<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
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)
Registrant's telephone number, including area code: (920) 684-6611
Securities to be registered under Section 12(b) of the Act:
None
Title of each class to Name of Each Exchange on which
be so registered. each class is to be registered.
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $1.00
(Title of Class)
<PAGE> 2
INDEX
DESCRIPTION
ITEM 1. BUSINESS
ITEM 2. FINANCIAL INFORMATION
ITEM 3. PROPERTIES
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS
ITEM 6. EXECUTIVE COMPENSATION
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8. LEGAL PROCEEDINGS
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
<PAGE> 3
ITEM 1
BUSINESS
GENERAL
First Manitowoc Bancorp, Inc. (the "Company"), a Wisconsin corporation
incorporated on April 9, 1982, became a registered bank holding company on
November 16, 1982 under the Bank Holding Company Act of 1956, as amended
("BHCA"). The Company 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, First National Bank in Manitowoc
Investment Corporation (FNBM Investment Corporation). The Company acquired the
Bank through the merger of the Bank into an interim national banking association
formed as a Company 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 on June 12, 1982. Pursuant to
the Plan, each outstanding share of Bank common stock was exchanged for three
shares of the Company's common stock. The Bank's charter was not affected by the
merger. Currently, the Company has outstanding 1,734,317 shares of common stock,
par value $1.00 per share ("Shares"). Shares were held by 561 holders of record
on April 23, 1999.
The Company's and the Bank's main office is located at 402 North Eighth Street,
Manitowoc, Manitowoc County, Wisconsin. The Bank has eight full service branch
offices located in Francis Creek, St. Nazianz, Two Rivers, Mishicot, Manitowoc,
Kiel, Newton, and Bellevue, Wisconsin.
As of December 31, 1998, the Bank had assets of approximately $365.8 million,
net loans of approximately $225.8 million, and deposits of $276.5 million.
Stockholders' equity has continued to grow over the last five years and has
increased approximately $15.9 million (97%) over the preceding five years. For
additional financial information, see the Consolidated Financial Statements and
Notes beginning on Page F1 of this Form 10.
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. Among
the services provided are checking accounts, savings and time accounts, safe
deposit boxes, and installment and other personal loans, especially residential
mortgages, as well as home equity loans, automobile and other consumer
financing. 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.
The Bank is also engaged in the financing of commerce and industry by providing
credit and deposit services for small to medium sized businesses and for the
agricultural community in the Bank's market area. The Bank offers many forms of
commercial lending, including lines of credit, revolving credit, term loans,
accounts receivable financing, and commercial real estate mortgage lending and
other forms of secured financing. A full range of commercial banking services is
offered, including the acceptance of checking and savings deposits.
Additional types of real estate loans, brokerage services, credit cards and
related services are also offered through correspondent banks or other third
parties.
The Bank offers a full range of trust services that include trust under
agreement, testamentary trust, guardianships and conservatorships, probate
estates and estate planning. In addition, the Bank recently added financial
planning to its trust services.
DEPOSIT ACTIVITIES
The Bank continues to gain market share of deposits in Manitowoc and Brown
Counties. From December 31, 1996 to December 31, 1997, total deposits increased
by 11.9%. From December 31, 1997 to December 31, 1998, deposits increased $16
million or 6.2% to $276.5 million.
No material portion of the Bank's deposits has been obtained from an individual
or a few individuals (including federal, state and local governments and
agencies) the loss of any one or more of which would have a materially adverse
effect on the Bank, nor is a material portion of the Bank's loans concentrated
within a single industry or group of related industries. On December 31, 1998,
the Bank had approximately 16,080 deposit customers representing $276.5 million
in deposits.
<PAGE> 4
LENDING ACTIVITIES
The Bank has experienced growth in the number and dollar amount of loans as a
result of low interest rates and general marketing efforts. The loan portfolio
reflected $22.5 million or 11% growth in 1997 and $2.8 million or 1.2% growth in
1998. Loans sold and serviced for others are not included in these growth
numbers. In 1998, the Bank increased the amount of loans sold and serviced for
others by $18.8 million, an increase of 43.5%.
BANK SERVICE CORPORATIONS
The Bank owns 49.8% of the outstanding common stock of United Financial
Services, Inc. United Financial Services, Inc., located in Grafton, Wisconsin,
provides data processing services to owner banks Baylake Bank and First National
Bank in Manitowoc and to banks
located in Wisconsin.
The Bank owns 100% of the outstanding common stock of FNBM Investment Corp. FNBM
Investment Corp., located in Las Vegas, Nevada, holds and manages a portion of
the bank's investment and loan portfolios.
EXPANSION ACTIVITIES
The Bank has received approval from the federal regulators to open a branch
office in New Holstein,
Wisconsin. The Company anticipates
that the new branch office will open June 30, 1999.
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.
EMPLOYEES
As of December 31, 1998, the Bank employed 146 individuals, 59 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 may be
expected to continue for the foreseeable future.
Regional and local banks dominate the banking industry in the Manitowoc County
and Brown County areas where the Bank maintains offices. These institutions
include: (i) in Manitowoc County, Wisconsin; Associated Bank Lakeshore, N.A.;
Baylake Bank; Cleveland State Bank; Collins State Bank; Denmark State Bank; F &
M Bank-Kiel; First Federal Savings Bank LaCrosse-Madison; First Financial Bank;
First Northern Savings Bank, S.A.; Firstar Bank Wisconsin; Investors Community
Bank; M & I Bank, S.S.B.; North Shore Bank, FSB; and Norwest Bank Wisconsin,
N.A; and (ii) in Brown County, Wisconsin; Associated Bank Green Bay, N.A.; Bank
of Luxemburg; Bank One, Wisconsin; Bay Bank; Baylake Bank; Capital Bank; Denmark
State Bank; F & M Bank-Northeast; First Federal Savings Bank LaCrosse-Madison;
First Financial Bank; First Northern Savings Bank, S.A.; Firstar Bank Wisconsin;
Greenleaf Wayside Bank; M & I Bank Northeast; North Shore Bank, FSB: Norwest
Bank Wisconsin; N.A.; and Union State Bank. The Bank competes for deposits and
loans with these institutions and with credit unions, savings institutions,
insurance companies, and mortgage companies, as well as other companies that
offer financial services. To attract new business and retain existing customers,
the Bank offers a wide range of banking products and services and relies on
local promotional activity, personal contact by its officers, staff, and
directors, referrals by current customers, extended banking hours, and
personalized service.
<PAGE> 5
As of June 30, 1998, the most recent date for which comparative data is
available, bank deposits in Manitowoc County (where the Bank's main office,
Francis Creek branch, St. Nazianz branch, Two Rivers branch, Mishicot branch,
Custer Street branch, Kiel branch and Newton branch are located) and Brown
County, Wisconsin (where the Bank's Bellevue branch is located), ranked as
follows:
<TABLE>
<CAPTION>
Manitowoc County Deposits % of Total
- ---------------- -------- ----------
(in thousands)
<S> <C> <C>
Associated Bank Lakeshore, National Association (Total 5 Offices) $ 221,444 21.75
Baylake Bank 3,165 .31
Cleveland State Bank 27,163 2.67
Collins State Bank 8,932 .88
Denmark State Bank (Total 3 Offices) 57,415 5.64
F & M Bank-Kiel 37,250 3.66
First Federal Savings Bank La Crosse-Madison 19,880 1.95
First Financial Bank 61,059 5.99
FIRST NATIONAL BANK IN MANITOWOC (Total 8 Offices) 252,609 24.81
First Northern Savings Bank, Savings Association 25,688 2.52
Firstar Bank Wisconsin (Total 2 Offices) 147,347 14.47
Investors Community Bank 47,844 4.70
M & I Bank S.S.B 37,753 3.71
North Shore Bank, FSB 29,896 2.93
Norwest Bank Wisconsin, National Association (Total 3 Offices) 40,803 4.01
---------- ------
Total $1,018,248 100.00
========== ======
</TABLE>
Source: FDIC Data Book
<TABLE>
<CAPTION>
Brown County Deposits % of Total
- ------------ -------- ----------
(in thousands)
<S> <C> <C>
Associated Bank Green Bay, National Association (Total 11 Offices) $ 869,075 27.77
Bank of Luxemburg 11,212 .36
Bank One, Wisconsin (Total 6 Offices) 381,956 12.20
Bay Bank 25,454 .81
Baylake Bank (Total 3 Offices) 24,913 .80
Capital Bank 34,122 1.09
Denmark State Bank (Total 2 Offices) 136,711 4.37
F & M Bank-Northeast (Total 5 Offices) 147,199 4.70
First Federal Savings Bank La Crosse-Madison (Total 2 Offices) 30,467 .97
First Financial Bank (Total 2 Offices) 63,821 2.04
FIRST NATIONAL BANK IN MANITOWOC 12,742 .41
First Northern Savings Bank, Savings Association (Total 8 Offices) 251,276 8.03
Firstar Bank Wisconsin (Total 3 Offices) 207,469 6.63
Greenleaf Wayside Bank (Total 2 Offices) 30,163 .96
M & I Bank Northeast (Total 12 Offices) 595,166 19.02
North Shore Bank, FSB (Total 5 Offices) 82,484 2.64
Norwest Bank Wisconsin, National Association (Total 4 Offices) 218,359 6.98
Union State Bank 6,773 .22
---------- ------
Total $3,129,362 100.00
========== ======
</TABLE>
Source: FDIC Data Book
<PAGE> 6
SUPERVISION AND REGULATION
General. The Company and the Bank are extensively regulated under federal and
state law. Generally, these laws and regulations are intended to protect
depositors, not stockholders. 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 Company and the Bank.
Federal Bank Holding Company Regulation and Structure. The Company is a bank
holding company within the meaning of the BHCA, as amended, and as such, it is
subject to regulation, supervision, and examination by the Federal Reserve Board
("FRB"). The Company 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 Company and its subsidiaries.
With certain limited exceptions, the Company 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 Company 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 banking 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
Company 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 Company'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 Company, and may
not require that a customer promise not to obtain other services from a
competitor as a condition to and 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 at
a time when the holding company does not have the resources to provide it.
Federal Bank Regulation. The Company'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 stockholders 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 Company, 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.
<PAGE> 7
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, and each institution is required to pay quarterly
deposit insurance premium assessments to the FDIC. The BIF assessment rates have
a range of 0 cents to 27 cents for every $100 in assessable deposits. Banks with
no premium are subject to an annual statutory minimum assessment.
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% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31, 1998, the Bank's ratio of Tier 1 to risk-weighted assets stood at
12.4% and its ratio of total capital to risk-weighted assets stood at 13.6%. In
addition to risk-based capital, banks and bank holding companies are required to
maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage capital ratio, of at least 4%. As of December 31, 1998, the Bank's
leverage capital ratio was 8.5%.
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, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. 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 Company.
Federal Deposit Insurance Corporation Improvement Act of 1991. In December 1991,
Congress enacted the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), which substantially revised the bank regulatory and funding
provisions of the Federal Deposit Insurance Act and made significant revisions
to several other federal banking statutes. FDICIA provides for, among other
things, (i) publicly available annual financial condition and management reports
for financial institutions, including audits by independent accountants, (ii)
the establishment of uniform accounting standards by federal banking agencies,
(iii) the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with more scrutiny
and restrictions placed on depository institutions with lower levels of capital,
(iv) additional grounds for the appointment of a conservator or receiver, and
(v) restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements. FDICIA
also provided for increased funding of the FDIC insurance funds and the
implementation of risked-based premiums. See "-Deposit Insurance."
A central feature of FDICIA is the requirement that the federal banking agencies
take "prompt corrective action" with respect to depository institutions that do
not meet minimum capital requirements. Pursuant to FDICIA, the federal bank
regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." The Bank is currently classified as
"well-capitalized." An institution may be deemed by the regulators to be in a
capitalization category that is lower than is indicated by its actual capital
position if, among other things, it receives an unsatisfactory examination
rating with respect to asset quality, management, earnings or liquidity.
FDICIA provides the federal banking agencies with significantly expanded powers
to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
<PAGE> 8
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 borrowing 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. The money policies of the FRB have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future.
ITEM 2
FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements and the related notes and with the
Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations, provided elsewhere herein.
<TABLE>
<CAPTION>
FOR THE YEAR 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 26,672,648 $ 25,113,510 $ 21,087,774 $ 19,346,287 $ 14,974,377
Interest expense $ 14,152,353 $ 13,135,748 $ 10,604,493 $ 9,551,729 $ 6,477,763
Net interest income $ 12,520,295 $ 11,977,762 $ 10,483,281 $ 9,794,558 $ 8,496,614
Provision for loan losses 800,000 600,000 430,000 105,000 129,000
Net interest income after provision
for loan losses 11,720,295 11,377,762 10,053,281 9,689,558 8,367,614
Other operating income 2,166,496 1,618,623 1,423,097 1,064,691 990,195
Other operating expense 8,052,716 7,403,914 6,552,984 6,612,622 5,845,147
Net income 4,601,075 4,164,471 3,605,394 3,113,627 2,702,661
PER SHARE DATA:(*)
Net income - basic and diluted $2.65 $2.40 $2.08 $1.80 $1.56
Cash dividends declared $0.46 $0.41 $0.36 $0.32 $0.28
Book value $19.54 $17.03 $14.66 $12.98 $11.48
Weighted average shares outstanding 1,734,317 1,734,317 1,734,317 1,734,317 1,734,317
At Year End
Total assets $367,828,279 $348,907,496 $300,419,746 $257,697,628 $232,550,879
Loans, net of unearned income 228,916,657 226,067,546 203,537,238 177,015,116 156,286,843
Allowance for loan losses 3,124,109 2,608,277 2,079,614 1,818,633 1,815,362
Investment securities 97,197,495 85,577,782 76,402,625 58,282,709 56,111,975
Deposits 276,494,614 260,466,017 232,765,720 207,968,667 193,682,253
Long-term debt 28,500,000 24,500,000 5,095,000 2,116,500 2,084,000
Stockholders' equity 33,891,847 29,541,167 25,424,699 22,510,622 19,916,194
Average Balances
Assets $355,018,896 $331,983,654 $278,406,139 $252,158,424 $215,083,989
Deposits 267,331,741 246,986,724 222,519,686 203,715,822 175,726,000
Stockholders' equity 32,373,927 27,894,687 24,173,705 21,527,955 19,127,755
Financial Ratios
Return on average assets 1.30% 1.25% 1.30% 1.23% 1.26%
Return on average equity 14.21% 14.93% 14.91% 14.46% 14.13%
Average equity to average assets 9.12% 8.40% 8.68% 8.54% 8.89%
Dividend payout ratio 17.36% 17.08% 17.31% 17.78% 17.95%
</TABLE>
(*) Per share data for 1994 through 1998 is restated to reflect the 25% stock
dividends (five for four share exchanges) paid April 22, 1994; April 21, 1995;
April 11, 1997 and April 16, 1999.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is designed to provide a better understanding of the
financial position of the Company and should be read in conjunction with the
Audited Consolidated Financial Statements and Notes.
Organizational Background
On November 16, 1982, the Company commenced operations as the parent company of
its sole subsidiary, the Bank, which has conducted the business of banking since
1894. Since the Bank is the primary possession of the Company, the assets and
liabilities of the Company are made up almost entirely of the assets and
liabilities of the Bank. The same is true for the income and expense of the
Company. All data for periods on and after December, 1998 is presented in this
analysis in consolidated form and is compared to like data for the Bank for
prior years.
Results of Operations Overview
The Company reported $4,601,075 in net income for 1998 or $2.65 per share
compared to 1997 net income of $4,164,471 or $2.40 per share, and $3,605,394 or
$2.08 per share for 1996. Earnings for the year represent a record level of
performance for the Company, exceeding the previous record of $4,164,471
achieved in 1997. The improvement was attributed to growth in net interest
income and non-interest income, the Company's major income components. Return on
assets was 1.30%, 1.25% and 1.30% in 1998, 1997 and 1996, respectively. Return
on average equity for 1998 was 14.21%, 14.93% for 1997, and 14.91% for 1996.
Net Interest Income and Net Interest Margin
Net interest income is the principal source of earnings for a banking company.
It represents the differences between interest and fees earned on the loan and
investment portfolios and interest-bearing deposits off set by the interest paid
on deposits and borrowings. The years ended December 31, 1998 and 1997 have been
characterized by generally declining interest rates. Because deposits and loans
and other investments reprice at different rates and as a result of changes in
volume, the Bank's net interest income, on a fully tax-equivalent basis,
increased in 1998 and 1997.
Net interest income (on a tax equivalent basis) for 1998 increased by $895,992
or 6.8% compared to the year ended December 31, 1997, while 1997 increased by
$1,714,758 or 14.9% from the previous year ended December 31, 1996. The
declining rate of increase is largely the result of the effect of decreased
interest rate spreads. Interest rate spread is the difference between the
average yield on interest earning assets and the average rate paid on interest
bearing liabilities (deposits). Interest rate spread for the years ended
December 31, 1998, 1997 and 1996 was 3.50%, 3.62%, and 3.79%, respectively. See
the Table 1 titled "Average Balances, Yields and Rates" for additional
information.
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. For 1998, the net interest margin decreased to 4.27% from 4.35% in 1997.
The net interest margin for 1997 decreased to 4.35% from 4.50% the previous
year. These changes are the result of repricing as previously discussed and
illustrated in Table 2 "Rate and Volume Variance Analysis Based on Average
Balances."
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.
The following Tables 1 and 2 do not include financial data for the Company as
they include only Bank financial information.
<PAGE> 10
AVERAGE BALANCES, YIELD AND RATES
Table 1
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Money market investments:
Federal funds sold $ 8,774,000 $ 525,545 5.99% $ 5,969,000 $ 372,324 6.24% $ 2,841,000 $ 184,670 6.50%
Investment securities:
U.S. Treasury securities and
obligations of U.S. government
agencies 38,103,000 2,594,115 6.81% 42,941,000 2,747,225 6.40% 36,826,000 2,378,041 6.46%
Tax-exempt obligations of States
and political subdivisions 48,580,000 3,601,635 7.41% 34,334,000 2,574,381 7.50% 25,580,000 1,897,617 7.42%
All other investment securities 3,932,000 196,417 5.00% 3,778,000 224,484 5.94% 2,465,000 88,880 3.61%
------------ ----------- ----- ------------ ----------- ----- ------------ ----------- -----
Total investment securities 90,615,000 6,392,167 7.05% 81,053,000 5,546,090 6.84% 64,871,000 4,364,538 6.73%
Loans, net of unearned income
Commercial loans 104,291,000 9,950,657 9.54% 97,010,000 9,516,959 9.81% 80,942,000 7,796,274 9.63%
Mortgage loans 111,434,000 9,723,581 8.73% 105,513,000 9,339,019 8.85% 93,183,000 8,250,449 8.85%
Installment loans 10,771,000 1,073,069 9.96% 10,037,000 989,747 9.86% 9,260,000 907,722 9.80%
Other loans 4,064,000 599,795 14.76% 4,005,000 581,604 14.52% 4,209,000 585,994 13.92%
------------ ----------- ----- ------------ ----------- ----- ------------ ----------- -----
Total loans 230,560,000 21,347,102 9.26% 216,565,000 20,427,329 9.43% 187,594,000 17,540,439 9.35%
------------ ----------- ----- ------------ ----------- ----- ------------ ----------- -----
TOTAL INTEREST EARNING ASSETS 329,949,000 $28,264,814 8.57% 303,587,000 $26,345,743 8.68% 255,306,000 $22,089,647 8.65%
Cash and due from banks 8,702,000 8,268,000 7,527,000
Other assets 11,299,000 9,906,000 9,299,000
Allowance for loan and lease
losses (2,775,000) (2,261,000) (1,892,000)
------------ ------------ ------------
TOTAL ASSETS 347,175,000 319,500,000 270,240,000
============ ============ ============
LIABILITIES
Interest-bearing liabilities:
Savings Deposits 26,061,000 648,703 2.49% 25,804,000 640,525 2.48% 26,705,000 647,257 2.42%
Market Plus accounts 46,153,000 2,182,856 4.73% 34,964,000 1,700,496 4.86% 26,397,000 1,265,944 4.80%
Super NOW accounts 11,698,000 281,525 2.41% 11,688,000 275,957 2.36% 11,087,000 247,281 2.23%
Money market deposit accounts 6,383,000 181,985 2.85% 6,612,000 170,871 2.58% 7,805,000 180,572 2.31%
Certificates of deposit and
IRA deposits 137,887,000 8,103,059 5.88% 131,084,000 7,670,552 5.85% 119,759,000 6,971,654 5.82%
Repurchase agreements 21,355,000 1,111,441 5.20% 20,944,000 1,062,572 5.07% 17,168,000 790,983 4.61%
Federal funds purchased 53,000 3,087 5.82% 470,000 27,321 5.81% 611,000 29,617 4.85%
Borrowings 29,993,000 1,661,923 5.54% 28,194,000 1,603,206 5.69% 8,695,000 476,854 5.48%
------------ ----------- ----- ------------ ----------- ----- ------------ ----------- -----
TOTAL INT-BEARING LIABILITIES 279,583,000 $14,174,579 5.07% 259,760,000 13,151,500 5.06% 218,227,000 10,610,162 4.86%
Demand deposits 33,856,000 30,771,000 26,710,000
Other liabilities 3,687,000 3,311,000 3,036,000
------------ ------------ ------------
Total liabilities 317,126,000 293,842,000 247,973,000
Stockholders' equity 30,049,000 25,658,000 22,267,000
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $347,175,000 $319,500,000 $270,240,000
============ ============ ============
Net interest income and
interest rate spread $14,090,235 3.50% $13,194,243 3.62% $11,479,485 3.79%
Net interest income as a
percent of earning assets 4.27% 4.35% 4.50%
===== ===== =====
</TABLE>
<PAGE> 11
RATE AND VOLUME VARIANCE ANALYSIS
BASED ON AVERAGE BALANCES
Table 2
<TABLE>
<CAPTION>
1998 compared to 1997 1997 compared to 1996
--------------------- ---------------------
Increase Change due to Increase Change due to
(Decrease) Rate Volume (Decrease) Rate Volume
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Federal funds sold $ 153,221 $ (21,744) $ 174,965 $ 187,654 $ (15,672) $ 203,326
----------- ----------- ----------- ----------- ----------- -----------
Total money market investments 153,221 (21,744) 174,965 187,654 (15,672) 203,326
----------- ----------- ----------- ----------- ----------- -----------
U.S. Treasury securities and obligations
of U.S. government agencies (153,110) 156,409 (309,519) 369,184 (25,692) 394,876
Tax-exempt obligations of State and
political subdivisions 1,027,254 (40,918) 1,068,172 676,764 27,361 649,403
All other investment securities (28,067) (37,217) 9,150 135,604 88,261 47,343
----------- ----------- ----------- ----------- ----------- -----------
Total investment securities 846,077 78,274 767,803 1,181,552 89,930 1,091,622
----------- ----------- ----------- ----------- ----------- -----------
Commercial loans 433,698 (280,589) 714,287 1,720,685 173,027 1,547,658
Mortgage loans 384,562 (139,509) 524,071 1,088,570 (3,132) 1,091,702
Installment loans 83,322 10,942 72,380 82,025 5,859 76,166
Other loans 18,191 9,623 8,568 (4,390) 24,012 (28,402)
Total loans 919,773 (399,533) 1,319,306 2,886,890 199,766 2,687,124
----------- ----------- ----------- ----------- ----------- -----------
Total interest income $ 1,919,071 $ (343,003) $ 2,262,074 $ 4,256,096 $ 274,024 $ 3,982,072
----------- ----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Savings Deposits $ 8,178 $ 1,799 $ 6,379 $ (6,732) $ 15,106 $ (21,838)
Market Plus accounts 482,360 (61,824) 544,184 434,552 23,697 410,855
Super NOW accounts 5,568 5,332 236 28,676 15,271 13,405
Money market deposit accounts 11,114 17,032 (5,918) (9,701) 17,900 (27,601)
Certificates of deposit and IRA deposits 432,507 34,421 398,086 698,898 39,624 659,274
Repurchase agreements 48,869 28,017 20,852 271,589 97,617 173,972
Federal funds purchased (24,234) 6 (24,240) (2,296) 4,539 (6,835)
Borrowings 58,717 (43,580) 102,297 1,126,352 56,982 1,069,370
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense $ 1,023,079 $ (18,797) $ 1,041,876 $ 2,541,338 $ 270,736 $ 2,270,602
----------- ----------- ----------- ----------- ----------- -----------
Net interest income $ 895,992 $ (324,206) $ 1,220,198 $ 1,714,758 $ 3,288 $ 1,711,470
=========== =========== =========== =========== =========== ===========
</TABLE>
The rate and volume variance was determined by taking the difference in rate
times the previous year's balance.
Provision and Allowance for Loan Losses
For the year ended December 31, 1998, the Bank recorded net charge offs of
$284,168 compared to net charge offs of $71,337 in 1997 and $169,019 in 1996.
Internal loan review, in particular, has been effective in identifying problem
credits and in achieving timely recognition of potential and actual losses
within the loan portfolio.
Gross charge offs amounted to $322,687 in 1998, $107,198 in 1997, and $219,901
in 1996, the majority of which were commercial loans. Efforts to collect charged
off loans continue. Recoveries were $38,519 in 1998, $35,861 in 1997, and
$50,882 in 1996.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated loan losses. Management's quarterly evaluation of
the adequacy of the allowance is based on analysis of the loan portfolio
including the volume and character of loans outstanding; assessment of current
economic conditions; diversification and size of the portfolio; past loss
experience; the amount of non-performing loans; adequacy of collateral;
concentrations of credit; experience, ability and depth of the lending staff;
and Year 2000 concerns affecting borrowers.
<PAGE> 12
The allowance for loan losses of $2,079,614 as of December 31, 1996 represents
1.02% of gross loans, and as of December 31, 1997, the $2,608,277 allowance for
loan losses reflected 1.15% of gross loans. The allowance for loan losses of
$3,124,109 as of December 31, 1998 amounted to 1.36% of the outstanding loan
portfolio. Analysis by loan review and audit supports the adequacy of the
allowance. In management's opinion, the allowance for loan losses is adequate as
of December 31, 1998. See Note 4 in the Consolidated Financial Statements.
The allocation of the allowance for loan losses is shown in the following table.
Table 3
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(In Thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial & Agricultural $1,246 $ 903 $ 724 $ 648 $ 661
Commercial Real Estate 519 527 388 337 319
Residential Real Estate 1,162 1,025 843 723 722
Consumer 187 144 119 106 107
Other 10 9 6 5 6
------ ------ ------ ------ ------
Total $3,124 $2,608 $2,080 $1,819 $1,815
====== ====== ====== ====== ======
</TABLE>
Table 4
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands)
For the Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,608 $2,080 $1,819 $1,815 $1,753
Charge-offs:
Real Estate $ 21 $ 3 23 22 9
Commercial & Agricultural 259 51 172 106 27
Consumer 43 53 25 25 45
------ ------ ------ ------ ------
$ 323 $ 107 $ 220 $ 153 $ 81
====== ====== ====== ====== ======
Recoveries:
Real Estate $ 13 $ 2 $ 1 $ 39 $ 5
Commercial & Agricultural 9 24 9 2 0
Consumer 17 9 41 11 9
------ ------ ------ ------ ------
$ 39 $ 35 $ 51 $ 52 $ 14
====== ====== ====== ====== ======
Net charge-offs (recoveries) 284 72 169 101 67
Provision for loan losses 800 600 430 105 129
------ ------ ------ ------ ------
Balance at end of period $3,124 $2,608 $2,080 $1,819 $1,815
====== ====== ====== ====== ======
Ratio of net charge offs during
period to average loans
outstanding during period .12% .03% .09% .06% .05%
</TABLE>
The increase in the allocation of the allowance for loans losses is primarily a
result of the growth in loan volume and Year 2000 considerations.
Other Operating Income
Other operating income increased $547,873, or 33.85%, from 1997 to 1998. The
growth resulted primarily from increases in loan servicing income, gains on
sales of mortgage loans held for sale, and service charges on deposits. The Bank
increased its loans sold and serviced for others during 1998 by $18.8 million,
an increase of 43.5%. Service charges increased due to collection of automated
teller machine fees and assessment of service charges on negative collected
balances.
<PAGE> 13
Other operating income increased $195,526, or 13.74%, from 1996 to 1997. The
growth resulted primarily from increases in FHLB dividends and undistributed
income from the data processing subsidiary. FHLB dividends increased as a result
of an additional investment in FHLB stock. Undistributed income from the data
processing subsidiary increased as a result of increased earnings of the data
processing subsidiary.
Other Operating Expenses
Other operating expenses increased by $648,802, or 8.76%, from 1997 to 1998.
This change was primarily a result of increases in salaries, employee benefits
and professional fees. Increases in salaries and employee benefits were the
result of additional employees. Professional fees increased due to regulatory
reporting requirements.
Other operating expenses increased by $850,930, or 12.99%, from 1996 to 1997.
This change was primarily a result of increases in salaries, employee benefits
and occupancy expense. Increases in salaries and employee benefits were the
result of additional employees. Occupancy expense increased due to increases in
building insurance, real estate taxes, and building leases.
Income Taxes
The effective tax rates for the Company were 21.13%, 25.53%, and 26.77% for
1998, 1997, and 1996, respectively. The decrease in effective tax rates is a
direct result of additional assets held at the Bank's FNBM Investment Corp.
subsidiary, which is discussed below. See Note 11 in the Consolidated Financial
Statements.
FNBM Investment Corp. is a wholly-owned subsidiary of the Bank incorporated
under the laws of Nevada and is subject to taxation in the State of Nevada which
does not currently impose a corporate income tax. Although the taxable income of
the FNBM Investment Corp. is not currently subject to taxation in the State of
Wisconsin, legislation has recently been introduced which would require
consolidated state income tax returns for taxable years beginning after December
31, 1999. Such legislation would result in the taxable income of FNBM Investment
Corp. being subject to taxation in the State of Wisconsin. If the Company had
been required to file a combined state income tax return in Wisconsin for the
year ended December 31, 1998, the Company's consolidated income tax expense
would have been higher by approximately $375,000. At this time, the Company is
unable to estimate whether this legislation, as proposed, will become law in the
State of Wisconsin.
Investment Securities
Investment securities classified as 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.
Available for sale securities 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. Investment securities
classified as 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 securities. The Bank manages the investment portfolios
within policies which seek to achieve desired levels of liquidity, manage
interest rate sensitivity risk, meet earnings objectives, and provide required
collateral support for deposit activities.
Total investment securities amounted to $97.2 million and $85.6 million as of
December 31, 1998 and 1997, respectively. The higher level of investments in
securities resulted primarily from the increase in available funds derived from
growth in deposits over loans.
The Bank manages its investment portfolios within policies which 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 investment securities from any
single issues that exceeded 10% of stockholders' equity. Table 5 exhibits the
distribution, by type, of the investment portfolio for the years ended December
31, 1998 and 1997.
Table 5
INVESTMENT SECURITIES
(In Thousands)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Available for Sale
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 5,791 $20,554
Obligations of states and political subdivisions 53,259 41,037
Mortgage-backed securities 27,473 20,646
Commercial paper 7,200 0
Other securities 1,694 2,369
Total amortized cost $95,417 $84,606
Total fair value $97,197 $85,578
</TABLE>
<PAGE> 14
The following table presents the maturity by type of the investment portfolio
for the year ended December 31, 1998.
Table 6
INVESTMENT PORTFOLIO ANALYSIS
December 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
U.S. Govt. Mortgage Backed Commercial
Agencies Municipals Securities Paper Other Securities Total Total
Description Book Avg TE Book Avg TE Book Avg TE Book Avg TE Book Avg TE Amortized Fair
& Term Value Yield Value Yield Value Yield Value Yield Value Yield Cost Value
- ------------- ----------------- ----------------- --------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-12 months $ 0 n/a $ 2,837 7.06 $ 4,228 5.79 $ 7,200 4.81 $ 35 6.00 $14.300 $14,154
1-5 Years 2,000 6.28 9,204 7.23 17,754 6.38 0 n/a 100 6.75 29,058 29,432
5-10 Years 1,499 6.89 9,616 7.62 5,419 6.01 0 n/a 0 n/a 16,534 16,990
Over 10 Years 2,292 7.72 31,602 7.37 72 8.77 0 n/a 1,559 7.00 35,525 36,621
------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- -------
Total $ 5,791 7.35 $53,259 7.38 $27,473 6.34 $ 7,200 4.81 $ 1,694 6.96 $95,417 $97,197
======= ==== ======= ==== ======= ==== ======= ==== ======= ==== ======= =======
</TABLE>
Loan Portfolio
The Bank is actively engaged in originating loans to customers in Manitowoc 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 credit 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. 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 December 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
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
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
Agricultural $ 91,122 39.81% $ 78,230 34.61% $ 70,775 34.77% $ 62,982 35.58% $ 53,893 34.48%
Commercial
Real Estate 38,018 16.61% 45,689 20.21% 38,003 18.67% 32,825 18.54% 28,304 18.11%
Residential
Real Estate 85,115 37.18% 88,822 39.29% 82,538 40.55% 70,365 39.75% 64,046 40.98%
Consumer 13,783 6.02% 12,503 5.53% 11,599 5.70% 10,335 5.84% 9,531 6.10%
Other 879 .38% 823 .36% 622 .31% 508 .29% 513 .33%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total $228,917 100.00% $226,067 100.00% $203,537 100.00% $177,015 100.00% $156,287 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Table 8
MATURITIES OF LOAN PORTFOLIO
December 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Commercial Commercial Residential
Maturing & Agricultural Real Estate Real Estate Consumer Other Total
- -------- -------------- ----------- ----------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
0-12 months $ 54,213 $ 16,313 $ 49,367 $ 3,437 $ 879 $124,209
1-5 years 28,502 19,897 34,942 10,244 0 93,585
Over 5 years 8,407 1,808 806 102 0 11,123
-------- -------- -------- -------- -------- --------
Total $ 91,122 $ 38,018 $ 85,115 $ 13,783 $ 879 $228,917
======== ======== ======== ======== ======== ========
<CAPTION>
Maturing Fixed Rate Adjustable Rate Total
- -------- ---------- --------------- -----
<S> <C> <C> <C>
0-12 months $ 96,891 $ 48,551 $145,442
1-5 years 82,523 0 82,523
Over 5 years 952 0 952
-------- -------- --------
Total $180,366 $ 48,551 $228,917
======== ======== ========
</TABLE>
<PAGE> 15
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, 1998.
It is the policy of the Bank to place a loan in nonaccrual status whenever there
is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. Management considers such factors as payment
history, the nature of collateral securing the loan and the overall economic
situation of the borrower when making a nonaccrual decision. Nonaccrual loans
are closely monitored by management. A non-accruing loan is restored to current
status when the prospects of future contractual payments are no longer in doubt.
Nonaccrual loans at December 31, 1998 and 1997 were $927,000 and $210,000,
respectively. 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,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 927 $211 $708 $1,153 $286
Accruing loans past due 90 days or more 181 84 229 36 97
----- --- --- ----- ---
Total $1,108 $295 $937 $1,189 $383
</TABLE>
The following table shows the interest income that would have been recorded
under the original terms and the amount of interest income that was included in
interest income for the period.
Table 10
FOREGONE LOAN INTEREST
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income that would have been
recorded under original terms $128 $ 47 $ 97
Interest income recorded during the period 43 16 29
-- -- --
Reduction in interest income $ 85 $ 31 $ 68
</TABLE>
Deposits
Deposit liabilities increased from $260.5 million at December 31, 1997 to $276.5
million at December 31, 1998, an increase of $16 million, or 6.2%. Savings and
noninterest bearing demand deposits are the main source of deposit growth. The
Bank continues to experience strong competition from other commercial banks,
credit unions, the stock market and mutual funds. Table 1 displays the average
balances and average rates paid on all major deposits classifications for 1998,
1997 and 1996. The Bank has no foreign banking offices.
The following table represents maturities of time deposits in denominations of
$100,000 or more for the years ended December 31, 1998 and
1997.
Table 11
MATURITY OF TIME DEPOSITS $100,000 OR MORE
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<C> <C> <C>
3 months or less $ 5,077 $ 3,430
3 - 6 months 5,626 5,758
6 - 12 months 5,310 6,606
Over 12 months 2,171 3,202
-- ------- -------
TOTAL $18,184 $18,996
======= =======
</TABLE>
<PAGE> 16
Table 12
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
(IN THOUSANDS)
DECEMBER 31,
Securities sold under agreements to repurchase generally mature within one day
from the transaction date. The agreements to repurchase securities requires that
the Bank (seller) repurchase identical securities as those that were sold. The
securities underlying the agreements were under the institution's control at
December 31, 1998 and 1997.
Information concerning securities sold under agreements to repurchase for 1998,
1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average balance during the year ............ $21,355 $20,944 $17,187
Average interest rate during the year ...... 5.21% 5.07% 4.61%
Maximum month-end balance
during the year ........................ $25,667 $24,425 $26,219
</TABLE>
FHLB Advances
FHLB advances decreased from $29.5 million to $28.5 million, a decrease of $1.0
million or 3.4%. FHLB advances are subject to a prepayment penalty if they are
repaid prior to maturity. FHLB advances are callable one year after origination
and quarterly thereafter.
Liquidity Management
Liquidity describes the ability of the Bank to meet financial obligations that
arise out of the ordinary course of business. Liquidity is primarily needed to
meet borrowing and deposit withdrawal requirements of the customers of the Bank
and to fund current and planned expenditures. The Bank maintains its asset
liquidity position internally through short term investments, the maturity
distribution of the investment portfolio, loan repayments and income from
earning assets. A substantial portion of the investment portfolio contains
readily marketable securities that could be converted to cash immediately. Refer
to Note 2 in the Consolidated Financial Statements for a table showing the
maturity distribution of the Banks 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
which will have a material impact on the Bank's ability to maintain liquidity at
satisfactory levels.
Capital Resources and Adequacy
Total stockholders' equity increased $4.3 million or 14.5% in 1998 to $33.9
million at the end of the year from $29.6 million at December 31, 1997. Net
income of $4.6 million primarily contributed to this increase. Total
stockholders' equity as of December 31, 1997 increased $4.1 million from
December 31, 1996.
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%. The leverage ratio for the years
ended December 31, 1998, 1997, and 1996 was 8.5%, 7.7%, and 7.9%, 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%. The Bank's ratio at December 31, 1998, and
for each of the two preceding years was 13.6%, 12.7%, and 12.1%, respectively.
According to FDIC capital guidelines, the Bank is considered to be "well
capitalized."
Management knows of no other trend or event which will have a material impact on
capital. Please also refer to Note 15 in the Notes to Consolidated Financial
Statements for additional discussion of regulatory matters.
Qualitative and Quantitative Disclosures About Market Risk
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. The following
table shows the expected cash flows and yields for interest earning assets and
interest bearing liabilities.
<PAGE> 17
Table 13
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
(IN THOUSANDS)
EXPECTED PERIOD OF MATURITY
---------------------------
<TABLE>
<CAPTION>
WITHIN
1 YEAR 1 -2 YEARS 2 -3 YEARS 3-4 YEARS
YIELD/ YIELD/ YIELD/ YIELD/
DECEMBER 31, 1998 BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
- ----------------- ----------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term
investments (V) $15,623 4.47% $ 0 n/a $ 0 n/a $ 0 n/a
US Treasury, Agency
and Other
securities (F) 14,010 6.23% 575 13.89% 0 n/a 0 n/a
US Treasury, Agency
and Other
securities (V) 50 7.50% 0 n/a 0 n/a 0 n/a
Mortgage backed
Securities (F) 5,227 6.39% 2,923 6.59% 1,734 6.82% 1,163 6.82%
Mortgage backed
Securities (V) 2,742 5.92% 0 n/a 0 n/a 0 n/a
Municipal securities (F) 4,924 4.87% 3,554 4.84% 3,850 4.78% 1,910 5.18%
Commercial loans (F) 20,657 9.14% 21,036 9.06% 30,956 8.99% 22,460 9.03%
Commercial loans (V) 30,261 8.92% 1,386 9.17% 0 n/a 0 n/a
Residential
real estate (F) 31,967 8.58% 20,041 8.56% 20,096 8.57% 1,722 8.91%
Residential
real estate (V) 5,262 8.17% 4,222 7.51% 1,097 7.79% 0 n/a
Consumer loans (F) 3,437 9.58% 3,195 9.39% 3,782 9.20% 3,054 9.03%
----- ---- ----- ---- ----- ---- ----- ----
Total interest earning
assets $134,160 7.67% $56,932 8.47% $61,515 8.49% $30,309 8.69%
======== ===== ======= ===== ======= ===== ======= =====
Interest bearing
deposits (F) $103,668 5.47% $28,818 5.92% $1,341 5.65% $ 199 5.57%
Interest bearing
deposits (V) 100,535 3.38% 0 n/a 0 n/a 0 n/a
Short term
borrowings (F) 6,500 5.21% 0 n/a 0 n/a 0 n/a
Short term
borrowings (V) 18,495 5.22% 0 n/a 0 n/a 0 n/a
Long term
Borrowings (F) 0 n/a 0 n/a 4,000 5.43% 24,500 5.48%
- --- - --- ----- ----- ------ -----
Total interest bearing
liabilities $229,198 4.51% $ 28,818 5.92% $ 5,341 5.49% $ 24,699 5.48%
======== ===== ======== ===== ======== ===== ======== =====
<CAPTION>
GREATER THAN
4YEARS TOTAL FAIR
YIELD/ YIELD/ MARKET
DECEMBER 31, 1998 BALANCE RATE BALANCE RATE VALUE
- ----------------- ------------------ ---------------- -----
<S> <C> <C> <C> <C> <C>
Short-term
investments (V) $ 0 n/a $15,623 4.47% $ 15,623
US Treasury, Agency
and Other
securities (F) 50 6.00% 14,635 6.28% 14,662
US Treasury, Agency
and Other
securities (V) 0 n/a 50 7.50% 50
Mortgage backed
Securities (F) 13,684 6.39% 24,731 6.47% 24,881
Mortgage backed
Securities (V) 0 n/a 2,742 5.92% 2,742
Municipal securities (F) 39,021 4.94% 53,259 4.95% 54,862
Commercial loans (F) 3,263 10.03% 98,372 9.10% 98,543
Commercial loans (V) 0 n/a 31,647 8.93% 31,647
Residential
real estate (F) 708 8.57% 74,534 8.57% 77,031
Residential
real estate (V) 0 n/a 10,581 7.87% 10,581
Consumer loans (F) 315 9.28% 13,783 9.27% 14,245
-------- ----- -------- ---- --------
Total interest earning
assets $ 57,041 5.61% $339,957 7.80% $344,867
======== ===== ======== ==== ========
Interest bearing
deposits (F) $ 560 5.86% $134,586 5.72% $135,135
Interest bearing
deposits (V) 0 n/a 100,535 3.38% 100,535
Short term
borrowings (F) 0 n/a 6,500 5.21% 6,500
Short term
borrowings (V) 0 n/a 18,495 5.22% 18,495
Long term
Borrowings (F) 0 n/a 28,500 5.46% 28,500
- -------------- - --- ------ ---- ------
Total interest bearing
liabilities $ 560 5.86% $288,616 4.86% $289,165
======== ===== ======== ==== ========
</TABLE>
(V) Variable repricing terms
(F) Fixed repricing terms
<PAGE> 18
Year 2000
The Bank has followed the five phases recommended by the Federal Financial
Institutions Examination Council (FFIEC) to manage its Year 2000 project. Thes
phases are awareness, assessment, renovation, validation and implementation.
The Bank's mainframe computer and the software that run it are year 2000
compliant, that is, they have been successfully tested by advancing the
mainframe's internal calendar to and through the year 2000. As of April 1, 1999,
all of our Mission Critical Systems have been tested and found to be compliant
in the year 2000 environment. Non-critical Systems have been found to be
compliant or will be compliant in the next few months. Testing of Non-critical
Systems is continuing. Our entire inventory of software has been reviewed to
assess the impact of the year 2000.
In addition, the Bank has reviewed all non-information technology and equipment
systems. Non-information technology systems include all other business equipment
other than computer hardware, software and peripheral devices, such as automated
teller machines, modems and routers. Non-information technology equipment
includes security devices, time clocks, heating and air conditioning systems,
elevators, telephones and fax machines. The results of these comprehensive
reviews indicate the Bank is well positioned to deal with this issue, and we do
not anticipate any problems for our customers.
The Bank recognizes that its customers will be affected by the Year 2000 issues.
As a result, the Bank has contacted its significant business loan customers to
make them aware of the Year 2000 issues and to assess their readiness. The Bank
realizes that if its customers experience Year 2000 business interruptions there
may be more exposure to the Bank. The Bank has included the Year 2000 credit
risk into its allowance for loan losses. The Bank will continue its customer
awareness efforts throughout 1999.
The Bank does not expect its Year 2000 compliance costs to be significant.
Equipment upgrades were made to take advantage of current technology in the
ordinary course of business and not solely as a result of the Year 2000 issue.
Costs related solely to Year 2000 compliance are estimated at $100,000.
A business resumption contingency plan has been established to address worst
case scenarios should they occur with the Year 2000 issue.
The Bank is confident that the challenges of the Year 2000 will be adequately
met.
ITEM 3
PROPERTIES
The Company 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 six 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 (future "Kiel Branch Office"
under construction);
5724 CTH U, Newton, Wisconsin 53063 ("Newton Branch Office"); and
2210 Calumet Drive, New Holstein, Wisconsin 53061 ("New Holstein Branch
Office" under construction).
The Bank leases real property at two branch locations at:
601 Fremont Street, Kiel, Wisconsin 53042 ("Kiel Branch Office"); and
2747 Manitowoc Road, Green Bay, Wisconsin 54311 ("Bellevue Branch
Office").
There are no encumbrances on any of these properties.
<PAGE> 19
ITEM 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects the beneficial ownership of the Company's Shares by
Directors, executive officers and by stockholders known to management to own
beneficially 5% or more of the Company's Shares as of April 23, 1999, and
includes all of the Company's Shares that may be acquired by such persons 60
days thereafter. The address of each of the persons named below is the
address of the Company.
<TABLE>
<CAPTION>
Number of Shares Percent of Class
Title of Class Name Beneficially Owned Beneficially Owned
- -------------- ---- ------------------ ------------------
<S> <C> <C> <C> <C>
Par Value $1.00 Director
--------
Common Stock Thomas J. Bare 142,002 (1) 8.19
John M. Jagemann 3,187 *
John C. Miller 77 *
John E. Nordstrom 3,255 (2) *
Craig A. Pauly 20,942 (3) 1.21
Katherine M. Reynolds 266 *
John M. Webster 125 *
Robert S. Weinert 14,725 *
John J. Zimmer 7,237 *
Executive Officer
-----------------
Joseph W. Debilzen 9,200 (4) *
Daniel J. Lalko 5,744 (5) *
Charles P. Riley 8 *
Paul H. Wojta 13,756 (6) *
------- ----
All Directors and Executive Officers as a
Group (13 Persons) 220,524 12.71
</TABLE>
(*) Percent of class beneficially owned less than 1%.
(1) Includes 27,175 shares held by Thomas J. Bare as an individual; 16,817
shares held in First National Bank 401(k) Profit Sharing F/B/O Thomas J.
Bare; 15,983 shares held in Manbank & Co. I/N/O Thomas J. Bare Custodian
for Suzanne Bare Fund Manager Account; 15,340 shares held in Manbank & Co.
I/N/O Thomas J. Bare Custodian for Joanna Bare Fund Manager Account; 13,426
shares held in Manbank & Co. I/N/O Thomas J. Bare for Jonathan Bare Fund
Manager Account; 13,771 shares held in Manbank & Co. I/N/O Thomas J. Bare
Custodian for Michael Bare Fund Manager Account; 725 shares held in Manbank
& Co. Thomas J. Bare Custodial IRA; and 38,765 shares held in the name of
Virginia S. Bare, Trustee U/W Elizabeth B. Sims.
(2) Includes 1,362 shares held by John E. Nordstrom as an individual; 1,768
shares held by Barbara A. Nordstrom as an individual; and 125 shares held
in the name of John E. and Barbara A. Nordstrom JT.
(3) Includes 16,010 shares held by Craig A. Pauly as an individual; 1,206
shares held in the name of Craig A. and Cynthia Pauly JT; 3,483 shares held
in Manbank & Co. I/N/O Craig A. Pauly Custodial IRA; and 243 shares held in
Manbank & Co. I/N/O Cynthia Pauly Custodial IRA Nondeductible
Contributions.
(4) Includes 9,038 shares held in the name of First National Bank 401(k) Profit
Sharing Plan F/B/O Joseph W. Debilzen and 162 shares held in the name of
Joseph W. Debilzen Custodial IRA.
(5) Includes 4,222 shares held by Daniel J. Lalko as an individual; 157 shares
held in the name of Daniel J. Lalko and Ann E. Lalko JT; 1,155 shares held
in Manbank & Co. I/N/O Daniel J. Lalko; 158 shares held in Manbank & Co.
I/N/O Ann E. Lalko; and 52 shares held in First National Bank 401(k) Profit
Sharing Plan F/B/O Daniel J. Lalko.
(6) Includes 6,230 shares held in the name of Paul H. and Jeanne C. Wojta; and
7,526 shares held in the name of First National Bank 401(k) Profit Sharing
Plan F/B/O Paul H. Wojta.
<PAGE> 20
ITEM 5
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Nine Directors serve on the Company's Board of Directors, including Thomas J.
Bare, the Company's President. Each of the Directors also serve as Directors of
the Bank. Classified directorships are divided into three classes, each of which
are elected for three year terms.
Thomas J. Bare, 60, has served as a Bank Director continuously since 1981, and
as a Company Director since its formation in 1983. He was appointed Cashier in
1977, and promoted to Vice President and Cashier in 1978. He served as Vice
President and Cashier until September 1983 when he was appointed Acting
President. In January 1984 he was elected President, his current position. Mr.
Bare also serves as President of the Company; Director of FNBM Investment
Corporation, the Bank's investment corporation; and Director, Secretary and
Treasurer of United Financial Services, Inc., the Bank's data processing
corporation. Mr. Bare's term expires in 2002.
John M. Jagemann, 53, has served as Bank Director continuously since 1996, and
as a Company Director since 1996. He is President of Aitken-Reed, Inc., a
company that manufactures wire harnesses and heaters. Mr. Jagemann's term
expires in 2000.
John C. Miller, 56, has served as Bank Director continuously since 1996, and as
a Company Director since 1996. He is President and Sole Director of Miller-St.
Nazianz, Inc., a company that manufactures farm equipment; President and Sole
Director of Miller Finance Corporation, a retail financing company; and
President and Sole Director of Badger Farm Systems, a company that
markets farm equipment. Mr. Miller's term expires in 2001.
John E. Nordstrom, 63, has served as a Bank Director continuously since 1992,
and as a Company Director since 1993. He is President of Omega Mfg. Corporation,
a company that manufactures paper product packaging equipment. Mr. Nordstrom's
term expires in 2001.
Craig A. Pauly, 49, has served as a Bank Director continuously since 1980, and
as a Company Director since its formation in 1983. He is Director/MIS at
Jagemann Stamping Company, a company that manufactures metal stampings. Mr.
Pauly's term expires in 2002.
Katherine M. Reynolds, 48, has served as Bank Director continuously since 1992,
and as a Company Director since 1993. She is an attorney practicing as a member
of the Manitowoc Offices of Michael Best & Friedrich LLP. Ms. Reynolds term
expires in 2002.
John M. Webster, 53, has served as a Bank Director continuously since 1998, and
as a Company Director since 1998. He is President and CEO of Crescent Woolen
Mills Co., a manufacturer of woolen and synthetic yarns; and Attorney of Counsel
with the Law Offices of Savage, Gregorski, Webster, Stangel, Bendix and Bruce.
Mr. Webster's term expires in 2000.
Robert S. Weinert, 60, has served as a Bank Director continuously since 1979,
and as a Company Director since its formation in 1983. He is Chairman and
Treasurer of Crafts, Inc., a commercial roofing company, and Treasurer of
Corrosion Resistant Technologies, Inc., a coating
company. Mr. Weinert's term expires in 2000.
John J. Zimmer, 58, served as a Bank Director from 1974 to 1980. He was
re-appointed to the board and has served continuously since 1988, and as a
Company Director since 1989. Mr. Zimmer is President and Treasurer of J.J.
Stangel Co., A Subsidiary of Industrial Distribution Group, a wholesale
distributor of industrial supplies; and General Partner of Oak Park Land Co., a
real estate development partnership. Mr. Zimmer's term expires in 2001.
EXECUTIVE OFFICERS
Thomas J. Bare (see Directors)
Joseph W. Debilzen, 44, joined the bank in April 1983 serving as Loan Officer.
He was promoted to Francis Creek Branch Manager in September 1983. In August
1988, he was promoted to Assistance Vice President Branch Manager. Mr. Debilzen
has served as Vice President of Branch Operations since March 1989.
Daniel J. Lalko, 49, has served as Senior Vice President of Lending since March
1989. Mr. Lalko joined the bank in August 1982 as Vice President.
Charles P. Riley, 49, joined the bank in May 1997 as Senior Vice President and
Green Bay Marketing Manager.
Paul H. Wojta, 39, joined the bank in November 1983 as Auditor. He was promoted
to Cashier in December 1987. Mr. Wojta has served as Vice President, Cashier and
BSA Officer since February 1991. Mr. Wojta also serves as a director of FNBM
Investment Corporation, the Bank's investment corporation.
<PAGE> 21
ITEM 6
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for each of the Company's
most highly compensated executive officers, whose cash compensation exceeded
$100,000, for the three previous fiscal years.
<TABLE>
<CAPTION>
Other Annual *
Name Position Year Salary Bonus Compensation
- ---- -------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C> <C>
Thomas J. Bare President 1998 200,000 35,000 21,624
President 1997 180,000 30,000 15,900
President 1996 160,000 38,000 15,675
Daniel J. Lalko Senior Vice President 1998 100,000 9,000 10,243
1997 92,000 8,500 10,178
1996 84,000 8,000 9,666
Charles P. Riley Senior Vice President 1998 98,000 3,500 7,098
</TABLE>
* Other compensation includes amounts contributed by the Bank pursuant to a
401(k) Profit Sharing Plan and Trust that covers substantially all
employees. Each year, the Bank contributes a matching contribution equal to
35% of the participant's deferral, up to 10% of the employee's salary, and
a discretionary amount determined each year by the Board of Directors. For
1998, the discretionary amount was established at 3% of compensation.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1997, the Company adopted a Supplemental Executive Retirement Plan ("SERP"),
which provides post-retirement benefits to key officers of the Company. Under
the SERP, benefit payments equal 80% of the participant's projected retirement
age salary, less benefits from other Company sponsored retirement plans,
including the 401(k) Plan. The Company contributed $83,520 for this plan for the
year ended December 31, 1998.
The estimated present value of annual benefits payable upon retirement, less
amounts received under other Company sponsored retirement plans, at the normal
retirement age of 65 for each of the executive officers participating is as
follows:
<TABLE>
<CAPTION>
Estimated Annual Benefits Estimated Annual Benefits
Payable Upon Payable Upon
Name Retirement Retirement
- ---- ---------- ----------
<S> <C> <C>
Thomas J. Bare $80,600 15 years
Daniel J. Lalko None None
Charles P. Riley None None
</TABLE>
DIRECTOR COMPENSATION
Directors of the Company receive $2,500 annual compensation for service in that
capacity. However, as Directors of the Bank, they receive $9,100 annual
compensation for service in that capacity. The Chairman of the Board of the Bank
receives $11,700 annual compensation for service in that capacity. Directors
receive $150 for each committee meeting attended. Directors who are also
employees of the Bank receive no compensation for their capacity as Directors of
the Bank's committees.
Under a non-qualified deferred compensation plan, the Bank permits Directors to
defer part of their compensation and fees by investing the deferred income in
insurance policies on the Director's life, with the Bank as owner and
beneficiary. The death benefit of such policies will be used by the Bank to fund
the payments to the Directors. If the Director lives to age 70, the retirement
age defined in the plan, the Bank will begin to pay the Director an amount which
will be calculated at that time in annual payments, based upon the value of the
life insurance policy and existing market conditions. If the Director lives to
age 70, but dies before receiving all of the payments, the remaining payments
will be paid to the Director's beneficiary. If a Director retires prior to or
after age 70, the payments will be discounted or increased, as the case may be,
based on the value of the life insurance policy. Finally, if the Director dies
prior to age 70, the annual payments will be calculated based on the value of
the life insurance policy death benefit and paid in annual payments to the
Director's beneficiary.
DIRECTOR FEE DEFERRED COMPENSATION RETIREMENT PLAN
The Company contributed $61,417 (interest only) for this plan for the year ended
December 31, 1998.
The estimated present value of annual benefits payable upon retirement for a
period of ten (10) years to each current director is as follows: Thomas Bare,
$40,409; John Jagemann, $56,186; John Nordstrom, $30,628; Katherine M. Reynolds,
$130,750; Craig Pauly, $119,325; Robert Weinert, $67,606; and John Zimmer,
$58,797.
<PAGE> 22
COMPENSATION, PENSION AND RETIREMENT COMMITTEE REPORT
The Bank's compensation program offers competitive compensation opportunities
for all executive officers which are based on both the individual's contribution
and the Bank's performance. The compensation paid is designed to attract, retain
and reward executive officers who are capable of leading the Bank in achieving
its business objectives in an industry characterized by complexity,
competitiveness and constant change. The compensation of key executives is
reviewed and approved annually by the Bank's Compensation, Pension and
Retirement Committee.
In its consideration of whether to increase salaries from year to year, and the
amounts of increases, the Compensation, Pension and Retirement Committee reviews
the overall financial performance of the Bank during the past year and the
expectations for the current year. Specifically, the Committee looks to whether
total return on assets is satisfactory and compare total assets and earnings
levels with prior years. Special factors that are considered are whether loan
delinquencies are consistent with expectations, and whether there have been any
significant acquisitions or sales of assets or other extraordinary events. While
no specific financial targets are set, the Committee will generally recommend
increases to executives, including the chief executive officer, if the Bank
continues to experience anticipated levels of financial growth.
Salaries are also based on merit, which involves an evaluation by the Committee
of how ably an executive performed the duties entailed in his or her position.
Employees generally are reviewed by management, while executive officers have
their performance evaluated by the President.
Most executives receive approximately the same percentage increase in salary in
any given year. In addition, as the Bank meets its budget expectations, each
executive may receive a bonus. The foregoing report has been approved by the
Bank's Board of Directors.
Directors Thomas J. Bare, John M. Jagemann, Katherine M. Reynolds, Robert S.
Weinert and John J. Zimmer serve as the Bank's Compensation, Pension and
Retirement Committee. Thomas J. Bare, a member of the Board of Directors of the
Bank since 1981 and of the Company since the Company's formation in 1983, also
serves as President of the Company and as President of the Bank. While Mr. Bare
specifically excluded himself from any Committee discussion concerning his
compensation, he did participate in Compensation, Pension and Retirement
Committee discussions concerning other key executives' compensation.
Performance Graph
The performance graph shown below compares the cumulative total return to the
Company's stockholders over the most recent 5-year period with the Russell 2000
Index. Returns are shown on a total return basis, assuming the reinvestment of
dividends based on a $100 investment beginning December 31, 1993.
Comparison of Five Year Cumulative Total Return
First Manitowoc Bancorp, Inc.,
Russell 2000 Index
[Graph]
<PAGE> 23
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First Manitowoc
Bancorp, Inc.* $100.00 $124.82 $145.04 $173.89 $213.38 $295.56
Russell 2000 Index 100.00 98.18 126.10 146.89 179.73 175.15
</TABLE>
(*)Restated for the 25% stock dividends (five for four share splits) paid April
22, 1994; April 21, 1995; April 11, 1997 and April 16, 1999.
ITEM 7
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past year the Bank has had, and expects to have in the future,
banking transactions in the ordinary course of its business with its directors,
officers and owners of 5% or more of the Company's outstanding shares and with
their associates on substantially the same terms, including interest rates,
collateral, and repayment terms on loans, as those prevailing at the same time
for comparable transactions with others. The extensions of credit by the Bank to
these persons have not and do not currently involve more than the normal risk of
collectability or present other unfavorable features. Loans outstanding to such
parties totaled $3,289,000 and $3,241,000 at December 31, 1998 and 1997,
respectively. During 1998, $881,000 of new loans were made and repayments
totaled $833,000.
ITEM 8
LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine
litigation incidental to the business to which the Company, the Bank, or its
subsidiaries is a party or which any of their properties is subject. There are
also no material proceedings to which any director, officer, or affiliate of the
Company, any person holding beneficially in excess of five (5) percent of the
Company's Shares, or any associate of any such director, officer, or security
holder is a party.
ITEM 9
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for the Company's Shares.
Accordingly, there is no comprehensive record of trades or the prices of any
such trades. The following tables reflect stock prices for Company Shares to the
extent such information is available to management of the Company, and the
dividends declared with respect thereto during the preceding two years.
<TABLE>
<CAPTION>
1998
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
- ---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
$24.80 $23.60 $31.20 $24.80 $32.80 $31.20 $32.80 $32.80
<CAPTION>
1997
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
- ---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
$19.84 $19.20 $20.60 $20.20 $21.60 $20.60 $23.60 $21.60
</TABLE>
All market information shown above has been restated for stock dividends.
CASH DIVIDENDS
<TABLE>
<CAPTION>
1998
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C>
$0.10 $0.10 $0.10 $0.16 $0.46
<CAPTION>
1997
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C>
$0.09 $0.09 $0.09 $0.14 $0.41
</TABLE>
All cash dividends shown above have been restated for stock dividends.
HOLDERS
As of April 23, 1999 there were 561 holders of record of the Company's Shares.
<PAGE> 24
DIVIDENDS
The Company declared and paid a cash dividend per share totaling $0.46 per share
or $790,936 for the year 1998, and $0.41 per share or $707,695 for 1997. The
Board of Directors of the Company declared a dividend on February 17, 1998, of
$0.10 per share to be paid on March 13, 1998 to stockholders of record March 4,
1998. On May 19, 1998, a dividend of $0.10 per share was approved to be paid on
June 12, 1998, to stockholders of record as of June 3, 1998. In the third
quarter, a $0.10 dividend was announced on August 18, 1998, to be paid September
11, 1998, to stockholders of record September 2, 1998. The final dividend in
1998 of $0.10 per share, plus an extra cash dividend of $0.06 per share was
declared on November 17, 1998, for stockholders of record December 2, 1998, and
was paid on December 11, 1998.
On February 18, 1997, the Board of Directors declared a dividend to be paid
March 14, 1997 at the rate of $0.09 per share to stockholders of record as of
March 5, 1997. On May 20, 1997, a dividend of $0.09 per share was approved to be
paid on June 13, 1997, to stockholders of record as of June 4, 1997. In the
third quarter, a $0.09 dividend was announced on August 19, 1997, to be paid
September 12, 1997, to stockholders of record September 3, 1997. The final
dividend in 1997 of $0.09 per share, plus an extra cash dividend of $0.05 per
share was declared on November 18, 1997, for stockholders of record December 3,
1997, and was paid on December 12, 1997.
The holders of the Company's Shares will be entitled to dividends, when, as, and
if declared by the Company's Board of Directors, subject to the restrictions
imposed by Wisconsin law. The only statutory limitation applicable to the
Company is that dividends may not be paid if the Company is insolvent or if the
dividend would cause the Company to become insolvent. However, until the Company
expands its activities, its only source of income is from the dividends paid by
the Bank to the Company. Therefore, the dividend restrictions applicable to
national banks will impact the Company'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.
There are no contractual restrictions that currently limit the Company's ability
to pay dividends or that the Company reasonably believes are likely to limit
materially the future payment of dividends on the Company's Shares.
ITEM 10
RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 11
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
GENERAL
The Company's Articles of Incorporation provide for an authorized capitalization
consisting of 2,500,000 shares of common stock, par value $1.00 per share,
1,387,609 of which were outstanding at December 31, 1998. The outstanding shares
have been increased to include a 25% stock dividend (five-for-four stock split)
payable April 16, 1999, to shareholders of record April 7, 1999 to a total of
1,734,317 Shares. Company Shares can be issued for the purpose of acquiring
other banks or businesses permitted for bank holding companies, for raising
additional capital or for other appropriate purposes. Under Wisconsin law, the
Board of Directors may issue Shares, up to the authorized capitalization,
without stockholder approval.
DIVIDENDS
The Company may pay dividends as declared from time to time by the Board of
Directors out of funds legally available for dividends.
VOTING RIGHTS
The holders of Company Shares possess exclusive voting rights in the Company.
Each holder of Shares is entitled to one vote for each Share held on all matters
voted upon by shareholders. No cumulative voting in the elections of directors
or other matters is permitted. Most corporate actions require only a majority
vote. However, the Company's Articles of Incorporation require an 80%
affirmative vote for any merger, consolidation or sale of substantially all of
the assets of the Company unless a majority of the entire Board of Directors of
the Company approve such transaction. If the Board of Directors approve the
transaction only a majority vote of outstanding Shares is required for approval.
The Articles of Incorporation of the Company also prohibits a Control Share
Acquisition as defined in Section 180.1150 of the Wisconsin Business Corporation
Law ("WBCL") and described below without prior approval of the Company's Board
of Directors.
<PAGE> 25
LIQUIDATION
In the event of liquidation, dissolution or winding up of the Company, the
holders of Shares are entitled to receive, after payment and provision for all
its debts and liabilities, all of the assets of the Company available for
distribution.
PREEMPTIVE RIGHTS; REDEMPTION
Holders of the Company Shares are not entitled to preemptive rights with respect
to any Shares which may be issued by the Company in the future. Company Shares
are not subject to redemption except in the event a third party acquires more
than 50% of the outstanding Shares in a tender offer not approved by the Board
of Directors of the Company. In such event the company may, at the option of a
holder of Shares, be required to repurchase such shares at the highest price
paid for Shares in the tender offer.
TERMS OF DIRECTORS
The Board of Directors of the Company are comprised of nine members, divided
into three classes, each of whom is elected to serve for three year terms. The
Board of Directors of the Company, in the interval between annual meetings of
shareholders, may increase the number of Directors. The Articles of
Incorporation of the Company, however, limits the total number of Directors to
fifteen.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
Acquisitions of control of the Company and the Bank are subject to various
federal and state statutory regulatory restrictions. In addition to these
restrictions, there are various provisions in the Company's Articles of
Incorporation which may be deemed to restrict the ability of a person, firm or
entity to acquire the Company. These provisions, which are described above,
provide for, among other things, staggered terms of office for members of boards
of directors, noncumulative voting for directors and redemptive rights in
certain business combinations. All of these provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which shareholders of the Company may deem to be in their best
interests or in which shareholders may receive a substantial premium for their
Shares over the then-current market price. As a result, shareholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current Board of
Directors more difficult and could decrease the likelihood of temporary
increases in the price of Shares which frequently result from non-negotiated
takeover attempts and may tend to perpetuate existing management. The
description of these provisions is necessarily general and reference should be
made to the actual law and regulations and to the Articles of Incorporation and
By-laws of the Company.
FEDERAL RESERVE BOARD REGULATIONS
Acquisitions of control of the Bank and the Company by any company are subject
to prior approval by the FRB under the BHCA. "Control" is defined to include the
ownership, control, or power to vote, directly or indirectly, 25% or more of any
class of voting securities of the Company or the Bank, control in any manner of
the election of a majority of the Board of Directors of the Company or the Bank,
or, if the FRB determines after notice and a hearing that a person directly or
indirectly exercises a controlling influence over the management policies of the
Company or the Bank. In addition, the FRB's regulations establish certain
rebuttable presumptions of control, which if the FRB determines exist, must be
successfully rebutted in order to avoid the restrictions of the BHCA. When
coupled with certain other relationships between a company and the bank or the
bank holding company, the FRB may find that a company controls a bank or holding
company if it owns or controls more than 5% of the outstanding shares of any
class of voting securities of a bank or holding company. A company which
acquires control of the Bank or the Company would be required to register as a
bank holding company and have its business activities limited to those
activities permitted by the FRB. In addition, a bank holding company must obtain
prior approval of the FRB to acquire more than 5% of the voting securities of
the Company.
The Change in Bank Control Act ("CBCA") prohibits any person or group of persons
acting in concert from acquiring ownership or control of 25% or more of the
voting securities of the Company unless such person or group of persons have
provided 60 days' prior notice to the FRB and the FRB has not disapproved the
acquisition within that time. Under FRB regulations, a person will be presumed
to have acquired control under the CBCA if the person acquires 10% or more of a
class of voting securities of the Company and the Company has a class of
securities registered under the Securities Exchange Act of 1934. The FRB will
evaluate the proposed acquisition taking into account various factors, including
the financial and managerial resources of the acquiror, the convenience and
needs of the community served by the Company and the Bank, and the
anti-competitive effects of the acquisition.
WISCONSIN BUSINESS CORPORATION LAW
Under Section 180.1150(2) of the WBCL, the voting power of shares of an "issuing
public corporation," such as the Company, which are held by any person in excess
of 20% of the voting power in the election of directors shall be limited (in
voting on any matter) to 10% of the full voting power of such excess shares,
unless full voting rights have been restored at a special meeting of the
shareholders called for that purpose. This statute is a "scaled voting
rights/control share acquisition" statute and is designed to protect
corporations against uninvited takeover bids by reducing to one-tenth of their
normal voting power all shares in excess of 20% owned by an acquiring person.
Shares held or acquired under certain circumstances are excluded from the
application of Section 180.1150(2), including (among others) shares acquired
<PAGE> 26
directly from the Company and shares acquired in a merger or share exchange to
which the Company is a party. Article X of the Company's Articles of
Incorporation provides that the Company elects to be subject to the provisions
of Section 180.1150 of the WBCL.
Section 180.1130 to 180.1134 of the WBCL provide generally that in addition to
the vote otherwise required by law or the articles of incorporation of an
"issuing public corporation," such as the Company, certain business combinations
not meeting certain fair price standards specified in the statute must be
approved by the affirmative vote of at least: (i) 80% of the votes entitled to
be cast by the outstanding voting share of the corporation; and (ii) two-thirds
of the votes entitled to be cast by the holders of voting shares other than
voting shares beneficially owned by a "significant shareholder" or an affiliate
or associate thereof who is a party tot he transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
share exchange of the issuing public corporation (or any subsidiary thereof)
with, or the sale or other disposition of substantially all of the property and
assets of the issuing public corporation to, any significant shareholder or
affiliate thereof. "Significant shareholder" is defined generally to mean a
person that is the beneficial owner of 10% or more of the voting power of the
outstanding voting shares of the issuing public corporation. The statute also
restricts the repurchase of shares and the sale of corporate assets by an
issuing public corporation in response to takeover offer.
Section 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as the Company,
and a person beneficially owning 10% or more of the voting power of the
outstanding voting stock of such corporation (an "interested shareholder")
within three years after the date such person became a 10% beneficial owner,
unless the business combination or the acquisition of such stock has been
approved before the stock acquisition date by the corporation's board of
directors. After such three-year period, a business combination with the
interested shareholder may be consummated only with the approval of the holders
of a majority of the voting stock not beneficially owned by the interested
shareholder at a meeting called for that purpose, unless the business
combination satisfied certain adequacy-of-price standards intended to provide a
fair price for shares held by disinterested shareholders.
Under the WBCL, a director or officer of the Company, in discharging his or her
duties and in determining what he or she believes to be in the best interest of
the Company, may, in addition to considering the effects of any action on
shareholders, consider the effects of the action on employees, suppliers and
customers of the Company, the effects of the action on communities in which the
Company operates and any other factors which the director or officer considers
pertinent.
SUPERMAJORITY VOTING REQUIREMENT FOR AMENDMENT OF CERTAIN PROVISIONS OF THE
ARTICLES OF INCORPORATION
The Company's Articles of Incorporation provides that specified provisions
contained in the Articles of Incorporation may not be amended except upon the
affirmative vote of the holders of not less than 80% of the outstanding Shares
entitled to vote generally in the election of the directors. This requirement
exceeds the majority vote of the outstanding stock that would otherwise be
required by the WBCL for amendment of the Articles of Incorporation. The
specific provisions covered are: (i) Article V, governing the number and
classification of the Company's Board of Directors; (ii) Article VII, governing
the required shareholder vote for amending the Articles of Incorporation of the
Company; (iii) Article VIII, relating to the Company's obligation to repurchase
Shares in the event of the acquisition of 50% of the Shares in a tender offer;
(iv) Article IX, governing the requirement of an 80% vote for approval of a
merger or asset acquisition; and (v) Article X, regarding control share
acquisitions.
ITEM 12
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Sections 180.0850 to 180.0859 of the WBCL, the Company shall indemnify a
director or officer against liability incurred in a proceeding to which the
director or officer is involved because he or she is or was an officer or
director of the Company unless liability was incurred by the director or officer
because he or she breached or failed to perform a duty which he or she owes to
the Company and the breach or failure to perform constitutes either a willful
failure to deal fairly with the Company or its shareholders in connection with a
matter in which the director or officer has a material conflict of interest; a
violation of criminal law unless the director or officer had reasonable cause to
believe that his or her conduct was lawful and no reasonable cause to believe
that his or her conduct was unlawful; a transaction from which the director or
officer derived an improper personal profit; or willful misconduct on the part
of the director or officer.
Pursuant to the by-laws of the Company, each of the directors and officers of
the Company is entitled to indemnification for actions taken by them or in the
name of the Company to the fullest extent permitted by the WBCL.
ITEM 13
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, the report thereon,
the notes thereto commencing at Page F-1 of this Form 10, which financial
statements, report, and notes and data are incorporated by reference.
<PAGE> 27
ITEM 14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 15
FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
Consolidated Financial Statements
- ---------------------------------
<S> <C>
Independent Auditor's Report
Audited Consolidated Financial Statements
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Exhibits Exhibit Number
- -------- --------------
Articles of Incorporation of the Company 3.1
Bylaws of the Company 3.2
Subsidiaries of the Company 21
Financial Data Schedule 27
</TABLE>
SIGNATURES
Pursuant to the requirements in Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
Dated: April 28, 1999
Thomas J. Bare
President
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Manitowoc Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of First Manitowoc Bancorp, Inc. and subsidiaries (Corporation) as of December
31, 1998 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Milwaukee, Wisconsin
January 29, 1999
<PAGE> 29
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 15,215,089 11,505,264
Federal funds sold and repurchase agreements 15,622,650 16,028,293
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 30,837,739 27,533,557
Securities available for sale, at fair value (note 2) 97,197,495 85,577,782
Loans, net (notes 3, 4) 225,792,548 223,459,269
Premises and equipment, net (note 5) 4,187,201 3,989,928
Accrued interest receivable and other assets (note 6) 9,813,296 8,346,960
- ------------------------------------------------------------------------------------------------------------------------
$ 367,828,279 348,907,496
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 7) $ 276,494,614 260,466,017
Securities sold under repurchase agreements (note 8) 24,693,765 24,008,731
Borrowed funds (note 9) 28,801,713 31,572,241
Accrued interest payable and other liabilities 3,946,340 3,319,340
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 333,936,432 319,366,329
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 12 and 14) -------- --------
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (note 15):
Common stock, $1 par value; authorized 2,500,000 shares;
issued 1,895,907 shares in 1998 and 1997 1,895,907 1,895,907
Additional paid-in capital 652,208 652,208
Retained earnings 30,869,428 27,059,290
Accumulated other comprehensive income 1,174,443 633,901
Treasury stock at cost - 161,590 shares in 1998 and 1997 (700,139) (700,139)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 33,891,847 29,541,167
- ------------------------------------------------------------------------------------------------------------------------
$ 367,828,279 348,907,496
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 30
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $20,987,074 20,075,805 17,187,751
Federal funds sold and repurchase agreements 525,545 372,324 186,178
Securities:
Taxable 2,790,532 2,971,709 2,465,413
Tax-exempt 2,369,497 1,693,672 1,248,432
- -----------------------------------------------------------------------------------------------
Total interest income 26,672,648 25,113,510 21,087,774
- -----------------------------------------------------------------------------------------------
Interest expense:
Deposits 11,727,498 10,737,609 9,541,391
Borrowed funds 2,424,855 2,398,139 1,063,102
- -----------------------------------------------------------------------------------------------
Total interest expense 14,152,353 13,135,748 10,604,493
- -----------------------------------------------------------------------------------------------
Net interest income 12,520,295 11,977,762 10,483,281
Provision for loan losses 800,000 600,000 430,000
- -----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,720,295 11,377,762 10,053,281
- -----------------------------------------------------------------------------------------------
Other operating income:
Loan fees 196,891 117,353 101,652
Trust service fees 483,673 445,033 422,888
Service charges on deposit accounts 615,883 520,045 473,023
Loan servicing income 313,569 187,988 206,781
Gain on sales of mortgage loans held for sale 200,512 55,810 38,989
Other 355,968 292,394 179,764
- -----------------------------------------------------------------------------------------------
Total other operating income 2,166,496 1,618,623 1,423,097
- -----------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 4,055,079 3,860,482 3,452,114
Occupancy 1,138,503 1,120,350 1,021,820
Data processing 638,680 641,321 570,271
Postage, stationery and supplies 360,116 341,425 296,041
Other 1,860,338 1,440,336 1,212,738
- -----------------------------------------------------------------------------------------------
Total other operating expenses 8,052,716 7,403,914 6,552,984
- -----------------------------------------------------------------------------------------------
Income before income tax expense 5,834,075 5,592,471 4,923,394
Income tax expense 1,233,000 1,428,000 1,318,000
- -----------------------------------------------------------------------------------------------
Net income $ 4,601,075 4,164,471 3,605,394
- -----------------------------------------------------------------------------------------------
Earnings per share: basic and diluted $ 2.65 2.40 2.08
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL
OTHER
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCK INCOME TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1,895,907 652,208 20,621,824 (700,139) 40,822 22,510,622
Net Income 0 0 3,605,394 0 0 3,605,394
Other comprehensive income:
Unrealized holding loss rising
during period 0 0 0 0 (103,501) (103,501)
Reclassification adjustment for
gains realized in income 0 0 0 0 (890) (890)
Income tax effect 0 0 0 0 34,777 34,777
----------
Comprehensive income 3,535,780
Cash dividends ($.36 per share) 0 0 (621,703) 0 0 (621,703)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 1,895,907 652,208 23,605,515 (700,139) (28,792) 25,424,699
Cash paid for fractional shares 0 0 (3,001) 0 0 (3,001)
Net Income 0 0 4,164,471 0 0 4,164,471
Other comprehensive income:
Unrealized holding gains rising
during period 0 0 0 0 1,012,529 1,012,529
Reclassification adjustment for
gains realized in income 0 0 0 0 (765) (765)
Income tax effect 0 0 0 0 (349,071) (349,071)
----------
Comprehensive income 4,827,164
Cash dividends ($.41 per share) 0 0 (707,695) 0 0 (707,695)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,895,907 652,208 27,059,290 (700,139) 633,901 29,541,167
Net Income 0 0 4,601,075 0 0 4,601,075
Other comprehensive income:
Unrealized holding gains rising
during period 0 0 0 0 809,158 809,158
Income tax effect 0 0 0 0 (268,616) (268,616)
----------
Comprehensive income 5,141,617
Cash dividends ($.46 per share) 0 0 (790,937) 0 0 (790,937)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $ 1,895,907 652,208 30,869,428 (700,139) 1,174,443 33,891,847
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 4,601,075 4,164,471 3,605,394
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 800,000 600,000 430,000
Depreciation, amortization, and accretion, net 523,305 747,317 673,034
Decrease (increase) in sales of mortgage loans held for sale 1,408,888 (1,059,660) (296,324)
Gain on sales of mortgage loans held for sale 200,512 55,810 38,989
Deferred income taxes (240,000) (285,000) (123,000)
Undistributed income of joint venture (50,345) (68,842) (6,866)
Net loss on sale of premises and equipment 0 7,399 71,366
Net gain on sales of securities 0 (765) (890)
Increase in accrued interest receivable and other assets (1,678,855) (913,402) (406,053)
Increase (decrease) in accrued interest payable (72,471) 157,528 202,199
Increase (decrease) in other accrued expenses 699,471 352,047 (46,112)
Other, net 0 12,000 (35,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,191,580 3,768,903 4,106,737
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 30,768,958 21,247,613 12,936,153
Purchases of securities available for sale (41,395,290) (29,491,414) (31,038,712)
Net increase in loans (4,742,679) (21,597,795) (26,433,806)
Net purchases of premises and equipment (670,552) (680,948) (325,808)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (16,039,563) (30,522,544) (44,862,173)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 16,028,596 27,700,297 24,797,053
Net increase in securities sold under repurchase agreements 685,034 4,503,289 2,423,711
Net increase (decrease) in borrowed funds (2,770,528) 11,658,121 12,431,190
Dividends paid (790,937) (707,695) (621,703)
Other 0 (3,000) 0
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 13,152,165 43,151,012 39,030,251
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,304,182 16,397,371 (1,725,185)
Cash and cash equivalents at beginning of year 27,533,557 11,136,186 12,861,371
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 30,837,739 27,533,557 11,136,186
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 14,225,000 12,989,000 10,402,000
Income taxes 1,649,000 1,516,000 1,495,000
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities not
described in the notes to the financial statements:
Loans receivable satisfied through foreclosure or acquisition of deeds
in lieu of foreclosure $ 66,000 106,000 44,000
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 33
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by First Manitowoc Bancorp, Inc.
(Corporation) and its wholly owned subsidiaries, the First National
Bank in Manitowoc (Bank) and First National Bank in Manitowoc
Investment Corporation (FNBMIC) conform to generally accepted
accounting principles and to general practice within the banking
industry. FNBM Realty, previously established due to environmental
issues which surfaced upon the purchase of a branch, was dissolved
during 1998 after all remediation efforts were completed. Upon
dissolution, the land obtained by the Corporation was sold to the Bank
at the cost previously recorded by FNBM Realty. Management of the
Corporation has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. The more
significant accounting policies are summarized below:
(a) DESCRIPTION OF BUSINESS
The Bank is a nationally-chartered commercial bank with nine
branch locations principally in the Manitowoc County area. The
Bank accepts FDIC-insured deposits and makes loans which are
principally secured by real estate, receivables, equipment, or
inventories. The Bank also operates trust operations. The primary
regulators of the Bank are the OCC and the FDIC.
(b) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
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 from those estimates.
(c) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash
and cash equivalents include cash and due from banks and federal
funds sold and repurchase agreements.
The Bank is required to maintain noninterest-bearing deposits on
hand or with the Federal Reserve Bank. At December 31, 1998,
those required reserves were satisfied by currency and coin
holdings.
(d) LOANS
Loans are carried at their unpaid principal balance less unearned
discount, if any. Unearned discount is recognized as income over
the terms of the loans using the interest method. 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.
First mortgage loans held for sale are recorded at the lower of
cost or market as determined on an aggregate basis.
Nonaccrual loans are loans on which the accrual of interest
ceases when the timely collection of interest payments is
determined to be uncertain by management. It is the general
policy of the Bank to discontinue the accrual of interest when
principal or interest payments are delinquent 90 days or more
unless the loan is well collateralized and in process of
collection.
A loan is classified as impaired when it is probable that a
creditor will be unable to collect all amounts due, including
principal and interest payments, according to the contractual
terms of the loan agreement. Impaired loans generally include non
performing commercial loans for which it is probable that the
Bank will be unable to collect all principal and interest amounts
due according to the terms of the loan agreement. Large groups of
homogeneous loans such as mortgage and installment loans are
collectively evaluated for impairment. Impaired loans are
measured and reported based on the present value of expected cash
flows discounted at the loan's effective interest rate, or at the
fair value of the loan's collateral if the loan is deemed
collateral dependent. Interest income on impaired loans is
recorded when cash is received and only if principal is
considered to be fully collectible.
<PAGE> 34
(e) SECURITIES
Securities available for sale are securities for which there is no
positive intent to hold until maturity and which are carried at
estimated fair value. Unrealized holding gains and losses, net of the
related tax effect on available for sale securities, are reported as a
separate component of comprehensive income until realized. Realized
gains and losses on the sale of available for sale securities are
determined using the specific identification method. Premiums and
discounts are amortized as an adjustment to yield using the
straight-line method.
(f) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance when management believes that the collectibility of the
principal amount is unlikely. Recoveries of amounts previously charged
off are credited to the allowance.
The provision for loan losses is based on management's evaluation of
the loan portfolio, including such factors as the volume and character
of loans outstanding, the relationship of the allowance for loan
losses to outstanding loans, past loan loss experience, the estimated
value of any underlying collateral, and general economic conditions.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the
time of their examination.
(g) PREMISES AND EQUIPMENT
Land is carried at cost. Other premises and equipment are carried at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the following terms: buildings and
improvements, 15-39 years; furniture and equipment, 5-10 years.
(h) INVESTMENT IN CORPORATE JOINT VENTURE
The Bank's investment in a corporate joint venture is accounted for
under the equity method and is included in other assets. See note 6.
(i) FORECLOSED PROPERTIES
Foreclosed properties acquired by the Bank 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. Foreclosed properties were
insignificant at December 31, 1998 and 1997.
(j) INTANGIBLE ASSETS
Intangible assets attributable to the value of core deposits and the
balance of the excess of cost over the fair value of net assets
acquired are stated at cost less accumulated amortization.
Amortization is computed using a straight-line basis over the
estimated useful lives of 10 and 15 years, respectively. The
Corporation reviews intangible assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Adjustments are recorded when the
benefit of the intangible asset decreases due to the disposition of
assets or deposits.
(k) MORTGAGE SERVICING RIGHTS
The Corporation recognizes as a separate asset the rights to service
mortgage loans for others however those servicing rights are acquired.
Capitalized mortgage servicing rights are assessed for impairment
based on the fair value of those rights.
The value of mortgage servicing rights is amortized to expense in
relation to the servicing revenue expected to be earned. The Bank
periodically evaluates the carrying value and remaining amortization
periods of mortgage servicing rights. The evaluation takes into
consideration certain risk characteristics including loan type,
interest rate, prepayment trends, volatility and external market
factors.
<PAGE> 35
(l) INCOME TAXES
The Corporation and its subsidiaries file consolidated Federal income
tax returns. Federal income tax expense (benefit) is allocated based
upon an intercompany tax sharing agreement. The Corporation and the
Bank file separate state tax returns.
Income taxes are accounted for using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to the
differences between the financial statement carrying amount of assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the
enactment date.
(m) PER SHARE COMPUTATIONS
All per share financial information has been adjusted to reflect the
5-for-4 stock split declared in April, 1999. Weighted average shares
outstanding were 1,734,317 for the years ended December 31, 1998, 1997
and 1996.
(n) RECLASSIFICATIONS
Certain amounts as previously reported in the 1997 financial
statements have been reclassified to conform with the 1998
presentation.
(o) COMPREHENSIVE INCOME
On January 1, 1998, the Corporation adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS No. 130). SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive
income consists of net income and net unrealized gains (losses) on
securities and is presented in the consolidated statements of
stockholder's equity and comprehensive income. The Statement requires
only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results of
operations. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130.
(p) BUSINESS SEGMENTS
On January 1, 1998, the Corporation adopted SFAS No. 131, Disclosures
about Segments of a Business Enterprise and Related Information (SFAS
No. 131). SFAS No. 131 establishes standards for the way that public
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 defines a operating
segment as a component of an enterprise that engages in business
activities that generate revenue and incur expense. A segment is
further defined as a component whose operating results are reviewed by
the chief operating decision maker in the determination of resource
allocation and performance, and for which discrete financial
information is available.
SFAS No. 131 replaces the industry concept of SFAS No. 14 with a
management approach concept as the basis for identifying reportable
segments. The management approach is based on the way that management
organizes the segments within the enterprise for making operating
decisions and assessing performance. Consequently, the segments are
evident from the structure of the enterprise's internal organization,
focusing on financial information that an enterprise's chief operating
decision maker uses to make decisions about the enterprise's operating
matters.
The Corporation through the branch network of its subsidiaries
provides a broad range of financial services to individuals and
companies in northeastern Wisconsin. These services include demand,
time, and savings deposits; commercial and retail lending; ATM
processing; and trust services. While the Corporation's chief decision
maker monitors the revenue streams of the various products and
services, operations are managed and financial performance is
evaluated on a Corporate-wide basis. Accordingly, all of the
Corporation's operations are considered by management to be aggregated
in one reportable operating segment.
<PAGE> 36
(2) SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of securities available
for sale at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
----
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 5,791,262 32,395 -- 5,823,657
Obligations of states and political
subdivisions 53,258,501 1,631,875 (27,954) 54,862,422
Mortgage-backed securities 27,473,104 216,175 (66,301) 27,622,978
Commercial Paper 7,200,000 -- -- 7,200,000
Other securities 1,693,876 -- (5,438) 1,688,438
----------- --------- -------- ----------
$95,416,743 1,880,445 (99,693) 97,197,495
=========== ========= ======== ==========
1997
----
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $20,554,347 102,534 (52,750) 20,604,131
Obligations of states and political
subdivisions 41,037,153 959,051 (7,568) 41,988,636
Mortgage-backed securities 20,645,813 170,613 (187,953) 20,628,473
Other securities 2,368,875 -- (12,333) 2,356,542
----------- --------- --------- ----------
$84,606,188 1,232,198 (260,604) 85,577,782
=========== ========= ========= ==========
</TABLE>
The amortized cost and estimated market value of securities at
December 31, 1998, 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.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- ----------
<S> <C> <C>
Due in one year or less $ 9,914,191 9,934,096
Due after one year through five years 11,303,774 11,541,335
Due after five years through ten years 11,114,791 11,553,074
Due after ten years 35,610,883 36,546,012
----------- ----------
67,943,639 69,574,517
Mortgage-backed securities 27,473,104 27,622,978
----------- ----------
$95,416,743 97,197,495
=========== ==========
</TABLE>
There were no sales of securities in 1998. Proceeds from the sales of
securities for 1997 and 1996 were $3,000,000 and $501,000,
respectively. Gains on the sale of securities were approximately $765
and $890 in 1997 and 1996, respectively.
Securities with carrying values aggregating approximately $33,974,000
and $41,737,000 at December 31, 1998 and 1997, respectively, were
pledged to secure public and trust deposits and securities sold under
repurchase agreements.
<PAGE> 37
<TABLE>
<CAPTION>
(3) LOANS
Loans are summarized as follows:
1998 1997
---- ----
<S> <C> <C>
Commercial and agricultural $ 91,121,472 78,229,995
Commercial real estate 38,017,583 45,689,251
Residential real estate 85,115,414 87,212,711
Loans held for sale -- 1,609,400
Consumer 13,783,150 12,503,421
Other 879,038 822,768
------------ -----------
Subtotal 228,916,657 226,067,546
Allowance for loan losses (3,124,109) (2,608,277)
------------ -----------
$225,792,548 223,459,269
============ ===========
</TABLE>
The following table presents data on impaired loans at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Impaired loans with impairment reserves $626,000 88,000
Impaired loans with no impairment reserves -- --
Impairment reserve (included in allowance for loan losses) 119,000 48,000
======== ======
<CAPTION>
For the years ended December 31:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average recorded investment in impaired loans $625,000 293,000 776,000
Cash basis interest income recognized from
impaired loans 29,000 -- --
======== ======= =======
</TABLE>
Nonaccrual loans totaled $927,000 and $211,000 at December 31, 1998
and 1997, respectively. Interest income on nonaccrual loans of
$43,000, $16,000 and $29,000 was recognized for cash payments received
in 1998, 1997 and 1996, respectively.
Certain of the Corporation's and Bank's executive officers, directors,
and their associates are loan customers of the Bank. As of December
31, 1998 and 1997, loans aggregating approximately $3,289,000 and
$3,241,000, respectively, were outstanding to such parties. These
loans were made in the ordinary course of business and on
substantially the same terms as those prevailing for comparable
transactions with other customers. During 1998, approximately $881,000
of new loans (additions or renewals) were made, and repayments
(collections or maturities) totaled approximately $833,000.
The fair value of capitalized mortgage servicing approximates the
carrying value at December 31, 1998 and 1997. Changes in capitalized
mortgage servicing rights is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance - beginning of year $249,305 156,217 --
Originated servicing rights capitalized 210,999 135,924 174,772
Amortization of servicing rights (74,111) (42,836) (18,555)
Allowance for impairment -- -- --
-------- ------- -------
Balance - end of year $386,193 249,305 156,217
======== ======= =======
</TABLE>
Mortgage loans serviced for others are not included in the
accompanying consolidated statements of financial condition. The
unpaid principal balances of mortgage loans serviced for others was
$48,884,000 and $27,030,000 at December 31, 1998 and 1997,
respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing, and included in demand deposits, were approximately
$35,000 and $97,000 at December 31, 1998 and 1997, respectively.
<PAGE> 38
(4) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended December
31, 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $2,608,277 2,079,614 1,818,633
Provision charged to expense 800,000 600,000 430,000
Charge-offs (322,687) (107,198) (219,901)
Recoveries 38,519 35,861 50,882
---------- --------- ---------
Balance at end of year $3,124,109 2,608,277 2,079,614
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1998 and 1997 is
as follows:
1998 1997
---- ----
<S> <C> <C>
Land $ 814,072 733,812
Buildings 3,546,832 3,495,572
Furniture and equipment 3,477,715 2,964,736
---------- ---------
7,838,619 7,194,120
Less accumulated depreciation 3,651,418 3,204,192
---------- ---------
$4,187,201 3,989,928
========== =========
</TABLE>
(6) INVESTMENT IN CORPORATE JOINT VENTURE
The Bank owns 49.8% of the stock of a corporate joint venture
(venture) whose business is developing and providing data processing
services to the Bank and other financial institutions. The venture has
total assets of $2,693,000 and liabilities of $842,000. The Bank
guarantees a $476,000 loan used for the construction of the venture's
new facility. The Bank's earnings from its investment in the venture
were approximately $51,000, $69,000 and $7,000 for the years ending
December 31, 1998, 1997 and 1996, respectively.
The Bank has a long-term cancelable contract with the venture that
extends through September, 2002. At that time, the contract is
automatically renewed for a period of 60 months. The Bank has the
option to terminate the contract any time, but would incur a
termination penalty of three times the average monthly fees 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.
<TABLE>
<CAPTION>
(7) DEPOSITS
The distribution of deposits at December 31 is as follows:
1998 1997
---- ----
<S> <C> <C>
Noninterest bearing demand deposits $ 41,374,241 35,720,127
Interest-bearing demand deposits 20,895,231 20,184,694
Savings deposits 79,639,495 65,889,786
Time deposits 134,585,647 138,671,410
------------ -----------
$276,494,614 260,466,017
============ ===========
</TABLE>
<TABLE>
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<S> <C>
1999 $103,668,270
2000 28,817,377
2001 1,341,000
2002 199,000
2003 560,000
------------
$134,585,647
============
</TABLE>
Time deposits include approximately $18,184,000 and $18,996,000 of
accounts in denominations of $100,000 or more at December 31, 1998 and
1997, respectively.
<PAGE> 39
(8) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase generally mature within
one day from the transaction date. The agreements to repurchase
securities requires that the Bank (seller) repurchase identical
securities as those that were sold. The securities underlying the
agreements were under the institution's control at December 31, 1998
and 1997.
Information concerning securities sold under agreements to repurchase
is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average balance during the year $21,354,712 20,943,788 17,186,624
Average interest rate during the year 5.21% 5.07% 4.61%
Maximum month-end balance during the year $25,667,090 24,425,332 26,218,553
=========== ========== ==========
</TABLE>
(9) BORROWED FUNDS
Borrowed funds are summarized as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
FHLB advance, 5.33%, due October 2002 $15,500,000 15,500,000
FHLB advance, 5.71%, due June 2002 9,000,000 9,000,000
FHLB advance, 5.74%, due May 1998 -- 5,000,000
FHLB advance, 5.43%, due May 2001 4,000,000 --
Note payable, 7%, balloon payment due October 1998 -- 57,818
Land contract, 7%, due May 1998 -- 14,423
Treasury, tax, and loan account 301,713 2,000,000
----------- ----------
$28,801,713 31,572,241
=========== ==========
</TABLE>
The average rate paid on the treasury, tax and loan account was 5.24%
in 1998 and 5.27% in 1997.
FHLB advances are subject to a prepayment penalty if they are repaid
prior to maturity. The FHLB advances are callable 1 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 Federal Home Loan Bank. Loans totaling approximately
$69,348,000 and $74,864,000 were maintained as collateral to secure
FHLB advances at December 31, 1998 and 1997, respectively.
(10) BENEFIT PLAN
The Bank has a 401(k) profit sharing plan, a defined contribution
plan, which is available to all employees. Employees may elect to
contribute up to 10% of their income. The Bank matches 35% of these
contributions up to the limits established by IRS regulations. The
Bank also makes an annual contribution to the plan as determined by
the Board of Directors. Expense associated with the plan was
approximately $182,000, $272,000 and $249,000 in 1998, 1997 and 1996
respectively.
(11) INCOME TAXES
Taxes applicable to income for the years ended December 31, 1998, 1997
and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,359,000 1,481,000 1,293,000
Wisconsin 114,000 232,000 148,000
---------- --------- ---------
1,473,000 1,713,000 1,441,000
---------- --------- ---------
Deferred:
Federal (209,000) (248,000) (137,000)
Wisconsin (31,000) (37,000) 14,000
---------- --------- ---------
(240,000) (285,000) (123,000)
---------- --------- ---------
$1,233,000 1,428,000 1,318,000
========== ========= =========
</TABLE>
<PAGE> 40
Included in accrued interest receivable and other assets in the
accompanying consolidated statements of financial condition are net
deferred income tax benefits of approximately $645,000 and $676,000 at
December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred tax assets:
<S> <C> <C>
Loans, principally due to allowance for losses $1,042,000 839,000
Deferred compensation 339,000 291,000
Intangibles 86,000 66,000
Accrued vacation 70,000 69,000
Other 8,000 14,000
---------- ---------
Gross deferred tax assets 1,545,000 1,279,000
Valuation allowance -- (2,000)
---------- ---------
Net deferred tax assets $1,545,000 1,277,000
========== =========
1998 1997
---- ----
<CAPTION>
Deferred tax liabilities:
<S> <C> <C>
Premises and equipment, principally due to
differences in depreciation (63,000) (67,000)
Intangibles (50,000) (60,000)
Mortgage servicing rights (150,000) (98,000)
Unrealized appreciation on securities available for sale (607,000) (336,000)
Other (6,000) (6,000)
---------- -------
Deferred tax liabilities (900,000) (601,000)
---------- -------
Net deferred tax asset $ 645,000 676,000
========== =======
</TABLE>
The 1998 net deferred tax asset decreased by $31,000. The difference
of $271,000 between the decrease and the deferred tax benefits
included in income taxes in 1998 is primarily attributable to the tax
effect on the unrealized appreciation on securities available for sale
which does not have an income statement impact as it is included in
other comprehensive income.
The following summarizes the sources of differences between computing
income taxes at the statutory Federal rate of 34% and actual income
tax expense:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense at statutory rate $1,984,000 1,901,000 1,674,000
Tax-exempt interest income (754,000) (537,000) (422,000)
State income taxes, net of Federal income tax benefit 55,000 129,000 107,000
Cash surrender value of life insurance (61,000) (45,000) (41,000)
Income of joint venture (17,000) (23,000) (2,000)
Other 26,000 3,000 2,000
---------- --------- ---------
Actual income tax expense $1,233,000 1,428,000 1,318,000
========== ========= =========
</TABLE>
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
customers. These financial instruments include commitments to extend
credit and standby letters of credit and involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated financial statements. The contract
amounts reflect the extent of involvement the Bank has in these
particular classes of financial instruments.
In the event of nonperformance, the Bank's exposure to credit loss for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for instruments reflected in the consolidated
financial statements. The Bank does not utilize derivative
instruments.
<PAGE> 41
Financial instruments whose contract amounts represent potential
credit risk at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commitments to extend credit $41,281,000 36,198,000
Standby letters of credit 1,193,000 1,021,000
=========== ==========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some commitments
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements of the Bank. The Bank
evaluates the creditworthiness of each customer on a case-by-case
basis and generally extends credit only on a secured basis. Collateral
obtained varies but consists primarily of accounts receivable,
inventory, motor vehicles, equipment, and real estate. The Bank's
lending area primarily encompasses Manitowoc County, Wisconsin.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Standby letters of credit outstanding totaling approximately
$1,051,000 at December 31, 1998 expire in 1999. Approximately $134,000
in letters of credit expires within four years. The remaining $8,000
of letters of credit are irrevocable. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank holds accounts
receivable, inventory, equipment, and real estate as collateral
supporting those commitments for which collateral is deemed necessary.
Approximately 92% of standby letters of credit outstanding at December
31, 1998 were supported by collateral.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires that the Bank disclose estimated fair values for its
financial instruments. Fair value estimates, methods, and assumptions
are set forth below for the Bank's financial instruments.
The estimated fair values of the Corporation's financial instruments
at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 15,215,089 15,215,089 11,505,264 11,505,264
Federal funds sold and
repurchase agreements 15,622,650 15,622,650 16,028,293 16,028,293
Securities 97,197,495 97,197,495 85,577,782 85,577,782
Loans 225,792,548 232,047,000 223,459,269 226,070,000
Financial Liabilities:
Deposits 276,494,614 277,044,000 260,466,017 261,194,000
Securities sold under
repurchase agreements 24,693,765 24,693,765 24,008,731 24,008,731
Borrowed funds 28,801,713 28,801,713 31,572,241 31,572,241
============ =========== ========== ===========
</TABLE>
(a) CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD AND REPURCHASE
AGREEMENTS
The carrying amounts of cash and due from banks and federal funds
sold and repurchase agreements approximate fair value because of
their short-term nature and because they do not present
unanticipated credit concerns.
(b) SECURITIES
The fair value of securities is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. See note 2.
(c) LOANS
Fair values are estimated for portfolios of loans with similar
financial characteristics. The fair value of performing loans,
except credit card loans, is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk
inherent in the loan. The estimate of maturity is based on the
Bank's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the
effect of current economic and lending conditions. The fair value
estimate for credit card loans is based on the carrying value of
existing loans. The carrying value of first mortgage loans held
for sale approximates fair value due to the short-term nature of
the asset.
<PAGE> 42
Fair value for significant non performing loans is based on
carrying value, less an estimate for credit risk.
The fair values of commitments to extend credit and standby
letters of credit are determined based upon the present value of
fees received for those products. These amounts are not
significant at December 31, 1998.
(d) DEPOSITS
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, super NOW accounts,
and money market checking accounts, is equal to the amount
payable on demand as of December 31, 1998 and 1997. The fair
value of other time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the
rates offered at December 31, 1998 and 1997 for deposits of
similar remaining maturities.
The fair value estimates do not include the benefit that results
from the low-cost funding provided by deposit liabilities
compared to the cost of borrowing funds in the market.
(e) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The carrying amounts for securities sold under repurchase
agreements approximate fair value because they mature in 90 days
or less.
(f) BORROWED FUNDS
The fair values of the Federal Home Loan Bank (FHLB) of Chicago
advances are estimated using discounted cash flow analyses, based
on the Bank's current incremental borrowing rates for similar
types of borrowing arrangements. The carrying amounts for other
borrowings approximate fair value.
(g) 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 Bank's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Bank'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 of significant
judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing 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. 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.
(14) LEASES
In January 1995, the Bank entered into an operating lease agreement
for a new branch office building. The lease expires December 31, 2005,
with an option whereby the Bank may extend the lease agreement for
three successive periods of five years. The lease also contains an
option in which after every five-year period, the Bank may purchase
the building for the fair market value. Rent expense under this
agreement totaled approximately $78,000 for the years ended December
31, 1998, 1997 and 1996.
The future minimum rental payments as of December 31, 1998 under this
lease for the next five years are:
<TABLE>
<S> <C>
1999 $ 80,043
2000 82,445
2001 84,918
2002 87,466
2003 90,090
After 2003 188,368
--------
$613,330
========
</TABLE>
In August 1996, the Bank sold a branch office building and entered
into a one-year lease of the building. The lease was extended on a
month-to-month basis pending the completion of a new branch building.
Rent expense under this agreement totaled approximately $12,000,
$12,000 and $5,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
<PAGE> 43
(15) REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by federal banking authorities. 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 Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. 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 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, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1998 and 1997, the most recent notification from
the Office of the Comptroller of Currency and the Federal Deposit
Insurance Corporation categorized the Bank as adequately capitalized
under the regulatory framework for prompt corrective action. To be
categorized as adequately 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 institution's
category.
The Bank's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To be well
capitalized
For capital under prompt
Actual adequacy purposes corrective action
------ ----------------- -----------------
Amount Ratio* Amount Ratio(*) Amount Ratio(*)
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital $33,176,000 13.6% $19,474,320 >=8.0% $24,342,900 >=10.0%
Tier I capital 30,132,000 12.4 9,737,160 >=4.0 14,605,740 >=6.0
Leverage 30,132,000 8.5 14,166,160 >=4.0 17,707,700 >=5.0
As of December 31, 1997:
Total capital 28,748,000 12.7 18,124,720 >=8.0 22,655,900 >=10.0
Tier I capital 26,140,000 11.5 9,062,360 >=4.0 13,593,540 >=6.0
Leverage 26,140,000 7.7 13,542,280 >=4.0 16,927,850 >=5.0
========== ==== =========== ===== =========== ======
</TABLE>
(*) Total capital ratio is defined as Tier I capital plus Tier 2
capital divided by total risk-weighted assets. The Tier I capital
ratio is defined as Tier I capital divided by total risk-weighted
assets. The leverage ratio is defined as Tier I capital divided by the
most recent quarter's average total assets.
The declaration and payment of cash dividends by the Bank to the
Corporation is restricted by certain statutory and regulatory
limitations. Such dividends are also limited by regulatory capital
requirements.
(16) FIRST MANITOWOC BANCORP, INC.
(PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
Assets 1998 1997
---- ----
<S> <C> <C>
Cash $ 2,019 6,986
Repurchase agreements with Bank 466,317 416,600
Investment in Bank 32,260,166 27,849,125
Investment in Realty -- 94,097
Premises and equipment, net 1,165,737 1,239,335
----------- ----------
$33,894,239 29,606,143
=========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Other liabilities $ 2,392 64,976
Stockholders' equity 33,891,847 29,541,167
----------- ----------
$33,894,239 29,606,143
=========== ==========
</TABLE>
<PAGE> 44
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
---- ---- ----
Income:
<S> <C> <C> <C>
Dividends received from Bank $ 720,000 720,000 720,000
Rental income received from Bank 99,000 106,475 106,800
Interest and other income 25,688 21,488 12,970
---------- --------- ---------
Total income 844,688 847,963 839,770
Operating expenses 105,616 101,928 96,679
---------- --------- ---------
Income before income tax expense and equity
in undistributed net income of Bank 739,072 746,035 743,091
Income tax expense 7,991 10,900 9,700
---------- --------- ---------
Income before equity in undistributed
net income of subsidiaries 731,081 735,135 733,391
Equity in undistributed net income of Bank 3,870,498 3,430,460 2,873,741
Equity in undistributed net loss of Realty (504) (1,124) (1,738)
---------- --------- ---------
Net income $4,601,075 4,164,471 3,605,394
========== ========= =========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $4,601,075 4,164,471 3,605,394
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 39,146 40,907 40,468
Increase (decrease) in other liabilities (4,761) 1,271 1,922
Equity in undistributed net income of Bank (3,870,498) (3,430,460) (2,873,741)
Equity in undistributed net loss of Realty (504) 1,124 1,738
---------- --------- ---------
Net cash provided by operating activities 764,458 777,313 775,781
---------- --------- ---------
Cash flows from investing activities:
Net purchases of premises and equipment 34,445 -- (183,205)
(Increase) decrease in repurchase agreements (49,716) (43,793) 61,233
Proceeds from sale of Realty land to Bank 107,000 -- --
Change in investment in Realty (12,399) (15,000) (15,500)
---------- --------- ---------
Net cash used in investing activities 79,330 (58,793) (137,472)
---------- --------- ---------
Cash flows from financing activities:
Payment on borrowed funds (57,818) (9,521) (8,879)
Dividends paid (790,937) (707,695) (621,703)
Other -- (3,000) --
---------- --------- ---------
Net cash used in financing activities (848,755) (720,216) (630,582)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents (4,967) (1,696) 7,727
Cash and cash equivalents at beginning of year 6,986 8,682 955
---------- --------- ---------
Cash and cash equivalents at end of year $ 2,019 6,986 8,682
========== ========= =========
</TABLE>
<PAGE> 1
ARTICLES OF INCORPORATION
OF
FIRST MANITOWOC BANCORP, INC.
I, the undersigned natural person of the age of twenty-one (21) years or
more, acting as incorporator of a corporation under the Wisconsin Business
Corporation Law (Chapter 180 of the Wisconsin Statutes) hereby adopt the
following Articles of Incorporation:
ARTICLE I
Name
The name of the corporation is FIRST MANITOWOC BANCORP, INC.
ARTICLE II
Purpose
The purpose or purposes for which the corporation is organized are to
engage in any lawful activity within the purposes for which a corporation may be
organized under the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes, provided the corporation shall not engage in the business of
banking.
ARTICLE III
Authorized Shares
The aggregate number of shares of capital stock which the Corporation
shall be authorized to issue is Two Million Five Hundred Thousand (2,500,000)
shares which shall be designated common stock and shall have a par value of One
Dollar ($1.00) per share. The holders of the common stock shall have no
presumptive rights to purchase or to subscribe for shares of any class of stock
now or hereafter authorized.
ARTICLE IV
Registered Office
The address of the registered office of the corporation is 402 North
Eighth Street, P.O. Box 10, Manitowoc, Wisconsin 54220, and the name of its
initial registered agent at such address is Thomas J. Bare.
ARTICLE V
Directors
The number of directors constituting the Board of Directors of the
Corporation, not less than six (6) nor more than fifteen (15), shall be fixed
from time to time by the By-Laws of the Corporation. The Board of Directors of
the Corporation shall be divided into three (3) classes of not less than two (2)
nor more than five (5) directors each. The term of office of the first class of
directors shall expire at the first annual meeting after their initial election
under the provisions of the Article V, the term of office of the second class
shall expire at the second annual meeting after their initial election under the
provisions of this Article V, and the term of office of the third class shall
expire at the third annual meeting after their initial election under the
provisions of this Article V. At each annual meeting after the initial
classification of the Board of Directors under this Article V, the class of
directors whose term expires at the time of such election shall be elected to
hold office until the third succeeding annual meeting.
Any director may be removed from office by affirmative vote of 80% of the
outstanding shares entitled to vote for the election of such director taken at a
meeting of stockholders called for that purpose, and any vacancy so created may
be filled by the affirmative vote of 80% of such shares.
ARTICLE VI
Incorporation
The name and address of the incorporator is Frank J. Pelisek, 100 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.
ARTICLE VII
Amendment
Except as otherwise provided herein, no amendment to the Articles of
Incorporation shall amend, alter, change or repeal any of the provisions of the
Articles of Incorporation, unless such amendment to the Articles of
Incorporation shall receive the affirmative vote of the holders of 66-2/3% of
all outstanding shares of stock of the Corporation entitled to vote on such
amendment to the Articles of Incorporation; provided, however, that in the case
of an amendment to Articles V, VII, VIII, IX or X of these Articles of
Incorporation, the affirmative vote
<PAGE> 2
of the holders of at least 80% of the outstanding shares of stock of the
Corporation entitled to vote on such amendment shall be required to adopt such
amendment to the Articles of Incorporation.
However, the affirmative vote of the holders of majority of the
outstanding shares of capital stock of the Corporation entitled to vote on any
amendment to the Articles of Incorporation shall apply to any amendment which is
approved by resolution adopted by the affirmative vote of a majority of the
entire Board of Directors of the Corporation in office at the time of such
approval, at any time prior to the mailing to stockholders of the notice of the
meeting at which the stockholders' vote on such matter is to be held.
If, without regard to this Article VII, applicable law or these
Articles of Incorporation would require a vote of stockholders of one or more
classes of the Corporation's outstanding shares, voting separately as a class,
for approval of an amendment to the Articles of Incorporation, then the 66-2/3%,
80% or majority vote (as the case may be) required by the Article VII shall also
apply to each such class, voting separately as a class.
ARTICLE VIII
Repurchase of Capital Stock
A. Repurchase Rights
(1) In the event any person (Acquiring Person) (a) who is the
beneficial owner, directly or indirectly, of more than 50% of the Capital Stock
outstanding becomes the beneficial owner, directly or indirectly, of any
additional Capital Stock pursuant to a tender offer or (b) becomes the
beneficial owner, directly or indirectly, of more than 50% of the Capital Stock
outstanding and any of such Capital Stock was acquired pursuant to a tender
offer, each holder of Capital Stock, other than the Acquiring Person or a
transferee of the Acquiring Person, shall have the right until and including the
90th day following the date the notice to holders of Capital Stock referred to
in Section C is mailed to have the Capital Stock held by such holder repurchased
by the Corporation at the Repurchase Price determined as provided in Section E,
and each holder of any securities convertible into Common Stock or of any
options, warrants, or rights exercisable to acquire Common Stock prior to such
90th day, other than the Acquiring Person or a simultaneously with the
conversion of such securities or exercise of such options, warrants, or rights
to have the Common Stock to be received thereupon by such holder repurchased by
the Corporation at the Repurchase Price.
(2) All repurchase rights hereunder shall be subject to, and
limited by, any provision contained in the Wisconsin Statues, in any intrastate,
interstate, or federal banking or bank holding company law, statute or
regulation which limits the amounts which may be used by the Corporation to
repurchase Capital Stock of the Corporation.
(3) No holder of Capital Stock of the Corporation shall have
any right to have Capital Stock repurchased by the Corporation pursuant to this
Article VIII if the Corporation, acting through a majority of its Board of
Directors, shall, within ten days following the announcement or publication of
such tender offer of following any amendment of such tender offer, recommend to
the holders of Capital Stock that such tender offer be accepted.
B. Definitions
(1) The term "person" shall include an individual, a
corporation, partnership, trust or other entity. When two or more persons act as
a partnership, limited partnership, syndicate, or other group for the purpose of
acquiring common stock, such partnership, syndicate or group shall be deemed a
"person".
(2) For the purpose of determining whether a person is an
Acquiring Person, such person shall be deemed to beneficially own (a) all
Capital Stock with respect to which such person has the capability to control or
influence the voting power in respect thereof and (b) all Capital Stock which
such person has the immediate or future right to acquire, directly or
indirectly, pursuant to agreements, through the exercise of options, warrants or
rights or through the conversion of convertible securities or otherwise; and all
Capital Stock which such person has the right to acquire in such manner shall be
deemed to be outstanding shares, but Capital Stock which any other person has
the right to acquire in such manner shall not be deemed to be outstanding
shares.
(3) The term "tender offer" shall mean an offer to acquire or
an acquisition of Capital Stock pursuant to a request or invitation for tenders
or an offer to purchase such shares for cash, securities or any other
consideration.
(4) The term "market purchase" shall mean the acquisition of
Capital Stock from holders of such shares in privately-negotiated transactions
or in transactions effected through a broker or dealer.
(5) Subject to the provisions of section B(2), "outstanding
shares" shall mean the shares of Capital Stock which at the time in question
have been issued by the Corporation and not reacquired and held or retired by it
or held by any subsidiary of the Corporation. The term "Capital Stock" shall
mean the Common Stock of the Corporation of $1.00 par value per share and any
series of Preferred Stock of the Corporation which has either voting rights or
rights to be converted into Common Stock.
<PAGE> 3
(6) The acquisition of Capital Stock by the Corporation or by
any person controlled by the Corporation shall not engender the right to have
Capital Stock repurchased pursuant to this Article. The right to have Capital
Stock repurchased pursuant to this Article shall attach to such shares and shall
not be personal to the holder thereof.
C. Repurchase Procedure. Not later than 30 days following the date on
which the Corporation receives credible notice that any person has become an
Acquiring Person whereupon the right shall be engendered to have Capital Stock
repurchased by the Corporation under this Article VIII, the Corporation shall
give written notice, by first-class mail, postage prepaid, at the address shown
on the records of the Corporation, to each holder of record of Capital Stock
(and to any other person known by the Corporation, to have rights to demand
repurchase pursuant to Section A of the Article) as of a date nor more than
seven days prior to the date of the mailing pursuant to this Section C and shall
advise each such holder of the right to have shares repurchased and the
procedures for such repurchase. In the event the Corporation fails to give
notice as required by this Section C, any holder entitled to receive such notice
may, within 30 days thereafter, serve written demand upon the Corporation to
give such notice. If within 30 days after the receipt of written demand the
Corporation fails to give the required notice, such holder may, at the expense
and on behalf of the Corporation, take such reasonable action as may be
appropriate to give notice or to cause notice to be given pursuant to this
Section C.
(1) In the event Capital Stock is subject to repurchase in
accordance with this Article VIII, the directors of the Corporation shall
designate a Repurchase Agent, which shall be a Corporation or association (a)
organized and doing business under the laws of the United States or any state,
(b) subject to supervision or examination by federal or state authority, (c)
having combined capital and surplus of at least $5,000,000 and (d) having the
power to exercise corporate trust powers.
(2) For a period of 90 days from the date of the mailing of
the notice to holders of Capital Stock referred to in this Section C, holders of
Capital Stock and other persons entitled to have Capital Stock repurchased
pursuant to this Article VIII may, at their option, deposit certificates
representing all or less than all Capital Stock held of record by them with the
Repurchase Agent together with written notice that the holder elects to have
such shares repurchased pursuant to this Article VIII. Repurchase shall be
deemed to have been effected at the close of business on the day such
certificates are deposited in proper form with Repurchase Agent.
(3) Upon 45 days' prior notice thereof to its Federal Reserve
Bank and said Federal Reserve Bank not having objected to each repurchase, the
Corporation shall promptly deposit in trust with the Repurchase Agent cash in an
amount equal to the aggregate Repurchase Price of all of the Capital Stock
deposited with the Repurchase agent for the purpose of repurchase.
(4) As soon as practicable after receipt by the Repurchase
Agent of the cash deposit by the Corporation referred to in this Section C, the
Repurchase Agent shall issue its checks payable to the order of the persons
entitled to receive the Repurchase Price of the Capital Stock in respect of
which such cash deposit was made.
(5) In the event the Corporation is unable to deposit with
the Repurchase Agent cash in full amount of the aggregate Repurchase Price of
all shares deposited for repurchase, because of limitations upon repurchase of
Capital Stock contained in the Wisconsin Statutes or because of limitations
imposed by its Federal Reserve Bank, the Corporation shall promptly deposit with
the Repurchase Agent the maximum amount of cash which may be used for the
repurchase of Common Stock under the most restrictive of the applicable
limitations upon such repurchase. In the event of deposit of less than the full
aggregate Repurchase Price pursuant to the provisions of this subsection, the
Repurchase Agent shall use the amount so deposited to repurchase the deposited
by each stockholder for repurchase. Certificates representing all shares which
remain unpurchased shall be returned to the depositors thereof as soon as
practicable thereafter, and there shall be no further repurchase rights with
respect to such shares arising in connection with the transactions already
completed.
D. Retired Stock. All Capital Stock with respect to which repurchase
has been effected pursuant to this Article VIII shall thereupon be deemed
retired.
E. Repurchase Price.
(1) The Repurchase Price shall be the amount payable by the
Corporation in respect of each share of Capital Stock with respect to which
repurchase has been demanded pursuant to this Article VIII and shall be the
greatest amount determined on any of the following three bases:
(a) The highest price per share of Common Stock,
including any commission paid to brokers or dealers for solicitation
or whatever, at which Common Stock held by the Acquiring Person was
acquired pursuant to a tender offer regardless of when such tender
offer was made or was acquired pursuant to any market purchase or
otherwise within 18 months prior to the notice to holders of Common
Stock referred to in Section C(2). For purposes of this subsection
(a), if the consideration paid in any such acquisition of Common
Stock consisted, in whole or part, of consideration other than cash,
the Board of Directors of the Corporation shall take such action, as
in its judgment it deems appropriate, to establish the cash value of
such consideration, but such valuation shall not be less than the
cash value, if any, ascribed to such consideration by the Acquiring
Person.
<PAGE> 4
(b) The highest sale price per share of Common Stock for
any trading day during the 18 months prior to the notice to holders
of Common Stock referred to in Section C. For purposes of this
subsection (b), the sale price for any trading day shall be the
average price per share of Common Stock in the principal market in
which the Common Stock is then traded.
(c) The amount of stockholders' equity in respect of each
outstanding share of Capital Stock as determined in accordance with
generally accepted accounting principles and as reflected in any
published report by the Corporation as at the fiscal year quarter
ending immediately preceding the notice to stockholders referred to
in Section C.
(2) The repurchase price of any Preferred Stock of the
Corporation having conversion rights shall be determined by multiplying the
price per share of Common Stock, as determined in Section E(1) above, by the
number of shares of Common Stock into which a share of Preferred Stock is then
convertible.
(3) The determination to be made pursuant to Section E shall
be made by the Board of Directors not later than the date of the notice to
holders of Capital Stock referred to in Section C. In making such determination,
the Board of Directors may engage such person, including investment banking
firms and the independent accountants, who have reported on the most recent
financial statements of the Corporation, and utilize employees and agents of the
Corporation, who will, in the judgment of the Board of Directors, be of
assistance to the Board of Directors.
(4) The determinations to be make pursuant to this Section E,
when made by the Board of Directors acting in good faith on the basis of such
information and assistance as was then reasonably available for such purpose,
shall be conclusive and binding upon the Corporation and its stockholders,
including any person referred to in Section A.
ARTICLE IX
Stockholders Vote Required for Merger
Except as otherwise expressly provided herein:
A. Any merger or consolidation of the Corporation with
one or more other corporations (regardless of which is the
surviving corporation), or;
B. Any sale, lease or exchange of all or substantially
all of the property and assets of the Corporation to or with
one or more other corporations, persons or other entities
shall require the affirmative vote of the holders of at least 80% of the
outstanding shares of Capital Stock of the Corporation entitled to vote on the
matter.
However, the affirmative vote of the holders of a majority of the
outstanding shares of Capital Stock of the Corporation entitled to vote on a
matter described in Sections A or B above, shall apply to any such transaction
which is approved by resolution adopted by the affirmative vote of the majority
of the entire Board of Directors of the Corporation in office at the time of
such approval, at any time prior to the mailing to stockholders of the notice of
the meeting at which the stockholders' vote on such matters is to be held.
IF, without regard to this Article, applicable law or these Articles of
Incorporation would require a vote of stockholders of one or more classes of the
Corporation's outstanding shares, voting separately as a class, for approval of
the transaction described in Sections A or B above and submitted to the
stockholders for a vote, then the 80% or majority vote (as the case may be)
required by this Article IX shall also apply to each such class, voting
separately as a class.
Notwithstanding the foregoing, this Corporation may merge into itself
any corporation, of which at least 90% of the outstanding shares of each class
is owned by this Corporation, without approval by a vote of stockholders of
either corporation in accordance with the procedures set forth in Section
180.685, Wis. Stats., or any successor of similar import as in effect at the
time of such merger.
ARTICLE X
Control Share Acquisitions
A control share acquisition, as defined in Section 180.02(18), Wis.
Stats., shall not be consummated unless approved by the Board of Directors of
the Corporation.
In the event any person purchases or attempts to purchase shares of the
Capital Stock of the Corporation, where such purchase, if consummated, would
constitute a control share acquisition, as defined in Section 180.02(18), Wis.
Stats., without complying with this Article and the requirements set forth in
Section 180.69, Wis. Stats., the Corporation may refuse to transfer or redeem
such shares and may deny all shareholder rights with respect to such shares,
including, without limitation, the right to inspect the books and records of the
Corporation, the right to vote such shares at any meeting of shareholders and
the right to receive dividends and shareholder notices. The denial of
<PAGE> 5
Shareholder rights may continue until the provisions of this Article and Section
180.69, Wis. Stats., have been complied with or until the Board of Directors of
the Corporation determines such compliance is not required.
<PAGE> 1
BY-LAWS
OF
First Manitowoc Bancorp, Inc.
INTRODUCTION -
VARIABLE REFERENCES
0.01. Date of annual shareholder's meeting (see Section 2.01):
7:00 P.M. 3rd Monday April
(Hour) (Week) (Day) (Month)
0.02. Required notice of shareholders' meeting (See Section 2.04): not
less than 10 days.
0.03. Authorized number of directors (See Section 3.01): not less than
three nor more than nine.
0.04. Required notice of directors' meeting (See Section 3.05):
(a) not less than 72 hours if by mail, and
(b) not less than 48 hours if by telegram or personal
delivery.
0.05. Authorized number of Vice Presidents (See Section 4.01): one.
0.06. Fiscal year of the corporation shall commence on the first day of
January and end on the last day of December.
ARTICLE I. OFFICES
1.01 Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02 Registered Offices. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the corporation shall be identical to such
registered offices.
ARTICLE II. SHAREHOLDERS
2.01 Annual Meeting. The annual meeting of the shareholders shall be
held at the date and hour in each year set forth in Section 0.01, or at such
other time and date within thirty days before or after said date as may be fixed
by or under the authority of the Board of Directors, for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in the
State of Wisconsin, such meeting shall be held on the next succeeding business
day. If the election of Directors shall not be held on the day designated
herein, or fixed as herein provided, for any annual meeting of the shareholders,
or at any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as
conveniently may be.
2.02 Special Meeting. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or the Board of Directors or by the person designated in the
written request of the holders of not less than one-tenth of all shares of the
corporation entitled to vote at the meeting.
2.03 Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Wisconsin, as the
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
business office of the corporation in the State of Wisconsin or such other
suitable place in the county of such principal office as may be
<PAGE> 2
designated by the person calling such meeting, but any meeting may be adjourned
to reconvene at any place designated by vote of a majority of the shares
represented thereat.
2.04 Notice of Meeting. Written notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than the number of days
set forth in Section 0.02 (unless a longer period is required by law or the
articles of incorporation) nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
or the Secretary, or other officer or persons calling the meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail, addressed tot he shareholder at his address as it appears on the stock
record books of the corporation, with postage thereon prepaid.
2.04 Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the stock transfer books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the close of business on the date on which notice of the
meeting is mailed or on the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any adjournment
thereof except where the determination has been made through the closing of the
stock transfer books and the stated period of closing has expired.
2.06 Voting Record. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of the
shareholders, make a complete list of the shareholders entitled to vote at such
meeting, or any adjournment thereof, with the address of and the number of
shares held by each. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such record or transfer books or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.
2.07 Quorum. Except as otherwise provided in the articles of
incorporation, a majority of the shares entitled to bote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum
is present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter shall be the act of the
shareholders unless the vote of a greater number or voting by classes is
required by law or the articles of incorporation. Though less than a quorum of
the outstanding represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
2.08 Conduct of Meetings. The Chairman of the Board of Directors, and
in his absence, the President, and in their absence, the Vice President, in the
order provided under Section 4.06, and in their absence, any person chosen by
the shareholders present shall call the meeting of the shareholders to order and
shall act as chairman of the meeting, and the Secretary of the corporation shall
act as Secretary of all meetings of the shareholders, but, in the absence of the
Secretary, the presiding officer may appoint any other person to act as
Secretary of the meeting.
2.09 Proxies. At all meetings of shareholders, a shareholder entitled
to vote may bote in person or by proxy appointed in writing by the shareholder
or by his duly authorized attorney-in-fact. Such proxy shall be filed with the
Secretary of the corporation before or at the time of the meeting. Unless
otherwise provided in the proxy, a proxy may be revoked at any time before it is
voted, either by written notice filed with the Secretary or the acting Secretary
of the meeting or by oral notice given by the shareholder to the presiding
officer during the meeting. The presence of a shareholder who has filed his
proxy shall not of itself constitute a revocation. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy. The Board of Directors shall have the power and authority to make rules
establishing presumptions as to the validity and sufficiency of proxies.
2.10 Voting of Shares. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders, except
to the extent that the voting rights of the shares of any class or classes are
enlarged, limited or denied by the articles of incorporation.
<PAGE> 3
2.11 Voting of Shares by Certain Holders.
(a) Other Corporations. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the President of such
corporation or any other officer appointed by such President. A proxy executed
by any principal officer of such other corporation or assistant thereto shall be
conclusive evidence of the signer's authority to act, in the absence of express
notice to this corporation, given in writing to the Secretary of this
corporation, or the designation of some other person by the Board of Directors
or by the by-laws of such other corporation.
(b) Legal Representatives and Fiduciaries. Shares held by an
administrator, executor, guardian, conservator, trustee in bankruptcy, receiver
or assignee for creditors may be voted by him, either in person or by proxy,
without a transfer of such shares into his name, provided that there is filed
with the Secretary before or at the time of meeting proper evidence of his
incumbency and the number of shares held. Shares standing in the name of a
fiduciary may be voted by him, either in person or by proxy. A proxy executed by
a fiduciary shall be conclusive evidence of the signer's authority to act, in
the absence of express notice to this corporation, given in writing to the
Secretary of this corporation, that such manner of voting is expressly
prohibited or otherwise directed by the document creating the fiduciary
relationship.
(c) Pledgees. A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter the pledgee shall be entitled to vote the
share so transferred.
(d) Treasury Stock and Subsidiaries. Neither treasury shares, nor
shares hold by another corporation if a majority of the shares entitled to vote
for the election of Directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares entitled to vote, but shares of its own issue held
by this corporation in a fiduciary capacity, or held by such other corporation
in a fiduciary capacity, may be voted and shall be counted in determining the
total number of outstanding shares entitled to vote.
(e) Minors. Shares held by a minor may be voted by such minor in
person or by proxy and no such vote shall be subject to disaffirmance or
avoidance, unless prior to such vote the Secretary of the corporation has
received written notice or has actual knowledge that such shareholder is a
minor.
(f) Incompetents and Spendthrifts. Shares held by an incompetent
or spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such votes shall be subject to disaffirmance or avoidance, unless
prior to such vote the Secretary of the corporation has actual knowledge that
such shareholder has been adjudicated an incompetent or spendthrift or actual
knowledge of filing of judicial proceedings for appointment of a guardian.
(g) Joint Tenants. Shares registered in the names of two or more
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his legal representative is present and claims the
right to participate in the voting of such shares or prior to the vote files
with the Secretary of the corporation a contrary written voting authorization or
direction or written denial or authority of the individual present or other
individuals are deceased and the Secretary of the corporation has no actual
knowledge that the survivor has been adjudicated not to be the successor to the
interests of those deceased.
2.12 Waiver of Notice by Shareholders. Whenever any notice whatever is
required to be given to any shareholder of the corporation under the articles of
incorporation or by-laws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the
shareholder entitled to such notice, shall be deemed equivalent to the giving of
such notice; provided that such waiver in respect to any matter of which notice
is required under any provision of the Wisconsin Business Corporation Law, shall
contain the same information as would have been required to be included in such
notice, except the time and place of meeting.
2.13 Unanimous Consent without Meeting. Any action required or
permitted by the articles of incorporation or by-laws or any provision of law to
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers and Number. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of Directors
of the corporation shall be as provided in Section 0.03.
3.02 Tenure and Qualifications. Subject to the other provisions
contained herein, each Director shall hold office until the next annual meeting
of shareholders and until his successor shall have been elected, or until his
prior death, resignation or removal. Excepting any members of the initial Board
of Directors who have attained the age of 70 years prior to December 31, 1983
which is controlled by resolution, any Director who attains the age of 70 years
during the course of his term as Director, shall serve up to the first annual
meeting following such birthday, at which time he shall be ineligible for
re-election. A Director may be removed from office by affirmative vote of a
majority of the outstanding shares entitled to vote for the election of such
Director, taken at a meeting of shareholders called for that purpose.
<PAGE> 4
A Director may resign at any time by filing his written resignation with the
Secretary of the corporation. Directors need not be residents of the State of
Wisconsin or shareholders of the corporation.
3.03 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than by this by-law immediately after the
annual meeting of shareholders, and each adjourned session thereof. The place of
such regular meeting shall be the same as the place of the meeting of
shareholders which precedes it, or such other suitable place as may be announced
at such meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Wisconsin,
for the holding of additional regular meetings without other notice than such
resolution.
3.04 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board of Directors, the
President, or the Secretary upon a written request signed by at least two
Directors. The Chairman, President or Secretary calling any special meeting of
the Board of Directors may fix any place, either within or without the State of
Wisconsin, as the place for holding any special meeting of the Board of
Directors called by them, and if no other place is fixed, the place of meeting
shall be the principal business office of the corporation in the State of
Wisconsin.
3.05 Notice; Waiver. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegram to each
Director at his business address or at such other address as such Director shall
have designated in writing filed with the Secretary, in each case not less than
that number of hours prior thereto as set forth in Section 0.04. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Whenever any notice whatever is required to be given to any
Director of the corporation under the articles of incorporation or by-laws or
any provision of law, a waiver thereof in writing, signed at any time, whether
before or after the time of meeting, by the Director entitled to such notice,
shall be deemed equivalent to the giving of such notice. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting and objects thereat to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.06 Quorum. Except as otherwise provided by law or by the articles of
incorporation or these by-laws, a majority of the number of Directors as
provided in Section 0.03 shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but a majority of the
directors present (though less than such quorum) may adjourn the meeting from
time to time without further notice.
3.07 Manner of Acting. The act of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by law or by the
articles of incorporation or these by-laws.
3.08 Conduct of Meetings. The Chairman of the Board of Directors, or in
his absence, the President, and in their absence, a Vice-President in the order
provided under Section 4.06, and in their absence, any Director chosen by the
Directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The Secretary of the corporation shall act
as Secretary of all meetings of the Board of Directors, but in the absence of
the Secretary, the presiding officer may appoint any Assistant Secretary or any
Director or other person present to act as Secretary of the meeting.
3.09 Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of Directors, may be
filled until the next succeeding annual election by the affirmative vote of a
majority of the Directors then in office, though less than a quorum of the Board
of Directors; provided, that in case of a vacancy created by the removal of a
Director by vote of the shareholders, the shareholders shall have the right to
fill such vacancy at the same meeting or any adjournment thereof.
3.10 Compensation. The Board of Directors, by affirmative vote of a
majority of the Directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
Directors for services to the corporation as Directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits of payments, to Directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such Directors, officers and employees to the corporation.
3.11 Presumption of Assent. A Director of the corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he is a member, at which action on any corporate matter is taken, shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the Secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
3.12 Committees. The Board of Directors, by resolution adopted by the
affirmative vote of a majority of the number of Directors as provided in Section
0.03, may designate one or more committees, each committee to consist of three
or more Directors elected by the Board of Directors, and which committees shall
have and may exercise power to the extent provided in said resolution as
initially adopted, and as thereafter supplemented or amended by further
resolution adopted by a like vote, in the management of the business and affairs
of the
<PAGE> 5
corporation, except action in respect to dividends to shareholders, election of
the principal officers of the filling of vacancies in the Board of Directors or
committees created pursuant to this section. The Board of Directors may elect
one or more of its members as alternate members of any such committee who may
take the place of any absent member or members at any meeting of such committee,
upon request by the President or upon request by the chairman of such meeting.
Each such committee shall fix its own rules governing the conduct of its
activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request.
3.13 Unanimous Consent Without Meeting. Any action required or
permitted by the articles of incorporation or by-laws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the Directors then in office.
ARTICLE IV. OFFICER
4.01 Number. The principal officers of the corporation shall be a
Chairman of the Board of Directors, a President, the number of Vice-Presidents
as provided in Section 0.05, a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors.
Any two or more offices may by held by the same person, except the offices of
President and Secretary and the offices of president and Vice-president.
4.02 Election and Term of Office. The officers of the corporation to be
elected by the Board of Directs shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall no be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected or until his prior death, resignation or removal.
4.03 Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
4.04 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term.
4.05 Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the Board of Directors and all annual and special meetings of
shareholders. The Chairman of the Board shall supervise the carrying out of the
policies adopted or approved by the Board. He shall have and may exercise such
further powers and duties as from time to time may be conferred upon, or
assigned to, him by the Board of Directors.
4.06 President. The President shall be the principal executive officer
of the corporation and, subject to the control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
corporation. He shall have authority, subject to such rules as may be prescribed
by the Board of Directors, to appoint such agents and employees of the
corporation as he shall deem necessary, to prescribe their powers, duties and
compensation, and to delegate authority to them. Such agents and employees shall
hold office at the discretion of the President. He shall have authority to sign,
execute and acknowledge, certificates, contracts, leases, reports and all other
documents or instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or the Board of
Directors, he may authorize any Vice-President or other officer or agent of the
corporation to sign, execute and acknowledge such documents or instruments in
his place and stead. In general, he shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
4.07 The Vice-Presidents. In the absence of the President or in the
event of his death, inability or refusal to act, or in the event for any reason
it shall be impracticable for the President to act personally, the
Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice-President
may sign, with the Secretary or Assistant Secretary, certificates for shares of
the corporation; and shall perform such other duties and have such authority as
from time to time may be delegated or assigned to him by the President or by the
Board of Directors. The execution of any instrument of the corporation by any
Vice-President shall be conclusive evidence, as to third parties, of his
authority to act in the stead of the President.
4.08 The Secretary. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all documents, the execution of which on behalf
of the corporation under its seal is duly authorized; (d) keep or arrange for
the keeping of a register of the post office address of shareholder which shall
be furnished to the Secretary by such shareholder; (e) sign with the President,
or a Vice-President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the corporation; and (g) in
general, perform all duties incident to the office of
<PAGE> 6
Secretary and have such other duties and exercise such authority as from time to
time amy be delegated or assigned to him by the President or by the Board of
Directors.
4.09 The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Section 5.04; and (c) in general, perform all of the
duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
to him by the President or by the Board of Directors. If required by the Board
of Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
4.10 Assistant Secretaries and Assistant Treasurers. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the President or a Vice-President certificates for shares of the
corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall, respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries and Assistant Treasurers, in general, shall
perform such duties and have such authority as shall from time to time be
delegated or assigned to them by the Secretary or the Treasurer, respectively,
or by the President or the Board of Directors.
4.11 Other Assistants and Acting Officers. The Board of Directors shall
have the power to appoint any person to act as assistant to any officer, or as
agent for the corporation in his stead, or to perform the duties of such officer
whenever for any reason it is impracticable for such officer to act personally,
and such assistant or acting officer or other agent so appointed by the Board of
directors shall have the power to perform all the duties of the office to which
he is so appointed to be assistant, or as to which he is so appointed to act,
except as such power may be otherwise defined or restricted by the Board of
Directors.
4.12 Salaries. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a Director of the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS
AND DEPOSITS: SPECIAL CORPORATE ACTS
5.01 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absences
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice-Presidents and by the Secretary, or
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal thereto; and when so executed no other party to such instrument or any
third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02 Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.03 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04 Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
5.05 Voting of Securities Owned by this Corporation. subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he be present, or in his
absence by any Vice-President of this corporation who may be present, and (b)
whenever, in the judgment of the President, or in his absence, of any
Vice-President, it is desirable for this corporation to execute a proxy or
written consent in respect to any shares or other securities issued by any other
corporation and owned by this corporation, such proxy or consent shall be
executed in the name of this corporation by the President or one of the
Vice-Presidents of this corporation, without necessity of any authorization by
the Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the same as such shares or other
securities might be voted by this corporation.
<PAGE> 7
ARTICLE VI. CERTIFICATES FOR
SHARES AND THEIR TRANSFER
6.01 Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such certificates shall be signed by the President or
a Vice-President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except as provided in Section 6.06.
6.02 Facsimile Signatures and Seal. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the President or
Vice-President and the Secretary or Assistant Secretary upon a certificate may
be facsimiles if the certificate is manually signed on behalf of a transfer
agent, or a registrar, other than the corporation itself or an employee of the
corporation.
6.03 Signature by Former Officers. In case any officer, who has signed
or whose facsimile signature has been placed upon, any certificate for shares,
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the date of its issue.
6.04 Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer, the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and powers of an
owner. Where a certificate for shares is presented to the corporation with a
request to register for transfer, the corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the corporation had no duty to inquire into adverse claims
or has discharged any such duty. The corporation may require reasonable
assurance that said endorsements are genuine and effective and in compliance
with such other regulations as may be prescribed by or under the authority of
the Board of Directors.
6.05 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims
that his certificate for shares has been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, and (b) files with the corporation a sufficient indemnity bond,
and (c) satisfies such other reasonable requirements as may be prescribed by or
under the authority of the Board of Directors.
6.07 Consideration for Shares. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be
paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. When payment of the consideration for which shares are to be issued
shall have been received by the corporation, such shares shall be deemed to be
fully paid and nonassessable by the corporation. No certificate shall be issued
for any share until such share is fully paid.
6.08 Stock Regulations. The Board of Directors shall have the power and
authority to make all such further rules and regulations not inconsistent with
the statutes of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
corporation.
ARTICLE VII. SEAL
7.01 The Board of Directors shall provide a corporate seal which shall
be circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal".
ARTICLE VIII. AMENDMENTS
8.01 By Shareholders. These by-laws may be altered, amended or repealed
and new by-laws may be adopted by the shareholders by affirmative vote of not
less than a majority of the shares present or represented at any annual or
special meeting of the shareholders at which a quorum is in attendance.
8.02 By Directors. These by-laws may also be altered, amended or
repealed and new by-laws may be adopted by the Board of Directors by affirmative
vote of a majority of the number of Directors present at any meeting at which a
quorum is in attendance; but no by-law adopted by the shareholders shall be
amended or repealed by the Board of Directors if the by-law so adopted so
provides.
<PAGE> 8
8.03 Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
by-laws when in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of Directors required to amend the
by-laws so that the by-laws would be consistent with such action, shall be given
the same effect as though the by-laws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
ARTICLE IX. FISCAL YEAR
9.01 The fiscal year of the corporation shall be as provided in Section
0.06.
<PAGE> 1
SUBSIDIARIES OF THE COMPANY
First National Bank in Manitowoc
100% Ownership
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