<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
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)
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INDEX
DESCRIPTION PAGE NO.
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.
1
<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.
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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
3
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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.
4
<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.
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<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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 for Interim Period March 31, 1999 versus March 31, 1998
Results of Operations Overview
For the three months ended March 31, 1999, the Company reported net income of
$1,340,761 or $.77 per share compared to $1,167,310 or $.67 per share for the
three months ended March 31, 1998. The improvement was attributed to an increase
in noninterest income. Return on assets on an annualized basis was 1.48% and
1.32% for the three months ended March 31, 1999 and March 31, 1998,
respectively. Return on average equity on an annualized basis was 15.44% and
15.52% for the three months ended March 31, 1999 and March 31, 1998,
respectively. The following table is selected comparative interim financial
data:
INTERIM FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED 3/31/99 ENDED 3/31/98
------------- -------------
<S> <C> <C>
Interest income $ 6,519,271 $ 6,582,973
Interest expense 3,366,427 3,532,747
Net interest income 3,152,844 3,050,226
Provision for loan losses 150,000 90,000
Net interest income after
provision for loan losses $ 3,002,844 $ 2,960,226
Other operating income 609,236 440,013
Other operating expense 1,932,074 1,851,181
Net income 1,340,761 1,167,310
Per Share Data:*
Net income - basic and diluted $ .77 $ .67
Cash dividends declared .12 .10
Book value 20.02 17.62
Weighted average shares outstanding 1,734,317 1,734,317
Total assets $358,108,778 $352,085,721
Loans, net of unearned income 229,390,564 228,328,624
Allowance for loan losses 3,226,416 2,712,360
Investment securities 102,327,415 89,071,870
Deposits 267,661,880 261,980,098
Long-term debt 28,500,000 29,500,000
Stockholders' equity 34,714,622 30,556,552
Average Balances
Assets $362,968,528 $350,496,608
Deposits 272,078,247 261,223,057
Stockholders' equity 34,303,234 30,048,860
Financial Ratios
Return on average assets 1.48% 1.32%
Return on average equity 15.44% 15.52%
Average equity to average assets 9.45% 8.57%
Dividend payout ratio 15.58% 14.93%
</TABLE>
* Per share data is restated to reflect a 25% stock dividend (five for four
exchange) on April 16, 1999.
7
<PAGE> 10
Net Interest Income and Net Interest Margin
Net interest income for the three months ended March 31, 1999 increased by
$102,618 or 3.4% compared to the three months ended March 31, 1998. The increase
is a result of decreased interest expense resulting from an increase in
noninterest bearing deposits and a decrease in certificates of deposit. Interest
rate spread was 4.03% for the three months ended March 31, 1999 and also 4.03%
for the three months ended March 31, 1998. Net interest margin was 4.24% for the
three months ended March 31, 1999 and also 4.24% for the three months ended
March 31, 1998.
Provision and Allowance for Loan Losses
For the three months ended March 31, 1999, the bank charged $150,000 to expense
for the provision for loan loss compared to $90,000 for the three months ended
March 31, 1998. Net charge-offs for the three months ended March 31, 1999 were
$47,693. The increase in the provision for loan loss for the interim period is
the result of the identification of a specific commercial loan that has been
placed on non-accrual. This is an isolated account and there are no trends in
economic, industrial, geographic or other factors responsible for the increase
in the provision for loan loss.
The allowance for loan losses of $3,226,416 as of March 31, 1999 amounted to
1.41% of the outstanding loan portfolio. Tables showing the analysis of the
allowance for loan losses and quarterly trends are shown below.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED 3/31/99 12/31/98
------------- ----------
<S> <C> <C>
Balance at beginning of period $3,124 $2,608
Charge-offs:
Real Estate $ 0 $ 21
Commercial & Agricultural 38 259
Consumer 22 43
------ ------
$ 60 $ 323
Recoveries:
Real Estate $ 3 $ 13
Commercial & Agricultural 5 9
Consumer 4 17
------ ------
$ 12 $ 39
Net charge-offs (recoveries) $ 48 $ 284
Provision for loan losses $ 150 $ 800
Balance at end of period $3,226 $3,124
Ratio of net charge offs during period to average
loans outstanding during period .02% .12%
</TABLE>
8
<PAGE> 11
ALLOWANCE FOR LOAN LOSSES
QUARTERLY TRENDS
(In Thousands)
<TABLE>
<CAPTION>
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1999 1998 1998 1998 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $3,124 $2,797 $ 2,844 $ 2,712 $ 2,608
Charge-offs:
Real Estate 0 15 3 3 0
Comm & Ag 38 37 222 0 0
Consumer 22 10 28 3 2
--- ------ ------ ------- -------
60 62 253 6 2
Recoveries:
Real Estate 3 3 3 4 3
Comm & Ag 5 5 0 0 4
Consumer 4 1 3 4 9
--- ------ ------ ------- -------
12 9 6 8 16
Net charge-offs
(recoveries) 48 53 247 (2) (14)
Provision for loan Losses 150 380 200 130 90
Balance at end of period $3,226 $3,124 $ 2,797 $ 2,844 $ 2,712
Ratio of net charge-offs during period
to average loans outstanding during period .02% .02% .11% -- (.01%)
</TABLE>
Two individual commercial loans accounted for $222,000 of charge-offs in the
third quarter of 1998. One of these loans also accounted for $24,000 of
charge-offs in the fourth quarter. These loans were separate isolated accounts
and no trends in economic, industrial, geographical or other factors are
evident. There is also no trend evident related to the increase in consumer
charge-offs. The charged off consumer loans are various types, including credit
card, auto and other consumer loans to separate individual accounts.
Other Operating Income
Other operating income for the three months ended March 31, 1999 increased
$169,223 or 38.5% compared to the three months ended March 31, 1998. The
increase resulted primarily from increases in mortgage loan servicing income of
$69,470 and increased loan closing fees, and service charges on deposits.
Mortgage loans serviced for others increased $26.2 million from March 31, 1998
to March 31, 1999. The related mortgage servicing rights asset increased from
$237,259 at March 31, 1998 to $434,992 at March 31, 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.
Other Operating Expenses
Other operating expenses for the three months ended March 31, 1999 increased
$480,893 or 4.37% compared to the three months ended March 31, 1998. The
increase was a result of an increase in salaries and employee benefits due to
annual merit increases in wages for employees.
Income Taxes
The effective tax rate for the three months ended March 31, 1999 was 20.19%
compared to 24.66% for the three months ended March 31, 1998. The decrease in
effective tax rates is a direct result of additional assets held at the Bank's
FNBM Investment Corp. subsidiary.
Balance Sheet
March 31, 1999 compared to December 31, 1998
During the first three months of 1999, total assets decreased $9.7 million, or
2.6%, compared to December 31, 1998. While loans outstanding increased slightly,
cash and federal funds sold decreased $6.8 million and $10.0 million,
respectively. Federal funds sold were reinvested in investment securities, and
to a lesser extent, loans. The increase in investment securities was $7.2
million. There was also a seasonal decrease in deposits of $8.8 million, with
non-interest bearing demand deposits decreasing by $8.1 million and
interest-bearing deposits decreasing by $.8 million.
9
<PAGE> 12
March 31, 1999 compared to March 31, 1998
During the past twelve month period from March 31, 1998 to March 31, 1999, total
assets increased $6.0 million or 1.7%. Loans increased $1.0 million while
investment securities increased $13.3 million, or 14.9%. The increase in
investment securities was funded mainly from a $7.4 million decrease in federal
funds sold and increases in non-interest bearing deposits of $1.3 million and
interest-bearing deposits of $4.4 million.
Investment Securities
Total investment securities amounted to $102.3 million at March 31, 1999
compared to $97.2 million at December 31, 1998. The following table shows the
distribution of the investment portfolio.
INVESTMENT SECURITIES
March 31, 1999
<TABLE>
<CAPTION>
Available for sale AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 6,560,853 $ 6,544,473
Obligations of states and political subdivisions 56,222,726 57,560,898
Mortgage-backed securities 32,494,157 32,480,609
Commercial paper 4,055,000 4,055,000
Other securities 1,693,875 1,686,435
------------ ------------
Total $101,026,611 $102,327,415
============ ============
</TABLE>
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>
MARCH 31, 1999 DECEMBER 31, 1998
PERCENT PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Commercial and
Agricultural $ 92,438 40.30% $ 91,122 39.81%
Commercial
Real Estate 39,198 17.09% 38,018 16.61%
Residential
Real Estate 82,959 36.16% 85,115 37.18%
Consumer 13,724 5.98% 13,783 6.02%
Other 1,072 .47% 879 .38%
-------- ------- -------- -------
Total $229,391 100.00% $228,917 100.00%
======== ======= ======== =======
</TABLE>
Total nonperforming loans at March 31, 1999 were $1.2 million, an increase of
$149,000 from December 31, 1998. The increase was namely due to one commercial
loan. This is an isolated account and no trend in economic, industrial,
geographical or other factor is responsible. The increase in accruing loans past
due 90 days or more in the third quarter of 1998 is a result of two specific
commercial loans. Those two commercial loans had SBA government guarantees and
the amounts represented the guaranteed principal amounts, which were received in
the fourth quarter. They are isolated accounts with no trends responsible. The
following table presents nonperforming and nonaccrual loan information.
10
<PAGE> 13
RISK ELEMENTS OF LOAN PORTFOLIO
QUARTERLY TRENDS
(In Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1999 1998 1998 1998 1998
------- ------- ------- ------- -------
Nonaccrual loans $ 925 $ 927 $ 722 $ 758 $ 778
Accruing loans past due
90 days or more 310 159 1,147 286 183
------- ------- ------- ------- -------
Total $1,235 $1,086 $1,869 $1,044 $961
Nonperforming loans as a
percent of loans .54% .47% .81% .45% .42%
</TABLE>
Liquidity Management
The following table shows the maturity distribution of the Bank's securities
portfolio and the related estimated fair value at March 31, 1999. Management
knows of no trend or event which will have a material impact on the Bank's
ability to maintain liquidity at satisfactory levels.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------ ------------
<S> <C> <C>
Due in one year or less $ 7,128,741 $ 7,144,193
Due after one year through five years 10,885,194 11,103,663
Due after five years through ten years 14,045,290 14,506,327
Due after ten years 36,473,234 37,092,627
------------ ------------
68,532,459 69,846,810
Mortgage-backed securities 32,494,152 32,480,605
------------ ------------
Total $101,026,611 $102,327,415
============ ============
</TABLE>
Capital Resources and Adequacy
Total stockholders' equity increased $823,000 from $33.9 million at December 31,
1998 to $34.7 million at March 31, 1999. Net income for the first three months
of 1999 of $1.3 million primarily contributed to this increase. The Bank's
leverage ratio at March 31, 1999 was 8.7% and the Tier 1 capital ratio was
12.9%.
Qualitative and Quantitative Disclosures About Market Risk
There has been no material changes to the market risk position at March 31, 1999
from that disclosed as of December 31, 1998.
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.
Results of Operations Overview for fiscal years 1998, 1997 and 1996
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.
11
<PAGE> 14
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.
12
<PAGE> 15
AVERAGE BALANCES, YIELD AND RATES
Table 1
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------- ---------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Money market investments:
Federal funds sold $8,774,000 $525,545 5.99% $5,969,000 $372,324 6.24%
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%
Tax-exempt obligations of States
and political subdivisions
48,580,000 3,601,635 7.41% 34,334,000 2,574,381 7.50%
All other investment securities 3,932,000 196,417 5.00% 3,778,000 224,484 5.94%
----------- ---------- ----- ----------- ---------- -----
Total investment securities 90,615,000 6,392,167 7.05% 81,053,000 5,546,090 6.84%
Loans, net of unearned income
Commercial loans 104,291,000 9,950,657 9.54% 97,010,000 9,516,959 9.81%
Mortgage loans 111,434,000 9,723,581 8.73% 105,513,000 9,339,019 8.85%
Installment loans 10,771,000 1,073,069 9.96% 10,037,000 989,747 9.86%
Other loans 4,064,000 599,795 14.76% 4,005,000 581,604 14.52%
----------- ---------- ----- ----------- ---------- -----
Total loans 230,560,000 21,347,102 9.26% 216,565,000 20,427,329 9.43%
----------- ---------- ----- ----------- ---------- -----
TOTAL INTEREST EARNING ASSETS 329,949,000 $28,264,814 8.57% 303,587,000 $26,345,743 8.68%
Cash and due from banks 8,702,000 8,268,000
Other assets 11,299,000 9,906,000
Allowance for loan and lease losses (2,775,000) (2,261,000)
----------- -----------
TOTAL ASSETS 347,175,000 319,500,000
----------- -----------
LIABILITIES
Interest-bearing liabilities:
Savings Deposits 26,061,000 648,703 2.49% 25,804,000 640,525 2.48%
Market Plus accounts 46,153,000 2,182,856 4.73% 34,964,000 1,700,496 4.86%
Super NOW accounts 11,698,000 281,525 2.41% 11,688,000 275,957 2.36%
Money market deposit accounts 6,383,000 181,985 2.85% 6,612,000 170,871 2.58%
Certificates of deposit and IRA deposits 137,887,000 8,103,059 5.88% 131,084,000 7,670,552 5.85%
Repurchase agreements 21,355,000 1,111,441 5.20% 20,944,000 1,062,572 5.07%
Federal funds purchased 53,000 3,087 5.82% 470,000 27,321 5.81%
Borrowings 29,993,000 1,661,923 5.54% 28,194,000 1,603,206 5.69%
----------- ---------- ----- ----------- ---------- -----
TOTAL INT-BEARING LIABILITIES 279,583,000 $14,174,579 5.07% 259,760,000 13,151,500 5.06%
Demand deposits 33,856,000 30,771,000
Other liabilities 3,687,000 3,311,000
----------- -----------
Total liabilities 317,126,000 293,842,000
Stockholders' equity 30,049,000 25,658,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$347,175,000 $319,500,000
----------- -----------
Net interest income and
interest rate spread
$14,090,235 3.50% $13,194,243 3.62%
Net interest income as a percent
of earning assets
4.27% 4.35%
===== =====
FOR THE YEAR ENDED
DECEMBER 31, 1996
--------------------------------
Average Income/ Yield/
Balance Expense Rate
ASSETS
Interest earning assets:
Money market investments:
Federal funds sold $2,841,000 $184,670 6.50%
Investment securities:
U.S. Treasury securities and
obligations of U.S. government agencies
36,826,000 2,378,041 6.46%
Tax-exempt obligations of States
and political subdivisions
25,580,000 1,897,617 7.42%
All other investment securities 2,465,000 88,880 3.61%
----------- ---------- -----
Total investment securities 64,871,000 4,364,538 6.73%
Loans, net of unearned income
Commercial loans 80,942,000 7,796,274 9.63%
Mortgage loans 93,183,000 8,250,449 8.85%
Installment loans 9,260,000 907,722 9.80%
Other loans 4,209,000 585,994 13.92%
----------- ---------- -----
Total loans 187,594,000 17,540,439 9.35%
----------- ---------- -----
TOTAL INTEREST EARNING ASSETS 255,306,000 $22,089,647 8.65%
Cash and due from banks 7,527,000
Other assets 9,299,000
Allowance for loan and lease losses (1,892,000)
-----------
TOTAL ASSETS 270,240,000
-----------
LIABILITIES
Interest-bearing liabilities:
Savings Deposits 26,705,000 647,257 2.42%
Market Plus accounts 26,397,000 1,265,944 4.80%
Super NOW accounts 11,087,000 247,281 2.23%
Money market deposit accounts 7,805,000 180,572 2.31%
Certificates of deposit and IRA deposits 119,759,000 6,971,654 5.82%
Repurchase agreements 17,168,000 790,983 4.61%
Federal funds purchased 611,000 29,617 4.85%
Borrowings 8,695,000 476,854 5.48%
----------- ---------- -----
TOTAL INT-BEARING LIABILITIES 218,227,000 10,610,162 4.86%
Demand deposits 26,710,000
Other liabilities 3,036,000
-----------
Total liabilities 247,973,000
Stockholders' equity 22,267,000
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$270,240,000
-----------
Net interest income and
interest rate spread
$11,479,485 3.79%
Net interest income as a percent
of earning assets
4.50%
-----
</TABLE>
13
<PAGE> 16
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.
14
<PAGE> 17
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)
DECEMBER 31,
<TABLE>
<CAPTION>
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.
15
<PAGE> 18
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. In 1998, 20 new employees were hired and 19
employees left the Bank's employment. The overall result was a net
increase of 2.6 full-time equivalents. Increases in salaries and employee
benefits were also the result of annual merit increases to employees. In
addition, hourly employees also received a mid-year increase in their hourly
wage in addition to their annual merit increase. Professional fees increased due
to regulatory reporting requirements. Professional fees incurred to meet
regulatory reporting requirements are expected to increase on an ongoing basis.
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. In 1997, 30 new employees were hired and 19
employees left the Bank's employment. The overall result was a net
increase of 4.5 full-time equivalents, including 2 new additional loan officers.
Increases in salaries and employee benefits were also the result of annual merit
increases to employees. In addition, hourly employees also received a mid-year
increase in their hourly wage in addition to their annual merit increase.
Occupancy expense increased due to increases in building insurance, real estate
taxes, and building leases. No new offices were opened in 1997, nor were any
closed. However, occupancy expense increased in 1997 because 1997 was the first
full year of lease expense related to a branch location that had been previously
owned but was sold to a third party and then leased back. There were no branch
office openings or closings in 1996.
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.
16
<PAGE> 19
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>
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.
Bank underwriting procedures are based on a process which evaluates the
management, repayment ability, collateral support, credit history, and overall
financial strength of prospective and current customers from a relationship
oriented perspective. Residential mortgage loans are predominantly underwritten
to general FNMA guidelines.
The Bank extends the following types of credit: commercial loans, agricultural
loans, real estate loans and consumer loans.
Commercial loans are often secured with first liens on accounts receivable,
inventory and/or equipment. Commercial loans generally have loan to value ratios
of 80% or less. Agricultural loans are collateralized with first liens on crops,
farm products, farm personal property and/or real estate. Agricultural loans
generally have loan to value ratios of 70% or less, except for agricultural real
estate loans which have loan to value ratios of 80% or less. Real estate loans
include commercial real estate loans and residential real estate loans. Real
estate loans are collateralized with first mortgages. Commercial real estate
loans generally have loan to value ratios of 80% or less while residential real
estate loans have loan to value ratios of 90% or less. Consumer loans include
loans to individuals for personal, family or household purposes. Consumer loans
may be secured with first lien positions or unsecured depending upon the credit
quality. The Bank will make subordinate loans in any category if the
borrower's financial position justifies it. The Bank is not involved in
credit risk insurance.
Bank management assesses the loan portfolio mix at least annually as part of its
planning and budget process. While there are no predetermined fixed targets for
various loan types established in the loan policy, general guidelines are
established annually for new loan
17
<PAGE> 20
activity based on loan portfolio mix and credit needs in the Bank's main
markets. For 1999, the general ranges for new loan activity by type are as
follows:
Commercial Loans - 45% to 55%
Residential Mortgage Loans - 30% to 40%
Consumer Loans - 10% to 20%
Agricultural Loans - 5% to 10%
There are no predetermined divisions for deposit categories.
The risks associated with the Bank's loan categories are as follows:
Commercial and Agricultural. Credit risk is considered low. Past due loans are
well below industry averages. Non-performing loans and net loan losses, although
higher than the previous year, remain well below the averages for banks of
similar size. The portfolio is fairly well diversified with residential rental
real estate the only SIC industry category exceeding 32% of the Bank's capital
structure and agricultural loans representing approximately 5% of total loans.
Real Estate. Credit risk is considered low, with delinquency ratios and
non-performing loans at very low levels.
Consumer. Credit risk is considered low, with delinquency ratios and
non-performing loans at very low levels.
No loan customer exceeds the legal lending limit among the loan categories. The
Bank's legal and internal lending limit as of December 31, 1998 was $5,131,000.
Extensions of credit used predominantly for business or agricultural purposes
are classified as commercial and agricultural loans. Commercial loans include
lines of credit for seasonal requirements of businesses, short-term loans
payable within 12 months for one time specific purposes and term loans with
maturities greater than 12 months for capital assets and fixed assets which are
amortized and repaid from cash flow. Agricultural loans include short-term farm
operating loans, intermediate farm personal property loans and long-term
agricultural real estate loans. Agricultural real estate loans generally have
maturities exceeding five years. Commercial term loans for capital assets and
fixed assets and commercial real estate loans that have maturities of more than
five years are generally arranged through government assisted financing programs
such as SBA.
The increase in commercial loans and decrease in commercial real estate loans
resulted mainly from the general credit needs within the Bank's primary markets
and strong competition for a fewer number of commercial real estate projects.
The Bank also made it a priority to sell residential mortgage loans to the FNMA
secondary market and term commercial real estate loans to the SBA secondary
market.
Table 7 "Summary of Loan Portfolio" presents the composition of the Bank's loan
portfolio by significant concentration.
Table 7
SUMMARY OF LOAN PORTFOLIO
(In Thousands)
Loans Outstanding as 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>
18
<PAGE> 21
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
======= ======= ======= ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
MATURING FIXED RATE ADJUSTABLE RATE TOTAL
- -------- ---------- --------------- --------
<C> <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>
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. The fluctuation in the level of nonaccrual loans over the past
five years is attributed mainly to isolated credit deterioration in a few larger
account relationships. These included commercial loans, agricultural loans and
residential real estate loans. However, these were individual isolated accounts
and no trend in economic, industrial, geographical or other factors could be
identified to account for the fluctuations in the level of nonaccrual loans.
Accruing loans 90 days or more past due include loans that are both well secured
and in the process of collection.
Table 9
RISK ELEMENTS OF LOAN PORTFOLIO
(In Thousands)
DECEMBER 31,
<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>
19
<PAGE> 22
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
---- ----
<S> <C> <C>
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>
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.
20
<PAGE> 23
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. There are no
interest rate caps or floors on variable rate instruments that could affect the
cash flows on those instruments. Variable rate loans, investments and deposits
reprice immediately because they are related to changes in the prime rate of
interest. Fixed rate commercial loans reprice at least annually. Fixed rate real
estate loans are scheduled for 1 to 2 years with balloon payments. Loans do not
have prepayment penalty clauses. The following table also assumes all loans and
deposits will be renewed under the same terms. Interest rates on those renewals
are based on anticipated rates at the date of renewal. There is a 10% prepayment
assumption for the entire loan portfolio based on historical trends.
Reinvestment rates are assumed at 95% for loans. Loans not renewed are assumed
to be replaced by loan originations. The table assumes that any deposits that
are withdrawn are replaced by new deposit funds. The following table shows the
expected cash flows and yields for interest earning assets and interest bearing
liabilities.
21
<PAGE> 24
Table 13
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
(In Thousands)
<TABLE>
<CAPTION>
EXPECTED PERIOD OF MATURITY
---------------------------
WITHIN GREATER THAN
1 YEAR 1-2 YEARS 2-3 YEARS 3-4 YEARS 4 YEARS TOTAL FAIR
YIELD/ YIELD/ YIELD/ YIELD/ YIELD/ YIELD/ MARKET
DECEMBER 31, 1998 BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE VALUE
- ----------------- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- -----
<S> <C> <C> <C> <C> <C> <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 $ 0 n/a $ 15,623 4.47% $ 15,623
US Treasury,
Agency
and Other
securities (F) 14,010 6.23% 575 13.89% 0 n/a 0 n/a 50 6.00% 14,635 6.28% 14,662
US Treasury,
Agency
and Other
securities (V) 50 7.50% 0 n/a 0 n/a 0 n/a 0 n/a 50 7.50% 50
Mortgage backed
Securities (F) 5,227 6.39% 2,923 6.59% 1,734 6.82% 1,163 6.82% 13,684 6.39% 24,731 6.47% 24,881
Mortgage backed
Securities (V) 2,742 5.92% 0 n/a 0 n/a 0 n/a 0 n/a 2,742 5.92% 2,742
Municipal
securities (F) 4,924 4.87% 3,554 4.84% 3,850 4.78% 1,910 5.18% 39,021 4.94% 53,259 4.95% 54,862
Commercial
loans (F) 20,657 9.14% 21,036 9.06% 30,956 8.99% 22,460 9.03% 3,263 10.03% 98,372 9.10% 98,543
Commercial
loans (V) 30,261 8.92% 1,386 9.17% 0 n/a 0 n/a 0 n/a 31,647 8.93% 31,647
Residential
real estate (F) 31,967 8.58% 20,041 8.56% 20,096 8.57% 1,722 8.91% 708 8.57% 74,534 8.57% 77,031
Residential
real estate (V) 5,262 8.17% 4,222 7.51% 1,097 7.79% 0 n/a 0 n/a 10,581 7.87% 10,581
Consumer loans (F) 3,437 9.58% 3,195 9.39% 3,782 9.20% 3,054 9.03% 315 9.28% 13,783 9.27% 14,245
-------- ---- ------- ---- ------- ---- ------- ---- ------- ---- -------- ---- --------
Total interest
earning
assets $134,160 7.67% $56,932 8.47% $61,515 8.49% $30,309 8.69% $57,041 5.61% $339,957 7.80% $344,867
======== ==== ======= ==== ======= ==== ======= ==== ======= ==== ======== ==== ========
Interest bearing
deposits (F) $103,668 5.47% $28,818 5.92% $ 1,341 5.65% $ 199 5.57% $ 560 5.86% $134,586 5.72% $135,135
Interest bearing
deposits (V) 100,535 3.38% 0 n/a 0 n/a 0 n/a 0 n/a 100,535 3.38% 100,535
Short term
borrowings (F) 6,500 5.21% 0 n/a 0 n/a 0 n/a 0 n/a 6,500 5.21% 6,500
Short term
borrowings (V) 18,495 5.22% 0 n/a 0 n/a 0 n/a 0 n/a 18,495 5.22% 18,495
Long term
Borrowings (F) 0 n/a 0 n/a 4,000 5.43% 24,500 5.48% 0 n/a 28,500 5.46% 28,500
-------- ---- ------- ---- ------- ---- ------- ---- ------- ---- -------- ---- --------
Total interest
bearing
liabilities $229,198 4.51% $28,818 5.92% $ 5,341 5.49% $24,699 5.48% $ 560 5.86% $288,616 4.86% $289,165
======== ==== ======= ==== ======= ==== ======= ==== ======= ==== ======== ==== ========
</TABLE>
(V) Variable repricing terms
(F) Fixed repricing terms
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. 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
22
<PAGE> 25
be compliant in the next few months. Testing of Non-critical Systems is now
complete. Our 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.
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. 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 $120,000. Year
2000 compliance costs incurred through the three months ending March 31, 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.
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.
23
<PAGE> 26
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.
24
<PAGE> 27
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.
25
<PAGE> 28
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.
26
<PAGE> 29
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.
[GRAPH SUMMARIZED IN TABLE BELOW]
<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.
27
<PAGE> 30
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
- ------ ------ ------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C> <C> <C>
$24.80 $23.60 $31.20 $24.80 $32.80 $31.20 $32.80 $32.80
</TABLE>
<TABLE>
<CAPTION>
1997
----
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
- ------ ------ ------ ------ ------ ------ ------ ------
<C> <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
- ----------- ----------- ----------- ----------- -----
<C> <C> <C> <C> <C>
$0.10 $0.10 $0.10 $0.16 $0.46
</TABLE>
<TABLE>
<CAPTION>
1997
----
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
- ----------- ----------- ----------- ----------- -----
<C> <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.
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
28
<PAGE> 31
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.
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.
29
<PAGE> 32
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
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
30
<PAGE> 33
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 to the
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.
ITEM 14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
31
<PAGE> 34
ITEM 15
FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
<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
Unaudited Interim Consolidated Financial Statements
Consolidated Statements of Financial Condition--
March 31, 1999 and March 31, 1998
Consolidated Statements of Income--
Three Months Ended March 31, 1999 and March 31, 1998
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income--
Three Months Ended March 31, 1999 and March 31, 1998
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1999 and March 31, 1998
Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS EXHIBIT NUMBER
- -------- --------------
<S> <C>
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 amended registration statement Form
10/A to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
Dated: July 13, 1999
Thomas J. Bare
President
32
<PAGE> 35
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
33
<PAGE> 36
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.
34
<PAGE> 37
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>
35
<PAGE> 38
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>
36
<PAGE> 39
FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ----------------------------------------------------------------------------------------------------------------------------
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
Proceeds from sales of mortgage loans held for sale 34,896,610 14,240,691 10,108,797
Originations of mortgage loans held for sale (33,487,722) (15,300,351) (10,405,121)
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)
Purchases of premises and equipment (838,936) (737,034) (470,975)
Sales of premises and equipment 168,384 56,086 145,167
- ----------------------------------------------------------------------------------------------------------------------------
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.
37
<PAGE> 40
(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.
38
<PAGE> 41
(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.
39
<PAGE> 42
The evaluation takes into consideration certain risk
characteristics including loan type, interest rate, prepayment
trends, volatility and external market factors.
(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.
40
<PAGE> 43
(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
=========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
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.
41
<PAGE> 44
(3) LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
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> <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
For the years ended December 31:
1998 1997 1996
-------- ------- -------
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.
42
<PAGE> 45
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.
(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>
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
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.
(7) DEPOSITS
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
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>
At December 31, 1998, the scheduled maturities of time deposits are as follows:
<TABLE>
<S> <C> <C>
1999 $103,668,270
2000 28,817,377
2001 1,341,000
2002 199,000
2003 560,000
------------
$134,585,647
============
</TABLE>
43
<PAGE> 46
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.
(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>
44
<PAGE> 47
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
---------- ----------
<S> <C> <C>
Deferred tax assets:
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
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred tax liabilities:
Premises and equipment, principally due to
differences in depreciation (63,000) (67,000)
Intangibles (24,000) (34,000)
Discount accretion (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.
45
<PAGE> 48
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
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
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.
46
<PAGE> 49
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> <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.
47
<PAGE> 50
(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
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
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>
48
<PAGE> 51
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Income:
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
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
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>
49
<PAGE> 52
Financial Statements:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1999 1998 1998
-------- ----------- --------
(In Thousands, Except Share Data)
<S> <C> <C> <C>
ASSETS
Cash and due from banks 8,451 15,215 10,037
Federal funds sold and repurchase agreement 5,585 15,623 12,961
Securities available for sale, at fair value 102,327 97,197 89,072
Loans, held for sale 0 0 0
Loans, net of unearned income 229,391 228,917 228,338
Less: Allowance for loan losses (3,226) (3,124) (2,712)
------- ------- -------
Loans, net 226,165 225,793 225,626
Premises and equipment 4,589 4,187 4,115
Other assets 10,992 9,813 10,275
------- ------- -------
Total assets 358,109 367,828 352,086
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 33,292 41,374 31,972
Interest-bearing deposits 234,370 235,121 230,008
------- ------- -------
Total deposits 267,662 276,495 261,980
Securities sold under repurchase agreements 22,621 24,694 25,245
Short-term borrowings 1,233 302 1,185
Accrued expenses and other liabilities 3,378 3,945 3,619
Long-term borrowings 29,500 28,500 29,500
------- ------- -------
Total liabilities 323,394 333,936 321,529
Commitments and contingent liabilities -- -- --
Stockholders' equity
Common stock, $1 par value; authorized 2,500,000 shares;
issued 1,895,907 in 1999 and 1998 1,896 1,896 1,896
Additional paid-in capital 652 652 652
Retained earnings 32,002 30,869 28,047
Accumulated other comprehensive income 865 1,175 662
Treasury stock at cost--161,590 shares in 1999 and 1998 (700) (700) (700)
------- ------- -------
Total stockholders' equity 34,715 33,892 30,557
------- ------- -------
Total liabilities and stockholders' equity 358,109 367,828 352,086
======= ======= =======
</TABLE>
(See accompanying notes to Consolidated Financial Statements.)
50
<PAGE> 53
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans 4,994 5,221
Interest and dividends on investment securities:
Taxable 694 722
Tax exempt 665 523
Interest on federal funds sold and repurchase agreements 166 117
----- -----
Total interest income 6,519 6,583
INTEREST EXPENSE
Interest on deposits 2,673 2,826
Interest on short-term borrowings 304 300
Interest on long-term borrowings 389 407
----- -----
Total interest expense 3,366 3,533
----- -----
NET INTEREST INCOME 3,153 3,050
Provision for loan losses 150 90
----- -----
Net interest income after provision for loan losses 3,003 2,960
OTHER INCOME
Loan fees 16 37
Trust service fees 120 130
Service charges on deposit accounts 206 141
Loan servicing income 120 19
Gain on sales of mortgage loans held for sale 65 29
Other 82 84
----- -----
Total other income 609 440
OTHER EXPENSE
Salaries and employee benefits 1,023 953
Occupancy 290 297
Data processing 158 154
Postage, stationery and supplies 102 88
Other 359 359
----- -----
Total other expense 1,932 1,851
----- -----
Income before income tax expense 1,680 1,549
Income tax expense 339 382
----- -----
NET INCOME 1,341 1,167
===== =====
Earnings per share: basic and diluted 0.77 0.67
</TABLE>
(See accompanying notes to Consolidated Financial Statements.)
51
<PAGE> 54
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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 $1,895,907 652,208 27,059,290 (700,139) 633,901 29,541,167
Net Income 0 0 1,167,310 0 0 1,167,310
Other comprehensive income:
Unrealized holding gain
rising during period 0 0 0 0 31,616 31,616
Income tax effect 0 0 0 0 (3,152) (3,152)
Comprehensive income 28,464
Cash dividends ($.10 per share) 0 0 (180,389) 0 0 (180,389)
---------- ---------- ---------- -------- ------------ ----------
Balance at March 31, 1998 $1,895,907 652,208 28,046,211 (700,139) 662,365 30,556,552
========== ======= ========== ======== ============ ==========
</TABLE>
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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 $1,895,907 652,208 27,059,290 (700,139) 1,174,443 33,891,847
Net Income 0 0 1,340,761 0 0 1,340,761
Other comprehensive income:
Unrealized holding gain
rising during period 0 0 0 0 (479,948) (479,948)
Income tax effect 0 0 0 0 170,103 170,103
Comprehensive income (309,845)
Cash dividends ($.10 per share) 0 0 (208,141) 0 0 (208,141)
---------- ---------- ---------- -------- ------------ ----------
Balance at March 31, 1998 $1,895,907 652,208 32,002,048 (700,139) 864,598 34,714,622
========== ========== ========== ======== ============ ==========
</TABLE>
51
<PAGE> 55
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C>
Net income $ 1,340,761 1,167,310
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150,000 90,000
Depreciation, amortization, and accretion, net 122,502 138,463
Proceeds from sales of mortgage loans held for sale 11,309,564 6,958,190
Originations of mortgage loans held for sale (11,374,649) (5,377,942)
Gain on sales of mortgage loans held for sale 65,085 29,152
Undistributed income of joint venture (25,041) (14,309)
Increase in accrued interest receivable and other assets (828,846) (2,359,418)
Increase (decrease) in accrued interest payable (123,422) 7,199
Increase (decrease) in other accrued expenses 400,884 577,477
Net cash provided by operating activities 1,036,838 1,216,122
- ----------------------------------------- ------------ ----------
Cash flows from investing activities:
Proceeds from maturities of securities available for
sale 18,720,396 3,276,048
Purchases of securities available for sale (25,334,244) (6,709,710)
Net increase in loans (521,598) (3,749,993)
Purchases of premises and equipment (521,976) (252,866)
Sales of premises and equipment 0 2,511
- ------------------------------------- ------------ ----------
Net cash used in investing activities (7,657,422) (7,439,010)
- ------------------------------------- ------------ ----------
Cash flows from financing activities:
Net (decrease) increase in deposits (8,831,733) 1,514,071
Net (decrease) increase in securities sold under
repurchase agreements (2,072,966) 1,236,478
Net increase (decrease) in borrowed funds 931,649 (887,395)
Dividends paid (208,141) (180,389)
- --------------------------------------------------- ------------ ----------
Net cash (used in) provided by financing activities (10,181,191) 1,682,765
- --------------------------------------------------- ------------ ----------
Net decrease in cash and cash equivalents (16,801,775) (4,535,123)
Cash and cash equivalents at beginning of period 30,837,739 27,533,557
- ------------------------------------------ ------------ ----------
Cash and cash equivalents at end of period $ 14,035,964 22,998,434
- ------------------------------------------ ------------ ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,489,000 3,525,000
Income taxes 101,200 333,500
- ------------ ------------ ----------
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 $ 130,000 0
- ---------------------- ------------ ----------
</TABLE>
See accompanying notes to consolidated financial
statements.
<PAGE> 56
FIRST MANITOWOC BANCORP, INC.
NOTES TO CONSOLIDATED 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 financial condition, statements of income, changes in
stockholders' equity and comprehensive income and cash flows for the periods
presented.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,450,821
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,585,143
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 102,327,415
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 229,390,564
<ALLOWANCE> 3,226,416
<TOTAL-ASSETS> 358,108,778
<DEPOSITS> 267,661,880
<SHORT-TERM> 23,854,161
<LIABILITIES-OTHER> 3,378,115
<LONG-TERM> 28,500,000
0
0
<COMMON> 1,895,907
<OTHER-SE> 32,818,715
<TOTAL-LIABILITIES-AND-EQUITY> 358,108,778
<INTEREST-LOAN> 4,994,476
<INTEREST-INVEST> 1,358,883
<INTEREST-OTHER> 165,912
<INTEREST-TOTAL> 6,519,271
<INTEREST-DEPOSIT> 2,672,655
<INTEREST-EXPENSE> 3,366,427
<INTEREST-INCOME-NET> 3,152,844
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,932,074
<INCOME-PRETAX> 1,680,006
<INCOME-PRE-EXTRAORDINARY> 1,680,006
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,340,761
<EPS-BASIC> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 4.17
<LOANS-NON> 924,574
<LOANS-PAST> 310,010
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,512,685
<ALLOWANCE-OPEN> 3,124,109
<CHARGE-OFFS> 59,688
<RECOVERIES> 11,995
<ALLOWANCE-CLOSE> 3,226,416
<ALLOWANCE-DOMESTIC> 3,226,416
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
