<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, 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
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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
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(Address of principal executive office)
(262) 827-6713
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Registrant's telephone number, including area code:
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(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 2,104,458 Shares
--------------------------------------- ------------------------------------
Class Outstanding at August 1, 2000
<PAGE> 2
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
FORM 10-Q
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition
as of June 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Income for the Three
Months and the Six Months ended June 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the
Six Months ended June 30, 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 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II. OTHER INFORMATION
Items 1-6 19
Signatures 22
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,808 $ 15,674
Interest-bearing deposits at other banks 1,089 4,907
Federal funds sold 1,207 2,210
--------- ---------
Cash and cash equivalents 17,104 22,791
Securities available-for-sale at fair value:
Investment securities 30,521 32,787
Mortgage-related securities 32,331 33,342
Loans receivable (net of allowance for loan losses) 409,918 363,435
Accrued interest receivable 2,791 2,426
Federal Home Loan Bank stock 2,937 2,511
Premises and equipment 9,937 9,613
Other assets 9,897 7,478
--------- ---------
Total assets $ 515,436 $ 474,383
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 381,639 $ 377,333
Borrowings 87,439 53,398
Accrued interest payable 776 777
Advance payments by borrowers for taxes and insurance 1,278 300
Other liabilities 2,718 2,149
--------- ---------
Total liabilities 473,850 433,957
Stockholders' equity
Common stock $1.00 par value; 6,000,000 shares authorized;
Shares issued: 2,127,888; shares outstanding:
2,104,458--2000; 2,109,773--1999 2,128 2,128
Additional paid-in capital 13,856 13,945
Net unrealized loss on securities available-for-sale (1,337) (1,397)
Retained earnings 27,816 26,434
Treasury stock, at cost (23,430 shares--2000;
18,115 shares--1999) (877) (684)
--------- ---------
Total stockholders' equity 41,586 40,426
--------- ---------
Total liabilities and stockholders' equity $ 515,436 $ 474,383
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 8,377 $ 6,666 $ 16,036 $ 13,136
Investment securities:
Taxable 271 235 544 460
Exempt from federal income taxes 181 177 369 353
Mortgage-related securities 550 543 1,098 1,101
Other 68 152 157 312
-------- -------- -------- --------
Total interest income 9,447 7,773 18,204 15,362
Interest expense:
Deposits 3,321 3,144 6,457 6,266
Borrowings 1,373 277 2,329 589
-------- -------- -------- --------
Total interest expense 4,694 3,421 8,786 6,855
Net interest income 4,753 4,352 9,418 8,507
Provision for loan losses 178 68 344 136
-------- -------- -------- --------
Net interest income after provision for
loan losses 4,575 4,284 9,074 8,371
Non-interest income:
Service charges on deposit accounts 262 257 507 493
Service charges on loans 133 108 237 199
Net gain on securities sales 2 0 2 9
Net gain (loss) on loan sales (8) 9 (9) 21
Net gain on sales of premises 69 0 133 0
Other 358 367 705 681
-------- -------- -------- --------
816 741 1,575 1,403
Non-interest expenses:
Salaries and employee benefits 2,071 1,868 4,473 4,359
Premises and equipment 588 505 1,210 1,107
Data processing 216 234 453 468
Federal deposit insurance premiums 21 34 43 69
Other 713 625 1,373 1,365
-------- -------- -------- --------
3,609 3,266 7,552 7,368
Income before income taxes 1,782 1,759 3,097 2,406
Income taxes 576 599 979 783
-------- -------- -------- --------
Net income $ 1,206 $ 1,160 $ 2,118 $ 1,623
======== ======== ======== ========
Basic earnings per share $ 0.57 $ 0.55 $ 1.01 $ 0.77
======== ======== ======== ========
Diluted earnings per share $ 0.57 $ 0.54 $ 1.00 $ 0.75
======== ======== ======== ========
Dividends per share $ 0.20 $ 0.14 $ 0.35 $ 0.28
======== ======== ======== ========
</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>
SIX MONTHS ENDED JUNE 30,
2000 1999
---------- -----------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,118 $ 1,623
Adjustments to reconcile net income to cash
provided by operating activities
Provision for loan losses 344 136
Provision for depreciation 395 438
Net amortization of investments securities premiums and discounts 49 83
Net realized investment security gains (2) (9)
Increase in accrued interest receivable (364) (77)
Decrease in accrued interest payable (1) (108)
Other (1,492) (1,164)
-------- --------
Net cash provided by operating activities 1,047 922
INVESTING ACTIVITIES
Purchase of securities available-for-sale (2,370) (10,728)
Proceeds from sales of securities available-for-sale 1,541 2,704
Proceeds from redemptions and maturities of securities available-for-sale 4,150 7,620
Net increase in loans (47,218) (18,745)
Redemption (purchase) of Federal Home Loan Bank stock (426) 85
Purchase of premises and equipment (720) (461)
-------- --------
Net cash used in investing activities (45,043) (19,525)
FINANCING ACTIVITIES
Net increase in deposits 4,305 8,981
Net increase in borrowings 34,041 1,424
Increase in advance payments by borrowers for taxes and insurance 978 866
Payment of cash dividends to stockholders (736) (582)
Purchase of treasury stock (383) (107)
Proceeds from sale of treasury stock 102 243
Proceeds from issuing additional common stock 0 31
-------- --------
Net cash provided by financing activities 38,307 10,856
Decrease in cash and cash equivalents (5,689) (7,747)
Cash and cash equivalents at beginning of period 22,791 40,562
-------- --------
Cash and cash equivalents at end of period $ 17,102 $ 32,815
======== ========
Supplemental cash flow information:
Interest paid $ 7,925 $ 6,887
Income taxes paid 1,056 711
Loans transferred to other real estate owned 490 25
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE> 6
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 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 June 30, 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 Six Months Ended
June 30, June 30,
Basic 2000 1999 2000 1999
------------------------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,206,248 $ 1,159,613 $ 2,117,909 $ 1,622,564
Weighted average shares outstanding 2,104,610 2,102,654 2,104,144 2,102,596
Basic earnings per share $ 0.57 $ 0.55 $ 1.01 $ 0.77
================================== ==================================
Diluted:
------------------------------------------------------------------------------------ ----------------------------------
Net income $ 1,206,248 $ 1,159,613 $ 2,117,909 $ 1,622,564
Weighted average shares outstanding 2,104,610 2,102,654 2,104,144 2,102,596
Effect of dilutive stock options outstanding 20,599 48,118 20,894 47,260
---------------------------------- ----------------------------------
Diluted weighted average shares outstanding 2,125,209 2,150,772 2,125,038 2,149,856
Diluted earnings per share $ 0.57 $ 0.54 $ 1.00 $ 0.75
================================== ==================================
</TABLE>
NOTE D - COMPREHENSIVE INCOME
The following table presents the Corporation's comprehensive income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Basic 2000 1999 2000 1999
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,206,248 $ 1,159,613 $ 2,117,909 $ 1,622,564
Other comprehensive income
Net change in unrealized securities gains
(losses), net 82,160 (574,196) 59,797 (781,919)
---------------------------------- ----------------------------------
Total comprehensive income $ 1,288,408 $ 585,417 $ 2,177,706 $ 840,645
================================== ==================================
</TABLE>
7
<PAGE> 8
NOTE E -- LOANS RECEIVABLE
Loans are comprised of the following categories:
June 30
2000 1999
------------------------------
(In Thousands)
Commercial business loans $ 102,987 $ 86,205
Commercial real estate 151,645 137,327
Real estate mortgages 130,978 93,542
Installments 27,825 16,132
Other 395 1,232
------------------------------
Total loans 413,830 334,438
Unearned income (58) (46)
Allowance for loan losses (3,854) (3,068)
------------------------------
Loans, net $ 409,918 $ 331,324
==============================
The following table presents changes in the allowance for loan losses:
June 30
2000 1999
------------------------------
(In Thousands)
Balance at January 1 $ 3,582 $ 3,018
Provisions 344 136
Charge-offs (74) (100)
Recoveries 2 14
------------------------------
Balance at June 30 $ 3,854 $ 3,068
==============================
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 June 30, 2000, the most recent notification from Federal Deposit Insurance
Corporation categorized Lincoln Community Bank, Franklin State Bank, Lincoln
State Bank and Grafton State Bank 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 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
------------------------- --------------------------- --------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 2000
Total Capital (to Risk-
Weighted Assets):
Lincoln State Bank $19,303 10.44% $14,788 >8.00% $18,485 >10.00%
Lincoln Community 9,858 10.63% 7,418 >8.00% 9,272 >10.00%
Grafton State Bank 10,393 13.50% 6,160 >8.00% 7,700 >10.00%
Franklin State Bank 6,123 10.90% 4,496 >8.00% 5,620 >10.00%
Tier 1 Capital (to Risk-
Weighted Assets):
Lincoln State Bank 17,724 9.59% 7,394 >4.00% 11,091 >6.00%
Lincoln Community 8,994 9.70% 3,709 >4.00% 5,563 >6.00%
Grafton State Bank 9,591 12.46% 3,080 >4.00% 4,620 >6.00%
Franklin State Bank 5,513 9.81% 2,248 >4.00% 3,372 >6.00%
Tier 1 Capital (to Average
Assets):
Lincoln State Bank 17,724 8.68% 8,171 >4.00% 10,214 >5.00%
Lincoln Community 8,994 7.99% 4,504 >4.00% 5,630 >5.00%
Grafton State Bank 9,591 8.01% 3,080 >4.00% 3,850 >5.00%
Franklin State Bank 5,513 8.82% 2,501 >4.00% 3,126 >5.00%
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
At June 30, 2000, the Corporation's consolidated total assets were $515.4
million as compared to $474.4 million at December 31, 1999. This increase was
primarily due to a $46.5 million increase in loans receivable.
Investment securities available-for-sale decreased $2.3 million, or 6.9% from
$32.8 million at December 31, 1999, to $30.5 million at June 30, 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 decreased $1.0 million, or 3.0%
from $33.3 million at December 31, 1999, to $32.3 million at June 30, 2000.
Purchases of mortgage-related securities were offset by sales, redemptions and
maturities of this type of security.
Loans receivable increased $46.5 million, or 12.8%, from $363.4 million at
December 31, 1999 compared to $409.9 million at June 30, 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 June 30, 2000
the Corporation has not designated any as loans held for sale.
Total deposits increased $4.3 million, or 1.1%, from $377.3 million on December
31, 1999 to $381.6 million on June 30, 2000. The increase in deposits can be
attributed to the growth in certificate of deposit accounts currently offered by
the Banks. The Corporation supplemented the deposit growth by increasing the
amount of borrowed funds. Total borrowings increased by $34.0 million, or 63.7%
from $53.4 million on December 31, 1999 to $87.4 million on June 30, 2000.
Borrowings consist of Federal Home Loan Bank advances as well as fed funds
borrowed from correspondent banks.
Stockholders' equity at June 30, 2000 was $41.6 million compared to $40.4
million at December 31, 1999, an increase of $1.1 million. The change in
stockholders' equity consists of net income of $2.1 million, less the net
purchase of treasury stock of $281,000, payments of dividends to shareholders of
$736,000 and the $60,000 net increase in the market value of securities
categorized as available for sale. The Corporation and the Banks continue to
exceed their regulatory capital requirements.
10
<PAGE> 11
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.
Nonperforming assets are summarized, for the dates indicated, as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- ----------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Mortgage loans
One-to-four family $ 1,047 $ 1,693
Commercial real estate 0 291
----------------- ----------------
Total mortgage loans 1,047 1,984
Commercial business 140 187
Consumer and other 136 80
----------------- ----------------
Total non-accrual loans 1,323 2,251
Other real estate owned 490 107
----------------- ----------------
Total nonperforming assets $ 1,813 $ 2,358
================= ================
RATIOS:
Non-accrual loans to total loans 0.32% 0.61%
Nonperforming assets to total assets 0.35 0.50
Loan loss allowance to non-accrual loans 291.38 159.08
Loan loss allowance to total loans 0.93 0.98
</TABLE>
Nonperforming assets decreased by $545,000 from $2.4 million at December 31,
1999 to $1.8 million at June 30, 2000, a decrease of 23.1%. 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.
11
<PAGE> 12
Results of Operations
Net interest income for the three months ended June 30, 2000 was $4.8 million,
an increase of 9.2% from the $4.4 million reported for the same period in 1999.
The increased volume of interest-earning assets accounted for the higher net
interest income. The weighted average yield on interest-earning assets increased
from 7.54% for the three months ended June 30, 1999 to 7.98% for the same period
in 2000. The increase in market interest rates caused the improvement. The
change in market interest rates and the increased level of borrowings also
caused the weighted average rate paid on deposits and borrowings to increase
from 3.41% for the three months ended June 30, 1999 to 4.09% for the three
months ended June 30, 2000. Net interest income for the six months ended June
30, 2000 was $9.4 million, an increase of 10.7% from the $8.5 million reported
for the same period in 1999. The increased volume of interest-earning assets was
the primary reason for the improvement in the year-to-date net interest income.
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, 2000 and 1999.
<TABLE>
<CAPTION>
During the During the
Three Months Ended Six Months
June 30, Ended June 30,
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Weighted average yield on
interest-earning assets 7.98% 7.54% 7.90% 7.55%
Weighted average rate paid on
deposit accounts and borrowings 4.09 3.41 3.93 3.48
----------- ----------- ------------ -----------
Net interest spread 3.89% 4.13% 3.97% 4.07%
=========== =========== ============ ===========
Net interest margin (net interest
income divided by average
earning assets) 4.01% 4.23% 4.09% 4.18%
=========== =========== ============ ===========
</TABLE>
The provision for loan losses for the three-month period ended June 30, 2000 was
$178,000 compared to $68,000 for the three months ended June 30, 1999. For the
six months ended June 30, 2000, the provision for loan losses was $344,000
compared to $136,000 for than the same period in 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.
12
<PAGE> 13
Non-interest income for the three months ended June 30, 2000 was $816,000
compared to $741,000 for the three months ended June 30, 1999, an increase of
$75,000, or 10.1%. Non-interest income for the six months ended June 30, 2000
was $1.6 million compared to $1.4 million for the six months ended June 30,
1999, an increase of $172,000, or 12.3%. 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.
Non-interest expense for the three months ended June 30, 2000 was $3.6 million
compared to $3.3 million for the three months ended June 30, 1999, an increase
of $343,000, or 10.5%. Non-interest expense for the six months ended June 30,
2000 was $7.6 million compared to $7.4 million for the six months ended June 30,
1999, an increase of $184,000, or 5.5%. Salaries and employee benefits increased
$203,000 or 10.9% from $1.9 million for the three-month period ended June 30,
1999 to $2.1 million for the 2000 three-month period. Salaries and employee
benefits increased $114,000 or 2.6% from $4.4 million for the six-month period
ended June 30, 1999 to $4.5 million for the six-month period ended June 30,
2000. Premises and equipment expense increased $83,000 from $505,000 for the
three-month period ended June 30, 1999 compared to $588,000 for the three-month
period ended June 30, 2000. Premises and equipment expense increased $103,000 or
9.3% from $1.2 million for the six-month period ended June 30, 1999 compared to
$1.1 million for the six-month period ended June 30, 2000. The increase in
occupancy expense can be attributed to maintenance and repairs made on the
Corporation's properties and lease payments made on sold banking facility.
Federal deposit insurance premiums decreased $13,000 from $34,000 for the
three-month period ended June 30, 1999 to $21,000 for the three-month period
ending June 30, 2000 and also decreased $26,000 for the six-month period ended
June 30, 1999 compared to 2000. The insurance premiums decreased in 2000 due to
the reduced assessment rate charged to savings institutions. Other expenses
increased $88,000 or 14.1% in the second quarter and $8,000 or 0.1% for the
six-month period ended June 30, 2000. These increases can be attributed to
changes in operating expenses such as office supplies, examination costs and
human resource expenses.
Income before taxes for the three-month period ended June 30, 2000 was $1.78
million compared to $1.76 million for the three months ended June 30, 1999, an
increase of $23,000 or 1.3%. Income before taxes for the six-month period ended
June 30, 2000 was $2.12 million compared to $1.62 million for the six months
ended June 30, 1999, an increase of $691,000 or 28.72%. The income tax expense
for the three months ended June 30, 2000 decreased $23,000 over the 1999 second
quarter tax expense. The effective tax rate for the three months ended June 30,
2000 was 32.3% compared to 34.1% for the three months ended June 30, 1999. The
income tax expense for the six months ended June 30, 2000 increased $196,000
over the same period in 1999. The effective tax rate for the six months ended
June 30, 2000 was 31.6% compared to 32.5% for the six months ended June 30,
1999. The decrease in the tax rate can be attributed to the purchase of
tax-exempt investment securities held by the Corporation and a reallocation of
expenses throughout the Corporation's subsidiaries. On an after tax basis, the
Corporation reported net income of $1.21 million for the three month period
ended June 30, 2000 compared to $1.16 million for the same period in 1999; and
for the six month period ended June 30, 2000, the Corporation reported net
income of $2.12 million compared to $1.62 million for the same period in 1999.
13
<PAGE> 14
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 $17.1 million and $22.8 million at
June 30, 2000 and December 31, 1999, respectively.
Management believes liquidity and capital levels are adequate at June 30, 2000.
For a discussion of regulatory 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.
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The following table shows the interest rate sensitivity gap for four different
time intervals as of June 30, 1999. Certain assumptions regarding prepayment and
withdrawal rates are based upon the Corporation's historical experience, and
management believes such assumptions are reasonable.
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING AS OF JUNE 30, 2000
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WITHIN SIX TO TWELVE ONE TO FIVE OVER
SIX MONTHS MONTHS YEARS FIVE YEARS TOTAL
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate mortgage loans $27,980 $24,448 $115,852 $27,375 $195,655
Adjustable-rate mortgage loans 32,986 12,258 38,384 0 83,628
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Total mortgage loans 60,966 36,706 154,236 27,375 279,283
Commercial business loans 54,245 6,157 41,392 2,569 104,363
Consumer loans 6,358 3,252 17,022 3,045 29,677
Other loans 0 450 0 0 450
Mortgage-related securities 16,093 0 443 15,795 32,331
Fixed rate investment securities and other 1,945 1,636 8,240 15,240 27,061
Variable rate investment securities and 5,756 2,937 0 0 8,693
other
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Total interest-earning assets $145,363 $51,138 $221,333 $64,024 $481,858
==========================================================================
Interest-bearing liabilities:
Deposits
Time deposits $106,777 $41,733 $23,852 $0 $173,362
NOW accounts 2,704 2,704 27,044 12,620 45,072
Savings accounts 4,140 4,140 41,403 19,321 69,004
Money market accounts 2,010 2,010 20,105 9,382 33,507
Advance payments for taxes and insurance 0 1,278 0 0 713
Borrowings 87,439 0 0 0 87,439
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Total interest-bearing liabilities $203,070 $51,865 $112,404 $41,323 $408,662
==========================================================================
Interest-earning assets less
interest-bearing
Liabilities ($57,707) ($727) $108,929 $22,701 $73,196
==========================================================================
Cumulative interest rate sensitivity gap ($57,707) ($58,434) $50,495 $73,196
============================================================
Cumulative interest rate sensitivity gap as
a Percentage of total assets (11.20%) (11.34%) 9.80% 14.20%
============================================================
</TABLE>
At June 30, 2000, the Corporation's cumulative interest-rate sensitive gap as a
percentage of total assets was a negative 11.2% for six months and a negative
11.3% 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
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PART II . OTHER INFORMATION
Item 1. Legal Proceedings
As of June 30, 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
ANNUAL MEETING OF SHAREHOLDERS. On May 30, 2000, at the Annual
Meeting of the shareholders of the Corporation, the
Corporation's shareholders reelected Casimir Janiszewski, Jerome
Sarnowski and David Kaczynski as directors for three-year terms
expiring on the date of the annual shareholders meeting to be
held in 2003.
SHAREHOLDER VOTE WITH RESPECT TO MATTERS ACTED UPON AT THE
ANNUAL MEETING
ELECTION OF DIRECTORS. Under Wisconsin law, the number of
persons corresponding to the number of director positions to be
filled at the Annual Meeting who received the highest number of
votes would be elected as directors. Casimir Janiszewski, Jerome
Sarnowski and David Kaczynski were standing for reelection. The
vote with respect to the reelection of each was as follows:
CASIMIR JANISZEWSKI
2,105,549 Total votes were eligible to be cast
1,540,263 Votes were represented in person or by proxy at
the Annual Meeting
1,511,862 Votes were cast "FOR" the reelection of Mr.
Janiszewski
0 Votes were cast "AGAINST" the reelection of Mr.
Janiszewski
28,401 Votes abstained or were broker non-votes
JEROME SARNOWSKI
2,105,549 Total votes were eligible to be cast
1,540,263 Votes were represented in person or by proxy
at the Annual Meeting
1,483,712 Votes were cast
"FOR" the reelection of Mr. Sarnowski
0 Votes were cast "AGAINST" the reelection of Mr.
Sarnowski
56,551 Votes abstained or were broker non-votes
DAVID KACZYNSKI
2,105,549 Total votes were eligible to be cast
1,540,263 Votes were represented in person or by proxy at the
Annual Meeting
1,512,123 Votes were cast "FOR" the reelection of
Mr. Kaczynski
0 Votes were cast "AGAINST" the reelection of Mr.
Kaczynski
28,140 Votes abstained or were broker non-votes
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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, 2000. Required exhibits are
incorporated by reference to previously filed Securities Act
registration statements.
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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, 2000 /s/ James F. Bomberg
----------------- ----------------------------------------------------
James F. Bomberg
President & Chief Executive Officer
Date August 11, 2000 /s/ James C. Mroczkowski
------------------------------------------
.
James C. Mroczkowski
Executive Vice President & Chief Financial Officer
Principal Financial Officer
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