-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYDw0wD9TEJi5X/8mS1QCuE9cRgFcnFM7KBoRxwoSkl85Tnm69HTqfzpCxtQ8+cR 3/pXiw+Y9qwigERr7cdfSg== /in/edgar/work/0000950124-00-006920/0000950124-00-006920.txt : 20001115 0000950124-00-006920.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950124-00-006920 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK MUTUAL CORP CENTRAL INDEX KEY: 0001123270 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 390491685 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-39362 FILM NUMBER: 765316 BUSINESS ADDRESS: STREET 1: 4949 W. BROWN DEER RD CITY: BROWN DEER STATE: WI ZIP: 53223 BUSINESS PHONE: 4143626113 MAIL ADDRESS: STREET 1: 4949 W. BROWN DEER RD CITY: BROWN DEER STATE: WI ZIP: 53223 10-Q 1 c58547e10-q.txt FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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 000-31207 BANK MUTUAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) U.S.A. 39-2004336 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4949 West Brown Deer Road, Milwaukee, WI 53223 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (414) 354-1500 ------------------------------------------------------ (Registrant's telephone number, including area code) n/a ----- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X (The registrant has not been subject to such filing requirements for the past 90 days.) APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock -- as of November 10, 2000, Bank Mutual Corporation had 22,341,665 outstanding shares of common stock, $0.01 par value. 2 BANK MUTUAL CORPORATION 10-Q INDEX
PAGE NO. ------------ PART I. FINANCIAL INFORMATION: - ------------------------------------------------------------ ITEM 1. FINANCIAL STATEMENTS* Unaudited Consolidated Statement of Financial Condition as of September 30, 2000 and December 31, 1999 3 Unaudited Consolidated Statements of Income for the three months and the nine months ended September 30, 2000 and 1999 4-5 Unaudited Consolidated Statement of Equity for the nine months ended September 30, 2000 6 Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 7 Notes to Unaudited Consolidated Financial Statements 8-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 18 PART II. OTHER INFORMATION - ---------------------------------------------------- ITEM 5. OTHER INFORMATION 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19 SIGNATURES 20
- -------------------------- *See Note 1 to the financial statements for an explanation of the inclusion of financial statements of Mutual Savings Bank, as predecessor of Bank Mutual Corporation. 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. MUTUAL SAVINGS BANK AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------- ----------------- (In Thousands) ASSETS Cash and due from banks $ 23,697 $ 21,367 Federal funds sold 25,000 Interest-earning deposits 13,144 132,592 ------------ ----------- CASH AND CASH EQUIVALENTS 36,841 178,959 Securities available-for-sale, at fair value: Investment securities 77,795 57,763 Mortgage-related securities 452,199 374,100 Loans held for sale 4,958 541 Loans receivable, net 1,131,708 1,082,795 Real estate owned 4,831 4,953 Office properties and equipment 26,768 26,871 Federal Home Loan Bank stock, at cost 14,844 13,537 Accrued interest receivable 9,546 8,620 Intangible assets 10,792 11,496 Other assets 10,089 9,871 ------------ ----------- $ 1,780,371 $1,769,506 ============ =========== LIABILITIES Deposits $ 1,296,920 $1,343,007 Borrowings 270,520 242,699 Advance payments by borrowers for taxes and insurance 18,588 1,661 Other liabilities 19,746 18,319 ------------ ----------- TOTAL LIABILITIES 1,605,774 1,605,686 EQUITY Retained earnings 179,674 169,746 Net unrealized gain (loss) on securities available-for-sale (5,077) (5,926) ------------ ----------- TOTAL EQUITY 174,597 163,820 ------------ ----------- $ 1,780,371 $1,769,506 ============ ===========
See Notes to Unaudited Consolidated Financial Statements. 3 4 MUTUAL SAVINGS BANK AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30 2000 1999 --------- -------- (In Thousands) Interest income: Loans $21,711 $19,841 Investment securities 1,544 5,269 Mortgage-related securities 7,961 4,676 ---------- --------- TOTAL INTEREST INCOME 31,216 29,786 Interest expense: Deposits 15,463 15,121 Borrowings 4,108 3,593 Advance payments by borrowers for taxes and insurance 102 112 ---------- --------- TOTAL INTEREST EXPENSE 19,673 18,826 ---------- --------- NET INTEREST INCOME 11,543 10,960 Provision for loan losses 40 32 ---------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,503 10,928 Non-interest income: Service charges on deposits 662 637 Brokerage commissions 438 497 Servicing fees on loans sold 100 110 Loan fees and service charges 105 140 Gain (loss) on sale of securities 1 (112) Gains on sales of loans 109 71 Other 768 477 --------- --------- TOTAL NON-INTEREST INCOME 2,183 1,820 Non-interest expense: Compensation, payroll taxes and other employee benefits 4,468 4,322 Federal insurance premiums 68 199 Occupancy 1,249 1,369 Data processing 374 382 Marketing 625 411 Amortization of intangibles 235 677 Other 1,443 1,476 ---------- --------- TOTAL NON-INTEREST EXPENSE 8,462 8,836 INCOME BEFORE INCOME TAXES 5,224 3,912 Income taxes 1,810 1,508 ---------- --------- NET INCOME $ 3,414 $ 2,404 ========== =========
See Notes to Unaudited Consolidated Financial Statements. 4 5 MUTUAL SAVINGS BANK AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30 2000 1999 ---- ---- (In Thousands) Interest income: Loans $63,114 $59,578 Investment securities 4,759 15,678 Mortgage-related securities 23,821 13,179 --------- ---------- TOTAL INTEREST INCOME 91,694 88,435 Interest expense: Deposits 45,202 46,106 Borrowings 11,340 10,638 Advance payments by borrowers for taxes and insurance 192 209 --------- ---------- TOTAL INTEREST EXPENSE 56,734 56,953 --------- ---------- NET INTEREST INCOME 34,960 31,482 Provision for loan losses 276 235 --------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 34,684 31,247 Non-interest income: Service charges on deposits 1,899 1,869 Brokerage commissions 1,432 1,324 Servicing fees on loans sold 305 339 Loan fees and service charges 397 536 Gain (loss) on sale of securities 20 (300) Gains on sales of loans 152 507 Other 2,082 1,381 --------- ---------- TOTAL NON-INTEREST INCOME 6,287 5,656 Non-interest expense: Compensation, payroll taxes and other employee benefits 13,307 12,904 Federal insurance premiums 210 615 Occupancy 3,851 4,215 Data processing 1,116 958 Marketing 1,881 1,548 Amortization of intangibles 704 2,033 Other 4,163 4,442 --------- ---------- TOTAL NON-INTEREST EXPENSE 25,232 26,715 INCOME BEFORE INCOME TAXES 15,739 10,188 Income taxes 5,811 3,894 --------- ---------- NET INCOME $ 9,928 $ 6,294 ========= ==========
See Notes to Unaudited Consolidated Financial Statements. 5 6 MUTUAL SAVINGS BANK AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF EQUITY
ACCUMULATED OTHER RETAINED COMPREHENSIVE TOTAL EARNINGS INCOME EQUITY ------------ ------------------------ ------------ (In Thousands) For the Nine Months Ended September 30, 2000 - -------------------------------------------- Balance at December 31, 1999 $169,746 $(5,926) $163,820 Comprehensive income: Net income 9,928 9,928 Other comprehensive income Change in net unrealized gain(loss) on securities available-for-sale, net of deferred income tax benefit of $476 849 849 ------------ Total comprehensive income 10,777 ---------- ---------- ------------ Balance at September 30, 2000 $179,674 $(5,077) $174,597 ========== ========== ============
See Notes to Unaudited Consolidated Financial Statements. 6 7 MUTUAL SAVINGS BANK AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30 2000 1999 ---- ---- (In Thousands) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,810 $ 2,963 Cash flows from investing activities: Proceeds from maturities of investments securities 27,424 65,000 Purchases of investment securities (161,068) (20,000) Purchases of mortgage-related securities - (83,487) Net purchases of investments in mutual funds (1,340) (1,096) Principal payments on mortgage-related securities 38,501 49,119 Net (increase) decrease in loans receivable (51,730) (17,857) Proceeds from sale of foreclosed properties 2,999 2,062 Purchase of Federal Home Loan Bank stock (1,307) - Purchase of office properties and equipment (1,068) (993) ---------- ----------- NET CASH USED BY INVESTING ACTIVITIES (147,589) (7,252) Cash flows from financing activities: Net decrease in deposits (46,087) (34,705) Net increase in short-term borrowings 70,000 - Repayments of long-term borrowings (42,179) (123) Net increase in advance payments by borrowers for taxes and insurance 16,927 16,842 ---------- ----------- NET CASH USED BY FINANCING ACTIVITIES (1,339) (17,986) DECREASE IN CASH AND CASH EQUIVALENTS (142,118) (22,275) Cash and cash equivalents at beginning of period 178,959 330,248 ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,841 $ 307,973 ========== =========== Supplemental Information to the Statement of Cash Flows: Interest on deposits $ 43,342 $ 43,800 Income taxes 5,607 4,947 Loans transferred to foreclosed properties and repossessed assets 2,541 1,445 Mutual fund liquidation proceeds - 14,047
See Notes to Unaudited Consolidated Financial Statements. 7 8 MUTUAL SAVINGS BANK AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of Mutual Savings Bank included herein have been included by Bank Mutual Corporation (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. The Company is a successor to Mutual Savings Bank ("Mutual Savings") in a regulatory restructuring into a mutual holding company form, which was effective on November 1, 2000. The restructuring included the capitalization of the Company, the sale of certain of its common shares, and the acquisition by the Company of all of the shares of Mutual Savings. Simultaneously, the Company acquired First Northern Capital Corp. These financial statements do not include the effects of the restructuring or the First Northern Capital Corp. acquisition. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, Rule 10-01 of Regulation S-X and the instructions to Form 10-Q. The financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of the Company, the accompanying Unaudited Consolidated Statements of Financial Condition, Unaudited Consolidated Statements of Income, Unaudited Consolidated Statement of Equity and Unaudited Consolidated Statements of Cash Flows contained all adjustments, which are of a normal recurring nature, necessary to present fairly the consolidated financial position of Mutual Savings and subsidiaries at September 30, 2000 and December 31, 1999, the results of their income for the three and nine months ended September 30, 2000 and 1999, the changes in equity for the nine months ended September 30, 2000, and their cash flows for the nine months ended September 30, 2000 and 1999. The accompanying Unaudited Consolidated Financial Statements and related notes should be read in conjunction with the Company's Registration Statement on Form S-1, No. 333-39362. Operating results for the nine months ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." Under SFAS NO. 123, an entity may elect to recognize stock-based compensation expense based on the fair value of the awards, or they may elect to account for stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued to Employees." If an entity elects to account for stock-based compensation under APB No. 25, it is not required to recognize expense based on the fair value of the awards. However the entity must disclose in the financial statement the effects of SFAS No. 123, as if the recognition provisions of SFAS No. 123 were adopted. Subject to shareholder approval, Bank Mutual will establish certain other stock-based compensation plans. Bank Mutual currently expects that it will not adopt the recognition provisions of the statement, but will provide the required footnote disclosures. Therefore, it is not expected that the adoption of SFAS No. 123 will have a material impact to the financial position or results of operations. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This statement established standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. SFAS No. 128 simplifies the standards for computing EPS previously found in APB Opinion No. 15, "Earnings Per Share," and makes them more comparable with international EPS standards. Mutual Savings, as a mutual savings bank, does not have common stock authorized, issued or outstanding and do not calculate or present EPS. Such disclosures will be reportable for financial statements after November 1, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognized all 8 9 derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS NO. 133, as amended, is effective for all quarters of those years beginning after June 15, 2000. This statement may not be applied retroactively to financial statements prior periods. As Mutual Savings does not utilize derivatives, it does not expect that the adoption of SFAS No. 133 will have a material impact on our financial position or results of operations. At September 30, 2000, Mutual Savings does not provide stock-based compensation to its employees. However, on November 1, 2000, concurrent with the restructuring, the Company established an Employee Stock Ownership Plan and Trust, the accounting for which will comply with the American Institute of Certified Public Account's Statement of Position 93-6, " Employers' Accounting for Employee Stock Ownership Plans." In accordance with this Statement, expense equal to the cost of the shares contributed to the Plan will be charged to future earnings in proportion to and over the period that the shares are scheduled to be released from the Trust. This will have a negative effect on the future earnings of the Company. IMPACT OF INFLATION AND CHANGING PRICES. The financial statements and accompanying notes of Mutual Savings have been prepared in accordance with the generally accepted accounting principles (GAAP). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than do the effects of inflation. 9 10 ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis reflects Mutual Savings' consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of its financial condition and results of operations. You should read the information in this section in conjunction with the consolidated financial statements and accompanying notes included herein. On November 1, 2000, Mutual Savings completed its regulatory restructuring into mutual holding company form. In the restructuring, Mutual Savings Bank became a wholly-owned subsidiary of Bank Mutual Corporation. Bank Mutual Corporation is 50.1% owned by Mutual Savings Bancorp, MHC; the balance of shares of Bank Mutual Corporation were either issued in a subscription offering to Mutual Savings depositors or issued in Bank Mutual's acquisition of First Northern Capital Corp. In the acquisition of First Northern, Bank Mutual issued shares of Bank Mutual Corporation and cash, and First Northern, the parent of First Northern Savings Bank, was merged into Bank Mutual. Because these transactions did not occur until after September 30, 2000 they are not reflected in the accompanying financial statements or in this management's discussion and analysis. Bank Mutual is accounting for the restructuring as a de-mutualization transaction, in which results of Bank Mutual will be restated for Mutual Savings' prior results in a manner similar to a pooling of interests. The First Northern acquisition is being accounted for using purchase accounting, so that the assets and results of operations of First Northern will be reflected in Bank Mutual's financials only from and after the November 1, 2000 date of acquisition. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION The discussions in this report which are not historical statements contain forward-looking statements that involve risks and uncertainties. Statements which "are not historical statements" include those in the future tense or which use terms such as "believe," "expect" and "anticipate". Bank Mutual's actual future results could differ in important and material ways from those discussed. Many factors could cause or contribute to such differences. These factors include those which Bank Mutual discusses above in its SEC filings. You should also carefully read Management's Discussion and Analysis of Financial Condition and Results of Operations herein and in those filings for a discussion of factors affecting Bank Mutual. COMPARISON OF STATEMENT OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 Mutual Savings total assets increased $10.9 million or 0.6%, at September 30, 2000 as compared to December 31, 1999. The increase is primarily the result of the reinvestment of operating cash flows for the nine month period into interest-earning assets. Cash and cash equivalents decreased $142.1 million or 79.4% as of September 30, 2000 compared to December 31, 1999. This decrease is the result of the reinvestment of short-term assets into longer term, higher yielding investments, mortgage-related securities, and loans. Investment securities available for sale increased $20.0 million or 34.7% as of September 30, 2000 compared to December 31, 1999. Mortgage-related securities available for sale increased $78.1 million, or 20.9%, as of September 30, 2000 compared to December 31, 1999. Loans available for sale increased $4.4 million or 816.5% at September 30, 2000 compared to December 31, 1999. This increase reflects higher activity in mortgage loan sales as a result of the lower market interest rate environment, which has made fixed rate mortgage loans more attractive to borrowers. Loans receivable increased $48.9 million, or 4.5%, at September 30, 2000 compared to December 31, 1999. One to four-family first mortgage loans decreased $25.3 million, or 3.4%; multi-family first mortgage loans increased $12.7 million or 23.5%; commercial first mortgage loans increased $20.1 million or 38.3%; construction and development first mortgage loans increased $29.4 million or 110.8%; total consumer loans increased $35.2 million or 18.7% and 10 11 undisbursed loan proceeds increased 152.5%. Home equity and home improvement lending comprised $35.7 million or 101.5% of the growth in consumer loans offset by a decrease in student and other consumer loans. These changes reflect management's strategy of increasing the multi-family, commercial real estate and consumer loan originations. Multi-family, commercial real estate and consumer loans historically have higher yields than the one-to four-family first mortgage loans. Deposits decreased $46.1 million, or 3.4%, at September 30, 2000 compared to December 31, 1999. This decrease is the result of other financial institutions and money market funds offering higher interest rates. Mutual believes that it is not the appropriate time to acquire high cost deposits as market interest rates may be high in comparison to other funding alternatives. Borrowings increased $27.8 million or 11.5% at September 30, 2000 compared to December 31, 1999. The increase in borrowings was the result of using Federal Home Loan Bank of Chicago ("FHLB") borrowings as a source of funds to offset the decrease in deposits. Advance payments by borrowers increased $16.9 million at September 30, 2000 compared to December 31, 1999. This increase is due to normal seasonal growth as borrowers' funds are accumulated to pay real estate taxes at the end of the calendar year. Equity increased $10.8 million or 6.6% at September 30, 2000 compared to December 31, 1999. This increase is the result of $9.9 million in earnings for the nine months ended September 30, 2000 as well as an increase of $849,000 in other comprehensive income for the same period. ASSET QUALITY The following table provides information about non-performing loans and assets at September 30, 2000 and December 31, 1999:
AT SEPTEMBER 30 AT DECEMBER 31 2000 1999 --------------------- ------------------- (Dollars in Thousands) Non-accrual mortgage loans $ 955 $3,372 Non-accrual consumer and other loans 199 283 Accruing loans delinquent 90 days or more 1,076 1,152 -------- ------ Total non-performing loans 2,230 4,807 Foreclosed real estate, net 2,896 3,018 -------- ------ Total non-performing assets $ 5,126 $7,825 ======= ====== Non-performing loans as a percent of total loans 0.20% 0.44% ==== ==== Non-performing assets as a percent of total assets 0.29% 0.44% ==== ==== Allowance for loan losses as a percent of non-performing assets 138.71% 88.79% ======= ======
Total non-performing loans decreased $2.6 million or 53.6% as of September 30, 2000 compared with December 31, 1999. The primary cause of the reduction was the resolution of delinquent first mortgage loans. 11 12 The following table provides information on the loan loss allowance at September 30, 2000 and December 31, 1999.
AT AND FOR THE AT AND FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ----------------- (Dollars in Thousands) Balance at the beginning of the period $6,948 $6,855 Provisions for the loan losses 276 350 Charge-offs: First mortgage loans (38) (152) Consumer and other loans (99) (189) ------ ------ Total charge-offs (137) (341) Recoveries: First mortgage loans - 40 Consumer and other loans 23 44 ------ ------ Total recoveries 23 84 ------ ------ Net (charge-offs) recoveries (114) (257) ------ ------ Balance at the end of the period $7,110 $6,948 ====== ====== Net charge-offs to average loans 0.01% 0.02% ==== ==== Allowance as a percent of total loans 0.63% 0.64% ==== ==== Allowance as a percent of non-performing loans 318.83% 144.54% ====== ======
Allowance for loan losses to non-performing loans increased to 318.83% as of September 30, 2000 from 144.54% as of December 31, 1999. The increased coverage ratio was the result of lower balances in non-performing first mortgage loans. At September 30, 2000 there were $2.7 million of performing loans to borrowers where available information causes management to have doubts as to the ability of such borrowers to continue to comply with present loan repayment terms and would indicate that such loans had the potential to be included as non-accrual, past due or impaired (as defined in SFAS No. 114) in future periods. However, no loss is anticipated at this time. 12 13 COMPARISON OF OPERATING RESULTS AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS The following table presents certain information regarding Mutual Savings' financial condition and net interest income for the three and nine months ended September 30, 2000 and 1999. The table presents the average yield on interest-earning assets and the average cost of interest-bearing liabilities for the periods indicated. The yields and costs are derived by dividing income or expense by the average balance of interest-earnings assets or interest-bearing liabilities respectively, for the periods shown. The average balances are derived from daily balances over the periods indicated. Interest income includes fees, which we considered adjustments to yields. Net interest spread is the difference between the yield on interest-earning assets and the rate paid on interest bearing liabilities. Net interest margin is derived by dividing net interest income by net interest-earning assets. No tax-equivalent adjustments have been made as Mutual Savings has no investments which are tax exempt.
NINE MONTHS ENDED SEPTEMBER 30 2000 1999 -------------------------------------------------------------------------- INTEREST INTEREST AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/ BALANCE PAID RATE BALANCE PAID RATE ------- -------- ------ ------- ------- ----- (Dollars in Thousands) ASSETS: INTEREST-EARNING ASSETS (1): Loans receivable, net and loans available-for-sale $1,120,528 $63,114 7.51% $1,065,087 $59,578 7.46% Mortgage-related securities (2) 467,794 23,821 6.79% 278,916 13,179 6.30% Investment securities (2) 86,387 3,980 6.14% 407,929 15,028 4.91% Federal Home Loan Bank stock 14,210 779 7.31% 13,537 650 6.40% ---------- ------- ---- ---------- ------- ---- Total interest-earning assets 1,688,919 91,694 7.24% 1,765,469 88,435 6.68% ------- ------- Non interest-earning assets: 65,891 89,093 ---------- ----------- Total assets $1,754,810 $1,854,562 ========== ==========
13 14
NINE MONTHS ENDED SEPTEMBER 30 2000 1999 -------------------------------------------------------------------------- INTEREST INTEREST AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/ BALANCE PAID RATE BALANCE PAID RATE ------- -------- ------ ------- ------- ----- (Dollars in Thousands) LIABILITIES AND EQUITY: INTEREST-BEARING LIABILITIES: Savings deposits $ 148,457 2,740 2.46% $ 165,302 2,952 2.38% Money market accounts 224,397 8,607 5.11% 194,877 6,957 4.76% Interest-bearing demand accounts 86,123 671 1.04% 89,558 707 1.05% Time deposits 800,202 33,184 5.53% 885,146 35,490 5.34% ----------- ------- ----- ---------- ------- ---- Total deposits 1,259,179 45,202 4.79% 1,334,883 46,106 4.61% Advance payment by borrowers for taxes and insurance 10,330 192 2.48% 10,383 209 2.68% Borrowings 254,217 11,340 5.95% 270,766 10,638 5.24% ----------- ------- ----- ---------- ------- ---- Total interest-bearing liabilities 1,523,726 56,734 4.96% 1,616,032 56,953 4.70% ----------- ------- ----- ---------- ------- ---- NON-INTEREST-BEARING LIABILITIES: Non-interest-bearing deposits 45,750 42,769 Other non-interest-bearing 18,978 19,237 liabilities ----------- ---------- Total non-interest-bearing 64,728 62,006 liabilities ----------- ---------- Total liabilities 1,588,454 1,678,038 Equity 166,356 176,524 ----------- ---------- Total liabilities and equity $1,754,810 $1,854,562 =========== ========== Net interest income/net interest rate spread (3) $34,960 2.28% $31,482 1.98% ======= ==== ======= ==== Net interest-earning assets/net interest margin (3) $ 165,193 2.76% $ 149,437 2.38% =========== ==== ========== === Average interest-earning assets to average interest-bearing liabilities 1.11x 1.09x ==== ====
- ---------------------------------------------------- (1) Nonaccural loans are included in their respective categories. (2) Balances of securities are based upon amortized security cost. (3) Annualized percentage. 14 15 RATE VOLUME ANALYSIS OF NET INTEREST INCOME The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) changes attributable to changes in volume (change in volume multiplied by prior rate); (2) changes attributable to change in rate (changes in rate multiplied by prior volume); and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
NINE MONTHS ENDED SEPTEMBER 30 2000 VS 1999 INCREASE(DECREASE) DUE TO: VOLUME (1) RATE (2) NET (3) -------------- ---------- --------- (IN THOUSANDS) Interest-earning assets: Loans receivable $ 3,102 $ 434 $ 3,536 Mortgage-related securities 9,548 1,094 10,642 Investment securities (14,095) 3,047 (11,048) Federal Home Loan Bank stock 34 95 129 -------- -------- -------- TOTAL (1,411) 4,670 3,259 -------- -------- -------- Interest-bearing liabilities: Savings deposits (308) 96 (212) Money market accounts 1,106 544 1,650 Demand and NOW accounts (27) (9) (36) Time Deposits (3,492) 1,186 (2,306) Advance payments by borrowers for taxes and insurance (2) (15) (17) Borrowings (678) 1,380 702 -------- -------- -------- Total (3,401) 3,182 (219) -------- -------- -------- Net change in net interest income $ 1,990 $ 1,488 $ 3,478 ======== ======== ========
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 GENERAL. Net income was $3.4 million and $9.9 million for the three months and nine months ended September 30, 2000, respectively as compared to $2.4 million and $6.3 million during the same periods in 1999. This represents a $1.0 million and $3.6 million increase, respectively, for the three and nine month periods. The increases in net income were primarily attributable to an increase in the net interest margin, non-interest income and a reduction in non-interest expense partially offset by an increase in income taxes. INTEREST INCOME. Total interest income increased $1.4 million, or 5.0%, for the three months ended September 30, 2000 compared the three months ended September 30, 1999. For the nine months ended September 30, 2000 total interest income increased $3.3 million, or 3.7%, compared to the same period of the prior year. The increases for 15 16 the three and nine months ended September 30, 2000 are the result of the growth in the loan portfolio and the increased yield earned on the loan portfolio. Interest on loans increased $1.9 million, or 9.4%, for the three months ended September 30, 2000 compared to the same period of the prior year and $3.5 million, or 5.9%, for the nine months ending September 30, 2000 as compared to the same period of the prior year. Interest on investments decreased $3.7 million, or 70.7%, and interest on mortgage-related securities increased $3.3 million, or 70.3%, for the three months ended September 30, 2000 compared with the corresponding prior period. For the nine month period ending September 30, interest on investments decreased $10.9, million or 69.6%, and interest on mortgage related securities increased $10.6 million, or 80.8%, in 2000, compared to the same period in 1999. The decrease in investment income for the third quarter of 2000 and the nine months ended September 30, 2000, was a result of reinvesting the investment interest income and maturities into loans. Mortgage-related securities income increased for the three and nine months ended September 30, 2000 primarily from a purchase of $200.0 million of mortgage-related securities in November and December of 1999. Mutual borrowed the $200.0 million from the FHLB and reinvested those funds into mortgage-related securities. The average balance of total interest-earning assets decreased $76.6 million, or 4.3%, for the nine months ended September 30, 2000 as compared to the average balance for the same period of the previous year. The average balance of loans increased; the average balance in mortgage-related securities increased; the average balance in investment securities decreased. This change in the mix of assets reflects the re-deployment of investment securities into higher yielding loans and mortgage-related securities. The reduction in total assets was the result of funding the decrease in deposits. For the nine months ended September 30, 2000, when compared to same period for the previous year, the impact on interest income from the decrease in the average balance of interest earning assets was offset by 56 basis point increase in the annualized average yield on total interest-earning assets. This was the result of the reinvestment of investment securities into loans and mortgage-related securities. INTEREST EXPENSE. Interest expense on deposits increased $342,000, or 2.3% for the three months ended September 30, 2000 compared to the same period of the previous year and decreased $904,000, or 2.0%, for the nine months ended September 30, 2000 compared to the same period of the previous year. The increase in interest expense for the third quarter of 2000 was the result of an increase in the cost of renewing and acquiring deposits. The average balance of total interest-bearing liabilities decreased $92.3 million, or 5.7%, for the nine month period ended September 30, 2000 when compared to the same period of the prior year. This was primarily the result of a decrease of $75.7 million for nine month period in the average balance of deposits. All categories of deposits experienced decreases in average balances with the exception of money market accounts, which increased $29.5 million, or 15.1%. The increase in money market accounts was the direct result of the increased interest rate paid on those accounts. The effect of the decrease in the average balance of total deposits was partially offset, however, by an 18 basis point increase in the average cost of total deposits for the nine month period ended September 30, 2000 when compared to the same period of the prior year. These increases reflect the rising costs of time deposits and money market accounts. The annualized average cost of borrowings increased 71 basis points for the nine months ended September 30, 2000, when compared to the average cost of the same period of the prior year. The increased cost of borrowings reflects the upward pricing of borrowings as a result of the current higher interest rate environment. The upward pricing of interest-bearing liabilities resulted in a 26 basis point increase in the total cost of interest-bearing liabilities for the nine month period ending September 30, 2000, when compared to the same period of the prior year. NET INTEREST INCOME. Net interest income increased $583,000, or 5.3%, to $11.5 million for the third quarter of 2000 compared with $11.0 million for the third quarter of 1999. For the nine month period ended September 30, 2000, net interest income increased $3.5 million, or 11.0%, to $35.0 million compared to $31.5 million for the same period of the prior year. The net interest spread increased to 2.28% for the third quarter ended September 30, 2000 from 2.07% for the comparable period of 1999. Additionally, the annualized net interest margin increased to 2.75% for the third quarter ended September 30, 2000 from 2.47% for the same period of the previous year. For the nine months ended September 30, 2000, the net interest spread increased to 2.28% compared to 1.98% for the same nine 16 17 months of the prior year. The net interest margin increased to 2.76% for the nine months ended September 30, 2000 compared to 2.38% for the same nine months of the prior year. PROVISION FOR LOAN LOSSES. The provision for losses increased $8,000 for the three months and $41,000 for the nine months period ended September 30, 2000 compared to the same periods of the previous year. The allowance for loan losses at September 30, 2000 was $7.1 million, or 318.8%, of non-performing loans. Non-performing loans at September 30, 2000 were $2.2 million compared with $4.8 million at December 31, 1999. Future provisions for loan losses will continue to be based upon the assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at adequate levels to provide for estimated future losses. NON-INTEREST INCOME. Total non-interest income, consisting of service fees, gain on sale of loans and other income, increased $363,000, or 19.9%, and $631,000, or 11.2%, for the three months and nine months ended September 30, 2000 respectively. Gain on sale of real estate owned primarily resulted in the increase in non-interest income. NON-INTEREST EXPENSE. Total non-interest expense, consisting primarily of salaries and employee benefits, occupancy expense, other operating expenses and amortization of intangible assets, decreased $374,000, or 4.2%, and $1.5 million, or 5.6%, for the three and nine months ended September 30, 2000 respectively. The decrease in amortization of intangibles for the third quarter of 2000 and the nine months ended September 30, 2000, resulted from the 1999 year-end impairment and resulting write down of intangible assets from a 1997 acquisition, was the primary factor in this decrease. Other factors affecting non-interest expense for the three and nine month periods included increases in compensation; 3.4% and 3.1% respectively; and increases in marketing expenses, 52.1% and 21.5% respectively; decreases in office occupancy, 8.8% and 8.6% respectively; and decreases in FDIC insurance premiums, 65.8% for both periods. The increase in marketing expense was the result of a direct marketing campaign for consumer loans and the reduction in FDIC insurance premiums was the result of a rate reduction by the Federal Deposit Insurance Corporation. INCOME TAXES. Income tax expense increased $302,000, or 20.0%, and $1.9 million, or 49.2%, for the three and nine-month periods ended September 30, 2000 as compared to the same periods of the prior year. The effective income tax rate was 34.6% compared to 38.5% for the three months and 36.9% compared to 38.2% for the nine months both ended September 30, 2000 and 1999, respectively. This decrease in the effective income tax rate was the result of additional assets held in Mutual Savings' Nevada subsidiary, which is not subject to Wisconsin franchise taxes. 17 18 For a discussion of the Company's asset and liability management policies as well as the potential impact of interest rate changes upon the market value of the Company's portfolio equity, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Management of Interest Rate Risk" in the Company's Registration Statement Form S-1 No. 333-39362. That explanation is incorporated herein by reference. There has been no material change in the Mutual Savings' asset and liability position or the market value of the Mutual Savings portfolio equity since June 30, 2000. 18 19 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION. On November 1, 2000, Mutual Savings Bank ("Mutual Savings") completed its regulatory restructuring, under a Plan of Restructuring approved by the Office of Thrift Supervision and the depositors of Mutual Savings, into a mutual holding company form of organization. Pursuant to that restructuring, the Bank became a wholly-owned subsidiary of the Company. The Company, in turn, is now 50.1% owned by Mutual Savings Bancorp, MHC (the "MHC"), a mutual holding company of which the depositors of Mutual Savings are members. In addition to the restructuring, on November 1, 2000, the Company also completed its acquisition of First Northern Capital Corp. under an Agreement and Plan of Merger among Mutual Savings, the Company (as assignee) and First Northern. As a result of the transaction, First Northern Savings Bank became a wholly-owned subsidiary of the Company. These transactions will be discussed more fully in a Report on Form 8-K to be filed by the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Exhibit Index, which follows the signature page hereof. (b) Reports on Form 8-K: In the quarter ended September 30, 2000, the Registrant did not file any Reports on Form 8-K. 19 20 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BANK MUTUAL CORPORATION ----------------------- (Registrant) Date November 13, 2000 /s/ Michael T. Crowley, Jr. ------------------------------------- Michael T. Crowley, Jr. Chairman and Chief Executive Officer Date November 13, 2000 /s/ Rick B. Colberg ------------------------------------- Rick B. Colberg Chief Financial Officer 20 21 EXHIBIT INDEX BANK MUTUAL CORPORATION Form 10-Q for Quarter Ended September 30, 2000 Exhibit No. Description ----------- ----------- 27 Financial Data Schedules EX-27 2 c58547ex27.txt FINANCIAL DATA SCHEDULE
9 1,000 9-MOS 9-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 SEP-30-2000 SEP-30-1999 23697 14985 13144 42988 0 250000 0 0 529994 370221 0 0 0 0 1131708 1072937 7110 6985 1780371 1842999 1296920 1364153 70000 0 19746 12572 200520 270699 0 0 0 0 0 0 174597 177023 1780371 1842999 63114 59578 28580 28857 0 0 91694 88435 45202 46106 56734 56953 34960 31482 276 235 20 (300) 25232 26715 15739 10188 15739 10188 0 0 0 0 9928 6294 0 0 0 0 7.24 6.78 1054 3522 1076 786 0 0 2685 0 6948 6855 137 173 23 68 7110 6985 7110 6985 0 0 0 0
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