<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _____________________
Commission file Number 0-21292
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1413328
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
14100 West National Avenue, PO Box 511160
New Berlin, Wisconsin 53151-1160
(Address of principal executive office)
(414) 827-6713
Registrant's telephone number, including area code:
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
--------- ------
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, par value $1.00 per share 866,062 Shares
- --------------------------------------- -----------------------------
Class Outstanding at August 1, 1997
<PAGE> 2
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Unaudited Condensed Consolidated Statements of Financial Condition as of
June 30, 1997 and December 31, 1996 3
Unaudited Condensed Consolidated Statements of Income for the Three Months
and the Six Months ended June 30, 1997 and 1996 4
Unaudited Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1997 and 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Items 1-6 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------------------------------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,098 $ 9,247
Interest-bearing deposits at other banks 938 9,667
Federal funds sold 5,346 3,358
---------- -----------
Cash and cash equivalents 20,382 22,272
Securities available-for-sale (at fair value):
Investment securities 16,073 15,499
Mortgage-related securities 22,616 27,154
Loans receivable, net 208,144 189,791
Accrued interest receivable 1,845 1,470
Federal Home Loan Bank stock, at cost 1,050 1,118
Premises and equipment, net 8,805 7,800
Other assets 2,942 2,619
---------- -----------
Total assets $281,857 $267,723
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $248,395 $232,933
Accrued interest payable 565 395
Short-term borrowings 3,510 6,850
Advance payments by borrowers for taxes and insurance 955 67
Other liabilities 1,473 1,098
--------- -----------
Total liabilities 254,898 241,343
Stockholders' equity
Common stock, par value $1.00 per share: authorized--
1,500,000 shares; issued--897,812 898 898
Additional paid in capital 10,756 10,759
Unrealized loss on securities available-for-sale (147) (203)
Retained earnings 16,453 15,868
Less treasury stock, at cost--34,800 shares and 32,845
shares, respectively (1,001) (942)
---------- -----------
Total stockholders' equity 26,959 26,380
---------- -----------
Total liabilities and stockholders' equity $281,857 $267,723
========== ===========
See notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE> 4
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- --------- ----------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $4,403 $3,647 $ 8,544 $7,194
Investment securities:
Taxable 379 305 701 528
Exempt from federal income taxes 0 42 0 85
Mortgage-related securities 330 639 710 1,325
Other 55 95 158 270
--------- -------- ------- -------
Total interest income 5,167 4,728 10,113 9,402
Interest expense:
Deposits 2,147 1,991 4,204 3,968
Borrowings 54 53 165 100
--------- -------- ------- -------
Total interest expense 2,201 2,044 4,369 4,068
Net interest income 2,966 2,684 5,744 5,334
Provision for loan losses 48 36 96 72
--------- -------- ------- -------
Net interest income after provision for
loan losses 2,918 2,648 5,648 5,262
Non-interest income:
Service charges on deposit accounts 179 179 345 361
Service charges on loans 25 45 40 109
Net gain on securities sales 0 9 43 7
Other 186 133 358 257
--------- -------- ------- -------
390 366 786 734
Non-interest expenses:
Salaries and employee benefits 1,298 1,202 2,918 2,625
Premises and equipment 348 327 680 692
Data processing fees 147 139 297 275
Federal deposit insurance premiums 19 52 37 106
Other 506 463 1,011 1,077
--------- -------- ------- -------
2,318 2,183 4,943 4,775
Income before income taxes 990 831 1,491 1,221
Income taxes 366 290 562 423
--------- -------- ------- -------
Net income $ 624 $ 541 $ 929 $ 798
========= ======== ======= ======
Earnings per share $ 0.72 $ 0.62 $ 1.08 $ 0.91
========= ======== ======= ======
Dividends per share $ 0.20 $ 0.17 $ 0.44 $ 0.34
========= ======== ======= ======
See notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE> 5
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------------- -------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 929 $ 798
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for loan losses 96 72
Provision for depreciation 244 197
Net amortization of investments securities premiums and discounts 72 160
Net realized investment security gains (43) (7)
Increase in accrued interest receivable (375) (176)
Increase (decrease) in accrued interest payable 170 (24)
Other 26 (121)
------------ ------------
Net cash provided by operating activities 1,119 899
INVESTING ACTIVITIES
Purchases of securities available for sale (7,865) (9,866)
Proceeds from redemptions and maturities of securities available for sale 4,081 6,237
Proceeds from sales of securities available for sale 7,803 3,556
Net increase in loans (18,450) (10,784)
Purchase of premises and equipment (1,249) (330)
Proceeds from sales of real estate 0 100
Redemption of Federal Home Loan Bank stock 68 56
------------ ------------
Net cash used in investing activities (15,612) (11,031)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 15,462 (512)
Payments of cash dividends to stockholders (344) (299)
Net decrease in short term borrowings (3,340) 0
Purchase of treasury stock (237) (564)
Proceeds from sale of treasury stock 175 38
Increase in advance payments by borrowers for taxes and insurance 887 710
------------ ------------
Net cash provided or (used) in financing activities 12,603 (627)
Decrease in cash and cash equivalents (1,890) (10,759)
Cash and cash equivalents at beginning of period 22,272 28,447
------------ ------------
Cash and cash equivalents at end of period $ 20,382 $ 17,688
============ ============
Supplemental cash flow information:
Interest paid $ 4,200 $ 4,081
Income taxes paid 404 549
Loans transferred to other real estate owned 0 100
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE> 6
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Merchants and Manufacturers Bancorporation, Inc. (the
Corporation) and its wholly owned subsidiaries, Lincoln State Bank, Franklin
State Bank ("collectively the Banks"), Lincoln Community Bank, S.A. ("Lincoln
Community") formerly known as Lincoln Savings Bank, Achieve Mortgage
Corporation and M&M Services, Inc. Lincoln State Bank also includes the
accounts of its wholly owned subsidiary, M&M Lincoln Investment Corporation.
Lincoln Community Bank also includes the accounts of its wholly owned
subsidiary, Lincoln Investment Management Corporation. All significant
intercompany balances and transactions have been eliminated.
On January 1, 1997, Lincoln Savings Bank converted from a Wisconsin stock
savings bank to a Wisconsin commercial bank. Upon conversion Lincoln Savings
Bank changed its name to Lincoln Community Bank.
On January 1, 1997, Achieve Mortgage Corporation was formed to act as the
Corporation's mortgage broker.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six-month
period ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Corporation's Form 10-K for the year ended December 31, 1996.
This 10-Q contains various forward-looking statements concerning the Company's
prospects that are based on the current expectations and beliefs of Management.
Forward-looking statements may also be made by the Corporation from time to
time in other reports and documents as well as oral presentations. When used
in written documents or oral statements, the words anticipate, believe,
estimate, expect, objective and similar expressions are intended to identify
forward-looking statements. The statements contained herein and such future
statements involve or may involve certain assumptions, risks and uncertainties,
many of which are beyond the Corporation's control, that could cause the
Corporation's actual results and performance to differ materially from what is
expected. In addition to the assumptions and other factors referenced
specifically in connection with such statements, the following factors could
impact the business and financial prospects of the Corporation: general
economic conditions; legislative and regulatory initiatives; monetary and
fiscal policies of the federal government; deposit flows; disintermidiation;
the cost of funds; general market rates of interest; interest rates or
investment returns on competing investments; demand for loan products; demand
for financial services; changes in accounting policies or guidelines; and
changes in the quality or composition of the Corporation's loan and investment
portfolio.
6
<PAGE> 7
NOTE B -- EARNINGS PER SHARE INFORMATION
Primary earnings per share for the three months ended June 30, 1997, and 1996
and for the six months ended June 30, 1997 and 1996 have been determined by
dividing net income for the respective periods by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------
Net income $623,859 $541,795 $928,953 $798,500
Weighted average
shares outstanding 860,849 876,285 861,746 881,016
- ----------------------------------------------------------------------------
Earnings per share $ 0.72 $ 0.62 $ 1.08 $ 0.91
============ ============ ============ ============
Statement of Financial Accounting Standard No. 128, Earnings Per Share, was
issued in February 1997 and is effective for interim and annual periods ending
after December 15, 1997. Statement 128 replaces the presentation of primary
earnings per share ("EPS") with a presentation of basic EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Basic EPS will typically be higher than primary EPS. Statement
No. 128 also requires presentation of diluted EPS which is computed similarly
to fully diluted EPS under existing accounting rules.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------
Basic earnings per share $0.72 $0.62 $1.08 $0.91
Diluted earnings per share $0.72 $0.62 $1.08 $0.91
NOTE C -- LOANS RECEIVABLE
Loans are comprised of the following categories:
June 30
1997 1996
----------- -----------
(In Thousands)
Commercial business loans $ 50,195 $ 41,486
Commercial real estate 67,663 49,781
Real estate mortgages 80,815 74,786
Installments 10,688 8,741
Other 879 1,122
---------- ----------
Total loans 210,240 175,916
Unearned income (72) (93)
---------- ----------
Loans, net of unearned income $210,168 $175,823
========== ==========
7
<PAGE> 8
The following table presents changes in the allowance for loan losses:
June 30
1997 1996 1995
-------- -------- --------
(In Thousands)
Balance at January 1 $1,939 $1,533 $1,464
Provisions 96 72 120
Charge-offs (11) (73) (40)
Recoveries 0 29 0
------- ------- -------
Balance at June 30 $2,024 $1,561 $1,544
======= ======= =======
NOTE D -- STOCKHOLDERS' EQUITY
Under federal law and regulations, the Corporation is required to meet certain
capital requirements. The Banks and Lincoln Community are required to meet
leverage and risk-based capital requirements. The leverage ratio, in general,
is stockholders' equity as a percentage of total assets. The risk-based
capital ratio, in general, is stockholders' equity plus general loan loss
allowances (within certain limitations) as a percentage of risk adjusted
assets.
As of June 30, 1997, the most recent notification from Federal Deposit
Insurance Corporation categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, 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 institutions' category.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- -------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1997
Total Capital (to Risk-
Weighted Assets):
Lincoln State Bank $11,964 10.92% $8,766 >8.00% $10,958 >10.00%
Franklin State Bank 2,805 10.00% 2,243 >8.00% 2,804 >10.00%
Lincoln Community 11,366 16.26% 5,492 >8.00% 6,905 >10.00%
Tier 1 Capital (to Risk- '
Weighted Assets):
Lincoln State Bank 10,905 9.95% 4,383 >4.00% 6,575 > 6.00%
Franklin State Bank 2,501 8.91% 1,122 >4.00% 1,682 > 6.00%
Lincoln Community 10,706 15.32% 2,796 >4.00% 4,194 > 6.00%
Tier 1 Capital (to Average
Assets):
Lincoln State Bank 10,905 8.31% 5,249 >4.00% 6,561 > 5.00%
Franklin State Bank 2,501 7.42% 1,348 >4.00% 1,685 > 5.00%
Lincoln Community 10,703 10.37% 4,130 >4.00% 5,162 > 5.00%
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
At June 30, 1997, the Corporation's consolidated total assets were $281.9
million as compared to $267.7 million at December 31, 1996. This increase was
due to a $15.5 million gain in total deposits, from $232.9 million at December
31, 1996 to $248.4 million at June 30, 1997.
Investment securities available-for-sale increased $574,000, or 3.7%, from
$15.5 million at December 31, 1996 to $16.1 million at June 30, 1997.
Purchases of investment securities in this category caused the increase.
Mortgage-related securities available-for-sale decreased $4.5 million, or 16.7%
from $27.2 million at December 31, 1996, to $22.6 million at June 30, 1997.
The proceeds from sales, maturities and repayments are being used to fund new
loans rather than purchase additional mortgage-related securities.
Loans receivable increased $18.4 million, or 9.7%, from $189.8 million at
December 31, 1996 compared to $208.1 million at June 30, 1997. This increase
was primarily due to new commercial loan relationships. This movement
corresponds to the Corporation's strategic plan of emphasizing commercial
business. These assets tend to be rate-sensitive and will add interest income
in a rising interest rate environment. Currently, loans receivable consists
mainly of mortgages secured by residential properties located in the
Corporation's primary market area and commercial loans secured by business
assets, real estate, and guarantees. At June 30, 1997 the Corporation has not
designated any loans held for sale. Past loan sales have been loan
participations sold to correspondent banks when the borrowers reached their
lending limit at the Corporation's subsidiary Banks.
Stockholders' equity at June 30, 1997 was $27.0 million compared to $26.4
million at December 31, 1996, an increase of $600,000. The change in
stockholders' equity consists of net income of $929,000, less payments of
dividends to shareholders of $344,000, less the net purchase of treasury stock
of $62,000 and the $56,000 increase in the market value of securities
categorized as available for sale. The Banks continue to exceed their
regulatory capital requirements.
Nonperforming Assets and Allowance for Losses
Generally a loan is classified as nonaccrual and the accrual of interest on
such loan is discontinued when the contractual payment of principal or interest
has become 90 days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan currently is
performing. Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
9
<PAGE> 10
Nonperforming assets are summarized, for the dates indicated, as follows:
June 30, December 31,
1997 1996
------- ------------
(dollars in thousands)
Non-accrual loans:
Mortgage loans
One-to-four family $ 1,075 $ 616
Commercial real estate 82 94
------- ------
Total mortgage loans 1,157 710
Commercial business 132 176
Consumer and other 47 52
------- ------
Total non-accrual loans 1,336 938
Other real estate owned 0 0
------- ------
Total nonperforming assets $ 1,336 $ 938
======= ======
RATIOS:
Non-accrual loans to total loans 0.64% 0.49%
Nonperforming assets to total assets 0.47 0.35
Loan loss allowance to non-accrual loans 151.50 206.72
Loan loss allowance to total loans 0.97 1.01
Nonperforming assets increased by $398,000 from $938,000 at December 31, 1996
to $1.4 million at June 30, 1997, a increase of 42.4%. Although the amount of
non-accrual loans increased, management believes that losses will be minimal on
the remaining balances, due to the collateral position in each situation.
Results of Operation
Net interest income, for the three months ended June 30, 1997 was $2.97
million, an increase of 10.5% from the $2.68 million reported for the same
period in 1996. The substantial increase in loans receivable and the
stabilization of rates paid on deposit products were the major contributing
factors to the increase in net interest income. Net interest income for the
six months ended June 30, 1997 was $5.74 million, an increase of 7.7% from the
$5.33 million reported for the same period in 1996. The increase in loans and
the higher net interest margin were the primary reasons for the improvement in
the year-to-date net interest income as well.
The following table sets forth the weighted average yield earned on the
Corporation's consolidated loan and investment portfolios, the weighted average
interest paid on deposits and borrowings, the net spread between yield earned
and rates paid and the net interest margin during the six and three months
ended June 30, 1997 and 1996.
10
<PAGE> 11
During the During the
Three Months Ended Six Months
June 30, Ended June 30,
1997 1996 1997 1996
-------- ------- ------- -------
Weighted average yield on
interest-earning assets 8.11% 7.80% 8.00% 8.04%
Weighted average rate paid on
deposit accounts and borrowings 3.56 3.50 3.59 3.52
---- ---- ---- ----
Net interest spread 4.55% 4.30% 4.41% 4.52%
==== ==== ==== ====
Net interest margin (net interest
income divided by average
earning assets) 4.65% 4.43% 4.54% 4.44%
==== ==== ==== ====
The provision for loan losses for the three month period ended June 30, 1997
was $48,000 compared to $36,000 for the three months ended June 30, 1996. For
the six months ended June 30, 1997, the provision for loan losses was $96,000
compared to $72,000 for than the same period in 1996. The higher provision is
primarily due to increases in the loan portfolio and not any anticipated loan
losses. In fact, the Corporation's ratio of nonperforming loans to total loans
is well below its peer group average. The Corporation uses a risk-based
assessment of its loan portfolio to determine the level of the loan loss
allowance. This procedure is based on internal reviews intended to determine
the adequacy of the loan loss allowance in view of presently known factors.
However, changes in economic conditions in the future financial conditions of
borrowers cannot be predicted and may result in increased future provisions to
the loan loss allowance.
Non-interest income for the three months ended June 30, 1997 was $390,000
compared to $366,000 for the three months ended June 30, 1996, an increase of
$24,000, or 6.6%. Non-interest income for the six months ended June 30, 1997
was $786,000 compared to $734,000 for the six months ended June 30, 1996, an
increase of $52,000, or 7.1%. The increase is due to fees collected on new
products and services and gains on sales of investment securities.
Non-interest expense for the three months ended June 30, 1997 was $2.32 million
compared to $2.18 million for the three months ended June 30, 1996, an increase
of $135,000, or 6.2%. Non-interest expense for the six months ended June 30,
1997 was $4.94 million compared to $4.78 million for the six months ended June
30, 1996, an increase of $168,000, or 3.5%. Salaries and employee benefits
increased $96,000 or 8.0% from $1.20 million for the three-month period ended
June 30, 1997 compared to $1.29 million for the 1997 three-month period.
Salaries and employee benefits increased $293,000 or 11.1% from $2.63 million
for the six-month period ended June 30, 1996 to $2.92 million for the six-month
period ended June 30, 1997. Employee bonus payments, higher benefit costs and
changes in personnel accounted for the change. Premises and equipment expense
increased $21,000 or 6.4% from $327,000 for the three month period ended June
30, 1996 compared to $348,000 for the three month period ended June 30, 1997.
Premises and equipment expense decreased $12,000 or 1.7% from $692,000 for the
six month period ended June 30, 1996 compared to $680,000 for the six month
period ended June 30, 1997. Federal deposit insurance premiums decreased
$33,000 or 63.5% from $52,000 for the three month period ended June 30, 1996 to
$19,000 for the three month period ended June 30,
11
<PAGE> 12
1997. Insurance premiums decreased $69,000 or 65.1% from $106,000 for the six
month period ended June 30, 1996 to $37,000 for the six month period ended June
30, 1997. The decrease in FDIC insurance premiums can be attributed to the
reduction in fees being charged to Lincoln Community Bank. The
recapitalization of the Savings Association Insurance Fund in 1996 reduced the
fees charged to Lincoln Community Bank. Other expenses increased $43,000 or
9.3% in the second quarter. This can be attributed to increases in operating
expenses such as office supplies, legal fees, accounting fees and check losses.
Income before taxes for the three month period ended June 30, 1997 was $990,000
compared to $831,000 for the three months ended June 30, 1996, an increase of
$159,000 or 19.1%. Income before taxes for the six month period ended June 30,
1997 was $1.49 million compared to $1.22 million for the six months ended June
30, 1996, an increase of $270,000 or 22.1%. On an after tax basis, the
Corporation reported net income of $624,000 for the three month period ended
June 30, 1997 compared to $541,000 for the same period in 1996; and for the six
month period ended June 30, 1997, the Corporation reported net income of
$929,000 compared to $798,000 for the same period in 1996.
Liquidity and Capital Resources
Liquidity management involves the ability to meet the cash flow requirements of
customers who may be either depositors wanting to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. The Corporation had liquid assets of $20.4 million and $22.3 million at
June 30, 1997 and December 31, 1996, respectively.
Management believes liquidity and capital levels are adequate at June 30, 1997.
For a discussion of regulatory requirements, see Note D to the Unaudited
Condensed Consolidated Financial Statements.
Asset/Liability Management
Financial institutions are subject to interest rate risk to the extent their
interest-bearing liabilities (primarily deposits) mature or reprice at
different times and on a different basis than their interest-earning assets
(consisting primarily of loans and securities). Interest rate sensitivity
management seeks to match maturities on assets and liabilities and avoid
fluctuating net interest margins while enhancing net interest income during
periods of changing interest rates. The difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within the
same time period is referred to as an interest rate gap. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount
of interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During periods of rising interest rates, a negative gap
tends to adversely affect net interest income while a positive gap tends to
result in an increase in net interest income. During a period of falling
interest rates, a negative gap tends to result in an increase in net interest
income while a positive gap tends to adversely affect net interest income.
Assumptions regarding prepayment and withdrawal rates are based upon the
Corporation's historical experience, and management believes such assumptions
are reasonable.
12
<PAGE> 13
The following table shows the interest rate sensitivity gap for four different
time intervals as of June 30, 1997.
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING AS OF JUNE 30, 1997
--------------------------------------------------------------
WITHIN SIX TO TWELVE ONE TO FIVE OVER
SIX MONTHS MONTHS YEARS FIVE YEARS TOTAL
---------- ------------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate mortgage loans $16,263 $26,594 $ 53,735 $ 6,048 $102,640
Adjustable-rate mortgage loans 19,583 7,008 17,892 0 44,483
--------- ------------ ---------- --------- ----------
Total mortgage loans 35,846 33,602 71,627 6,048 147,123
Commercial business loans 29,709 5,027 14,830 752 50,318
Consumer loans 5,975 1,675 4,300 102 12,052
Tax-exempt loans 675 0 0 0 675
Mortgage-related securities 12,475 0 7,217 2,924 22,616
Fixed rate investment securities and other 0 1,091 10,926 0 12,017
Variable rate investment securities and other 10,340 1,050 0 0 11,390
--------- ------------ ---------- --------- ----------
Total interest-earning assets $95,020 $42,445 $108,900 $ 9,826 $256,191
========= ============ ========== ========= ==========
Interest-bearing liabilities:
Deposits
Time deposits $78,204 $30,579 $ 12,443 $ 4 $121,230
NOW accounts 1,487 1,487 14,871 6,940 24,785
Savings accounts 4,585 3,631 36,306 16,943 61,465
Money market accounts 347 347 3,472 1,621 5,787
--------- ------------ ---------- --------- ----------
Total deposits 84,623 36,044 67,092 25,508 213,267
Borrowings 3,510 0 0 0 3,510
--------- ----------- ---------- --------- ----------
Total interest-bearing liabilities $88,133 $36,044 $ 67,092 $ 25,508 $216,777
========= ============ ========== ========= ==========
Interest-earning assets less interest-bearing
Liabilities $ 6,887 $ 6,401 $ 41,808 ($15,682) $ 39,414
========= ============ ========== ========= ==========
Cumulative interest rate sensitivity gap $ 6,887 $13,288 $ 55,096 $ 39,414
========= ============ ========== =========
Cumulative interest rate sensitivity gap as a
Percentage of total assets 2.44% 4.71% 19.55% 13.98%
========= ============ ========== =========
</TABLE>
At June 30, 1997, the Corporation's ratio of cumulative interest-rate sensitive
gap as a percentage of total assets was 2.44% for six months and 4.71% for one
year maturities. Therefore, the Corporation is positively gapped and may
benefit from rising interest rates.
Certain shortcomings are inherent in the method of analysis presented in the
above schedule. For example, although certain assets and liabilities may have
similar maturities or periods of repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable rate mortgage
loans, have features that restrict changes in interest rates, on a short term
basis over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the schedule.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of June 30, 1997 there were no material pending legal proceedings,
other than ordinary routine litigation incidental to the business of
the Corporation, to which the Corporation or any of its subsidiaries
was a party or to which any of their property was subject.
Item 2. Changes in Securities - NONE
Item 3 Defaults upon Senior Securities - NONE
Item 4 Submission of Matters to Vote of Security Holders - NONE
Item 5 Other Information - NONE
Item 6 Exhibits and Reports on Form 8-K
The Corporation did not file any reports on Form 8-K during the three
months ended June 30, 1997. Required exhibits are incorporated by
reference to previously filed Securities Act registration statements.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by on its behalf by the
undersigned thereunto duly authorized.
MERCHANTS AND MANUFACTURERS
BANCORPORATION, INC.
(Registrant)
Date August 11, 1997
- ----------------------------- ---------------------------------------
Michael J. Murry
Chief Executive Officer & Chairman of
the Board of Directors
Date August 11, 1997
- ----------------------------- ---------------------------------------
James C. Mroczkowski
Vice President & Chief Financial Officer
Principal Financial Officer
15
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<PERIOD-START> JAN-01-1997
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