<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission file number 000-31207
BANK MUTUAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
U.S.A. 39-2004336
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4949 West Brown Deer Road, Milwaukee, WI 53223
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(414) 354-1500
------------------------------------------------------
(Registrant's telephone number, including area code)
n/a
-----
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X (The registrant has not been subject to such filing requirements
for the past 90 days.)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock -- as of November 10, 2000, Bank Mutual Corporation had 22,341,665
outstanding shares of common stock, $0.01 par value.
<PAGE> 2
BANK MUTUAL CORPORATION
10-Q INDEX
<TABLE>
<CAPTION>
PAGE NO.
------------
PART I. FINANCIAL INFORMATION:
------------------------------------------------------------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS*
Unaudited Consolidated Statement of Financial Condition
as of September 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Income for the three months and
the nine months ended September 30, 2000 and 1999 4-5
Unaudited Consolidated Statement of Equity for the nine
months ended September 30, 2000 6
Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 7
Notes to Unaudited Consolidated Financial Statements 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10-17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 18
PART II. OTHER INFORMATION
----------------------------------------------------
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
</TABLE>
--------------------------
*See Note 1 to the financial statements for an explanation of the inclusion of
financial statements of Mutual Savings Bank, as predecessor of Bank Mutual
Corporation.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MUTUAL SAVINGS BANK
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------- -----------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,697 $ 21,367
Federal funds sold 25,000
Interest-earning deposits 13,144 132,592
------------ -----------
CASH AND CASH EQUIVALENTS 36,841 178,959
Securities available-for-sale, at fair value:
Investment securities 77,795 57,763
Mortgage-related securities 452,199 374,100
Loans held for sale 4,958 541
Loans receivable, net 1,131,708 1,082,795
Real estate owned 4,831 4,953
Office properties and equipment 26,768 26,871
Federal Home Loan Bank stock, at cost 14,844 13,537
Accrued interest receivable 9,546 8,620
Intangible assets 10,792 11,496
Other assets 10,089 9,871
------------ -----------
$ 1,780,371 $1,769,506
============ ===========
LIABILITIES
Deposits $ 1,296,920 $1,343,007
Borrowings 270,520 242,699
Advance payments by borrowers for taxes and insurance 18,588 1,661
Other liabilities 19,746 18,319
------------ -----------
TOTAL LIABILITIES 1,605,774 1,605,686
EQUITY
Retained earnings 179,674 169,746
Net unrealized gain (loss) on securities available-for-sale (5,077) (5,926)
------------ -----------
TOTAL EQUITY 174,597 163,820
------------ -----------
$ 1,780,371 $1,769,506
============ ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
3
<PAGE> 4
MUTUAL SAVINGS BANK
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
2000 1999
--------- --------
(In Thousands)
<S> <C> <C>
Interest income:
Loans $21,711 $19,841
Investment securities 1,544 5,269
Mortgage-related securities 7,961 4,676
---------- ---------
TOTAL INTEREST INCOME 31,216 29,786
Interest expense:
Deposits 15,463 15,121
Borrowings 4,108 3,593
Advance payments by borrowers for taxes and insurance 102 112
---------- ---------
TOTAL INTEREST EXPENSE 19,673 18,826
---------- ---------
NET INTEREST INCOME 11,543 10,960
Provision for loan losses 40 32
---------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,503 10,928
Non-interest income:
Service charges on deposits 662 637
Brokerage commissions 438 497
Servicing fees on loans sold 100 110
Loan fees and service charges 105 140
Gain (loss) on sale of securities 1 (112)
Gains on sales of loans 109 71
Other 768 477
--------- ---------
TOTAL NON-INTEREST INCOME 2,183 1,820
Non-interest expense:
Compensation, payroll taxes and other employee benefits 4,468 4,322
Federal insurance premiums 68 199
Occupancy 1,249 1,369
Data processing 374 382
Marketing 625 411
Amortization of intangibles 235 677
Other 1,443 1,476
---------- ---------
TOTAL NON-INTEREST EXPENSE 8,462 8,836
INCOME BEFORE INCOME TAXES 5,224 3,912
Income taxes 1,810 1,508
---------- ---------
NET INCOME $ 3,414 $ 2,404
========== =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
4
<PAGE> 5
MUTUAL SAVINGS BANK
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
Interest income:
Loans $63,114 $59,578
Investment securities 4,759 15,678
Mortgage-related securities 23,821 13,179
--------- ----------
TOTAL INTEREST INCOME 91,694 88,435
Interest expense:
Deposits 45,202 46,106
Borrowings 11,340 10,638
Advance payments by borrowers for taxes and insurance 192 209
--------- ----------
TOTAL INTEREST EXPENSE 56,734 56,953
--------- ----------
NET INTEREST INCOME 34,960 31,482
Provision for loan losses 276 235
--------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 34,684 31,247
Non-interest income:
Service charges on deposits 1,899 1,869
Brokerage commissions 1,432 1,324
Servicing fees on loans sold 305 339
Loan fees and service charges 397 536
Gain (loss) on sale of securities 20 (300)
Gains on sales of loans 152 507
Other 2,082 1,381
--------- ----------
TOTAL NON-INTEREST INCOME 6,287 5,656
Non-interest expense:
Compensation, payroll taxes and other employee benefits 13,307 12,904
Federal insurance premiums 210 615
Occupancy 3,851 4,215
Data processing 1,116 958
Marketing 1,881 1,548
Amortization of intangibles 704 2,033
Other 4,163 4,442
--------- ----------
TOTAL NON-INTEREST EXPENSE 25,232 26,715
INCOME BEFORE INCOME TAXES 15,739 10,188
Income taxes 5,811 3,894
--------- ----------
NET INCOME $ 9,928 $ 6,294
========= ==========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
5
<PAGE> 6
MUTUAL SAVINGS BANK
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE TOTAL
EARNINGS INCOME EQUITY
------------ ------------------------ ------------
(In Thousands)
<S> <C> <C> <C>
For the Nine Months Ended September 30, 2000
--------------------------------------------
Balance at December 31, 1999 $169,746 $(5,926) $163,820
Comprehensive income:
Net income 9,928 9,928
Other comprehensive income
Change in net unrealized gain(loss)
on securities available-for-sale, net
of deferred income tax benefit of
$476 849 849
------------
Total comprehensive income 10,777
---------- ---------- ------------
Balance at September 30, 2000 $179,674 $(5,077) $174,597
========== ========== ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
6
<PAGE> 7
MUTUAL SAVINGS BANK
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,810 $ 2,963
Cash flows from investing activities:
Proceeds from maturities of investments securities 27,424 65,000
Purchases of investment securities (161,068) (20,000)
Purchases of mortgage-related securities - (83,487)
Net purchases of investments in mutual funds (1,340) (1,096)
Principal payments on mortgage-related securities 38,501 49,119
Net (increase) decrease in loans receivable (51,730) (17,857)
Proceeds from sale of foreclosed properties 2,999 2,062
Purchase of Federal Home Loan Bank stock (1,307) -
Purchase of office properties and equipment (1,068) (993)
---------- -----------
NET CASH USED BY INVESTING ACTIVITIES (147,589) (7,252)
Cash flows from financing activities:
Net decrease in deposits (46,087) (34,705)
Net increase in short-term borrowings 70,000 -
Repayments of long-term borrowings (42,179) (123)
Net increase in advance payments by borrowers for taxes and insurance 16,927 16,842
---------- -----------
NET CASH USED BY FINANCING ACTIVITIES (1,339) (17,986)
DECREASE IN CASH AND CASH EQUIVALENTS (142,118) (22,275)
Cash and cash equivalents at beginning of period 178,959 330,248
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,841 $ 307,973
========== ===========
Supplemental Information to the Statement of Cash Flows:
Interest on deposits $ 43,342 $ 43,800
Income taxes 5,607 4,947
Loans transferred to foreclosed properties and repossessed assets 2,541 1,445
Mutual fund liquidation proceeds - 14,047
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
7
<PAGE> 8
MUTUAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Mutual Savings Bank included herein
have been included by Bank Mutual Corporation (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company is
a successor to Mutual Savings Bank ("Mutual Savings") in a regulatory
restructuring into a mutual holding company form, which was effective on
November 1, 2000. The restructuring included the capitalization of the Company,
the sale of certain of its common shares, and the acquisition by the Company of
all of the shares of Mutual Savings. Simultaneously, the Company acquired First
Northern Capital Corp. These financial statements do not include the effects of
the restructuring or the First Northern Capital Corp. acquisition.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
Rule 10-01 of Regulation S-X and the instructions to Form 10-Q. The financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial information. In
the opinion of the Company, the accompanying Unaudited Consolidated Statements
of Financial Condition, Unaudited Consolidated Statements of Income, Unaudited
Consolidated Statement of Equity and Unaudited Consolidated Statements of Cash
Flows contained all adjustments, which are of a normal recurring nature,
necessary to present fairly the consolidated financial position of Mutual
Savings and subsidiaries at September 30, 2000 and December 31, 1999, the
results of their income for the three and nine months ended September 30, 2000
and 1999, the changes in equity for the nine months ended September 30, 2000,
and their cash flows for the nine months ended September 30, 2000 and 1999. The
accompanying Unaudited Consolidated Financial Statements and related notes
should be read in conjunction with the Company's Registration Statement on Form
S-1, No. 333-39362. Operating results for the nine months ended September 30,
2000, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." Under SFAS NO. 123, an entity may
elect to recognize stock-based compensation expense based on the fair value of
the awards, or they may elect to account for stock-based compensation under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." If an entity elects
to account for stock-based compensation under APB No. 25, it is not required to
recognize expense based on the fair value of the awards. However the entity must
disclose in the financial statement the effects of SFAS No. 123, as if the
recognition provisions of SFAS No. 123 were adopted.
Subject to shareholder approval, Bank Mutual will establish certain other
stock-based compensation plans. Bank Mutual currently expects that it will not
adopt the recognition provisions of the statement, but will provide the required
footnote disclosures. Therefore, it is not expected that the adoption of SFAS
No. 123 will have a material impact to the financial position or results of
operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
statement established standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. SFAS No. 128 simplifies the standards for computing EPS previously
found in APB Opinion No. 15, "Earnings Per Share," and makes them more
comparable with international EPS standards.
Mutual Savings, as a mutual savings bank, does not have common stock authorized,
issued or outstanding and do not calculate or present EPS. Such disclosures will
be reportable for financial statements after November 1, 2000.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognized all
8
<PAGE> 9
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.
SFAS NO. 133, as amended, is effective for all quarters of those years beginning
after June 15, 2000. This statement may not be applied retroactively to
financial statements prior periods. As Mutual Savings does not utilize
derivatives, it does not expect that the adoption of SFAS No. 133 will have a
material impact on our financial position or results of operations.
At September 30, 2000, Mutual Savings does not provide stock-based compensation
to its employees. However, on November 1, 2000, concurrent with the
restructuring, the Company established an Employee Stock Ownership Plan and
Trust, the accounting for which will comply with the American Institute of
Certified Public Account's Statement of Position 93-6, " Employers' Accounting
for Employee Stock Ownership Plans." In accordance with this Statement, expense
equal to the cost of the shares contributed to the Plan will be charged to
future earnings in proportion to and over the period that the shares are
scheduled to be released from the Trust. This will have a negative effect on the
future earnings of the Company.
IMPACT OF INFLATION AND CHANGING PRICES.
The financial statements and accompanying notes of Mutual Savings have been
prepared in accordance with the generally accepted accounting principles (GAAP).
GAAP generally requires the measurement of financial position and operating
results in terms of historical dollars without consideration for changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of our operations. Unlike
industrial companies, our assets and liabilities are primarily monetary in
nature. As a result, changes in market interest rates have a greater impact on
performance than do the effects of inflation.
9
<PAGE> 10
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis reflects Mutual Savings' consolidated
financial statements and other relevant statistical data and is intended to
enhance your understanding of its financial condition and results of operations.
You should read the information in this section in conjunction with the
consolidated financial statements and accompanying notes included herein.
On November 1, 2000, Mutual Savings completed its regulatory restructuring into
mutual holding company form. In the restructuring, Mutual Savings Bank became a
wholly-owned subsidiary of Bank Mutual Corporation. Bank Mutual Corporation is
50.1% owned by Mutual Savings Bancorp, MHC; the balance of shares of Bank Mutual
Corporation were either issued in a subscription offering to Mutual Savings
depositors or issued in Bank Mutual's acquisition of First Northern Capital
Corp. In the acquisition of First Northern, Bank Mutual issued shares of Bank
Mutual Corporation and cash, and First Northern, the parent of First Northern
Savings Bank, was merged into Bank Mutual.
Because these transactions did not occur until after September 30, 2000 they are
not reflected in the accompanying financial statements or in this management's
discussion and analysis. Bank Mutual is accounting for the restructuring as a
de-mutualization transaction, in which results of Bank Mutual will be restated
for Mutual Savings' prior results in a manner similar to a pooling of interests.
The First Northern acquisition is being accounted for using purchase accounting,
so that the assets and results of operations of First Northern will be reflected
in Bank Mutual's financials only from and after the November 1, 2000 date of
acquisition.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The discussions in this report which are not historical statements contain
forward-looking statements that involve risks and uncertainties. Statements
which "are not historical statements" include those in the future tense or which
use terms such as "believe," "expect" and "anticipate". Bank Mutual's actual
future results could differ in important and material ways from those discussed.
Many factors could cause or contribute to such differences. These factors
include those which Bank Mutual discusses above in its SEC filings. You should
also carefully read Management's Discussion and Analysis of Financial Condition
and Results of Operations herein and in those filings for a discussion of
factors affecting Bank Mutual.
COMPARISON OF STATEMENT OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND
DECEMBER 31, 1999
Mutual Savings total assets increased $10.9 million or 0.6%, at September 30,
2000 as compared to December 31, 1999. The increase is primarily the result of
the reinvestment of operating cash flows for the nine month period into
interest-earning assets.
Cash and cash equivalents decreased $142.1 million or 79.4% as of September 30,
2000 compared to December 31, 1999. This decrease is the result of the
reinvestment of short-term assets into longer term, higher yielding investments,
mortgage-related securities, and loans.
Investment securities available for sale increased $20.0 million or 34.7% as of
September 30, 2000 compared to December 31, 1999. Mortgage-related securities
available for sale increased $78.1 million, or 20.9%, as of September 30, 2000
compared to December 31, 1999.
Loans available for sale increased $4.4 million or 816.5% at September 30, 2000
compared to December 31, 1999. This increase reflects higher activity in
mortgage loan sales as a result of the lower market interest rate environment,
which has made fixed rate mortgage loans more attractive to borrowers.
Loans receivable increased $48.9 million, or 4.5%, at September 30, 2000
compared to December 31, 1999. One to four-family first mortgage loans decreased
$25.3 million, or 3.4%; multi-family first mortgage loans increased $12.7
million or 23.5%; commercial first mortgage loans increased $20.1 million or
38.3%; construction and development first mortgage loans increased $29.4 million
or 110.8%; total consumer loans increased $35.2 million or 18.7% and
10
<PAGE> 11
undisbursed loan proceeds increased 152.5%. Home equity and home improvement
lending comprised $35.7 million or 101.5% of the growth in consumer loans offset
by a decrease in student and other consumer loans. These changes reflect
management's strategy of increasing the multi-family, commercial real estate and
consumer loan originations. Multi-family, commercial real estate and consumer
loans historically have higher yields than the one-to four-family first mortgage
loans.
Deposits decreased $46.1 million, or 3.4%, at September 30, 2000 compared to
December 31, 1999. This decrease is the result of other financial institutions
and money market funds offering higher interest rates. Mutual believes that it
is not the appropriate time to acquire high cost deposits as market interest
rates may be high in comparison to other funding alternatives. Borrowings
increased $27.8 million or 11.5% at September 30, 2000 compared to December 31,
1999. The increase in borrowings was the result of using Federal Home Loan Bank
of Chicago ("FHLB") borrowings as a source of funds to offset the decrease in
deposits. Advance payments by borrowers increased $16.9 million at September 30,
2000 compared to December 31, 1999. This increase is due to normal seasonal
growth as borrowers' funds are accumulated to pay real estate taxes at the end
of the calendar year.
Equity increased $10.8 million or 6.6% at September 30, 2000 compared to
December 31, 1999. This increase is the result of $9.9 million in earnings for
the nine months ended September 30, 2000 as well as an increase of $849,000 in
other comprehensive income for the same period.
ASSET QUALITY
The following table provides information about non-performing loans and assets
at September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
AT SEPTEMBER 30 AT DECEMBER 31
2000 1999
--------------------- -------------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual mortgage loans $ 955 $3,372
Non-accrual consumer and other loans 199 283
Accruing loans delinquent 90 days or more 1,076 1,152
-------- ------
Total non-performing loans 2,230 4,807
Foreclosed real estate, net 2,896 3,018
-------- ------
Total non-performing assets $ 5,126 $7,825
======= ======
Non-performing loans as a percent
of total loans 0.20% 0.44%
==== ====
Non-performing assets as a percent
of total assets 0.29% 0.44%
==== ====
Allowance for loan losses as a percent of
non-performing assets 138.71% 88.79%
======= ======
</TABLE>
Total non-performing loans decreased $2.6 million or 53.6% as of September 30,
2000 compared with December 31, 1999. The primary cause of the reduction was the
resolution of delinquent first mortgage loans.
11
<PAGE> 12
The following table provides information on the loan loss allowance at September
30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Balance at the beginning of the period $6,948 $6,855
Provisions for the loan losses 276 350
Charge-offs:
First mortgage loans (38) (152)
Consumer and other loans (99) (189)
------ ------
Total charge-offs (137) (341)
Recoveries:
First mortgage loans - 40
Consumer and other loans 23 44
------ ------
Total recoveries 23 84
------ ------
Net (charge-offs) recoveries (114) (257)
------ ------
Balance at the end of the period $7,110 $6,948
====== ======
Net charge-offs to average loans 0.01% 0.02%
==== ====
Allowance as a percent of total loans 0.63% 0.64%
==== ====
Allowance as a percent of non-performing loans 318.83% 144.54%
====== ======
</TABLE>
Allowance for loan losses to non-performing loans increased to 318.83% as of
September 30, 2000 from 144.54% as of December 31, 1999. The increased coverage
ratio was the result of lower balances in non-performing first mortgage loans.
At September 30, 2000 there were $2.7 million of performing loans to borrowers
where available information causes management to have doubts as to the ability
of such borrowers to continue to comply with present loan repayment terms and
would indicate that such loans had the potential to be included as non-accrual,
past due or impaired (as defined in SFAS No. 114) in future periods. However, no
loss is anticipated at this time.
12
<PAGE> 13
COMPARISON OF OPERATING RESULTS
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS
The following table presents certain information regarding Mutual Savings'
financial condition and net interest income for the three and nine months ended
September 30, 2000 and 1999. The table presents the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. The yields and costs are derived by dividing income or
expense by the average balance of interest-earnings assets or interest-bearing
liabilities respectively, for the periods shown. The average balances are
derived from daily balances over the periods indicated. Interest income includes
fees, which we considered adjustments to yields. Net interest spread is the
difference between the yield on interest-earning assets and the rate paid on
interest bearing liabilities. Net interest margin is derived by dividing net
interest income by net interest-earning assets. No tax-equivalent adjustments
have been made as Mutual Savings has no investments which are tax exempt.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
--------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------ ------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS (1):
Loans receivable, net and
loans available-for-sale $1,120,528 $63,114 7.51% $1,065,087 $59,578 7.46%
Mortgage-related securities (2) 467,794 23,821 6.79% 278,916 13,179 6.30%
Investment securities (2) 86,387 3,980 6.14% 407,929 15,028 4.91%
Federal Home Loan Bank stock 14,210 779 7.31% 13,537 650 6.40%
---------- ------- ---- ---------- ------- ----
Total interest-earning assets 1,688,919 91,694 7.24% 1,765,469 88,435 6.68%
------- -------
Non interest-earning assets: 65,891 89,093
---------- -----------
Total assets $1,754,810 $1,854,562
========== ==========
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
--------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------ ------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Savings deposits $ 148,457 2,740 2.46% $ 165,302 2,952 2.38%
Money market accounts 224,397 8,607 5.11% 194,877 6,957 4.76%
Interest-bearing demand accounts 86,123 671 1.04% 89,558 707 1.05%
Time deposits 800,202 33,184 5.53% 885,146 35,490 5.34%
----------- ------- ----- ---------- ------- ----
Total deposits 1,259,179 45,202 4.79% 1,334,883 46,106 4.61%
Advance payment by borrowers
for taxes and insurance 10,330 192 2.48% 10,383 209 2.68%
Borrowings 254,217 11,340 5.95% 270,766 10,638 5.24%
----------- ------- ----- ---------- ------- ----
Total interest-bearing liabilities 1,523,726 56,734 4.96% 1,616,032 56,953 4.70%
----------- ------- ----- ---------- ------- ----
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits 45,750 42,769
Other non-interest-bearing 18,978 19,237
liabilities ----------- ----------
Total non-interest-bearing 64,728 62,006
liabilities ----------- ----------
Total liabilities 1,588,454 1,678,038
Equity 166,356 176,524
----------- ----------
Total liabilities and equity $1,754,810 $1,854,562
=========== ==========
Net interest income/net
interest rate spread (3) $34,960 2.28% $31,482 1.98%
======= ==== ======= ====
Net interest-earning assets/net
interest margin (3) $ 165,193 2.76% $ 149,437 2.38%
=========== ==== ========== ===
Average interest-earning assets to
average interest-bearing liabilities 1.11x 1.09x
==== ====
</TABLE>
----------------------------------------------------
(1) Nonaccural loans are included in their respective categories.
(2) Balances of securities are based upon amortized security cost.
(3) Annualized percentage.
14
<PAGE> 15
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected interest income and interest expense during the
periods indicated. Information is provided in each category with respect to:
(1) changes attributable to changes in volume (change in volume
multiplied by prior rate);
(2) changes attributable to change in rate (changes in rate multiplied
by prior volume); and
(3) the net change.
The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
2000 VS 1999
INCREASE(DECREASE) DUE TO:
VOLUME (1) RATE (2) NET (3)
-------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 3,102 $ 434 $ 3,536
Mortgage-related securities 9,548 1,094 10,642
Investment securities (14,095) 3,047 (11,048)
Federal Home Loan Bank stock 34 95 129
-------- -------- --------
TOTAL (1,411) 4,670 3,259
-------- -------- --------
Interest-bearing liabilities:
Savings deposits (308) 96 (212)
Money market accounts 1,106 544 1,650
Demand and NOW accounts (27) (9) (36)
Time Deposits (3,492) 1,186 (2,306)
Advance payments by borrowers for
taxes and insurance (2) (15) (17)
Borrowings (678) 1,380 702
-------- -------- --------
Total (3,401) 3,182 (219)
-------- -------- --------
Net change in net interest income $ 1,990 $ 1,488 $ 3,478
======== ======== ========
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2000 AND 1999
GENERAL. Net income was $3.4 million and $9.9 million for the three months and
nine months ended September 30, 2000, respectively as compared to $2.4 million
and $6.3 million during the same periods in 1999. This represents a $1.0 million
and $3.6 million increase, respectively, for the three and nine month periods.
The increases in net income were primarily attributable to an increase in the
net interest margin, non-interest income and a reduction in non-interest expense
partially offset by an increase in income taxes.
INTEREST INCOME. Total interest income increased $1.4 million, or 5.0%, for the
three months ended September 30, 2000 compared the three months ended September
30, 1999. For the nine months ended September 30, 2000 total interest income
increased $3.3 million, or 3.7%, compared to the same period of the prior year.
The increases for
15
<PAGE> 16
the three and nine months ended September 30, 2000 are the result of the growth
in the loan portfolio and the increased yield earned on the loan portfolio.
Interest on loans increased $1.9 million, or 9.4%, for the three months ended
September 30, 2000 compared to the same period of the prior year and $3.5
million, or 5.9%, for the nine months ending September 30, 2000 as compared to
the same period of the prior year. Interest on investments decreased $3.7
million, or 70.7%, and interest on mortgage-related securities increased $3.3
million, or 70.3%, for the three months ended September 30, 2000 compared with
the corresponding prior period. For the nine month period ending September 30,
interest on investments decreased $10.9, million or 69.6%, and interest on
mortgage related securities increased $10.6 million, or 80.8%, in 2000, compared
to the same period in 1999. The decrease in investment income for the third
quarter of 2000 and the nine months ended September 30, 2000, was a result of
reinvesting the investment interest income and maturities into loans.
Mortgage-related securities income increased for the three and nine months ended
September 30, 2000 primarily from a purchase of $200.0 million of
mortgage-related securities in November and December of 1999. Mutual borrowed
the $200.0 million from the FHLB and reinvested those funds into
mortgage-related securities.
The average balance of total interest-earning assets decreased $76.6 million, or
4.3%, for the nine months ended September 30, 2000 as compared to the average
balance for the same period of the previous year. The average balance of loans
increased; the average balance in mortgage-related securities increased; the
average balance in investment securities decreased. This change in the mix of
assets reflects the re-deployment of investment securities into higher yielding
loans and mortgage-related securities. The reduction in total assets was the
result of funding the decrease in deposits.
For the nine months ended September 30, 2000, when compared to same period for
the previous year, the impact on interest income from the decrease in the
average balance of interest earning assets was offset by 56 basis point increase
in the annualized average yield on total interest-earning assets. This was the
result of the reinvestment of investment securities into loans and
mortgage-related securities.
INTEREST EXPENSE. Interest expense on deposits increased $342,000, or 2.3% for
the three months ended September 30, 2000 compared to the same period of the
previous year and decreased $904,000, or 2.0%, for the nine months ended
September 30, 2000 compared to the same period of the previous year. The
increase in interest expense for the third quarter of 2000 was the result of an
increase in the cost of renewing and acquiring deposits.
The average balance of total interest-bearing liabilities decreased $92.3
million, or 5.7%, for the nine month period ended September 30, 2000 when
compared to the same period of the prior year. This was primarily the result of
a decrease of $75.7 million for nine month period in the average balance of
deposits. All categories of deposits experienced decreases in average balances
with the exception of money market accounts, which increased $29.5 million, or
15.1%. The increase in money market accounts was the direct result of the
increased interest rate paid on those accounts. The effect of the decrease in
the average balance of total deposits was partially offset, however, by an 18
basis point increase in the average cost of total deposits for the nine month
period ended September 30, 2000 when compared to the same period of the prior
year. These increases reflect the rising costs of time deposits and money market
accounts.
The annualized average cost of borrowings increased 71 basis points for the nine
months ended September 30, 2000, when compared to the average cost of the same
period of the prior year. The increased cost of borrowings reflects the upward
pricing of borrowings as a result of the current higher interest rate
environment. The upward pricing of interest-bearing liabilities resulted in a 26
basis point increase in the total cost of interest-bearing liabilities for the
nine month period ending September 30, 2000, when compared to the same period of
the prior year.
NET INTEREST INCOME. Net interest income increased $583,000, or 5.3%, to $11.5
million for the third quarter of 2000 compared with $11.0 million for the third
quarter of 1999. For the nine month period ended September 30, 2000, net
interest income increased $3.5 million, or 11.0%, to $35.0 million compared to
$31.5 million for the same period of the prior year. The net interest spread
increased to 2.28% for the third quarter ended September 30, 2000 from 2.07% for
the comparable period of 1999. Additionally, the annualized net interest margin
increased to 2.75% for the third quarter ended September 30, 2000 from 2.47% for
the same period of the previous year. For the nine months ended September 30,
2000, the net interest spread increased to 2.28% compared to 1.98% for the same
nine
16
<PAGE> 17
months of the prior year. The net interest margin increased to 2.76% for the
nine months ended September 30, 2000 compared to 2.38% for the same nine months
of the prior year.
PROVISION FOR LOAN LOSSES. The provision for losses increased $8,000 for the
three months and $41,000 for the nine months period ended September 30, 2000
compared to the same periods of the previous year. The allowance for loan losses
at September 30, 2000 was $7.1 million, or 318.8%, of non-performing loans.
Non-performing loans at September 30, 2000 were $2.2 million compared with $4.8
million at December 31, 1999. Future provisions for loan losses will continue to
be based upon the assessment of the overall loan portfolio and the underlying
collateral, trends in non-performing loans, current economic conditions and
other relevant factors in order to maintain the allowance for loan losses at
adequate levels to provide for estimated future losses.
NON-INTEREST INCOME. Total non-interest income, consisting of service fees, gain
on sale of loans and other income, increased $363,000, or 19.9%, and $631,000,
or 11.2%, for the three months and nine months ended September 30, 2000
respectively. Gain on sale of real estate owned primarily resulted in the
increase in non-interest income.
NON-INTEREST EXPENSE. Total non-interest expense, consisting primarily of
salaries and employee benefits, occupancy expense, other operating expenses and
amortization of intangible assets, decreased $374,000, or 4.2%, and $1.5
million, or 5.6%, for the three and nine months ended September 30, 2000
respectively. The decrease in amortization of intangibles for the third quarter
of 2000 and the nine months ended September 30, 2000, resulted from the 1999
year-end impairment and resulting write down of intangible assets from a 1997
acquisition, was the primary factor in this decrease. Other factors affecting
non-interest expense for the three and nine month periods included increases in
compensation; 3.4% and 3.1% respectively; and increases in marketing expenses,
52.1% and 21.5% respectively; decreases in office occupancy, 8.8% and 8.6%
respectively; and decreases in FDIC insurance premiums, 65.8% for both periods.
The increase in marketing expense was the result of a direct marketing campaign
for consumer loans and the reduction in FDIC insurance premiums was the result
of a rate reduction by the Federal Deposit Insurance Corporation.
INCOME TAXES. Income tax expense increased $302,000, or 20.0%, and $1.9 million,
or 49.2%, for the three and nine-month periods ended September 30, 2000 as
compared to the same periods of the prior year. The effective income tax rate
was 34.6% compared to 38.5% for the three months and 36.9% compared to 38.2% for
the nine months both ended September 30, 2000 and 1999, respectively. This
decrease in the effective income tax rate was the result of additional assets
held in Mutual Savings' Nevada subsidiary, which is not subject to Wisconsin
franchise taxes.
17
<PAGE> 18
For a discussion of the Company's asset and liability management policies as
well as the potential impact of interest rate changes upon the market value of
the Company's portfolio equity, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Management of Interest Rate Risk"
in the Company's Registration Statement Form S-1 No. 333-39362. That explanation
is incorporated herein by reference. There has been no material change in the
Mutual Savings' asset and liability position or the market value of the Mutual
Savings portfolio equity since June 30, 2000.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On November 1, 2000, Mutual Savings Bank ("Mutual Savings") completed its
regulatory restructuring, under a Plan of Restructuring approved by the Office
of Thrift Supervision and the depositors of Mutual Savings, into a mutual
holding company form of organization. Pursuant to that restructuring, the Bank
became a wholly-owned subsidiary of the Company. The Company, in turn, is now
50.1% owned by Mutual Savings Bancorp, MHC (the "MHC"), a mutual holding company
of which the depositors of Mutual Savings are members.
In addition to the restructuring, on November 1, 2000, the Company also
completed its acquisition of First Northern Capital Corp. under an Agreement and
Plan of Merger among Mutual Savings, the Company (as assignee) and First
Northern. As a result of the transaction, First Northern Savings Bank became a
wholly-owned subsidiary of the Company.
These transactions will be discussed more fully in a Report on Form 8-K to be
filed by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index, which follows the signature page
hereof.
(b) Reports on Form 8-K: In the quarter ended September 30, 2000,
the Registrant did not file any Reports on Form 8-K.
19
<PAGE> 20
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK MUTUAL CORPORATION
-----------------------
(Registrant)
Date November 13, 2000 /s/ Michael T. Crowley, Jr.
-------------------------------------
Michael T. Crowley, Jr.
Chairman and Chief Executive Officer
Date November 13, 2000 /s/ Rick B. Colberg
-------------------------------------
Rick B. Colberg
Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
BANK MUTUAL CORPORATION
Form 10-Q for Quarter Ended September 30, 2000
Exhibit No. Description
----------- -----------
27 Financial Data Schedules
