10-Q 1 c80794e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 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 0-25983 First Manitowoc Bancorp, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-1435359 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS employer identification no.) incorporation or organization) 402 North Eighth Street, Manitowoc, Wisconsin 54220 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (920) 684-6611 -------------------------------------------------------------------------------- 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 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 [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes [X] No [ ] The number of shares outstanding of registrant's common stock, par value $1.00 per share, at October 31, 2003, was 6,937,268 shares. FIRST MANITOWOC BANCORP, INC. TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: FIRST MANITOWOC BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

(See accompanying notes to Unaudited Consolidated Financial Statements.) 1 ITEM 1. FINANCIAL STATEMENTS CONTINUED: FIRST MANITOWOC BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(See accompanying notes to Unaudited Consolidated Financial Statements.) 2 ITEM 1. FINANCIAL STATEMENTS CONTINUED: FIRST MANITOWOC BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) Nine Months Ended September 30, 2002 (In Thousands, Except Share Data)

Nine Months Ended September 30, 2003 (In Thousands, Except Share Data)

(See accompanying notes to Unaudited Consolidated Financial Statements.) 3 ITEM 1. FINANCIAL STATEMENTS CONTINUED: FIRST MANITOWOC BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(See accompanying notes to Unaudited Consolidated Financial Statements.) 4 ITEM 1. FINANCIAL STATEMENTS CONTINUED: FIRST MANITOWOC BANCORP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with instructions for Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly First Manitowoc Bancorp, Inc.'s (the "Corporation's") financial position, results of operations, changes in shareholders' equity and cash flows for the periods presented. All adjustments necessary for the fair presentation of the consolidated financial statements are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. This report should be read in conjunction with the Corporation's 2002 annual report on Form 10-K. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. NOTE 2: The consolidated financial statements include the accounts of all subsidiaries. The Corporation is a bank holding company that engages in its business through its sole subsidiary, First National Bank in Manitowoc (the "Bank"), a nationally chartered commercial bank. The Bank has two wholly owned subsidiaries, FNBM Investment Corp. and Insurance Center of Manitowoc, Inc. (the "Insurance Center"). All material intercompany transactions and balances are eliminated. Certain items in the prior period consolidated financial statements have been reclassified to conform with the September 30, 2003 presentation. 5 NOTE 3: Investment Securities The amortized cost and fair values of investment securities available for sale for the periods indicated are as follows: Investment Securities (In Thousands)

NOTE 4: Loan Portfolio Loans are summarized as follows: Summary of Loan Portfolio (Dollars In Thousands)

6 NOTE 5: Allowance for Loan Losses Activity in the allowance for loan losses for the periods indicated is as follows:

NOTE 6: Business Segments The Corporation, through the Bank and the Bank's branch network, provides a broad range of financial services to individuals and companies in northeastern Wisconsin. These services include demand, time, and savings deposits; commercial and retail lending; ATM processing; trust services; and insurance services. Operations are managed and financial performance of these services is evaluated on a corporation-wide basis. Accordingly, all of the Corporation's operations are considered by management to be aggregated in one reportable operating segment. NOTE 7: Per Share Computations Weighted average shares outstanding were 6,937,268 for the nine months ended September 30, 2003 and 2002. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE CORPORATION First Manitowoc Bancorp, Inc. (the "Corporation") is a Wisconsin corporation and registered bank holding company. The Corporation engages in its business through its sole subsidiary, First National Bank in Manitowoc (the "Bank"), a national banking association. The Bank has a wholly owned investment subsidiary, FNBM Investment Corp. and a wholly-owned insurance subsidiary, Insurance Center of Manitowoc, Inc. (the "Insurance Center"). The Insurance Center also operates an office known as Gary Vincent and Associates in Green Bay, Wisconsin. The Insurance Center is an independent agency offering commercial, personal, life and health insurance. The Corporation's and the Bank's main office is located at 402 North Eighth Street, Manitowoc, Manitowoc County, Wisconsin. The Bank has twelve full service branch offices located in Francis Creek, St. Nazianz, Two Rivers, Mishicot, Manitowoc, Kiel, Newton, New Holstein, Plymouth, Bellevue, and Ashwaubenon, Wisconsin. The Corporation's home page on the Internet is www.bankfirstnational.com. The Corporation's web site content is for information purposes only, and it should not be relied upon for investment purposes, nor is it incorporated by reference into this Form 10-Q. FORWARD LOOKING STATEMENTS Forward-looking statements have been made by the Corporation in this document and in documents incorporated by reference that are subject to risks and uncertainties. These forward-looking statements, which are included in Management's Discussion and Analysis of Financial Condition and Results of Operations, describe future plans or strategies and include the Corporation's expectations of future results of operations. Statements containing certain terms including, but not limited to, the words "believes," "expects," "anticipates" or similar expressions constitute forward-looking statements. 7 Shareholders should note that many factors, some of which are discussed elsewhere in this document could affect the future financial results of the Corporation and could cause those results to differ materially from those expressed in forward-looking statements contained in this document. These factors include the following: - operating, legal and regulatory risks; - economic, political and competitive forces affecting the Corporation's banking, securities, asset management and credit services businesses; - the risk that the Corporation's analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful; - general market rates; - general economic conditions; - changes by the Federal government in monetary and fiscal policies; and - changes in composition of our loan portfolio. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Corporation does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. CRITICAL ACCOUNTING POLICIES In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses and mortgage servicing rights valuation. The consolidated financial statements of the Corporation are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes the following policies are both important to the portrayal of the Corporation's financial condition and results and require subjective or complex judgments and, therefore, management considers the following to be critical accounting policies. Allowance for Loan Losses: Management's evaluation process used to determine the adequacy of the allowance for loan losses is subject to the use of estimates, assumptions, and judgments including management's ongoing review and grading of the loan portfolio, consideration of past loan loss experience, trends in past due and nonperforming loans, risk characteristics of the various classifications of loans, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the allowance, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require that certain loan balances be charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The Corporation believes the allowance for loan losses is adequate and properly recorded in the financial statements. See section "Allowance for Loan Losses." Mortgage Servicing Rights Valuation: The fair value of the Corporation's mortgage servicing rights asset is important to the presentation of the consolidated financial statements in that mortgage servicing rights are subject to a fair value-based impairment standard. Mortgage servicing rights do not trade in an active open market with readily observable prices. As such, like other participants in the mortgage banking business, the Corporation relies on an internal estimated cash flow model to establish the fair value of its mortgage servicing rights. While the Corporation believes that the values produced by its internal model are indicative of the fair value of its mortgage servicing rights portfolio, these values can change significantly depending upon the then current interest rate environment, estimated prepayment speeds of the underlying mortgages serviced, and other economic conditions. The proceeds that might be received should the Corporation actually consider a sale of the mortgage servicing rights portfolio could differ from the amounts reported at any point in time. The Corporation believes the mortgage servicing rights asset is properly recorded in the financial statements. 8 EARNINGS Net Income (Dollars In Thousands, Except Share Data)

Weighted average shares outstanding were 6,937,268 for the nine months ended September 30, 2003 and 2002. Net income for the three months ended September 30, 2003 was $2,041,000 compared to $1,853,000 for the three months ended September 30, 2002, an increase of $188,000, or 10.1%. Interest income decreased $1,211,000 primarily as a result of a decrease in interest yields. Interest expense decreased $687,000 mainly as a result of a decrease in interest rates paid on deposits. Other income increased $847,000 due to an increase in service charges and an increase in gain on sales of mortgage loans held for sale. Other expenses increased $72,000. This is a result of increased salaries, commissions and related benefits primarily due to annual merit increases in wages for employees. Earnings per share for the three months ended September 30, 2003 was $0.29 compared to $0.27 for the three months ended September 30, 2002. Return on average assets ("ROA") on an annualized basis for the third quarter 2003 was 1.44% compared to 1.36% for the third quarter 2002. Return on average equity ("ROE") on an annualized basis for the third quarter 2003 was 14.10% compared to 14.23% for the third quarter 2002. Net income for the nine months ended September 30, 2003 was $5,892,000 compared to $5,518,000 for the nine months ended September 30, 2002, an increase of $374,000 or 6.78%. Interest income decreased $2,772,000 primarily as a result of a decrease in interest yields. Interest expense decreased $1,616,000 primarily due to a decrease in interest rates paid on deposits and borrowed funds. Other income increased $1,951,000 as a result of increases in service charges and gain on sales of mortgage loans held for sale. Other expense increased $378,000, a result of increased salaries, commissions and related benefits primarily due to annual merit increases. Earnings per share for the nine months ended September 30, 2003 was $0.85 compared to $0.80 for the nine months ended September 30, 2002. ROA on an annualized basis for the first nine months of 2003 was 1.39%, the same as the first nine months in 2002. ROE on an annualized basis for the first nine months of 2003 was 13.90% compared to 14.79% for the first nine months of 2002. The drop in ROE is due to a decrease in other comprehensive income from unrealized gain/loss on securities. 9 AVERAGE BALANCES, YIELD AND RATES

Net interest margin is calculated as tax equivalent net interest income divided by average earning assets and represents the Bank's net yield on its earning assets. The tax equivalent adjustment was calculated using the statutory federal income tax rate of 34%. 11 NET INTEREST INCOME AND NET INTEREST MARGIN Net interest income is the principal source of earnings for a banking company. It represents the differences between interest and fees earned on the loan and investment portfolios offset by the interest paid on deposits and borrowings. The nine months ended September 30, 2003 has been characterized by fairly stable interest rates. Net interest margin is calculated as tax equivalent net interest income divided by average earning assets and represents the Bank's net yield on its earning assets. The tax equivalent adjustment was calculated using the statutory federal income tax rate of 34%. THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002: Net interest income (on a tax equivalent basis) for the three months ended September 30, 2003 decreased by $507,000 or 9.30% compared to the three months ended September 30, 2002. Interest income decreased $1,192,000 as a result of a decrease in yields. Total average loans increased from $339,697,000 for the third quarter of 2002 to $357,431,000 for the third quarter of 2003 while interest yield on loans decreased from 7.29% for the third quarter of 2002 to 6.09% for the third quarter of 2003. Average investment securities decreased from $141,802,000 for the third quarter of 2002 to $140,310,000 for the third quarter of 2003. Interest expense decreased $687,000 primarily as a result of a decrease in interest rates paid. Total average interest-bearing deposits increased from $424,415,000 for the third quarter of 2002 to $430,973,000 for the third quarter of 2003 while interest rates paid on interest-bearing deposits decreased from 2.81% for the third quarter of 2002 to 2.11% for the third quarter of 2003. The interest rate spread, which is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities, was 3.39% for the three months ended September 30, 2003, a decrease of 48 basis points from the interest rate spread of 3.88% for the three months ended September 30, 2002. Net interest margin for the three months ended September 30, 2003 was 3.77% compared with 4.28% for the three months ended September 30, 2002. YTD 2003 COMPARED TO YTD 2002: Net interest income (on a tax equivalent basis) for the nine months ended September 30, 2003 decreased by $1,067,000 or 6.68% compared to the nine months ended September 30, 2002. Interest income decreased $2,683,000 as a result of a decrease in yields. Total average loans increased to $350,197,000 for the first nine months of 2003 from $333,379,000 for the first nine months of 2002. Total average investment securities increased to $141,019,000 for the first nine months of 2003 from $136,765,000 for the first nine months of 2002. Interest yields fell on both loans and investment securities for the nine months ended September 30, 2003. Interest expense decreased $1,616,000 due to a decrease in interest rates paid. Total average interest bearing deposits increased to $436,214,000 for the first nine months of 2003 from $416,449,000 for the first nine months of 2002, while interest rates paid on those deposits decreased to 2.30% in 2003 from 2.92% in 2002. The interest rate spread was 3.45% for the nine months ended September 30, 2003, a decrease of 47 basis points from the interest rate spread of 3.92% for the nine months ended September 30, 2002. Net interest margin for the nine months ended September 30, 2003 was 3.83% compared with 4.37% for the nine months ended September 30, 2002. 12 PROVISION AND ALLOWANCE FOR LOAN LOSSES For the nine months ended September 30, 2003, the Bank charged $950,000 to expense for the provision for loan loss compared to $1,075,000 for the nine months ended September 30, 2002. Allowance for Loan Losses (In Thousands)

The ratio of allowance for loan losses to total loans increased to 1.10% at September 30, 2003 from 0.90% at September 30, 2002. There are several factors that are included in the analysis of the adequacy of the allowance for loan losses. Management considers loan volume trends, levels and trends in delinquencies and non-accruals, current problem credits, national and local economic trends and conditions, concentrations of credit by industry, current and historical levels of charge-offs, the experience and ability of the lending staff, and other miscellaneous factors. Management has determined the allowance for loan losses is adequate to absorb probable loan losses in its loan portfolio as of September 30, 2003 based on its most recent evaluation of these factors. The factor of loan volume trends is based on actual lending activity. The loan volume trends factor is for estimated losses that are believed to be inherently part of the loan portfolio but that have not yet been identified as specific problem credits. The current problem credits factor includes the exposure believed to exist for specifically identified problem loans determined on a loan-by-loan basis. A table showing the allocation of allowance for loan losses is shown below. Allocation of Allowance for Loan Losses (In Thousands)

13 Specific problem loans includes the allocation of the allowance for specific problem credits. Loan type allocation includes the factor of loan volume trends, with management's goal for this factor to maintain an adequate loan loss reserve for outstanding loans less the specifically identified current problem credits. The allocation of the allowance among the various loan types is based on the average proportion of the loan types that make up the specific problem loans. The unallocated portion of the allowance consists of the other factors included in the analysis because those factors cannot be tied to specific loans or loan categories. The allocation and total for the allowance for loan losses is not to be interpreted as a single year's exposure for loss nor the loss for any specified time period. NONPERFORMING LOANS It is the policy of the Bank to place a loan in non-accrual status whenever there is substantial doubt about the ability of a borrower to pay principal or interest on any outstanding credit. The typical time frame for making the determination to put a loan in non-accrual status is 90 days. Management considers such factors as payment history, the nature and value of collateral securing the loan and the overall economic situation of the borrower when making a non-accrual decision. Non-accrual loans are closely monitored by management. A non-accruing loan is restored to current status when the prospects of future contractual payments are no longer in doubt. Total nonperforming loans at September 30, 2003 were $4,246,000, an increase of $2,443,000 from December 31, 2002. This increase includes two loans totaling $2,300,000. One of these loans which is on non-accrual for $1,024,000 is in the process of being restructured and put back in an accrual status, the other loan is actively being worked with a goal of removal from non-accrual status by the end of the first quarter 2004. The following table presents nonperforming and nonaccrual loan information as of the dates indicated. Nonperforming Loans (In Thousands)

OTHER INCOME Other Income (In Thousands)

14 THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002: Other income for the third quarter of 2003 was $2,342,000 compared to $1,495,000 for the third quarter of 2002, an increase of $847,000 or 56.7%. An increase in the number of residential mortgage loans and refinancings processed and sold to the Federal National Mortgage Association ("FNMA") secondary market accounted for an increase of $666,000 in gains on sales of mortgage loans in the quarter ended September 30, 2003. Service charges on deposit accounts and FNMA loans and closing fees on mortgage loans also contributed to the increase. YTD 2003 COMPARED TO YTD 2002: Total other income for the nine months ended September 30, 2003 was $6,321,000 compared to $4,370,000 for the nine months ended September 30, 2002, an increase of $1,951,000 or 44.6%. Service charges increased $251,000 while loan servicing income increased $94,000. Gain on sales of mortgage loans held for sale increased $1,409,000, resulting from an increase in the number of new residential mortgage loans and refinancings processed and sold in the secondary market during the first nine months of 2003. Other income increased $167,000 while Insurance Center commissions increased $42,000. OTHER EXPENSES Other Expenses (In Thousands)

THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002: Other expenses for the third quarter of 2003 were $3,703,000 compared to $3,631,000 for the third quarter of 2002, an increase of $72,000, or 2.0%. The increase is a result of increased salaries, commissions and related benefits due primarily to annual merit increases for employees. YTD 2003 COMPARED TO YTD 2002: Other expenses for the first nine months of 2003 were $10,814,000 compared to $10,436,000 for the first nine months of 2002, an increase of $378,000 or 3.6%. The increase is a result of increased salaries, commissions, and related benefits due primarily to annual merit increases for employees. Other expenses increased primarily due to increased software amortization and increased postage costs. INCOME TAXES The effective tax rate for the nine months ended September 30, 2003 was 22.27% compared to 21.5% for the nine months ended September 30, 2002. The increase in effective tax rates in the period is the result of taxable income increasing at a greater rate than tax exempt income. 15 BALANCE SHEET SEPTEMBER 30, 2003 COMPARED TO DECEMBER 31, 2002 The Corporation's total assets decreased from $565.8 million at December 31, 2002 to $563.5 million at September 30, 2003. Loans increased $19.8 million, a result of an increase in commercial loans. The increase in other assets is due to the purchase of a $5.0 million life insurance policy on certain officers of the bank. Deposits increased $1.6 million to $417.7 million at September 30, 2003 from $416.1 million at December 31, 2002, due to increases in non-interest bearing deposits and certificates of deposit. LIQUIDITY MANAGEMENT Liquidity describes the ability of the Corporation to generate adequate amounts of cash to meet financial obligations that arise out of the ordinary course of business. Liquidity is primarily needed to meet borrowing and deposit withdrawal requirements of the customers of the Bank and to fund current and planned expenditures. The Bank maintains its asset liquidity position internally through cash and cash equivalents, short term investments, the maturity distribution of the investment portfolio, loan repayments and income from earning assets. A substantial portion of the investment portfolio contains readily marketable securities that could be converted to cash immediately. On the liability side of the balance sheet, liquidity is affected by the timing of maturing liabilities and the ability to generate new deposits or borrowings as needed. Other sources are available through borrowings from the Federal Reserve Bank, the Federal Home Loan Bank and from lines of credit approved at correspondent banks. Management knows of no trend or event which will have a material impact on the Bank's ability to maintain liquidity at adequate levels. CAPITAL RESOURCES AND ADEQUACY Capital (Dollars In Thousands, Except Share Data)

Total shareholders' equity increased $4.6 million from $54.2 million at December 31, 2002 to $58.8 million at September 30, 2003. Net income for the nine-month period ending September 30, 2003 was $5.9 million. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of September 30, 2003 and December 31, 2002, that the Bank meets all capital adequacy requirements to which it is subject. 16 As of September 30, 2003, the Bank's and the Corporation's ratio of Tier 1 capital to risk-weighted assets was 11.9% and 12.2%, respectively. As of September 30, 2003, the Bank's and the Corporation's ratio of total capital to risk-weighted assets was 13.0% and 13.2%, respectively. In addition to risk-based capital, banks and bank holding companies are required to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage capital ratio, of at least 4%. As of September 30, 2003, the Bank's and the Corporation's leverage capital ratio was 8.2% and 8.4%, respectively. As of September 30, 2003 and December 31, 2002, the most recent notification from the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation categorized the Bank as well capitalized and adequately capitalized, respectively, under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no conditions or events since such notifications that management believes have changed the institution's category. RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," as an amendment to SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. The Corporation does not use stock-based employee compensation, therefore the release of SFAS No. 148 does not affect the financial statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). The objective of this interpretation is to provide guidance on how to identify a variable interest entity and determine when the assets, liabilities, noncontrolling interests, and results of operations of a variable interest entity need to be included in a company's consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company's interest in the variable interest entity is such that the company will absorb a majority of the variable interest entity's losses and/or receive a majority of the entity's expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation are effective for the first reporting period ending after December 15, 2003. The requirements of FIN 46 did not have a material impact on the results of operations, financial position, or liquidity of the Bank. In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 will not have a material impact on the results of operations, financial position, or liquidity of the Bank. FINANCIAL STATEMENT DISCLOSURES Commitments to sell residential mortgage loans to FNMA and commitments to fund such loans to individual borrowers represent the Corporation's mortgage derivatives, the fair value of which is not material at this time. Commitments outstanding at September 30, 2003 were $2.2 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation's management is aware of no material change to the market risk position from that disclosed as of December 31, 2002 in the Corporation's 2002 Form 10-K Annual Report. 17 ITEM 4. CONTROLS AND PROCEDURES The Corporation's senior management, with the participation of the Corporation's chief executive officer and chief financial officer, evaluated the effectiveness of the Corporation's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2003. Based on this evaluation, the Corporation's chief executive officer and chief financial officer concluded that, as of September 30, 2003, the disclosure controls and procedures were (1) designed to ensure that material information relating to the Corporation, including the Bank and the Bank's wholly owned subsidiaries, is made known to the Corporation's chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed in the reports that the Corporation files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. FIRST MANITOWOC BANCORP, INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Neither the Corporation nor its subsidiary is involved in any pending legal proceedings involving amounts that management believes are material to the financial condition and results of operations of the Corporation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits:

18 (31.2) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (4) (32) Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (4) (99) Item 3 of Part I of First Manitowoc Bancorp, Inc.'s Report on Form 10-K filed March 18, 2003, hereby incorporated by reference (5) (1) Incorporated by reference to Exhibit (3)(1) filed with the Corporation's Registration Statement on Form 10 filed May 5, 1999. Amendment filed as Exhibit (3)(2) to the Corporation's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000. (2) Incorporated by reference to Exhibit (3)(2) filed with the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. (3) Incorporated by reference to Exhibit (10)(1) filed with the Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003. (4) Filed herewith. (5) Incorporated by reference to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. b) Reports on Form 8-K: There were no reports on Form 8-K filed for the quarter ended September 30, 2003. 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 hereunto duly authorized. FIRST MANITOWOC BANCORP, INC. (Registrant) Date: November 10, 2003 /s/ Thomas J. Bare --------------------------------- Thomas J. Bare Chief Executive Officer and Chief Financial Officer 19

FIRST MANITOWOC BANCORP INC 10-Q