for loans comes primarily from other
commercial banks, savings associations, mortgage banking firms, credit unions
and other financial intermediaries. Competition in the Bank's market area is
expected to continue for the foreseeable future.
SUPERVISION AND REGULATION
General. The Corporation and the Bank are extensively regulated under federal
and state law. Generally, these laws and regulations are intended to protect
depositors, not shareholders. The following is a summary description of certain
provisions of certain laws which affect the regulation of bank holding companies
and banks. The discussion is qualified in its entirety by reference to
applicable laws and regulation. Changes in such laws and regulations may have a
material effect on the business and prospects of the Corporation and the Bank.
Federal Bank Holding Company Regulation and Structure. The Corporation is a bank
holding company within the meaning of the Bank Holding Company Act of 1956, as
amended (the "Act"). As such, it is subject to regulation, supervision, and
examination by the Federal Reserve Board ("FRB"). The Corporation is required to
file annual and quarterly reports with the FRB and to provide the FRB with such
additional information as the FRB may require. The FRB may conduct examinations
of the Corporation and its subsidiaries.
With certain limited exceptions, the Corporation is required to obtain prior
approval from the FRB before acquiring direct or indirect ownership or control
of more than 5% of any voting securities or substantially all of the assets of a
bank or bank holding company, or before merging or consolidating with another
bank holding company. Additionally, with certain exceptions, any person
proposing to acquire control through direct or indirect ownership of 25% or more
of any voting securities of the Corporation is required to give 60 days' written
notice of the acquisition to the FRB, which may prohibit the transaction, and to
publish notice to the public.
Generally, a bank holding company may not engage in any activities other than
banking, managing or controlling its bank and other authorized subsidiaries, and
providing services to these subsidiaries. With prior approval of the FRB, the
Corporation may acquire more than 5% of the assets or outstanding shares of a
company engaging in non-bank activities determined by the FRB to be closely
related to the business of banking or of managing or controlling banks. The FRB
provides expedited procedures for expansion into approved categories of non-bank
activities.
Subsidiary banks of a bank holding company are subject to certain quantitative
and qualitative restrictions on extensions of credit to the bank holding company
or its subsidiaries, on investments in their securities and on the use of their
securities as collateral for loans to any borrower. These regulations and
restrictions may limit the Corporation's ability to obtain funds from the Bank
for its cash needs, including funds for the payment of dividends, interest and
operating expenses. Further, subject to certain exceptions, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from itself or the Corporation, and
may not require that a customer promise not to obtain other services from a
competitor as a condition to an extension of credit to the customer.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary banks and to make capital injections into a
troubled subsidiary bank, and the FRB may charge the bank holding company with
engaging in unsafe and unsound practices for failure to commit resources to a
subsidiary bank when required. A required capital injection may be called for
when the holding company does not have the resources to provide it.
Federal Bank Regulation. The Corporation's banking subsidiary is a
federally-chartered national bank regulated by the Office of Comptroller of
Currency ("OCC"). The OCC may prohibit the institutions over which it has
supervisory authority from engaging in activities or investments that the agency
believes constitutes unsafe or unsound banking practices. Federal banking
regulators have extensive enforcement authority over the institutions they
regulate to prohibit or correct activities which violate law, regulation or a
regulatory agreement or which are deemed to constitute unsafe or unsound
practices. Enforcement actions may include the appointment of a conservator or
receiver, the issuance of a cease and desist order, the termination of deposit
insurance, the imposition of civil money penalties on the institution, its
directors, officers, employees and institution-affiliated parties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the removal of or restrictions on directors, officers, employees and
institution-affiliated parties, and the enforcement of any such mechanisms
through restraining orders or other court actions.
The Bank is subject to certain restrictions on extensions of credit to executive
officers, directors, principal shareholders or any related interest of such
persons which generally require that such credit extensions be made on
substantially the same terms as are available to third persons dealing with the
Bank and not involve more than the normal risk of repayment. Other laws tie the
maximum amount which may be loaned to any one customer and its related interests
to capital levels.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the OCC, have adopted standards covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution which fails to meet those
standards may be required by the agency to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Corporation, on behalf of the Bank,
believes that it meets substantially all standards which have been adopted.
FDICIA also imposed new capital standards on insured depository institutions.
Before establishing new branch offices, the Bank must meet certain minimum
capital stock and surplus requirements and the Bank must obtain OCC approval.
Deposit Insurance. As a FDIC member institution, the Bank's deposits are insured
to a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"),
administered by the FDIC. The Bank pays a quarterly deposit insurance premium
assessment to the FDIC. The insurance premium assessment is based upon the
FDIC's risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An institution's
assessment rate depends on the "supervisory rating" it receives from the FDIC
("A," "B," or "C") and on their regulatory capital level ("well capitalized,"
"adequately capitalized," or "undercapitalized"). Assessment rates for insured
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest. The FDIC has authority to increase insurance assessments and is
required under federal law to establish assessment rates that will maintain the
insurance fund's ratio of reserves to insured deposits at $1.25 per $100. The
Bank was classified as "well capitalized" at December 31, 2004.
Capital Requirements. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit,
which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off balance sheet
items are multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities, to 100% for assets with relatively high credit risk, such as
business loans.
A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk- adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
less goodwill and other intangibles, subject to certain exceptions. "Tier 2," or
supplementary capital, includes the allowance for loan and lease losses, subject
to certain limitations. Banks and bank holding companies subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1 capital
to risk-weighted assets of at least 4.0% and a ratio of total capital to
risk-weighted assets of at least 8.0%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. In
addition to risk-based capital, banks and bank holding companies are required to
maintain a minimum amount of Tier 1 capital to total average assets, referred to
as the leverage capital ratio, of at least 4.0%.
Federal banking agencies include in their evaluations of a bank's capital
adequacy, an assessment of the Bank's interest rate risk ("IRR") exposure. The
standards for measuring the adequacy and effectiveness of a banking
organization's interest rate risk management includes a measurement of board of
director and senior management oversight, and a determination of whether a
banking organization's procedures for comprehensive risk management are
appropriate to the circumstances of the specific banking organization. The Bank
has internal IRR models that are used to measure and monitor IRR.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the Corporation.
Monetary Policy. The earnings of a bank holding company are affected by the
policies of regulatory authorities, including the FRB, in connection with the
FRB's regulation of the money supply. Various methods employed by the FRB are
open market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. Because of ongoing change in the national economy and in the money
markets, as well as the effect of monetary and fiscal policies of the Federal
Reserve System and Federal government, prediction cannot be made as to future
changes in interest rates, loan demand, deposit levels or the effect on the
earnings of the Corporation.
Federal Taxation. The Corporation is subject to those rules of federal income
taxation generally applicable to corporations under the Internal Revenue Code of
1986, as amended (the "IRC"). The Corporation, the Bank, and the Bank's
wholly-owned subsidiaries file a consolidated federal income tax return. This
has the effect of eliminating or deferring the tax consequences of intercompany
distributions, including dividends, in the computation of consolidated taxable
income. The consolidated entity pays taxes at the federal statutory rate of 34%
of its taxable income, as defined in the IRC.
State Taxation. The State of Wisconsin imposes a tax on the Corporation's
taxable income at the rate of 7.9%. State income taxes are deductible on the
Corporation's federal income tax return. Wisconsin's definition of taxable
income is generally similar to the federal definition, except that interest from
state and municipal obligations is taxable. In Wisconsin, net operating losses
may be carried forward but not back.
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, believe there is a strong
likelihood of settlement. If no settlement is reached, the Bank will probably
oppose an assessment, if any.
Anti-Terrorism Act. On October 6, 2002, the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
(the "Patriot Act") was signed into law. While not primarily banking
legislation, the Patriot Act contained provisions requiring financial
institutions to adopt a variety of policies aimed at preventing
money-laundering. The OCC is the primary regulator for purposes of insuring
compliance by the Bank with Patriot Act requirements and certain of those
requirements will not become effective until adoption of implementing
regulations by the OCC. Management of the Bank does not believe that compliance
with the Patriot Act and its implementing regulations has a significant impact
on the Bank's business.
ITEM 2. PROPERTIES
The Corporation owns real property at two branch locations at:
1509 Washington Street, Two Rivers, Wisconsin 54241 ("Two Rivers Branch
Office"); and
2915 Custer Street, Manitowoc, Wisconsin 54220 ("Custer Street Branch
Office").
The Bank owns real property at the location of its main office at 402 North
Eighth Street, Manitowoc, Wisconsin 54220; and at nine of its branch locations
at:
106 South Packer Drive, Francis Creek, Wisconsin 54214 ("Francis Creek
Branch Office");
109 South Fourth Avenue, St. Nazianz, Wisconsin 54232 ("St. Nazianz Branch
Office");
110 Baugniet Street, Mishicot, Wisconsin 54228 ("Mishicot Branch Office");
108 Fremont Street, Kiel, Wisconsin 53042 ("Kiel Branch Office");
5724 CTH U, Newton, Wisconsin 53063 ("Newton Branch Office");
2210 Calumet Drive, New Holstein, Wisconsin 53061 ("New Holstein Branch
Office");
2323 Eastern Avenue, Plymouth, Wisconsin 53073 ("Plymouth East Branch
Office");
300 East Mill Street, Plymouth, Wisconsin 53073 ("Plymouth West Branch
Office"); and
2747 Manitowoc Road, Green Bay, Wisconsin 54311 ("Bellevue Branch
Office").
The Bank leases real property at two branch locations:
2865 South Ridge Road, Green Bay, Wisconsin, 54304 ("Ashwaubenon Branch
Office").
4712 Expo Drive, Manitowoc, Wisconsin, 54220 ("Expo Branch Office").
Insurance Center of Manitowoc, Inc. owns real property located at:
4712 Expo Drive, Manitowoc, Wisconsin 54220 ("Insurance Center of
Manitowoc, Inc. Office").
Insurance Center of Manitowoc, Inc. leases real property at:
425 South Adams Street, Green Bay, Wisconsin, 54301 ("Gary G. Vincent &
Associates, Inc. Office").
There are no encumbrances on any of these properties.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for a vote during the fourth
quarter of 2004.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
There is no established public trading market for the Corporation's common stock
("Shares"). Accordingly, there is no comprehensive record of trades or the
prices of any such trades. The following tables reflect stock prices for Shares
to the extent such information is made known and available to management of the
Corporation, and the dividends declared with respect thereto during the
preceding two years.
2004
- -------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
- ------- ------- ------- ------- ------- ------- ------- -------
$ 15.50 $ 14.05 $ 16.25 $ 14.90 $ 16.00 $ 15.00 $ 16.00 $ 15.10
2003
- -------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
- ------- ------- ------- ------- ------- ------- ------- -------
$ 14.50 $ 14.50 $ 15.75 $ 14.50 $ 15.50 $ 14.50 $ 16.00 $ 14.00
CASH DIVIDENDS
2004
- --------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ----------- ----------- ----------- ----------- -------
$ 0.055 $ 0.055 $ 0.055 $ 0.065 $ 0.230
2003
- --------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ----------- ----------- ----------- ----------- -------
$ 0.050 $ 0.050 $ 0.050 $ 0.060 $ 0.210
HOLDERS
As of February 28, 2005, there were approximately 665 holders of record of the
Corporation's Shares.
ISSUER PURCHASES OF EQUITY SECURITIES
None
DIVIDENDS
The Corporation declared and paid cash dividends totaling $0.230 per share or
$1.6 million during fiscal 2004, and $0.210 per share or $1.5 million during
fiscal 2003. The Corporation currently expects that comparable cash dividends
will continue in the future.
Dividends may be paid to the holders of the Corporation's shares, when, as, and
if declared by the Corporation's Board of Directors, subject to the restrictions
imposed by Wisconsin law. The only statutory limitation applicable to the
Corporation is that dividends may not be paid if the Corporation is insolvent or
if the dividend would cause the Corporation to become insolvent. There are no
contractual restrictions that currently limit the Corporation's ability to pay
dividends or that the Corporation reasonably believes are likely to limit
materially the future payment of dividends on the Corporation's shares.
Currently, its only source of income is from the dividends paid by the Bank to
the Corporation. Therefore, the dividend restrictions applicable to national
banks will impact the Corporation's ability to pay dividends.
Under the National Bank Act, dividends may be paid only out of retained earnings
as defined in the statute. The approval of the OCC is required if the dividends
for any year exceed the net profits, as defined, for that year plus the retained
net profits for the preceding two years. In addition, unless a national bank's
capital surplus equals or exceeds the stated capital for its common stock, no
dividends may be declared unless the bank makes transfers from retained earnings
to capital surplus.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Corporation's Consolidated Financial Statements and the related notes and with
the Corporation's Management's Discussion and Analysis of Financial Condition
and Results of Operations, provided elsewhere herein. In thousands, except per
share amounts.
FOR THE YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
Interest income $ 28,042 $ 27,189 $ 30,811 $ 35,421 $ 34,979
Interest expense 8,796 9,683 11,978 17,982 18,995
Net interest income 19,246 17,506 18,833 17,439 15,984
Provision for loan losses 450 1,250 1,950 3,000 1,065
Net interest income after provision
for loan losses 18,796 16,256 16,883 14,439 14,919
Other income 6,494 7,887 6,585 5,344 2,711
Other expense 14,982 14,433 14,542 13,455 11,428
Net income 7,902 7,629 7,089 5,405 5,301
Per Share Data:*
Net income - basic and diluted $ 1.140 $ 1.100 $ 1.020 $ 0.780 $ 0.760
Cash dividends declared 0.230 0.210 0.183 0.150 0.140
Book value 9.500 8.680 7.820 6.700 5.980
Weighted average shares outstanding 6,937,268 6,937,268 6,937,268 6,937,268 6,937,268
AT YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
Total assets $ 622,175 $ 581,953 $ 565,810 $ 527,304 $ 495,410
Loans 386,515 371,125 344,103 327,440 326,571
Allowance for loan losses 3,824 3,999 3,384 2,737 3,824
Investment securities 156,669 138,275 135,747 126,754 114,375
Deposits 445,786 428,284 416,099 394,092 394,601
Repurchase Agreements 61,620 55,359 50,884 33,108 29,952
Borrowed funds 42,280 31,910 38,138 47,179 23,000
Shareholders' equity 65,873 60,223 54,284 46,489 41,461
AVERAGE BALANCES
Assets $ 598,770 $ 564,735 $ 534,622 $ 505,518 $ 472,285
Deposits 431,459 415,926 387,953 384,856 373,035
Shareholders' equity 62,969 57,189 50,750 44,763 37,455
FINANCIAL RATIOS
Return on average assets 1.32% 1.35% 1.33% 1.07% 1.12%
Return on average equity 12.55% 13.34% 13.97% 12.07% 14.15%
Average equity to average assets 10.52% 10.13% 9.49% 8.85% 7.93%
Dividend payout ratio 20.18% 19.09% 17.86% 19.26% 18.32%
* Per share data for 2000 through 2002 is restated to reflect the two-for-one
stock splits effective June 30, 2000 and October 18, 2002.
SUMMARY QUARTERLY FINANCIAL INFORMATION
In thousands, except per share amounts
Three Months Ended,
2004 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
Selected Operations Data:
Interest income $ 6,656 $ 6,747 $ 7,251 $ 7,388
Interest expense 2,092 2,100 2,244 2,360
-------- ------- ------------ -----------
Net interest income 4,564 4,647 5,007 5,028
Provision for loan losses 100 100 150 100
Other income 2,053 1,261 1,705 1,475
Other expenses 3,729 3,535 3,768 3,950
-------- ------- ------------ -----------
Income before income taxes 2,788 2,273 2,794 2,453
Provision for income taxes 641 450 769 546
-------- ------- ------------ -----------
Net income $ 2,147 $ 1,823 $ 2,025 $ 1,907
Per Share Data:
Net income (Basic and Diluted) $ 0.31 $ 0.26 $ 0.29 $ 0.28
Three Months Ended,
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2003
- ----
Selected Operations Data:
Interest income $ 7,135 $ 6,791 $ 6,591 $ 6,672
Interest expense 2,667 2,533 2,294 2,189
-------- ------- ------------ -----------
Net interest income 4,468 4,258 4,297 4,483
Provision for loan losses 200 450 300 300
Other income 1,886 2,093 2,342 1,566
Other expenses 3,692 3,419 3,703 3,619
-------- ------- ------------ -----------
Income before income taxes 2,462 2,482 2,636 2,130
Provision for income taxes 561 532 595 393
-------- ------- ------------ -----------
Net income $ 1,901 $ 1,950 $ 2,041 $ 1,737
Per Share Data:
Net income (Basic and Diluted) $ 0.27 $ 0.28 $ 0.29 $ 0.26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis in this section should be read in conjunction with
Item 8, Financial Statements and Supplemental Data as well as with the selected
financial data found elsewhere in this report.
Critical Accounting Policies
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses and mortgage servicing rights
valuation.
The consolidated financial statements of the Corporation are prepared in
conformity with accounting principles generally accepted in the United States of
America and follow general practices within the industries in which it operates.
This preparation requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments are based on
information available as of the date of the financial statements; accordingly,
as this information changes, actual results could differ from the estimates,
assumptions, and judgments reflected in the financial statements. Certain
policies inherently have a greater reliance on the use of estimates, assumptions
and judgments and, as such, have a greater possibility of producing results that
could be materially different than originally reported. Management believes the
following policies are both important to the portrayal of the Corporation's
financial condition and results and require subjective or complex judgments and,
therefore, management considers the following to be critical accounting
policies.
Allowance for Loan Losses. Management's evaluation process used to determine the
adequacy of the allowance for loan losses is subject to the use of estimates,
assumptions, and judgments including management's ongoing review and grading of
the loan portfolio, consideration of past loan loss experience, trends in past
due and nonperforming loans, risk characteristics of the various classifications
of loans, existing economic conditions, the fair value of underlying collateral,
and other qualitative and quantitative factors which could affect probable
credit losses. Because current economic conditions can change and future events
are inherently difficult to predict, the anticipated amount of estimated loan
losses, and therefore the adequacy of the allowance, could change significantly.
As an integral part of their examination process, various regulatory agencies
also review the allowance for loan losses. Such agencies may require that
certain loan balances be charged off when their credit evaluations differ from
those of management, based on their judgments about information available to
them at the time of their examination. The Corporation believes the allowance
for loan losses is adequate and properly recorded in the financial statements.
See section "Allowance for Loan Losses."
Mortgage Servicing Rights Valuation. The fair value of the Corporation's
mortgage servicing rights asset is important to the presentation of the
consolidated financial statements in that mortgage servicing rights are subject
to a fair value-based impairment standard. Mortgage servicing rights do not
trade in an active open market with readily observable prices. As such, like
other participants in the mortgage banking business, the Corporation relies on
an internal estimated cash flow model to establish the fair value of its
mortgage servicing rights. While the Corporation believes that the values
produced by its internal model are indicative of the fair value of its mortgage
servicing rights portfolio, these values can change significantly depending upon
the then current interest rate environment, estimated prepayment speeds of the
underlying mortgages serviced, and other economic conditions. The proceeds that
might be received should the Corporation actually consider a sale of the
mortgage servicing rights portfolio could differ from the amounts reported at
any point in time. The Corporation believes the mortgage servicing rights asset
is properly recorded in the financial statements.
For additional information concerning critical accounting policies, see Notes to
Consolidated Financial Statements, "Note 1, Summary of Significant Accounting
Policies".
Results of Operations
INCOME STATEMENT
The Corporation recorded net income of $7.9 million for the year ended December
31, 2004, an increase of 3.9% over the $7.6 million earned in 2003. These
amounts represented returns on average assets of 1.32% for 2004 and 1.35% for
2003. Returns on average equity were 12.55% for 2004 and 13.34% for 2003.
Earnings per share in 2004 (basic and diluted) were $1.14, an increase of 3.6%
over 2003 earnings per share of $1.10.
Interest income increased $0.8 million, from $27.2 million in 2003 to $28.0
million in 2004. Interest expense decreased from $9.7 million in 2003 to $8.8
million in 2004. Interest rates were relatively stable and historically low
during 2003 and the first half of 2004. As a result, net interest income
increased $1.7 million in 2004. There were five interest rate increases of 25
basis points each during the second half of 2004. Interest rates on deposits
increased at a slower rate than those on securities which contributed to the
increase in the net interest margin.
Other income decreased $1.4 million in 2004, from $7.9 million in 2003 to $6.5
million in 2004. Notably lower revenue from significantly lower refinancing
activity occurred throughout the industry. As a result, service charges, loan
servicing income and gain on sales of mortgage loans sold to the secondary
market, accounted for the major decreases in other income. Increases occurred in
Insurance Center commissions and other miscellaneous income, a result of
increased volume and contingency commission income.
Other expense increased $0.6 million from $14.4 million in 2003 to $15.0 million
in 2004. Increases in employee compensation and outside service fees
(Sarbanes-Oxley internal control documentation requirements) were mainly
responsible for the difference.
BALANCE SHEET
Total assets at December 31, 2004 increased $40.2 million from $582.0 million in
2003 to $622.2 million in 2004. Loans were $386.5 million at December 31, 2004,
an increase of $15.4 million or 4.1% over December 31, 2003. Significant
increases in loans were as follows: Commercial loans increased $5.2 million and
residential real estate loans increased $10.4 million.
The allowance for loan losses decreased to $3.8 million at December 31, 2004
from $4.0 million at December 31, 2003. The ratio of allowance for loan losses
to total loans was 0.99% for 2004 and 1.08% for 2003. Non-performing loans were
$3.1 million, representing 0.79% of total loans at year end 2004, compared to
$3.3 million or 0.88% of total loans last year. The decrease in non-performing
loans came primarily from the commercial loan sector of the Bank's loan
portfolio.
Deposits increased $17.5 million, from $428.3 million at December 31, 2003 to
$445.8 million at December 31, 2004. The bank continues to experience strong
competition from other commercial banks, credit unions, the stock market, and
mutual funds. There are no predetermined divisions in the asset/liability policy
for the mix of deposits. Repurchase agreements increased $6.2 million or 11.3%
over 2003 due to increased deposits by municipalities at year end as a result of
tax collections. Borrowed funds increased $10.4 million to $42.3 million at
December 31, 2004 from $31.9 million at December 31, 2003.
Results of Operations Overview for fiscal years 2004, 2003 and 2002
The Corporation reported $7.9 million in net income for 2004 or $1.14 per share
compared to 2003 net income of $7.6 million or $1.10 per share, and $7.1 million
or $1.02 per share for 2002. Earnings for the year represent a record level of
performance for the Corporation, exceeding the previous record of $7.6 million
achieved in 2003. The improvement was primarily attributed to net interest
income. Return on average assets was 1.32%, 1.35% and 1.33% in 2004, 2003 and
2002, respectively. Return on average equity was 12.55% for 2004, 13.34% for
2003, and 13.97% for 2002.
Net Interest Income, Interest Rate Spread, and Net Interest Margin
Management and the Board of Directors of the Bank monitor interest rates on a
regular basis to assess the Bank's competitive position and to maintain a
reasonable and profitable interest rate spread. The Bank also considers the
maturity distribution of loans, investments, and deposits and its effect on net
interest income as interest rates rise and fall over time.
Tables 1 and 2 do not include financial data for the Corporation as they include
only Bank financial information. In Table 1, nonaccrual loans have been included
in the average balances, loan fees are included in interest income and the yield
on tax exempt loans and securities is computed on a tax-equivalent basis using a
tax rate of 34%.
Table 1 provides average balances of earning assets and interest-bearing
liabilities, the associated interest income and expense and the corresponding
interest rates earned and paid. Net interest income, interest rate spread and
net interest margin on a tax-equivalent basis are shown for the three years
ended December 31, 2004, 2003, and 2002, respectively.
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 and interest-bearing deposits offset by the interest paid
on deposits and borrowings. The amount of net interest income is affected by
changes in interest rates and by the amount and composition of earning assets
and interest-bearing liabilities. Interest rates fell during 2003 and 2002, but
improved slightly during 2004. Net interest income (on a tax equivalent basis)
for 2004 increased by $2.8 million or 14.8% compared to the year ended December
31, 2003, while 2003 net interest income decreased by $1.3 million or 6.2% from
the previous year ended December 31, 2002. (See Tables 1 and 2)
Interest rate spread and net interest margin are utilized to measure and explain
changes in net interest income. Interest rate spread is the difference between
the average yield on interest earning assets and the average rate paid on
interest bearing liabilities. Interest rate spread for the years ended December
31, 2004, 2003, and 2002 was 3.62%, 3.28%, and 3.68%, respectively. 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
net interest margin exceeds the interest rate spread because non-interest
bearing sources of funds, primarily demand deposits and shareholder's equity,
also support earning assets. For 2004, the net interest margin was 3.96%
compared to 3.66% in 2003. The net interest margin for 2002 was 4.12%. These
changes are the result of repricing and volume changes as previously discussed
and illustrated in Table 2 "Rate and Volume Variance Analysis Based on Average
Balances."
As shown in the rate/volume analysis in Table 2, changes in the rates in 2004
resulted in a $1.2 million increase in taxable equivalent net interest income.
Increases in volume and changes in the mix of both earning assets and
interest-bearing liabilities added $1.6 million for a combined increase of $2.8
million in taxable equivalent net interest income. Rate changes on
interest-bearing liabilities lowered interest expense by $1.4 million, while
rate changes on earning assets decreased interest income by $0.2 million.
For 2004, the cost of interest-bearing liabilities decreased 30 basis points to
1.93% aided by the low interest rate environment. Decreases occurred in the CD
and IRA deposit category (a decline of 46 basis points), repurchase agreements
(a decline of 34 basis points) and borrowings (a decline of 114 basis points).
The yield on earning assets increased 3 basis points to 5.54% for 2004. The
average loan yield was 5.90%. The lower rate environment for new originations,
competitive pricing pressure and refinancing contributed to the downward trend
in loan yields. The yield on investment securities, however, was up 27 basis
points to 5.14%. From a volume perspective, earning assets contributed $2.1
million to taxable equivalent net interest income while interest-bearing
liabilities cost $0.5 million, netting a $1.6 million increase to taxable
equivalent net interest income.
Average earning assets were $554.7 million in 2004, an increase of $31.8 million
from 2003. Loans increased $25.0 million or 7.1% over 2003. Securities increased
$18.1 million or 12.8% over 2003.
Average interest-bearing liabilities were $456.7 million in 2004, an increase of
$22.2 million from 2003. Certificates of deposit and IRA deposits along with
repurchase agreements and borrowings accounted for a $16.6 million increase on
average over 2003.
Table 1 displays the average balances and average rates paid on all major
deposit classifications for 2004, 2003, and 2002.
AVERAGE BALANCES, YIELD AND RATES
(In thousands)
TABLE 1
For the year ended For the year ended For the year ended
December 31, 2004 December 31, 2003 December 31, 2002
----------------------------- --------------------------- --------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------- -------- ------- -------- -------- ------- -------- -------- -------
ASSETS:
Interest earning assets:
Federal funds sold $ 16,511 $ 221 1.34% $ 27,751 $ 304 1.10% $ 20,749 $ 336 1.62%
Investment securities:
US Treasury securities and obligations
of US government agencies $ 72,968 $ 2,377 3.26% $ 60,339 $ 1,478 2.45% $ 65,727 $ 2,973 4.52%
Tax exempt obligations of States
and political subdivisions $ 76,406 $ 5,104 6.68% $ 70,474 $ 4,780 6.78% $ 64,163 $ 4,587 7.15%
All other investment securities $ 10,530 $ 734 6.97% $ 11,003 $ 645 5.86% $ 8,525 $ 623 7.31%
--------- -------- -------- -------- -------- --------
Total investment securities $ 159,904 $ 8,215 5.14% $141,816 $ 6,903 4.87% $138,415 $ 8,183 5.91%
Loans net of unearned income:
Commercial loans $ 129,139 $ 7,832 6.06% $ 96,233 $ 7,087 7.36% $ 98,948 $ 7,713 7.80%
Mortgage loans $ 228,693 $ 12,438 5.44% $234,759 $ 12,260 5.22% $213,685 $ 13,670 6.40%
Installment loans $ 15,663 $ 1,257 8.03% $ 16,343 $ 1,463 8.95% $ 17,273 $ 1,692 9.80%
Other loans $ 4,834 $ 794 16.43% $ 5,977 $ 798 13.35% $ 5,752 $ 772 13.42%
--------- -------- -------- -------- -------- --------
Total loans $ 378,329 $ 22,321 5.90% $353,312 $ 21,608 6.12% $335,658 $ 23,847 7.10%
TOTAL INTEREST EARNING ASSETS $ 554,744 $ 30,757 5.54% $522,879 $ 28,815 5.51% $494,822 $ 32,366 6.54%
Cash and due from banks $ 13,379 $ 12,904 $ 12,668
Other assets $ 34,549 $ 32,706 $ 28,918
Allowance for loan and lease losses $ (3,902) $ (3,754) $ (2,851)
--------- -------- --------
TOTAL ASSETS $ 598,770 $564,735 $533,557
========= ======== ========
LIABILITIES:
Interest bearing liabilities:
Savings deposits $ 46,984 $ 106 0.23% $ 43,935 $ 76 0.17% $ 42,325 $ 131 0.31%
Market Plus accounts $ 69,710 $ 634 0.91% $ 68,345 $ 553 0.81% $ 63,295 $ 803 1.27%
Super NOW accounts $ 30,654 $ 255 0.83% $ 30,084 $ 276 0.92% $ 25,565 $ 329 1.29%
Money market deposit accounts $ 18,186 $ 185 1.02% $ 17,535 $ 152 0.87% $ 18,606 $ 237 1.27%
Certificates of deposit and IRA deposits $ 193,802 $ 5,253 2.71% $189,826 $ 6,019 3.17% $179,883 $ 7,385 4.11%
Repurchase agreements $ 56,101 $ 1,202 2.14% $ 50,359 $ 1,250 2.48% $ 47,057 $ 1,310 2.78%
Federal funds purchased $ 10 $ - 0.00% $ - $ - 0.00% $ 6 $ 0 2.35%
Borrowings $ 41,279 $ 1,161 2.81% $ 34,370 $ 1,357 3.95% $ 42,170 $ 1,783 4.23%
--------- -------- -------- -------- -------- --------
TOTAL INTEREST BEARING LIABILITIES $ 456,726 $ 8,796 1.93% $434,454 $ 9,683 2.23% $418,907 $ 11,978 2.86%
Demand Deposits $ 72,123 $ 66,201 $ 58,279
Other Liabilities $ 6,952 $ 6,891 $ 6,663
--------- -------- --------
Total Liabilities $ 535,801 $507,546 $483,849
Shareholders' Equity $ 62,969 $ 57,189 $ 49,708
--------- -------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 598,770 $564,735 $533,557
========= ======== ========
Recap:
Interest Income $ 30,757 5.54% $ 28,815 5.51% $ 32,366 6.54%
Interest Expense $ 8,796 1.93% $ 9,683 2.23% $ 11,978 2.86%
-------- -------- --------
Net Interest Income/Spread $ 21,961 3.62% $ 19,132 3.28% $ 20,388 3.68%
Contribution of Non-Interest-bearing Funds 0.34% 0.38% 0.44%
Net Interest Margin 3.96% 3.66% 4.12%
Ratio of Average Interest Earning
Assets to Average Interest-Bearing
Liabilities 121.46% 120.35% 118.12%
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%.
The following table sets forth the effects of changing rates and volumes
on net interest income of the Corporation for the periods indicated.
Information is provided with respect to (1) effects on net interest income
attributable to changes in volume (changes in volume multiplied by prior
rate); (2) effects on net interest income attributable to changes in rate
(changes in rate multiplied by prior volume); and (3) the net change in
interest income. The apportionment of changes resulting from the combined
effect of both volume and rate was based on the separately determined
volume and rate changes.
Table 2
RATE AND VOLUME VARIANCE ANALYSIS
BASED ON AVERAGE BALANCES
(In thousands)
2004 COMPARED TO 2003 2003 COMPARED TO 2002
--------------------- ---------------------
INCREASE(DECREASE) IN NET INTEREST INCOME INCREASE(DECREASE) IN NET INTEREST INCOME
NET DUE TO DUE TO NET DUE TO DUE TO
CHANGE RATE VOLUME CHANGE RATE VOLUME
--------- --------- --------- ---------- --------- --------
Interest earning assets
Federal funds sold $ (83) $ 58 $ (141) $ (32) $ (127) $ 95
Investment securities:
US Treasury securities and
obligations of US government agencies $ 899 $ 550 $ 349 $ (1,495) $ (1,268) $ (227)
Tax exempt obligations of States
and political subdivisions $ 324 $ (73) $ 397 $ 193 $ (243) $ 436
All other investment securities $ 89 $ 118 $ (29) $ 22 $ (138) $ 160
--------- --------- --------- ---------- --------- --------
Total investment securities $ 1,312 $ 595 $ 717 $ (1,280) $ (1,649) $ 369
Loans net of unearned income:
Commercial loans $ 745 $ (1,396) $ 2,141 $ (626) $ (418) $ (208)
Mortgage loans $ 178 $ 500 $ (322) $ (1,410) $ (2,672) $ 1,262
Installment loans $ (206) $ (147) $ (59) $ (229) $ (141) $ (88)
Other loans $ (4) $ 165 $ (169) $ 26 $ (4) $ 30
--------- --------- --------- ---------- --------- --------
Total loans $ 713 $ (879) $ 1,592 $ (2,239) $ (3,235) $ 996
TOTAL INTEREST EARNING ASSETS $ 1,942 $ (226) $ 2,168 $ (3,551) $ (5,011) $ 1,460
Interest bearing liabilities:
Savings deposits $ 30 $ 24 $ 6 $ (55) $ (60) $ 5
Market Plus accounts $ 81 $ 70 $ 11 $ (250) $ (310) $ 60
Super NOW accounts $ (21) $ (26) $ 5 $ (53) $ (105) $ 52
Money market deposit accounts $ 33 $ 27 $ 6 $ (85) $ (72) $ (13)
Certificates of deposit and IRA deposits $ (766) $ (890) $ 124 $ (1,366) $ (1,756) $ 390
Repurchase agreements $ (48) $ (182) $ 134 $ (60) $ (148) $ 88
Federal funds purchased $ - $ - $ - $ (0) $ (0) $ (0)
Borrowings $ (196) $ (437) $ 241 $ (426) $ (112) $ (314)
--------- --------- --------- ---------- --------- --------
TOTAL INTEREST BEARING LIABILITIES $ (887) $ (1,413) $ 526 $ (2,295) $ (2,563) $ 268
Net Change in Net Interest Income $ 2,829 $ 1,187 $ 1,642 $ (1,256) $ (2,448) $ 1,192
Provision and Allowance for Loan Losses
For the year ended December 31, 2004, the Bank recorded net charge-offs of
$625,000 compared to net charge- offs of $635,000 in 2003 and $1,303,000 in
2002. Internal loan review, in particular, works toward identifying problem
credits and achieving timely recognition of potential and actual losses within
the loan portfolio.
Gross charge-offs amounted to $795,000 in 2004, $749,000 in 2003, and $1,578,000
in 2002, the majority of which were commercial loans. Loans charged off are
subject to ongoing review and effort is made to maximize recovery of principal,
interest and related expenses. Recoveries were $170,000 in 2004, $114,000 in
2003, and $275,000 in 2002.
The methodology used in determining the allowance for loan losses is based on
guidelines provided by the Financial Accounting Standards Board. The allowance
for loan losses is maintained at a level believed adequate by management to
absorb estimated loan losses. 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.
The factor of loan volume trends is based on actual lending activity. This
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. Specific problem loans are subject to classification according to one of
two categories: "Substandard" or "Doubtful". An institution is required to
develop its own program to classify its assets on a regular basis and to set
aside appropriate loss reserves on the basis of such classification. The
allocation of the allowance among the various loan categories is based on the
average proportion within those categories using a three year historical loss
percentage. 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 of the allowance for loan losses is shown in the following table.
Table 3
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
DECEMBER 31
% Of % Of % Of % Of % Of
Loans In Loans In Loans In Loans In Loans In
Category Category Category Category Category
To Total To Total To Total To Total To Total
2004 Loans 2003 Loans 2002 Loans 2001 Loans 2000 Loans
------ -------- ------ -------- ------ -------- ------ -------- ------- --------
Specific Problem Loans $1,610 $2,262 $1,974 $ 843 $ 625
Loan Type Allocation:
Commercial & Agricultural 698 30.1% 950 29.4% 1,006 29.5% 1,476 26.4% 2,688 29.1%
Commercial Real Estate 112 28.7% 87 30.0% 31 30.2% 103 26.0% 436 23.4%
Residential Real Estate 110 36.1% 53 34.8% 13 36.7% 19 40.1% 25 40.3%
Consumer 182 5.1% 221 5.8% 77 3.6% 12 7.5% 36 7.2%
------ ------ ------ ------ -------
Non-Specific Problem Loans 1,102 1,311 1,127 1,610 3,185
Unallocated 1,112 426 283 284 14
------ ------ ------ ------ -------
Total $3,824 $3,999 $3,384 $2,737 $ 3,824
====== ====== ====== ====== =======
Local economic concerns continue to affect the bank's customers. These concerns
are reflected in the allocation of allowance for loan losses. An increase in
local unemployment rates since December 31, 2002 was taken into consideration
when determining the increase in the unallocated portion of the allowance. The
unallocated allowance for loan losses is based on historical charge-off rates
for various loan categories and is applied to loans outstanding at the end of
the quarter.
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.
Table 4
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
2004 2003 2002 2001 2000
------- ------- -------- --------- -------
Balance at beginning of period $ 3,999 $ 3,384 $ 2,737 $ 3,824 $ 3,700
Charge-offs:
Commercial Real Estate $ 39 $ 97 $ 0 $ 0 $ 83
Residential Real Estate 112 179 272 22 2
Commercial & Agricultural 468 240 1,095 3,872 668
Consumer 176 233 211 240 243
------- ------- -------- --------- -------
$ 795 $ 749 $1,578 $4,134 $ 996
======= ======= ======== ========= =======
Recoveries:
Commercial Real Estate $ 3 $ 29 $ 8 $ 0 $ 9
Residential Real Estate 23 1 17 2 2
Commercial & Agricultural 111 26 211 21 27
Consumer 33 58 39 24 17
------- ------- -------- --------- -------
$ 170 $ 114 $ 275 $ 47 $ 55
======= ======= ======== ========= =======
Net charge-offs 625 635 1,303 4,087 941
Provision for loan losses 450 1,250 1,950 3,000 1,065
------- ------- -------- --------- -------
Balance at end of period $ 3,824 $3,999 $ 3,384 $ 2,737 $ 3,824
======= ======= ======== ========= =======
Ratio of net charge-offs during
period to average loans
outstanding during period 0.17% 0.18% 0.39% 1.23% 0.30%
Ratio of allowance for loan losses
to total loans 0.99% 1.08% 0.98% 0.84% 1.17%
The allowance for loan losses of $3,824,000 as of December 31, 2004 amounted to
0.99% of the outstanding loan portfolio. As of December 31, 2003, the $3,999,000
allowance for loan losses was 1.08% of gross loans and the allowance for loan
losses of $3,384,000 as of December 31, 2002 represented 0.98% of gross loans.
Net charge-offs for the year ended December 31, 2004 were greater than the
provision for loan losses for 2004. This accounts for the decrease in the
allowance for loan losses from $3,999,000 at December 31, 2003 to $3,824,000 at
December 31, 2004. Analysis by internal loan review supports the adequacy of the
allowance. Management has determined that the allowance for loan losses is
adequate to absorb probable loan losses as of December 31, 2004. See Note 3 in
the Consolidated Financial Statements.
Other Income
Other income decreased $1.4 million, or 17.7%, from 2003 to 2004. Reduced FNMA
financing in 2004 resulted in dramatic decreases in the gain on sales of
mortgage loans to the secondary market and the corresponding servicing income.
The dollar volume decreased from $132.7 million to $49.7 million. The real
estate premiums and discounts on FNMA loans sold in the secondary market
decreased by $1.6 million during 2004 from $1.8 million in 2003 to $0.2 million
in 2004.
The Insurance Center experienced growth in volume during 2004, contributing to
increased commission income. Other miscellaneous income increased as a result of
contingency commission income for lower than expected insurance claims.
Other income increased $1.3 million, or 19.8%, from 2002 to 2003. The increased
volume of mortgage loans and refinancings processed and sold to the FNMA
secondary market led to increased gains on loans sold and servicing fees
associated with them.
Other Expense
Other expense increased by $0.6 million, or 4.2%, from 2003 to 2004. Increases
in employee compensation and Sarbanes-Oxley fees were partially offset by cost
savings in the operating expenses, specifically telephone and printing costs.
Other expense decreased by $109,000, or 0.8%, from 2002 to 2003.
Income Taxes
The effective tax rates for the Corporation were 23.34%, 21.40%, and 20.58%, for
2004, 2003, and 2002, respectively. The increase in the effective tax rate for
2004 is a result of higher Wisconsin state taxes paid in 2004. See Note 12 in
the Consolidated Financial Statements and Item 1, "State Taxation" for
additional information.
Securities
Securities available for sale are held for an indefinite period of time and may
be sold in response to changing market and interest rate conditions as part of
the asset/liability management strategy. Securities available for sale are
carried at fair value, with unrealized holding gains and losses, net of the
related tax effect, reported as a separate component of accumulated other
comprehensive income. Securities held to maturity are those that management has
both the positive intent and ability to hold to maturity, and are reported at
amortized cost. The Bank does not own trading or held to maturity securities.
Total securities were $156.7 million, $138.3 million, and $135.7 million as of
December 31, 2004, 2003, and 2002, respectively. The higher level of investments
in securities resulted primarily from the increase in available funds derived
from increases in deposits, securities sold under repurchase agreements, and
borrowings.
The Bank manages its investment portfolios within policies that seek to achieve
desired levels of liquidity, manage interest rate sensitivity risk, meet
earnings objectives, and provide required collateral support for deposit
activities. The Bank had no concentrations of securities from any single issues
that exceeded 10% of shareholders' equity. Table 5 exhibits the distribution, by
type, of the investment portfolio as of December 31, for the years indicated.
Table 5
SECURITIES AVAILABLE FOR SALE
(IN THOUSANDS)
December 31, 2004 December 31, 2003 December 31, 2002
----------------- ----------------- -----------------
U.S. Treasury securities and obligations of U.S. $ 2,974 $ 13,663 $ 16,427
Government corporations and agencies
Obligations of states and political subdivisions 80,160 70,357 50,915
Mortgage-backed securities 70,232 49,924 62,784
Corporate Notes 100 100 999
----------------- ----------------- -----------------
TOTAL AMORTIZED COST $ 153,466 $ 134,044 $ 131,125
================= ================= =================
TOTAL FAIR VALUE $ 156,669 $ 138,275 $ 135,747
================= ================= =================
The following table presents the maturity by type of the investment portfolio
for the year ended December 31, 2004.
Table 6
INVESTMENT PORTFOLIO ANALYSIS
DECEMBER 31, 2004
(IN THOUSANDS)
Mortgage-Backed
U.S. Govt Agencies Municipals Securities Corporate Notes
- --------------------------------------------------------------------------------------------------------------------------------
Avg Avg Avg Avg
Description & Book TE Book TE Book TE Book TE Total Total
Term Value Yield Value Yield Value Yield Value Yield Amortized Cost Fair Value
- --------------------------------------------------------------------------------------------------------------------------------
0-12 months $ - $ - $ 3,165 7.48% $ 10,742 3.39% $ - - $ 13,907 $ 13,924
1-5 Years - - 17,435 6.80% 59,490 3.83% - - 76,925 77,306
5-10 Years 1,939 2.49% 38,893 6.89% - - 100 7.30% 40,932 42,894
Over 10 Years 1,035 3.03% 20,667 6.61% - - - - 21,702 22,545
------- ----- -------- ----- -------- ----- ----- ----- -------------- ----------
Total $ 2,974 2.68% $ 80,160 6.82% $ 70,232 3.76% $ 100 7.30% $ 153,466 $ 156,669
======= ===== ======== ===== ======== ===== ===== ===== ============== ==========
Loan Portfolio
The Bank is actively engaged in originating loans to customers in Manitowoc,
Calumet, Sheboygan and Brown counties. The Bank has policies and procedures
designed to mitigate credit risk and to maintain the quality of the loan
portfolio. These policies include underwriting standards for new credits as well
as the continuous monitoring and reporting of asset quality and the adequacy of
the allowance for loan losses. These polices, coupled with continuous training
efforts, have provided effective checks and balances for the risk associated
with the lending process. Lending authority is based on the level of risk, size
of the loan and the experience of the lending officer.
Bank underwriting procedures are based on a process which evaluates the
management, repayment ability, collateral support, credit history, and overall
financial strength of prospective and current customers from a relationship
oriented perspective. Residential mortgage loans are predominantly underwritten
to general FNMA guidelines.
The Bank extends the following types of credit: commercial loans, agricultural
loans, real estate loans and consumer loans.
Commercial loans are often secured with first liens on accounts receivable,
inventory and/or equipment. Commercial loans generally have loan to value ratios
of 80% or less. Agricultural loans are collateralized with first liens on crops,
farm products, farm personal property and/or real estate. Agricultural loans
generally have loan to value ratios of 70% or less, except for agricultural real
estate loans which have loan to value ratios of 80% or less. Real estate loans
include commercial real estate loans and residential real estate loans. Real
estate loans are collateralized with first mortgages. Commercial real estate
loans generally have loan to value ratios of 80% or less while residential real
estate loans have loan to value ratios of 90% or less. Consumer loans include
loans to individuals for personal, family or household purposes. Consumer loans
may be secured with first lien positions or be unsecured depending upon the
credit quality. The Bank will make subordinate loans in any category if the
borrower's financial position justifies it. The Bank is not involved in credit
risk insurance.
Bank management assesses the loan portfolio mix at least annually as part of its
planning and budget process. While there are no predetermined fixed targets for
various loan types established in the loan policy, general guidelines are
established annually for new loan activity based on loan portfolio mix and
credit needs in the Bank's main markets.
The risks associated with the Bank's loan categories are as follows:
Commercial and Agricultural. Credit risk is considered moderate. Past due loans
are below industry averages. The portfolio is fairly diversified with no
significant concentrations within one industry. Agricultural loans represent
approximately 1.10% of total loans.
Real Estate. Credit risk is considered low, with delinquency ratios and
non-performing loans at low levels.
Consumer. Credit risk is considered moderate, with delinquency ratios and
non-performing loans at low levels.
Unallocated. (Table 3) The risk associated with the unallocated allowance for
loan losses is based on historical charge-off rates for various loan categories
and is applied to loans outstanding at the end of each quarter.
No loan customer exceeds the legal lending limit among the loan categories. The
Bank's legal and internal lending limit as of December 31, 2004 was $8.6
million.
Extensions of credit used predominantly for business or agricultural purposes
are classified as commercial and agricultural loans. Commercial loans include
lines of credit for seasonal requirements of businesses, short-term loans
payable within 12 months for one time specific purposes and term loans with
maturities greater than 12 months for capital assets and fixed assets which are
amortized and repaid from cash flow. Agricultural loans include short-term farm
operating loans, intermediate-term farm personal property loans and long-term
agricultural real estate loans. Agricultural real estate loans generally are
written for one to two year terms with amortizations exceeding five years.
Commercial term loans for capital assets and fixed assets and commercial real
estate loans that have maturities of more than five years are generally arranged
through government assisted financing programs such as SBA.
The increase in commercial loans and commercial real estate loans resulted
mainly from the general credit needs within the Bank's primary markets. The Bank
also made it a priority to sell residential mortgage loans to the FNMA secondary
market.
Table 7 "Summary of Loan Portfolio" presents the composition of the Bank's loan
portfolio by significant concentration.
Table 7
SUMMARY OF LOAN PORTFOLIO
(IN THOUSANDS)
LOANS OUTSTANDING AS OF DECEMBER 31,
2004 2003 2002 2001 2000
-------------------- -------------------- -------------------- -------------------- --------------------
Percent of Percent of Percent of Percent of Percent of
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
-------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- -----------
Commercial and
Agricultural $116,145 30.05% $110,884 29.36% $101,531 29.51% $ 86,565 26.44% $ 94,886 29.06%
Commercial
Real Estate 110,972 28.71% 109,469 30.02% 104,042 30.24% 85,036 25.97% 76,478 23.42%
Residential
Real Estate 139,612 36.12% 129,212 34.82% 126,122 36.65% 131,362 40.12% 131,592 40.29%
Consumer 16,980 4.39% 18,301 4.93% 9,470 2.75% 23,213 7.08% 22,270 6.82%
Other 2,806 0.73% 3,259 0.87% 2,938 0.85% 1,264 0.39% 1,345 0.41%
-------- ------ -------- ------ -------- ----- -------- ------ -------- -------
Total $386,515 100.00% $371,125 100.00% $344,103 100.0% $327,440 100.00% $326,571 100.00%
======== ====== ======== ====== ======== ===== ======== ====== ======== ======
Table 8
MATURITIES OF LOAN PORTFOLIO
DECEMBER 31, 2004
(IN THOUSANDS)
Commercial Commercial Residential
Maturing & Agricultural Real Estate Real Estate Consumer Other Total
- -------- -------------- ----------- ----------- -------- -------- --------
0-12 months $ 95,139 $ 84,341 $ 88,005 $ 4,911 $ 1,919 $274,315
1-5 years 19,101 22,879 48,514 11,942 847 103,283
Over 5 years 1,905 3,752 3,093 127 40 8,917
-------- -------- -------- -------- -------- --------
Total $116,145 $110,972 $139,612 $ 16,980 $ 2,806 $386,515
======== ======== ======== ======== ======== ========
Maturing Fixed Rate Adjustable Rate Total
- -------- ---------- --------------- --------
0-12 months $110,010 $164,305 $274,315
1-5 years 101,422 1,861 103,283
Over 5 years 8,917 0 8,917
-------- -------- --------
Total $220,349 $166,166 $386,515
-------- ======== ========
The Bank's policy is to make the majority of its loan commitments in the market
area it serves. This tends to reduce risk because management is familiar with
the credit histories of loan applicants and has an in-depth knowledge of the
risk to which a given credit is subject. The Bank had no foreign loans in its
portfolio as of December 31, 2004.
It is the policy of the Bank to place a loan on 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 nonaccrual loan is restored to
current status when the prospects of future contractual payments are no longer
in doubt. Nonaccrual loans at December 31, 2004 and 2003 were $2.6 million and
$3.3 million, respectively. The fluctuation in the level of nonaccrual loans
over the past five years is attributed mainly to isolated credit deterioration
in a few larger account relationships. These included consumer loans, commercial
loans, agricultural loans and residential real estate loans. However, no trend
in economic, industrial, geographical or other factors could be identified to
account for the fluctuations in the level of nonaccrual loans. Accruing loans 90
days or more past due include loans that are both well secured and in the
process of collection.
Table 9
RISK ELEMENTS OF LOAN PORTFOLIO
(IN THOUSANDS)
DECEMBER 31,
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Nonaccrual loans $2,603 $3,272 $1,801 $2,312 $1,765
Accruing loans past due 90 days or more 452 6 2 529 419
------ ------ ------ ------ ------
Total nonperforming loans $3,055 $3,278 $1,803 $2,841 $2,184
Nonperforming loans as a percent of loans 0.79% 0.88% 0.52% 0.87% 0.67%
Ratio of the allowance for loan losses
to nonperforming loans 125% 122% 187% 96% 175%
Total nonperforming loans at December 31, 2004 were $3.1 million, a decrease of
$0.2 million from $3.3 million at December 31, 2003.
Management maintains a listing of potential problem loans. The decision of
management to place loans in this category does not necessarily indicate that
the Bank expects losses to occur, but that management recognizes that a higher
degree of risk is associated with these performing loans. The loans that have
been reported as potential problem loans are not concentrated in a particular
industry, but rather cover a diverse range of businesses. Management does not
presently expect significant losses from credits in the potential problem loan
category.
Deposits
The following table represents maturities of time deposits in denominations of
$100,000 or more for the years ended December 31, 2004 and 2003.
Table 10
MATURITY OF TIME DEPOSITS $100,000 OR MORE
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
2004 2003
------- -------
3 months or less $ 9,352 $10,033
3 - 6 months 11,628 11,558
6 - 12 months 15,407 15,644
Over 12 months 15,421 11,297
------- -------
TOTAL $51,808 $48,532
======= =======
Borrowings
FHLB advances increased from $30.0 million at December 31, 2003 to $40.0 million
at December 31, 2004, an increase of $10.0 million or 33.0%. FHLB advances are
subject to a prepayment penalty if they are repaid prior to maturity. FHLB
advances are callable either six months or one year after origination and
quarterly thereafter. Promissory notes to former shareholders of the Insurance
Center at 9% maturing July 1, 2008 totaled $280,000 at December 31, 2004.
Contractual Obligations
The following table represents the maturities of Long-Term Obligations and
Operating Lease Obligations as of December 31, 2004.
PAYMENTS DUE BY PERIOD AS OF 12/31/2004
Less than 1-3 3-5 More than
Total 1 year years years 5 years
Long-Term Debt Obligations
FHLB Borrowings $ 40,000 $ 25,000 $ - $ - $ 15,000
Other Obligations $ 2,280 $ 2,000 $ - $ 280 $ -
--------- --------- --------- --------- ---------
Total Long-Term Obligations $ 42,280 $ 27,000 $ - $ 280 $ 15,000
Operating Lease Obligations
Branch office lease $ 231 $ - $ 231 $ - $ -
--------- --------- --------- --------- ---------
Total Operating Lease Obligations $ 231 $ - $ 231 $ - $ -
--------- --------- --------- --------- ---------
Total Contractual Obligations $ 42,511 $ 27,000 $ 231 $ 280 $ 15,000
========= ========= ========= ========= =========
Other Obligations include primarily Treasury Tax and Loan borrowings.
Off-Balance Sheet Arrangements
The Corporation has become 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. See Note 17 of the consolidated
financial statements for specifics on the Corporation's off-balance sheet
arrangements.
Liquidity Management
Liquidity management describes the ability of the Bank to access funding sources
at a minimum cost to meet fluctuating deposit, withdrawal, and loan demand needs
and to fund current and planned expenditures. The Bank maintains its asset
liquidity position internally through short-term investments, the maturity
distribution of the investment portfolio, loan repayments and income from
interest earning assets. A substantial portion of the investment portfolio
contains readily marketable securities that could be converted to cash
immediately. Refer to Note 2 in the Consolidated Financial Statements for a
table showing the maturity distribution of the Bank's securities portfolio and
the related estimated fair value. 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 that will have a material impact on the Bank's ability to
maintain liquidity at satisfactory levels.
Capital Resources and Adequacy
Total shareholders' equity increased $5.7 million or 9.5% in 2004 to $65.9
million at the end of the year from $60.2 million at December 31, 2003. Net
income of $7.9 million less other comprehensive loss of $0.6 million and $1.6
million in dividends paid contributed to this increase.
One measure of capital adequacy is the leverage ratio which is calculated by
dividing average total assets for the most recent quarter into Tier 1 capital.
The regulatory minimum for this ratio is 4.0%. The Bank's leverage ratio for the
years ended December 31, 2004, 2003, and 2002 was 8.9%, 8.4%, and 7.5%,
respectively. The Corporation's leverage ratio for the years ended December 31,
2004, 2003 and 2002 was 8.9%, 8.6% and 7.7%, respectively. Banks and bank
holding companies are also required to maintain a ratio of Tier 1 capital to
risk-weighted assets of at least 4.0%. The Bank's Tier 1 capital (to
risk-weighted assets) ratio for the years ended December 31, 2004, 2003, and
2002 was 12.8%, 12.0%, and 11.1% respectively. The Corporation's Tier 1 capital
(to risk-weighted assets) ratio for the years ended December 31, 2004, 2003 and
2002 was 12.8%, 12.3% and 11.4%, respectively.
Another measure of capital adequacy is the risk-based capital ratio or the ratio
of total capital to risk-adjusted assets. Total capital is composed of both core
capital (Tier 1) and supplemental capital (Tier 2) including adjustments for off
balance sheet items such as letters of credit and taking into account the
different degrees of risk among various assets. Regulators require a minimum
total risk-based capital ratio of 8.0%. The Bank's ratio at December 31, 2004,
and for each of the two preceding years was 13.7%, 13.1%, and 12.0%,
respectively. The Corporation's total capital ratio (to risk-weighted assets)
was 13.7%, 13.3% and 12.3% for the years ended December 31, 2004, 2003 and 2002,
respectively. According to FDIC capital guidelines, the Bank is considered to be
"well capitalized" as of December 31, 2004.
Management knows of no other trend or event which will have a material impact on
capital. Please also refer to Note 14 in the Consolidated Financial Statements
for additional discussion of regulatory matters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary exposure to market risk relates to changes in interest
rates, exchange rates, commodity prices, and other relevant market rate or price
risk through our banking operations. The Bank monitors interest rate factors on
a monthly basis to assess interest rate risk of the portfolio of assets and
liabilities. Maturity terms of assets are matched to the maturity terms of
liabilities to the extent possible. The maturity structure of the municipal
securities, however, is long term to optimize tax advantages and yield returns
within an acceptable level of market risk. In addition, based on prior
experience, the average life of the mortgage backed securities has been shorter
than the scheduled maturities. There are no interest rate caps or floors on
variable rate instruments that could affect the cash flows on those instruments.
Variable rate loans, investments and deposits reprice immediately because they
are related to changes in the prime rate of interest. Fixed rate commercial
loans reprice at least annually. Fixed rate real estate loans are scheduled for
1 to 2 year terms with balloon payments. Loans do not have prepayment penalty
clauses. The following table also assumes all loans and deposits will be renewed
under the same terms. Interest rates on those renewals are based on anticipated
rates at the date of renewal. There is a 20% prepayment assumption for the
entire loan portfolio based on historical trends.
Interest Rate Risk
In order to measure earnings sensitivity to changing rates, the Corporation uses
three different measurement tools: static gap analysis, simulation of earnings,
and economic value of equity. The static gap analysis starts with contractual
repricing information for assets, liabilities, and off-balance sheet
instruments. These items are then combined with repricing estimations for
administered rate (interest-bearing demand deposits, savings, and money market
accounts) and non-rate related products (demand deposit accounts, other assets,
and other liabilities) to create a baseline repricing balance sheet. In addition
to the contractual information, residential mortgage whole loan products and
mortgage-backed securities are adjusted based on industry estimates of
prepayment speeds that capture the expected prepayment of principal above the
contractual amount based on how far away the contractual coupon is from market
coupon rates.
The following table represents the Corporation's consolidated static gap
position as of December 31, 2003.
Table 11: Interest Rate Sensitivity Analysis
December 31, 2004
------------------------------------------------
Interest Rate Sensitivity Period
0-12 1-5 Over 5
Months Years Years Total
-------- --------- ------- --------
Interest Earnings Assets:
Investment securities, at fair value 13,924 77,306 65,439 156,669
Loans 274,315 103,283 8,917 386,515
Other earning assets 20,901 - - 20,901
-------- --------- ------- --------
Total Earning Assets 309,140 180,589 74,356 564,085
======== ========= ======= ========
Interest Bearing Liabilities:
Deposits(Interest and Non-Interest Bearing)* 162,544 282,974 268 445,786
Other borrowings 27,000 280 15,000 42,280
Securities sold under repurchase agreements 61,620 - - 61,620
-------- --------- ------- --------
Total Interest Bearing Liabilities 251,164 283,254 15,268 549,686
======== ========= ======= ========
Interest Sensitivity Gap 57,976 (102,665) 59,088 14,399
Cumulative Interest Sensitivity Gap 57,976 (44,689) 14,399
12 month cumulative gap as a percentage
of earning assets at December 31, 2004 18.75%
========
*Based on historical evidence 90% of non-interest bearing deposits have a 1-5
year life while 10% have a 0-12 month life.
(1) The interest rate sensitivity assumptions for demand deposits, savings
accounts, money market accounts, and interest-bearing demand deposit
accounts are based on current and historical experiences regarding
portfolio retention and interest rate repricing behavior. Based on these
experiences, a portion of these balances are considered to be long-term
and fairly stable and are therefore included in the "1 - 5 year" category.
The static gap analysis in Table 11 provides a representation of the
Corporation's earnings sensitivity to changes in interest rates. It is a static
indicator that does not reflect various repricing characteristics and may not
necessarily indicate the sensitivity of net interest income in a changing
interest rate environment.
At the end of 2004, the Corporation's assets were repricing faster than
liabilities. In the 1 - 5 year category, liabilities are repricing faster than
assets. The Corporation cannot predict interest rates with certainty. Rates will
change based on market conditions. However, the Corporation believes there is a
higher likelihood that rates will increase rather than decrease so the
Corporation prefers to be more asset sensitive than liability sensitive. In the
event rates would decrease, the Corporation could reduce its income expense by
raising liabilities at a slower pace.
Interest rate risk of embedded positions (including prepayment and early
withdrawal options, lagged interest rate changes, administered interest rate
products, and cap and floor options within products) require a more dynamic
measuring tool to capture earnings risk. Earnings simulation and economic value
of equity are used to more completely assess interest rate risk.
Along with the static gap analysis, determining the sensitivity of short-term
future earnings to a hypothetical plus or minus 100, 200, and 300 basis point
parallel rate shock can be accomplished through the use of simulation modeling.
In addition to the assumptions used to create the static gap, simulation of
earnings includes the modeling of the balance sheet as an ongoing entity. Future
business assumptions involving administered rate products, prepayments for
future rate-sensitive balances, and the reinvestment of maturing assets and
liabilities are included. These items are then modeled to project net interest
income based on a hypothetical change in interest rates. The resulting net
interest income for the next 12-month period is compared to the net interest
income amount calculated using the flat rates. This difference represents the
Corporation's earnings sensitivity to a plus or minus 100 basis point parallel
rate shock.
The resulting simulations for December 31, 2004, projected that net interest
income would decrease by approximately 0.2% of budgeted net interest income if
rates rose by a 100 basis point shock, and projected that the net interest
income would decrease by approximately 2.5% if rates fell by a 100 basis point
shock.
Economic value of equity is another tool used to measure the impact of interest
rates on the present value of assets, liabilities and off-balance sheet
financial instruments. This measurement is a longer-term analysis of interest
rate risk as it evaluates every cash flow produced by the current balance sheet.
The projected changes for earnings simulation and economic value of equity for
2004 were within the Corporation's interest rate risk policy. The results of the
2004 modeling mirrored the other interest rate risk tests discussed above, as
the Corporation maintained a relatively neutral position at December 31, 2004.
These results are based solely on immediate and sustained parallel changes in
market rates and do not reflect the earnings sensitivity that may arise from
other factors. These factors may include changes in the shape of the yield
curve, the change in spread between key market rates, or accounting recognition
of the impairment of certain intangibles. The above results are also considered
to be conservative estimates due to the fact that no management actions to
mitigate potential income variances are included within the simulation process.
This action could include, but would not be limited to, delaying an increase in
deposit rates, extending liabilities, changing the pricing characteristics of
loans, or changing the growth rate of certain assets and liabilities.
Item 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[WIPFLI LLP LOGO]
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
First Manitowoc Bancorp, Inc.
Manitowoc, Wisconsin
We have audited the accompanying consolidated balance sheets of First Manitowoc
Bancorp, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2004. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Manitowoc
Bancorp, Inc. and Subsidiaries at December 31, 2004 and 2003, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of First Manitowoc
Bancorp, Inc. and Subsidiaries' internal control over financial reporting as of
December 31, 2004, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated January 21, 2005,
expressed an unqualified opinion on management's assessment of internal control
over financial reporting and an unqualified opinion on the effectiveness of
internal control over financial reporting.
/s/ Wipfli LLP
Wipfli LLP
January 21, 2005
Green Bay, Wisconsin
[WIPFLI LLP LOGO]
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
First Manitowoc Bancorp, Inc.
Manitowoc, Wisconsin
We have audited management's assessment, included in the accompanying Report of
Management, that First Manitowoc Bancorp, Inc. and Subsidiaries maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control - Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Management has informed us that the scope of its assessment includes
financial reporting presented in conformity with both generally accepted
accounting principles and Federal Financial Institutions Examination Council
Instructions for Consolidated Reports of Condition and Income (call report
instructions). First Manitowoc Bancorp, Inc. and Subsidiaries' management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Corporation's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that First Manitowoc Bancorp, Inc. and
Subsidiaries maintained effective internal control over financial reporting
presented in conformity with generally accepted accounting principles and call
report instructions as of December 31, 2004, is fairly stated, in all material
respects, based on criteria established in Internal Control - Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also in our opinion, First Manitowoc Bancorp, Inc. and
Subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2004, based on criteria established
in Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
First Manitowoc Bancorp, Inc. and Subsidiaries as of December 31, 2004 and 2003,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2004, and our report dated January 21, 2005, expressed an unqualified opinion.
/s/ Wipfli LLP
Wipfli LLP
January 21, 2005
Green Bay, Wisconsin
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31
-----------------------
2004 2003
--------- ---------
(In Thousands)
Assets
Cash and due from banks $ 13,179 $ 16,355
Interest-bearing deposits 5,345 7,979
Federal funds sold 21,349 11,433
--------- ---------
Cash and cash equivalents 39,873 35,767
Securities available for sale, at fair value 156,669 138,275
Other investments (at cost) 5,340 5,052
Loans, net 382,691 367,126
Premises and equipment, net 8,778 8,608
Goodwill 8,973 8,968
Intangible assets 1,936 2,117
Cash surrender value of life insurance 11,673 11,244
Other assets 6,242 4,796
--------- ---------
TOTAL ASSETS $ 622,175 $ 581,953
========= =========
Liabilities and Stockholders' Equity
Deposits $ 445,786 $ 428,284
Securities sold under repurchase agreements 61,620 55,359
Borrowed funds 42,280 31,910
Other liabilities 6,616 6,177
--------- ---------
Total liabilities 556,302 521,730
--------- ---------
Stockholders' equity:
Common stock - $1 par value:
Authorized - 10,000,000 shares
Issued - 7,583,628 shares 7,584 7,584
Retained earnings 56,866 50,560
Accumulated other comprehensive income 2,123 2,779
Treasury stock, at cost - 646,360 shares in 2004 and 2003 (700) (700)
--------- ---------
Total stockholders' equity 65,873 60,223
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 622,175 $ 581,953
========= =========
See accompanying notes to consolidated financial statements.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31
-----------------------
2004 2003 2002
------- ------- -------
(In Thousands, Except per Share Amounts)
Interest income:
Loans, including fees $21,760 $21,608 $23,847
Federal funds sold 221 304 336
Securities:
Taxable 2,704 2,123 3,596
Tax-exempt 3,357 3,154 3,032
------- ------- -------
Total interest income 28,042 27,189 30,811
------- ------- -------
Interest expense:
Deposits 6,431 7,076 8,885
Securities sold under repurchase agreements 1,202 1,250 1,310
Borrowed funds 1,163 1,357 1,783
------- ------- -------
Total interest expense 8,796 9,683 11,978
------- ------- -------
Net interest income 19,246 17,506 18,833
Provision for loan losses 450 1,250 1,950
------- ------- -------
Net interest income after provision for loan losses 18,796 16,256 16,883
------- ------- -------
Other income:
Trust service fees 568 533 548
Service charges 1,494 1,819 1,564
Insurance Center commissions 2,175 1,781 1,772
Loan servicing income 489 784 839
Income on equity investment 402 369 378
Gain on sales of mortgage loans 232 1,851 868
Gain on sales of securities 43 - -
Other 1,091 750 616
------- ------- -------
Total other income 6,494 7,887 6,585
------- ------- -------
Other expenses:
Salaries, commissions, and employee benefits 8,956 8,478 8,242
Occupancy 1,659 1,752 1,932
Data processing 1,091 1,059 1,176
Postage, stationery, and supplies 491 589 508
Advertising 314 355 425
Outside service fees 815 478 497
Loss on sales of other real estate 58 - -
Amortization of intangibles 224 274 303
Other 1,374 1,448 1,459
------- ------- -------
Total other expenses 14,982 14,433 14,542
------- ------- -------
Income before provision for income taxes 10,308 9,710 8,926
Provision for income taxes 2,406 2,081 1,837
------- ------- -------
Net income $ 7,902 $ 7,629 $ 7,089
======= ======= =======
Earnings per share - Basic and diluted $ 1.14 $ 1.10 $ 1.02
======= ======= =======
See accompanying notes to consolidated financial statements.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2004, 2003, and 2002
---------------------------------------------------
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income Stock Total
------- -------- ------------- -------- -------
(In Thousands)
Balance, January 1, 2002 $ 7,584 $ 38,563 $1,042 ($ 700) $46,489
Comprehensive income:
Net income 7,089 7,089
Other comprehensive income 1,971 1,971
-------
Total comprehensive income 9,060
Cash dividends ($0.18 per share) (1,265) (1,265)
-------- -------
Balance, December 31, 2002 7,584 44,387 3,013 (700) 54,284
Comprehensive income:
Net income 7,629 7,629
Other comprehensive loss (234) (234)
-------
Total comprehensive income 7,395
Cash dividends ($0.21 per share) (1,456) (1,456)
-------- -------
Balance, December 31, 2003 7,584 50,560 2,779 (700) 60,223
Comprehensive income:
Net income 7,902 7,902
Other comprehensive loss (656) (656)
-------
Total comprehensive income 7,246
Cash dividends ($0.23 per share) (1,596) (1,596)
------- -------- ------ ------ -------
Balance, December 31, 2004 $ 7,584 $ 56,866 $2,123 ($ 700) $65,873
======= ======== ====== ====== =======
See accompanying notes to consolidated financial statements.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31
------------------------------------
2004 2003 2002
-------- --------- ---------
(In Thousands)
Cash flows from operating activities:
Net income $ 7,902 $ 7,629 $ 7,089
-------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 450 1,250 1,950
Depreciation and amortization of premises and equipment 723 736 946
Amortization of intangibles 224 274 303
Net amortization of securities 802 1,017 421
Stock dividends on FHLB stock (288) (194) (122)
Proceeds from sales of mortgage loans 49,519 135,251 115,951
Originations of mortgage loans held for sale (49,287) (133,400) (114,872)
Gain on sales of mortgage loans (232) (1,851) (868)
Gain on sale of fixed assets - (1) (2)
Realized gain on sale of securities available for sale (43) - -
Undistributed income of joint venture (402) (369) (378)
Net earnings on life insurance (429) (434) (259)
(Increase) decrease in other assets (1,386) 305 1,217
Increase (decrease) in other liabilities 439 (228) (31)
-------- --------- ---------
Total adjustments 90 2,356 4,256
-------- --------- ---------
Net cash provided by operating activities 7,992 9,985 11,345
-------- --------- ---------
Cash flows from investing activities:
Activity in securities available for sale:
Sales 24,334 - -
Maturities, prepayments, and calls 45,051 61,169 32,417
Purchases (89,566) (65,105) (39,012)
Purchase of other investments - (2,000) (103)
Net increase in loans (15,264) (27,657) (17,765)
Acquisition of insurance agency (85) - -
Purchases of premises and equipment (893) (701) (305)
Proceeds from sale of assets - 11 139
Purchase of life insurance - (5,000) -
-------- --------- ---------
Net cash used in investing activities (36,423) (39,283) (24,629)
-------- --------- ---------
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31
----------------------------------
2004 2003 2002
-------- -------- --------
(In Thousands)
Cash flows from financing activities:
Net increase in deposits $ 17,502 $ 12,185 $ 22,007
Net increase in securities sold under repurchase agreements 6,261 4,475 17,776
Proceeds from advances of borrowed funds 27,000 - 21,747
Repayment of borrowed funds (16,630) (6,228) (30,788)
Dividends paid (1,596) (1,456) (1,265)
-------- -------- --------
Net cash provided by financing activities 32,537 8,976 29,477
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,106 (20,322) 16,193
Cash and cash equivalents at beginning 35,767 56,089 39,896
-------- -------- --------
Cash and cash equivalents at end $ 39,873 $ 35,767 $ 56,089
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,701 $ 10,165 $ 11,321
Income taxes 2,191 1,799 1,634
Supplemental schedule of noncash activities:
Loans transferred to foreclosed properties $ 751 $ - $ -
Investments reclassified as loans - - 201
See accompanying notes to consolidated financial statements.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
The accounting and reporting policies of First Manitowoc Bancorp,
Inc. and Subsidiaries (the "Corporation") conform to generally
accepted accounting principles and general practices within the
financial institution industry. Significant accounting and reporting
policies are summarized below.
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of First Manitowoc
Bancorp, Inc., its wholly owned subsidiary, First National Bank in
Manitowoc (the "Bank"), and the Bank's wholly owned subsidiaries,
FNBM Investment Corp. and Insurance Center of Manitowoc, Inc. (the
"Insurance Center"). All significant intercompany balances and
transactions have been eliminated. Investment in United Financial
Services, Inc., the Bank's 49.8% owned subsidiary, is accounted for
on the equity method.
Business - The Corporation provides a full range of financial
services to individual and corporate customers in Northeastern
Wisconsin through the Bank. The Corporation is subject to
competition from other traditional and nontraditional financial
institutions and is also subject to the regulations of certain
federal agencies and undergoes periodic examinations by those
regulatory authorities.
Use of Estimates in Preparation of Financial Statements - The
preparation of the accompanying consolidated financial statements of
the Corporation in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that directly affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results may
differ from those estimates.
Cash and Cash Equivalents - For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, due from banks,
interest-bearing deposits, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
The Bank is required to maintain non-interest-bearing deposits on
hand or with the Federal Reserve Bank. At December 31, 2004, those
required reserves of $1,929,000 were satisfied by currency and coin
holdings.
In the normal course of business, the Corporation maintains cash and
due from bank balances with correspondent banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. Total uninsured balances at December 31, 2004, were
approximately $9,807,000.
Investment Securities - The Corporation's securities are classified
and accounted for as securities available for sale.
Available-for-sale securities are stated at fair value with the
unrealized gains and losses, net of tax, reported as accumulated
other comprehensive income (loss) within stockholders' equity until
realized. Interest and dividends are included in interest income
from securities as earned. Premiums are recognized in interest
income using the interest method over the period to the call date.
Discounts are recognized in interest income using the interest
method over the period to maturity. Realized gains and losses and
declines in value judged to be other than temporary are included in
net gains and losses from sales of investment and mortgage-related
securities. Declines in fair value of securities that are deemed to
be other than temporary, if applicable, are reflected in earnings as
realized losses. In estimating other-than-temporary impairment
losses, management considers the length of time and the extent to
which fair value has been less than cost, the financial condition
and near-term prospects of the issuer, and the intent and ability of
the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair value.
The cost of securities sold is based on the specific-identification
method.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (Continued)
Fair values of many securities are estimates based on financial
methods or prices paid for similar securities. It is possible
interest rates could change considerably resulting in a material
change in the estimated fair value.
Other Investments - Other investments are carried at cost and
consist of Federal Home Loan Bank stock, Federal Reserve stock,
Bankers Bancorporation stock, and preferred stock in a community
development project. Other investments are evaluated for impairment
on an annual basis.
Loans Held for Sale - Loans held for sale consist of the current
origination of certain fixed-rate mortgage loans which are recorded
at the lower of aggregate cost or fair value. A gain or loss is
recognized at the time of the sale reflecting the present value of
the difference between the contractual interest rate of the loans
sold and the yield to the investor, adjusted for the initial value
of mortgage servicing rights.
Loans and Related Interest Income - Loans that management has the
intent and ability to hold for the foreseeable future or until
maturity or payoff generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs and the allowance
for loan losses. Interest on loans is calculated by using the simple
interest method on daily balances of the principal amount
outstanding and is recognized in the period earned. Loan-origination
fees are credited to income when received and the related
loan-origination costs are expensed as incurred. Capitalization of
the fees net of the related costs would not have a material effect
on the consolidated financial statements.
Interest on loans is accrued and credited to income as earned.
Accrual of interest is generally discontinued either when reasonable
doubt exists as to the full, timely collection of interest or
principal or generally when a loan becomes contractually past due by
90 days or more with respect to interest or principal. At that time,
any accrued but uncollected interest is reversed and additional
income is recorded only to the extent that payments are received and
the collection of principal is reasonably assured. Loans are
restored to accrual status when the obligation is brought current,
has performed in accordance with the contractual terms for a
reasonable period of time, and the ultimate collectibility of the
total contractual principal and interest is reasonably assured.
Allowance for Loan Losses - The allowance for loan losses is
provided for based on past experience and prevailing market
conditions. Management's evaluation of loss considers various
factors including, but not limited to, general economic conditions,
loan portfolio composition, and prior loss experience. This
evaluation is inherently subjective since it requires material
estimates that may be susceptible to significant change. Loans are
charged against the allowance for loan losses when management
believes the collectibility of the principal is unlikely. In
addition, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require additions to
the allowance for loan losses based on their judgments of
collectibility.
The Corporation considers loans secured by one- to four-unit
residential properties and all consumer loans to be large groups of
smaller-balance homogenous loans. These loans are collectively
evaluated in the analysis of the adequacy of the allowance for loan
losses.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (Continued)
The Corporation's commercial portfolio is subject to a loan-by-loan
analysis of the adequacy of the allowance for loan losses and
impairment. These loans are considered impaired when, based on
current information, it is probable the Corporation will not collect
all amounts due in accordance with the contractual terms of the loan
agreement. The value of impaired loans is based on discounted cash
flows of expected future payments using the loan's internal
effective interest rate or the fair value of the collateral if the
loan is collateral dependent. Interest income on impaired loans is
recorded when cash is received and only if principal is considered
to be fully collectible.
In management's judgment, the allowance for loan losses is adequate
to cover probable losses relating to specifically identified loans,
as well as probable losses inherent in the balance of the loan
portfolio.
Mortgage Servicing Rights - The Corporation recognizes mortgage
servicing rights on loans that are originated and subsequently sold
or securitized and servicing is retained. A portion of the cost of
the loans is allocated to the servicing rights based on the relative
fair values of the loans and the servicing rights. The Corporation
amortizes these mortgage servicing rights over the period of
estimated net servicing revenue. Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current
market interest rate.
Premises and Equipment - Premises and equipment are stated at cost.
Maintenance and repair costs are charged to expense as incurred.
Gains or losses on disposition of premises and equipment are
reflected in income. Depreciation is computed on the straight-line
method and is based on the estimated useful lives of the assets.
Foreclosed Properties - Foreclosed properties acquired by the
Corporation through foreclosure or deed in lieu of foreclosure on
loans for which the borrowers have defaulted as to the payment of
principal and interest are initially recorded at the lower of the
fair value of the asset, less the estimated costs to sell the asset,
or the carrying value of the related loan balance. Costs relating to
the development and improvement of the property are capitalized.
Income and expenses incurred in connection with holding and
operating the property are charged to expense. Valuations are
periodically performed by management and third parties and a charge
to expense is taken for the excess of the carrying value of a
property over its fair value less costs to sell.
Intangible Assets and Goodwill - Intangible assets consist of the
value of core deposits purchased as part of the bank acquisitions,
servicing assets, and trade name and customer base intangibles
acquired in the acquisition of the Insurance Center. Intangible
assets are stated at cost less accumulated amortization and are
amortized over a period of one to ten years. Intangible assets that
have finite useful lives are amortized using a straight-line method
over their useful lives, and are tested at least annually for
impairment. Intangible assets are considered impaired if the fair
value of the intangible asset is lower than cost. The Corporation
reviews intangible assets for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Adjustments are recorded if it is determined that the
fair value of the intangible asset has decreased in comparison to
the carrying amount.
Goodwill is tested for impairment on an annual basis. The
Corporation tested goodwill for impairment during the fourth quarter
and determined that there was no impairment during 2004, 2003, and
2002. No amortization or impairment expense was recognized in 2004,
2003, or 2002.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (Continued)
Income Taxes - The Corporation files one consolidated federal income
tax return. Federal income tax expense (credit) is allocated to each
subsidiary based on an intercompany tax sharing agreement. The
subsidiaries file separate state tax returns as applicable.
Deferred income taxes have been provided under the liability method.
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets
and liabilities as measured by the current enacted tax rates which
will be in effect when these differences are expected to reverse.
Deferred tax expense (benefit) is the result of changes in the
deferred tax asset and liability.
Off-Balance-Sheet Financial Instruments - In the ordinary course of
business, the Corporation has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit,
commitments under commercial letters of credit, and standby letters
of credit. Such financial instruments are recorded in the
consolidated financial statements when they become payable.
Rate Lock Commitments - The Corporation enters into commitments to
originate loans whereby the interest rate on the loan is determined
prior to funding (rate lock commitments). Rate lock commitments on
mortgage loans that are intended to be sold are considered to be
derivatives. Accordingly, such commitments, along with any related
fees received from potential borrowers, are recorded at fair value
as derivative assets or liabilities, with changes in fair value
recorded in the net gain or loss on sale of mortgage loans. Fair
value is based on fees currently charged to enter into similar
agreements, and for fixed-rate commitments also considers the
difference between current levels of interest rates and the
committed rates. The notional amount of rate lock commitments at
December 31, 2004, was $2,243,000. The fair value of these
derivatives was immaterial to the financial statements.
Advertising Costs - Advertising costs are expensed as incurred.
Comprehensive Income - Comprehensive income consists of net income
and other comprehensive income (loss). Other comprehensive income
(loss) includes unrealized gains and losses on securities available
for sale, net of tax, which are recognized as a separate component
of equity, accumulated other comprehensive income (loss).
Per Share Computations - All per share financial information and
equity accounts have been adjusted to reflect the 2-for-1 stock
split declared in October 2002. Weighted average shares outstanding
were 6,937,268 for the years ended December 31, 2004, 2003, and
2002.
Reclassifications - Certain reclassifications have been made to the
2003 and 2002 consolidated financial statements to conform to the
2004 classifications.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 Securities Available for Sale
The amortized cost and estimated fair value of securities available
for sale are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In Thousands)
December 31, 2004
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 2,974 $ - ($ 38) $ 2,936
Obligations of states and political subdivisions 80,160 3,695 (52) 83,803
Mortgage-backed securities 70,232 107 (510) 69,829
Corporate notes 100 1 - 101
-------- ---------- ---------- ----------
Total $153,466 $ 3,803 ($ 600) $ 156,669
======== ========== ========== ==========
December 31, 2003
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 13,663 $ 14 ($ 84) $ 13,593
Obligations of states and political subdivisions 70,357 4,423 (37) 74,743
Mortgage-backed securities 49,924 233 (321) 49,836
Corporate notes 100 3 - 103
-------- ---------- ---------- ----------
Total $134,044 $ 4,673 ($ 442) $ 138,275
======== ========== ========== ==========
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 Securities Available for Sale (Continued)
The amortized cost and estimated fair value of securities at
December 31, 2004, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
Due in one year or less $ 3,165 $ 3,210
Due after one year through five years 17,435 18,190
Due after five years through ten years 40,932 42,894
Due after ten years 21,702 22,546
-------- ---------
83,234 86,840
Mortgage-backed securities 70,232 69,829
-------- ---------
Total $153,466 $ 156,669
======== =========
The following is a summary of the proceeds from sales of securities
available for sale, as well as gross gains and losses from the years
ended December 31:
Years Ended December 31
-----------------------
2004 2003 2002
------- ---- -----
(In Thousands)
Proceeds from sales, maturities, and calls of securities $24,334 $ - $ -
Gross gains on sales 94 - -
Gross losses on sales 51 - -
The estimated fair value of investment securities available for sale
pledged to secure public deposits, securities sold under repurchase
agreements, FHLB advances, and for other purposes required by law
were $82,427,000 and $70,825,000 as of December 31, 2004 and 2003,
respectively.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 Securities Available for Sale (Continued)
The following table shows the securities' gross unrealized losses
and fair value, aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss
position, at December 31:
Less Than 12 months 12 Months or More Total
---------------------- ----------------- ----------------------
Description Fair Unrealized Fair Unrealized Fair Unrealized
of Securities Value Losses Value Losses Value Losses
- ---------------------------- -------- ---------- ----- ---------- -------- ----------
(In Thousands)
2004
U.S. Treasury securities and
direct obligations of
U.S. government agencies $ 2,936 $ 38 $ - $ - $ 2,936 $ 38
Obligations of states and
political subdivisions 6,661 52 - - 6,661 52
Mortgage-backed securities 46,524 510 - - 46,524 510
-------- -------- ---- ------- -------- --------
Total temporarily impaired
securities $ 56,121 $ 600 $ - $ - $ 56,121 $ 600
======== ======== ==== ======= ======== ========
2003
U.S. Treasury securities and
direct obligations of
U.S. government agencies $ 10,119 $ 84 $ - $ - $ 10,119 $ 84
Obligations of states and
political subdivisions 3,796 37 - - 3,796 37
Mortgage-backed securities 25,395 321 - - 25,395 321
-------- -------- ---- ------- -------- --------
Total temporarily impaired
securities $ 39,310 $ 442 $ - $ - $ 39,310 $ 442
======== ======== ==== ======= ======== ========
At December 31, 2004, 75 debt securities have unrealized losses with
aggregate depreciation of 1.0% from the Corporation's amortized cost
basis. These unrealized losses related principally to the increase
in interest rates and are not due to changes in the financial
condition of the issuer. In analyzing an issuer's financial
condition, management considers whether the securities are issued by
a government body or agency, whether a rating agency has downgraded
the securities, and industry analysts' reports. Since management has
the ability to hold debt securities until maturity (or the
foreseeable future for securities available for sale), no declines
are deemed to be other than temporary.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 Loans
The composition of loans at December 31 follows:
2004 2003
----------- -----------
(In Thousands)
Commercial and agricultural $ 116,145 $ 110,884
Commercial real estate 110,972 109,469
Residential real estate 139,612 129,212
Consumer 16,980 18,301
Other 2,806 3,259
----------- -----------
Subtotals 386,515 371,125
Allowance for loan losses (3,824) (3,999)
----------- -----------
Loans, net $ 382,691 $ 367,126
=========== ===========
An analysis of the allowance for loan losses for the years ended
December 31 follows:
2004 2003 2002
--------- --------- ---------
(In Thousands)
Balance at beginning $ 3,999 $ 3,384 $ 2,737
Provision for loan losses 450 1,250 1,950
Loans charged off (795) (749) (1,578)
Recoveries on loans 170 114 275
--------- --------- ---------
Balance at end $ 3,824 $ 3,999 $ 3,384
========= ========= =========
Information regarding impaired and nonperforming loans as of
December 31 follows:
2004 2003
-------- --------
(In Thousands)
As of December 31:
Impaired loans for which an allowance has been provided $ 1,275 $ 2,398
Impaired loans for which no allowance has been provided 573 169
-------- --------
Total impaired loans $ 1,848 $ 2,567
======== ========
Impairment reserve (included in allowance for loan losses) $ 542 $ 673
Total nonaccrual loans 2,603 3,272
Total loans past due 90 days or more and still accruing 452 6
For the years ended December 31:
Average investment in impaired loans $ 2,039 $ 2,725
Interest income that would have been recognized on an accrual basis 287 419
Cash-basis interest income recognized 51 197
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 Loans (Continued)
The Bank, in the ordinary course of banking business, grants loans
to the Corporation's executive officers and directors, including
their immediate families and affiliated companies in which they are
principal owners. Substantially all loans to officers, directors,
and stockholders owning 5% or more of the Corporation were made on
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others and
did not involve more than the normal risk of collectibility or
present other unfavorable features.
Activity in such loans during 2004 is summarized below (in
thousands):
Loans outstanding, December 31, 2003 $ 12,640
New loans 37,997
Repayments (32,067)
----------
Loans outstanding, December 31, 2004 $ 18,570
==========
Note 4 Loan Servicing
Mortgage loans of $181,318,000 and $178,722,000 as of December 31,
2004 and 2003, respectively, were serviced for others. These loans
are not included in the accompanying consolidated balance sheets.
Mortgage servicing rights are capitalized when the serviced loans
are sold. This asset is amortized over the estimated period that
servicing income is recognized. The following is an analysis of
changes in mortgage servicing rights:
2004 2003 2002
--------- --------- ---------
(In Thousands)
Balance, January 1 $ 1,789 $ 1,520 $ 1,094
Capitalized amounts 467 1,334 1,144
Amortization (500) (1,065) (718)
--------- --------- ---------
Balance, December 31 $ 1,756 $ 1,789 $ 1,520
========= ========= =========
The carrying value of the mortgage servicing rights is included with
intangible assets and approximates fair market value at December 31,
2004 and 2003. The fair value of mortgage servicing rights was
determined using the present value of future cash flows method. No
impairment of mortgage servicing rights existed at December 31, 2004
or 2003; therefore, no valuation allowance was recorded.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 Premises and Equipment
Premises and equipment at December 31 consist of the following:
2004 2003
--------- ---------
(In Thousands)
Land $ 1,413 $ 1,413
Buildings and improvements 8,354 7,903
Furniture and equipment 5,548 5,106
--------- ---------
Totals 15,315 14,422
Less - Accumulated depreciation and amortization 6,537 5,814
--------- ---------
Net depreciated value $ 8,778 $ 8,608
========= =========
Depreciation and amortization expense was $723,000, $736,000, and
$946,000 for the years ended December 31, 2004, 2003, and 2002,
respectively.
Note 6 Investment in United Financial Services, Inc.
The Bank owns 49.8% of United Financial Services, Inc. ("venture")
whose business is developing and providing data processing services
to the Bank and other financial institutions. The venture has total
assets of $5,482,000 and liabilities of $426,000. The Bank's
investment in the venture was $2,491,000 and $2,088,000 at December
31, 2004 and 2003, respectively. The investment is accounted for on
the equity method and included in other assets. The Bank's earnings
from its investment in the venture were approximately $402,000,
$369,000, and $378,000 for the years ended December 31, 2004, 2003,
and 2002, respectively. Data processing service fees paid by the
Bank to the venture were approximately $781,000, $787,000, and
$843,000 for the years ended December 31, 2004, 2003, and 2002,
respectively.
The Bank has a contract with the venture that extends through
December 2005. At that time, the contract is automatically renewed
for a period of one year. The Bank has the option to terminate the
contract at any time, but would have incurred a termination penalty
of approximately $469,000 at December 31, 2004. The termination
penalty is calculated using the greater of 50% of the total
estimated remaining unpaid monthly processing fees or six times the
average monthly fee over the prior three months. A termination
penalty is not incurred if the Bank provides 180 days' notice and
continues processing up to the end of that period.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 Intangible Assets
Intangible assets consist of the following at December 31:
Range of
Lives
(Years) 2004 2003
-------- -------- --------
(In Thousands)
Core deposit premium 10.0 $ 1,509 $ 1,509
Trade name 5.0 377 376
Customer base 15.0 214 135
Servicing asset 7.0 68 72
-------- -------- --------
Subtotals 2,168 2,092
Less - Accumulated amortization 1,988 1,764
-------- -------- --------
Subtotals 180 328
Mortgage servicing rights - Net 5.0 1,756 1,789
-------- -------- --------
Totals $ 1,936 $ 2,117
======== ========
Amortization expense for intangible assets, excluding servicing
rights, was $224,000 in 2004, $274,000 in 2003, and $303,000 in
2002.
The following table shows the estimated future amortization expense
for amortizing intangible assets. The projections of amortization
expense are based on existing asset balances as of December 31,
2004.
Trade Customer Servicing
Name Base Asset
----- -------- ---------
(In Thousands)
2005 $ 89 $ 5 $ 5
2006 1 5 3
2007 - 5 1
2008 - 5 2
2009 - 5 -
Thereafter - 54 -
----- ----- -----
Total $ 90 $ 79 $ 11
===== ===== =====
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 Goodwill
Changes in goodwill for the years ended December 31, 2004 and 2003,
were as follows:
2004 2003
-------- --------
(In Thousands)
Balance at beginning $ 8,968 $ 8,968
Goodwill acquired during the year 5 -
-------- --------
Totals $ 8,973 $ 8,968
======== ========
During 2004, the Corporation acquired the customer base of an
insurance agency in Green Bay, Wisconsin. The purchase price
included goodwill amounting to $5,000, a noncompete agreement
amounting to $1,000, and an amount related to customer-based assets
of $79,000. Additional contingent payments may be made to the
seller, who was retained as an agent, based upon the retention of
the customer base over a five-year period.
The Corporation tested for impairment and determined that there was
no impairment of goodwill during 2004. No amortization or impairment
expense was recognized during 2004 or 2003.
Note 9 Deposits
The distribution of deposits at December 31 is as follows:
2004 2003
---------- ----------
(In Thousands)
Non-interest-bearing demand deposits $ 76,336 $ 71,195
Interest-bearing demand deposits 59,389 53,411
Savings deposits 116,765 116,786
Time deposits 193,296 186,892
---------- ----------
Total deposits $ 445,786 $ 428,284
========== ==========
Time deposits of $100,000 or more were approximately $51,808,000 and
$48,532,000 at December 31, 2004 and 2003, respectively. Interest
expense on time deposits of $100,000 or more was approximately
$1,340,000, $1,505,000, and $1,978,000 for the years ended December
31, 2004, 2003, and 2002, respectively.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 Deposits (Continued)
At December 31, 2004, the scheduled maturities of time deposits are
as follows (in thousands):
2005 $ 137,295
2006 30,738
2007 14,320
2008 6,331
2009 4,344
Thereafter 268
----------
Total $ 193,296
==========
Deposit balances with the Corporation's executive officers,
directors, and affiliated companies in which they are principal
owners were $1,077,000 and $1,120,000 at December 31, 2004 and 2003,
respectively.
Note 10 Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements have contractual
maturities up to one year from the transaction date with variable
and fixed-rate terms. The agreements to repurchase securities
require that the Corporation (seller) repurchase identical
securities as those that are sold. The securities underlying the
agreements were under the Corporation's control.
Information concerning securities sold under repurchase agreements
consists of the following:
2004 2003 2002
--------- --------- ---------
(Dollars in Thousands)
Outstanding balance at the end of the year $ 61,620 $ 55,359 $ 50,884
Weighted average interest rate at the end of the year 2.52% 2.00% 2.58%
Average balance during the year $ 55,992 $ 50,212 $ 46,895
Average interest rate during the year 2.15% 2.49% 2.79%
Maximum month-end balance during the year $ 61,620 $ 55,359 $ 53,143
Securities sold under repurchase agreements with the Corporation's
executive officers, directors, and affiliated companies in which
they are principal owners were $3,715,000 and $3,493,000 at December
31, 2004 and 2003, respectively.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 Borrowed Funds
Borrowed funds are summarized as follows at December 31:
2004 2003
-------- --------
(In Thousands)
FHLB advance, 1.46%, due March 2005 $ 5,000 $ -
FHLB advance, 1.24%, due March 2005 5,000 10,000
FHLB advance, 1.65%, due July 2005 15,000 5,000
FHLB advance, 4.55%, due January 2011 5,000 5,000
FHLB advance, 4.33%, due November 2011 10,000 10,000
Promissory notes to former stockholders of the Insurance Center, at 9%,
maturing July 1, 2008 280 345
-------- --------
Subtotals 40,280 30,345
Treasury, tax, and loan account 2,000 1,565
-------- --------
Total borrowed funds $ 42,280 $ 31,910
======== ========
The Corporation is a treasury, tax & loan (TT&L) depository for the
Federal Reserve Bank and, as such, it accepts TT&L deposits. The
Corporation is allowed to borrow these funds until they are called. The
average rate paid on the TT&L account was 1.12% in 2004, 1.08% in 2003,
and 1.46% in 2002. U.S. Agency Securities with a face value greater than
or equal to the amount borrowed are pledged as a condition of borrowing
TT&L deposits.
FHLB advances are subject to a prepayment penalty if they are repaid
prior to maturity. The FHLB advances are callable either six months or
one year after origination and quarterly thereafter. The Corporation is
required to maintain as collateral unencumbered first mortgage loans in
its portfolio aggregating at least 167% of the amount of outstanding
advances from the FHLB. Total loans pledged as collateral were
approximately $104,776,000 and $105,892,000 at December 31, 2004 and
2003, respectively. The FHLB advances are also collateralized by
$4,920,100 and $4,631,700 of FHLB stock owned by the Corporation and
included in other investments at December 31, 2004 and 2003,
respectively. This stock is recorded at cost, which approximates fair
value. Transfer of the stock is substantially restricted.
Scheduled maturities of borrowed funds outstanding other than TT&L at
December 31, 2004, are as follows (in thousands):
2005 $ 25,070
2006 76
2007 84
2008 50
2009 -
Thereafter 15,000
--------
Total $ 40,280
========
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 Income Taxes
The provision for income taxes consists of the following for the years
ended December 31:
2004 2003 2002
-------- -------- --------
(In Thousands)
Current tax expense:
Federal $ 1,900 $ 2,054 $ 1,671
State 284 16 19
-------- -------- --------
Total current 2,184 2,070 1,690
-------- -------- --------
Deferred tax expense (credit):
Federal 80 (85) 107
State 142 96 40
-------- -------- --------
Total deferred 222 11 147
-------- -------- --------
Total provision for income taxes $ 2,406 $ 2,081 $ 1,837
======== ======== ========
A summary of the source of differences between income taxes at the
federal statutory rate and the provision for income taxes for the years
ended December 31 follows:
2004 2003 2002
-------- -------- --------
(In Thousands)
Tax expense at federal statutory rate $ 3,504 $ 3,301 $ 3,035
Increase (decrease) in taxes resulting from:
Tax-exempt interest (1,179) (1,110) (1,071)
State income taxes - Net of federal tax benefit 281 74 39
Cash surrender value of life insurance (146) (151) (88)
Income of joint venture (137) (125) (128)
Nondeductible intangible amortization 42 42 42
Other 41 50 8
-------- -------- --------
Total provision for income taxes $ 2,406 $ 2,081 $ 1,837
======== ======== ========
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 Income Taxes (Continued)
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Corporation's
assets and liabilities. The major components of the net deferred tax
liability at December 31 are as follows:
2004 2003
-------- --------
(In Thousands)
Deferred tax assets:
Deferred compensation $ 981 $ 896
Allowance for loan losses 1,499 1,476
Intangibles 85 120
Accrued vacation 140 133
State net operating loss carryforward - 136
Other 4 28
-------- --------
Total deferred tax assets 2,709 2,789
-------- --------
Deferred tax liabilities:
Investment acquisition and discount accretion (90) (86)
Mortgage servicing rights (689) (701)
Depreciation (549) (514)
Unrealized gain on securities available for sale (1,080) (1,452)
FHLB stock dividends (365) (250)
-------- --------
Total deferred tax liabilities (2,773) (3,003)
-------- --------
Net deferred tax liability ($ 64) ($ 214)
======== ========
Note 13 Benefit Plans
Effective January 1, 2002, the Corporation merged its defined
contribution money purchase plan into its defined contribution profit
sharing 401(k) plan, and effective January 1, 2003, the plan was amended
to include provisions for an employee stock ownership plan (ESOP). All
participants of the 401(k) plan are eligible for the ESOP. Shares are
purchased on the open market as they become available. As of December
31, 2004, the plan held 637,927 shares. These shares are included in the
calculation of the Corporation's earnings per share. The plan is
available to all employees over 18 years of age after completion of six
months of service. Employees participating in the plan may elect to
defer a minimum of 2% of compensation up to the limits specified by law.
The Corporation may make discretionary contributions up to the limits
established by IRS regulations. The discretionary match was 35% of
participant tax deferred contributions up to 10% in 2004, 2003, and
2002. The Corporation made additional discretionary contributions to the
plan of $341,000, $333,000, and $323,000 in 2004, 2003, and 2002,
respectively. All discretionary contributions are at the direction of
the Board of Directors. Total expense associated with the plans was
approximately $533,000, $508,000, and $487,000 in 2004, 2003, and 2002,
respectively.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 Benefit Plans (Continued)
The Corporation has a deferred compensation agreement with one of its
officers. Under the terms of the agreement, benefits to be received in
the future continue to vest each year until the officer reaches
retirement age. The benefits are generally payable beginning with the
date of termination of employment with the Corporation. The agreement
initially required an annual payment of $80,600 over 15 years. The
annual payment increases 5% for each year the officer remains employed
with the Corporation from 2004 through 2008. Related expense for this
agreement was approximately $32,000, $107,000, and $107,000 for the
years ended December 31, 2004, 2003, and 2002, respectively. Included in
other liabilities is the vested present value of future payments of
approximately $675,000 and $643,000 at December 31, 2004 and 2003,
respectively.
The Corporation has a nonqualified deferred directors' fee plan which
permits directors to defer a portion of their compensation. The benefits
are generally payable beginning with the earlier of attaining age 70 or
resignation from the Board of the Corporation. Included in other
liabilities is the estimated present value of future payments of
approximately $1,826,000 and $1,641,000 at December 31, 2004 and 2003,
respectively. Expense associated with this plan was approximately
$197,000, $210,000, and $200,000 in 2004, 2003, and 2002, respectively.
Note 14 Stockholders' Equity
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and
possibly additional discretionary--actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's
consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Corporation
and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Corporation's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of December 31, 2004, that the Corporation and
the Bank meet all capital adequacy requirements to which they are
subject.
As of December 31, 2004, the most recent notification from the
regulatory agencies 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
I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the Bank's category.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 Stockholders' Equity (Continued)
The Corporation's and the Bank's actual and regulatory capital amounts
and ratios are as follows:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------------------ ------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------------- ---------- -------------- -----------
(Dollars in Thousands)
December 31, 2004:
Total capital (to risk-weighted assets):
Consolidated $ 58,335 13.9% > or = $33,540 > or = 8.0% N/A
First National Bank in Manitowoc $ 57,092 13.7% > or = $33,460 > or = 8.0% > or = $41,825 > or = 10.0%
Tier I capital (to risk-weighted assets):
Consolidated $ 54,511 13.0% > or = $16,770 > or = 4.0% N/A
First National Bank in Manitowoc $ 53,268 12.8% > or = $16,730 > or = 4.0% > or = $25,095 > or = 6.0%
Tier I capital (to average assets):
Consolidated $ 54,511 9.1% > or = $24,050 > or = 4.0% N/A
First National Bank in Manitowoc $ 53,268 8.9% > or = $24,009 > or = 4.0% > or = $30,012 > or = 5.0%
December 31, 2003:
Total capital (to risk-weighted assets):
Consolidated $ 51,982 13.3% > or = $31,224 > or = 8.0% N/A
First National Bank in Manitowoc $ 50,886 13.1% > or = $31,140 > or = 8.0% > or = $38,924 > or = 10.0%
Tier I capital (to risk-weighted assets):
Consolidated $ 47,983 12.3% > or = $15,610 > or = 4.0% N/A
First National Bank in Manitowoc $ 46,887 12.0% > or = $15,570 > or = 4.0% > or = $23,355 > or = 6.0%
Tier I capital (to average assets):
Consolidated $ 47,983 8.6% > or = $22,357 > or = 4.0% N/A
First National Bank in Manitowoc $ 46,887 8.4% > or = $22,314 > or = 4.0% > or = $27,893 > or = 5.0%
The Bank, as a national bank, is subject to the dividend restrictions
set forth by the Office of the Comptroller of the Currency. Under such
restrictions, the Bank may not, without the prior approval of the Office
of the Comptroller of the Currency, declare dividends in excess of the
sum of the current year's earnings (as defined) plus the retained
earnings (as defined) from the prior two years. The dividends the Bank
could declare without the prior approval of the Office of the
Comptroller of the Currency as of December 31, 2004, totaled
approximately $19,909,000. The payment of dividends may be further
limited by the need for the Corporation and the Bank to maintain capital
ratios satisfactory to applicable regulatory agencies.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 Accumulated Other Comprehensive Income
Comprehensive income is shown in the consolidated statements of
stockholders' equity. The Corporation's accumulated other comprehensive
income is comprised of the unrealized gain or loss on securities
available for sale. The following shows the activity in accumulated
other comprehensive income:
2004 2003 2002
-------- -------- --------
(In Thousands)
Accumulated other comprehensive income at beginning $ 2,779 $ 3,013 $ 1,042
-------- -------- --------
Activity:
Unrealized gain (loss) on securities available for sale (1,071) (391) 3,020
Reclassification adjustments for gains realized in income 43 - -
-------- -------- --------
Subtotals (1,028) (391) 3,020
Tax impact 372 157 (1,049)
-------- -------- --------
Other comprehensive income (loss) (656) (234) 1,971
-------- -------- --------
Accumulated other comprehensive income at end $ 2,123 $ 2,779 $ 3,013
======== ======== ========
Note 16 Segment Information
First Manitowoc Bancorp, Inc., through a branch network of its
subsidiary, First National Bank in Manitowoc, provides a full range of
consumer and commercial financial institution services to individuals
and businesses in Northeastern Wisconsin. These services include credit
cards; secured and unsecured consumer, commercial, and real estate
loans; demand, time, and savings deposits; ATM processing; insurance
services; and trust services. The Corporation also offers a full line of
insurance services through the Insurance Center.
While the Corporation's chief decision makers monitor the revenue
streams of various Corporation products and services, operations are
managed and financial performance is evaluated on a Corporation-wide
basis. Accordingly, all of the Corporation's financial institution
operations are considered by management to be aggregated in one
reportable operating segment.
Note 17 Commitments and Contingencies
The Corporation is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amount recognized in the consolidated balance sheets. The contract
amounts reflect the extent of involvement the Corporation has in the
particular class of financial instrument. The Corporation's maximum
exposure to credit loss for commitments to extend credit is represented
by the contract amount of those instruments.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 Commitments and Contingencies (Continued)
Off-balance-sheet financial instruments whose contract amounts represent
credit and/or interest rate risk at December 31 are as follows:
Notional Amount
-------------------
2004 2003
-------- --------
(In Thousands)
Commitments to extend credit:
Fixed $ 68,322 $ 75,134
Variable 11,460 -
Credit card arrangements 6,295 2,510
Standby letters of credit 6,653 5,826
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.
The Bank has a non-Wisconsin subsidiary that holds and manages
investment assets which have not been subject to Wisconsin tax. Over the
past year, the Wisconsin Department of Revenue (WDOR) has conducted an
audit of the subsidiary. Subsequent to the balance sheet date, the
Corporation has reached a tentative settlement with the WDOR. The terms
of the settlement are confidential. The amount was appropriately
reserved for as of the balance sheet date.
Legal Contingencies - Various legal claims arise from time to time in
the normal course of business. In the opinion of management, any
liability resulting from such proceedings would not have a material
impact on the consolidated financial statements.
Concentrations of Credit Risk - The majority of the Corporation's loans,
commitments, and standby letters of credit have been granted to
customers in the Corporation's market area. The concentrations of credit
by type are set forth in Note 3. Standby letters of credit were granted
primarily to commercial borrowers. Management believes the diversity of
the local economy will prevent significant losses in the event of an
economic downturn.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 Fair Value of Financial Instruments
Fair value estimates, methods, and assumptions for the Corporation's
financial instruments are summarized below.
Cash and Cash Equivalents - The carrying values approximate the fair
values for these assets.
Securities Available for Sale - Fair values are based on quoted market
prices where available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Other Investments - The carrying amount reported in the consolidated
balance sheets for other investments approximates the fair value of
these assets.
Loans and Loans Held for Sale - For certain homogeneous categories of
loans, such as fixed-rate residential mortgages, fair value is estimated
using the quoted market prices for similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings.
Impaired loans and other nonperforming loans are measured at the
estimated fair value of the expected future cash flows at the loan's
effective interest rate or the fair value of the collateral for loans
which are collateral dependent. Therefore, the carrying values of
impaired loans approximate the estimated fair values for these assets.
Mortgage Servicing Rights - Fair values were determined using the
present value of future cash flows method. Carrying value approximates
fair value.
Cash Surrender Value of Life Insurance - The carrying amount
approximates its fair value.
Deposits - The fair value of deposits with no stated maturity, such as
passbooks, negotiable order of withdrawal accounts, and variable rate
insured money market accounts, is the amount payable on demand on the
reporting date. The fair value of fixed-rate, fixed-maturity certificate
accounts is estimated using discounted cash flows with discount rates at
interest rates currently offered for deposits of similar remaining
maturities.
Securities Sold Under Repurchase Agreements - The fair value of
securities sold under repurchase agreements with variable rates or due
on demand is the amount payable at the reporting date. The fair value of
securities sold under repurchase agreements with fixed terms is
estimated using discounted cash flows with discount rates at interest
rates currently offered for securities sold under repurchase agreements
of similar remaining maturities.
Borrowed Funds - Rates currently available to the Corporation for debt
with similar terms and remaining maturities are used to estimate fair
value of existing debt. The fair value of borrowed funds due on demand
is the amount payable at the reporting date. The fair value of borrowed
funds with fixed terms is estimated using discounted cash flows with
discount rates at interest rates currently offered by lenders for
similar remaining maturities.
Accrued Interest - The carrying amount of accrued interest approximates
its fair value.
Off-Balance-Sheet Instruments - The fair value of commitments is
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements,
the current interest rates, and the present creditworthiness of the
counterparties. Since this amount is immaterial, no amounts for fair
value are presented.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 Fair Value of Financial Instruments (Continued)
The carrying amount and estimated fair value of financial instruments at
December 31 were as follows:
2004 2003
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ------------- ---------- -------------
(In Thousands)
Financial assets:
Cash and cash equivalents $ 39,873 $ 39,873 $ 35,767 $ 35,767
Securities available for sale 156,669 156,669 138,275 138,275
Other investments 5,340 5,340 5,052 5,052
Loans - Net 382,691 382,156 367,126 371,167
Mortgage servicing rights 1,756 1,756 1,789 1,789
Cash surrender value of life insurance 11,673 11,673 11,244 11,244
Accrued interest receivable 2,642 2,642 2,375 2,375
---------- ------------- ---------- -------------
Total financial assets $ 600,644 $ 600,109 $ 561,628 $ 565,669
========== ============= ========== =============
Financial liabilities:
Deposits $ 445,786 $ 446,858 $ 428,284 $ 431,625
Securities sold under repurchase agreements 61,620 61,831 55,359 55,554
Borrowed funds 42,280 42,324 31,910 33,994
Accrued interest payable 1,311 1,311 1,305 1,305
---------- ------------- ---------- -------------
Total financial liabilities $ 550,997 $ 552,324 $ 516,858 $ 522,478
========== ============= ========== =============
Limitations - Fair value estimates are made at a specific point in time
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Corporation's entire
holdings of a particular instrument. Because no market exists for a
significant portion of the Corporation's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters that could affect the
estimates. Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Deposits with
no stated maturities are defined as having a fair value equivalent to
the amount payable on demand. This prohibits adjusting fair value
derived from retaining those deposits for an expected future period of
time. This component, commonly referred to as a deposit base intangible,
is neither considered in the above amounts nor is it recorded as an
intangible asset on the consolidated balance sheets. Significant assets
and liabilities that are not considered financial assets and liabilities
include premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered
in the estimates.
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 Condensed Parent Company Only Financial Statements
Balance Sheets
December 31
--------------------
2004 2003
-------- --------
(In Thousands)
Assets
Cash $ 4 $ 9
Repurchase agreements with Bank 238 47
Investment in Bank 64,630 59,127
Premises and equipment 1,008 1,053
-------- --------
TOTAL ASSETS $ 65,880 $ 60,236
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ 7 $ 13
-------- --------
Total liabilities 7 13
-------- --------
Stockholders' equity:
Common stock 7,584 7,584
Retained earnings 56,866 50,560
Accumulated other comprehensive income 2,123 2,779
Treasury stock, at cost (700) (700)
-------- --------
Total stockholders' equity 65,873 60,223
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,880 $ 60,236
======== ========
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 Condensed Parent Company Only Financial Statements (Continued)
Statements of Income
Years Ended December 31
-------------------------------
2004 2003 2002
-------- -------- --------
(In Thousands)
Dividends received from Bank $ 1,755 $ 1,350 $ 1,350
Rental income received from Bank 157 157 151
Interest and other income 1 2 2
Equity in earnings of subsidiaries 6,159 6,265 5,729
-------- -------- --------
Total income 8,072 7,774 7,232
-------- -------- --------
Other operating expenses 179 135 136
-------- -------- --------
Income before provision (credit) for income taxes 7,893 7,639 7,096
Provision (credit) for income taxes (9) 10 7
-------- -------- --------
Net income $ 7,902 $ 7,629 $ 7,089
======== ======== ========
FIRST MANITOWOC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 Condensed Parent Company Only Financial Statements (Continued)
Statements of Cash Flows
Years Ended December 31
--------------------------------
2004 2003 2002
-------- -------- --------
(In Thousands)
Cash flows from operating activities:
Net income $ 7,902 $ 7,629 $ 7,089
-------- -------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 45 43 41
Equity in earnings of subsidiary (6,159) (6,265) (5,729)
Change in other operating liabilities (6) 3 4
-------- -------- --------
Total adjustments (6,120) (6,219) (5,684)
-------- -------- --------
Net cash provided by operating activities 1,782 1,410 1,405
-------- -------- --------
Cash flows from investing activities:
Purchases of premises and equipment - (48) -
(Increase) decrease in repurchase agreements (191) 99 (141)
-------- -------- --------
Net cash provided by (used in) investing activities (191) 51 (141)
-------- -------- --------
Net cash used in financing activities - Cash dividends paid (1,596) (1,456) (1,265)
-------- -------- --------
Net increase (decrease) in cash (5) 5 (1)
Cash at beginning 9 4 5
-------- -------- --------
Cash at end $ 4 $ 9 $ 4
======== ======== ========
Note 20 Subsequent Event
On February 25, 2005, the Corporation 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 the Corporation's stockholders to permit the Corporation
to terminate its registration with the United States Securities and
Exchange Commission.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We have established disclosure
controls and procedures to ensure that material information relating to the
Corporation, including its consolidated subsidiaries, is made known to the
officers who certify the Corporation's financial reports and to other members of
senior management and the Board of Directors.
Based on their evaluation as of December 31, 2004, the principal executive
officer and principal financial officer of the Corporation have concluded that
the Corporation's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective
to ensure that the information required to be disclosed by the Corporation in
the reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.
Management's Report on Internal Control Over Financial Reporting. Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control - Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2004. Our management's assessment of the
effectiveness of our internal control over financial reporting as of December
31, 2004 has been audited by Wipfli LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K is included in the
Corporation's definitive Proxy Statement, prepared for the 2005 Annual Meeting
of Shareholders, under the caption "Election of Directors," and the information
concerning executive officers of the registrant, under the caption "Executive
Officers Who Are Not Directors," which is incorporated herein by reference. The
information required by Item 405 of Regulation S-K concerning compliance with
Section 16(a) of the
Exchange Act is included in the Corporation's definitive Proxy Statement,
prepared for the 2005 Annual Meeting of Shareholders, under the caption "Section
16(a) Beneficial Ownership Reporting Compliance," which is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the heading
"Compensation of Executive Officers and Directors" in the Corporation's
definitive Proxy Statement, prepared for the 2005 Annual Meeting of
Shareholders, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDERS MATTERS
The information required by this item is included under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the Corporation's
definitive Proxy Statement, prepared for the 2005 Annual Meeting of
Shareholders, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the heading
"Indebtedness of Management and Certain Transactions" in the Corporation's
definitive Proxy Statement, prepared for the 2005 Annual Meeting of
Shareholders, which is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is included under the heading "Principal
Accountant Fees and Services" in the Corporation's definitive Proxy Statement,
prepared for the 2005 Annual Meeting of Shareholders, which is incorporated
herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following financial statements and financial statement schedules
are included under a separate caption "Financial Statements and
Supplementary Data" in Part II, Item 8 hereof and are incorporated
herein by reference:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets---December 31, 2004 and 2003
Consolidated Statements of Income---For the Years Ended December 31,
2004, 2003, and 2002
Consolidated Statements of Shareholders' Equity---For the Years Ended
December 31, 2004, 2003, and 2002
Consolidated Statements of Cash Flows---For the Years Ended December
31, 2004, 2003, and 2002
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted because they
are not applicable, not required, or the information has been
otherwise supplied in the Consolidated Financial Statements or
notes to the Consolidated Financial Statements.
(a)(3) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENTS
3.1 Articles of Incorporation (incorporated by reference to
Exhibit (3)(1) to the Corporation's Report on Form 10 filed
May 5, 1999).
3.2 Bylaws of First Manitowoc Bancorp, Inc. as amended on
February 11, 2003 (incorporated by reference to
Exhibit (3)(2) to the Corporation's Report on Form 10-K
filed March 14, 2003).
10.1 First Manitowoc Bancorp, Inc. 401(k) Profit Sharing Plan
(incorporated by reference to Exhibit (10)(1) to the
Corporation's Report on Form 10-Q filed May 15, 2003).
10.2 Executive Employee Salary Continuation Plan for
Thomas J. Bare, dated March 19, 1998, between First
National Bank in Manitowoc and Thomas J. Bare
(incorporated by reference to Exhibit (10)(2) to the
Corporation's Report on Form 10-K filed March 14,
2003).
10.3 First National Bank in Manitowoc Voluntary Deferred
Compensation Plan (incorporated by reference to
Exhibit (10)(3) to the Corporation's Report on Form 10-K
filed March 14, 2003).
11 Statement Re Computation of Per Share Earnings.
See Note 1 in Part II Item 8.
12 Annual Report of First Manitowoc Bancorp, Inc. to
Shareholders for the period ended December 31, 2004.
21 Subsidiaries of the Corporation.
23 Consent of Independent Registered Public Accounting Firm
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
99.1 Proxy Statement of First Manitowoc Bancorp, Inc. for 2005
Annual Meeting of Shareholders.
A copy of one or more of the exhibits listed herein can be obtained by
writing Paul H. Wojta, Chief Financial Officer, First Manitowoc
Bancorp, 402 North Eighth Street, Manitowoc, Manitowoc County,
Wisconsin.
(b) Reports on Form 8-K
During the fourth quarter of 2004, the Corporation did not file any
current reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
Date: March 15, 2005 /s/ Thomas J. Bare
------------------
Thomas J. Bare
Chief Executive Officer
/s/ Paul H. Wojta
-----------------
Paul H. Wojta
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Thomas J. Bare /s/ Robert S. Weinert
- ------------------ ---------------------
Thomas J. Bare, President and Chief Robert S. Weinert, Chairman
Executive Officer
Date: March 15, 2005 Date: March 15, 2005
/s/ John J. Zimmer /s/ John M. Jagemann
- ------------------ --------------------
John J. Zimmer, Vice President John M. Jagemann, Director
Date: March 15, 2005 Date: March 15, 2005
/s/ John C. Miller /s/ John E. Nordstrom
- ------------------ ---------------------
John C. Miller, Director John E. Nordstrom, Director
Date: March 15, 2005 Date: March 15, 2005
/s/ Craig A. Pauly /s/ Katherine M. Reynolds
- ------------------ -------------------------
Craig A. Pauly, Director Katherine M. Reynolds, Director
Date: March 15, 2005 Date: March 15, 2005
/s/ John M. Webster
- -------------------
John M. Webster, Director
Date: March 15, 2005