<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 March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file Number 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)
(262) 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 2,105,549 Shares
- --------------------------------------- --------------------------------
Class Outstanding at May 1, 2000
<PAGE> 2
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition as of March 31,
2000 and December 31, 1999 3
Unaudited Consolidated Statements of Income for the Three Months ended
March 31, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the Three Months ended
March 31, 2000 and 1999 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
PART II. OTHER INFORMATION
Items 1-6 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------------------- --------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $14,835 $ 15,674
Interest-bearing deposits at other banks 3,959 4,907
Federal funds sold 2,886 2,210
--------------------- --------------------
Cash and cash equivalents 21,680 22,791
Securities available-for-sale at fair value:
Investment securities 29,886 32,787
Mortgage-related securities 35,240 33,342
Loans receivable (net of allowance for loan losses) 383,934 363,435
Accrued interest receivable 2,777 2,426
Federal Home Loan Bank stock 2,511 2,511
Premises and equipment 9,777 9,613
Other assets 8,119 7,478
--------------------- --------------------
Total assets $493,924 $474,383
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $367,777 $377,333
Borrowings 81,080 53,398
Accrued interest payable 1,713 777
Advance payments by borrowers for taxes and insurance 769 300
Other liabilities 1,908 2,149
--------------------- --------------------
Total liabilities 453,247 433,957
Stockholders' equity
Common stock $1.00 par value; 6,000,000 shares authorized;
Shares issued: 2,127,888; shares outstanding:
2,102,173--2000; 2,109,773--1999 2,128 2,128
Additional paid-in capital 13,902 13,945
Net unrealized loss on securities available-for-sale (1,419) (1,397)
Retained earnings 27,030 26,434
Treasury stock, at cost (25,715 shares--2000;
18,115 shares--1999) (964) (684)
--------------------- --------------------
Total stockholders' equity 40,677 40,426
--------------------- --------------------
Total liabilities and stockholders' equity $493,924 $474,383
===================== ====================
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
--------------------- --------------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C>
Interest income:
Loans, including fees $7,659 $6,470
Investment securities:
Taxable 273 225
Exempt from federal income taxes 188 176
Mortgage-related securities 548 558
Other 89 160
--------------------- --------------------
Total interest income 8,757 7,589
Interest expense:
Deposits 3,136 3,122
Borrowings 956 312
--------------------- --------------------
Total interest expense 4,092 3,434
Net interest income 4,665 4,155
Provision for loan losses 166 68
--------------------- --------------------
Net interest income after provision for
loan losses 4,499 4,087
Noninterest income:
Service charges on deposit 245 236
Service charges on loans 104 91
Net gain on securities sales 0 9
Net gain (loss) on loan sales (1) 12
Net gain on sale of premises 64 0
Other 347 314
--------------------- --------------------
759 662
Noninterest expenses:
Salaries and employee benefits 2,402 2,491
Premises and equipment 622 602
Data processing fees 237 234
Federal deposit insurance premiums 22 35
Other 660 740
--------------------- --------------------
3,943 4,102
Income before income taxes 1,315 647
Income taxes 403 184
--------------------- --------------------
Net income $ 912 $ 463
===================== ====================
Basic earnings per share $ 0.43 $ 0.22
--------------------- --------------------
Diluted earnings per share $ 0.42 $ 0.22
===================== ====================
Dividends per share $ 0.15 $ 0.14
===================== ====================
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------------- -----------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $912 $463
Adjustments to reconcile net income to cash
provided by operating activities
Provision for loan losses 166 68
Provision for depreciation 196 217
Net amortization of investments securities premiums and discounts 27 30
Net realized investment security gains 0 (9)
Decrease (increase) in accrued interest receivable (351) 14
Increase (decrease) in accrued interest payable 936 (31)
Other (942) (162)
----------------- -----------------
Net cash provided by operating activities 944 590
INVESTING ACTIVITIES
Purchase of securities available-for-sale (1,592) (3,475)
Proceeds from sales of securities available-for-sale 0 2,704
Proceeds from redemptions and maturities of securities available-for-sale 2,531 3,850
Net increase in loans (20,589) (9,000)
Purchase of premises and equipment (361) (249)
----------------- -----------------
Net cash (used) by investing activities (20,011) (6,170)
FINANCING ACTIVITIES
Net increase in deposits (9,556) (386)
Net increase (decrease) in borrowings 27,682 (5,748)
Increase in advance payments by borrowers for taxes and insurance 469 518
Payment of cash dividends to stockholders (316) (290)
Purchase of treasury stock (342) (107)
Proceeds from sale of treasury stock 19 67
Proceeds from issuing additional common stock 0 206
----------------- -----------------
Net cash provided or (used) by financing activities 17,956 (5,740)
Decrease in cash and cash equivalents (1,111) (11,320)
Cash and cash equivalents at beginning of period 22,791 40,563
----------------- -----------------
Cash and cash equivalents at end of period $21,680 $29,243
================= =================
Supplemental cash flow information:
Interest paid $ 3,809 $ 3,399
Income taxes paid 525 383
Loans transferred to other real estate owned 30 0
See notes to unaudited consolidated financial statements
</TABLE>
5
<PAGE> 6
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited 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,
Grafton State Bank, Lincoln Community Bank (collectively, the Banks), Merchants
Merger Corp. 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. Grafton State Bank also
includes the accounts of its wholly owned subsidiary, GSB Investments, Inc.
All significant intercompany balances and transactions have been eliminated.
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 three-month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. 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, 1999.
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 -- ACQUISITION
On December 31, 1999 the Corporation completed a merger with Pyramid
Bancorporation, Inc. (Pyramid) and its wholly owned subsidiary, Grafton State
Bank. The transaction was accounted for as a pooling of interests, and,
accordingly, all financial statements and information have been restated to
incorporate Pyramid's results on a historical basis. Each share of Pyramid
common stock was exchanged for 9 shares of the Corporation's $1 par value common
stock. This resulted in the issuance of 620,100 shares of the Corporation's
common stock.
NOTE C -- EARNINGS PER SHARE
Presented below are the calculations for basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Basic 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 911,662 $ 462,951
Weighted average shares outstanding 2,103,678 2,102,537
Basic earnings per share $ 0.43 $ 0.22
==================================
Diluted:
-----------------------------------------------------------------------------------
Net income $ 911,662 $ 462,951
Weighted average shares outstanding 2,103,678 2,102,537
Effect of dilutive stock options outstanding 42,353 46,205
----------------------------------
Diluted weighted average shares outstanding 2,146,031 2,148,742
Diluted earnings per share $ 0.42 $ 0.22
==================================
</TABLE>
NOTE D - COMPREHENSIVE INCOME
The following table presents the Corporation's comprehensive income.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------------------------------
<S> <C> <C>
Net income $ 911,662 $ 462,951
Other comprehensive income
Net change in unrealized securities
losses, net of tax (22,363) (207,723)
----------------------------------
Total comprehensive income $ 889,299 $ 255,228
==================================
</TABLE>
7
<PAGE> 8
NOTE E -- LOANS RECEIVABLE
Loans are comprised of the following categories:
<TABLE>
<CAPTION>
March 31
2000 1999
-------------------------------------------
(In Thousands)
<S> <C> <C>
Commercial business loans $ 98,386 $ 87,060
Commercial real estate 142,974 133,495
Real estate mortgages 124,519 88,231
Installments 21,224 14,980
Other 598 1,058
-------------------------------------------
Total loans 387,701 324,824
Unearned income (43) (50)
Allowance for loan losses (3,724) (3,069)
===========================================
Loans, net $383,934 $321,705
===========================================
</TABLE>
The following table presents changes in the allowance for loan losses:
<TABLE>
<CAPTION>
March 31
2000 1999
-----------------------------------
(In Thousands)
<S> <C> <C>
Balance at January 1 $3,582 $3,018
Provisions 166 68
Charge-offs (24) (19)
Recoveries 0 2
===================================
Balance at March 31 $3,724 $3,069
===================================
</TABLE>
NOTE F -- STOCKHOLDERS' EQUITY
Under federal law and regulations, the Corporation is required to meet certain
capital requirements. Under the Federal Reserve Board's risk-based guidelines
the Corporation is considered to be "well capitalized." The Banks 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.
8
<PAGE> 9
As of March 31, 2000, the most recent notification from Federal Deposit
Insurance Corporation categorized Lincoln Community Bank, Lincoln State Bank and
Grafton State Bank as well capitalized and Franklin State Bank as adequately
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 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 banks' 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 MARCH 31, 2000 (Dollars In Thousands)
Total Capital (to Risk-
Weighted Assets):
Lincoln State Bank $17,728 10.08% $14,069 >8.00% $17,586 >10.00%
Lincoln Community 9,760 10.88% 7,177 >8.00% 8,972 >10.00%
Grafton State Bank 10,110 13.29% 6,087 >8.00% 7,608 >10.00%
Franklin State Bank 5,509 9.99% 4,410 >8.00% 5,512 >10.00%
Tier 1 Capital (to Risk-
Weighted Assets):
Lincoln State Bank 16,177 9.20% 7,034 >4.00% 10,552 >6.00%
Lincoln Community 8,917 9.94% 3,589 >4.00% 5,383 >6.00%
Grafton State Bank 9,344 12.28% 3,043 >4.00% 4,565 >6.00%
Franklin State Bank 4,944 8.97% 2,205 >4.00% 3,307 >6.00%
Tier 1 Capital (to Average
Assets):
Lincoln State Bank 16,177 8.54% 7,578 >4.00% 9,473 >5.00%
Lincoln Community 8,917 8.36% 4,266 >4.00% 5,333 >5.00%
Grafton State Bank 9,344 8.09% 3,043 >4.00% 3,804 >5.00%
Franklin State Bank 4,944 8.04% 2,461 >4.00% 3,076 >5.00%
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
At March 31, 2000, the Corporation's consolidated total assets were $493.9
million as compared to $474.4 million at December 31, 1999. This increase was
primarily due to a $20.5 million increase in loans receivable.
Investment securities available-for-sale decreased $2.9 million, or 8.8% from
$32.8 million at December 31, 1999, to $29.9 million at March 31, 2000. The
proceeds from maturities and repayments of investment securities are being used
to fund new loans and purchase other types of securities rather than purchase
additional investment securities.
Mortgage-related securities available-for-sale increased $1.9 million, or 5.7%
from $33.3 million at December 31, 1999, to $35.2 million at March 31, 2000.
Purchases of new investments in this category accounted for the increase.
Loans receivable increased $20.5 million, or 5.6%, from $363.4 million at
December 31, 1999 compared to $383.9 million at March 31, 2000. This increase
was primarily due to new commercial loan relationships. This movement
corresponds to the Corporation's strategic plan of emphasizing commercial
business. Currently, loans receivable consists mainly of commercial loans
secured by business assets, real estate, and guarantees as well as mortgages
secured by residential properties located in the Corporation's primary market
area. At March 31, 2000 the Corporation has not designated any as loans held for
sale.
Total deposits decreased $9.6 million, or 2.5%, from $377.3 million on December
31, 1999 to $367.8 million on March 31, 2000. The decline in deposits can be
attributed to a seasonal decline in demand deposits. The Corporation
supplemented the deposit decline by increasing the amount of borrowed funds.
Total borrowings increased by $27.7 million, or 51.8% from $53.4 million on
December 31, 1999 to $81.1 million on March 31, 2000. Borrowings consist of
Federal Home Loan Bank advances as well as fed funds borrowed from correspondent
banks.
Stockholders' equity at March 31, 2000 was $40.7 million compared to $40.4
million at December 31, 1999, an increase of $251,000. The change in
stockholders' equity consists of net income of $912,000, less the net purchase
of treasury stock of $323,000, payments of dividends to shareholders of $315,000
and the $22,000 net decrease in the market value of securities categorized as
available for sale. The Corporation and 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. 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.
10
<PAGE> 11
Nonperforming assets are summarized, for the dates indicated, as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------- ------------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Mortgage loans
One-to-four family $ 1,393 $ 1,693
Commercial real estate 299 291
---------------- ---------------
Total mortgage loans 1,692 1,984
Commercial business 214 187
Consumer and other 69 80
----------------- ----------------
Total non-accrual loans 1,975 2,251
Other real estate owned 30 107
----------------- ----------------
Total nonperforming assets $ 2,005 $ 2,358
================= ================
RATIOS:
Non-accrual loans to total loans 0.51% 0.61%
Nonperforming assets to total assets 0.41 0.50
Loan loss allowance to non-accrual loans 188.61 159.08
Loan loss allowance to total loans 0.96 0.98
</TABLE>
Nonperforming assets decreased by $353,000 from $2.4 million at December 31,
1999 to $2.0 million at March 31, 2000, a decrease of 15.0%. Payments received
on past due loans as well as the sale of other real estate owned lead to the
decline. Management believes that losses will be minimal on the remaining
balances, due to the collateral position in each situation.
Results of Operations
Net interest income for the three months ended March 31, 2000 was $4.7 million,
an increase of 12.3% from the $4.2 million reported for the same period in 1999.
The increased volume of interest-earning assets accounted for the majority of
the additional net interest income, while an improved net interest margin added
to improved net interest income as well. The weighted average yield on
interest-earning assets increased from 7.54% for the three months ended March
31, 1999 to 7.80% for the same period in 2000. Higher market interest rates
caused the weighted average yield on interest earning assets to increase. The
growth in asset yields were partially offset by higher deposit and borrowing
rates. The average rate paid on deposits and borrowings increased from 3.54% for
the three months ended March 31, 1999 to 3.77% for the three months ended March
31, 2000.
11
<PAGE> 12
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 three months ended March
31, 2000 and 1999.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
------------------------------------------
<S> <C> <C>
Weighted average yield on interest-earning assets 7.80% 7.54%
Weighted average rate paid on deposit and borrowings 3.77 3.54
------------------------------------------
Net interest spread 4.03% 4.00%
==========================================
Net interest margin (net interest income divided by
average earning assets) 4.15% 4.12%
==========================================
</TABLE>
The provision for loan losses for the three month period ended March 31, 2000
was $166,000 compared to $68,000 for the three months ended March 31, 1999. The
increased provision was made to support the rapid growth in the loan portfolio.
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.
Total noninterest income for the three months ended March 31, 2000 was $759,000
compared to $662,000 for the three months ended March 31, 1999, an increase of
$97,000, or 14.7%. The increase is primarily due to the recognition of
previously deferred gain on the sale and leaseback of one of the Corporation's
banking facilities. The sale of the facility occurred on September 30, 1999.
Noninterest expense for the three months ended March 31, 2000 was $3.9 million
compared to $4.1 million for the three months ended March 31, 1999, a decrease
of $159,000, or 3.9%. Salaries and employee benefits decreased $89,000 or 3.6%
from $2.5 million for the three-month period ended March 31, 1999 compared to
$2.4 million for the three-month period in 2000. The change in the accounting
method for employee bonus payments caused the decline. Premises and equipment
expense increased $20,000 or 3.3% from $602,000 for the three month period ended
March 31, 1999 compared to $622,000 for the three month period ended March 31,
2000. Other expenses decreased $80,000 in the first quarter of 2000. The
decrease in other operating expenses can be attributed to the reduction in
marketing and promotion expenses as well as the overall expense reduction
program in place.
12
<PAGE> 13
Income before taxes for the three month period ended March 31, 2000 was $1.3
million compared to $647,000 for the three months ended March 31, 1999, an
increase of $668,000 or 103.2%. Income tax expense for the three months ended
March 31, 2000 increased $219,000 over the 1999 first quarter tax expense. The
effective tax rate for the three months ended March 31, 2000 was 30.6% compared
to 28.4% for the three months ended March 31, 1999. On an after tax basis, the
Corporation reported net income of $912,000 for the three month period ended
March 31, 2000 compared to $463,000 for the same period in 1999.
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 $21.7 million and $22.8 million at
March 31, 2000 and December 31, 1999, respectively.
Management believes liquidity and capital levels are adequate at March 31, 2000.
For a discussion of regulatory capital requirements, see Note F to the Unaudited
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.
13
<PAGE> 14
The following table shows the interest rate sensitivity gap for four different
time intervals as of March 31, 2000. Certain assumptions regarding prepayment
and withdrawal rates made are based upon the Corporation's historical experience
and management believes such assumptions are reasonable.
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING AS OF MARCH 31, 2000
-------------------------------------------------------------------------
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 $31,514 $20,065 $111,339 $24,792 $187,710
Adjustable-rate mortgage loans 30,998 9,227 36,074 0 76,299
-------------------------------------------------------------------------
Total mortgage loans 62,512 29,292 147,413 24,792 264,009
Commercial business loans 50,035 5,175 40,720 2,952 98,882
Consumer loans 6,046 2,813 13,246 2,213 24,318
Tax-exempt loans 0 450 0 0 450
Mortgage-related securities 18,807 204 481 15,748 35,240
Fixed rate investment securities and other 1,000 1,584 10,874 14,990 28,448
Variable rate investment securities and
other 8,283 2,511 0 0 10,794
-------------------------------------------------------------------------
Total interest-earning assets $146,683 $42,029 $212,734 $60,695 $462,141
=========================================================================
Interest-bearing liabilities:
Deposits
Time deposits $114,569 $39,584 $22,561 $0 $176,714
NOW accounts 1,809 1,809 18,089 8,441 30,148
Savings accounts 4,099 4,099 40,988 19,128 68,314
Money market accounts 2,108 2,108 21,080 9,837 35,133
Advance payments for taxes and insurance 0 769 0 0 769
Borrowings 81,080 0 0 0 81,080
-------------------------------------------------------------------------
Total interest-bearing liabilities $203,665 $48,369 $102,718 $37,406 $392,158
=========================================================================
Interest-earning assets less
interest-bearing Liabilities ($56,982) ($6,340) $110,016 $23,289 $69,983
=========================================================================
Cumulative interest rate sensitivity gap ($56,982) ($63,322) $46,694 $69,983
===========================================================
Cumulative interest rate sensitivity gap as
a Percentage of total assets (11.54%) (12.82%) 9.45% 14.17%
===========================================================
</TABLE>
At March 31, 2000, the Corporation's cumulative interest-rate sensitive gap as a
percentage of total assets was a negative 11.54% for six months and a negative
12.82% for one-year maturities. Therefore, the Corporation is negatively gapped
and may benefit from falling 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 2000 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 filed on report Form 8-K on January 12, 2000 and
Amendment No. 1 thereto on March 10, 2000 in regards to its
acquisition of Pyramid Bancorp., Inc.
15
<PAGE> 16
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 May 11, 2000 /s/ James F. Bomberg
------------------------- -------------------------------------
James F. Bomberg
President & Chief Executive Officer
Date May 11, 2000 /s/ James C. Mroczkowski
------------------------- -------------------------------------
James C. Mroczkowski
Executive Vice President & Chief
Financial Officer
Principal Financial Officer
16
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