Merchants & Manufacturers Bancorporation, Inc. 3rd Quarter
Earnings Announced BROOKFIELD, Wis., Nov. 4 /PRNewswire-FirstCall/
-- Merchants & Manufacturers Bancorporation, Inc. ("Merchants")
(OTC:MMBI) (BULLETIN BOARD: MMBI) announced third quarter 2004
earnings of $1.9 million, or $0.55 per diluted share, compared to
$2.1 million or $0.66 per diluted share for the third quarter 2003,
representing a 8.04% decrease in net income and a 16.67% decrease
in diluted earnings per share. Net income for the nine months
ending September 30, 2004 was $4.8 million; a 21.7% decrease from
the $6.2 million earned for the same period in 2003. Diluted
earnings per share for the nine months of 2004 were $1.41, a 27.3%
decrease from the $1.94 earned in the same period in 2003. The
decrease in net income for the current quarter compared to the
prior year is partially attributed to a lower net interest margin.
The decline in net interest margin was due to the reduction in
asset yields, as we positioned our balance sheet for an increasing
interest rate environment and by the increased amortization of
purchase accounting premiums associated with our acquisitions. Net
income has also been impacted by a number of items, including
comparisons to unusually high gains on sales of loans and a
significant reversal in the valuation allowance on our mortgage
servicing rights during the 2003 third quarter. In addition,
expenses related to complying with the Sarbanes-Oxley Act of 2002
and our "Vision Unlimited" centralization project accounted for the
reduction in third quarter and year to date net income. Taken
together, these four items reduced our earnings by approximately
$1.2 million pre-tax, or $0.25 per diluted share after-tax for the
quarter and approximately $2.9 million pre-tax, or $0.62 per
diluted share after-tax for the year-to-date. The
quarter-to-quarter and year-to-date comparisons are impacted by
Merchants' acquisition of Random Lake Bancorp, Limited ("Random")
and its subsidiary Wisconsin State Bank ("WSB") on August 12, 2004.
The acquisition was accounted for using the purchase method of
accounting, and accordingly, the assets and liabilities of Random
were recorded at their respective fair values on the acquisition
date. Merchants acquired approximately $102.3 million in assets,
$72.9 million in loans, $80.0 million in deposits and recognized
goodwill and intangible assets of approximately $6.1 million
related to the transaction. The quarter-to-quarter and year-to-date
comparisons are also impacted by Merchants' completion of the
Reedsburg Bancorporation, Inc. ("Reedsburg") acquisition on
November 1, 2003. This acquisition was accounted for using the
purchase method of accounting, and accordingly, the assets and
liabilities of Reedsburg were recorded at their respective fair
values on November 1, 2003. Merchants acquired approximately $141.8
million in assets, $97.2 million in loans, $120.6 million in
deposits and recognized goodwill and intangible assets of
approximately $19.1 million related to the transaction. The
year-to-date comparisons are also impacted by Merchants' May 1,
2003 acquisition of Keith C. Winters & Associates, LTD.
("KCW"). KCW is a tax preparation and tax consultation firm with
offices located in Franklin, Brookfield and Milwaukee, Wisconsin.
Merchants' total assets increased 39.4% from $949.4 million at
September 30, 2003, to $1.3 billion at September 30, 2004. Gross
loans increased 37.0% from $735.5 million at September 30, 2003, to
$1.0 billion at September 30, 2004. Total deposits grew 31.4% from
$760.1 million at September 30, 2003 to $998.6 million at September
30, 2004. Our balance sheet growth since September 30, 2003 is due
to internal growth as well as the acquisitions of Reedsburg and
WSB. Michael J. Murry, Chairman, stated, "2004 has been and is
going to be a year of transition for our organization. Through a
company-wide project called 'Vision Unlimited', we are in the
process of standardizing policies and procedures across the
organization and centralizing many operational functions. In
addition, we are converting all of the banks to a single data
processing platform. As of September 30, 2004 five of the six
recently acquired banks have been converted to the new system. We
expect these changes will allow us to better manage risk, operate
more efficiently and serve customers better. Each of our community
banks will continue to keep its name, charter, board of directors
and management teams but will transition its human resources from
the bank's operational activities to customer related activities.
Bank employees will have the tools and resources they need to
effectively focus on customer service, customer retention and
customer prospecting. While we expect these changes to enhance
shareholder value in the long run, a transition of this magnitude
will involve short-term costs, which we expect will range between
$850,000 and $1.0 million before tax in 2004. Through September 30,
2004 we have expended approximately $475,000 relating to this
project. "We are also facing two other significant challenges in
2004. Like all public companies, we are working towards compliance
with the Sarbanes-Oxley Act of 2002. While we are utilizing an
outside third party at a significant cost, compliance with
Sarbanes-Oxley is largely being accomplished internally through our
'Vision Unlimited' project. We originally expected our
Sarbanes-Oxley compliance costs would range from $300,000 to
$400,000 in 2004. However, based on the review of tasks completed
to date, we now expect this expense to amount to range from
$400,000 to $500,000. Through September 30, 2004 we have expended
approximately $333,000 relating to this project. In addition, like
hundreds of other Wisconsin banking organizations, we are in
discussion with the Wisconsin Department of Revenue ("WDR")
regarding the tax treatment of our Nevada investment subsidiaries.
Nevada does not have an income tax and historically the earnings of
these Nevada investment subsidiaries have not been subject to
taxation in Wisconsin. We believe that we have complied with
private letter rulings the WDR previously issued in connection with
the formation and operation of our Nevada investment subsidiaries.
However, the effect and intent of these rulings is in question and
the WDR may take the position that some or all of the income of our
Nevada investment subsidiaries is allocable to their Wisconsin
corporate parents and taxable in Wisconsin. The WDR may also take
the position that such a reallocation should apply to prior open
tax years. The result of these discussions with the WDR could
materially increase our future income tax expense and could also
result in a significant current year tax charge. As of September
30, 2004 we have not come to an agreement with the WDR and have not
reserved for potential future payments to the WDR." Net interest
income was $10.9 million for the third quarter of 2004 compared to
$8.7 million for the same time period of 2003 and $30.8 million for
the nine-month period of 2004 compared to $25.8 million for the
same period in 2003. The increase is due to the revenue resulting
from the acquisitions of Reedsburg and WSB, as well as to the
increase in loan volume funded by the growth in deposits and
borrowings. Net interest margin was 3.76% for the third quarter of
2004 compared to 3.92% for the same period in 2003. The decline in
net interest margin was due to a reduction in asset yields as we
positioned our balance sheet for an increasing interest rate
environment and by the increased amortization of purchase
accounting premiums associated with our acquisitions. The pressure
on the net interest margin in 2003 began to stabilize in 2004
producing an increasing net interest margin since the fourth
quarter of 2003. Recent increases in market interest rates should
improve the net interest margin as our balance sheet is positioned
to take advantage of increasing rates. Merchants' provision for
loan losses was $431,000 for the third quarter of 2004 compared to
$372,000 for the same quarter of 2003. Merchants' ratio of
allowance for loan losses to total loans was 1.06% and 1.08% at
September 30, 2004 and 2003, respectively. The ratio of allowance
for loan losses to non-performing loans was 199.7% at September 30,
2004 compared to 200.8% at September 30, 2003. Asset quality
remains strong as non-performing assets equaled 0.56% of total
assets at September 30, 2004 compared to 0.62% at September 30,
2003. Non-interest income for the third quarter of 2004 was $3.2
million and $8.6 million for the nine months ending September 30,
2004, compared to $3.0 million for the third quarter of 2003 and
$8.4 million for the nine months of 2003, an increase of 5.5% for
the third quarter and an increase of 2.2% year-to-date. Service
charges on deposit accounts increased $342,000 for the quarter
ended September 30, 2004 and $616,000 year-to-date 2004 versus
2003. The growth in non-interest income can be partially attributed
to our acquisitions. The Reedsburg Bank generated $893,000 of
non-interest income during the third quarter of 2004 and $1.4
million during the first nine months of 2004. KCW generated
$497,000 of additional income during the nine months of 2004
compared to the same period in 2003. In addition, net gains on the
sale of both assets and securities amounted to $348,000 for the
first nine months of 2004 compared to $3,000 during the same period
in 2003. These gains were offset by a decrease in our mortgage
servicing activity and secondary marketing operations due to the
reduction in refinancing activity. The gains on sales of mortgage
loans decreased $498,000 when comparing the third quarter 2004 with
the same period in 2003 and decreased $1.4 million year-to-date
2004 versus the same period in 2003. In addition, the income
associated with the change in the valuation of our mortgage
servicing rights has decreased $345,000 when comparing the third
quarter 2004 with the same period in 2003 and decreased $690,000
during the nine months of 2004 compared to the same period in 2003.
Non-interest expense was $11.0 million for the third quarter of
2004 and $31.3 million for the first nine months of 2004, compared
to $8.2 million for the third quarter of 2003 and $23.8 million for
the first nine months of 2003, an increase of 35.0% and 31.5%,
respectively. Salaries and employee benefits increased $1.3 million
for the quarter and $4.0 million year-to-date, occupancy expense
increased $403,000 for the quarter and $766,000 year-to-date and
other non-interest expense increased $605,000 for the quarter and
$1.8 million year-to-date. The growth in non-interest expense is
partially affected by the acquisitions of Reedsburg, KCW and WSB.
The Reedsburg and WSB operations added $1.7 million of expenses in
the third quarter of 2004 and the KCW, Reedsburg and WSB operations
added $4.6 million of expenses in the nine months of 2004. The
increase in non-interest expense can also be attributed to expenses
incurred by implementing our "Vision Unlimited" project as well as
the cost of complying with Sarbanes-Oxley. Through September 30,
2004 these costs have amounted to $808,000. On November 21, 2003
Merchants declared a 10% stock dividend on the Corporation's common
stock to shareholders of record on December 1, 2003 payable on
December 15, 2003. All of the prior per share data have been
restated to reflect the 10% stock dividend. UNAUDITED For the Three
Months ended September 30, 2004 2003 Change Net Income $1.934
$2.103 (8.04%) Basic EPS $0.55 $0.66 (16.67%) Diluted EPS $0.55
$0.66 (16.67%) UNAUDITED For the Nine Months ended September 30,
2004 2003 Change Net Income $4.813 $6.150 (21.74%) Basic EPS $1.42
$1.95 (27.18%) Diluted EPS $1.41 $1.94 (27.32%) Figures in millions
except for earnings per share Merchants & Manufacturers
Bancorporation, Inc. is a financial holding company headquartered
in Brookfield, Wisconsin, a suburb of Milwaukee. Through our
Community Financial Group network, we operate seven banks in
Wisconsin (Community Bank Financial, Fortress Bank Westby, Franklin
State Bank, Grafton State Bank, Lincoln State Bank, The Reedsburg
Bank and Wisconsin State Bank), one bank in Minnesota (Fortress
Bank Minnesota) and one bank in Iowa (Fortress Bank Cresco). Our
banks are separately chartered with each having its own name,
management team, board of directors and community commitment.
Together, our banks operate 43 offices in the communities they
serve with more than 100,000 clients and total assets of $1.3
billion. In addition to traditional banking services, our Community
Financial Group network also provides our clients with a full range
of financial services including investment and insurance products,
residential mortgage services, private banking capabilities and tax
consultation and tax preparation services. Merchants' shares trade
on the "bulletin-board" section of the NASDAQ Stock Market under
the symbol "MMBI." Certain statements contained in this press
release constitute or may constitute forward-looking statements
about Merchants which we believe are covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. This release contains
forward-looking statements concerning the Corporation's prospects
that are based on the current expectations and beliefs of
management. When used in written documents, 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;
disintermediation; 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; and the result of the Corporation's
discussions with the WDR. Such uncertainties and other risk factors
are discussed further in the Corporation's filings with the
Securities and Exchange Commission. The Corporation undertakes no
obligation to make any revisions to forward-looking statements
contained in this release or to update them to reflect events or
circumstances occurring after the date of this release. UNAUDITED
At or for the Three Months ended Sept. 30 (Amounts In Thousands,
Except Share and Per Share Amounts) For the Period: 2004 2003 %
change Interest Income $15,877 $12,463 27.39% Interest Expense
5,003 3,770 32.71% Net Interest Income 10,874 8,693 25.09%
Provision for Loan Losses 431 372 15.86% Non-Interest Income 3,209
3,043 5.46% Non-Interest Expense 11,042 8,178 35.02% Net Before Tax
2,610 3,186 (18.08%) Income Tax 676 1,083 (37.58%) Net Income
$1,934 $2,103 (8.04%) End of Period: 9/30/04 9/30/03 % change
Assets $1,323,460 $949,382 39.40% Loans 1,007,498 735,475 36.99%
Allowance for Loan Losses 10,724 7,927 35.28% Deposits 998,621
760,119 31.38% Shareholders' Equity 93,500 73,138 27.84% Per Share:
Net Income (basic) $0.55 $0.66 (16.67%) Net Income (diluted) $0.55
$0.66 (16.67%) Book Value $25.48 $21.02 21.22% Dividends Declared
$0.18 $0.17 5.88% Average Shares Outstanding (basic) 3,517,569
3,162,783 Average Shares Outstanding (diluted) 3,530,769 3,182,398
Ending Shares Outstanding 3,670,145 3,163,193 Key Ratios: Net
Interest Margin 3.76% 3.92% Return on Average Assets 0.61% 0.88%
Return on Average Common Equity 9.03% 11.43% Shareholders Equity to
Assets Ratio 7.06% 7.70% Tier 1 Capital to Average Assets Ratio
7.18% 7.54% Non-performing Loans/Total Loans 0.53% 0.54%
Non-performing Assets/Total Assets 0.56% 0.62% Allowance for Loan
Losses/ non-performing Loans 199.70% 200.79% UNAUDITED For the Nine
Months ended Sept. 30, For the Period: 2004 2003 Change Interest
Income $44,821 $37,739 19.72% Interest Expense 14,048 11,669 20.39%
Net Interest Income 30,773 25,770 19.41% Provision for Loan Losses
1,332 1,014 31.36% Non-Interest Income 8,558 8,376 2.17%
Non-Interest Expense 31,265 23,782 31.46% Net Before Tax 6,734
9,350 (27.98%) Income Tax 1,921 3,200 (39.97%) Net Income $4,813
$6,150 (21.74%) Per Share: Net Income (basic) $1.42 $1.95 (27.18%)
Net Income (diluted) $1.41 $1.94 (27.32%) Dividends Declared $0.54
$0.52 3.85% Average Shares Outstanding (basic) 3,395,336 3,162,965
Average Shares Outstanding (diluted) 3,421,026 3,177,422 Key
Ratios: Net Interest Margin 3.76% 3.99% Return on Average Assets
0.54% 0.89% Return on Average Common Equity 7.79% 11.54%
DATASOURCE: Merchants & Manufacturers Bancorporation, Inc.
CONTACT: Michael J. Murry, Chairman of the Board of Directors,
+1-414-425-5334, or James Mroczkowski, Executive Vice President and
Chief Financial Officer, +1-262-790-2127, both of Merchants &
Manufacturers Bancorporation, Inc. Web site:
http://www.communitybancgroup.com/
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