FIRST MANITOWOC BANCORP INC - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
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, 2002
COMMISSION FILE NUMBER 0-25983

FIRST MANITOWOC BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WISCONSIN
(State or other jurisdiction of 39-1435359
incorporation or organization) (IRS Employer Identification No.)

402 NORTH EIGHTH STREET
MANITOWOC, WISCONSIN 54221-0010
(Address of principal executive offices) (Zip Code)

(920) 684-6611
(Registrant's telephone number, including area code)

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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of registrant's common stock, par value $1.00
per share, held by non-affiliates (excludes a total of 637,278 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), as of June 30, 2002, was approximately $82,109,324.

As of February 28, 2003, 6,937,268 shares of registrant's common stock, par
value $1.00 per share were outstanding,

DOCUMENTS INCORPORATED BY REFERENCE

Portions of First Manitowoc Bancorp, Inc.'s Definitive Proxy Statement for
the 2003 Annual Meeting of Shareholders are incorporated by reference into Part
III of this Form 10-K.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

2002 FORM 10-K
TABLE OF CONTENTS

PART I
ITEM 1
BUSINESS

GENERAL

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. Insurance Center of Manitowoc, Inc. 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 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 in 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 6,937,268 shares of common stock, par value $1.00 per share
("Shares"). Shares were held by 605 holders of record on February 28, 2003.

As of December 31, 2002, the Corporation had assets of approximately $565.8
million, net loans of approximately $340.7 million, and deposits of $416.1
million. For additional financial information, see the Consolidated Financial
Statements and Notes beginning at Item 8 of this Form 10-K.

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-K.

Throughout this Form 10-K information from parts of other documents filed
with the Securities and Exchange Commission ("SEC") is incorporated by
reference. The SEC allows us to disclose important information by referring to
it in this manner, and you should review this information.

We make our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and proxy statement for our annual shareholders'
meeting, as well as any amendments to those reports filed pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, available
free of charge through our web site as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Our SEC
reports can be accessed through the "About; First Manitowoc Bancorp, Inc." link
of our web site, namely www.bankfirstnational.com/bancorp. The SEC also
maintains a web site at www.sec.gov that contains reports, proxy statements and
other information regarding SEC registrants.

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 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.

2

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

From December 31, 2001 to December 31, 2002, deposits increased $22.0
million or 5.6% to $416.1 million. From December 31, 2000 to December 31, 2001,
deposits decreased $0.5 million or 0.1% to $394.1 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, 2001 to December 31, 2002 was $16.7 million
or 5.1%. In 2002, the amount of loans sold and serviced for others increased by
$42.6 million compared to 2001. The loan portfolio reflected $0.9 million or
0.3% growth in 2001. In 2001, the Bank increased the amount of loans sold and
serviced for others by $35.3 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 51 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.

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.

3

FOREIGN OPERATIONS

The Bank does not engage in operations in foreign countries.

EMPLOYEES

As of February 28, 2003, the Corporation employed 208 individuals, 83 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 is expected to continue for the foreseeable future.

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 shareholders. 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.

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

4

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 an 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 shareholders 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. The Bank pays a quarterly deposit insurance
premium assessment to the FDIC. The insurance premium assessment is based upon
the FDIC's maintains risk-based assessment system by which institutions are
assigned to one of three categories based on their capitalization and one of
three subcategories based on examination ratings and other supervisory
information. An institution's assessment rate depends on the "supervisory
rating" it receives
5

from the FDIC ("A," "B," or "C") and on their regulatory capital level ("well
capitalized," "adequately capitalized," or "undercapitalized"). Assessment rates
for insured institutions are determined semiannually by the FDIC and currently
range from zero basis points for the healthiest institutions to 27 basis points
for the riskiest. The FDIC has authority to increase insurance assessments and
is required under federal law to establish assessment rates that will maintain
the insurance fund's ratio of reserves to insured deposits at $1.25 per $100.
The Bank was classified as "well capitalized" at December 31, 2002.

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 4.0% and a ratio of total capital to
risk-weighted assets of at least 8.0%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31, 2002, the Bank's and the Corporation's ratio of Tier 1 to
risk-weighted assets was 11.1% and 11.4%, respectively. As of December 31, 2002,
the Bank's and the Corporation's ratio of total capital to risk-weighted assets
was 12.0% and 12.3%, 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 average assets, referred to as the leverage capital ratio, of
at least 4.0%. As of December 31, 2002, the Bank's and the Corporation's
leverage capital ratio was 7.5% and 7.7%, 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. 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.

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

6

made as to future changes in interest rates, loan demand, deposit levels or the
effect on the earnings of the Corporation.

Anti-Terrorism Act. On October 6, 2002 the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act (the "Patriot Act") was signed into law. While not primarily
banking legislation, the Patriot Act contained provisions requiring financial
institutions to adopt a variety of policies aimed at preventing
money-laundering. The OCC is the primary regulator for purposes of insuring
compliance by the Bank with Patriot Act requirements and certain of those
requirements will not become effective until adoption of implementing
regulations by the OCC. Management of the Bank does not believe that compliance
with the Patriot Act and its implementing regulations will have a significant
impact on the Bank's business.

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").

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.

7

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER 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.

CASH DIVIDENDS

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

HOLDERS

As of February 28, 2003 there were approximately 605 holders of record of
the Corporation's Shares.

DIVIDENDS

The Corporation declared and paid cash dividends per share totaling $0.183
per share or $1,265,000 during fiscal 2002, and $0.150 per share or $1,041,000
during fiscal 2001. The Corporation currently expects that comparable cash
dividends will continue in the future.

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. There are no contractual restrictions that

8

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. 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.

9

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.

- -------------------------
* Per share data for 1998 through 2002 is restated to reflect the 25% stock
dividend (five-for-four stock split) effective April 16, 1999, and the
two-for-one stock splits effective June 30, 2000 and October 18, 2002.

10

SUMMARY QUARTERLY FINANCIAL INFORMATION

- -------------------------
* Per share data has been adjusted to reflect the two-for-one stock split
effective October 18, 2002.

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;

11

- Changes in consumer spending, borrowing and savings habits;

- Technological changes;

- 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.

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

Balance Sheet Analysis

December 31, 2002 compared to December 31, 2001

For the twelve-month periods ended December 31, 2001 and December 31, 2002,
total assets increased $38.5 million or 7.3%. Investment securities increased
$9.0 million, while net loans increased $16.0 million. Total deposits increased
$22.0 million.

Liquidity Management

Liquidity management describes the ability of the Bank to access funding
sources at a minimum cost to meet fluctuating deposit, withdrawal, and loan
demand needs 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 interest earning assets. A substantial portion of the investment portfolio
contains readily marketable securities that could be converted to cash
immediately. Refer to Note 3 in the 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 that will have a material impact on the Bank's ability to
maintain liquidity at satisfactory levels.

Capital Resources and Adequacy

Total shareholders' equity increased $7.8 million or 16.8% in 2002 to $54.3
million at the end of the year from $46.5 million at December 31, 2001. Net
income of $7.1 million and an increase of $2.0 million in accumulated other
comprehensive income less $1.3 million dividends paid primarily contributed to
this increase.

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 4.0%. The Bank's leverage
ratio for the years ended December 31, 2002, 2001, and 2000 was 7.5%, 6.8%, and
6.8%, respectively.

12

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 8.0%. The Bank's ratio at
December 31, 2002, and for each of the two preceding years was 12.0%, 11.3%, and
10.7%, respectively. According to FDIC capital guidelines, the Bank is
considered to be "well capitalized" as of December 31, 2002.

Management knows of no other trend or event which will have a material
impact on capital. Please also refer to Note 15 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 2002, 2001 and 2000

The Corporation reported $7,089,000 in net income for 2002 or $1.02 per
share compared to 2001 net income of $5,405,000 or $0.78 per share, and
$5,301,000 or $0.77 per share for 2000. Earnings for the year represent a record
level of performance for the Corporation, exceeding the previous record of
$5,405,000 achieved in 2001. 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 1.33%, 1.07% and 1.12% in 2002,
2001 and 2000, respectively. Return on average equity was 13.97% for 2002,
12.07% for 2001, and 14.15% for 2000.

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 2002 and
2001. Because deposits, loans and 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 2002 and 2001.

Net interest income (on a tax equivalent basis) for 2002 increased by
$1,132,000 or 5.8% compared to the year ended December 31, 2001, while 2001 net
interest income increased by $1,668,000 or 9.3% from the previous year ended
December 31, 2000. The smaller rate of increase for 2002 is the result of the
relatively small increase in loans and a significant decrease in interest rates
during 2002. Interest rate spread is the difference 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,
2002, 2001 and 2000 was 3.76%, 3.55%, and 3.51%, 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 2002, the net interest margin was 4.20% compared to 4.21% in
2001. The net interest margin for 2000 was 4.21%. 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.

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%.

13

AVERAGE BALANCES, YIELD AND RATES

TABLE 1

14

RATE AND VOLUME VARIANCE ANALYSIS
BASED ON AVERAGE BALANCES

TABLE 2

Provision and Allowance for Loan Losses

For the year ended December 31, 2002, the Bank recorded net charge-offs of
$1,303,000 compared to net charge-offs of $4,087,000 in 2001 and $941,000 in
2000. 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 $1,578,000 in 2002, $4,134,000 in 2001, and
$996,000 in 2000, 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 $275,000 in 2002,
$47,000 in 2001, and $55,000 in 2000.

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
nonaccruals, 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.

15

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 $3,384,000 as of December 31, 2002
amounted to 0.98% of the outstanding loan portfolio. As of December 31, 2001,
the $2,737,000 allowance for loan losses was 0.84% of gross loans, and the
allowance for loan losses of $3,824,000 as of December 31, 2000 represented
1.17% of gross loans. 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, 2002. See Note 4 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 include 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.

16

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

TABLE 4

The increase in the allowance for loan losses from $2,737,000 at December
31, 2001 to $3,384,000 at December 31, 2002 is primarily due to an increase in
the provision for loan losses because of slow economic activity and higher
current problem loans. The higher than normal recoveries of loans previously
charged off also is a factor in the increased allowance for loan losses.
Management's analysis of the allowance for loan losses at December 31, 2002
indicates that the balance is adequate.

Other Income

Other income increased $1,241,000, or 23.2%, from 2001 to 2002. The growth
resulted primarily from an increase in Trust service fees, 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 that increased loan demand and related fee 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.

Other Expense

Other expense increased by $1,087,000, or 8.1%, from 2001 to 2002. This
change was primarily a result of increases in salaries and employee benefits due
to annual merit increases for employees. Other accounts with significantly
higher expenses included data processing, occupancy expense, insurance
commissions, software amortization, legal and professional fees, marketing, and
telephone expenses.

Other expenses 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

17

employees acquired in 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.

Income Taxes

The effective tax rates for the Corporation were 20.58%, 14.59%, and
14.53%, for 2002, 2001, and 2000 respectively. The effective tax rate remained
consistent from 2000 to 2001. The increase in the effective tax rate for 2002 is
a result of higher taxable income in 2002. The primary reason for higher taxable
income is that the percent of non-taxable municipal interest income is much less
as a percent of total income than in past years dropping from 17% of pretax net
income in 2001 to 11% in 2002. See Note 13 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.

Total securities amounted to $135.7 million and $126.8 million as of
December 31, 2002 and 2001, respectively. The higher level of investments in
securities resulted primarily from the increase in available funds derived from
increases in deposits and securities sold under repurchase agreements.

The Bank manages its investment portfolios within policies that 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 shareholders' equity. Table 5 exhibits the distribution, by
type, of the investment portfolio as of December 31.

SECURITIES AVAILABLE FOR SALE

TABLE 5

18

The following table presents the maturity by type of the investment
portfolio for the year ended December 31, 2002.

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 Federal National Mortgage Association (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 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 be 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.

19

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. The portfolio is fairly diversified with no
significant concentrations within one industry. Agricultural loans represent
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, 2002 was
$8,472,000.

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 Small
Business Administration (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.

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

SUMMARY OF LOAN PORTFOLIO

TABLE 7

20

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 or is subject. The Bank had no foreign loans in
its portfolio as of December 31, 2002.

It is the policy of the Bank to place a loan on 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 nonaccrual loan is restored to
current status when the prospects of future contractual payments are no longer
in doubt. Nonaccrual loans at December 31, 2002 and 2001 were $1,801,000 and
$2,312,000, 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, no trend in economic,
industrial, geographical or other factors could be identified to account for the
fluctuations 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, 2002 were $1,803,000, a decrease
of $1,038,000 from $2,841,000 at December 31, 2001.

21

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 increased $22.0 million from $394.1 million at December
31, 2001 to $416.1 million at December 31, 2002. The Bank continues to
experience strong competition from other commercial banks, credit unions, the
stock market and mutual funds. There are no predetermined divisions in the
asset/liability policy for the mix of deposits. Table 1 displays the average
balances and average rates paid on all major deposits classifications for 2002,
2001 and 2000.

The following table represents maturities of time deposits in denominations
of $100,000 or more for the years ended December 31, 2002 and 2001.

MATURITY OF TIME DEPOSITS $100,000 OR MORE

TABLE 10

Borrowings

FHLB advances decreased from $45.0 million at December 31, 2001 to $35.0
million at December 31, 2002, a decrease of $10.0 million or 22.2%. 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 shareholders of
the Insurance Center at 9% maturing July 1, 2008 totaled $405,000 at December
31, 2002, and promissory notes to former shareholders of the Insurance Center at
prime plus 1% were $733,000 at December 31, 2002. These promissory notes
decreased by $788,000 or 40.9% from December 31, 2001 to December 31, 2002.

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Corporation's primary exposure to market risk relates to changes in
interest rates, exchange rates, commodity prices, and other relevant market rate
or price risk through our banking operations. 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.

22

Fixed rate commercial loans reprice at least annually. Fixed rate real estate
loans are scheduled for 1 to 2 year terms 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 20% prepayment
assumption for the entire loan portfolio based on historical trends. The
following table shows the expected cash flows and yields for interest earning
assets and interest bearing liabilities.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

TABLE 11

- -------------------------
(V) Variable repricing terms
(F) Fixed repricing terms

23

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

Board of Directors and Shareholders
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, 2002 and 2001, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2002.
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.

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, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.

Wipfli Ullrich Bertelson LLP
January 31, 2003
Green Bay, Wisconsin

24

FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

See accompanying notes to consolidated financial statements.

25

FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

See accompanying notes to consolidated financial statements.

26

FIRST MANITOWOC BANCORP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000