<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
------------------------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -------------------
Commission file number 0-25983
--------------------------------------------------------
First Manitowoc Bancorp,Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
402 North Eighth Street, Manitowoc, Wisconsin 54220
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(920) 684-6611
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at July 31, 1999, was 1,734,317 shares.
<PAGE> 2
FIRST MANITOWOC BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition -
June 30, 1999 and December 31, 1998
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive Income
Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(In Thousands, Except Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 17,969 $ 15,215
Federal funds sold and repurchase agreements 3,325 15,623
Securities available for sale, at fair value 96,269 97,197
Loans, net of unearned income 237,549 228,917
Less: Allowance for loan losses (3,373) (3,124)
--------- ---------
Loans, net 234,176 225,793
Premises and equipment, net 5,151 4,187
Accrued interest receivable and other assets 12,174 9,813
--------- ---------
Total assets $ 369,064 $ 367,828
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 39,928 $ 41,374
Interest-bearing deposits 230,553 235,121
--------- ---------
Total deposits 270,481 276,495
Securities sold under repurchase agreements 30,427 24,694
Short-term borrowings 2,000 302
Accrued interest payable and other liabilities 3,391 3,945
Long-term borrowings 28,500 28,500
--------- ---------
Total liabilities 334,799 333,936
Commitments and contingencies -- --
Stockholders' equity
Common stock, $1.00 par value; authorized
2,500,000 shares; issued 1,895,907 in 1999 and 1998 1,896 1,896
Additional paid-in capital 652 652
Retained earnings 33,079 30,869
Accumulated other comprehensive (loss) income (662) 1,175
Treasury stock at cost--161,590 shares in 1999 and 1998 (700) (700)
--------- ---------
Total stockholders' equity 34,265 33,892
--------- ---------
Total liabilities and stockholders' equity $ 369,064 $ 367,828
========= =========
</TABLE>
(See accompanying notes to Consolidated Financial Statements.)
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
(In Thousands, Except Share Data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 5,102 $ 5,324 $10,096 $10,545
Federal funds sold and repurchase agreements 41 117 207 234
Securities:
Taxable 716 733 1,410 1,455
Tax exempt 671 563 1,336 1,086
------- ------- ------- -------
Total interest income 6,530 6,737 13,049 13,320
INTEREST EXPENSE
Deposits 2,578 2,854 5,251 5,680
Short-term borrowings 295 284 599 584
Long-term borrowings 394 403 783 810
------- ------- ------- -------
Total interest expense 3,267 3,541 6,633 7,074
------- ------- ------- -------
NET INTEREST INCOME 3,263 3,196 6,416 6,246
Provision for loan losses 150 130 300 220
------- ------- ------- -------
Net interest income after provision for loan losses 3,113 3,066 6,116 6,026
OTHER OPERATING INCOME
Loan fees 10 56 26 93
Trust service fees 133 130 253 260
Service charges on deposit accounts 250 154 456 295
Loan servicing income 98 81 218 100
Gain on sales of mortgage loans held for sale 32 65 97 94
Other 75 91 157 175
------- ------- ------- -------
Total other operating income 598 577 1,207 1,017
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,158 1,065 2,181 2,018
Occupancy 228 251 518 548
Data processing 172 167 330 321
Postage, stationery and supplies 96 93 198 181
Other 477 384 836 743
------- ------- ------- -------
Total other operating expense 2,131 1,960 4,063 3,811
------- ------- ------- -------
Income before income tax expense 1,580 1,683 3,260 3,232
Income tax expense 288 407 627 789
------- ------- ------- -------
NET INCOME $ 1,292 $ 1,276 $ 2,633 $ 2,443
======= ======= ======= =======
Earnings per share: basic and diluted $ 0.75 $ 0.74 $ 1.52 $ 1.41
</TABLE>
(See accompanying notes to Consolidated Financial Statements.)
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
Six Months Ended June 30, 1998
<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, 1997 $ 1,895,907 $ 652,208 $ 27,059,290 ($ 700,139) $ 633,901 $ 29,541,167
Net income 0 0 2,442,500 0 0 2,442,500
Other comprehensive income:
Unrealized holding gain rising
during period 0 0 0 0 19,986 19,986
Income tax effect 0 0 0 0 (1,343) (1,343)
------------
Comprehensive income $ 2,461,143
Cash dividends ($ .20 per share) 0 0 (360,778) 0 0 (360,778)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $ 1,895,907 $ 652,208 $ 29,141,012 ($ 700,139) $ 652,544 $ 31,641,532
</TABLE>
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
Stock Capital Earnings Stock (Loss) Income Total
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $1,895,907 $652,208 $30,869,428 ($700,139) $1,174,443 $ 33,891,847
Cash paid for fractional shares 0 0 (6,527) 0 0 (6,527)
Net income 0 0 2,632,544 0 0 2,632,544
Other comprehensive (loss) income:
Unrealized holding loss rising
during period 0 0 0 0 (2,809,426) (2,809,426)
Income tax effect 0 0 0 0 972,432 972,432
------------
Comprehensive income $ 795,550
Cash dividends ($ .24 per share) 0 0 (416,259) 0 0 (416,259)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $1,895,907 $652,208 $33,079,186 ($700,139) ($662,551) $ 34,264,611
</TABLE>
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,632 $ 2,443
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 300 220
Depreciation, amortization, and accretion, net 255 283
Proceeds from sale of mortgage loans held for sale 17,503 16,521
Originations of mortgage loans held for sale (17,503) (14,912)
Undistributed income of joint venture (56) (11)
Increase in accrued interest receivable and other assets (1,162) (1,921)
Increase in accrued interest payable and other liabilities 290 325
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,259 2,948
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 33,849 12,416
Purchases of securities available for sale (36,740) (15,751)
Net increase in loans (8,698) (9,262)
Purchases of premises and equipment (1,304) (270)
Sales of premises and equipment 94 61
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,799) (12,806)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (6,013) 4,859
Net increase (decrease) in securities sold under repurchase agreements 5,734 (9,136)
Proceeds from advances on borrowed funds 1,698 0
Repayments on advances from borrowed funds 0 (1,019)
Dividends paid (423) (361)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 996 (5,657)
- -------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (9,544) (15,515)
Cash and cash equivalents at beginning of period 30,838 27,534
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $21,294 $ 12,019
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,802 $ 7,003
Income taxes 893 759
- -------------------------------------------------------------------------------------------------------------------
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 $ 158 $ 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(See accompanying notes to Consolidated Financial Statements.)
<PAGE> 7
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly First
Manitowoc Bancorp, Inc.'s ("Corporation") financial position, results of its
operations, changes in stockholders' equity and comprehensive income and cash
flows for the periods presented. All adjustments necessary for the fair
presentation of the consolidated financial statements are of a normal recurring
nature. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. The Corporation is a bank holding company that engages in its
business through its sole subsidiary, First National Bank in Manitowoc ("Bank"),
a nationally chartered commercial bank. The Bank has a wholly owned investment
subsidiary, FNBM Investment Corp. All material intercompany transactions and
balances are eliminated. Certain items in the prior period consolidated
financial statements have been reclassified to conform with the June 30, 1999
presentation.
NOTE 3: Investment Securities
The amortized cost and fair values of investment securities available for sale
for the periods indicated were as follows:
Investment Securities
<TABLE>
<CAPTION>
June 30, 1999
Amortized Cost Fair Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 5,793,065 $ 5,752,742
Obligations of states and political subdivisions 54,904,066 54,465,161
Mortgage-backed securities 34,010,449 33,471,032
Other securities 2,589,864 2,579,835
----------- -----------
Total $97,297,444 $96,268,770
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Amortized Cost Fair Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 5,791,262 $ 5,823,657
Obligations of states and political subdivisions 53,258,501 54,862,422
Mortgage-backed securities 27,473,104 27,622,978
Commercial paper 7,200,000 7,200,000
Other securities 1,693,876 1,688,438
----------- -----------
Total $95,416,743 $97,197,495
=========== ===========
</TABLE>
<PAGE> 8
NOTE 4: Loan Portfolio
The following table presents the composition of the Bank's loan portfolio by
significant concentration.
Summary of Loan Portfolio
(In Thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Percent of Percent of
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Commercial and Agricultural $ 94,400 39.74% $ 91,122 39.81%
Commercial Real Estate 44,485 18.72% 38,018 16.61%
Residential Real Estate 83,777 35.27% 85,115 37.18%
Consumer 13,990 5.89% 13,783 6.02%
Other 897 .38% 879 .38%
-------- ------ -------- ------
Total $237,549 100.00% $228,917 100.00%
======== ====== ======== ======
</TABLE>
The increase in commercial and agricultural loans of $3.3 million from $91.1
million at December 31, 1998 to $94.4 million at June 30, 1999 is a result of
increased seasonal demand, particularly in the agricultural sector. The increase
in commercial real estate loans of $6.5 million from $38.0 million at December
31, 1998 to $44.5 million at June 30, 1999 is a result of a strong customer
demand for commercial real estate loans.
NOTE 5: Allowance for Loan Losses
A summary of the changes in the allowance for loan losses for the periods
indicated is as follows:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
1999 1998
- -----------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 3,124,109 $ 2,608,277
Provision charged to expense 300,000 220,000
Charge-offs (69,161) (7,781)
Recoveries 18,440 23,821
----------- -----------
Balance at end of period $ 3,373,388 $ 2,844,317
=========== ===========
</TABLE>
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements have been made by First Manitowoc Bancorp, Inc. (the
"Corporation") in this document that are subject to risks and uncertainties.
These forward-looking statements, which are included in Management's Discussion
and Analysis, describe future plans or strategies and include the Corporation's
expectations of future results of operations. The words "believes," "expects,"
"anticipates" or similar expressions identify forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document could affect the future financial results of the
Corporation and could cause those results to differ materially from those
expressed in forward-looking statements contained in this document. These
factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting the Corporation's
banking, securities, asset management and credit services businesses;
and
- the risk that the Corporation's analyses of these risks and forces
could be incorrect and/or that the strategies developed to address
them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. The Corporation does
not undertake and specifically disclaims any obligation to update any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
The purpose of this discussion is to focus on information about the
Corporation's financial condition and results of operations that are not
otherwise apparent from the consolidated financial statements included in this
report. Reference should be made to those statements presented elsewhere in this
report for an understanding of the following discussion and analysis.
EARNINGS
Net Income
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $1,292 $1,276 $2,633 $2,443
EPS-Basic & Diluted $ .75 $ .74 $1.52 $1.41
Return on Average Assets 1.42% 1.46% 1.43% 1.41%
Return on Average Equity 14.98% 16.40% 15.45% 15.97%
- ---------------------------------------------------------------------------------------------
</TABLE>
All per share financial information has been adjusted to reflect the five for
four stock dividend declared on April 16, 1999. Weighted average shares
outstanding were 1,734,317 for the six months ended June 30, 1999 and 1998.
<PAGE> 10
Net income for the three months ended June 30, 1999 was $1,292,000 compared to
$1,276,000 for the three months ended June 30, 1998, an increase of $16,000,
or 1.2%. Earnings per share for the three months ended June 30, 1999 was $0.75
compared to $0.74 for the three months ended June 30, 1998. Net income for the
six months ended June 30, 1999 was $2,633,000 compared to $2,443,000 for the six
months ended June 30, 1998, an increase of $190,000, or 7.8%. Earnings per share
for the six months ended June 30, 1999 was $1.52 compared to $1.41 for the six
months ended June 30, 1998. The increase in net income for the six months ended
June 30, 1999 primarily is a result of higher noninterest income, primarily from
increased service charges on deposit accounts and increased mortgage loan
servicing income.
Return on average assets (ROA) on an annualized basis for the second quarter of
1999 was 1.42% compared to 1.46% for the second quarter in 1998. Return on
average equity (ROE) on an annualized basis for the second quarter of 1999 was
14.98% compared to 16.40% for the second quarter of 1998.
Return on average assets (ROA) on an annualized basis for the first six months
of 1999 was 1.43% compared to 1.41% for the first six months of 1998. Return on
average equity (ROE) on an annualized basis for the first six months of 1999 was
15.45% compared to 15.97% for the first six months of 1998.
NET INTEREST INCOME
Net Interest Income
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $6,530 $6,737 $13,049 $13,320
Interest Expense 3,267 3,541 6,633 7,074
------ ------ ------- -------
Net Interest Income $3,263 $3,196 $ 6,416 $ 6,246
- ------------------------------------------------------------------------------------------
</TABLE>
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998:
Net interest income for the second quarter of 1999 was $3,263,000 compared to
$3,196,000 for the second quarter of 1998, an increase of $67,000, or 2.1%.
While total interest income decreased $207,000 due to decreased interest paid on
loans, total interest expense on deposits decreased $274,000 as a result of
decreased interest paid on deposits, causing net interest income to increase.
YTD SECOND QUARTER 1999 COMPARED TO YTD SECOND QUARTER 1998:
Net interest income for the first six months of 1999 was $6,416,000 compared to
$6,246,000 for the first six months of 1998, an increase of $170,000, or 2.7%.
While total interest income decreased $271,000 due to decreased interest rates
on loans, total interest expense on deposits decreased $441,000 as a result of
decreased interest rates paid on deposits, causing net interest income to
increase.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended June 30, 1999, the Bank charged $150,000 to expense
for the provision for loan loss compared to $130,000 for the three months ended
June 30, 1998. For the six months ended June 30, 1999, the Bank charged $300,000
to expense for the provision for loan loss compared to $220,000 for the six
months ended June 30, 1998. The increase in the provision for loan loss for the
six months ended June 30, 1999 is the result of the identification of a specific
commercial loan that was placed on non-accrual in the first quarter of 1999.
This is an isolated account and there are no trends in economic, industrial,
geographical or other factors responsible for the increase in the provision for
loan loss.
<PAGE> 11
Allowance for Loan Losses
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $3,226 $2,712 $3,124 $2,608
Charge-offs 9 6 69 8
Recoveries 6 8 18 24
Net charge-offs (recoveries) 3 (2) 51 (16)
Provision for loan losses 150 130 300 220
------ ------ ------ ------
Balance at end of period $3,373 $2,844 $3,373 $2,844
Ratio of net charge-offs during period to
average loans outstanding during period ---- ---- .02% ----
Ratio of allowance for loan losses
to total loans 1.42% 1.22% 1.42% 1.22%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
There are several factors that are included in the analysis of the adequacy of
the allowance for loan losses. Management considers loan volume trends, levels
and trends in delinquencies and non-accruals, current problem credits, national
and local economic trends and conditions, concentrations of credit by industry,
current and historical levels of charge-offs, the experience and ability of the
lending staff, and other miscellaneous factors. Management has determined the
allowance for loan losses is adequate to absorb estimated credit losses in its
loan portfolio as of June 30, 1999 based on its most recent evaluation of these
factors.
The factor of loan volume trends is based on actual lending activity. The loan
volume trends factor is for estimated losses that are believed to be inherently
part of the loan portfolio but that have not yet been identified as specific
problem credits. The factor current problem credits includes the exposure
believed to exist for specifically identified problem loans determined on a
loan-by-loan basis.
A table showing the allocation of allowance for loan losses is shown below.
Allocation of Allowance for Loan Losses
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
June 30, December 31,
1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Specific Problem Loans $416 $516
Loan Volume Allocation:
Commercial & Agricultural 2,139 2,087
Commercial Real Estate 130 127
Residential Real Estate 78 76
Consumer 16 16
------ -----
2,363 2,306
Unallocated 594 302
------ ------
Total Reserve $3,373 $3,124
- ----------------------------------------------------------------------
</TABLE>
Specific problem loans includes the factor of current problem credits for the
exposure of specifically identified problem loans. Loan volume allocation
includes the factor of loan volume trends, with management's goal for this
factor to maintain an adequate loan loss reserve for outstanding loans less the
specifically identified current problem credits. The allocation of the allowance
among the
<PAGE> 12
various loan types is based on the average proportion of the loan types that
make up the specific problem loans. The unallocated portion of the allowance
consists of the other factors included in the analysis because those factors
cannot be identified to specific loans or loan categories.
The allocation and total for the allowance for loan losses is not to be
interpreted as a single year's exposure for loss nor the loss for any specified
time period.
NONPERFORMING LOANS
It is the policy of the Bank to place a loan in non-accrual 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 non-accrual decision. Non-accrual 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.
Total nonperforming loans at June 30, 1999 were $1,332,000, an increase of
$246,000 from December 31, 1998. The increase occurred primarily due to one
commercial loan and one residential real estate loan. These are isolated
accounts and no trends in economic, industrial, geographical or other factors
are evident. The following table presents nonperforming and nonaccrual loan
information.
Nonperforming Loans
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual Loans $1,020 $ 927
Accruing Loans Past Due 90 days or More 312 159
------ ------
Total Nonperforming Loans $1,332 $1,086
Nonperforming Loans as a Percent of Loans .56% .47%
- -----------------------------------------------------------------------------------
</TABLE>
OTHER OPERATING INCOME
Other Operating Income
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Servicing Fees $133 $130 $253 $260
Service Charges on Deposit Accounts 250 154 456 295
Loan Fees 10 56 26 93
Loan Servicing Income 98 81 218 100
Gain on Sales of Mortgage Loans Held for Sale 32 65 97 94
Other 75 91 157 175
---- ---- ------ ------
Total Other Operating Income $598 $577 $1,207 $1,017
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998:
Other operating income for the second quarter of 1999 was $598,000 compared to
$577,000 for the second quarter of 1998, an increase of $21,000 or 3.6%. The
increase resulted primarily from increased service charges on deposit accounts
due to the assessment of service charges on negative collected balances and
collection of automated teller machine fees. The decrease in gains on sales of
mortgage loans held for sale is a result of a decrease in the number of new
residential mortgage loans and refinancings processed and sold to the FNMA
secondary market during the second quarter of 1999. The decrease in loan fees is
a result of the strong competition for loans.
YTD SECOND QUARTER 1999 COMPARED TO YTD SECOND QUARTER 1998:
Other operating income for the six months ended June 30, 1999 was $1,207,000
compared to $1,017,000 for the six months ended June 30, 1998, an increase of
$190,000, or 18.7%. The increase resulted primarily from increases in mortgage
loan servicing income and service charges on deposits. Mortgage loans serviced
for others increased $22,600,000 from June 30, 1998 to June 30, 1999. The
related mortgage servicing rights asset increased from $280,606 at June 30, 1998
to $460,232 at June 30, 1999. Service charges increased due to assessment of
service charges on negative collected balances and collection of automated
teller machine fees which began late in the first quarter of 1998. The decrease
in loan fees is a result of the strong competition for loans.
OTHER OPERATING EXPENSE
Other Operating Expense
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and Employee Benefits $1,158 $1,065 $2,181 $2,018
Occupancy 228 251 518 548
Data Processing 172 167 330 321
Postage, Stationery and Supplies 96 93 198 181
Other 477 384 836 743
------ ------ ------ ------
Total Other Operating Expense $2,131 $1,960 $4,063 $3,811
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998:
Other operating expense for the second quarter of 1999 was $2,131,000 compared
to $1,960,000 for the second quarter of 1998, an increase of $171,000, or 8.7%.
Salaries and employee benefits expense increased due to annual merit increases
in wages for employees and the increase also reflects the impact of a midyear
increase that hourly employees received in their wages in 1998 in addition to
their annual merit increase. Other expense increased due to increased regulatory
fees, increased supplies expense, premiums on new directors' life insurance
policies and increased marketing expense for the new offices in Kiel and New
Holstein, Wisconsin.
YTD SECOND QUARTER 1999 COMPARED TO YTD SECOND QUARTER 1998:
Other operating expense for the first six months of 1999 was $4,063,000 compared
to $3,811,000 for the first six months of 1998, an increase of $252,000, or
6.6%. Salaries and employee benefits expense increased due to annual merit
increases in wages for employees and the increase also reflects the impact of a
midyear increase that hourly employees received in their wages in 1998 in
addition to their annual merit increase. Other expense increased due to
increased regulatory fees, increased supplies expense, premiums on new
directors' life insurance policies and increased marketing expense for the new
offices in Kiel and New Holstein, Wisconsin.
<PAGE> 14
INCOME TAXES
The effective tax rate for the three months ended June 30, 1999 was 18.23%
compared to 24.18% for the three months ended June 30, 1998. For the six months
ended June 30, 1999, the effective tax rate was 19.23% compared to 24.41% for
the six months ended June 30, 1998. The decrease in effective tax rates in both
periods is a direct result of additional assets held at the Bank's FNBM
Investment Corp. subsidiary.
BALANCE SHEET
JUNE 30, 1999 COMPARED TO DECEMBER 31, 1998
The Corporation's total assets increased from $367.8 million at December 31,
1998 to $369.1 million at June 30, 1999. This increase occurred primarily due to
an $8.6 million increase in the loan portfolio and a $2.4 million increase in
other assets, offset by a $12.3 million decrease in federal funds sold and
repurchase agreements. The increase in loans is a result of a strong customer
demand for commercial real estate loans. The increase in the loans was funded by
the decrease in federal funds sold. The increase in other assets was a result of
an increase of $675,000 in directors' life insurance policies and a $747,000
change in the deferred tax related to the change in the market value of the
available for sale securities.
Deposits decreased $6.0 million to $270.5 million at June 30, 1999 from $276.5
million at December 31, 1998. Securities sold under repurchase agreements
increased $5.7 million from $24.7 million at December 31, 1998 to $30.4 million
at June 30, 1999. The decrease in deposits was a result of strong competition
for interest bearing certificates of deposit. The increase in securities sold
under repurchase agreements was a result of increased commercial activity in
repurchase agreements.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Bank to meet financial obligations that
arise out of the ordinary course of business. Liquidity is primarily needed to
meet borrowing and deposit withdrawal requirements of the customers of the Bank
and to fund current and planned expenditures. The Bank maintains its asset
liquidity position internally through cash and cash equivalents, short term
investments, the maturity distribution of the investment portfolio, loan
repayments and income from earning assets. A substantial portion of the
investment portfolio contains readily marketable securities that could be
converted to cash immediately. On the liability side of the balance sheet,
liquidity is affected by the timing of maturing liabilities and the ability to
generate new deposits or borrowings as needed. Other sources are available
through borrowings from the Federal Reserve Bank, the Federal Home Loan Bank and
from lines of credit approved at correspondent banks. Management knows of no
trend or event which will have a material impact on the Bank's ability to
maintain liquidity at satisfactory levels.
<PAGE> 15
CAPITAL RESOURCES AND ADEQUACY
Capital
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Stockholders' Equity $34,265 $33,892
Tier 1 Capital to Risk Weighted Assets-Period End 13.0% 12.4%
Total Capital to Risk Weighted Assets-Period End 14.3% 13.6%
Tier 1 Leverage Ratio-Period End 9.0% 8.5%
Dividends Per Share-This Quarter $ .12 $ .16
Dividends Per Share-Year to Date .24 .46
Earnings Per Share-This Quarter $ .75 $ .50
Earnings Per Share-Year to Date 1.52 2.66
Dividend Payout Ratio-This Quarter 16.0% 32.0%
Dividend Payout Ratio-Year to Date 15.8% 17.3%
- --------------------------------------------------------------------------------------------------
</TABLE>
Total stockholders' equity increased $373,000 from $33.9 million at December 31,
1998 to $34.3 million at June 30, 1999. Net income for the six month period
ending June 30, 1999 of $2.6 million was offset by a net unrealized holding loss
arising during the period of $1.8 million related to the investment securities
available for sale.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of June 30, 1999 and December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 30, 1999 and December 31, 1998, the most recent notification from the
Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios. There are no conditions or events since that notification that
management believes have changed the institution's category.
YEAR 2000
The Bank has followed the five phases recommended by the Federal Financial
Institutions Examination Council (FFIEC) to manage its Year 2000 project. The
phases are awareness, assessment, renovation, validation and implementation. The
Bank has fully completed the first four phases and is 95% complete with the
implementation phase. The implementation phase is expected to be completed by
the third quarter of 1999.
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. All 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. Testing of Non-critical
Systems is complete. The entire inventory of software has been reviewed to
assess the impact of the year 2000. The software that needed to be replaced has
been replaced and all software is now Year 2000 compliant.
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. Testing of non-information technology
and equipment systems is complete and are Year 2000 compliant.
<PAGE> 16
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. Over 90% of the Bank's significant business
loan customers responded to the Year 2000 inquiries. Of those, over 92% claim to
be Year 2000 compliant. The responses were reviewed, ranked by degree of risk,
and quantified. Based on the low level of risk, no additional follow up was
deemed necessary. At this time, the Bank does not believe there is any
enforceability of any assurances from significant third parties or business loan
customers. 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, including utilizing the local radio and cable television media.
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 $120,000. Year
2000 compliance costs incurred through June 30, 1999 were $103,000.
A business resumption contingency plan has been established to address worst
case scenarios should they occur with the Year 2000 issue. The worst case
scenarios would be that all communications would be lost. If communications are
lost, the Bank would function in an "off-line" standby mode which would create
documents that could be done during evening batch processing at the Bank's data
processing center. Customer balances would be available the following morning.
RECENT DEVELOPMENTS
As of June 30, 1999, the Bank had substantially completed the construction of
its new Kiel, Wisconsin, and New Holstein, Wisconsin, branch offices. These two
new offices opened July 6, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the market risk position at June 30, 1999
from that disclosed as of December 31, 1998 in the Corporation's Registration
Statement on Form 10 filed with the Securities and Exchange Commission on May 5,
1999.
<PAGE> 17
FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries is involved in any
pending legal proceedings involving amounts in which management believes are
material to the financial condition and results of operations of the
Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Corporation held its Annual Meeting of Shareholders on April 19, 1999.
b) Directors elected at the Annual Meeting were Thomas J. Bare, Craig A. Pauly
and Katherine M. Reynolds.
Directors whose term of office as a director continued after the meeting
were: John M. Jagemann, John C. Miller, John E. Nordstrom, John M. Webster,
Robert S. Weinert and John J. Zimmer.
c) The results of the voting were as follows:
Election of the below-named nominees to the Board of Directors of the
Corporation:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--- ------- --------
<S> <C> <C> <C>
All Nominees: 770,693 10 1,674
By Nominee:
Thomas J. Bare 770,703 0 1,674
Craig A. Pauly 770,698 5 1,674
Katherine M. Reynolds 770,698 5 1,674
</TABLE>
d) Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27.1 Financial Data Schedule
b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the quarter ended June 30,
1999.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
(Registrant)
Date: August 11, 1999 --------------------------------------
Thomas J. Bare
President
Date: August 11, 1999 --------------------------------------
Paul H. Wojta
Vice President and Cashier
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,969,426
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,324,634
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 96,268,770
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 237,549,521
<ALLOWANCE> 3,373,388
<TOTAL-ASSETS> 369,064,086
<DEPOSITS> 270,481,091
<SHORT-TERM> 32,427,739
<LIABILITIES-OTHER> 3,390,645
<LONG-TERM> 28,500,000
0
0
<COMMON> 1,895,907
<OTHER-SE> 32,368,704
<TOTAL-LIABILITIES-AND-EQUITY> 369,064,086
<INTEREST-LOAN> 10,095,770
<INTEREST-INVEST> 2,746,184
<INTEREST-OTHER> 206,645
<INTEREST-TOTAL> 13,048,599
<INTEREST-DEPOSIT> 5,251,740
<INTEREST-EXPENSE> 6,632,777
<INTEREST-INCOME-NET> 6,415,822
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,064,857
<INCOME-PRETAX> 3,259,354
<INCOME-PRE-EXTRAORDINARY> 3,259,354
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,632,544
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.52
<YIELD-ACTUAL> 4.31
<LOANS-NON> 1,020,237
<LOANS-PAST> 312,211
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,143,742
<ALLOWANCE-OPEN> 3,124,109
<CHARGE-OFFS> 69,161
<RECOVERIES> 18,440
<ALLOWANCE-CLOSE> 3,373,388
<ALLOWANCE-DOMESTIC> 2,779,388
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 594,000
</TABLE>
