UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
| þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2005
OR
| o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 000-31207
BANK MUTUAL CORPORATION
| Wisconsin | 39-2004336 | |
| (State or other jurisdiction of | (IRS Employer Identification No.) | |
| incorporation or organization) |
| 4949 West Brown Deer Road |
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| Milwaukee, WI 53223 |
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| (414) 354-1500 |
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| (Address, including Zip Code, and telephone number, |
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| including area code, of registrant’s principal executive offices) |
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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, and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o
The number of shares outstanding of the issuer’s common stock $0.01 par value per share, was 63,710,562 shares, at May 6, 2005.
BANK MUTUAL CORPORATION
10-Q INDEX
| Page No. | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6-7 | ||||||||
| 8-20 | ||||||||
| 21-37 | ||||||||
| 38-41 | ||||||||
| 41 | ||||||||
| 42 | ||||||||
| 43 | ||||||||
| 43 | ||||||||
| 44 | ||||||||
| Section 302 Certification | ||||||||
| Section 302 Certification | ||||||||
| Section 1350 Certification | ||||||||
| Section 1350 Certification | ||||||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
| March 31 | December 31 | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Assets |
||||||||
Cash and due from banks |
$ | 28,891 | $ | 36,868 | ||||
Interest-earning deposits |
1,912 | 707 | ||||||
Cash and cash equivalents |
30,803 | 37,575 | ||||||
Securities available-for-sale, at fair value: |
||||||||
Investment securities |
64,430 | 68,753 | ||||||
Mortgage-related securities |
1,241,921 | 1,266,224 | ||||||
Loans held for sale |
7,035 | 4,987 | ||||||
Loans receivable, net |
1,919,133 | 1,875,885 | ||||||
Goodwill |
52,570 | 52,570 | ||||||
Other intangible assets |
4,246 | 4,412 | ||||||
Mortgage servicing rights |
4,563 | 4,542 | ||||||
Other assets |
143,851 | 130,351 | ||||||
| $ | 3,468,552 | $ | 3,445,299 | |||||
Liabilities and shareholders’ equity |
||||||||
Liabilities: |
||||||||
Deposits |
$ | 1,968,015 | $ | 1,982,881 | ||||
Borrowings |
883,543 | 761,525 | ||||||
Advance payments by borrowers for taxes and insurance |
11,211 | 2,796 | ||||||
Other liabilities |
30,371 | 25,348 | ||||||
| 2,893,140 | 2,772,550 | |||||||
Minority interest in real estate development |
2,295 | 2,295 | ||||||
Shareholders’ equity: |
||||||||
Preferred stock – $.01 par value: |
||||||||
Authorized– 20,000,000 shares in 2005 and 2004
|
||||||||
Issued and outstanding – none in 2005 and 2004 |
— | — | ||||||
Common stock – $.01 par value: |
||||||||
Authorized– 200,000,000 shares in 2005 and 2004
|
||||||||
Issued – 78,783,849 shares in 2005 and 2004
|
||||||||
Outstanding – 65,955,713 in 2005 and 73,485,113 in 2004 |
788 | 788 | ||||||
Additional paid-in capital |
496,592 | 495,858 | ||||||
Retained earnings |
261,786 | 258,110 | ||||||
Unearned ESOP shares |
(4,641 | ) | (4,865 | ) | ||||
Accumulated other comprehensive losses |
(16,108 | ) | (4,844 | ) | ||||
Unearned deferred compensation |
(8,950 | ) | (10,076 | ) | ||||
Treasury stock – 12,828,136 shares in 2005 and 5,298,736
in 2004 |
(156,350 | ) | (64,517 | ) | ||||
Total shareholders’ equity |
573,117 | 670,454 | ||||||
| $ | 3,468,552 | $ | 3,445,299 | |||||
See Notes to Unaudited Consolidated Financial Statements.
3
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2005 | 2004 | |||||||
| (In thousands, except per | ||||||||
| share data) | ||||||||
Interest income: |
||||||||
Loans |
$ | 25,487 | $ | 23,897 | ||||
Investment securities |
980 | 1,030 | ||||||
Mortgage-related securities |
13,448 | 11,626 | ||||||
Interest-earning deposits |
43 | 108 | ||||||
Total interest income |
39,958 | 36,661 | ||||||
Interest expense: |
||||||||
Deposits |
10,768 | 10,724 | ||||||
Borrowings |
6,036 | 3,841 | ||||||
Advance payments by borrowers for taxes and insurance |
2 | 4 | ||||||
Total interest expense |
16,806 | 14,569 | ||||||
Net interest income |
23,152 | 22,092 | ||||||
Provision for loan losses |
117 | 490 | ||||||
Net interest income after provision for loan losses |
23,035 | 21,602 | ||||||
Noninterest income: |
||||||||
Service charges on deposits |
1,025 | 1,073 | ||||||
Brokerage and insurance commissions |
546 | 772 | ||||||
Loan related fees and servicing revenue |
310 | 535 | ||||||
Gain on sales of investments |
1,325 | — | ||||||
Gain on sales of loans |
402 | 380 | ||||||
Other |
1,313 | 1,087 | ||||||
Total noninterest income |
4,921 | 3,847 | ||||||
Noninterest expenses: |
||||||||
Compensation, payroll taxes and other employee benefits |
9,995 | 8,599 | ||||||
Occupancy and equipment |
2,636 | 2,812 | ||||||
Amortization of other intangible assets |
165 | 165 | ||||||
Other |
3,194 | 3,177 | ||||||
Total noninterest expenses |
15,990 | 14,753 | ||||||
Income before income taxes |
11,966 | 10,696 | ||||||
Income taxes |
4,077 | 3,622 | ||||||
Net income |
$ | 7,889 | $ | 7,074 | ||||
Per share data: |
||||||||
Earnings per share – basic |
$ | 0.12 | $ | 0.09 | ||||
Earnings per share – diluted |
$ | 0.11 | $ | 0.09 | ||||
Cash dividends paid |
$ | 0.06 | $ | 0.04 | ||||
See Notes to Unaudited Consolidated Financial Statements.
4
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Unearned | Other | Unearned | |||||||||||||||||||||||||||||
| Common | Paid-In | Retained | ESOP | Comprehensive | Deferred | Treasury | ||||||||||||||||||||||||||
| Stock | Capital | Earnings | Shares | Income (Loss) | Compensation | Stock | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
For the
Three Months Ended March 31, 2005 |
||||||||||||||||||||||||||||||||
Balance at January 1, 2005 |
$ | 788 | $ | 495,858 | $ | 258,110 | $ | (4,865 | ) | $ | (4,844 | ) | $ | (10,076 | ) | $ | (64,517 | ) | $ | 670,454 | ||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
— | — | 7,889 | — | — | — | — | 7,889 | ||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Change in
net unrealized gain on securities available-for-sale, net of deferred
income tax liability of $6,564 |
— | — | — | — | (11,264 | ) | — | — | (11,264 | ) | ||||||||||||||||||||||
Total comprehensive income |
— | — | — | — | — | — | — | (3,375 | ) | |||||||||||||||||||||||
Purchase of treasury stock |
— | — | — | — | — | — | (91,871 | ) | (91,871 | ) | ||||||||||||||||||||||
Committed ESOP shares |
— | 761 | — | 224 | — | — | — | 985 | ||||||||||||||||||||||||
Exercise of stock options |
— | (27 | ) | — | — | — | — | 38 | 11 | |||||||||||||||||||||||
Amortization of deferred compensation |
— | — | — | –- | — | 1,126 | — | 1,126 | ||||||||||||||||||||||||
Cash dividends ($0.06 per share) |
— | — | (4,213 | ) | –- | — | — | — | (4,213 | ) | ||||||||||||||||||||||
Balance at March 31, 2005 |
$ | 788 | $ | 496,592 | $ | 261,786 | $ | (4,641 | ) | $ | (16,108 | ) | $ | (8,950 | ) | $ | (156,350 | ) | $ | 573,117 | ||||||||||||
For the Three Months Ended March 31, 2004 |
||||||||||||||||||||||||||||||||
Balance at January 1, 2004 |
$ | 788 | $ | 495,990 | $ | 241,958 | $ | (5,766 | ) | $ | 149 | $ | (2,039 | ) | $ | — | $ | 731,080 | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
— | — | 7,074 | — | — | — | — | 7,074 | ||||||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||||||||
Change in
net unrealized gain on securities available-for-sale, net of deferred
income tax liability of $2,965 |
— | — | — | — | 5,172 | — | — | 5,172 | ||||||||||||||||||||||||
Total comprehensive income |
— | — | — | — | — | — | — | 12,246 | ||||||||||||||||||||||||
Purchase of treasury stock |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Committed ESOP shares |
— | 612 | — | 297 | — | — | — | 909 | ||||||||||||||||||||||||
Exercise of stock options |
— | 26 | — | — | — | — | — | 26 | ||||||||||||||||||||||||
Amortization of deferred compensation |
— | — | — | — | — | 199 | — | 199 | ||||||||||||||||||||||||
Cash dividends ($0.04 per share) |
— | — | (3,068 | ) | — | — | — | — | (3,068 | ) | ||||||||||||||||||||||
Balance at March 31, 2004 |
$ | 788 | $ | 496,628 | $ | 245,964 | $ | (5,469 | ) | $ | 5,321 | $ | (1,840 | ) | $ | — | $ | 741,392 | ||||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
5
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Operating activities: |
||||||||
Net income |
$ | 7,889 | $ | 7,074 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||
Provision for loan losses |
117 | 490 | ||||||
Provision for depreciation |
673 | 775 | ||||||
Amortization of intangibles |
165 | 165 | ||||||
Net (increase) decrease in mortgage servicing rights |
(21 | ) | 246 | |||||
Amortization of cost of stock benefit plans |
2,111 | 1,108 | ||||||
Net (discount) premium amortization on securities |
(3 | ) | 148 | |||||
Net gain on sale of available-for-sale securities |
(1,325 | ) | — | |||||
Net change in loans originated or held for sale |
(1,646 | ) | (8,348 | ) | ||||
Gains on sales of loans |
(402 | ) | (380 | ) | ||||
Increase in other liabilities |
11,906 | 9,008 | ||||||
Increase in other assets |
(7,151 | ) | (7,687 | ) | ||||
Increase in accrued interest receivable |
(459 | ) | (33 | ) | ||||
Net cash provided by operating activities |
11,854 | 2,566 | ||||||
Investing activities: |
||||||||
Net purchases of mutual funds |
(315 | ) | (229 | ) | ||||
Proceeds from maturities of investment securities |
15,630 | 23,300 | ||||||
Purchases of investment securities |
(12,128 | ) | (24,015 | ) | ||||
Purchases of mortgage-related securities |
(67,968 | ) | (89,627 | ) | ||||
Principal repayments on mortgage-related securities |
75,576 | 55,671 | ||||||
Proceeds from sale of investment securities |
1,340 | — | ||||||
Net (increase) decrease in loans receivable |
(43,496 | ) | 17,044 | |||||
Proceeds from sale of foreclosed properties |
680 | 1,094 | ||||||
Net increase in Federal Home Loan Bank stock |
(6,121 | ) | (576 | ) | ||||
Net purchases of premises and equipment |
(999 | ) | (374 | ) | ||||
Net cash used by investing activities |
(37,801 | ) | (17,712 | ) | ||||
6
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Financing activities: |
||||||||
Net decrease in deposits |
(15,185 | ) | $ | (44,940 | ) | |||
Net increase in short-term borrowings |
119,800 | 6,500 | ||||||
Proceeds from long-term borrowings |
2,300 | 3,979 | ||||||
Repayments on long-term borrowings |
(82 | ) | (10,051 | ) | ||||
Net increase in advance payments by borrowers for taxes and insurance |
8,415 | 7,687 | ||||||
Proceeds from exercise of stock options |
11 | 26 | ||||||
Cash dividends |
(4,213 | ) | (3,068 | ) | ||||
Purchase of treasury stock |
(91,871 | ) | — | |||||
Net cash provided (used) by financing activities |
19,175 | (39,867 | ) | |||||
Decrease in cash and cash equivalents |
(6,772 | ) | (55,013 | ) | ||||
Cash and cash equivalents at beginning of period |
37,575 | 86,503 | ||||||
Cash and cash equivalents at end of period |
$ | 30,803 | $ | 31,490 | ||||
Supplemental information: |
||||||||
Interest paid on deposits |
$ | 10,449 | $ | 10,629 | ||||
Income taxes paid |
535 | 115 | ||||||
Loans transferred to foreclosed properties and repossessed assets |
131 | 3,843 | ||||||
See Notes to Unaudited Consolidated Financial Statements .
7
BANK MUTUAL CORPORATION
AND SUBSIDIARIES
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts of Bank Mutual Corporation (the “Company”), its wholly-owned subsidiary Bank Mutual (the “Bank”) and the Bank’s subsidiaries.
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, Rule 10-01 of Regulation S-X and the instructions to Form 10-Q. The financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of Bank Mutual Corporation, the accompanying Unaudited Consolidated Statements of Financial Condition, Unaudited Consolidated Statements of Income, Unaudited Consolidated Statements of Shareholders’ Equity and Unaudited Consolidated Statements of Cash Flows contain all adjustments, which are of a normal recurring nature, necessary to present fairly the consolidated financial position of Bank Mutual Corporation and subsidiaries at March 31, 2005 and December 31, 2004, the results of their income for the three months ended March 31, 2005 and 2004, and their cash flows for the three months ended March 31, 2005 and 2004. The accompanying Unaudited Consolidated Financial Statements and related notes should be read in conjunction with Bank Mutual Corporation’s 2004 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
As a result of the consolidation of the Arrowood Development, LLC (an entity established in the third quarter of 2004 in which the Corporation has a 50% interest), into Bank Mutual’s financial statements as required by Financial Interpretation Number (“FIN”) 46, other assets increased by $2.3 million. The increase in assets was accompanied by minority interest (the other partner’s ownership interests) of $2.3 million on the statement of financial condition as a mezzanine item, after liabilities and before shareholders’ equity.
8
Note 2 - Securities Available-for-Sale
The amortized cost and fair value of investment securities available-for-sale are as follows:
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
At March 31, 2005: |
||||||||||||||||
Investment securities: |
||||||||||||||||
U.S. government and federal agency obligations |
$ | 16,470 | $ | 18 | $ | (263 | ) | $ | 16,225 | |||||||
Mutual funds |
46,334 | 5 | (761 | ) | 45,578 | |||||||||||
Stock in federal agencies |
1,455 | 1,172 | — | 2,627 | ||||||||||||
Total investment securities |
64,259 | 1,195 | (1,024 | ) | 64,430 | |||||||||||
Mortgage-related securities: |
||||||||||||||||
Federal Home Loan Mortgage Corporation |
599,198 | 444 | (13,317 | ) | 586,325 | |||||||||||
Federal National Mortgage Association |
501,348 | 1,668 | (10,607 | ) | 492,409 | |||||||||||
Government National Mortgage Association |
89,163 | 21 | (1,445 | ) | 87,739 | |||||||||||
Private Placement CMOs |
75,977 | — | (529 | ) | 75,448 | |||||||||||
Total mortgage-related securities |
1,265,686 | 2,133 | (25,898 | ) | 1,241,921 | |||||||||||
Total |
$ | 1,329,945 | $ | 3,328 | $ | (26,922 | ) | $ | 1,306,351 | |||||||
The Company does not believe any individual unrealized loss as of March 31, 2005 represents an other-than-temporary impairment. The unrealized losses reported for mortgage-backed securities relate primarily to securities issued by FNMA, FHLMC and private institutions. These unrealized losses are primarily attributable to changes in interest rates.
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
At December 31, 2004: |
||||||||||||||||
Investment securities: |
||||||||||||||||
U.S. government and federal agency obligations |
$ | 19,967 | $ | 46 | $ | (182 | ) | $ | 19,831 | |||||||
Mutual funds |
46,018 | 12 | (640 | ) | 45,390 | |||||||||||
Stock in federal agencies |
1,461 | 2,071 | — | 3,532 | ||||||||||||
Total investment securities |
67,446 | 2,129 | (822 | ) | 68,753 | |||||||||||
Mortgage-related securities: |
||||||||||||||||
Federal Home Loan Mortgage Corporation |
635,806 | 1,525 | (6,307 | ) | 631,024 | |||||||||||
Federal National Mortgage Association |
544,928 | 2,709 | (4,834 | ) | 542,803 | |||||||||||
Government National Mortgage Association |
82,635 | 111 | (277 | ) | 82,469 | |||||||||||
Private Placement CMOs |
9,928 | — | — | 9,928 | ||||||||||||
Total mortgage-related securities |
1,273,297 | 4,345 | (11,418 | ) | 1,266,224 | |||||||||||