Merchants & Manufacturers Bancorporation, Inc. 1st Quarter
Earnings Announced BROOKFIELD, Wis., April 30
/PRNewswire-FirstCall/ -- Merchants & Manufacturers
Bancorporation, Inc. (BULLETIN BOARD: MMBI) ("Merchants") today
announced first quarter 2004 earnings of $1.4 million, or $0.42 per
diluted share, compared to $2.0 million or $0.63 per diluted share
for the first quarter 2003, representing a 29.5% decrease in net
income and a 33.3% decrease in diluted earnings per share. The
decrease in net income for the current quarter compared to the
prior year is attributed to decrease in revenue from our mortgage
banking operation brought on by the industry wide slow down in
residential loan originations and lower net interest margins caused
by increased amortization of purchase accounting premiums
associated with our recent acquisitions. The year-to-year
comparisons are impacted by Merchants' completion of the Reedsburg
Bancorporation, Inc. ("Reedsburg") acquisition on November 1, 2003.
The acquisition was accounted for using the purchase method of
accounting, and accordingly, the assets and liabilities of
Reedsburg were recorded at their respective fair values on November
1, 2003. Merchants acquired approximately $141.8 million in assets,
$97.2 million in loans, $120.6 million in deposits and recognized
goodwill and intangible assets of approximately $19.1 million
related to the transaction. The year-to-year comparisons are also
impacted by Merchants' May 1, 2003 acquisition of Keith C. Winters
& Associates, LTD. ("KCW"). KCW is a tax preparation and tax
consulting firm with offices located in Franklin, Brookfield and
Milwaukee, Wisconsin. Merchants' total assets increased 25.1% from
$926.6 million at March 31, 2003, to $1.1 billion at March 31,
2004. Gross loans increased 27.1% from $693.6 million at March 31,
2003, to $881.3 million at March 31, 2004. Total deposits grew
25.0% from $734.2 million at March 31, 2003 to $918.0 million at
March 31, 2004. Our balance sheet growth since March 31, 2003 is
due to both internal growth and the acquisition of Reedsburg.
Michael J. Murry, Chairman, stated, "Earnings of $0.42 per share
were below our internal projections because of slower than
anticipated loan and deposit growth in January and February 2004.
These goals have now been met and exceed year to date targets. In
addition, our net interest margin has stabilized in the first
quarter of 2004, but at a lower than anticipated level. When
comparing to the first quarter of 2003, this year's first quarter
was marked by a $269,000 reduction in gains on sales of mortgage
loans. These reductions are being experienced by the entire
industry. Lower net interest margins also played a role in reduced
revenues when comparing the first quarter 2004 with 2003. The net
interest margin reduction was caused by increased premium
amortization associated with our recent acquisitions. Our
expectation for year over year core earnings growth to be in the
moderate single digit range remains achievable, but our reported
2004 earnings will be affected by certain transition and compliance
costs." Murry explained that, "2004 is going to be a year of
transition for our organization. Through a company-wide project
called 'Vision Unlimited', we are in the process of standardizing
policies and procedures across the organization and centralizing
many operational functions. In addition, we are converting all of
the banks to a single data processing platform. We expect these
changes will allow us to better manage risk, operate more
efficiently and serve customers better. Each of our community banks
will continue to keep its name, charter, board of directors and
management teams but will transition its human resources from the
bank's operational activities to customer related activities. Bank
employees will have the tools and resources they need to
effectively focus on customer service, customer retention and
customer prospecting. While we expect these changes to enhance
shareholder value in the long run, a transition of this magnitude
will involve short-term costs which we expect will range between
$850,000 and $1.0 million before tax in 2004. "We are also facing
two other significant challenges in 2004. Like all public
companies, we are working towards compliance with the
Sarbanes-Oxley Act of 2002. While we are utilizing an outside third
party at a significant cost, compliance with Sarbanes-Oxley is
largely being accomplished internally through our Vision Unlimited
project. We expect our Sarbanes-Oxley compliance costs will range
from $300,000 to $400,000 in 2004. In addition, like hundreds of
other Wisconsin banking organizations, we are in discussion with
the Wisconsin Department of Revenue ("WDR") regarding the tax
treatment of our Nevada investment subsidiaries. Nevada does not
have an income tax and historically the earnings of these Nevada
investment subsidiaries have not been subject to taxation in
Wisconsin. We believe that we have complied with private letter
rulings the WDR previously issued in connection with the formation
and operation of our Nevada investment subsidiaries. However, the
effect and intent of these rulings is in question and the WDR may
take the position that some or all of the income of our Nevada
investment subsidiaries is allocable to their Wisconsin corporate
parents and taxable in Wisconsin. The WDR may also take the
position that such a reallocation should apply to prior open tax
years. The result of these discussions with the WDR could
materially increase our future income tax expense and could also
result in a significant current year tax charge." Net interest
income was $9.8 million for the first quarter of 2004 compared to
$8.7 million for the same quarter of 2003. The increase is due to
the revenue resulting from the acquisition of Reedsburg as well as
to the increase in loan volume funded by the increase in deposits
and borrowings. 2004 loan growth in our banks started at a rapid
pace, with total loans increasing $24.2 million since December 31,
2003. The net interest margin declined 43 basis points from the
first quarter of 2003 to a level of 3.76%, attributable to a 62
basis point decline in earning asset yields partially offset by an
improvement in the cost of funds of 27 basis points. The
compression in the net interest margin has also been affected by
the increased amortization of purchase accounting premiums
associated with the acquisitions of Fortress and Reedsburg.
Pressure on the margin in 2003 began to stabilize in the first
quarter of 2004 producing a reduction in the net interest margin of
two basis points over the fourth quarter of 2003. Earning asset
yields remained stable and funding costs were slightly lower during
the first quarter compared to the prior quarter. Merchants'
provision for loan losses was $450,000 for the first quarter of
2004 compared to $302,000 for the same quarter of 2003. Merchants'
allowance for loan losses was 1.07% and 1.14% of total loans at
March 31, 2004 and 2003, respectively. The ratio of allowance for
loan losses to non-performing loans was 212.6% at March 31, 2004
compared to 178.8% at March 31, 2003. Non- performing assets
equaled 0.57% of total assets at March 31, 2004 compared to 0.69%
at March 31, 2003. Non-interest income for the first quarter of
2004 was $2.7 million compared to $2.2 million for the first
quarter of 2003, an increase of 21.3%. The growth in non-interest
income can be attributed to the acquisition of Reedsburg and KCW in
2003. The Reedsburg Bank generated $268,000 of non-interest income
during the first quarter of 2004. While the KCW operation added
revenues of $508,000 during the same period. Service charges on
deposit accounts continued to improve in the first quarter. Service
charges on deposit accounts totaled $725,000 compared with $572,000
for the same period a year ago. Mortgage banking revenues were
below 2003, reflecting a slow-down in residential lending markets,
which occurred during the latter part of the fourth quarter and
continued through the first quarter of 2004. Mortgage banking
revenues include activities associated with our mortgage servicing
activity and secondary marketing operations. For the quarter, gains
on sales of mortgage loans declined to $144,000, compared with
$413,000 in 2003. The decline in gains on the sale of loans was due
to the significant decline in mortgage loan production as interest
rates stabilized and pricing pressures on loans originated. Gains
on the sale of securities increased $104,000 compared to the first
quarter 2003. Non-interest expense was $10.1 million for the first
quarter of 2004, compared to $7.6 million for the first quarter of
2003, an increase of 32.7%. Salaries and employee benefits
increased $1.6 million, occupancy expense increased $258,000 and
other non-interest expense increased $595,000 over the first
quarter 2003. The growth in non-interest expense income is
partially affected by the acquisition of Reedsburg and KCW in 2003.
The Reedsburg and KCW operations added $1.6 million of expenses in
the first quarter of 2004. On November 21, 2003 Merchants declared
a 10% stock dividend on the Corporation's common stock to
shareholders of record on December 1, 2003 payable on December 15,
2003. All of the prior per share data have been restated to reflect
the 10% stock dividend. UNAUDITED For the Three Months ended March
31, 2004 2003 Change Net Income $1.407 $1.996 (29.51)% Basic EPS
$0.42 $0.63 (33.33)% Diluted EPS $0.42 $0.63 (33.33)% Figures in
millions except for earnings per share Merchants &
Manufacturers Bancorporation, Inc. is a multi-bank holding company
headquartered in Brookfield, Wisconsin, a suburb of Milwaukee.
Merchants operates six banks in Wisconsin (Lincoln State Bank,
Franklin State Bank, Grafton State Bank, Community Bank Financial,
Fortress Bank of Westby and the Reedsburg Bank), one bank in
Minnesota (Fortress Bank, N.A.) and one bank in Iowa (Fortress Bank
of Cresco). The bank subsidiaries operate 39 offices in the
communities they serve. In addition, Merchants offers residential
mortgage services through CBG Mortgage, Inc., a full range of
investment and insurance products through Link Community Financial
Services, LLC and tax consultation and tax preparation services
through Keith C. Winters & Associates. Merchants' shares trade
on the "bulletin-board" section of the NASDAQ Stock Market under
the symbol "MMBI." Certain statements contained in this press
release constitute or may constitute forward-looking statements
about Merchants which we believe are covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. This release contains
forward-looking statements concerning the Corporation's prospects
that are based on the current expectations and beliefs of
management. When used in written documents, the words anticipate,
believe, estimate, expect, objective and similar expressions are
intended to identify forward-looking statements. The statements
contained herein and such future statements involve or may involve
certain assumptions, risks and uncertainties, many of which are
beyond the Corporation's control, that could cause the
Corporation's actual results and performance to differ materially
from what is expected. In addition to the assumptions and other
factors referenced specifically in connection with such statements,
the following factors could impact the business and financial
prospects of the Corporation: general economic conditions;
legislative and regulatory initiatives; monetary and fiscal
policies of the federal government; deposit flows;
disintermediation; the cost of funds; general market rates of
interest; interest rates or investment returns on competing
investments; demand for loan products; demand for financial
services; changes in accounting policies or guidelines; and changes
in the quality or composition of the Corporation's loan and
investment portfolio; and the result of the Corporation's
discussions with the WDR. Such uncertainties and other risk factors
are discussed further in the Corporation's filings with the
Securities and Exchange Commission. The Corporation undertakes no
obligation to make any revisions to forward-looking statements
contained in this release or to update them to reflect events or
circumstances occurring after the date of this release. UNAUDITED
At or for the Three Months ended March, 31 (Amounts In Thousands,
Except Share and Per Share Amounts) For the Period: 2004 2003 %
change Interest Income $14,368 $12,698 13.15% Interest Expense
4,542 3,994 13.72% Net Interest Income 9,826 8,704 12.89% Provision
for Loan Losses 450 302 49.01% Non-Interest Income 2,695 2,222
21.29% Non-Interest Expense 10,082 7,599 32.68% Net Before Tax
1,989 3,025 (34.25)% Income Tax 582 1,029 (43.44)% Net Income
$1,407 $1,996 (29.51)% End of Period: 3/31/04 3/31/03 % change
Assets $1,159,493 $926,568 25.14% Loans 881,293 693,620 27.06%
Allowance for Loan Losses 9,412 7,939 18.55% Deposits 918,036
734,180 25.04% Shareholders' Equity 81,860 70,074 16.82% Per Share:
Net Income (basic) $0.42 $0.63 (33.33)% Net Income (diluted) $0.42
$0.63 (33.33)% Book Value $24.54 $24.37 0.71% Dividends Declared
$0.18 $0.17 5.88% Average Shares Outstanding (basic) 3,331,255
3,162,306 Average Shares Outstanding (diluted) 3,368,265 3,171,625
Ending Shares Outstanding 3,335,356 3,163,045 Key Ratios: Net
Interest Margin 3.76% 4.19% Return on Average Assets 0.49% 0.90%
Return on Average Common Equity 6.98% 11.66% Shareholders Equity to
Assets Ratio 7.06% 7.56% Tier 1 Capital to Average Assets Ratio
6.92% 7.82% Non-performing Loans/Total Loans 0.50% 0.64%
Non-performing Assets/Total Assets 0.57% 0.69% Allowance for Loan
Losses/ non-performing Loans 212.60% 178.84% DATASOURCE: Merchants
& Manufacturers Bancorporation, Inc. CONTACT: Michael J. Murry,
Chairman of the Board of Directors, +1-414-425-5334, or James
Mroczkowski, Executive Vice President and Chief Financial Officer,
+1-262-790-2127, both of Merchants & Manufacturers
Bancorporation, Inc. Web site: http://www.communitybancgroup.com/
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