FIRST MANITOWOC BANCORP INC - 10-K Annual Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT
PURSUANT TO
SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
FISCAL YEAR ENDED
DECEMBER 31, 2001

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 54221-0010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 684-6611
Securities registered under Section 12(b) of the Act:
None

Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00
(Title of Class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

As of February 28, 2002, 3,468,634 shares of Common Stock were outstanding,
and the aggregate market value of the Common Stock held by non-affiliates
(excludes a total of 638,684 shares reported as beneficially owned by directors
and executive officers or held in the registrant's profit sharing 401(k) plan;
does not constitute an admission as to affiliate status) was approximately
$79,239,000.

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2001 FORM 10-K
TABLE OF CONTENTS

PART I
ITEM 1
BUSINESS

GENERAL

First Manitowoc Bancorp, Inc. (the "Corporation"), a Wisconsin corporation
incorporated on April 9, 1982, became a registered bank holding company on
November 16, 1982 under the Bank Holding Company Act of 1956, as amended
("BHCA"). 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. (FNBM
Investment Corp.). The Corporation acquired the Bank through the merger of the
Bank into an interim national banking association formed as a Corporation
subsidiary for the purpose of the merger, pursuant to a Plan of Reorganization
and Agreement to Merge (the "Plan") proposed by Bank management and approved by
the Bank's shareholders on June 12, 1982. Pursuant to the Plan, each outstanding
share of Bank common stock was exchanged for three shares of the Corporation's
common stock. The Bank's charter was not affected by the merger. Currently, the
Corporation has outstanding 3,468,634 shares of common stock, par value $1.00
per share ("Shares"). Shares were held by 608 holders of record on February 28,
2002.

On August 19, 1999, First Manitowoc Bancorp, Inc. (the "Registrant")
entered into an Agreement and Plan of Merger (the "Agreement") with Dairy State
Financial Services, Inc. ("Dairy State"), providing for the merger (the
"Merger") of Dairy State with a wholly owned subsidiary of Registrant. Following
the Merger, Dairy State was liquidated and Dairy State Bank, located in
Plymouth, Wisconsin, Dairy State's Wisconsin chartered bank subsidiary,
effective December 1, 1999 merged (the "Bank Merger") with and into First
National Bank in Manitowoc, Registrant's national bank subsidiary.

According to the terms of the Agreement, as a result of the Merger, Dairy
State Shareholders received cash in the amount of $4,662.33 for each of the
2,900 shares of outstanding common stock of Dairy State or an aggregate of
$13,520,757. Registrant provided the consideration from internal funds and no
borrowings by Registrant from any source were involved.

The Merger and the Bank Merger involved the acquisition by Registrant and
First National Bank in Manitowoc, its wholly-owned subsidiary, of all of the
assets of Dairy State and Dairy State Bank consisting of premises and equipment,
cash, Federal funds sold, securities and loans totaling approximately $66.6
million subject to the liabilities of Dairy State and Dairy State Bank,
consisting primarily of deposits, totaling approximately $60 million. Registrant
has continued the business of banking at the locations of Dairy State Bank as
branches of First National Bank in Manitowoc.

On February 28, 2001, the Bank acquired 100% ownership in the Insurance
Center of Manitowoc, Inc. The Insurance Center of Manitowoc, Inc. includes 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.

As of December 31, 2001, the Bank had assets of approximately $527.3
million, net loans of approximately $324.7 million, and deposits of $394.1
million. For additional financial information, see the Consolidated Financial
Statements and Notes beginning at Item 8 of this Form 10-K.

BANKING PRODUCTS AND SERVICES

The Bank has been doing business in Wisconsin since 1894 and is engaged in
both the commercial and consumer banking business. The Bank provides a wide
range of personal banking services designed to meet the needs of local
consumers. Among the services provided are checking accounts, savings and time
accounts, safe

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deposit boxes, and installment and other personal loans, especially residential
mortgages, as well as home equity loans, automobile and other consumer
financing. As a convenience to its customers, the Bank offers Saturday banking
hours; drive-thru teller windows; "Telebanc," a telephone banking service; and
24-hour automated teller machines. Additionally, the Bank offers an Internet web
site, which includes on-line banking.

The Bank is also engaged in the financing of commerce and industry by
providing credit and deposit services for small to medium sized businesses and
for the agricultural community in the Bank's market area. The Bank offers many
forms of commercial lending, including lines of credit, revolving credit, term
loans, accounts receivable financing, and commercial real estate mortgage
lending and other forms of secured financing. A full range of commercial banking
services is offered, including the acceptance of checking and savings deposits.

Additional types of real estate loans, brokerage services, credit cards and
related services are also offered through correspondent banks or other third
parties.

The Bank offers a full range of trust services that include trust under
agreement, testamentary trust, guardianships and conservatorships, probate
estates, estate planning, and financial planning.

Insurance products, including commercial, personal, life, and health
insurance, are offered through Insurance Center of Manitowoc, Inc.

To attract new business and retain existing customers, the Bank relies on
local promotional activity, personal contact by its officers, staff and
directors, referrals by current customers, extended banking hours, and
personalized service.

DEPOSIT ACTIVITIES

The Bank saw deposits level off in 2001. From December 31, 2000 to December
31, 2001, deposits decreased $0.5 million or 0.13% to $394.1 million. From
December 31, 1999 to December 31, 2000, deposits increased $31.3 million or 8.6%
to $394.6 million.

No material portion of the Bank's deposits has been obtained from an
individual or a few individuals (including federal, state and local governments
and agencies) the loss of any one or more of which would have a materially
adverse effect on the Bank.

LENDING ACTIVITIES

The Bank has experienced growth in the number and dollar amount of loans as
a result of relatively low interest rates and general marketing efforts. Loans
sold and serviced for others are not included in these growth numbers. Loan
portfolio growth from December 31, 2000 to December 31, 2001 was $0.9 million or
0.3%. In 2001, the amount of loans sold and serviced for others increased by
$35.3 million compared to 2000. The loan portfolio reflected $27.8 million or
9.4% growth in 2000. In 2000, the Bank increased the amount of loans sold and
serviced for others by $8.6 million. No material portion of the Bank's loans is
concentrated within a single industry or group of related industries.

BANK SUBSIDIARY CORPORATIONS

The Bank owns 49.8% of the outstanding common stock of United Financial
Services, Inc. United Financial Services, Inc., located in Grafton, Wisconsin,
provides data processing services to owner banks Baylake Bank and First National
Bank in Manitowoc and to 53 other banks located in Wisconsin.

The Bank owns 100% of the outstanding common stock of FNBM Investment Corp.
FNBM Investment Corp., located in Las Vegas, Nevada, holds and manages a portion
of the bank's investment and loan portfolios.

The Bank owns 100% of the outstanding common stock of the Insurance Center
of Manitowoc, Inc., an independent agency offering commercial, personal, life
and health insurance.

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SEASONALITY

The management of the Bank does not believe that the deposits or business
of the Bank in general are seasonal in nature. The deposits may, however, vary
with local and national economic conditions but not enough to have a material
effect on planning and policy making.

FOREIGN OPERATIONS

The Bank does not engage in operations in foreign countries.

EMPLOYEES

As of February 19, 2002, the Corporation employed 225 individuals, 85 of
whom worked part-time.

COMPETITION

The Bank offers many personalized services and attracts customers by being
responsive and sensitive to the needs of the community. The Bank relies on
goodwill and referrals from satisfied customers as well as traditional media
advertising to attract new customers. To enhance a positive image in the
community, the Bank supports and participates in many local events, such as the
Manitowoc County Fair, Manitowoc County Airport Day, First National Bank
Maritime Bay Bike Classic, Two Rivers Ethnic Festival and French Creek Days.
Employees, officers, and directors represent the Bank on many boards and local
civic and charitable organizations.

The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. Competition in the
Bank's market area may be expected to continue for the foreseeable future.

FORWARD-LOOKING STATEMENTS

The discussions in this Report on Form 10-K and the documents incorporated
herein by reference which are not statements of historical fact (including
statements in the future tense and those which include terms such as "believe,"
"will," "expect," and "anticipate") contain forward-looking statements that
involve risks and uncertainties. The Corporation's actual future results could
materially differ from those discussed. Factors that might cause actual results
to differ from the results discussed in forward-looking statements include, but
are not limited to:

- General economic conditions, either nationally or the state in which the
Corporation does business;

- Legislation or regulatory changes which adversely affect the businesses
in which the Corporation is engaged;

- Changes in the interest rate environment which increase or decrease
interest rate margins;

- Changes in securities markets with respect to the market value of
financial assets and the level of volatility in certain markets such as
foreign exchange;

- Significant increases in competition in the banking and financial
services industry resulting from industry consolidation, regulatory
changes and other factors, as well as actions taken by particular
competitors;

- Changes in consumer spending, borrowing and savings habits;

- Technological changes;

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- Acquisitions and unanticipated occurrences which delay or reduce the
expected benefits of acquisitions;

- The Corporation's ability to increase market share and control expenses;

- The effect of compliance with legislation or regulatory changes;

- The effect of changes in accounting policies and practices;

- The costs and effects of unanticipated litigation and of unexpected or
adverse outcomes in such litigation; and

- The factors discussed in Item 1 in this Report and in the Management's
Discussion and Analysis in Item 7, as well as those discussed elsewhere
in this Report and the documents incorporated herein by reference.

All forward-looking statements contained in this report are based upon
information presently available and the Corporation assumes no obligation to
update any forward-looking statements.

SUPERVISION AND REGULATION

General. The Corporation and the Bank are extensively regulated under
federal and state law. Generally, these laws and regulations are intended to
protect depositors, not stockholders. The following is a summary description of
certain provisions of certain laws which affect the regulation of bank holding
companies and banks. The discussion is qualified in its entirety by reference to
applicable laws and regulation. Changes in such laws and regulations may have a
material effect on the business and prospects of the Corporation and the Bank.

Financial Modernization Act. On November 12, 1999 President Clinton signed
into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Modernization Act").
The Financial Modernization Act revises the BHCA and repeals the two affiliation
provisions of the Glass-Steagall Act of 1933. As a result, a qualifying holding
company may become a financial holding company and engage in a full range of
financial activities, including banking, insurance and securities activities, as
well as merchant banking and additional activities that are determined by the
Federal Reserve to be "financial in nature or incidental to such financial
activity or are complimentary to a financial activity" so long as such
activities do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system in general. Activities that are
considered to be financial in nature include underwriting and dealing in
securities and underwriting and brokering of insurance products.

Federal Bank Holding Company Regulation and Structure. The Corporation is a
bank holding company within the meaning of the BHCA, as amended, and as such, it
is subject to regulation, supervision, and examination by the Federal Reserve
Board ("FRB"). The Corporation is required to file annual and quarterly reports
with the FRB and to provide the FRB with such additional information as the FRB
may require. The FRB may conduct examinations of the Corporation and its
subsidiaries.

With certain limited exceptions, the Corporation is required to obtain
prior approval from the FRB before acquiring direct or indirect ownership or
control of more than 5% of any voting securities or substantially all of the
assets of a bank or bank holding company, or before merging or consolidating
with another bank holding company. Additionally, with certain exceptions, any
person proposing to acquire control through direct or indirect ownership of 25%
or more of any voting securities of the Corporation is required to give 60 days'
written notice of the acquisition to the FRB, which may prohibit the
transaction, and to publish notice to the public.

Generally, a bank holding company may not engage in any activities other
than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the FRB, the Corporation may acquire more than 5% of the assets or
outstanding shares of a company engaging in non-bank activities determined by
the FRB to be closely related to the business of

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banking or of managing or controlling banks. The FRB provides expedited
procedures for expansion into approved categories of non-bank activities.

Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries, on investments in their securities and on
the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Corporation's ability to obtain funds
from the Bank for its cash needs, including funds for the payment of dividends,
interest and operating expenses. Further, subject to certain exceptions, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from itself or the Corporation, and
may not require that a customer promise not to obtain other services from a
competitor as a condition to and extension of credit to the customer.

Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary banks and to make capital injections into a
troubled subsidiary bank, and the FRB may charge the bank holding company with
engaging in unsafe and unsound practices for failure to commit resources to a
subsidiary bank when required. A required capital injection may be called for at
a time when the holding company does not have the resources to provide it.

Federal Bank Regulation. The Corporation's banking subsidiary is a
federally-chartered national bank regulated by the Office of Comptroller of
Currency ("OCC"). The OCC may prohibit the institutions over which it has
supervisory authority from engaging in activities or investments that the agency
believes constitutes unsafe or unsound banking practices. Federal banking
regulators have extensive enforcement authority over the institutions they
regulate to prohibit or correct activities which violate law, regulation or a
regulatory agreement or which are deemed to constitute unsafe or unsound
practices. Enforcement actions may include the appointment of a conservator or
receiver, the issuance of a cease and desist order, the termination of deposit
insurance, the imposition of civil money penalties on the institution, its
directors, officers, employees and institution-affiliated parties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the removal of or restrictions on directors, officers, employees and
institution-affiliated parties, and the enforcement of any such mechanisms
through restraining orders or other court actions.

The Bank is subject to certain restrictions on extensions of credit to
executive officers, directors, principal stockholders or any related interest of
such persons which generally require that such credit extensions be made on
substantially the same terms as are available to third persons dealing with the
Bank and not involve more than the normal risk of repayment. Other laws tie the
maximum amount which may be loaned to any one customer and its related interests
to capital levels.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the OCC, have adopted standards covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution which fails to meet those
standards may be required by the agency to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Corporation, on behalf of the Bank,
believes that it meets substantially all standards which have been adopted.
FDICIA also imposed new capital standards on insured depository institutions.

Before establishing new branch offices, the Bank must meet certain minimum
capital stock and surplus requirements and the Bank must obtain OCC approval.

Deposit Insurance. As a FDIC member institution, the Bank's deposits are
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), administered by the FDIC, and each institution is required to pay
quarterly deposit insurance premium assessments to the FDIC. The BIF

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assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory
minimum assessment.

Capital Requirements. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit,
which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off balance sheet
items are multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities, to 100% for assets with relatively high credit risk, such as
business loans.

A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
less goodwill and other intangibles, subject to certain exceptions. "Tier 2," or
supplementary capital, includes the allowance for loan and lease losses, subject
to certain limitations. Banks and bank holding companies subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1 capital
to risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31, 2001, the Bank's and the Corporation's ratio of Tier 1 to
risk-weighted assets was 10.4% and 10.7%, respectively. As of December 31, 2001,
the Bank's and the Corporation's ratio of total capital to risk-weighted assets
was 11.3% and 11.6%, 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 December 31, 2001, the Bank's and the Corporation's leverage capital
ratio was 6.8% and 7.0%, respectively.

Federal banking agencies include in their evaluations of a bank's capital
adequacy an assessment of the Bank's interest rate risk ("IRR") exposure. The
standards for measuring the adequacy and effectiveness of a banking
organization's interest rate risk management includes a measurement of board of
director and senior management oversight, and a determination of whether a
banking organization's procedures for comprehensive risk management are
appropriate to the circumstances of the specific banking organization. The Bank
has internal IRR models that are used to measure and monitor IRR.

Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the Corporation.

Federal Deposit Insurance Corporation Improvement Act of 1991. In December
1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), which substantially revised the bank regulatory and funding
provisions of the Federal Deposit Insurance Act and made significant revisions
to several other federal banking statutes. FDICIA provides for, among other
things, (i) publicly available annual financial condition and management reports
for financial institutions, including audits by independent accountants, (ii)
the establishment of uniform accounting standards by federal banking agencies,
(iii) the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with more scrutiny
and restrictions placed on depository institutions with lower levels of capital,
(iv) additional grounds for the appointment of a conservator or receiver, and
(v) restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements. FDICIA
also provided for increased funding of the FDIC insurance funds and the
implementation of risk-based premiums. See "-- Deposit Insurance."

7

A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-
tiered system for measuring the capital adequacy of the depository institutions
that they supervise. Under these regulations, a depository institution is
classified in one of the following capital categories: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." The Bank is classified as "well capitalized"
at December 31, 2001. An institution may be deemed by the regulators to be in a
capitalization category that is lower than is indicated by its actual capital
position if, among other things, it receives an unsatisfactory examination
rating with respect to asset quality, management, earnings or liquidity.

FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.

Monetary Policy. The earnings of a bank holding company are affected by the
policies of regulatory authorities, including the FRB, in connection with the
FRB's regulation of the money supply. Various methods employed by the FRB are
open market operations in United States Government securities, changes in the
discount rate on member bank borrowing and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. Because of ongoing change in the national economy and in the money
markets, as well as the effect of monetary and fiscal policies of the Federal
Reserve System and Federal government, prediction cannot be made as to future
changes in interest rates, loan demand, deposit levels or the effect on the
earnings of the Corporation.

ITEM 2
PROPERTIES

The Corporation owns real property at two branch locations at:

1509 Washington Street, Two Rivers, Wisconsin 54241 ("Two Rivers Branch
Office"); and

2915 Custer Street, Manitowoc, Wisconsin 54220 ("Custer Street Branch
Office").

The Bank owns real property at the location of its main office at 402 North
Eighth Street, Manitowoc, Wisconsin 54220; and at nine of its branch locations
at:

106 South Packer Drive, Francis Creek, Wisconsin 54214 ("Francis Creek
Branch Office");

109 South Fourth Avenue, St. Nazianz, Wisconsin 54232 ("St. Nazianz
Branch Office");

110 Baugniet Street, Mishicot, Wisconsin 54228 ("Mishicot Branch
Office");

108 Fremont Street, Kiel, Wisconsin 53042 ("Kiel Branch Office");

5724 CTH U, Newton, Wisconsin 53063 ("Newton Branch Office");

2210 Calumet Drive, New Holstein, Wisconsin 53061 ("New Holstein Branch
Office");

2323 Eastern Avenue, Plymouth, Wisconsin 53073 ("Plymouth East Branch
Office");

300 East Mill Street, Plymouth, Wisconsin 53073 ("Plymouth West Branch
Office"); and

2747 Manitowoc Road, Green Bay, Wisconsin 54311 ("Bellevue Branch
Office").

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The Bank leases real property at one branch location:

2865 South Ridge Road, Green Bay, Wisconsin, 54304 ("Ashwaubenon Branch
Office").

Insurance Center of Manitowoc, Inc. owns real property located at:

4712 Expo Drive, Manitowoc, Wisconsin 54220 ("Insurance Center of
Manitowoc, Inc. Office").

Insurance Center of Manitowoc, Inc. leases real property at:

425 South Adams Street, Green Bay, Wisconsin, 54301 ("Gary G. Vincent &
Associates, Inc. Office").

There are no encumbrances on any of these properties.

ITEM 3
LEGAL PROCEEDINGS

The Corporation is involved in various legal actions arising in the normal
course of its business. While the ultimate outcome of these various legal
proceedings cannot be predicted with certainty, it is the opinion of management
and through consultation with legal counsel that the resolution of these legal
actions will not have a material effect on the Corporation's consolidated
financial condition or results of operations.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

There is no established public trading market for the Corporation's Shares.
Accordingly, there is no comprehensive record of trades or the prices of any
such trades. The following tables reflect stock prices for Corporation Shares to
the extent such information is made known and available to management of the
Corporation, and the dividends declared with respect thereto during the
preceding two years.

All market information shown above has been restated for stock dividends
and stock splits.

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CASH DIVIDENDS

All cash dividends shown above have been restated for stock dividends and
stock splits.

HOLDERS

As of February 28, 2002 there were 608 holders of record of the
Corporation's Shares.

DIVIDENDS

The Corporation declared and paid cash dividends per share totaling $0.30
per share or $1,041,000 during 2001, and $0.28 per share or $971,000 during
2000.

The holders of the Corporation's Shares will be entitled to dividends,
when, as, and if declared by the Corporation's Board of Directors, subject to
the restrictions imposed by Wisconsin law. The only statutory limitation
applicable to the Corporation is that dividends may not be paid if the
Corporation is insolvent or if the dividend would cause the Corporation to
become insolvent. Currently, its only source of income is from the dividends
paid by the Bank to the Corporation. Therefore, the dividend restrictions
applicable to national banks will impact the Corporation's ability to pay
dividends.

Under the National Bank Act, dividends may be paid only out of retained
earnings as defined in the statute. The approval of the OCC is required if the
dividends for any year exceed the net profits, as defined, for that year plus
the retained net profits for the preceding two years. In addition, unless a
national bank's capital surplus equals or exceeds the stated capital for its
common stock, no dividends may be declared unless the bank makes transfers from
retained earnings to capital surplus.

There are no contractual restrictions that currently limit the
Corporation's ability to pay dividends or that the Corporation reasonably
believes are likely to limit materially the future payment of dividends on the
Corporation's Shares.

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ITEM 6
SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

The following selected financial data should be read in conjunction with
the Corporation's Consolidated Financial Statements and the related notes and
with the Corporation's Management's Discussion and Analysis of Financial
Condition and Results of Operations, provided elsewhere herein.

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* Per share data for 1997 through 2000 is restated to reflect the 25% stock
dividends (five for four stock split) effective April 11, 1997 and April 16,
1999, and the two for one stock split effective June 30, 2000.

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SUMMARY QUARTERLY FINANCIAL INFORMATION

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*Per share data has been adjusted to reflect the two for one stock split
effective June 30, 2000.

ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Balance Sheet Analysis

December 31, 2001 compared to December 31, 2000

During the past twelve month period from December 31, 2000 to December 31,
2001, total assets increased $31.9 million or 6.4%. Investment securities
increased $12.5 million while net loans increased $2.0 million. Total deposits
decreased $509,000 from December 31, 2000 to December 31, 2001.

Liquidity Management

Liquidity describes the ability of the Bank 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 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. Refer
to Note 2 in the

12

Consolidated Financial Statements for a table showing the maturity distribution
of the Bank's securities portfolio and the related estimated fair value. 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 satisfactory
levels. See Note 9 in the Consolidated Financial Statements.

Capital Resources and Adequacy

Total stockholders' equity increased $5.0 million or 12.1% in 2001 to $46.5
million at the end of the year from $41.5 million at December 31, 2000. Net
income of $5.4 million, an increase of $0.6 million in accumulated other
comprehensive income less $1.0 million dividends paid, primarily contributed to
this increase. Total stockholders' equity as of December 31, 2000 increased $7.0
million from December 31, 1999.

One measure of capital adequacy is the leverage ratio which is calculated
by dividing average total assets for the most recent quarter into Tier 1
capital. The regulatory minimum for this ratio is 4%. The leverage ratio for the
years ended December 31, 2001, 2000, and 1999 was 6.8%, 6.8%, and 6.9%,
respectively.

Another measure of capital adequacy is the risk based capital ratio or the
ratio of total capital to risk adjusted assets. Total capital is composed of
both core capital (Tier 1) and supplemental capital (Tier 2) including
adjustments for off balance sheet items such as letters of credit and taking
into account the different degrees of risk among various assets. Regulators
require a minimum total risk based capital ratio of 8%. The Bank's ratio at
December 31, 2001, and for each of the two preceding years was 11.3%, 10.7%, and
9.8%, respectively. According to FDIC capital guidelines, the Bank is considered
to be "well capitalized" as of December 31, 2001.

Management knows of no other trend or event which will have a material
impact on capital. Please also refer to Note 12 in the Consolidated Financial
Statements for additional discussion of regulatory matters.

The following discussion is designed to provide a better understanding of
the results of operations of the Corporation and should be read in conjunction
with the Consolidated Financial Statements and Notes.

Results of Operations Overview for fiscal years 2001, 2000 and 1999

The Corporation reported $5,405,000 in net income for 2001 or $1.56 per
share compared to 2000 net income of $5,301,000 or $1.53 per share, and
$4,928,000 or $1.42 per share for 1999. Earnings for the year represent a record
level of performance for the Corporation, exceeding the previous record of
$5,301,000 achieved in 2000. The improvement was primarily attributed to growth
in net interest income and other operating income, the Corporation's major
income components. Return on average assets was 1.07%, 1.12% and 1.26% in 2001,
2000 and 1999, respectively. Return on average equity was 12.07% for 2001,
14.15% for 2000, and 14.25% for 1999. The acquisition of Insurance Center of
Manitowoc, Inc. did not have a material impact on the results of operations in
2001.

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 and interest-bearing deposits offset by the
interest paid on deposits and borrowings. Interest rates fell during 2001; they
rose for most of 2000 before falling during the fourth quarter of 2000. Because
deposits and loans and other investments reprice at different rates and as a
result of changes in volume, the Bank's net interest income, on a fully
tax-equivalent basis, increased in both 2001 and 2000.

Net interest income (on a tax equivalent basis) for 2001 increased by
$1,668,000 or 9.3% compared to the year ended December 31, 2000, while 2000 net
interest income increased by $2,704,000 or 17.7% from the previous year ended
December 31, 1999. The lower rate of increase for 2001 is the result of the
relatively small increase in loans and a significant decrease in interest rates
during 2001. Interest rate spread is the difference
13

between the average yield on interest earning assets and the average rate paid
on interest bearing liabilities (deposits). Interest rate spread for the years
ended December 31, 2001, 2000 and 1999 was 3.56%, 3.51%, and 3.65%,
respectively. See the Table 1 titled "Average Balances, Yields and Rates" for
additional information.

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. For 2001, the net interest margin was 4.21% unchanged from 4.21%
in 2000. The net interest margin for 1999 was 4.38%. These changes are the
result of repricing as previously discussed and illustrated in Table 2 "Rate and
Volume Variance Analysis Based on Average Balances."

Management and the Board of Directors of the Bank monitor interest rates on
a regular basis to assess the Bank's competitive position and to maintain a
reasonable and profitable interest rate spread. The Bank also considers the
maturity distribution of loans, investments, and deposits and its effect on net
interest income as interest rates rise and fall over time.

14

The following Tables 1 and 2 do not include financial data for the
Corporation as they include only Bank financial information. In Table 1,
nonaccrual loans have been included in the average balances, loan fees are
included in interest income and the yield on tax exempt loans and securities is
computed on a tax-equivalent basis using a tax rate of 34%.

AVERAGE BALANCES, YIELD AND RATES

TABLE 1

15

RATE AND VOLUME VARIANCE ANALYSIS
BASED ON AVERAGE BALANCES

TABLE 2

The rate change was determined by taking the difference in rate times the
current year's balance.

Provision and Allowance for Loan Losses

For the year ended December 31, 2001, the Bank recorded net charge offs of
$4,087,000 compared to net charge offs of $941,000 in 2000 and $849,000 in 1999.
The large increase in net charge-offs in 2001 is primarily the result of one
commercial loan charge-off in the amount of $2,073,000. Internal loan review, in
particular, has been effective in identifying problem credits and in achieving
timely recognition of potential and actual losses within the loan portfolio.

Gross charge offs amounted to $4,134,000 in 2001, $996,000 in 2000, and
$965,000 in 1999, the majority of which were commercial loans. Loans charged off
are subject to ongoing review and effort is made to maximize recovery of
principal, interest and related expenses. Recoveries were $47,000 in 2001,
$55,000 in 2000, and $116,000 in 1999.

The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated loan losses. 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.
16

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.

The allowance for loan losses of $3,700,000 as of December 31, 1999
represented 1.24% of gross loans, and as of December 31, 2000, the $3,824,000
allowance for loan losses reflected 1.17% of gross loans. The allowance for loan
losses of $2,737,000 as of December 31, 2001 amounted to 0.84% of the
outstanding loan portfolio. Analysis by internal loan review supports the
adequacy of the allowance. Management has determined that the allowance for loan
losses is adequate to absorb probable loan losses as of December 31, 2001. See
Note 3 in the Consolidated Financial Statements.

The allocation of the allowance for loan losses is shown in the following
table.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

TABLE 3

Specific problem loans includes the allocation of the allowance for
specific problem credits. Loan volume 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.

17

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

TABLE 4

The decrease in the allowance for loan losses from $3,824,000 at December
31, 2000 to $2,737,000 at December 31, 2001 is primarily due to three commercial
loan charge-offs totaling $3.7 million, of which one charge-off totaled $2.1
million. Management anticipates that a portion of this loss will be recovered
through a related insurance claim. The amount of the recovery cannot be
estimated at this time. Management's analysis of the allowance for loan losses
at December 31, 2001 indicates that the balance is adequate.

Other Income

Other income increased $2,633,000, or 97.1%, from 2000 to 2001. The growth
resulted primarily from $1,497,000 of insurance commission income from the
Insurance Center acquisition, an increase in loan servicing income, and
increases in gain on sales of mortgage loans held for sale. Increases in gain on
sales of mortgage loans resulted from the lower interest rate environment which
increased loan demand and related fee income.

Other income increased $354,000, or 15.0%, from 1999 to 2000. The growth
resulted primarily from increases in service charges on deposit accounts
obtained in the Dairy acquisition, an increase in loan servicing income, and an
increase in earnings from the Bank's data processing center.

Other Expense

Other expense increased by $2,027,000, or 17.7%, from 2000 to 2001. This
change was primarily a result of increases in salaries and employee benefits due
to additional salaries, commissions and related benefits for employees acquired
as part of the Insurance Center acquisition, and annual merit increases for
employees. Occupancy expense increased due to offices obtained in the Insurance
Center acquisition. Amortization of goodwill increased as a result of the
Insurance Center acquisition.

18

Other expenses increased by $2,351,000, or 25.9%, from 1999 to 2000. This
change was primarily a result of increases in salaries and employee benefits and
due to additional salaries and benefits for employees acquired as part of the
Dairy acquisition, the staff at the Bank's new office in Ashwaubenon, and annual
merit increases for employees. Occupancy expense increased due to the offices
obtained in the Dairy acquisition and in Ashwaubenon. Amortization of goodwill
and data processing expense increased due to the Dairy acquisition. Other
expenses increased due to higher regulatory and professional fees, increased
insurance expense, collection and repossession expense, increased FDIC deposit
insurance expense resulting from increased deposits, higher telephone expense
and the expense related to a deferred compensation agreement the Corporation has
with one of its officers.

Income Taxes

The effective tax rates for the Corporation were 14.59%, 14.53%, and
16.81%, for 2001, 2000, and 1999 respectively. The effective tax rate has
remained consistent from 2000 to 2001. The decrease in effective tax rates for
2000 is a direct result of additional assets held at the Bank's FNBM Investment
Corp. subsidiary and additional tax-exempt income. FNBM Investment Corp. is a
wholly-owned subsidiary of the Bank incorporated under the laws of Nevada and is
subject to taxation in the State of Nevada which does not currently impose a
corporate income tax. See Note 10 in the Consolidated Financial Statements.

Securities

Securities available for sale are held for an indefinite period of time and
may be sold in response to changing market and interest rate conditions as part
of the asset/liability management strategy. Securities available for sale are
carried at fair value, with unrealized holding gains and losses, net of the
related tax effect, reported as a separate component of accumulated other
comprehensive income. Securities held to maturity are those that management has
both the positive intent and ability to hold to maturity, and are reported at
amortized cost. The Bank does not own trading or held to maturity securities.
The Bank manages the investment portfolios within policies which seek to achieve
desired levels of liquidity, manage interest rate sensitivity risk, meet
earnings objectives, and provide required collateral support for deposit
activities.

Total securities amounted to $129.4 million and $116.9 million as of
December 31, 2001 and 2000, respectively. The higher level of investments in
securities resulted primarily from the increase in available funds derived from
increases in borrowings and securities sold under repurchase agreements.

The Bank manages its investment portfolios within policies which seek to
achieve desired levels of liquidity, manage interest rate sensitivity risk, meet
earnings objectives and provide required collateral support for deposit
activities. The Bank had no concentrations of securities from any single issues
that exceeded 10% of stockholders' equity. Table 5 exhibits the distribution, by
type, of the investment portfolio as of December 31. Concurrent with the
acquisition of Dairy State, the Corporation transferred all of Dairy State's
held to maturity securities to securities available for sale.

19

SECURITIES AVAILABLE FOR SALE

TABLE 5

The following table presents the maturity by type of the investment
portfolio for the year ended December 31, 2001.

INVESTMENT PORTFOLIO ANALYSIS

TABLE 6

Loan Portfolio

The Bank is actively engaged in originating loans to customers in
Manitowoc, Calumet, Sheboygan and Brown counties. The Bank has policies and
procedures designed to mitigate credit risk and to maintain the quality of the
loan portfolio. These policies include underwriting standards for new credits as
well as the continuous monitoring and reporting of asset quality and the
adequacy of the allowance for loan losses. These polices, coupled with
continuous training efforts, have provided effective checks and balances for the
risk associated with the lending process. Lending authority is based on the
level of risk, size of the loan and the experience of the lending officer.

Bank underwriting procedures are based on a process which evaluates the
management, repayment ability, collateral support, credit history, and overall
financial strength of prospective and current customers from a relationship
oriented perspective. Residential mortgage loans are predominantly underwritten
to general FNMA guidelines.

The Bank extends the following types of credit: commercial loans,
agricultural loans, real estate loans and consumer loans.

Commercial loans are often secured with first liens on accounts receivable,
inventory and/or equipment. Commercial loans generally have loan to value ratios
of 80% or less. Agricultural loans are collateralized with first liens on crops,
farm products, farm personal property and/or real estate. Agricultural loans
generally have loan to value ratios of 70% or less, except for agricultural real
estate loans which have loan to value ratios of

20

80% or less. Real estate loans include commercial real estate loans and
residential real estate loans. Real estate loans are collateralized with first
mortgages. Commercial real estate loans generally have loan to value ratios of
80% or less while residential real estate loans have loan to value ratios of 90%
or less. Consumer loans include loans to individuals for personal, family or
household purposes. Consumer loans may be secured with first lien positions or
unsecured depending upon the credit quality. The Bank will make subordinate
loans in any category if the borrower's financial position justifies it. The
Bank is not involved in credit risk insurance.

Bank management assesses the loan portfolio mix at least annually as part
of its planning and budget process. While there are no predetermined fixed
targets for various loan types established in the loan policy, general
guidelines are established annually for new loan activity based on loan
portfolio mix and credit needs in the Bank's main markets.

The risks associated with the Bank's loan categories are as follows:

Commercial and Agricultural. Credit risk is considered moderate. Past due
loans are below industry averages. Non-performing loans and net loan losses were
higher than the previous year. The portfolio is fairly diversified with no
significant concentrations within one industry and agricultural loans
representing approximately 5% of total loans.

Real Estate. Credit risk is considered low, with delinquency ratios and
non-performing loans at low levels.

Consumer. Credit risk is considered moderate, with delinquency ratios and
non-performing loans at low levels.

No loan customer exceeds the legal lending limit among the loan categories.
The Bank's legal and internal lending limit as of December 31, 2001 was
$6,809,000.

Extensions of credit used predominantly for business or agricultural
purposes are classified as commercial and agricultural loans. Commercial loans
include lines of credit for seasonal requirements of businesses, short-term
loans payable within 12 months for one time specific purposes and term loans
with maturities greater than 12 months for capital assets and fixed assets which
are amortized and repaid from cash flow. Agricultural loans include short-term
farm operating loans, intermediate term farm personal property loans and
long-term agricultural real estate loans. Agricultural real estate loans
generally are written for one to two year terms with amortizations exceeding
five years. Commercial term loans for capital assets and fixed assets and
commercial real estate loans that have maturities of more than five years are
generally arranged through government assisted financing programs such as SBA.

The increase in commercial loans and commercial real estate loans resulted
mainly from the general credit needs within the Bank's primary markets. The Bank
also made it a priority to sell residential mortgage loans to the FNMA secondary
market and term commercial real estate loans to the SBA secondary market.

21

Table 7 "Summary of Loan Portfolio" presents the composition of the Bank's
loan portfolio by significant concentration.

SUMMARY OF LOAN PORTFOLIO

TABLE 7

MATURITIES OF LOAN PORTFOLIO

TABLE 8

The Bank's policy is to make the majority of its loan commitments in the
market area it serves. This tends to reduce risk because management is familiar
with the credit histories of loan applicants and has an in-depth knowledge of
the risk to which a given credit is subject. The Bank had no foreign loans in
its portfolio as of December 31, 2001.

It is the policy of the Bank to place a loan in nonaccrual status whenever
there is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. 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 nonaccrual decision. Nonaccrual
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. Nonaccrual loans at December 31, 2001 and 2000 were $2,312,000 and
$1,765,000, respectively. The fluctuation in the level of nonaccrual loans over
the past five years is attributed mainly to isolated credit deterioration in a
few larger account relationships. These included commercial loans, agricultural
loans and residential real estate loans. However, these were individual isolated
accounts and no trend in economic, industrial, geographical or other factors
could be identified to account for the fluctuations

22

in the level of nonaccrual loans. Accruing loans 90 days or more past due
include loans that are both well secured and in the process of collection.

RISK ELEMENTS OF LOAN PORTFOLIO

TABLE 9

Total nonperforming loans at December 31, 2001 were $2,841,000, an increase
of $657,000 from $2,184,000 at December 31, 2000. The increase was primarily due
to an increase of $547,000 in nonaccrual loans at December 31, 2001.

Management maintains a listing of potential problem loans. The decision of
management to place loans in this category does not necessarily indicate that
the Bank expects losses to occur, but that management recognizes that a higher
degree of risk is associated with these performing loans. The loans that have
been reported as potential problem loans are not concentrated in a particular
industry, but rather cover a diverse range of businesses. Management does not
presently expect significant losses from credits in the potential problem loan
category.

Deposits

Deposit liabilities were $394.6 million at December 31, 2000 and $394.1
million at December 31, 2001. Demand deposits decreased $2.7 million, while
interest-bearing deposits increased $2.2 million. The Bank continues to
experience strong competition from other commercial banks, credit unions, the
stock market and mutual funds. There are no predetermined divisions for deposit
categories. Table 1 displays the average balances and average rates paid on all
major deposits classifications for 2001, 2000 and 1999.

The following table represents maturities of time deposits in denominations
of $100,000 or more for the years ended December 31, 2001 and 2000.

MATURITY OF TIME DEPOSITS $100,000 OR MORE

TABLE 10

23

Borrowings

FHLB advances increased from $21.0 million at December 31, 2000 to $45.0
million at December 31, 2001, an increase of $24.0 million or 114.3%. FHLB
advances are subject to a prepayment penalty if they are repaid prior to
maturity. FHLB advances are callable either six months or one year after
origination and quarterly thereafter. Promissory notes to former stockholders of
the Insurance Center at 9% maturing July 1, 2008 totaled $459,000 at December
31, 2001, and promissory notes to former stockholders of the Insurance Center at
prime plus 1% were $1,467,000 at December 31, 2001.

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Bank monitors interest rate factors on a monthly basis to assess
interest rate risk of the portfolio of assets and liabilities. Maturity terms of
assets are matched to the maturity terms of liabilities to the extent possible.
The maturity structure of the municipal securities, however, is long term to
optimize tax advantages and yield returns within an acceptable level of market
risk. In addition, based on prior experience, the average life of the mortgage
backed securities has been shorter than the scheduled maturities. There are no
interest rate caps or floors on variable rate instruments that could affect the
cash flows on those instruments. Variable rate loans, investments and deposits
reprice immediately because they are related to changes in the prime rate of
interest. Fixed rate commercial loans reprice at least annually. Fixed rate real
estate loans are scheduled for 1 to 2 years with balloon payments. Loans do not
have prepayment penalty clauses. The following table also assumes all loans and
deposits will be renewed under the same terms. Interest rates on those renewals
are based on anticipated rates at the date of renewal. There is a 10% prepayment
assumption for the entire loan portfolio based on historical trends.
Reinvestment rates are assumed at 95% for loans. Loans not renewed are assumed
to be replaced by loan originations. The table assumes that any deposits that
are withdrawn are replaced by new deposit funds. The following table shows the
expected cash flows and yields for interest earning assets and interest bearing
liabilities.

24

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

TABLE 11

- -------------------------
(V) Variable repricing terms

(F) Fixed repricing terms

25

ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholders
First Manitowoc Bancorp, Inc.
Manitowoc, Wisconsin

We have audited the accompanying consolidated balance sheets of First
Manitowoc Bancorp, Inc. and Subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
statements of income, stockholders' equity, and cash flows of First Manitowoc
Bancorp, Inc. and Subsidiaries for the year ended December 31, 1999, were
audited by other auditors whose report dated February 4, 2000, expressed an
unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Manitowoc Bancorp, Inc. and Subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.

Wipfli Ullrich Bertelson LLP
February 1, 2002
Green Bay, Wisconsin

26

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholders
First Manitowoc Bancorp, Inc.
Manitowoc, Wisconsin

We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows for the year ended December 31, 1999 of
First Manitowoc Bancorp, Inc. and subsidiaries. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of First Manitowoc Bancorp, Inc. and subsidiaries for the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.

KPMG LLP

Milwaukee, Wisconsin
February 4, 2000

27

FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCED SHEETS
DECEMBER 31, 2001 AND 2000

See accompanying notes to consolidated financial statements.

28

FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999