Bank Mutual Corporation Reports Earnings for the First Quarter of 2006.MILWAUKEE Milwaukee (mĭlwŏk`ē), city (1990 pop. 628,088), seat of Milwaukee co., SE Wis., at the point where the Milwaukee, Menominee, and Kinnickinnic rivers enter Lake Michigan; inc. 1846. , Wis adv. 1. Certainly; really; indeed. v. t. 1. To think; to suppose; to imagine; - used chiefly in the first person sing. present tense, I wis. See the Note under Ywis. . -- Bank Mutual Corporation (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :BKMU) reported net earnings of $5.4 million or $0.09 diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the three months ended March 31, 2006 as compared to $7.9 million or $0.11 diluted earnings per share during the same period in 2005. Earnings decreased primarily as a result of a decrease in the net interest margin and a reduction in the gains on sales of investments. The earnings decrease was partially offset by an increase in interest income resulting from a larger loan portfolio and a decrease in non-interest expenses. Diluted earnings per share calculations and net income were also affected by Bank Mutual's ongoing stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. programs. The reported results represent an 18.2% decrease in diluted earnings per share for the first quarter of 2006 as compared to the first quarter of 2005 and a 32.0% decrease in net income for the same period. "Our operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. continues to be challenging as a result of the fifteen short term interest rates increases by the Federal Reserve since June June: see month. of 2004, a flattened flat·ten v. flat·tened, flat·ten·ing, flat·tens v.tr. 1. To make flat or flatter. 2. To knock down; lay low: The boxer was flattened with one punch. yield curve, and competition for deposits. These economic issues led to a further compression compression, external stress applied to an object or substance, tending to cause a decrease in volume (see pressure). Gases can be compressed easily, solids and liquids to a very small degree if at all. of the Bank's net interest margin and ultimately reduced our net income. However, recent information from the Federal Reserve indicates that it may be close to completing its economic tightening and that short term interest rate increases may be slowing or near completion. While we expect that these operating factors will continue to affect us in the near term, we believe that our continued emphasis on commercial business and investment real estate lending should aid us in our plan to enhance profits," stated Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. T. Crowley Crowley (krou`lē), city (1990 pop. 13,983), seat of Acadia parish, SW La.; inc. 1888. It is a shipping, milling, and storage center for a large rice-growing area and has a rice experiment station. Oil and natural gas wells are located nearby. , Jr., Chairman, President and Chief Executive Officer of Bank Mutual Corporation. Mortgage loan originations The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. and purchases were $127.0 million for the first quarter of 2006 as compared to $139.5 million for the same period in 2005. The decrease was primarily the result of decreased mortgage loan purchases. Mortgage loan originations from our retail offices increased in the first quarter of 2006 with the majority of those originations being adjustable rate mortgage This article is about the US mortgage type. For an international perspective, see Variable rate mortgage. An adjustable rate mortgage (ARM) is a mortgage loan where the interest rate on the note is periodically adjusted based on an index. loans. Loan sales were $16.9 million for the three months ended March 31, 2006 as compared to $30.0 million for the first quarter of 2005. Loan sales decreased as a result of reduced fixed rate mortgage loan originations. Fixed rate mortgage loan originations decreased as a result of increased market interest rates for these loans. Gains on the sales of loans were $220,000 for the first quarter of 2006 as compared to $402,000 for the same period in 2005. Consumer loan originations for the three months ended March 31, 2006 were $37.5 million as compared to $45.8 million for the same period in 2005. The decreased originations were primarily the result of increased market interest rates which resulted in higher interest rates on most consumer loan offerings. As a result of reduced profitability of indirect consumer loan lending, we will discontinue dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: originating indirect loans through Savings Financial Corporation, our 50% owned subsidiary, in the second quarter of 2006 and will let the existing portfolio amortize amortize To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. until it is gone. Commercial business loan originations decreased in the first quarter of 2006 to $8.4 million as compared to $13.0 million in the first quarter of 2005. This decrease was primarily the result of reduced demand for commercial business loans. In total, loan originations and purchases in the first quarter of 2006 were $172.9 million as compared to $198.3 million for the same period in 2005. However, total loans outstanding increased as a result of decreased refinancing Refinancing An extension and/or increase in amount of existing debt. of existing loans. Total assets at March 31, 2006 were $3.5 billion as compared to $3.4 billion at December December: see month. 31, 2005. The increase was primarily as a result of an increased loan and securities portfolio which was funded by an increase in deposits and borrowings. Mortgage-related securities increased $52.0 million in the first quarter of 2006 primarily as a result of reinvesting cash flows and borrowing to fund new purchases. Deposits increased $33.2 million during the first quarter of 2006. Borrowings increased to $841.8 million at March 31, 2006 as compared to $765.8 million at December 31, 2005 primarily as a result of borrowing $100.0 million and investing most of those funds into loans and mortgage-related securities. Cash dividends paid in the first quarter of 2006 were $0.07 per share as compared to $0.06 per share in the first quarter of 2005 or a 16.7% increase. The cash dividend paid on March 1, 2006 of $0.07 per share to stockholders of record on February February: see month. 16, 2006 was our twenty-first consecutive cash dividend since our initial stock offering. Non-performing loans A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms. to total loans at March 31, 2006 were 0.30% as compared to 0.29% at December 31, 2005. We provided an allowance for loan losses of $63,000 for the first quarter of 2006 as compared to $117,000 for the same period in 2005. Our allowance for loan losses at March 31, 2006 was $12.1 million or 201.3% of non-performing loans and 181.6% of non-performing assets. The net interest margin for the first quarter of 2006 decreased to 2.37% as compared to 2.82% for same period in 2005. The decreased net interest margin was primarily the result of the rising cost of deposits, the flattening of the yield curve Flattening of the yield curve A change in the yield curve when the spread between the yield on long-term and short-term Treasuries has decreased. Compare steepening of the yield curve and butterfly shift. and the effects of our stock repurchase program which reduces zero cost capital. Specifically, the flattening of the yield curve reduces our ability to price our loan offerings at interest rates that would allow us to increase the yield on our loan portfolio faster than the increase in our cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. , thus compressing com·press tr.v. com·pressed, com·press·ing, com·press·es 1. To press together: compressed her lips. 2. To make more compact by or as if by pressing. 3. our net interest margin. Book value per share was $8.69 at March 31, 2006. The annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. return on average equity (ROE A fictitious surname used for an unknown or anonymous person or for a hypothetical person in an illustration. A lawsuit is generally named for the persons who are parties to it. ) for the first quarter of 2006 was 3.95%. The annualized return on average assets (ROA ROA See: Return on assets ROA See: Right of accumulation ROA See return on assets (ROA). ) for the first quarter of 2006 was 0.62%. In addition, during the first quarter of 2006 we repurchased 123,000 shares at an average price of $11.29 per share. Further information regarding Bank Mutual Corporation's assets, liabilities and operations is attached. Bank Mutual Corporation is the fourth largest financial institution holding company headquartered in the state of Wisconsin Wisconsin, state, United States Wisconsin (wĭskŏn`sən, –sĭn), upper midwestern state of the United States. It is bounded by Lake Superior and the Upper Peninsula of Michigan, from which it is divided by the Menominee and its stock is quoted on The NASDAQ Stock Market Nasdaq stock market The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies. (R) under the symbol "BKMU". Its subsidiary bank, Bank Mutual, operates 73 offices in the state of Wisconsin and one office in Minnesota Minnesota, state, United States Minnesota (mĭn'ĭsō`tə), upper midwestern state of the United States. It is bordered by Lake Superior and Wisconsin (E), Iowa (S), South Dakota and North Dakota (W), and the Canadian provinces . Outlook (The following are forward looking statements; see "Cautionary Statements" below.) Bank Mutual Corporation's management has identified a number of factors which may affect the Company's operations and near term results in 2006. They are as follows:
-- The second quarter of 2006 may provide a continued environment
of increasing short term interest rates and a flat interest
rate yield curve. If that is the case, there are a number of
effects that Bank Mutual, like other financial institutions,
would likely experience.
-- Loan originations could decrease, along with related fee
income.
-- An increased interest rate environment and a slow down in
the appreciation in the value of real estate could
negatively affect the volume of home sales, which in turn
could affect mortgage loan originations and prepayments.
-- If the interest rate environment or other factors begin to
affect the economy as a whole, the effects could be
magnified.
-- A rising interest rate environment and flat yield curve are
also likely to continue to affect our net interest margin. The
net interest margin would continue to be compressed as a
result of the cost of deposits and borrowings rising faster
than the yield on loans. Such a compression could negatively
affect our net income compared to prior periods.
-- Bank Mutual will continue to further emphasize consumer loans,
and commercial real estate and business loans, all of which
can present a higher risk than residential mortgages.
-- Like many Wisconsin financial institutions, Bank Mutual has
non-Wisconsin subsidiaries that hold and manage investment
assets, the income from which has not been subject to
Wisconsin tax. The Wisconsin Department of Revenue has
instituted an audit program specifically aimed at out of state
investment subsidiaries. The Department may take the position
that all or some of the income of the out of state
subsidiaries is taxable in Wisconsin, which may be challenged
by financial institutions in the state. The Department has
informed banks generally of potential settlement parameters
relating to these issues, even where the Department has not
asserted a claim. We have received certain information from
the Department and are continuing to evaluate its position and
our potential alternatives under our particular circumstances.
However, a determination on how to proceed will depend in part
on further communication from and actions by the Department.
Depending upon the circumstances, an adverse resolution of
this matter could result in tax obligations for prior periods
and/or higher Wisconsin taxes going forward, with a
substantial negative impact on the earnings of Bank Mutual
Corporation.
Cautionary Statements The discussions in this news release which are not historical statements contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve risk and uncertainties. Statements which are not historical statements include those under "Outlook", those in the future tense future tense n. A verb tense expressing future time. Noun 1. future tense - a verb tense that expresses actions or states in the future future , which discuss periods after March 31, 2006, or which use terms such as "believe," "expect," and "anticipate." Bank Mutual Corporation's actual future results could differ in important and material ways from those discussed. Many factors could cause or contribute to such differences. These factors include changing interest rates and related yield curves, changes in Federal Reserve or other regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. policy, changes in demand for loans or other services, competition from other institutions, the results of our lending activities and loan loss experience, developments in the war on terrorism Terrorist acts and the threat of Terrorism have occupied the various law enforcement agencies in the U.S. government for many years. The Anti-Terrorism and Effective Death Penalty Act of 1996, as amended by the usa patriot act and other international developments, other general economic and political developments, those items discussed under "Outlook," and other factors discussed in our filings with the Securities and Exchange Commission.
BANK MUTUAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
2006 2005
----------------- -----------------
(In thousands)
Assets
Cash and due from banks $38,114 $41,543
Federal funds sold 67,500 -
Interest-earning deposits 3,613 27,872
----------------- -----------------
Cash and cash equivalents 109,227 69,415
Securities available-for-sale, at
fair value:
Investment securities 62,739 63,361
Mortgage-related securities 1,139,839 1,087,816
Loans held for sale 4,387 2,312
Loans receivable, net 2,008,229 1,990,492
Goodwill 52,570 52,570
Other intangible assets 3,585 3,750
Mortgage servicing rights 4,619 4,771
Other assets 160,260 156,890
----------------- -----------------
$3,545,455 $3,431,377
================= =================
Liabilities and Shareholders'
Equity
Liabilities:
Deposits $2,119,994 $2,086,822
Borrowings 841,825 765,796
Advance payments by borrowers for
taxes and insurance 11,826 2,529
Other liabilities 28,941 29,513
----------------- -----------------
3,002,586 2,884,660
----------------- -----------------
Minority interest in real estate
development 2,368 2,343
Shareholders' equity:
Preferred stock - $.01 par value:
Authorized - 20,000,000 shares
in 2006 and 2005
Issued and outstanding - none
in 2006 and 2005 - -
Common stock - $.01 per value:
Authorized - 200,000,000
shares in 2006 and 2005
Issued - 78,783,849 shares in
2006 and 2005
Outstanding - 62,219,011 in
2006 and 62,325,268 in 2005 788 788
Additional paid-in capital 498,324 497,589
Retained earnings 271,716 269,913
Unearned ESOP shares (3,741) (3,966)
Accumulated other comprehensive
income (23,477) (17,346)
Unearned deferred compensation (6,280) (6,955)
Treasury stock - 16,564,838 in
2006 and 16,458,581 shares in
2005 (196,829) (195,649)
----------------- -----------------
Total shareholders' equity 540,501 544,374
----------------- -----------------
$3,545,455 $3,431,377
================= =================
BANK MUTUAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31,
2006 2005
----------------- -----------------
(In thousands, except
per share data)
Interest income:
Loans $28,410 $25,487
Investments 921 980
Mortgage-related securities 11,898 13,448
Interest-earning deposits 409 43
----------------- -----------------
Total interest income 41,638 39,958
Interest expense:
Deposits 15,273 10,768
Borrowings 6,955 6,036
Advance payment by borrowers for
taxes and insurance 2 2
----------------- -----------------
Total interest expense 22,230 16,806
----------------- -----------------
Net interest income 19,408 23,152
Provision for loan losses 63 117
----------------- -----------------
Net interest income after provision
for loan losses 19,345 23,035
Noninterest income:
Service charges on deposits 1,160 1,025
Brokerage and insurance
commissions 541 546
Loan related fees and servicing
revenue 326 310
Gains on sale of investments 694 1,325
Gain on sales of loans 220 402
Other 1,435 1,313
----------------- -----------------
Total noninterest income 4,376 4,921
Noninterest expenses:
Compensation, payroll taxes and
other employee benefits 9,573 9,995
Occupancy and equipment 2,601 2,636
Amortization of other intangible
assets 165 165
Other 3,124 3,194
----------------- -----------------
Total noninterest expenses 15,463 15,990
----------------- -----------------
Income before income taxes 8,258 11,966
Income taxes 2,892 4,077
----------------- -----------------
Net income $5,366 $7,889
================= =================
Per share data:
Earnings per share-basic $0.09 $0.12
================= =================
Earnings per share-diluted $0.09 $0.11
================= =================
Cash dividends paid $0.07 $0.06
================= =================
Bank Mutual Corporation and Subsidiaries
Supplemental Financial Information (Unaudited)
(Dollars in thousands except per share amounts and ratios)
During the quarter ended March 31,
Originations: 2006 2005
------------- -----------------------------------
Mortgage loans $79,201 $78,688
Consumer loans 37,490 45,792
Commercial business loans 8,428 12,983
----------------- -----------------
Total loan originations $125,119 $137,463
================= =================
Purchases:
----------
Mortgage loans 47,773 60,809
----------------- -----------------
Total loan purchases 47,773 60,809
----------------- -----------------
Total loans originated and
purchased $172,892 $198,272
================= =================
Loan Sales $16,909 $29,978
---------- ================= =================
Loan Portfolio Analysis March 31, December 31,
----------------------- 2006 2005
----------------- -----------------
Mortgage loans:
One-to-four family $1,074,875 $1,048,881
Multi-family 141,858 155,908
Commercial real estate 172,501 175,090
Construction and development 184,971 155,205
----------------- -----------------
Total mortgage loans 1,574,205 1,535,084
Consumer loans 456,033 466,795
Commercial business loans 52,807 57,247
----------------- -----------------
Total loans receivable 2,083,045 2,059,126
Deductions to gross loans 74,816 68,634
----------------- -----------------
Total loans receivable, net $2,008,229 $1,990,492
================= =================
Asset Quality Ratios March 31, December 31,
-------------------- 2006 2005
----------------- -----------------
Non-performing mortgage loans $2,097 $2,214
Non-performing consumer loans 692 616
Non-performing commercial business
loans 2,816 2,517
Accruing loans delinquent 90 days
or more 409 487
----------------- -----------------
Total non-performing loans $6,014 $5,834
================= =================
Total non-performing assets $6,668 $6,542
================= =================
Non-performing loans to loans
receivable, net 0.30% 0.29%
Non-performing assets to total
assets 0.19% 0.19%
Allowance for loan losses to
non-performing loans 201.33% 207.23%
Allowance for loan losses to
non-performing assets 181.58% 184.81%
Allowance for loan losses to total
loans 0.60% 0.61%
Net recoveries (charge-offs) $(45) $(2,374)
Net recoveries (charge-offs) to
avg loans (annualized) -0.01% -0.12%
Allowance for loan losses $12,108 $12,090
Deposit Analysis March 31, December 31,
---------------- 2006 2005
----------------- -----------------
Noninterest-bearing checking $106,297 $110,583
Interest-bearing checking 173,415 174,620
Savings accounts 222,991 224,408
Money Market accounts 264,167 271,418
Certificate accounts 1,353,124 1,305,793
----------------- -----------------
Total Deposits $2,119,994 $2,086,822
================= =================
Bank Mutual Corporation and Subsidiaries
Supplemental Financial Information (Unaudited)
(Dollars in thousands except per share amounts and ratios)
Operating Ratios (annualized) Three months ended March 31,
----------------------------- 2006 2005
----------------- -----------------
Net interest margin (1) 2.37% 2.82%
Net interest rate spread 1.85% 2.35%
Return on average assets 0.62% 0.91%
Return on average shareholders'
equity 3.95% 4.99%
Efficiency ratio (2) 65.01% 56.96%
Non-interest expense as a percent
of average assets 1.80% 1.85%
(1) Net interest margin is determined by dividing net interest income
by average earning assets for the periods indicated.
(2) Efficiency ratio is determined by dividing noninterest expense by
the sum of net interest income and noninterest income for the
periods indicated.
Other Information Three months ended March 31,
----------------- 2006 2005
----------------- -----------------
Average earning assets $3,276,178 $3,286,883
Average assets $3,440,092 $3,455,653
Average interest bearing
liabilities $2,757,560 $2,677,431
Average shareholders' equity $543,467 $631,952
Weighted average number of shares
outstanding
-used in basic earnings per share 60,310,598 67,481,522
-used in diluted earnings per
share 61,964,893 69,709,968
March 31, December 31,
2006 2005
----------------- -----------------
Number of shares outstanding (net
of treasury shares) 62,219,011 62,325,268
Book value per share $8.69 $8.73
Weighted Average Net
Interest Rate Spread At March 31, At December 31,
--------------------- 2006 2005
----------------- -----------------
Yield on loans 5.75% 5.66%
Yield on investments 4.34% 4.27%
Combined yield on loans and
investments 5.20% 5.13%
Cost of deposits 3.07% 2.87%
Cost of borrowings 3.57% 3.58%
Total cost of funds 3.21% 3.06%
Interest rate spread 1.99% 2.07%
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