UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 1 0 - K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
Commission file number: 0-27982
FIRST NORTHERN CAPITAL CORP.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1830142
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 NORTH MONROE AVE., P.O. BOX 23100, GREEN BAY, WI 54305-3100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(414) 437-7101
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(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
amendment to this Form 10-K. [ X ]
As of February 28, 1997, 4,424,335 shares of Common Stock were outstanding,
and the aggregate market value of the Common Stock (based upon the $18.625 last
sale price quotation on the NASDAQ National Market System as reported in the
Wall Street Journal) held by non-affiliates (excludes a total of 542,546 shares
reported as beneficially owned by directors and executive officers or held in
the registrant's 401(k) Savings Plan; does not constitute an admission as to
affiliate status) was approximately $72,298,320.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH
DOCUMENT PORTIONS OF DOCUMENT ARE INCORPORATED
Annual Report to Stockholders for
Fiscal Year Ended December 31, 1996 Parts I and II
Proxy Statement for Annual Meeting of
Stockholders on April 30, 1997 Part III<PAGE>
<PAGE>
FIRST NORTHERN CAPITAL CORP.
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-30
2. Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-31
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 31
4. Submission of Matters to a Vote of Security Holders . . . . . . . 31
Executive Officers of the Registrant . . . . . . . . . . . . . . . 31-33
PART II
5. Market for Registrant's Common Equity and
Related Stockholders Matters . . . . . . . . . . . . . . . . . . 33
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 33
7. Management s Discussion and Analysis of Financial
Conndition and Results of Operations . . . . . . . . . . . . . . 33
8. Financial Statements and Supplementary Data . . . . . . . . . . . 33
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . 33
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . . . 33
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 33
12. Security Ownership of Certain Beneficial Owners and Management . . . 33
13. Certain Relationships and Related Transactions . . . . . . . . . . . 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
PART I.
ITEM 1. BUSINESS
OVERVIEW. First Northern Capital Corp. (the "Company" or "First
Northern"), a unitary savings and loan holding company, was incorporated in
Wisconsin in 1995 for the purpose of owning all of the outstanding stock of
First Northern Savings Bank, S.A. (the "Savings Bank"), a Wisconsin
chartered capital stock savings and loan association, which reorganized into
the holding company structure effective December 20, 1995 (the
"Reorganization"). At that date, each outstanding share of the Savings
Bank's common stock was converted into one share of the Company's common
stock. Consequently, the former holders of all the outstanding stock of the
Savings Bank acquired the same proportionate ownership interest in First
Northern as they had held in the Savings Bank. The consolidated
capitalization, assets, liabilities, income and other financial data of First
Northern immediately following the Reorganization were substantially the
same as those of the Savings Bank immediately prior to consummation of the
Reorganization. The Reorganization was effected to provide greater
flexibility in meeting the Company's future financial and competitive needs.
All data presented in this Report for dates and periods prior to
December 20, 1995 relates to the Savings Bank. All references herein to
First Northern or the Company for any date or period prior to consummation of
the Reorganization shall be deemed to refer to the Savings Bank.
The Savings Bank is the only direct subsidiary of the Company and its
operations are the primary contributor to the Company's earnings and
expenses. The Savings Bank's business consists primarily of attracting
deposits from the general public and originating loans throughout its
Northeastern Wisconsin branch network. Great Northern Financial Services
Corporation ("GNFSC") (formally known as Great Northern Development
Corporation), a wholly-owned subsidiary of the Savings Bank, offers full
brokerage services to the public, including the sale of tax deferred
annuities and mutual funds, and sells credit life and disability insurance.
Another wholly-owned subsidiary, First Northern Investments, Inc. ("FNII"),
manages a majority of the Savings Bank's investments. The Savings Bank's
50% owned subsidiary, Savings Financial Corporation ("SFC"), originates,
services and sells automobile loans to its parent corporations.
First Northern is based in Green Bay, Wisconsin and conducts its business
from 20 offices located in a contiguous, eight-county (Brown, Marinette,
Manitowoc, Door, Shawano, Outagamie, Waupaca, and Calumet) area in Northeastern
Wisconsin.
The statistical disclosures and other information in this Item 1
concerning First Northern's operations and financial condition should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations (which includes additional statistical
information) and the Consolidated Financial Statements and Notes thereto
incorporated by reference in Items 7 and 8 hereof, respectively.
On September 18, 1992, First Northern effected a 2-for-1 stock split
in the form of a 100% stock dividend. Unless otherwise indicated, all shares
and per share information reflect the stock split.
CAUTIONARY FACTORS. The Form 10-K and Annual Report contains various
forward-looking statements concerning the Company s prospects that are
based on the current expectations and beliefs of Management. Forward-
looking statements may also be made by the Company from time to time in
other reports and documents as well as oral presentations. When used in
written documents or oral statements, 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 Company's control, that could cause
the Company'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 Company: 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 Savings Bank s loan and
investment portfolios and the investment portfolio of FNII.
THE GENERAL THRIFT INDUSTRY. The operations of First Northern and the Savings
Bank, as well as other savings associations and other financial institutions,
are significantly influenced by general economic conditions, by the related
monetary, tax and fiscal policies of the federal government and by the policies
of regulatory authorities, including the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"), the Office of Thrift Supervision
("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and in the case of
First Northern and the Savings Bank, the Wisconsin Department of Financial
Institutions---Division of Savings Institutions ("WDFI-Administrator")
(formerly the "Wisconsin Commissioner of Savings and Loan). First
Northern's results of operations are also affected by accounting principles
and regulations adopted by the Financial Accounting Standards Board ("FASB")
and other organizations. Deposit flows and costs of funds are influenced by
interest rates on competing investments, general market rates of interest,
the level of personal savings and the public perception of the financial
strength of the industry. Lending activities are affected by the demand
for mortgage financing and other types of loans, which in turn is affected
by the interest rates at which such financing may be offered and market forces
acting upon the supply of housing and the availability of funds.
RECAPITALIZATION OF SAIF. As anticipated, the Savings Association Insurance
Fund ( SAIF ) of the FDIC was recapitalized during 1996 by a one-time
special assessment imposed on all SAIF members. The $2,856,000 assessment
paid by First Northern had a significant impact on its 1996 financial
results. However, the effect of the recapitalization is a significant
reduction in federal deposit insurance premiums for SAIF-insured institutions
on an ongoing basis. See Management s Discussion and Analysis of Financial
Condition and Results of Operations incorporated by reference in Item 7
hereof.
ACQUISITIONS. On April 28, 1994, Prime Federal Bank, FSB ("Prime Federal")
merged with and into the Savings Bank. As a part of the business combination,
the Savings Bank exchanged 2.8275 shares of its common stock for each share
of Prime Federal common stock outstanding, resulting in the issuance of
1,243,000 shares of the Savings Bank's common stock. The transaction was
accounted for as a pooling of interests; consequently, financial data for
years prior to 1994 have been restated to include the operating results of
Prime Federal.
On June 12, 1992, the Savings Bank completed its acquisition of
New London Savings and Loan Association ("New London"). As part of the
transaction, New London converted from a Wisconsin chartered mutual savings
and loan association to a Wisconsin chartered stock savings institution and
simultaneously merged with and into the Savings Bank. The Savings Bank issued
679,584 shares of its common stock to certain members of New London, other
eligible subscribers, and the general public for approximately $6.1 million of
additional capital.
MARKET AREA AND COMPETITION. First Northern's primary market area is an
eight county area in Northeastern Wisconsin which surrounds Green Bay, the
third largest city in Wisconsin. First Northern operates 20 offices located
in 15 cities in this area. These counties and cities are serviced by four
Green Bay area television stations and are included in the circulation of a
Green Bay newspaper.
Financial organizations, such as First Northern, experience intense
competition in both attracting and retaining deposits and in making real
estate and consumer loans. First Northern's management believes that its
share of the deposit and mortgage lending markets in its primary market area
is approximately 10% and 10%, respectively. Most direct competition for
deposits has come from savings and loan associations, commercial banks,
credit unions, stock brokerage firms and money market mutual funds. In
addition to offering competitive types of accounts and interest rates, the
principal methods used by First Northern to attract deposits include the
offering of a variety of services, and convenient business hours and branch
locations, with inter-branch deposit and withdrawal privileges at each location.
Competition in originating real estate loans comes primarily from other
savings institutions, commercial banks and mortgage bankers.
The primary factors in competing for loans are interest rates and
interest rate adjustment provisions, loan fees and the quality of service to
borrowers.
The Wisconsin Statutes governing savings associations and their
holding companies provide for regional reciprocal interstate banking which
permits additional competitors to enter First Northern's primary market and
may tend to create further concentration in the financial services industry.
Under Wisconsin law, Wisconsin chartered savings institutions may open
branches in Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri
and Ohio, provided that reciprocal legislation is adopted in such states
(the "Regional States"). Currently, all but Missouri have adopted reciprocal
legislation. A Wisconsin based savings and loan holding company is able
to acquire a savings institution or holding company in any of the Regional
States and such a holding company located in a Regional State is able to make
similar acquisitions in Wisconsin. In addition, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994, which allows bank holding
companies that are adequately capitalized and adequately managed to acquire
banks anywhere in the nation regardless of whether the acquisition is
prohibited under state law, is also expected to create further competition and
concentration in the financial services industry.
LENDING ACTIVITIES. First Northern has traditionally concentrated on
originations of adjustable and fixed interest rate one- to four-family mortgage
loans and consumer loans. First Northern also originates five or more family
residential, commercial real estate and short-term construction mortgage loans.
Adjustable interest rate mortgage loans are originated for First Northern's
portfolio while fixed interest rate mortgage loans, particularly those with
terms greater than 15 years, are primarily originated for sale in the secondary
mortgage market. At December 31, 1996, approximately 90% of First Northern's
mortgage loan portfolio was interest rate adjustable.
To aid in matching maturities of its assets and liabilities, First
Northern originates second mortgage loans, automobile, boat, recreational
vehicle and other types of consumer loans. These loans are generally of
shorter maturities than first mortgage loans and are originated at both
adjustable or fixed interest rates.
First Northern lends primarily in its eight county market area in
Northeastern Wisconsin. At December 31, 1996, approximately 99.0% of the
total dollar amount of First Northern s mortgage loans outstanding were on
properties located in Wisconsin with the other 1.0% representing properties
located primarily in other Midwestern states.
First Northern's loan portfolio of $563.9 million before deductions at
December 31, 1996 was 91.6% by dollar volume of its total assets. As of
that date, approximately 69.6% by dollar volume of the loan portfolio
consisted of conventional first mortgage loans secured by one- to four-family
residences, with an additional 24.4% by dollar volume in consumer loans, 3.6%
by dollar volume in multi-family (more than four) residential properties, 2.1%
by dollar volume in commercial real estate properties and .3% in other
properties.
LOAN INTEREST RATES AND TERMS. Interest rates charged on First Northern's
loans are affected primarily by the demand for such loans and the supply and
cost of money available for lending purposes. These factors are in turn
affected by general economic conditions and such other forces as monetary
policies of the federal government, including the Federal Reserve Board, the
general supply of money, tax policies and governmental budgetary matters.
Certain lending activities of Wisconsin chartered savings associations are
subject to Wisconsin usury laws.
The maturities and average periods that loans actually remain outstanding,
together with the variability of loan interest provisions, in each case as
compared with the corresponding factors for loan funding sources, are the key
determinants of a lender's exposure to interest rate risk. First Northern
estimates that the average range of time mortgage loans are outstanding is
approximately six to ten years. Loan sales may also be used as a means
of reducing interest rate risk. First Northern's general policy, which is
subject to review by management as a result of changing market and economic
conditions, and other factors, is to retain all adjustable interest rate
mortgage loans in its portfolio and to keep up to approximately 20% of the
mortgage portfolio in fixed interest rate mortgage loans. First Northern
estimates that generally not more than 5% of the total mortgage portfolio
will be in 30 year fixed interest rate mortgage loans. This policy is part
of First Northern's asset/liability management strategy. Prior to mid-1993,
it was First Northern's practice when selling its mortgage loans through the
secondary market to retain 5% ownership and the loan servicing. In mid-1993,
First Northern began to sell mortgage loans on a whole loan (100%) basis while
retaining the loan servicing. First Northern adjusted its method of selling
mortgage loans to conform more closely with national standards for loan sales.
Mortgage loans made by First Northern generally are long-term loans,
amortized on a monthly basis with principal and interest due each month.
Borrowers have the option to prepay loans, in whole or in part, subject to a
possible prepayment penalty, which on loans originated prior to November 1,
1981, is 90 days interest on the amount by which aggregate principal
prepayments for a 12-month period exceed 20% of the original amount of the
loan. If the loan was originated after November 1, 1981, and the rate of
interest is not based on fluctuations in an index, the penalty is 60 days
interest on the amount by which aggregate principal prepayments for a
12-month period exceed 20% of the original amount of the loan if the prepayment
occurs within five years of the date of the loan. Adjustable interest rate
loans tied to fluctuations in an index do not include a prepayment penalty.
Market conditions and competition determine when a prepayment penalty is placed
in the mortgage instrument. Since 1988, First Northern has not included a
prepayment penalty on one- to four-family owner-occupied mortgage loans.
Although the original contractual loan payment period for mortgage loans
normally ranges from 15 to 30 years, First Northern's experience has been
that, because of prepayments in connection with refinancing and sales of
property, mortgage loans typically remain outstanding for a substantially
shorter period.
Management of First Northern is committed to matching the maturities of
assets and liabilities. In furtherance of this goal, management's policy is
to emphasize the origination of consumer loans and other loans having short
maturities, such as three to six years, and mortgage loans which are interest
rate adjustable or are eligible for sale in the secondary market. At
December 31, 1996, consumer loans (second mortgage, automobile and other
consumer loans) outstanding totaled $137.7 million. Consumer loan originations
and purchases for the year ended December 31, 1996 were $88.3 million, of which
$25.0 million or 28.3% were interest rate adjustable. In 1995, First Northern
adjusted its consumer loan origination policy (except for second mortgages
which are originated with an adjustable or fixed interest rate) to originate
all consumer loans as fixed interest rate rather than a combination
of fixed and adjustable interest rate consumer loans. This adjustment
in policy was adopted to foster growth in income from consumer loans.
Consumer loan originations and purchases in 1995 were $68.3 million, of
which $30.3 million or 44.3% were interest rate adjustable, and in 1994 were
$79.6 million, of which $24.5 million or 30.8% were interest rate adjustable.
Such loan originations in 1993 were $57.6 million, of which $17.1 million or
29.7% were interest rate adjustable.
First lien residential mortgage loans originated after November 1, 1981
do not have a usury interest rate limitation in Wisconsin. Since February
1985, First Northern has originated mortgage loans using contracts which
contain interest rate adjustment clauses allowing a lifetime interest rate
adjustment of between 5% to 8% over the original contract interest rate on
all residential mortgage loans and subject to annual interest rate adjustment
caps of up to 2%. First Northern's ability to successfully market such loans
depends on, among other things, prevailing interest rates, the volatility of
interest rates and the public's acceptance of adjustable interest rate
mortgage loans. First Northern has generally fixed the interest rate for the
first one, two, three or five years of the loan term. First Northern also
maintains a policy of including a "due on sale" clause in its mortgage loans.
This clause generally gives First Northern the right, subject to certain
restrictions, to declare a loan immediately due and payable in the event,
among other things, that the borrower sells or otherwise disposes of the real
property subject to the mortgage without first either obtaining First
Northern's consent or repaying the loan.
LOAN ORIGINATIONS. First Northern has general authority to lend anywhere in the
United States; however, it has chosen to concentrate its mortgage origination
activities in Northeastern Wisconsin with primary emphasis in the counties
served by its offices. As of December 31, 1996, First Northern had only 110
loans secured by out of state properties, representing $4.0 million or
1.0% of the total dollars in its mortgage loan portfolio. First Northern's
mortgage lending is subject to written, non-discriminatory underwriting
guidelines and to loan origination procedures prescribed annually by First
Northern's Board of Directors. Property appraisals independent appraisers,
in accordance with First Northern's appraisal policy, are required.
Additionally, all appraisals must establish the adequacy of the proposed
security and meet Federal Home Loan Mortgage Corporation and Federal National
Mortgage Association guidelines. Detailed loan applications are obtained to
determine the borrower's ability to repay, and the more significant items on
these applications are verified through the use of credit reports,
financial statements and employment and income confirmations. Loans are
reviewed and approved as directed by the underwriting guidelines established
by the Board of Directors.
At December 31, 1996, First Northern serviced for others $121.0 million
of whole loans and participation interests in mortgage loans. In addition,
as of December 31, 1996, First Northern had approximately $41.6 million of 15
and 30 year fixed interest rate mortgages in its mortgage investment portfolio.
See "Loan Interest Rates and Terms" above. In 1996, 1995 and 1994, First
Northern sold $11.1, $11.6 and $18.2 million, respectively of 15 and 30
year fixed interest rate mortgage loans to the secondary market in accordance
with First Northern's asset and liability management policy. First
Northern also originates mortgage loans for the Wisconsin Department of
Veterans Affairs ("WDVA") and the Wisconsin Housing and Economic Development
Authority ("WHEDA"), which result in additional origination fees and servicing
income. First Northern does not currently originate a significant amount of
Federal Housing Administration ("FHA") insured or Veterans Administration
("VA") partially guaranteed loans.
In addition to traditional mortgage lending activities, First Northern
has participated in various State and local special loan programs. Many of
these programs are designed specifically to make home ownership more available
to qualified low/moderate income families. Through the FHLB of Chicago's
Affordable Housing Program, First Northern has obtained funding for down
payment and closing cost assistance to assist low income first-time home
buyers.
First Northern requires borrowers to obtain title insurance or abstracts
of title, depending on the type of mortgage product, on first mortgage real
estate loans. Home equity loan borrowers are required to obtain a title
search before and after the loan is originated to assure First Northern that
the loan has been properly recorded and secured. Borrowers also must
obtain hazard insurance prior to closing and, when required by the
Department of Housing and Urban Development, flood insurance. Borrowers may
be required to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage escrow account from which First Northern
makes disbursements for items such as real estate taxes and private mortgage
insurance premiums as they become due. First Northern is required by
Wisconsin law to pay interest on mortgage escrow accounts where the loan
was originated after January 31, 1983 and is secured by one- to four-family,
owner-occupied residences. The interest rate is based on the annual average
of passbook interest rates paid by all Wisconsin financial institutions (2.91%
for 1996). Currently, approximately 80% of the escrow dollars are interest
bearing. The interest rate paid on escrow dollars is adjusted annually. The
interest rate to be paid on qualified mortgage escrow dollars in 1997 is 2.83%.
Regulations of the WDFI-Administrator also limit the amount which
First Northern may lend up to specific percentages of the value of the real
property securing the loan (referred to as "loan-to-value" ratios), as
determined by an appraisal at the time the loan is originated. A loan secured
by a first lien mortgage may not exceed 90% of the appraised value of the
real estate security unless, among other things, the portion exceeding that
percentage is insured or guaranteed by a mortgage insurance company against
losses resulting from borrower default or the loan is guaranteed by a federal
or state agency. First Northern's policy is to not make loans in excess of
80% of the lower of the appraised value or the purchase price unless the excess
is insured by private mortgage insurance or the loan is guaranteed by a federal
or state agency. Real estate loans secured by other than a first lien must
also conform generally to First Northern's policy of limiting loans to 80% of
value. All mortgage loan applications are reviewed by First Northern's
corporate underwriting staff to ensure compliance with its uniform loan
underwriting guidelines. The federal agencies regulating First Northern have
also established real estate lending standards, that, among other things,
create loan-to-value ratios for various real estate loan categories. First
Northern's current underwriting standards, as stated above, conform with these
real estate lending standards.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of First Northern's loan portfolio (excluding loans held for sale)
by type of security at the dates indicated. The table does not reflect loans
sold and serviced for others. First Northern continues to service these loans.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
----------------- ---------------- ---------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One to four family
residential $376,189 66.72% $352,449 69.08% $350,291 69.54% $304,891 70.14% $306,139 73.84%
Five or more family
residential 20,154 3.57 17,591 3.45 18,478 3.67 20,162 4.64 18,895 4.56
Commercial real estate 9,975 1.77 10,028 1.97 9,501 1.89 10,280 2.37 9,801 2.36
Construction-residential 16,306 2.89 10,782 2.11 6,916 1.38 10,443 2.40 4,125 0.99
Construction-commercial 1,701 0.30 1,225 0.24 1,533 0.30 1,044 0.24 204 0.05
Other 1,900 0.34 1,788 0.35 1,533 0.30 1,044 0.24 1,165 0.28
-------- ------ -------- ------ -------- ----- -------- ------ -------- ------
Total mortgage loans 426,225 75.59 393,863 77.20 388,252 77.08 347,864 80.03 340,329 82.08
Consumer loans:
Consumer 18,179 3.22 20,307 3.98 21,756 4.32 22,241 5.12 21,539 5.20
Second mortgage 59,148 10.49 46,528 9.12 29,454 5.85 22,853 5.26 19,950 4.81
Automobile 60,339 10.70 49,504 9.70 53,527 10.63 33,102 7.62 25,661 6.19
Education - - 10,677 2.12 8,583 1.97 7,127 1.72
--------- ------ --------- ------ -------- ----- -------- ------ -------- ------
Total consumer loans 137,666 24.41 116,339 22.80 115,414 22.92 86,779 19.97 74,277 17.92
--------- ------ --------- ------ -------- ----- -------- ------ -------- ------
Gross total loans 563,891 100.00% 510,202 100.00% 503,666 100.00% 434,643 100.00% 414,606 100.00%
====== ====== ====== ====== ======
Less:
Undisbursed loan proceeds 5,942 6,071 3,146 7,056 6,361
Allowance for losses 2,937 2,608 2,400 2,306 1,856
Unearned loan fees 1,017 988 1,059 1,047 1,217
-------- -------- -------- -------- ---------
Net loans receivable $553,995 $500,535 $497,061 $424,234 $405,172
======== ======== ======== ======== ========
</TABLE>
CONTRACTUAL MATURITIES OF LOANS. The following table presents information as
of December 31,1996 regarding loan maturities and contractual principal
repayments by categories of loans during the periods indicated. Loans with
adjustable interest rates are shown as maturing in the year of their
contractual maturity.
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENTS CONTRACTUALLY DUE IN YEAR(S) ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
2000- 2002- 2006- AFTER
1997 1998 1999 2001 2005 2010 2010 TOTAL
--------- -------- -------- -------- -------- -------- -------- --------
(In Thousands)
Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage $ 2,641 $ 1,693 $ 4,406 $10,944 $44,158 $ 94,341 $250,036 $408,218
Mortgage
construction (1) 2,660 1,051 99 302 903 12,992 18,007
Consumer loans 21,864 20,943 19,280 30,380 37,005 8,104 90 137,666
------- ------- -------- -------- -------- -------- ------- --------
Total $27,165 $23,687 $23,785 $41,324 $81,464 $103,347 $263,118 $563,891
======== ======== ======== ======== ======== ======== ========= =========
- - -------------
</TABLE>
(1) First Northern's mortgage construction loans are originated for either the
construction phase or the combined construction and full amortization
term of the loan.
Of the $536.7 million of loans contractually due after December 31,
1997, approximately $105.3 million have fixed interest rates and approximately
$431.4 million have adjustable interest rates.
Contractual maturities of loans do not reflect the actual life of the
loan portfolio. The average life of mortgage loans is substantially less
than their contractual terms because of loan prepayments. The average life
of mortgage loans tends to increase, however, when current mortgage market
interest rates exceed interest rates on existing mortgages and decrease when
mortgage interest rates decline.
MORTGAGE AND CONSUMER LOANS. The following table sets forth activity (for
First Northern's investment and held for sale loan portfolios) for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- ---------
(In Thousands)
Mortgage loans originated
and purchased:
<S> <C> <C> <C> <C> <C>
Construction $ 26,596 $ 17,316 $18,706 $ 17,659 $ 16,117
Loans on existing property 49,017 37,491 51,652 39,340 43,834
Refinancing (1) 24,928 10,802 21,703 67,193 63,101
Other 2,668 2,560 1,316 3,574 839
--------- -------- ------- -------- --------
Total mortgage loans originated
and purchased 103,209 68,169 93,377 127,766 123,891
Consumer loans originated
and purchased:
Consumer 15,292 8,773 11,150 9,144 15,231
Second mortgage 24,871 30,474 25,340 22,385 14,830
Automobile 45,722 26,109 39,842 23,713 24,465
Education 2,382 2,895 3,290 2,325 1,710
--------- -------- ------- -------- --------
Total consumer loans originated
and purchased 88,267 68,251 79,622 57,567 56,236
--------- -------- ------- -------- --------
Mortgage loans sold (11,065) (11,583) (18,174) (68,576) (57,621)
Education loans sold (3,187) (10,489)
Loan repayments
and other credits (123,535) (107,812) (85,802) (96,720) (131,648)
--------- -------- ------- -------- --------
Net increase(decrease) $ 53,689 $ 6,536 $69,023 $ 20,037 $ (9,142)
========== ========== ======= ======== =========
</TABLE>
- - -----------------------
(1) Refinancing mortgage loans are stated as net new dollars. Net new
dollars are the additional dollars that were disbursed above an
existing loan balance for the same borrower and property. Gross
refinanced dollars for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, were $10.6 million, $15.1 million, $33.1 million,
$127.1 million, and $102.8 million, respectively.
First Northern is permitted to make secured and unsecured
consumer loans including automobile, recreational vehicle, marine and other
consumer loans, home equity, property improvement, manufactured housing,
education and deposit account loans. At December 31, 1996, consumer loans
represented 24.4% of total loans.
LOAN FEE INCOME. A borrower on a one- to four-family owner-occupied residence
may be charged a loan origination fee of up to 1 1/2% of the loan amount, with
the actual amount being dependent upon, among other things, market conditions
at the time of origination. These fees are in addition to appraisal and other
fees paid by the borrower to First Northern at the time of application. Loan
origination and commitment fees and certain direct loan origination costs
are being deferred and the net amounts amortized as an adjustment to the
related loan's yield. First Northern is amortizing these amounts using the
level-yield method, adjusted for prepayments, over the contractual life of the
related loans.
USURY LIMITATION AND INTEREST RATE ADJUSTMENT PROVISIONS. On November 1, 1981,
Wisconsin enacted a comprehensive revision to its usury statutes. This
legislation deregulated interest rates on mortgage loans. With respect to
any loan secured by a real estate mortgage and made, refinanced, renewed,
extended or modified after that date, maximum interest rates were eliminated.
Consumer loans of $25,000 or less are generally subject to the Wisconsin
Consumer Act which establishes disclosure requirements for interest rates and
finance charges and, for transactions entered into before November 1, 1984,
limits the maximum finance charges are limited to a maximum annual percentage
rate of the greater of 18% per annum or 6% over the average monthly auction
rate for 6 month Treasury bills.
Mortgage lenders have historically had authority under Wisconsin law to
include interest adjustment clauses in loan contracts. Before June 12, 1976,
the only limit on interest adjustment increases was the general usury ceiling.
However, as of that date, Wisconsin law began to distinguish between two kinds
of interest adjustment clauses in connection with loans on owner-occupied
one- to four- family residential property: (1) those that tie interest
adjustments to fluctuations in an approved index ("indexed" interest adjustment
provisions); and (2) those that do not ("unindexed" interest adjustment
provisions). Subject to certain statutory restrictions, interest adjustments
under an unindexed interest adjustment provision are solely at the option of
the lender.
Under Wisconsin law, unindexed adjustable rate provisions contained in
first lien mortgage loans made on one- to four-family owner occupied
dwellings may: (1) permit rate increases to be made as often as once every 6
months, upon 30 days' written notice, and in increments of up to 1% each; and
(2) enable a lender that has waived a permitted interest rate increase to
subsequently increase the interest rate to the level that would have been in
effect had the opportunity for an increase not been waived.
Mortgages that are subject to indexed interest adjustment provisions are
treated in substantially the same way under Wisconsin law. However, instead
of increases or decreases occurring solely at the discretion of the lender,
rates may be increased, and must be decreased, in accordance with changes
in the approved index. Unlike its unindexed adjustable rate counterpart,
adjustments made under an indexed adjustable rate provision governed by the
1981 law may be made at intervals more frequent than 6 months.
Borrowers may prepay their loan without penalty during the 30 days
following notice of a rate increase, or at any time after 5 years from the
date of the loan.
First Northern has used both an unindexed and an indexed adjustable
interest rate mortgage. With both types of adjustable rate forms, First
Northern has generally fixed the interest rate for the first one, two, three
or five years of the loan term. The unindexed adjustable interest rate loans
also provide for a maximum interest rate adjustment of 1% during each 12 month
period thereafter. The indexed adjustable rate loan provides for a
maximum interest rate adjustment of the lesser of the index or 1% to 2%
depending on origination date of the loan, during each 12 month period. Since
February 1985, First Northern has originated mortgage loans using contracts
which contain interest rate adjustment clauses allowing a lifetime interest
rate adjustment of between 5% and 8% over the original contract interest
rate on all residential mortgage loans.
Loans made for a business purpose, when secured by commercial real
estate, or made to a corporate borrower and originated, renewed or refinanced
on or after November 1, 1981, are not subject to any interest rate or
contract provision limitations. The terms of such loans are dependent on
market conditions and negotiation between lenders and borrowers.
First Northern has been able to exercise its escalation rights under
the interest rate escalation clauses on its mortgage loan portfolio. The
use of the escalation clause gives First Northern greater control over its
income due to its ability to increase interest yields on its mortgage
portfolio. See "Loan Interest Rates and Terms" above.
CLASSIFIED ASSETS AND DELINQUENCIES. When a mortgage borrower fails to
make a required payment on a loan, First Northern attempts to have the
deficiency cured by contacting the borrower. Contacts are made after a
payment is more than 30 days past due and, in most cases,
deficiencies are cured promptly. If the delinquency exceeds 90 days and
is not cured through First Northern's normal collection procedures, First
Northern will institute measures to remedy the default, including
commencing a foreclosure action or accepting a voluntary deed of the
secured property in lieu of foreclosure from the mortgagor. If a
foreclosure action is instituted and the loan is not reinstated, paid in
full, or refinanced, the property is sold at a judicial sale at which,
in most instances, First Northern is the buyer. First Northern is
permitted to finance sales of foreclosed properties by "loans to facilitate,"
which may involve terms more favorable than generally would be granted under
First Northern's underwriting guidelines. As of December 31, 1996, 1995, 1994,
1993 and 1992 these loans amounted to $442,465, $546,071, $591,000, $655,000
and $743,000, respectively.
Under Wisconsin law, a mortgagor is afforded a period of time, subsequent
to the entry of judgment and prior to judicial sale, within which to redeem
the equity in the property ("equity right of redemption"). The length of the
equity right of redemption varies depending on the form of foreclosure
proceedings selected by the lender, the type and condition of the real estate
security and other factors. The majority of First Northern's residential
foreclosures follow a form which provides a 6 month equity right of redemption
and a waiver of any deficiency judgment against the borrower. Use of this
process takes approximately 8-12 months from commencement of the action to
judicial confirmation of the sale.
The OTS has established a required classification system for all assets.
Under the regulation, all assets are classified as "standard," "substandard,"
"doubtful," or "loss." Assets classified as loss are required to be
charged-off. Assets classified as doubtful or substandard do not require a
write-off of the amounts so classified but may necessitate additions to the
general allowances for losses. An institution's determination as to the
classification of its assets and the amount of valuation allowances are
subject to review by the District Director of the OTS or the FDIC, who could
order the establishment of additional loan loss allowances.
The following table identifies the dollar amount of loans that are
classified as substandard, doubtful or loss as of the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------------------------
1996 1995 1994
------ ------ -------
(In Thousands)
<S> <C> <C> <C>
Substandard $905 $518 $624
Doubtful 21 13 37
Loss 9 6
----- ----- -----
Total Classified Assets $935 $531 $667
===== ===== =====
</TABLE>
9<PAGE>
<PAGE>
The increase in the amount of substandard assets in 1996 was the result of
an increase in overall delinquencies. The 1995 level of Total Classified Assets
was at an historically low level.
ALLOWANCES FOR LOSSES. Allowances for losses on loans, real estate, and
repossessed assets are based on Management's evaluation of various factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loss experience, estimated sales price, regulatory
environment and holding and selling costs.
While First Northern has a low level of non-performing assets and low
historical charge-off experience, the inherent credit risk within the
portfolio (primarily relating to the automobile loan portfolio) has increased.
It is this increase which primarily resulted in the increase in the loan loss
allowance.
At December 31, 1992, First Northern's automobile loan portfolio was
$25.7 million as compared to $60.3 million at December 31, 1996. This
increase of $34.6 million represents a 134.6% growth in the automobile loan
portfolio while the allowance for all losses increased from $1.9 million to
$2.9 million or an increase of 52.6%.
Management believes that the allowances for losses on loans, real estate,
and repossessed assets are adequate. While Management uses available
information to recognize losses on loans and real estate owned, future
additions to the allowances may be necessary based on changes in economic
conditions or regulatory requirements.
All of First Northern's loans are domestic. A summary of the allowance
for losses is shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $1,578 $1,499 $1,426 $1,151 $1,130
Provisions, charged to provision
for loan losses 10 79 292 197
Charge-offs:
1 to 4 family residential (20) (44) (176)
Recoveries:
1 to 4 family residential 24 7
Commercial real estate 1 20
Transfer of loss reserve (136)
Adjustment to conform pooled
companies' fiscal year ends 69
------ ------- ------ ------
Balance, end of year $1,453 $1,578 $1,499 $1,426 $1,151
====== ======= ====== ======= =======
Consumer loans:
Balance, beginning of year $1,030 $ 901 $ 880 $ 705 $ 407
Provisions, charged to provision
for loan losses 360 161 145 247 341
Charge-offs:
Consumer (23) (30) (59) (46) (52)
Automobile (43) (41) (68) (35) (2)
Recoveries:
Consumer 11 21 5 6 11
Automobile 13 18 16 3
Transfer of loss reserve 136
Adjustment to conform pooled
companies' fiscal year ends (18)
------- ------- ------ ------ ------
Balance, end of year $1,484 $1,030 $ 901 $ 880 $ 705
====== ======= ====== ======= =======
Foreclosed properties &
repossessed assets:
Balance, beginning of year $ 1 $ 1 $ 1 $ 67 $ 54
Provisions, charged to
non-interest expense 13 13 32
Charge-offs:
1 to 4 family residential (14) (79) (19)
------ ------- ------ ------- -------
Balance, end of year $ - $ 1 $ 1 $ 1 $ 67
====== ======= ====== ======= =======
Total charge-offs
to average loans outstanding 0.01% 0.01% 0.02% 0.04% 0.06%
==== ==== ==== ==== ====
Net charge-offs to average
loans outstanding 0.01% 0.01% 0.02% 0.02% 0.05%
==== ==== ==== ==== ====
</TABLE>
Interest income on loans is accrued and credited to operations based on
the principal amount outstanding. The accrual of interest income is generally
discontinued when a loan becomes 90 days past due as to principal or interest
and/or when, in the opinion of management, full collection is unlikely. When
interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged
to the allowance for loan losses. Management may elect to continue the accrual
of interest when the loan is in the process of collection and the value of
collateral is sufficient to cover the principal balance and accrued interest.
Interest received on non-accrual loans generally is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal. Generally, loans are restored to accrual
status when the obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
The following tables show the Company's total allowance for loan losses
and the allocation to the various categories of loans held for investment at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------------------
% OF
LOANS IN
ALLOWANCE CATEGORY
AS A % OF TO TOTAL
LOANS IN OUTSTANDING
AMOUNT CATEGORY(1) LOANS(1)
-------- ------------- -------------
(DOLLARS IN THOUSANDS)
Breakdown of allowance
Mortgage loans:
<S> <C> <C> <C>
One- to four-family residential $1,180 0.31% 66.72%
Five or more family residential 121 0.60 3.57
Commercial real estate 114 1.14 1.77
Construction 3.19
Other 18 0.95 0.34
Classified mortgage loans 20 3.00
------ ------ ------
Total mortgage loans 1,453 0.34 75.59
Consumer loans:
Consumer 83 0.46 3.22
Second mortgage 211 0.36 10.49
Automobile 1,172 1.94 10.70
Education
Classified consumer loans 18 2.00
------ ------ ------
Total consumer loans 1,484 1.08 24.41
------ ------ ------
Total allowance for loans $2,937 0.52% 100.00%
====== ==== ======
</TABLE>
- - ------------------------
(1) Percentages are calculated on gross loan balances.
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------------------------
% OF
LOANS IN
ALLOWANCE CATEGORY
AS A % OF TO TOTAL
LOANS IN OUTSTANDING
AMOUNT CATEGORY(1) LOANS(1)
-------- ------------ -------------
(DOLLARS IN THOUSANDS)
Breakdown of allowance
Mortgage loans:
<S> <C> <C> <C>
One- to four-family residential $1,359 0.39% 69.08%
Five or more family residential 98 0.56 3.45
Commercial real estate 97 0.97 1.97
Construction 2.35
Other 16 0.89 0.35
Classified mortgage loans 8 2.05
------ ----- -------
Total mortgage loans 1,578 0.40 77.20
Consumer loans:
Consumer 79 0.39 3.98
Second mortgage 137 0.29 9.12
Automobile 811 1.64 9.70
Education
Classified consumer loans 3 2.00
------ ----- -------
Total consumer loans 1,030 0.89 22.80
------ ----- -------
Total allowance for loans $2,608 0.51% 100.00%
====== ==== =======
</TABLE>
- - -----------------------
(1) Percentages are calculated on gross loan balances.
<TABLE>
<CAPTION>
At December 31, 1994
-------------------------------------
% of
Loans in
Allowance Category
as a % of to Total
Loans in Outstanding
Amount Category(1) Loans(1)
-------- ------------ -------------
(Dollars in Thousands)
Breakdown of allowance
Mortgage loans:
<S> <C> <C> <C>
One- to four-family residential $1,295 0.37% 69.54%
Five or more family residential 85 0.46 3.67
Commercial real estate 92 0.97 1.89
Construction 1.68
Other 13 0.85 0.30
Classified mortgage loans 14 2.05
------ ------ ------
Total mortgage loans 1,499 0.39 77.08
Consumer loans:
Consumer 84 0.39 4.32
Second mortgage 93 0.32 5.85
Automobile 720 1.34 10.63
Education 2.12
Classified consumer loans 4 2.00
------ ------ ------
Total consumer loans 901 0.78 22.92
------ ------ ------
Total allowance for loans $2,400 0.48% 100.00%
====== ===== =======
</TABLE>
- - -----------------------
(1) Percentages are calculated on gross loan balances.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1993
------------------------------------
% of
Loans in
Allowance Category
as a % of to Total
Loans in Outstanding
Amount Category(1) Loans(1)
-------- ------------ ------------
(Dollars in Thousands)
Breakdown of allowance
Mortgage loans:
<S> <C> <C> <C>
One- to four-family residential $1,242 0.41% 70.14%
Five or more family residential 74 0.37 4.64
Commercial real estate 82 0.80 2.37
Construction 2.64
Other 11 1.05 0.24
Classified mortgage loans 17 2.05
------ ------ ------
Total mortgage loans 1,426 0.41 80.03
Consumer loans:
Consumer 172 0.77 5.12
Second mortgage 154 0.67 5.26
Automobile 550 1.66 7.62
Education 1.97
Classified consumer loans 4 2.00
------ ------ ------
Total consumer loans 880 1.01 19.97
------ ------ ------
Total allowance for loans $2,306 0.53% 100.00%
====== ===== ======
</TABLE>
- - ------------------------
(1) Percentages are calculated on gross loan balances.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1992
----------------------------------
% OF
LOANS IN
ALLOWANCE CATEGORY
AS A % OF TO TOTAL
LOANS IN OUTSTANDING
AMOUNT CATEGORY(1) LOANS(1)
-------- ----------- -----------
(Dollars in Thousands)
Breakdown of allowance
Mortgage loans:
<S> <C> <C> <C>
One- to four-family residential $960 0.31% 73.84%
Five or more family residential 79 0.42 4.56
Commercial real estate 74 0.76 2.36
Construction 1.04
Other 12 1.03 0.28
Other 26 2.00
------ ------ ------
Total mortgage loans 1,151 0.34 82.08
Consumer loans:
Consumer 183 0.85 5.20
Second mortgage 145 0.73 4.81
Automobile 372 1.45 6.19
Education 1.72
Classified consumer loans 5 2.00
------ ------ ------
Total consumer loans 705 0.95 17.92
------ ------ ------
Total allowance for loans $1,856 0.45% 100.00%
====== ===== =======
</TABLE>
- - -----------------------
(1) Percentages are calculated on gross loan balances.
All of First Northern's loans are domestic. The following table is a
summary of non-performing loans and assets.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
Non-accrual mortgage loans
<S> <C> <C> <C> <C> <C>
(90 days or more past due) $509 $266 $407 $668 $ 597
Non-accrual consumer loans 235 152 139 140 121
---- ---- ---- ---- ------
Total non-performing loans 744 418 546 808 718
Foreclosed properties, properties
subject to foreclosure and
repossessed assets 189 136 120 44 473
---- ---- ---- ---- ------
Total non-performing assets $933 $544 $666 $852 $1,191
==== ==== ==== ==== ======
Non-performing loans as a
percentage of total loans .13% .08% .11% .19% .18%
=== === === === ===
Non-performing assets as a
percentage of total assets .15% .10% .12% .17% .24%
=== === === === ===
Loan loss allowances as
a percentage of non-
performing loans 394.76% 623.92% 439.56% 285.40% 267.83%
====== ====== ====== ====== ======
Loan loss allowances as
a percentage of non-
performing assets 314.79% 470.76% 360.36% 270.77% 161.46%
====== ====== ====== ====== ======
Interest income that would
be recognized if non-accrual
loans had been current (1) $25 $12 $19 $36 $31
=== === === === ===
</TABLE>
- - ------------------
(1) No accrued interest income was included in net income in 1996, 1995,
1994, 1993 and 1992 from loans classified as non-accrual.
INVESTMENT AND MORTGAGE-RELATED ACTIVITIES. First Northern is authorized to
invest in obligations issued or fully guaranteed by the United States,
certain federal agency obligations, certain time deposits, negotiable
certificates of deposit issued by commercial banks, mortgage-backed
and mortgage-related securities, collateralized mortgage obligations,
investment grade corporate notes and other specified investments.
<PAGE>
The following table sets forth the composition of First Northern's
investment and mortgage-related securities portfolio at December 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
INVESTMENT AND MORTGAGE-RELATED SECURITIES PORTFOLIO COMPOSITION
AT DECEMBER 31
---------------------------------------------------------------------
1996 1995 1994
---------------------- ----------------------- -------------------
PERCENT PERCENT PERCENT
CARRYING OF CARRYING OF CARRYING OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
---------- ---------- ----------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits $ 1,598 4.57% $ 82 .28% $652 2.33%
Other interest-earning deposits 200 0.72
Securities available-for-sale:
U. S. government securities 2,517 7.20 1,018 3.58 1,986 7.11
Federal agency obligations 1,985 5.67 1,004 3.53
Mortgage-related securities 1,837 5.25 2,013 7.07 1,898 6.80
Asset Management Fund 471 1.35 455 1.60 408 1.46
FHLMC stock 662 1.89 501 1.76 569 2.04
------- ------ ------- ------ ------ ------
Total securities available-for-sale 7,472 21.36 4,991 17.54 4,861 17.41
Securities held-to-maturity:
U.S. Government securities 3,004 8.59 10,073 35.39 9,934 35.58
Federal agency obligations 13,579 38.82 9,291 32.65 8,762 31.38
Mortgage-related securities 9,325 26.66 4,024 14.14 3,514 12.58
------- ------ ------- ------ ------ ------
Total securities held-to-maturity 25,908 74.07 23,388 82.18 22,210 79.54
------- ------ ------- ------ ------ ------
Total $34,978 100.00% $28,461 100.00% $27,293 100.00%
======= ====== ======= ======= ======= =======
Average remaining life or term
to repricing for interest-earning
deposits, other interest-earning
deposits, securities
available-for-sale and
investment securities (1) 12 months 14 months 15 months
</TABLE>
- - ---------------------------
(1) For purposes of calculating the remaining life or term, securities
available-for-sale are assumed to have a zero term.
See Notes B and C of the Notes to Consolidated Financial Statements
incorporated by reference in Item 8 hereof.
<PAGE>
The following table sets forth the maturity ranges for investment
and mortgage-related securities, with their respective weighted average
yields and the total market value.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------------------------------------------
INVESTMENT AND
OVER ONE OVER FIVE MORTGAGE-RELATED
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS OVER TEN YEARS SECURITIES TOTAL
------------------- ------------------ ------------------ ------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED APPROX. WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED MARKET AVERAGE
COST YIELD COST YIELD COST YIELD COST YIELD COST VALUE YIELD
---------- -------- -------- -------- --------- ------- --------- --------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
Available-for-Sale:
Investment and
Mortgage-related
Securities
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
obligations $1,000 6.90% $1,495 6.48% $2,495 $2,517 6.65%
Federal agency
obligations 2,000 5.83 2,000 1,985 5.83
Mortgage-related
securities $1,828 7.18% 1,828 1,837 7.18
Asset Management
Fund 476 5.87 476 471 5.87
FHLMC stock 33 25.54 33 662 25.54
------ ------ ------ ----- ------- ------- ------- ----- ------ ------ -----
Total investment
and mortgage-
related
securities $1,033 7.50% $3,971 6.08% $ - - $1,828 7.18% $6,832 $7,472 6.59%
====== ==== ====== ==== ======== ======= ======= ====== ====== ====== =====
Held-to-Maturity:
Investment and
Mortgage-related
Securities
U.S. government
obligations $2,006 5.90% $ 998 7.48% $3,004 $3,028 6.42%
Federal agency
obligations 2,793 5.84 10,786 6.03 13,579 13,606 5.99
Mortgage-related
securities $3,878 5.73% $5,447 6.70% 9,325 9,246 6.30
------ ------ ------ ----- -------- ------- ------ ---- ------ ------ -----
Total investment
and mortgage-
related
securities $4,799 5.86% $11,784 6.16% $3,878 5.73% $5,447 6.70% $25,908 $25,880 6.15%
====== ===== ======= ==== ====== ==== ====== ==== ======= ======= =====
</TABLE>
<PAGE>
The following table sets forth the composition of First Northern's
mortgage-related securities portfolio at December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
MORTGAGE-RELATED PORTFOLIO COMPOSITION
AT DECEMBER 31
----------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation $5,595 $3,019 $2,343
Government National Mortgage Association 25
Federal National Mortgage Association 3,730 998 998
Other 7 148
------- ------ ------
Total mortgage-related securities $9,325 $4,024 $3,514
======= ====== ======
Average remaining contractual life or term to
repricing for mortgage-related securities 157 months 203 months 228 months
DEPOSIT ACTIVITIES. First Northern has a number of different programs designed
to attract both short-term and long-term deposits from the general public.
These programs include regular passbook accounts, NOW checking accounts, money
market deposit accounts, fixed rate and variable rate certificate accounts and
negotiated rate certificates, as well as certain other accounts. Included
among those programs are individual retirement accounts ("IRAs") and
self-employed pension plan ("SEPP") accounts.
The specific programs offered by First Northern have changed over time
as new types of accounts and minimum denomination requirements have been
authorized. Currently there are no statutory or regulatory required minimum
denominations or interest rate ceilings on any deposit accounts. First
Northern presently offers deposit accounts with minimum balance requirements
and interest rates as follows:
MINIMUM INTEREST
TYPE OR TERM BALANCE RATE
NOW Checking Accounts(1) Varies Rate Set Weekly
Regular Deposit Accounts(2) $100 Rate Set Weekly
Money Market Accounts $2,500 Rate Set Weekly
Jumbo Certificates $100,000 Rate Set Weekly
91 day Certificates $500 Rate Set Weekly
6 Month Certificates $500 Rate Set Weekly
8 Month Certificates $500 Rate Set Weekly
9 Month Certificates $500 Rate Set Weekly
10 Month Certificates $500 Rate Set Weekly
12 Month Certificates $500 Rate Set Weekly
14 Month Certificates $500 Rate Set Weekly
15 Month Certificates $500 Rate Set Weekly
16 Month Certificates $500 Rate Set Weekly
24 Month Certificates $500 Rate Set Weekly
26 Month Certificates $500 Rate Set Weekly
30 Month Certificates $500 Rate Set Weekly
36 Month Certificates $500 Rate Set Weekly
48 Month Certificates $500 Rate Set Weekly
60 Month Certificates $500 Rate Set Weekly
18 month IRA and SEPP Variable Certificates $100 Rate Set Monthly
- - ------------------
(1) Some of the NOW Checking Accounts offered by First Northern do not bear
interest.
(2) As a practical matter, although subject to First Northern's right to
impose a prior notice requirement, deposits may be invested in and
withdrawn from passbook accounts without restriction. Interest is
computed daily from the date of deposit to the date of withdrawal
and credited quarterly at a rate established by the Investment Committee
of management within regulatory limits.
The following tables set forth the distribution of the Company's
deposit accounts at the dates indicated and the weighted average effective
interest rates on each category of deposits presented.
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
WEIGHTED
PERCENT AVERAGE
AVERAGE OF TOTAL EFFECTIVE
BALANCE DEPOSITS RATE
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
CORE DEPOSITS:
<S> <C> <C> <C>
Non-interest bearing $ 16,646 3.67%
Interest bearing 36,655 8.08 1.03%
Money market 49,037 10.81 2.24
Passbook 58,744 12.96 2.24
--------- ------- -----
Total core deposits 161,082 35.52 2.30
Certificate of deposit accounts 292,477 64.48 5.66
--------- ------- -----
Total deposits $453,559 100.00% 4.46%
========= ======= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
WEIGHTED
PERCENT AVERAGE
AVERAGE OF TOTAL EFFECTIVE
BALANCE DEPOSITS RATE
--------- ------------- -----------
(DOLLARS IN THOUSANDS)
CORE DEPOSIT:
<S> <C> <C> <C>
Non-interest bearing $ 13,765 3.14%
Interest bearing 36,049 8.23 1.40%
Money market 35,420 8.09 3.89
Passbook 60,367 13.79 2.48
-------- ------- ----
Total core deposits 145,601 33.25 2.32
Certificate of deposit accounts 292,248 66.75 5.54
-------- ------- ----
Total deposits $437,849 100.00% 4.47%
========= ======= ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
-------------------------------------------
WEIGHTED
PERCENT AVERAGE
AVERAGE OF TOTAL EFFECTIVE
BALANCE DEPOSITS RATE
--------- ---------- -----------
(DOLLARS IN THOUSANDS)
CORE DEPOSITS:
<S> <C> <C> <C>
Non-interest bearing $ 11,995 2.86%
Interest bearing 38,457 9.16 1.65%
Money market 29,284 6.98 2.58
Passbook 69,070 16.46 2.51
-------- ------ -----
Total core deposits 148,806 35.46 2.10
Certificate of deposit accounts 270,880 64.54 4.67
-------- ------ -----
Total deposits $419,686 100.00% 3.76%
======== ====== =====
</TABLE>
See Note F of the Notes to Consolidated Financial Statements of
First Northern, incorporated by reference in Item 8 hereof, for the
amount by interest rate categories, at December 31, 1996 and 1995, and for
the scheduled maturity dates of certificate accounts.
BORROWED FUNDS. First Northern has a line of credit with the FHLB of Chicago
and has borrowed from the FHLB on an overnight and fixed interest rate basis
to assist with funding loan originations.
From time to time, First Northern borrows funds under repurchase
agreements. First Northern accepts funds from municipalities and school
districts. When the amounts of such funds are in excess of FDIC insurance
limits, First Northern collateralizes its obligation to repay such parties
through repurchase agreements. Repurchase agreements are used to lock-in a
profit spread to First Northern. Furthermore, because the repurchase
agreements from municipalities and school districts are not considered
deposits, First Northern does not pay premiums to the FDIC on such amounts.
At December 31, 1996, First Northern had $1.5 million of borrowings under
repurchase agreements. The weighted average rate of the repurchase
agreements as of December 31, 1996 and 1995 was 5.59% and 5.65%, respectively.
See Note G of the Notes to Consolidated Financial Statements incorporated by
reference in Item 8 hereof.
The following table sets forth certain information regarding short-term
borrowings by First Northern at the end of and during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
Balance outstanding at end of year:
Securities sold under agreement
<S> <C> <C> <C>
to repurchase $1,500 $ 1,000 $ 2,900
Fixed interest rate notes
payable to FHLB 58,150 20,000 2,000
Overnight borrowings from FHLB 17,255 38,000
Other borrowings 367
Weighted average interest rate at
end of year:
Securities sold under agreements
to repurchase 5.59% 5.65% 6.66%
Fixed interest rate notes
payable to FHLB 5.73% 6.03% 4.80%
Overnight borrowings from FHLB 5.66% 6.35%
Other borrowings 5.21%
Maximum amount outstanding
during the year:
Securities sold under agreements
to repurchase $1,500 $ 2,900 $ 2,900
Fixed interest rate notes
payable to FHLB 58,150 25,000 2,000
Overnight borrowings from FHLB 29,360 42,050 39,725
Other borrowings 1,044 181
Average amount outstanding during
the year:
Securities sold under agreements
to repurchase $1,030 $ 2,543 $ 1,158
Fixed interest rate notes
payable to FHLB 35,957 18,957 2,000
Overnight borrowings from FHLB 11,264 12,181 14,014
Other borrowings 142 171
Weighted average interest rate
during the year:
Securities sold under agreements
to repurchase 5.69% 6.62% 3.85%
Fixed interest rate notes
payable to FHLB 5.82% 7.19% 4.52%
Overnight borrowings from FHLB 5.68% 6.19% 5.30%
Other borrowings 5.18% 7.09%
</TABLE>
Borrowings increased to $77.3 million at December 31, 1996, as compared
to $21.0 million at December 31, 1995, primarily as a result of the growth in
interest-earning asset. See Management s Discussion and Analysis of Financial
Condition and Results of Operations, incorporated by reference in Item 7 hereof.
YIELDS EARNED AND RATES PAID. First Northern's net earnings depend primarily
upon the spread between the income it receives from its loan and investment
portfolios and its cost of money, consisting of interest paid on deposit
accounts and borrowings.
The following table sets forth First Northern's weighted average
yields earned on mortgage loans, consumer loans, and investment and
mortgage-related securities; the weighted average interest rates paid on
deposits and borrowings; and the spread between yields earned and rates paid
at the dates indicated. Since the majority of First Northern's deposit
accounts are market rate accounts, the cost of deposits will likely continue
to be subject to interest rate fluctuations.
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Weighted average rate of return
at end of year:
Mortgage loans 7.22% 7.06% 6.69% 6.99% 8.35%
Consumer loans 8.56 8.66 8.18 8.36 9.13
Mortgage and consumer loans 7.55 7.44 7.03 7.26 8.49
Investment securities 6.14 6.33 6.44 5.16 5.18
Mortgage-related securities 6.44 7.02 7.12 8.21 8.71
Total loan portfolio,
investment securities, and
mortgage-related securities 7.46 7.39 7.01 7.10 8.13
Weighted average rate paid at
the end of year:
Deposits 4.42 4.56 4.03 3.78 4.55
Federal Home Loan Bank and
other borrowings 5.71 6.02 6.24 3.98 4.71
Total deposits and Federal
Home Loan Bank and other
borrowings 4.60 4.63 4.23 3.78 4.55
Spread at the end of the year 2.86 2.76 2.78 3.32 3.58
<PAGE>
The following table shows average yields and rates of return (month-end
averages) during the periods indicated.
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Average yield earned during
the year:
Mortgage loans 7.18% 6.99% 6.91% 7.90% 9.16%
Consumer loans 8.50 8.44 7.93 8.82 9.76
Investment securities 6.23 6.47 6.13 5.21 5.69
Mortgage-related securities 6.50 7.06 6.91 8.09 8.66
All interest-earning assets 7.42 7.28 7.08 7.78 8.86
Average rate paid during
the year:
Deposits 4.43 4.42 3.73 4.14 5.28
Borrowings 5.78 6.79 5.14 4.16 5.62
All interest-bearing liabilities 4.56 4.59 3.79 4.14 5.29
Average interest rate
spread (1) 2.86 2.69 3.29 3.64 3.57
Net yield on average interest-
earning assets (2) 3.31 3.17 3.71 4.09 4.06
Net yield on total interest-
earning assets (3) 3.14 3.17 3.51 4.06 4.08
- - -----------------
(1) Average yield on all interest-earning assets during the period less
average rate paid on all interest-bearing liabilities.
(2) Net interest earned divided by average interest-earning assets.
(3) Net interest earned divided by total interest-earning assets.
AVERAGE BALANCE SHEET AND RATE/YIELD ANALYSIS. See Management's
Discussion and Analysis of Financial Condition and Results of Operations
incorporated by reference in Item 7 hereof.
AVERAGE EQUITY TO AVERAGE ASSETS. The ratio of average equity to average
assets measures a Financial institution's financial strength. At December
31, 1996, savings and loan associations in Wisconsin were required to
maintain an average equity to average assets ratio of at least 6.00%.
At December 31, 1996, 1995, 1994, 1993 and 1992 First Northern's average
equity to average assets ratio was 12.14%, 12.99%, 13.25%, 12.86% and 11.21%,
respectively.
CASH DIVIDENDS. The following schedule sets forth the cash dividends paid
per year:
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Cash Dividends Paid Per Share(1) $0.60 $0.56 $0.52 $0.48 $0.40
===== ===== ===== ===== =====
Cash Dividends Payout Ratio 83.3%(2) 56.6% 57.1% 36.1%(3) 32.0%
(dividends declared per share ==== ==== ==== ==== ====
divided by net income
per share - primary)
- - -------------------------
(1) Not restated to reflect the acquisition of Prime Federal.
(2) Cash Dividends Payout Ratio was significantly increased in 1996 as a
result of the SAIF special assessment which significantly reduced net
income per share. Without the SAIF special assessment, the Cash Dividend
Payout Ratio would have been 55.0%.
(3) Net income per share - primary before change in accounting for income
taxes.
SUBSIDIARIES. GNFSC, a wholly-owned subsidiary of the Savings Bank, engages
in the sale of credit life and disability insurance, and offers brokerage
services to the public, including the sale of tax deferred annuities and mutual
funds. First Northern's book value investment in GNFSC as of December 31, 1996
was $473,506.
FNII, a wholly-owned Savings Bank subsidiary, was established September
2, 1994 for the purpose of managing a majority of First Northern's investment
portfolio. FNII managed approximately $24.6 million of investments for First
Northern at December 31, 1996. First Northern's book value investment in FNII
as of December 31, 1996 was $24,744,057.
In March 1992, First Northern acquired a 50% stock interest in SFC from
another financial institution. SFC originates, sells, and services
automobile loans. As a result of this acquisition, SFC will on a regular
basis, sell such loans to First Northern but retain the servicing of the loans.
First Northern purchased $38.0 million of such loans in 1996, $18.7 million
in 1995 and $32.6 million in 1994. First Northern's book value investment in
SFC as of December 31, 1996 was $27,720.
Keystone Financial Services, Inc. ("Keystone"), a wholly-owned subsidiary
of the Savings Bank, also engaged in the sale of credit life and disability
insurance and tax deferred annuities and offered discount brokerage services
for Prime Federal prior to the merger with and into First Northern. After the
merger, First Northern transferred such business to GNFSC. Keystone is
inactive, but will continue to be a wholly-owned subsidiary of the Savings
Bank for possible future use in a related or other area. First Northern's
book value investment in Keystone as of December 31, 1996 was $100.
Another wholly-owned subsidiary of the Savings Bank, First Northern
Financial Services, Inc., operated as a consumer lending subsidiary
through 1981. As a result of legislative changes, First Northern now
directly engages in consumer lending activities. First Northern Financial
Services, Inc. is inactive, but it continues in existence for possible
future use in a related or other area. First Northern's book value
investment in First Northern Financial Services, Inc. as of December 31, 1996
was $100.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposes restrictions on savings associations' powers. It
essentially creates parallel regulation for state and federally chartered
savings associations and prevents state associations, such as the Savings
Bank, from exercising powers not authorized to federal associations or which
the FDIC deems to constitute a serious risk to the safety, soundness or
stability of an insured institution and or the SAIF or to be inconsistent
with sound banking principles. The FDIC has informed First Northern
that the certain activities that GNFSC is performing are permissible for a
federal association but not a national bank. Therefore, First Northern is
required to deduct its investment and loans to GNFSC when calculating its
core, tangible and risked-based capital ratios.
EMPLOYEES. At December 31, 1996, First Northern employed 190 full-time and
48 part-time employees. Management considers its relations with its
employees to be excellent.
REGULATION
GENERAL. The operations of First Northern and the Savings Bank are highly
regulated, both at the federal and state level. First Northern is a
registered non-diversified unitary savings and loan holding company within
the meaning of the Home Owners' Loan Act 1933, as amended. As such,
First Northern is subject to OTS examination and supervision as well as to
certain reporting requirements. Since First Northern controls the Savings
Bank, which is a state chartered institution, it is also subject to
examination, supervision and regulation by the WDFI-Administrator. As a
subsidiary of a savings and loan holding company, the Savings Bank is
subject to certain restrictions in its dealings with First Northern and
with other companies affiliated with First Northern, and is otherwise
subject to extensive supervision and regulation by the OTS (its primary
federal regulator), the WDFI-Administrator (its primary state regulator),
the FDIC (as administrator of the SAIF) and the Federal Reserve Board.
The following summary does not purport to be a complete description of the
applicable laws and regulations which govern First Northern and the Savings
Bank and is qualified in its entirety by reference thereto.
FEDERAL REGULATION OF HOLDING COMPANIES
ACTIVITIES RESTRICTIONS. There generally are no restrictions on the
activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, the OTS
may impose such restrictions as deemed necessary to address such risk
including limiting: (i) payment of dividends by the savings association;
(ii) transactions between the savings association and its affiliates;
and (iii) any activities of the savings association that might create a
serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association.
If First Northern were to acquire control of another savings association
in addition to the Savings Bank, First Northern would thereupon become a
multiple savings and loan holding company. Except where such acquisition is
pursuant to the OTS' authority to approve emergency thrift acquisitions
and where each subsidiary savings association meets the qualified thrift
lender ("QTL") test, the activities of First Northern and any of its
subsidiaries (other than Savings Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. Among other things,
no multiple savings and loan holding company or subsidiary thereof which
is not a savings association may commence or continue beyond a limited period
of time after becoming a multiple savings and loan holding company or
subsidiary thereof, any business activity, upon prior notice to, and no
objection by, the OTS, other than: (i) furnishing or performing management
services for a subsidiary savings association; (ii) conducting an insurance
agency or escrow business; (iii) holding, managing, or liquidating assets
owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary savings institution;
(v) acting as trustee under deeds of trust; (vi) those activities authorized
by regulation as of March 5, 1987 to be engaged in by multiple holding
companies; or (vii) those activities authorized by the Federal Reserve Board
as permissible for bank holding companies, unless the OTS by regulation
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above must also be approved by the OTS
prior to being engaged in by a multiple holding company.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the QTL test, then such
unitary holding company will become subject to the activities restrictions
applicable to multiple holding companies and, unless the savings
association requalifies as a QTL within one year thereafter, shall
register as, and become subject to the restrictions applicable to, a bank
holding company. Generally, the QTL test requires a savings association to
maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" (primarily residential mortgages and related investments,
including mortgage-backed and similar securities) on a monthly basis in nine
out of every 12 months. The Savings Bank has met the QTL test since it first
became applicable in 1987.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior
approval of the OTS: (i) control of any other savings association or
savings and loan holding company or substantially all the assets thereof; or
(ii) more than 5% of the voting shares of a savings association or holding
company thereof which is not a subsidiary. Except with the prior approval
of the OTS, no director or officer of a savings and loan holding company or
person owning or controlling by proxy or otherwise more than 25% of such
company's stock, may also acquire control of any savings association,
other than a subsidiary savings association, or of any other savings and loan
holding company.
The OTS may only approve acquisitions resulting in the formation
of a multiple savings and loan holding company which controls savings
associations in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a
home or branch office in the state of the association to be acquired
as of March 5, 1987; (ii) the acquiror is authorized to acquire control of
the savings association pursuant to the emergency acquisition provisions of
the Federal Deposit Insurance Act; or (iii) the statutes of the state
in which the association to be acquired is located specifically permit
institutions to be acquired by state-chartered associations or savings and
loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institution). Under current Wisconsin law, Wisconsin chartered savings
associations and their holding companies may acquire savings
associations and holding companies whose principal place of business is
located in Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri
or Ohio, provided that reciprocal legislation is adopted in such
states. All but Missouri have adopted reciprocal legislation.
Consequently, savings associations or their holding companies in such
states that have adopted reciprocal legislation may acquire a savings
association or holding company based in Wisconsin.
TRANSACTIONS WITH AFFILIATES. Transactions between savings associations
and any affiliate are governed by Sections 23A and 23B of the Federal
Reserve Act. An affiliate of a savings association is any company or entity
which controls, is controlled by or is under common control with the savings
association. In a holding company context, the parent holding company of
a savings association (such as First Northern) and any companies which are
controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B: (i) limit the extent to which
the savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such savings
association's capital stock and surplus, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus; and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transactions" includes the making of loans, purchase of assets, issuance of
a guarantee and other similar types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings association may:
(i) loan or otherwise extend credit to an affiliate, except for any affiliate
which engages only in activities which are permissible for bank holding
companies; or (ii) purchase or invest in any stocks, bonds, debentures, notes
or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings association.
The restrictions contained in Section 22(h) of the Federal Reserve
Act apply to loans by savings associations to executive officers, directors
and principal stockholders (such as First Northern). Section 22(h) requires
that loans to directors, executive officers and greater than 10% stockholders
("Insiders") be made on terms substantially the same as offered in
comparable transactions to other persons. Loans to Insiders may only be
made on more favorable terms pursuant to a benefit or compensation program
which is widely available to association employees and which does not
give preference to any Insiders over other employees. Under Section 22(h),
loans to an executive officer and to a greater than 10% stockholder of a
savings association, and certain affiliated entities of either, may not
exceed, together with all other outstanding loans to such persons and
affiliated entities, the association's loan-to-one-borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus and an
additional 10% of such capital and surplus for loans fully secured by certain
readily marketable collateral). Section 22(h) also prohibits loans, above
amounts prescribed by the appropriate federal banking agency, to directors,
executive officers and greater than 10% stockholders of a savings association,
and their respective affiliates, unless such loan is approved in advance by a
majority of the board of directors of the association with any "interested"
director not participating in the voting. The Federal Reserve Board has
prescribed the loan amount (which includes all other outstanding loans to
such person), as to which such prior board of director approval is required,
to be the greater of $25,000 or 5% of capital and surplus (up to $500,000).
FIRREA AND FDICIA. The FIRREA, adopted on August 9, 1989, has significantly
changed the federal regulatory framework for savings associations. FIRREA
redefined applicable capital standards for savings associations and
significantly increased the minimum levels of capital required to be
maintained by savings associations, with the levels being raised in steps
until fully phased-in on January 1, 1993. Regulations adopted by the OTS
since the enactment of FIRREA have established new minimum leverage capital
requirements for savings associations. The Savings Bank is in compliance
with the minimum capital requirements applicable to it.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. FDICIA provides for, among
other things, establishment by the federal banking agencies of revised
risk-based capital requirements designed to account for interest rate risk,
concentration of credit risk and the risks of nontraditional activities;
enhanced federal supervision of depository institutions, including greater
authority for the appointment of a conservator or receiver for undercapitalized
institutions; the establishment of risk-based deposit insurance premiums;
limitation of equity investments and other activities permissible to state
savings associations to those permissible for federal savings associations;
liberalization of the QTL; greater restrictions on transactions with
affiliates; and mandated consumer protection disclosures with respect to
deposit accounts. Certain provisions of FDICIA which are potentially
applicable to the Savings Bank are discussed below.
FDICIA requires the federal banking regulators to define five levels of
regulatory capital (i.e., well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and mandates specific enforcement actions that the federal
banking agencies must take with respect to depository institutions whose
capital level is significantly below the required minimums. Depending
upon the capital level which the institution fails to meet, such institution
may be prohibited from increasing its assets, acquiring another institution,
establishing a branch, engaging in any new activities, or making capital
distributions. Other actions which federal banking agencies may take with
respect to such institution include requiring the issuance of additional
voting securities; placing limitations on asset growth; mandating asset
reduction; mandating changes in senior management; requiring the divestiture,
merger or acquisition of the institution; placing restrictions on executive
compensation; and any other action that the agency deems appropriate. If
the depository institution's capital levels fall below certain thresholds,
FDICIA requires that the appropriate federal banking agency be appointed as
a receiver or conservator of the institution.
During 1992, the federal banking regulators began the task of proposing
and adopting regulations required to implement the provisions of FDICIA.
The OTS, along with the other federal banking agencies, adopted uniform
regulations establishing criteria to define the five levels of regulatory
capital specified under FDICIA. Under those regulations, the Savings Bank
falls into the category of well capitalized, and the provisions of FDICIA
described in the preceding paragraph are therefore not expected to have any
material adverse effect on the Savings Bank.
The FDIC also adopted a final rule establishing a risk-based insurance
premium assessment system which took effect on January 1, 1993. Under this
regulation, insurance premiums of SAIF insured institutions may vary, depending
on the regulatory capital level and supervisory rating of the institution.
This risk-based premium assessment system is not expected to result in any
material increase in insurance premium assessments applicable to the Savings
Bank because of its relatively high level of regulatory capital and favorable
supervisory ratings. However, the FDIC has indicated it will review the
adequacy of the premium assessment levels and will make further changes
in premium rates as necessary to assure sufficient reserves are maintained
in the insurance fund.
As anticipated, the Savings Association Insurance Fund ( SAIF ) of the
FDIC was recapitalized during 1996 by a one-time special assessment
imposed on all SAIF members. The $2,856,000 assessment paid by First Northern
had a significant impact on its 1996 financial results. However, the effect
of the recapitalization is a significant reduction in federal deposit
insurance premiums for SAIF-insured institutions on an ongoing basis. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in Item 7 hereof.
Other examples of regulations adopted and other significant regulatory
developments under FDICIA are summarized below. Although applicable to
the Savings Bank, none of these regulations are expected to have any material
adverse effect on First Northern's financial condition or future operations.
The FDIC has adopted regulations requiring all insured depository institutions
with $150 million or more in assets to have annual audits by an independent
public accountant and an independent audit committee made up of outside
directors, and requiring annual reports by management on its
responsibility for preparing financial statements and establishing and
maintaining an internal control structure for financial reporting and compli-
ance. The FDIC adopted a rule prohibiting insured depository institutions
from soliciting deposits by offering rates significantly higher than
community rates or the national rates paid on deposits of comparable maturity.
The federal regulatory agencies have established uniform rules and
guidelines for real estate lending, but these rules do not preclude
individual institutions from establishing their own specific standards. The
Federal Reserve Board adopted a rule under the Truth in Savings Act
imposing certain disclosure in advertising requirements for interest-bearing
transaction and savings accounts, and requiring that an individual and other
non-business accounts offered by depository institutions be accompanied by
disclosures of the terms, conditions, fees and yields applicable to the
account. This rule also establishes standardized terms that must be used
in connection with interest-bearing deposits. Finally, the OTS adopted
a new rule effective January 1, 1994 requiring savings institutions to
reflect interest-rate risk in their
capital requirements. For institutions in excess of $300 million in assets,
like the Savings Bank, institutions will be required to hold capital against
interest rate risk only when the risk exceeds a decline in net portfolio value
of more than 2% of an institution s assets. Net portfolio value is the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts.
STATE REGULATION
Under Wisconsin law, a savings and loan holding company which controls a
Wisconsin chartered savings and loan (such as First Northern) is subject
to the supervision and control of the WDFI-Administrator. A savings and loan
holding company will be required to file reports of its financial condition
when requested by the WDFI-Administrator. The WDFI-Administrator may examine
the savings and loan holding company at any time it deems necessary. If in
the opinion of the WDFI-Administrator, the condition or operations of the
savings and loan holding company would endanger the safety of the capital
of the Savings Bank, the WDFI-Administrator may: (i) order the savings and loan
holding company to correct any such deficiency; (ii) fully direct the
operation of such savings and loan association or savings and loan holding
company until the order is complied with; and/or (iii) withhold all dividends
from the institution whose operation he directs.
While specific Wisconsin provisions governing savings associations
may vary from the federal regulations described above, in most regards the
state regulations parallel federal regulations. Regulations of the
WDFI-Administrator limit the loan-to-value ratios with respect to residential
and commercial property loans, establish liquidity and loan reserve
requirements, regulate the sale of loans and participation interest therein,
and limit service corporation activities. The approval of the
WDFI-Administrator is required to open, sell, purchase or relocate a branch
office and to effect mergers involving Wisconsin chartered savings institutions.
The WDFI-Administrator established a net worth (computed in accordance
with generally accepted accounting principles) to total assets ("net worth
ratio") requirements in 1987. Those requirements were implemented in stages
until the currently required 6% net worth ratio was achieved, which is the net
worth requirement for 1996. The WDFI-Administrator may, however, require a
state-chartered savings institution to maintain a higher net worth level if the
WDFI-Administrator determines that the institution's operations otherwise
entail a greater risk requiring a higher level of net worth to assure stability.
PAYMENT OF DIVIDENDS
The ability of the Savings Bank to pay dividends on its stock is restricted
by regulations of the OTS and WDFI-Administrator and by tax considerations
related to savings associations. While First Northern will not be subject
directly to these restrictions on its ability to pay dividends, and will be
only directly governed by certain restrictions imposed by the Wisconsin
Business Corporation Law (the "WBCL") on Wisconsin corporations generally,
because First Northern's ability to pay dividends will depend primarily upon
the ability of the Savings Bank to pay dividends or otherwise transfer funds to
it, First Northern will be indirectly affected by these restrictions.
Under OTS regulations, a savings association that, immediately prior
to, and on a pro forma basis after giving effect to, a proposed capital
distribution (including cash dividends, stock repurchases and cash mergers),
has total capital (as defined by OTS regulation) that is equal to or greater
than the amount of its fully phased-in capital requirements (a "Tier 1
Association") is generally permitted, after notice, to make capital
distributions during a calendar year in the amount equal to the greater
of: (a) 75% of its net income for the previous four quarters; or (b) up to
100% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in capital requirement to its assets at
the beginning of the calendar year. The Savings Bank currently qualifies
as a Tier 1 Association. Furthermore, the OTS may prohibit a proposed
capital distribution which would otherwise be permitted by the regulations
if the OTS determines that such distribution would constitute an unsafe or
unsound practice.
As discussed above, the WDFI-Administrator has promulgated regulations
which establish certain net worth to total assets requirements. The net
worth requirement is 6.00% for 1996 and thereafter. Unless a Wisconsin
savings association receives the WDFI-Administrator's prior written approval,
it may not pay a dividend or otherwise distribute any profits when its net
worth ratio is, or upon such payment or distribution would be, below
the WDFI-Administrator's net worth requirements. At December 31, 1996, First
Northern's net worth ratio for Wisconsin regulatory purposes was 11.2%.
In addition to the foregoing, earnings of the Savings Bank appropriated to
bad debt reserves for losses and deducted for federal income tax purposes
are not available to pay cash dividends or other distributions without
payment of federal income taxes at the then current income tax rates on the
amounts deemed paid therefrom. Also, the Savings Bank is not permitted to
pay dividends on its capital stock if its regulatory capital would thereby
be reduced below the remaining balance of any liquidation accounts which were
established for the benefit of certain depositors of the Savings Bank (and
savings associations merged into the Savings Bank) in connection with the
conversion from the mutual to stock form of ownership.
While the ability of First Northern to pay dividends will not be
directly subject to the above restrictions, it will be limited by
restrictions imposed by the WBCL. The WBCL prohibits a Wisconsin
corporation from making a distribution (including a cash dividend,
stock repurchase or a distribution of evidences of indebtedness) if, after
giving effect, such corporation would be unable to pay its debts as they come
due in the usual course of business or if such corporation's total assets
would be less than the sum of its liabilities and the amount that would be
needed, if such corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of any
stockholders whose preferential rights are superior to those receiving the
distribution.
The payment of future cash dividends by First Northern will depend
primarily upon the Savings Bank's earnings, financial condition and
capital requirements, as well as the tax and regulatory considerations
discussed herein. The Savings Bank Board of Director considers many
factors in the payment of dividends, including the Savings Bank's
profitability, maintenance of adequate capital, the Savings Bank's current
and anticipated future income, outstanding loan commitments, adequacy
of loan loss reserves, cash flow requirements and economic conditions.
Federal regulations require the Savings Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to First Northern.
The dividend restrictions referred to above are not currently expected
to impair the ability of First Northern to make dividend payments consistent
with past practice.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. First Northern and its subsidiaries file a calendar year
consolidated federal income tax return, reporting income and expenses using
the accrual method of accounting.
BAD DEBT RESERVES. On August 20, 1996, the President of the United States
signed the Small Business Job Protection Act of 1996 (the"Act"). The Act
repealed the reserve method of accounting for bad debts by most thrift
institutions effective for taxable years beginning after 1995. Larger thrift
institutions such as First Northern are now required to use the "specific
charge-off method." The Act also grants partial relief from reserve capture
provisions which are triggered by the change in method. This legislation
is not expected to have a material impact on First Northern s financial
condition or results of operations. See Note H of the Notes to First
Northern's Consolidate Financial Statement, incorporated by reference in Item 8
hereof.
The federal income tax returns for First Northern have been examined
and audited or closed without audit by the IRS for tax years through 1989.
Depending on the composition of its items of income and expense, a
savings institution may be subject to alternative minimum tax ("AMT") to the
extent AMT exceeds the regular tax liability. AMT is calculated at 20% of
alternative minimum taxable income ("AMTI"). AMTI equals regular taxable
income increased by certain tax preferences, including depreciation
deductions in excess of allowable AMT amounts, certain tax-exempt interest
income, the excess of bad debt deduction over the experience calculation
and 75% of the excess of adjusted current earnings ("ACE") over AMTI.
ACE equals AMTI adjusted for certain items, primarily accelerated
depreciation and tax-exempt interest. The payment of AMT will create a tax
credit which can be carried forward indefinitely to reduce the regular tax
liability in future years.
STATE TAXATION. The state of Wisconsin imposes a corporate franchise tax
at 7.9% on the separate taxable incomes of the members of First Northern's
consolidated federal income tax group except FNII, which is located in Nevada
and manages a portion of the Savings Bank's investment portfolio. The income
of FNII is only subject to taxation in Nevada which currently does not impose
a corporate income or franchise tax.
INCOME TAX ACCOUNTING STANDARD. In February, 1992, SFAS No. 109,
"Accounting for Income Taxes" was issued. SFAS No. 109 requires that deferred
tax assets be recognized and measured on the likelihood of realization of a
tax benefit in future years. Deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carry forwards.
SFAS No. 109 is effective for years beginning after December 15, 1992. First
Northern established a deferred tax asset of $470,000 in the first quarter of
1993.
ITEM 2. PROPERTIES.
First Northern's corporate/downtown office is located at 201 North
Monroe Avenue, Green Bay, Wisconsin. The Savings Bank conducts its business
from the corporate/downtown office and 19 additional branch offices at
locations described below in Brown, Manitowoc, Door, Shawano, Calumet,
Outagamie, Waupaca and Marinette counties. First Northern has under
continuing review the possibility of applying for additional branch locations,
depending on management's assessment of market and economic conditions, the
availability of locations and the proximity of branches of competing
institutions.
The following table lists each of First Northern's offices.
DOWNTOWN GREEN BAY KIEL
201 N. Monroe Avenue 622 Fremont Street
Green Bay, WI 54301-4995 Kiel, WI 53042-1321
Brown County Manitowoc County
PESHTIGO STURGEON BAY
616 French Street 1227 Egg Harbor Road
Peshtigo, WI 54157-0193 Sturgeon Bay WI 54235-0068
Marinette County Door County
PINE TREE MALL SHAWANO
2314 Roosevelt Road 835 E. Green Bay Avenue
Marinette, WI 54143-0345 Shawano, WI 54166-0396
Marinette County Shawano County
ASHWAUBENON BRILLION
2357 S. Oneida Street 314 N. Main Street
Green Bay, WI 54304-5286 Brillion, WI 54110-1198
Brown County Calumet County
HOWARD EAST MASON
2603 Glendale Avenue 2370 East Mason Street
Green Bay, WI 54313-6823 Green Bay, WI 54302-3347
Brown County Brown County
EAST WEST DE PERE
2255 University Avenue 749 Main Avenue
Green Bay, WI 54308-8046 De Pere, WI 54115-5190
Brown County Brown County
CRIVITZ EAST DE PERE
315 Highway 141 330 North Broadway
Crivitz, WI 54114-0340 De Pere, WI 54115-5250
Marinette County Brown County
NEW HOLSTEIN WEST
2205 Wisconsin Avenue 2424 West Mason Street
New Holstein, WI 53061-1291 Green Bay, WI 54303-4711
Calumet County Brown County
NEW LONDON HORTONVILLE
101 Park Street 209 South Nash Street
New London, WI 54961-1246 Hortonville, WI 54944-9454
Waupaca County Outagamie County
MARINETTE SEYMOUR
830 Pierce Avenue 689 Woodland Plaza
Marinette, WI 54143-0138 Seymour, WI 54165-1659
Marinette County Outagamie County
With the exception of the Pine Tree Mall location, which is leased, First
Northern owns the remainder of its locations. The nineteen owned locations
are all free-standing buildings which contain between 1,800 and 3,600 square
feet, with the exception of the corporate/downtown office, New London office
and East De Pere office which contain approximately 25,000, 8,000 and 4,400
square feet, respectively. Each of the owned locations also has drive-up
facilities. The Pine Tree Mall location is approximately 1,500 square feet.
All of First Northern's services are available to its customers in each office.
The nineteen locations owned by First Northern had a book value (net of
accumulated depreciation) of $6,886,000 at December 31, 1996. The leasehold
improvements of the Pine Tree Mall location had a book value (net of
accumulated depreciation) of $28,000 at December 31, 1996. First Northern
sold two free standing offices in 1995, which had an aggregate book value of
$435,000.
All of First Northern's locations are designed for use and operation
as a savings bank, are well maintained and suitable for current operations.
ITEM 3. LEGAL PROCEEDINGS.
To First Northern's knowledge, no material legal proceedings are
pending or contemplated to which it or any of its subsidiaries are or
would be a party, or of which any of their property is or would be the subject,
other than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTES TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table contains certain information regarding those officers
of First Northern and the Savings Bank who have been determined by the Board
of Directors of First Northern to be Executive Officers of First Northern.
OFFICES AND POSITIONS
WITH FIRST NORTHERN PRESENT OFFICE
NAME AGE AND THE SAVINGS BANK HELD SINCE(1)
Michael D. Meeuwsen 43 Director, President 1988 (2)
and Chief Executive Officer
of First Northern and the
Savings Bank
Richard C. Smits 58 Director, Executive Vice President 1994 (3)
and Chief Operating Officer
of First Northern and the
Savings Bank
Rick B. Colberg 44 Vice President, Chief 1980 (4)
Financial Officer and
Treasurer of First Northern
and the Savings Bank
Marla J. Carr 41 Vice President-Human 1980 (5)
Resources and Secretary
of First Northern and the
Savings Bank
John E. Steinbrecker 46 Vice President-Retail Deposits 1984 (6)
and Brokerage Services
of the Savings Bank
Richard E. Aicher 46 Vice President-Lending of 1979 (7)
the Savings Bank
Dale J. Darmody 48 Vice President-Director of 1990 (8)
Branch Development of the
Savings Bank
Steven L. Wilmet 50 Vice President-Operations and 1994 (9)
Branch Development of the
Savings Bank
- - ---------------------
(1) Indicates date when individual first held present office with the
Savings Bank. All persons listed herein became executive officers of
First Northern in 1995.
(2) Mr. Meeuwsen joined the Savings Bank in 1980 as a branch manager
and was named Vice President of Operations and Savings Manager in 1982.
In 1984, Mr. Meeuwsen became Executive Vice President and Chief Operating
Officer, in April, 1989 was named President and Chief Operating Officer and
in January, 1990 was named President and Chief Executive Officer of the
Savings Bank.
(3) Mr. Smits joined the Savings Bank in April, 1994 upon consummation of
the merger with Prime Federal, assuming his present position pursuant to the
terms of the merger agreement. Prior to such merger, Mr. Smits was President
and Chief Executive Officer of Prime Federal commencing in 1992 and President
of Prime Federal prior to 1992.
(4) Mr. Colberg, prior to becoming Treasurer of the Savings Bank in 1982,
was Vice President since 1978,and was designated Chief Financial Officer in
1980. Mr. Colberg has been employed by the Savings Bank for 26 years.
(5) Ms. Carr has been Human Resource Director of the Savings Bank
since 1976. She was elected Vice President and Secretary in 1980. Ms. Carr
has been with the Savings Bank for 24 years.
(6) Mr. Steinbrecker was named Vice President-Retail Deposits and
Brokerage Services in 1994. Prior to that he was named Vice
President-Savings and Marketing in 1984 and was named Vice President and
Marketing Director in 1981. Mr. Steinbrecker has been employed by the Savings
Bank for 18 years.
(7) Mr. Aicher, who has been with the Savings Bank since 1974, was
elected Vice President in 1977 and designated loan manager in 1979. Mr. Aicher
has been employed by the Savings Bank for 22 years.
(8) Mr. Darmody was elected Vice President in 1990. Prior to that date,
he was Assistant Vice President and Residential Loan Origination Manager since
1985. Mr. Darmody joined the Savings Bank in 1981.
(9) Mr. Wilmet joined the Savings Bank in April, 1994 upon consummation
of the merger with Prime Federal, assuming his present position pursuant to
the terms of the merger agreement. Prior to such merger, Mr. Wilmet served as
Vice President of Operations and Secretary of Prime Federal.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
Information in response to this item is incorporated herein by
reference to "Common Stock Prices and Dividends" on page 7 of First Northern's
Annual Report to Stockholders for the fiscal year ended December 31,1996
(the "1996 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item is incorporated by reference to
"Selected Financial Highlights" on page 1 of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information in response to this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 9 through 19 of the 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item is incorporated by reference to
"Quarterly Financial Information" on page 19 and the consolidated financial
statements on pages 20 through 36 of the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by reference to
"Election of Directors" (pages 3 through 5) and Section 16(a) Beneficial
Ownership Reporting Compliance" (page 14)(which does not contain disclosure
of any filing delinquencies) in First Northern's definitive Proxy Statement
for its Annual Meeting of Stockholders on April 30, 1997 (the "1997 Annual
Meeting Proxy Statement"). See also "Executive Officers of the Registrant
in Part I hereof, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item is incorporated by reference to
"Director Compensation" (pages 5 and 6), "Executive Compensation" (other
than "Compensation Committee Report on Executive Compensation" thereunder,
which is not incorporated by reference herein) (pages 8 through 11) and
"Compensation Committee Interlocks and Insider Participation" (page 12) in
the 1997 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item is incorporated by reference to
"Security Ownership of Certain Beneficial Owners and Management"
(pages 2 and 3) in the 1997 Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated by reference to
"Compensation Committee Interlocks and Insider Participation" (page 12) and
"Certain Transactions with First Northern" (pages 13 and 14) in the 1997
Annual Meeting Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the Report.:
1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statements of First Northern Capital Corp.
and subsidiaries are filed as part of this report under Item 8, "Financial
Statements and Supplementary Data":
Consolidated Statements of Financial Condition - December 31, 1996 and 1995.
Consolidated Statements of Income - Years Ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
3. EXHIBITS. See Exhibit Index following the signature page of this
report, which is incorporated herein by reference. Each
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report is identified in the
Exhibit Index by two asterisks following its exhibit number.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST NORTHERN CAPITAL CORP.
March 28, 1997
By: /s/Michael D. Meeuwsen
Michael D. Meeuwsen
President and Chief Executive Officer
_________________
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Michael D.
Meeuwsen, J. Gus Swoboda and Rick B. Colberg, or any of them, as
attorneys-in-fact with full power of substitution, to execute in the name and
on behalf of such person, individually, and in each capacity stated below or
otherwise, and to file, any and all amendments to this report.
________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.*
Signature and Title
/s/J. Gus Swoboda /s/Thomas J. Lopina, Sr.
J. Gus Swoboda, Chairman and Director Thomas J. Lopina, Sr., Director
/s/Michael D. Meeuwsen /s/Robert J. Mettner
Michael D. Meeuwsen, President, Robert J. Mettner, Director
Chief Executive Officer and Director
(Principal Executive Officer)
/s/Rick B. Colberg /s/Robert B. Olson
Rick B. Colberg, Vice President, Treasurer Robert B. Olson, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/Howard M. Frankenthal /s/Richard C. Smits
Howard M. Frankenthal, Director Richard C. Smits, Executive Vice
President, Chief Operating Officer
and Director
_______________
* Each of the above signatures is affixed as of March 31, 1997.
FIRST NORTHERN CAPITAL CORP.
(THE "REGISTRANT)
COMMISSION FILE NO. 0-27982
EXHIBIT INDEX
TO
1996 ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN Filed
NUMBER DESCRITPTION BY REFERENCE TO Herewith
<S> <C> <C> <C>
2.1 Agreement and Plan of Reorganization, dated Appendix A to the Proxy
as of August 16, 1995, by and among Statement/Prospectus dated November
Registrant, First Northern Savings Bank, 2, 1995 (the "Proxy
S.A. (the "Savings Bank") and FNGB Interim Statement/Prospectus") contained in
Savings Bank, FSB the Registrant's Registration
Statement on Form S-4 (No. 33-
98088) filed on October 13, 1995,
as amended by Pre-Effective
Amendment No. 1 filed on October
31, 1995 ( the "1995 Registration
Statement")
3.1 Articles of Incorporation Appendix B to the Proxy
Statement/Prospectus
3.2 Bylaws Appendix C to the Proxy
Statement/Prospectus
4*
4.1 Specimen Common Stock Certificate Exhibit 4.1 to Registrant's Current
Report on Form 8-K dated as of
December 20, 1995 (the "12/20/95 8-
K")
4.2 Articles III, IV and VII of Articles of See Exhibit 3.1 above
Incorporation
10.1** Management Incentive Plan of Savings Bank Exhibit 10.1 to Registrant's
12/20/95 8-K
10.2.1** Employment Agreements, dated as of Exhibit 10.2.1 to Registrant's
January 2, 1990, between Savings Bank and 12/20/95 8-K
each of the following executive officers of
Savings Bank: Michael D. Meeuwsen; Rick B.
Colberg; Marla J. Carr; Richard E. Aicher;
and John E. Steinbrecker
10.2.2** Employment Agreement, dated as of Exhibit 10.2.2 to Registrant's
January 2, 1992, between Savings Bank and 12/20/95 8-K
Dale J. Darmody
10.2.3** Employment Agreement, dated as of June 12, Exhibit 10.2.3 to Registrant's
1992, between Savings Bank and Ralph N. 12/20/95 8-K
Marten
10.2.4** Employment Agreements, dated as of April Exhibit 10.2.4 to Registrant's
28, 1994, between Savings Bank and each of 12/20/95 8-K
the following executive officers of Savings
Bank: Charles R. Albers; Richard C. Smits;
and Steven L. Wilmet
10.2.5** Amendments No. 1 to Employment Agreements, Exhibit (10)-2.5 to Registrant's
dated as of September 20, 1995, between 1995 Registration Statement
Savings Bank and each of the following
executive officers of Savings Bank:
Michael D. Meeuwsen; Rick B. Colberg; Marla
J. Carr; Richard E. Aicher; John E.
Steinbrecker; Dale J. Darmody; Ralph N.
Marten; Charles R. Albers; Richard C.
Smits; and Steven L. Wilmet
10.3** Non-Qualified Deferred Retirement Plan for Exhibit 10.3 to Registrant's
Directors of Savings Bank 12/20/95 8-K
10.4.1** 1984 Stock Option Plan (assumed by Exhibit 10.4.1 to Registrant's
Registrant) 12/20/95 8-K
10.4.2** 1989 Executive Stock Option Plan (assumed Exhibit 10.4.2 to Registrant's
by Registrant) 12/20/95 8-K
10.4.3** 1989 Directors' Stock Option Plan (assumed Exhibit 10.4.3 to Registrant's
by Registrant) 12/20/95 8-K
10.4.4** 1989 Stock Option and Incentive Plan Exhibit 10.4.4 to Registrant's
(assumed by Registrant) 12/20/95 8-K
10.4.5** 1994 Executive Stock Plan (assumed by Exhibit 10.4.5 to Registrant's
Registrant) 12/20/95 8-K
10.4.6** 1994 Directors' Stock Option Plan (assumed Exhibit 10.4.6 to Registrant's
by Registrant) 12/20/95 8-K
10.5.1** Executive Employee Salary Continuation Exhibit 10.5.1 to Registrant's
Agreement, dated July 15, 1986, between 12/20/95 8-K
Savings Bank (as successor to New London
Savings and Loan Association) and Ralph N.
Marten
10.5.2** Amendment No. 1 to Executive Employee Exhibit (10)-5.2 to Registrant's
Salary Continuation Agreement, dated as of 1995 Registration Statement
September 20, 1995, between Savings Bank
and Ralph N. Marten
10.5.3** Salary Continuation Agreement, dated as of Exhibit 10.5.3 to Registrant's
April 28, 1994, between Savings Bank and 12/20/95 8-K
Richard C. Smits
10.5.4** Amendment No. 1 to Salary Continuation Exhibit (10)-5.4 to Registrant's
Agreement, dated as of September 20, 1995, 1995 Registration Statement
between Savings Bank and Richard C. Smits
10.6.1** Supplemental Retirement Agreements, dated Exhibit 10.6.1 to Registrant's
as of January 1, 1994, between Savings Bank 12/20/95 8-K
and each of the following executive
officers of Savings Bank: Richard E.
Aicher; Marla J. Carr; Rick B. Colberg;
Dale J. Darmody; Michael D. Meeuwsen; and
John E. Steinbrecker
10.6.2** Supplemental Retirement Agreement, dated as Exhibit (10)-6.2 to Registrant's
of January 1, 1995, between Savings Bank 1995 Registration Statement
and Richard C. Smits
10.6.3** Amendments No. 1 to Supplemental Retirement Exhibit (10)-6.3 to Registrant's
Agreements, dated as of September 20, 1995, 1995 Registration Statement
between Savings Bank and each of the
following executive officers of Savings
Bank: Richard E. Aicher; Marla J. Carr;
Rick B. Colberg; Dale J. Darmody; Michael
D. Meeuwsen; John E. Steinbrecker and
Richard C. Smits
10.7 Agreements in connection with acquisition Exhibit 10.7 to Registrant's
of 50% stock interest in Savings Financial 12/20/95 8-K
Corporation
11.1 Statement regarding computation of per X
share earnings
13.1 Portions of Annual Report to Stockholders X
for the year ended December 31, 1996
incorporated by reference (pages 1, 7 and
9-36)
21.1 List of Subsidiaries of Registrant Exhibit 21.1 to Registrant's
12/20/95 8-K
23.1 Consent of Ernst & Young LLP, Registrant's X
independent auditors
24.1 Power of Attorney, contained in the X
signature page of this Report
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and
Exchange Commission for information only
and not filed.
</TABLE>
__________________
* Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish to the SEC, upon request, a copy of any unfiled instrument
defining the rights of security holders.
** Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
<PAGE>
EXHIBIT 11.1
(1996 10-K)
FIRST NORTHERN CAPITAL CORP.
COMPUTATION OF NET INCOME PER COMMON SHARE
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
PRIMARY:
Weighted average
common shares outstanding
during each period 4,461,263 4,523,690 4,469,384
Incremental share relating
to:
Dilutive stock options
outstanding at end of
each period (1) 103,959 112,788 130,078
--------- --------- ---------
4,565,222 4,636,478 4,599,462
========= ========== =========
FULLY DILUTED:
Weighted average
common shares outstanding
during each period 4,461,263 4,523,690 4,469,384
Incremental share relating
to:
Dilutive stock options
outstanding at end of
each period (2) 137,702 149,076 141,659
--------- --------- ---------
4,598,965 4,672,766 4,611,043
========= ========== =========
NET INCOME FOR EACH PERIOD $3,283,000 $4,590,000 $4,198,000
PER COMMON SHARE AMOUNTS:
Primary, as presented in
the Statement of Income $0.72 $0.99 $0.91
Fully diluted $0.71 $0.98 $0.91
- - ------------------------
Notes:
(1) Based on treasury stock method using average market price.
(2) Based on treasury stock method using period end market price, if higher
than average market price.
SELECTED FINANCIAL HIGHLIGHTS
- - -----------------------------------------------------------------------------
(Dollars in thousands except per share amounts and Key Ratios and Other Data)
All information has been restated to reflect the December 20, 1995,
reorganization of the Savings Bank into a unitary holding company structure;
the 1994 acquisition of Prime Federal Bank, FSB; the 1992 acquisition of New
London Savings and Loan Association in pooling of interests transactions; and
the two-for-one stock split on September 18, 1992.
OPERATING RESULTS FOR YEARS ENDED DECEMBER 31
- - -------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Interest Income $41,876 $39,025 $35,409 $37,760 $42,878
Interest Expense 23,203 22,036 16,854 17,903 23,235
Net Interest Income 18,673 16,989 18,555 19,857 19,643
Provision for Loan Losses 370 240 145 539 538
Non-Interest Income 2,686 3,210 2,258 2,700 1,893
Non-Interest Expense 15,939(1) 12,651 13,278 12,016 11,831
Income Before Change
in Accounting 3,283(1) 4,590 4,198(2) 6,050 5,596
Net Income 3,283(1) 4,590 4,198(2) 6,520 5,596
Income Per Share Before
Change in Accounting - Primary .72(1) .99 .91(2) 1.33 1.25
Net Income Per Share - Primary .72(2) .99 .91(2) 1.43 1.25
Dividends Declared (Historical) .60 .56 .52 .48 .36
(1) Non-interest expense increased from the one-time special SAIF assessment of
$2,856,000; net income and income per share were decreased by the one-time
special SAIF assessment of by $1,733,000 or $.39 per share.
(2) Net income and income per share were decreased by $691,000 or $.15 per
share from merger related expenses.
FINANCIAL POSITION AT DECEMBER 31
- - ------------------------------------------------------------------------------
Assets $615,503 $553,467 $546,923 $504,952 $499,545
Securities Available-for-Sale 7,472 4,991 4,861 492 469
Securities Held-to-Maturity 25,908 23,388 22,210 38,949 31,733
Loans Receivable 553,995 500,535 497,061 424,234 405,172
Loans Held for Sale 2,532 2,989 18,419 10,566
Deposits 458,323 449,954 423,793 421,852 420,633
Borrowings 77,272 21,000 42,900 3,223 5,783
Stockholders' Equity 70,224 72,579 70,007 66,963 61,524
Book Value Per Share 16.01 15.93 15.57 15.12 14.13
Shares Outstanding,
Net of Treasury Stock 4,387 4,555 4,495 4,428 4,355
KEY RATIOS & OTHER DATA AT OR FOR THE YEARS ENDED DECEMBER 31
- - --------------------------------------------------------------------------------
Interest Rate Spread Information:
Weighted Average Interest Rates
Loans/Investments Yield 7.46% 7.39% 7.01% 7.10% 8.13%
Cost of Money 4.60% 4.63% 4.23% 3.78% 4.55%
Spread at December 31 2.86% 2.76% 2.78% 3.32% 3.58%
Average Spread Earned During
the Year 2.86% 2.69% 3.29% 3.64% 3.57%
Non-performing Assets to
Total Assets .15% .10% .12% .17% .24%
Return on Average Assets .56%(1) .83% .81% 1.30% 1.11%
Return on Average Stockholders'
Equity 4.61%(1) 6.43% 6.09% 10.12% 9.90%
Stockholders' Equity to
Total Assets 11.41% 13.11% 12.80% 13.26% 12.32%
Net Interest Margin 3.31% 3.17% 3.71% 4.09% 4.06%
Number of Offices 20 20 20 23 23
Number of Employees -
Full-Time Equivalents 214 213 206 211 198
(1)Excluding one-time special SAIF assessment, Return on Average Assets would
be .86% and Return on Average Stockholders' Equity would be 6.91%.
COMMON STOCK PRICES AND DIVIDENDS
The common stock of First Northern Capital Corp. is traded on the National
Association of Securities Dealers Automated Quotation National Market System
("NASDAQ/NMS") under the symbol "FNGB." Information in this section has been
restated for 1992 to give retroactive effect to the Company's 1992 two-for-one
stock split in the form of a 100% stock dividend.
As of February 28, 1997, there were 4,424,335 shares of common stock
outstanding and approximately 2,544 stockholders of record of the Company's
common stock. The chart below represents the cash dividends paid for each of
the stated quarters.
CASH DIVIDENDS PAID
1QUARTER 1997* 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------
1st Quarter $.16 $.15 $.14 $.13 $.12 $.08
2nd Quarter -- .15 .14 .13 .12 .08
3rd Quarter -- .15 .14 .13 .12 .10
4th Quarter -- .15 .14 .13 .12 .10
---- ---- ---- ---- ---- ----
Total -- $.60 $.56 $.52 $.48 $.36
===== ===== ===== ==== ===== =====
* The Company's Board of Directors raised the regular quarterly cash
dividend from $.15 to $.16 per share, a 6.7% increase, which was paid
on February 14, 1997 to stockholders of record on January 30, 1997.
The Company anticipates that it will continue to pay quarterly cash
dividends on its common stock, although there can be no assurance that
payment of such dividends will continue. The payment of dividends in the
future is discretionary with the Company's Board of Directors and will
depend on the Company's operating results and financial condition,
regulatory limitations, tax considerations and other factors.
Interest on deposit accounts will be paid prior to payment of dividends
on the Company's common stock. Earnings appropriated to bad debt
reserves and deducted for federal income tax purposes cannot be used to
pay cash dividends without the payment of federal income taxes on the
amounts removed from the reserves for such purpose at the then current
income tax rate. See Note H to the consolidated financial statements.
COMMON STOCK TRADING PRICE RANGE
(High and Low Sales Price)
1996 1995 1994 1993 1992
----------- -------------- ------------ ----------- ------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---- ----- ---- ------ ---- ------ ---- --- ---- ---
1st Quarter 161/4 15 1/8 13 3/4 11 3/4 151/2 12 3/4 15 131/4 101/2 83/8
2nd Quarter 161/2 15 1/8 14 1/4 13 141/2 12 3/4 15 1/4 121/2 111/4 101/4
3rd Quarter 171/2 15 1/8 16 7/8 13 1/4 15 131/4 15 1/2 131/4 131/2 111/8
4th Quarter 19 16 16 1/2 14 3/4 141/4 11 3/4 15 3/4 141/2 141/4 111/2
During the first two months of 1997, the Company's common stock price quotation
ranged between $18.75 and $16.25 per share, and closed on February 28, 1997 at
$18.625 per share.
1996 MD&A
OVERVIEW
On December 20, 1995, First Northern Savings Bank, S.A. (the "Savings Bank"), a
Wisconsin chartered capital stock savings and loan association, reorganized
into a unitary savings and loan holding company (the"Reorganization") structure
becoming a wholly-owned subsidiary of First Northern Capital Corp. (the
"Company" or "First Northern"). At that date, each outstanding share of the
Savings Bank's common stock was converted into one share of the Company's
common stock. Consequently, the holders of all the outstanding stock of the
Savings Bank acquired the same proportionate ownership interest in First
Northern as they had held in the Savings Bank. The consolidated capital,
assets, liabilities, income and other financial data of First Northern
immediately following the Reorganization were substantially the same as those
of the Savings Bank immediately prior to consummation of the Reorganization.
The discussion below reflects the accounts and operations of the Company since
December 20, 1995 and the accounts and operations of the Savings Bank and its
wholly-owned subsidiaries for the entire periods discussed. The Reorganization
was effected to provide greater flexibility in meeting its future financial and
competitive needs.
On April 28, 1994, Prime Federal Bank, FSB, De Pere, Wisconsin ("Prime
Federal") merged with and into the Savings Bank. For every Prime Federal
common share outstanding, the Savings Bank exchanged 2.8275 shares of Savings
Bank's common stock. The acquisition was accounted for as a pooling of
interests.
The Savings Bank is the only direct subsidiary of the Company and its
operations are the primary contributor to the Company's earnings and expenses.
The Savings Bank's business consists primarily of attracting deposits from the
general public and originating loans throughout its Northeastern Wisconsin
branch network. Great Northern Financial Services Corporation ("GNFSC"), a
wholly-owned subsidiary of the Savings Bank, offers full brokerage services to
the public, through a network agreement with a registered broker-dealer, and
sells tax deferred annuities, credit life and disability insurance. Another
wholly-owned Savings Bank subsidiary, First Northern Investments, Inc.
("FNII"), manages a majority of the Savings Bank's investments. The Savings
Bank also owns 50% of Savings Financial Corporation ("SFC"), which originates,
sells and services automobile loans to its parent corporations.
CAUTIONARY FACTORS
The Annual Report contains various forward-looking statements concerning the
Company's prospects that are based on the current expectations and beliefs of
Management. Forward-looking statements may also be made by the Company from
time to time in other reports and documents as well as oral presentations.
When used in written documents or oral statements, 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 Company's control, that
could cause the Company'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 Company:
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 Savings
Bank's loan and investment portfolios and the investment portfolio of FNII.
BALANCE SHEET ANALYSIS
LIQUIDITY. The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, advances from the Federal Home Loan
Bank (the "FHLB") of Chicago, and, to a lesser extent, maturities of
investment securities and short-term investments, sales of mortgage loans,
repurchase agreements, and operations. While scheduled loan repayments and
maturing investments are a relatively predictable source of funds, deposit
flows and loan prepayments are influenced to a great extent by interest
rates, general economic conditions, and competition.
Federal regulations historically have required First Northern to maintain
minimum levels of liquid assets such as cash, certain time deposits, U.S.
government and agency securities, and other obligations generally having
remaining maturities of less than five years. Liquidity requirements have
varied from time to time based upon economic conditions and deposit flows,
and they are currently 1% (short-term liquidity ratio) and 5% (total
liquidity ratio) of the preceding calendar month's average net withdrawable
deposits and borrowings payable on demand or in one year or less. The
Company's short-term and total liquidity ratios at December 31, 1996 were
3.04% and 5.97%, respectively, and 4.62% and 6.90%, respectively, at
December 31, 1995. Short-term and total liquidity ratios decreased at
year-end 1996 as compared to year-end 1995 as a result of funding loan
originations.
Liquidity management is both a daily and long-term responsibility of
Management. The Company adjusts its investments in liquid assets based upon
Management s assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and (iv)
the objectives of its asset/liability management program. Excess liquidity
is generally invested in interest-earning overnight deposits and short-term
U.S. government and agency obligations. If the Savings Bank requires funds
beyond its ability to generate them from operations, it can borrow from the
FHLB of Chicago (See "Borrowings").
INVESTMENT AND MORTGAGE-RELATED SECURITIES. A substantial portion of the
Company's investment securities (approximately $24.6 million at December 31,
1996 and $23.5 million at December 31, 1995) are held and managed by FNII, a
wholly-owned investment subsidiary of the Savings Bank. The following table
sets forth the composition of First Northern s investment and mortgage-related
securities portfolio:
<TABLE>
<CAPTION>
INVESTMENT AND MORTGAGE-RELATED SECURITIES
PORTFOLIO COMPOSITION
AT DECEMBER 31
-----------------------------------------
1996 1995
-------------------- -------------------
Percent Percent
Carrying of Carrying of
Value Total Value Total
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning deposits $ 1,598 4.57% $ 82 .28%
Securities available-for-sale:
U.S. government securities 2,517 7.20 1,018 3.58
Federal agency obligations 1,985 5.67 1,004 3.53
Mortgage-related securities 1,837 5.25 2,013 7.07
Asset Management fund 471 1.35 455 1.60
FHLMC stock 662 1.89 501 1.76
-------- ------ ------- ------
Total securities
available-for-sale 7,472 21.36 4,991 17.54
Securities held-to-maturity:
U.S. government securities 3,004 8.59 10,073 35.39
Federal agency obligations 13,579 38.82 9,291 32.65
Mortgage-related securities 9,325 26.66 4,024 14.14
-------- ------ ------- ------
Total securities
held-to-maturity 25,908 74.07 23,388 82.18
-------- ------ ------- ------
Total $34,978 100.00% $28,461 100.00%
======== ====== ======= ======
</TABLE>
Interest-earning deposits increased $1,516,000 in 1996 as a result of year-end
maturing securities being placed in an overnight fund before being reinvested
into investment securities.
Both the securities available-for-sale and securities held-to-maturity dollars
increased in 1996 as compared to 1995 as a result of reinvesting the interest
earned on the investment portfolio into additional securities and borrowing
approximately $5.0 million for investment in securities. First Northern will
generally borrow money and reinvest it in securities (also know as an
arbitrage) when it can incrementally improve earnings without undue credit or
interest rate risk.
LENDING ACTIVITIES. First Northern has traditionally concentrated on the
origination of adjustable and fixed interest rate one- to four-family mortgage
and consumer loans. First Northern also originates construction, more than
four family residential and commercial real estate loans. Adjustable interest
rate mortgage loans are originated for First Northern's portfolio while fixed
interest rate mortgage loans, particularly those with terms greater than 15
years, are primarily originated for sale in the secondary mortgage market.
However, First Northern retained most of its 15 year fixed interest rate
mortgage loan originations in 1996, in its portfolio. At December 31, 1996,
approximately 90% of First Northern's mortgage loan portfolio was interest
rate adjustable.
First Northern's origination of second mortgage loans, automobile, boat,
recreational vehicle and other types of consumer loans, which are generally
of shorter maturities than first mortgage loans, enhances the matching of
maturities of its assets and liabilities. Second mortgage loans are offered
on both a fixed and adjustable interest rate basis; other consumer loans
are generally offered on a fixed interest rate basis. First Northern changed
its policy in 1995 from offering both a variable and fixed interest rate
consumer loan to offering only a fixed interest rate because of (i) increased
opportunities for higher interest income and (ii) market acceptance of fixed
interest rate consumer loans. At December 31, 1996 and 1995, approximately
35% and 33%, respectively, of First Northern's consumer loan portfolio was
interest rate adjustable. A significant dollar amount of second mortgage loans
were originated in 1996 with adjustable interest rates.
First Northern originates a variety of adjustable and fixed interest rate
mortgage loan products based upon market demands and general economic
conditions. Adjustable indexed interest rate mortgage loans at December 31,
1996, contain an interest rate adjustment provision tied to the national
monthly median cost of funds ratio for Savings Association Insurance Fund
("SAIF") insured institutions, plus an additional mark-up of 2.75% to 4.00%
(the "index") which varies with the mortgage loan product. Interest rates on
indexed mortgage loans are adjusted, up or down, on predetermined dates fixed
by contract, in relation to and based on the index or market interest rates
as of a predetermined time prior to the adjustment date.
Adjustable indexed interest rate mortgage loans have an initial period, ranging
from one to five years, during which the interest rate is fixed, with
adjustments permitted thereafter, subject to annual and lifetime interest
rate caps which vary with the product. Annual limits on interest rate
increases are 1% to 2%, while aggregate lifetime interest rate increases over
the term of the loan are currently at 6% above the original mortgage loan
interest rate.
The following table sets forth First Northern's mortgage and consumer loan
originations and purchases:
<TABLE>
<CAPTION>
LOAN ORIGINATIONS AND PURCHASES
DURING THE YEAR ENDED DECEMBER 31
----------------------------
1996 1995
--------- ---------
(In Thousands)
Mortgage loans:
<S> <C> <C>
Construction - Residential $ 26,596 $ 17,325
Loans on existing property 49,017 38,834
Refinancing 35,497 15,122
Other loans 2,668 1,216
-------- --------
Total mortgage loans 113,778 72,497
Consumer loans:
Consumer 15,292 8,773
Second mortgage 24,871 30,473
Automobile 45,722 26,109
Education 2,382 2,895
-------- --------
Total consumer loans 88,267 68,250
-------- --------
Total loans originated and purchased $202,045 $140,747
======== ========
</TABLE>
The dollar volume of First Northern's mortgage loan originations and purchases
substantially increased in 1996 as compared to 1995 as a result of a strong
economy in Northeastern Wisconsin which increased loan demand and Management's
increased emphasis on loan originations and purchases. First Northern
purchased (in the state of Wisconsin) $8.4 million of one family residential
and $0.8 million of multi-family and other mortgage loans in 1996, as compared
to $2.9 million of one family residential loans in 1995. First Northern
purchases loans when loan interest rates provide an opportunity to incrementally
add to the profitability of the Company. In addition, mortgage loan
refinancings increased as a result of favorable interest rates that were
offered on mortgage loans early in 1996.
First Northern's growth in the dollar amount of mortgage loans outstanding was
$32.4 million or 8.2% for 1996 as compared to $5.6 million or 1.4% in 1995.
The increase in the 1996 mortgage loan portfolio was the result of the
increased dollar amount of adjustable indexed interest rate mortgage loans
originated and purchased, which First Northern retained in its portfolio.
As part of First Northern's asset and liability management, its general policy,
which is subject to review by Management as a result of changing market and
economic conditions and other factors, is to retain all adjustable interest
rate mortgage loans in its portfolio and to keep up to approximately 20% of
the mortgage portfolio in fixed interest rate mortgage loans. At
December 31, 1996, First Northern had approximately $11.6 million or 2.7% of
30 year and $30.0 million or 7.0% of 15 year fixed interest rate mortgage
loans in its mortgage loan portfolio, compared to approximately $8.5 million or
2.2% of 30 year and $27.1 million or 6.9% of 15 year fixed interest rate
mortgage loans at December 31, 1995.
In 1996, First Northern sold $11.1 million of fixed interest rate mortgage
loans as compared to $11.6 million in 1995.
Consumer loan originations and purchases increased in 1996 as compared to 1995
primarily as a result of increased originations by SFC and increased loan
purchases by the Savings Bank from SFC. In 1996, First Northern purchased $38.0
million of automobile loans from SFC as compared to $18.7 million in 1995.
This increase in purchases from SFC was the result of a more active automobile
loan market and the expansion of SFC's operations in Northern Wisconsin. SFC
originates indirect automobile loans in the state of Wisconsin and sells these
loans to First Northern and the other SFC shareholder while retaining the
servicing of such loans. The book value of First Northern's investment in
SFC as of December 31, 1996 was $27,720.
ASSET QUALITY. First Northern currently classifies any loan on which a payment
is 90 days or more past due as non-performing. The following table summarizes
non-performing loans and assets:
<TABLE>
<CAPTION>
NON-PERFORMING LOANS AND ASSETS
AT DECEMBER 31
---------------------------------
1996 1995
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual mortgage loans $509 $266
Non-accrual consumer loans 235 152
---- ----
Total non-performing loans 744 418
Properties subject to foreclosure 157 113
Foreclosed properties and repossessed assets 32 23
---- ----
Total non-performing assets $933 $554
==== ====
Non-performing loans as a percent of total loans .13% .08%
==== ===
Non-performing assets as a percent of total assets .15% .10%
==== ===
</TABLE>
Total non-performing loans and assets increased moderately in 1996 as compared
to 1995 as a result of a modest increase in overall delinquencies. In
addition, the level of non-performing loans and assets was historically low
in 1995. Management believes non-performing loans and assets at the end of
1996 are still significantly below state and national averages.
Management also believes that allowances for losses on loans, real estate owned
and repossessed assets are adequate. While Management uses available
information to recognize losses on loans, real estate owned and repossessed
assets, future additions to the allowances may be necessary based on changes
in economic conditions or regulatory requirements.
A summary of the general loan loss allowances is shown below:
<TABLE>
<CAPTION>
GENERAL LOAN LOSS ALLOWANCES
AT DECEMBER 31
-------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
Balance at the beginning
<S> <C> <C> <C>
of the year $2,608 $2,400 $2,306
Provisions 370 240 145
Loan charge-offs (66) (71) (147)
Recoveries 25 39 45
Adjustment to conform pooled
companies' fiscal year-ends. 51
------ ------ ------
Balance at the end of the year $2,937 $2,608 $2,400
====== ====== ======
Allowance as a percent of
total loans .53% .52% .48%
=== === ===
Allowance as a percent of
non-performing loans 394.76% 623.92% 439.56%
====== ====== ======
Allowance as a percent of
total assets .48% .47% .44%
=== === ===
Allowance as a percent of
non-performing assets 314.79% 470.76% 360.36%
====== ====== ======
</TABLE>
<PAGE>
DEPOSITS. Deposits increased $8.4 million or 1.9% in 1996 as compared to
$26.2 million or 6.2% in 1995. As of December 31, 1996 deposits totaled
$458.3 million or 84.1% of total liabilities. The deposit increase in 1996 was
more consistent with what the Savings Bank has experienced in recent years,
prior to 1995. The deposit increase of $26.2 million in 1995 was higher than
normal as a result of the popularity of a new deposit product. Competition for
deposits in First Northern's market area has and will continue to be very
strong.
First Northern establishes savings deposit interest rates to maintain a
favorable spread from loan interest rates and to be competitive in each market
area. The deposit philosophy has been and continues to be that an increase in
deposit dollars will be sought only if the increase is incrementally
profitable.
Due to loan demand and competition for retail deposits, First Northern has and
will continue to seek alternative sources of funding, including wholesale and
jumbo ($100,000 or more) deposits. At the end of 1996, First Northern had
obtained $917,000 in wholesale brokered funds and has become more aggressive
in obtaining corporate and municipal jumbo deposits. These funds were obtained
at a lower cost than retail deposits and this new strategy will be an integral
part of the deposit acquisition for 1997.
First Northern believes that the household checking account is the basic
account upon which further banking customer relationships can be developed.
First Northern incorporated aggressive pricing and marketing of the checking
account and has been able to become the "primary financial institution" for
many households. To enhance this checking account relationship and to
increase non-interest fee income, First Northern introduced the First Northern
CheckCard in 1996. The First Northern CheckCard gives a checking account
customer the opportunity to access a checking account anywhere in the world
where VISA is accepted. In addition, the TYME 24-Hour Teller Card is combined
with the First Northern CheckCard for additional customer convenience. First
Northern aggressively marketed the First Northern CheckCard by mailing the card
to all qualified First Northern checking account customers. This aggressive
marketing philosophy resulted in greater customer acceptance and increased
product profitability.
First Northern's objective is to create a one-stop family financial banking
center by offering a wide selection of checking accounts, short, intermediate
and long-term certificates of deposit, insured retirement accounts and mortgage
and consumer loans to meet a wide variety of customer needs.
First Northern's brokerage division, established in April, 1995, posted a
second straight year of profitability. The brokerage division offers
non-insured deposit products, such as tax deferred annuities and, through a
network agreement with a registered broker-dealer, mutual funds and brokerage
products. The establishment of this division has resulted in increased
customer retention and new customer relationships.
BORROWINGS. Historically, First Northern has funded its loan originations from
increases in its deposit portfolio and from operations. However, if deposit
inflows and operations are not sufficient to fund the lending needs, First
Northern will borrow funds. First Northern borrows funds primarily from the
FHLB of Chicago with maturity terms that range from overnight to approximately
four years (See Notes to Consolidated Financial Statements-- Note
G--Borrowings). Management anticipates it will continue to utilize borrowings
to fund its growth in interest-earning assets in 1997.
STOCKHOLDERS' EQUITY. First Northern's stockholders' equity to total assets
ratio at December 31, 1996 was 11.4%, as compared to 13.1% at December 31,
1995. First Northern employs methods which are intended to increase
interest-earning assets and thus reduce the percentage of equity to total
assets (known as leveraging). In addition to interest-earning asset growth,
the Company has also begun to repurchase its stock. The first stock repurchase
program, began in March of 1996 and was completed in September 1996, resulted
in the repurchase of 228,467 shares at an average cost of $15.82 per share.
A second stock repurchase program begun in October 1996, authorized the
repurchase of 219,057 shares. As of December 31, 1996, a total of 5,000 shares
were repurchased in the second stock repurchase program at an average cost of
$16.625 per share.
The Wisconsin Department of Financial Institutions---Division of Savings
Institutions, which regulates the Savings Bank, requires maintenance of a
minimum of 6.00% equity to total assets. In addition, the Office of Thrift
Supervision ("OTS") capital rules require the Savings Bank to meet three
separate standards: (i) a leverage limit of core capital to total assets
if not less than three percent; (ii) tangible capital to total assets of not
less than one and one-half percent; and (iii) risk-based capital to
risk-weighted assets of eight percent. The Savings Bank meets and exceeds all
regulatory capital standards (See Notes to Consolidated Financial
Statements---Note I--Stockholders' Equity).
ASSET AND LIABILITY MANAGEMENT
The primary function of asset and liability management is to provide liquidity
and maintain an appropriate balance between interest-earning assets and
interest-bearing liabilities. Interest rate risk is the imbalance between
interest-earning assets and interest-bearing liabilities at a given maturity
or repricing date and is commonly referred to as the interest rate gap (the
"gap"). A positive gap exists when there are more assets than liabilities
maturing or repricing within the same time frame. A negative gap occurs when
there are more liabilities than assets maturing or repricing within the same
time frame.
The following chart reflects First Northern's gap position as of December 31,
1996:
<TABLE>
<CAPTION>
CUMULATIVE GAP POSITION
-----------------------------------------
(DOLLARS IN THOUSANDS)
3 MONTHS 4 TO 12 1 TO 5 OVER
OR LESS MONTHS YEARS 5 YEARS TOTAL
-------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
Mortgage loans (a) $ 76,132 $218,372$110,716 $16,108 $421,328
Consumer loans (b) 38,590 59,423 39,836 1,304 139,153
Investment securities(c) 8,082 4,999 12,279 25,360
Mortgage-related securities(d) 263 1,102 7,389 2,399 11,153
Interest-earning deposits 1,598 1,598
-------- -------- ------- ------- -------
Total rate-sensitive assets 124,665 283,896 170,220 19,811 598,592
Interest-bearing liabilities:
Passbook accounts (e) 5,168 10,757 10,859 30,570 57,354
NOW & variable rate insured
Money market accounts (e) 46,604 16,433 14,335 26,879 104,251
Time deposits (e) 57,306 170,617 66,441 294,364
Advance payments by borrowers
for taxes and insurance 3,900 774 773 5,447
Borrowings 33,122 15,400 28,750 77,272
------- -------- ------- ------- --------
Total rate-sensitive
liabilities 146,100 213,981 121,158 57,449 538,688
------- -------- ------- ------- --------
Gap $(21,435) $ 69,915 $49,062$(37,638)$ 59,904
======== ======== ======= ======= ========
Cumulative gap $(21,435) $ 48,480 $97,542 $59,904
======== ======== ======= =======
Cumulative gap as a percentage
of total assets (3.5)% 7.9% 15.8% 9.7%
==== === ==== ===
</TABLE>
(a) Excludes undisbursed loan proceeds of $5,942; includes $1,045 of mortgage
loans held for sale.
(b) Includes $1,487 of education loans held for sale.
(c) Includes $3,773 of FHLB stock; excludes unrealized gains or losses.
(d) Excludes unrealized gains or losses.
(e) Does not include accrued interest which totals $2,354 for all deposits.
The calculation of a gap position is subjective by nature and requires
Management to make a number of assumptions as to when an asset or liability
will reprice or mature. Assumptions used in estimating the maturity/repricing
amounts and dates of the more significant asset and liability categories
include: (i) investment securities - based upon contractual maturities;
(ii) loans and mortgage-related securities - based upon contractual maturities,
repricing date, if applicable, scheduled repayments of principal and projected
prepayments of principal based upon the Company's historical experience; and
(iii) deposits based upon contractual maturities and various decay rates
applied to the remaining deposit dollars. The decay rate, which varies with
deposit product, is based on historical decay rates of thrift institutions.
First Northern's overall goal for asset liability management is to maximize
long-term profitability and returns to stockholders. First Northern's current
strategy is to: (i) originate and retain adjustable interest rate mortgage
loans; (ii) originate and retain 15 year fixed interest rate mortgage loans;
(iii) originate and sell 20 year and 30 year fixed interest rate mortgage
loans; (iv) originate shorter maturity consumer loans; (v) emphasize the
origination of adjustable interest rate home equity loans; (vi) counsel
depositors to balance their deposits between short-, intermediate-, and long-
term deposits; and (vii) to offer new and attractive deposits and investment
opportunities. In addition, borrowings with various terms are used to reach
the targeted asset/liability mix. Currently, Management's strategic goal for
asset/liability management is to maintain a cumulative 1 year gap within a
range of a positive 10% to a negative 20%. Management believes this is an
appropriate level to achieve First Northern's long-term goals, while
controlling interest rate risk.
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS
The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets, the resultant
yields, and the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
Average balances are derived from average monthly balances. The yield on
securities available-for-sale are included in investment securities and
mortgage- related securities and yields are calculated on the historical
basis. The yields and rates are established by dividing income or expense
dollars by the average balance of the asset or liability.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET, INTEREST AND RATE PAID
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------------- ------------------------ -------------------------
INTEREST INTEREST INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
-------- -------- ----- -------- ------- ------ ------- --------- ------
(DOLLARS IN THOUSANDS)
Interest-earning assets (1):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans $401,652 $28,831 7.18% $386,128 $26,982 6.99% $365,966 $25,294 6.91%
Consumer loans 126,177 10,725 8.50 117,899 9,948 8.44 101,495 8,045 7.93
Investment securities 25,215 1,582 6.27 24,865 1,612 6.48 23,386 1,494 6.39
Interest-earning
deposits 1,220 66 5.41 1,601 100 6.25 3,419 150 4.39
Mortgage-related
securities 10,344 672 6.50 5,428 383 7.06 6,168 426 6.91
--------- ------- ----- -------- ------- ----- -------- ------- -----
TOTAL 564,608 41,876 7.42 535,921 39,025 7.28 500,434 35,409 7.08
Interest-bearing liabilities:
Passbook accounts 58,744 1,313 2.24 60,367 1,498 2.48 69,070 1,734 2.51
NOW and variable rate
insured money market
accounts 102,338 2,388 2.33 85,234 1,884 2.21 79,736 1,391 1.74
Time deposits 292,477 16,543 5.66 292,248 16,190 5.54 270,880 12,653 4.67
Advance payments by
borrowers for taxes
and insurance 7,142 162 2.27 8,528 178 2.09 8,202 187 2.28
Borrowings 48,393 2,797 5.78 33,681 2,286 6.79 17,304 889 5.14
--------- ------- ----- -------- ------- ----- -------- ------- -----
TOTAL 509,094 23,203 4.56 480,058 22,036 4.59 445,192 16,854 3.79
--------- ------- ----- -------- ------- ----- -------- ------- -----
Net interest earning
assets and interest
rate spread $ 55,514 2.86% $55,863 2.69% $ 55,242 3.29%
======== ==== ======= ==== ======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning
assets $564,608 $18,673 3.31% $535,921 $16,989 3.17% $500,434 $18,555 3.71%
======== ======= ==== ======== ======= ==== ======== ======= ====
Average interest-earning assets
to interest-bearing
liabilities 110.9% 111.6% 112.4%
===== ===== =====
</TABLE>
(1) For the purpose of these computations, non-accruing loans and loans held
-for-sale are included in the average loan amounts outstanding.
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
The interaction of changes in volume and rates earned or paid with regard to
interest-earning assets and interest-bearing liabilities has a significant
impact on net income between periods. The volume of interest-earning dollars
in loans and investments compared to the volume of interest-bearing dollars
in deposits and borrowings, combined with the interest rate spread, produces
the changes in net interest income between periods.
The following table sets forth the relative contribution of changes in volume
and effective interest rates on changes in net income:
RATE VOLUME ANALYSIS
YEAR ENDED DECEMBER 31
1996 VS 1995
--------------------------------------
INCREASE (DECREASE) DUE TO:
--------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
-------- -------- -------- ---------
(IN THOUSANDS)
Interest-earning assets:
Mortgage loans $734 $ 1,086 $29 $ 1,849
Consumer loans 71 701 5 777
Investment securities (52) 23 (1) (30)
Interest-earning deposits (13) (24) 3 (34)
Mortgage-related securities (30) 347 (28) 289
---- ------- ---- -------
TOTAL $710 $ 2,133 $ 8 2,851
==== ======= ==== -------
Interest-bearing liabilities:
Passbook accounts $(149) $ (40) $ 4 (185)
NOW and variable rate insured
money market accounts 102 381 21 504
Time deposits 340 13 353
Advance payments by borrowers
for taxes and insurance 15 (29) (2) (16)
Borrowings (340) 1,000 (149) 511
---- ------- ---- -------
TOTAL $ (32) $ 1,325 $(126) 1,167
==== ======= ==== -------
Net change in net interest income $1,684
=====
YEAR ENDED DECEMBER 31
--------------------------------------
1995 VS 1994
INCREASE (DECREASE) DUE TO:
--------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- -------- -------- --------
(IN THOUSANDS)
Interest-earning assets:
Mortgage loans $293 $ 1,379 $16 $ 1,688
Consumer loans 518 1,301 84 1,903
Investment securities 21 96 1 118
Interest-earning deposits 64 (80) (34) (50)
Mortgage-related securities 9 (51) (1) (43)
---- ------- ---- -------
TOTAL $905 $ 2,645 $66 3,616
==== ======= ==== -------
Interest-bearing liabilities:
Passbook accounts $ (21) $ (218) $ 3 (236)
NOW and variable rate insured
money market accounts 371 96 26 493
Time deposits 2,353 998 186 3,537
Advance payments by borrowers
for taxes and insurance (15) 7 (1) (9)
Borrowings 286 841 270 1,397
------ ------- ---- -------
TOTAL $2,974 $ 1,724 $484 5,182
====== ======= ==== -------
Net change in net interest income $(1,566)
=======
YEAR ENDED DECEMBER 31
1994 VS 1993
------------------------------------
INCREASE (DECREASE) DUE TO:
------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
Interest-earning assets:
Mortgage loans $(3,433) $ 1,513 $(190) $ (2,110)
Consumer loans (718) 1,833 (185) 930
Investment securities 68 (547) (19) (498)
Interest-earning deposits 175 (450) (140) (415)
Mortgage-related securities (100) (185) 27 (258)
------- ------- ---- -------
TOTAL $(4,008) $ 2,164 $(507) (2,351)
======= ======= ==== -------
Interest-bearing liabilities:
Passbook accounts $ (236) $ 223 $ (30) (43)
NOW and variable rate insured
money market accounts (351) 12 (2) (341)
Time deposits (824) (450) 27 (1,247)
Advance payments by borrowers
for taxes and insurance (132) 19 (8) (121)
Borrowings 44 533 126 703
---- ------- ---- -------
TOTAL $(1,499) $ 337 $113 (1,049)
======= ======= ==== -------
Net change in net interest income $(1,302)
=======
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995.
GENERAL. Net income decreased $1,307,000 in 1996 primarily as a result of a
one-time SAIF special assessment of $2,856,000 pre-tax or $1,733,000 after-tax,
on assessable deposits. In addition, 1995 net income included $391,000 of non-
recurring net income primarily from: (i) the sale of $10.5 million of education
loans for a pre-tax gain of $468,000; (ii) the sale of Federal Home Loan
Mortgage Corporation ("Freddie Mac") stock for a pre-tax gain of $318,000;
and (iii) the sale of an excess branch office property (resulting from the
Prime Federal acquisition) for a pre-tax gain of $149,000.
INTEREST INCOME. Interest income on mortgage loans increased $1,849,000 as a
result of increased dollars outstanding in the mortgage loan portfolio and an
increase in the average interest rate earned. The dollar increase in the
mortgage loan portfolio resulted from the increase of adjustable interest rate
mortgage loan originations. The increase in the average interest rate earned
resulted primarily from interest rates being adjusted upward on existing
adjustable interest rate mortgage loans. At times, First Northern will not
increase interest rates on qualified adjustable interest rate mortgage loans
to the maximum allowable contractual interest rates since to do so would be
inconsistent with market rates and promote the refinancings of the mortgage
loan at a lower interest rate.
Interest income on consumer loans increased $777,000 primarily as the result
of growth in the consumer loan portfolio. The yield on consumer loans
increased to 8.50% from 8.44% as a result of escalations on the interest rate
adjustable portion of the consumer loan portfolio and consumer loan
originations at higher interest rates than the historical yield on the consumer
loan portfolio.
Interest income on investment securities and interest-earning deposits
decreased in 1996 as a result of maturing securities and deposits and
reinvesting of those funds at lower interest rates. In addition, the average
balances of interest-earning deposits decreased $ 381,000 in 1996.
Mortgage-related securities average balance increased in 1996 which resulted
in the $289,000 increase in interest income on mortgage-related securities.
First Northern, to a limited extent, borrowed funds and reinvested those
monies in mortgage-related securities. Historically, mortgage-related
securities have had higher yields than other investments with like terms.
Interest expense. Interest expense on deposits increased $672,000 in 1996
as a result of increased deposit dollars outstanding and an increase in the
cost of deposits. Although deposits at year-end 1996 increased $8.4 million,
average deposits increased $15,710,000 in 1996.
Interest expense on borrowings increased $511,000 as a result of increased
borrowings outstanding. First Northern utilizes borrowings to supplement
deposits for the funding of loans and investments. Management anticipates it
will continue to use borrowings in 1997 to fund its lending activity.
Interest expense on advance payment by borrowers for taxes and insurance
("escrow") decreased slightly in 1996 as a result of lower balances in escrow
accounts. Even though First Northern increased the number of loans with
escrows in 1996, the Housing and Urban Development ("HUD") regulation, which
allows for aggregating of tax and insurance dollars within an individual's
escrow, effectively reduces the monies needed within escrow accounts. First
Northern estimates the HUD ruling reduced escrows by approximately $1.0
million. The interest rate paid on escrow accounts in 1996 was 2.91% as
compared to 2.81% in 1995. The escrow interest rate for 1997 is 2.83%.
PROVISION FOR LOAN LOSSES. First Northern expensed $370,000 in 1996 as
compared to $240,000 in 1995 primarily as a result of the increased dollars
outstanding in the loan portfolio. The total loan loss allowance is
$2,937,000 which is .53% of the total loan portfolio. Net charge-offs were
.01% of total loans in 1996.
NON-INTEREST INCOME. Fees on serviced loans decreased slightly in 1996 as a
result of a decrease in the dollar amount of loans serviced. Loan fees and
service charges increased $8,000 primarily as the result of increases in late
charges and commissions on mortgage loans closed for others (i.e., Wisconsin
Housing and Economic Development Authority ("WHEDA") loans, State V.A. loans
or other loans).
Deposit account service charges increased $147,000 as a result of increased
number of accounts and their associated fees and an increase in pricing for
deposit account services. First Northern periodically reviews its product
pricing in relationship to the internal cost of offering the service and
external competition and makes appropriate adjustments in its pricing of
those products or services.
Insurance commissions increased in 1996 primarily as the result of bonuses
received from insurance carriers. If First Northern obtains a predetermined
threshold of insurance sales and insurance losses are at or below another
threshold, insurance bonuses can be earned. In 1996, those insurance bonuses
amounted to $76,978 and in 1995, insurance bonuses were $50,393.
The gain on sales of loans decreased $390,000 in 1996, primarily as the result
of the sale of $10.5 million of education loans in 1995 for a pre-tax gain of
$468,000.
First Northern normally sells all of the 20 and 30 year fixed interest rate
mortgage loans and education loans it originates, in the secondary market.
Depending on pricing at the time of the sale, it may incur a gain or loss on
the sale of the mortgage loans. In 1996, First Northern sold $11.1 million of
fixed interest rate mortgage loans and $3.2 of education loans.
In addition, Statement No. 122 "Accounting for Mortgage Servicing Rights"
requires First Northern to recognize an asset for servicing rights on loans
it sells and services. This accounting change increased the gain on the sale
of loans approximately $109,000 in 1996.
Management periodically reviews its securities available-for-sale for profit
opportunities. In 1996, Management determined that there was more opportunity
to be gained by retaining securities and therefore, did not sell any
securities. In 1995, First Northern sold Freddie Mac stock for a pre-tax gain
of $318,000.
Gain on sale of assets decreased $157,000 in 1996 because in 1995 an excess
branch office property (resulting from the Prime Federal acquisition), was
sold for a pre-tax gain of $149,000.
NON-INTEREST EXPENSE. Compensation and compensation related expenses increased
$346,000 or 5.4% in 1996 as a result of: (i) annual salary increases; (ii)
increased benefit costs; (iii) a higher cash payout of a management incentive
plan as a result of increased profitability; and (iv) increased education and
training costs. First Northern has self-funded health and dental insurance
plans, with appropriate maximum stop losses, that initially will cause a modest
increase in costs. It is anticipated, that after the initial phase-in period,
these self-funded plans will have subsequent increases that are less than
conventionally funded plans. Education and training have been emphasized by
Management especially with the implementation of a new P.C. based teller
system. Training for the new teller system will continue throughout 1997.
Federal insurance premiums decreased in 1996 as a result of the
recapitalization of the SAIF deposit insurance fund. The SAIF deposit
insurance fund recapitalization resulted from a one-time special assessment
of all SAIF members. First Northern paid an assessment of $2,856,000. The
reduction in First Northern's SAIF deposit insurance premiums occurred in the
fourth quarter of 1996 in the amount of $56,000. It is anticipated that the
reduced SAIF premiums will decrease First Northern's SAIF deposit insurance
expense by approximately $750,000 in 1997.
Occupancy costs decreased in 1996 primarily as a result of the reduction in
real estate taxes on First Northern offices and the sale of an excess branch
office property in 1995.
Data processing expense rose slightly in 1996 as a result of the
implementation of service contracts associated with the Wide Area Network
("WAN"). In 1995, First Northern implemented a WAN and in 1996, began the
implementation of a P.C. based teller system.
Furniture and equipment expense increased in 1996 as a result of a portion of
the new PC teller system being installed in 1996. The total cost of the new
teller system will be approximately $750,000 with the majority of the cost
depreciated over five years.
Telephone and postage increased $28,000 in 1996 as a result of increased number
of mailings and the addition of a customer personal access line. The personal
access line allows customers to access their account balances or transfer
money between First Northern accounts, at any time of the day via their
telephone. The increased number of mailings is the result of increased number
of accounts that First Northern services and the offering of new services and
accounts.
To increase lending and deposit volumes in 1996, First Northern also increased
its marketing expense by $20,000 in 1996. First Northern believes that growth
in lending and deposit volumes necessitates increased marketing and hence,
increased marketing costs.
First Northern incurred $108,000 of non-recurring reorganization cost with the
formation of a unitary savings and loan holding company on December 20, 1995.
The Savings Bank became a wholly-owned subsidiary of First Northern, which was
formed to permit greater flexibility in meeting its future financial and
competitive needs.
INCOME TAXES. First Northern's effective income tax rate was 35.0% in 1996 as
compared to 37.2% in 1995. The effective income tax rate was lower in 1996 as
a result of an over-accrual of taxes in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994.
GENERAL. Net income increased $392,000 in 1995 primarily as a result of: (i)
the sale of $10.5 million of education loans for a pre-tax gain of $468,000;
(ii) the sale of Freddie Mac stock for a pre-tax gain of $318,000; (iii) the
sale of excess branch office property (resulting from the Prime Federal
acquisition) for a pre-tax gain of $149,000; and (iv) the elimination of 1994
non-recurring merger-related costs of $812,000. These gains were offset by a
decrease in net interest income of $1,566,000 and $108,000 of pre-tax
reorganization costs. The decrease in net interest income was primarily the
result of the decrease in the average interest rate spread from 3.29% in 1994
to 2.69% in 1995.
INTEREST INCOME AND INTEREST EXPENSE. Interest income on mortgage loans
increased $1,688,000 as a result of increased dollars outstanding in the
portfolio and an increase in the average interest rate earned. The dollar
increase in the mortgage loan portfolio resulted from the adjustable interest
rate mortgage loan originations which First Northern retains in its portfolio,
the reduction in mortgage loan prepayments and the decrease in fixed interest
rate mortgage loan sales. First Northern continued its upward adjustment of
interest rates on qualified adjustable interest rate mortgage loans to the
lesser of market interest rates or the contractual allowable interest rate.
Interest income on consumer loans increased $1,903,000 as a result of increased
dollars outstanding and an increased yield on the portfolio. The average
consumer loans outstanding increased $16.4 million in 1995, despite the sale of
$10.5 million of education loans in the second quarter of 1995. The increased
yield on the consumer loan portfolio is the result of consumer loan
originations at or above the existing yield on the portfolio and upward
interest rate adjustments on adjustable interest rate consumer loans.
Interest income on investments securities increased primarily as a result of
the increased dollar amount outstanding. First Northern has, to a limited
extent, borrowed funds and reinvested those monies in investments that
incrementally add to overall profitability.
Interest-earning deposits and mortgage-related securities interest income
decreased in 1995 as a result of decreased average dollars outstanding.
Interest-earning deposits were used to repay borrowings and to purchase
investments and securities. Average mortgage-related securities outstanding
decreased in 1995 as a result of repayments and prepayments of the underlying
mortgage collateral.
In 1995, interest expense on deposits rose $3.8 million or 24.0% as a result
of an increase in average deposits of $18.2 million (at year end 1995 as
compared to year end 1994, the deposit increase was $26.2 million) and the
increased cost of deposits. First Northern introduced a Daily Advantage
money market account in which the interest rate paid is determined by
Management weekly and consumers are allowed to make daily withdrawals. This
account was very popular with depositors, as evidenced by $32.6 million in
that account at year end 1995. The average cost of deposits rose to 4.47% in
1995 from 3.76% in 1994. Competition for deposits and the associated interest
rates offered to retain and obtain deposits, caused the increase in the cost
of deposits.
Borrowings from the FHLB of Chicago decreased $20.0 million as of
December 31, 1995; however, average borrowings throughout 1995 amounted to
$33.7 million as compared to $17.3 million in 1994. The increase in the
average outstanding borrowings in 1995 led to the $1,397,000 increase in
borrowing interest expense. First Northern utilizes borrowings to supplement
deposits to fund lending and investment activities.
Interest expense on escrow decreased in 1995 primarily as the result of a
decrease in the interest rate paid. The interest rate paid on escrow accounts
decreased to 2.81% in 1995 from 2.93% in 1994.
PROVISION FOR LOAN LOSSES. The provisions for loan losses increased in 1995
as a result of Management's evaluation of historical loan losses, the level
of non-performing loans and the composition of the loan portfolio. First
Northern's general loan loss allowance of $2,608,000 was 623.9% of non-
performing loans and 470.8% of non-performing assets in 1995.
NON-INTEREST INCOME. Fees on serviced loans decreased slightly in 1995 as a
result of a decrease in average serviced loans outstanding. However, loan
fees and service charges increased $35,000 primarily as a result of increases
in late charges and annual fees associated with automobile loans and overdraft
protection on checking accounts, respectively. Insurance commissions increased
$23,000 primarily as a result of Management's continued emphasis on the sale of
credit life and disability insurance to existing and new loan customers.
Deposit account service charges increased $51,000 due to the increased number
of checking accounts and their associated fees.
The increase in the gains on sales of loans is a consequence of selling $10.5
million of education loans and $11.6 million of mortgage loans. Management
evaluated the current and direct involvement of the U.S. Government in
funding education loans along with an attractive offer price to sell the
education loan portfolio and made the decision to sell its current education
loans for a pre-tax gain of $468,000. First Northern will continue to sell
its education loans as they are originated and funded. In 1995, First
Northern had mortgage loan sales of $11.6 million compared to $18.2 million
in 1994 with gains of $181,000 and $170,000, respectively. The increase in
mortgage loan gains was the result of higher profit margins received on
mortgage loan sales.
First Northern reviews its total dollar amount of fixed interest rate mortgage
loans originated and determines if such loans should be held for investment
or held for sale. Loans identified as held for sale are carried at the lower
of cost or market value in accordance with generally accepted accounting
principles. Loans identified as held for investment are carried at
aggregate cost. During 1994, after review of alternative investments and the
total dollar amount of fixed interest rate mortgage loans in First Northern's
loan portfolio, $4.4 million of loans were reclassified from held for sale to
loans receivable (held for investment). An unrealized loss of $172,000 was
charged to earnings at the time of the transfer to reflect the decreased
market value of those loans and is being amortized into interest income over
the life of the loans as an adjustment to the level loan yield.
NON-INTEREST EXPENSE. Compensation and compensation related expenses decreased
$222,000 in 1995 primarily from the elimination of non-recurring costs
associated with the 1994 merger of Prime Federal and a reduction of expenses
associated with the Supplemental Executive Retirement Plan.
Federal insurance premiums increased $33,000 as a result of increased deposits.
The WAN installation primarily caused the increase of $153,000 in data
processing expense and the $32,000 increase in furniture and fixtures expense.
The WAN was established to provide for quicker and more efficient delivery of
loan documents, better internal communication and to provide a foundation for
future automation. First Northern will be purchasing additional personal
computers and possibly new teller equipment in 1996, to further automate and
improve the delivery of information and customer service.
Marketing expenses decreased $66,000 in 1995 as a result of the elimination of
non-recurring expenses in 1994 associated with the merger of Prime Federal.
First Northern incurred $108,000 of reorganization cost with the formation of a
unitary savings and loan holding company on December 20, 1995. The Savings
Bank became a wholly-owned subsidiary of First Northern, which was formed to
permit greater flexibility in operations.
INCOME TAXES. The effective income tax rate was 37.2% in 1995 as compared to
43.2% for 1994. The effective income tax rate was lower in 1995 in that 1994's
effective income tax rate was higher than normal because a majority of merger
related expenses were not tax deductible.
QUARTERLY FINANCIAL INFORMATION
The following table sets forth certain unaudited quarterly data for the periods
indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- --------- ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996 (unaudited):
<S> <C> <C> <C> <C>
Interest income $10,046 $10,160 $10,632 $11,038
Interest expense 5,616 5,591 5,862 6,134
------- ------- ------- -------
Net interest income 4,430 4,569 4,770 4,904
Provisions for loan losses 60 60 90 160
------- ------- ------- -------
Net income after provisions
for loan losses 4,370 4,509 4,680 4,744
Total non-interest income 596 667 669 754
Total non-interest expenses 3,310 3,297 6,073(1) 3,259
------- ------- ------- -------
Income (loss) before
income taxes 1,656 1,879 (724) 2,239
Income taxes 567 698 (333) 835
------- ------- ------- -------
Net income (loss) $ 1,089 $1,181 $ (391)(2) $ 1,404
======= ====== ======= =======
Net income (loss) per share$ 0.23 $ 0.26 $ (0.09)(2) $ 0.31
====== ====== ======= =======
(1) Includes one-time SAIF special assessment of $2,856,000.
(2) Without the one-time SAIF special assessment net income would have been
$1,342,000 ($0.30 per share).
1995 (unaudited):
Interest income $9,421 $9,758 $9,838 $10,008
Interest expense 5,243 5,633 5,569 5,590
------- ------- ------- -------
Net interest income 4,178 4,125 4,269 4,418
Provisions for loan losses 60 60 60 60
------- ------- ------- -------
Net income after provisions
for loan losses 4,118 4,065 4,209 4,358
Total non-interest income 638 1,343 593 636
Total non-interest expenses 3,248 3,051 3,202 3,151
------- ------- ------- -------
Income before income taxes 1,508 2,357 1,600 1,843
Income taxes 524 886 634 674
------- ------- ------- -------
Net income $ 984 $1,471 $ 966 $ 1,169
====== ====== ====== =======
Net income per share $ 0.21 $ 0.32 $ 0.21 $ 0.25
====== ====== ====== =======
</TABLE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
DECEMBER 31
1996 1995
------- --------
(IN THOUSANDS)
ASSETS
Cash $ 1,965 $ 1,192
Interest-earning deposits 1,598 82
-------- --------
CASH AND CASH EQUIVALENTS 3,563 1,274
Securities available-for-sale, at fair value
Investment securities 5,635 2,978
Mortgage-related securities 1,837 2,013
Securities held-to-maturity
Investment securities
(estimated fair value of
$16,633,000 - 1996;
$19,531,000 - 1995) 16,583 19,364
Mortgage-related securities
(estimated fair value of
$9,247,000 - 1996;
$4,020,000 - 1995) 9,325 4,024
Loans held for sale 2,532 2,989
Loans receivable 553,995 500,535
Accrued interest receivable 3,295 3,074
Foreclosed properties and
repossessed assets 189 136
Office properties and equipment 8,350 8,417
Federal Home Loan Bank stock 3,773 3,768
Prepaid expenses and other assets 6,426 4,895
-------- --------
$615,503 $553,467
======== ========
LIABILITIES
Deposits $458,323 $449,954
Borrowings 77,272 21,000
Advance payments by borrowers
for taxes and insurance 5,447 6,550
Other liabilities 4,237 3,384
-------- --------
TOTAL LIABILITIES 545,279 480,888
-------- --------
STOCKHOLDERS' EQUITY
Cumulative preferred stock, $1 par value;
10,000,000 shares authorized; none outstanding
Common stock, $1 par value; 30,000,000
shares authorized; shares issued and
outstanding: 4,568,052 - 1996;
4,555,187 - 1995 4,568 4,555
Additional paid-in capital 14,389 14,590
Unrealized gain on securities
available-for-sale, net of taxes 385 315
Treasury stock at cost (180,623 shares) (2,853)
Retained earnings 53,735 53,119
-------- --------
TOTAL STOCKHOLDERS' EQUITY 70,224 72,579
-------- --------
$615,503 $553,467
======== ========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Interest income:
Mortgage loans $28,831 $26,982 $25,294
Consumer loans 10,725 9,948 8,045
Investment securities 1,582 1,612 1,494
Interest-earning deposits 66 100 150
Mortgage-related securities 672 383 426
------- ------- -------
TOTAL INTEREST INCOME 41,876 39,025 35,409
Interest expense:
Deposits 20,244 19,572 15,778
Borrowings 2,797 2,286 889
Advance payments by borrowers
for taxes and insurance 162 178 187
------- ------- -------
TOTAL INTEREST EXPENSE 23,203 22,036 16,854
------- ------- -------
NET INTEREST INCOME 18,673 16,989 18,555
Provision for loan losses 370 240 145
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,303 16,749 18,410
Non-interest income:
Fees on serviced loans 354 364 383
Loan fees and service charges 234 226 191
Deposit account service charges 960 813 762
Insurance commissions 320 269 246
Gains on sales of loans 259 649 170
Unrealized losses on loans held for sale (172)
Gains on sale of securities 321 299
Gains on sale of other assets 29 186 141
Other 530 382 238
------- ------ -------
TOTAL NON-INTEREST INCOME 2,686 3,210 2,258
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 6,729 6,383 6,605
Federal insurance premiums 985 998 965
SAIF special assessment 2,856
Occupancy 832 849 848
Data processing 926 917 764
Furniture and equipment 750 727 695
Telephone and postage 449 421 421
Marketing 351 331 397
Merger related costs 456
Reorganization costs 108
Other 2,061 1,917 2,127
------- ------- -------
TOTAL NON-INTEREST EXPENSE 15,939 12,651 13,278
------- ------- -------
INCOME BEFORE INCOME TAXES 5,050 7,308 7,390
Income taxes 1,767 2,718 3,192
------- ------- -------
NET INCOME $ 3,283 $ 4,590 $ 4,198
======= ======= =======
PRIMARY EARNINGS PER SHARE $0.72 $0.99 $0.91
===== ===== =====
CASH DIVIDENDS PAID PER SHARE $0.60 $0.56 $0.52
===== ===== =====
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNREALIZED GAIN
ON SECURITIES DEFERRED
ADDITIONAL AVAILABLE- COMPENSATION
COMMON PAID-IN FOR-SALE, DUE TREASURY RETAINED
STOCK CAPITAL NET OF TAXES EMPLOYEES STOCK EARNINGS TOTAL
---------- ---------- -------------- ------------- -------- --------- -------
( IN THOUSANDS)
Balance at
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994 $4,428 $13,992 $ (223) $48,766 $66,963
Net income 4,198 4,198
Cash dividends
($.52 per share) (2,223) (2,223)
Exercise of stock options 67 224 291
Repayment of ESOP
borrowing 223 223
Change in net unrealized
gain on securities available-
for-sale, net of income taxes $233 233
Adjustment to conform pooled
companies' fiscal year-ends 322 322
------ ------- ----- ----- ------- ------ ------
Balance at
December 31, 1994 4,495 14,216 233 0 51,063 70,007
Net income 4,590 4,590
Cash dividends
($.56 per share) (2,534) (2,534)
Exercise of stock options 60 382 442
Reorganization costs (8) (8)
Change in net unrealized
gain on securities available-
for-sale, net of income taxes 82 82
------ ------- ----- ----- ------- ------ ------
Balance at
December 31, 1995 4,555 14,590 315 0 53,119 72,579
Net income 3,283 3,283
Cash dividends
($.60 per share) (2,667) (2,667)
Retirement of common stock (4) (62) (66)
Purchase of treasury stock $(3,698) (3,698)
Exercise of stock options 17 (139) 845 723
Change in net unrealized
gain on securities available-
for-sale, net of income taxes 70 70 70
------ ------- ------ ------ ------- ------ ------
Balance at
December 31, 1996 $4,568 $14,389 $ 385 $ 0 $(2,853) $53,735 $70,224
======= ======= ===== ===== ======= ======= ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
--------- ------- -------
(IN THOUSANDS)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 3,283 $ 4,590 $ 4,198
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for losses on loans 370 240 145
Provision for depreciation and amortization 756 732 721
Gains on sales of loans (259) (649) (170)
Gains on sale of securities (321) (299)
Unrealized losses on loans held for sale 172
Loans originated for sale (13,795) (14,572) (19,182)
Proceeds from loan sales 14,252 22,072 33,210
Decrease in deferred compensation 223
Increase in interest receivable (221) (235) (203)
Increase in interest payable 75 599 118
Other (245) 767 (3,607)
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,216 13,223 15,326
INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities and
interest-earning deposits 11,150 10,680 12,403
Proceeds from the sale of securities 156 33
Purchases of investment securities (10,782) (10,987) (8,980)
Principal repayments of
mortgage-related securities 556 353 2,365
Purchases of mortgage-related securities (5,697) (997) (1,981)
Loan originations and purchases (177,809) (118,923)(184,738)
Loan principal repayments 123,723 104,503 115,836
Purchases of office properties
and equipment (745) (697) (1,179)
Proceeds from sales of real estate 226 193
Purchase of Federal Home Loan Bank stock (5) (278)
Sale of Federal Home Loan Bank stock 187
Adjustment to conform pooled companies'
fiscal year-ends 322
-------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (59,609) (15,964) (65,539)
FINANCING ACTIVITIES:
Net increase in deposits 8,294 25,562 1,823
Net increase (decrease) in short-
term borrowings 17,622 (38,000) 39,900
Proceeds from long term borrowings 51,150 41,000
Repayment of long term borrowings (13,000) (23,000) (223)
Proceeds from securities sold under
agreement to repurchase 1,500
Maturity of securities sold under
agreement to repurchase (1,000) (1,900)
Cash dividends (2,667) (2,534) (2,223)
Purchase of treasury stock (3,698)
Retirement of common stock (66)
Proceeds from exercise of stock options 650 442 292
Net decrease in advance payments
by borrowers for taxes and insurance (1,103) (199) (180)
-------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,682 1,371 39,389
-------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,289 (1,370) (10,824)
Cash and cash equivalents at beginning of year 1,274 2,644 13,468
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,563 $ 1,274 $ 2,644
======== ======= =======
</TABLE>
SUPPLEMENTAL INFORMATION TO THE STATEMENTS OF CASH FLOWS:
Interest credited and paid on deposits $20,169 $19,151 $16,661
Interest paid on borrowings 2,539 2,375 789
Payments for federal and state income taxes 2,193 2,826 3,391
Loans transferred to foreclosed properties
and repossessed assets 411 449 478
Loans held for sale transferred to loans receivable 4,391
Securities transferred to available-for-sale 5,002
Loans held for investment transferred to held for sale 11,152
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: First Northern Capital Corp. ("Company") is a Wisconsin corporation
incorporated in August 1995 for the purpose of becoming a unitary savings and
loan holding company for First Northern Savings Bank, S.A. ("Savings Bank").
The Company and subsidiaries provides a full range of financial services to
individual customers through their branch locations in Northeastern Wisconsin.
The Company is subject to competition from other traditional and nontraditional
financial institutions and is also subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial
statements include the accounts and operations of the Company since it became
operational (December 20, 1995) and the accounts and operations of the
Savings Bank and its wholly owned subsidiaries for the entire periods
presented. Significant intercompany accounts and transactions have been
eliminated. Investment in its fifty percent owned subsidiary, which is not
material, is accounted for on the equity method. On December 20, 1995,
stockholders of the Savings Bank exchanged shares of the Savings Bank for those
of the newly formed Company. In preparing the consolidated financial
statements in accordance with generally accepted accounting principles,
management is required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to change in the near-term relate to the
determination of the allowance for losses on loans and the valuation of
investments and real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for losses on loans and real estate owned, management obtains independent
appraisals for significant properties.
CASH AND CASH EQUIVALENTS: The Company considers its interest-earning deposits
which have a maturity of three months or less when purchased, to be cash
equivalents.
INVESTMENT AND MORTGAGE-RELATED SECURITIES HELD-TO-MATURITY AND
AVAILABLE-FOR-SALE: Securities are classified as held-to-maturity and carried
at amortized cost if management has the intent and ability to hold the
securities to maturity. Securities not classified as held-to-maturity are
designated as available-for-sale and carried at fair value, with unrealized
gains and losses net of income taxes, reflected in stockholders' equity.
Interest and dividends are included in interest income from the related
securities as earned. Realized gains and losses are computed on a specific
identification basis and declines in value judged to be other than temporary,
are included in gains (losses) on sale of securities.
LOANS HELD FOR SALE: Loans held for sale generally consist of current
production of certain fixed interest rate first mortgage loans and education
loans which are recorded at the lower of aggregate cost or market value. Fees
received from the borrower are deferred and recorded as an adjustment of the
sales price (Also see "Accounting Changes").
INTEREST ON LOANS: Interest income on loans is accrued and credited to
operations based on the principal amount outstanding. The accrual of interest
income is generally discontinued when a loan becomes 90 days past due as to
principal or interest and/or when, in the opinion of management, full
collection is unlikely. Management may elect to continue the accrual of
interest when the loan is in the process of collection and the value of
collateral is sufficient to cover the principal balance and accrued interest.
Interest received on nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's judgement
as to the collectibility of principal. Generally, loans are restored to
accrual status when the obligation is brought current, has performed in
accordance with the contractual terms for a reasonable period of time and the
ultimate collectibility of the total contractual principal and interest is no
longer in doubt.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
LOAN ORIGINATION FEES AND COSTS: Loan origination and commitment fees and
certain direct loan origination costs relative to loans not held for sale are
being deferred. The net amounts on loans held for investment are amortized as
an adjustment of the related loan's yield. The Company is amortizing these
amounts using the level-yield method, adjusted for prepayments, over the
contractual life of the related loans.
FORECLOSED PROPERTIES AND REPOSSESSED ASSETS: Foreclosed properties (which
were acquired by foreclosure, by deed in lieu of foreclosure or in-substance
foreclosure) and repossessed assets are carried at the lower of cost or fair
market value. Costs relating to the development and improvement of the
property are capitalized; holding period costs are charged to expense.
ALLOWANCES FOR LOSSES ON LOANS, REAL ESTATE AND REPOSSESSED ASSETS:
Allowances for losses on loans, real estate and repossessed assets are
established when a loss is probable and can be reasonably estimated.
These allowances are provided based on past experience and on prevailing
market conditions. Management's evaluation of loss considers various factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loss experience, estimated sales price, and holding and
selling costs.
The Savings Bank considers loans secured by one- to-four residential properties
and all consumer loans as homogeneous loans and therefore exempt for purposes
of measuring impairment as defined by Statement of Financial Accounting
Standards ("SFAS" or "Statement") No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires that impaired loans be measured at the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. Per this definition, the Savings Bank had no impaired loans in
1996 or 1995.
OFFICE PROPERTIES AND EQUIPMENT: Office properties and equipment are recorded
at cost. When properties are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective accounts and
the resulting gain or loss is recorded in income or expense, respectively.
Provisions for depreciation of office properties and equipment are computed
principally using the straight-line method. The cost of leasehold improvements
is amortized using the straight-line method over the lesser of the term of the
respective lease or estimated economic life of the improvements.
FEDERAL HOME LOAN BANK STOCK: Members of the Federal Home Loan Bank ("FHLB")
system are required to maintain a specified investment in FHLB stock. Even
though the investment in FHLB stock represents a form of equity interest,
because of restricted ownership and the lack of marketability, the stock is
carried at cost which equals redemption value.
EARNINGS PER SHARE: Earnings per share are based on the weighted average
number shares of common stock and common stock equivalents, if dilutive,
outstanding during each year. The resulting number of shares used in
computing primary earnings per share is 4,565,222, 4,636,478 and 4,599,462 for
the years ended December 31, 1996, 1995, and 1994, respectively. The number of
shares used in computing fully diluted earnings per share is 4,598,965,
4,672,766 and 4,611,043 for the years ended December 31, 1996, 1995 and 1994,
respectively. All earnings per share amounts, dividends per share amounts and
the average number of shares outstanding for 1994 have been restated throughout
the financial statements to reflect the Prime Federal Bank, FSB ("Prime
Federal") acquisition.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
ACCOUNTING CHANGES: The Company adopted Statement No. 122, "Accounting for
Mortgage Servicing Rights," as of January 1, 1996. Statement No. 122 requires
that an allocation of costs be made between loans and their related servicing
rights for loans originated with a definitive plan to sell or securitize these
loans and retain the servicing rights. The Company recognizes a separate asset
for servicing rights which effectively increases the gain on sale of loans
when the servicing rights are retained. This asset amount is amortized over the
period of and in proportion to the expected loan servicing fee revenue as a
reduction of "Fees on Serviced Loans." The unamortized balance of the asset
is carried at the lower of cost or fair value. In previous periods, costs were
fully allocated to the loan and servicing income was recognized as received
over the life of the loan. The adoption of Statement No. 122 had the effect
of increasing income in the amount of $101,463 ($60,875 after tax or $0.01
per share) for the year ended December 31, 1996.
Pending Accounting Change: In June 1996, the Financial Accounting Standards
Board ("FASB") issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides new accounting and reporting standards for sales, securitization, and
servicing of receivables and other financial assets and extinguishments of
liabilities. The provisions of the Statement are to be applied to transactions
occurring after December 31, 1996. Management does not believe the Company
will be significantly impacted by the adoption of Statement No. 125 or the
amendment of Statement No. 125 by Statement No. 127.
RECLASSIFICATIONS: Certain amounts in the 1995 and 1994 financial statements
have been reclassified to confirm to the 1996 presentations.
NOTE B--SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of securities available-for-sale
are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------- --------- -----------
(IN THOUSANDS)
At December 31, 1996:
U.S. Treasury Notes $4,495 $ 22 $ (15) $4,502
Asset Management Funds 476 (5) 471
FHLMC stock 33 629 662
------ ----- ------ ------
5,004 651 (20) 5,635
Mortgage-related securities 1,828 9 1,837
------ ----- ------ ------
$6,832 $660 $ (20) $7,472
====== ===== ===== ======
At December 31, 1995:
U.S. Treasury Notes $2,002 $ 20 $ - $2,022
Asset Management Funds 449 6 455
FHLMC stock 33 468 501
------ ----- ------ ------
2,484 494 2,978
Mortgage-related securities 1,987 26 2,013
------ ----- ------ ------
$4,471 $520 $ - $4,991
====== ==== ===== ======
Proceeds from sale of securities available-for-sale in 1996, 1995 and 1994 were
$0, $347,000 and $332,000, respectively. Gross gains of $0, $318,000 and
$299,000, respectively, were realized on those sales.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE B--SECURITIES AVAILABLE-FOR-SALE--CONTINUED
At December 31, 1996, U.S. Government and agency securities available-for-sale
have maturities of less than five years.
NOTE C--SECURITIES HELD-TO-MATURITY
The amortized cost and estimated fair values of investment securities held-to-
maturity are as follows:
Amortized Gross Unrealized Estimated
Cost Gains Losses Fair Value
--------- ----- ----- --------
(In Thousands)
At December 31, 1996:
US Government and agency
securities $16,583 $86 $(36) $16,633
======= === ==== =======
At December 31, 1995:
US Government and agency
securities $19,364 $190 $(23) $19,531
======= ==== ==== =======
At December 31, 1996, securities held-to-maturity have the following
maturities:
Amortized Estimated
Cost Fair Value
---------- ------------
(IN THOUSANDS)
Due in one year or less $ 4,800 $ 3,805
Due after one year through five years 11,783 12,828
------- -------
$16,583 $16,633
======= =======
The amortized cost and estimated fair values of mortgage-related securities
held-to-maturity are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------- ------ -------------
(IN THOUSANDS)
At December 31, 1996:
Federal Home Loan
Mortgage Corporation $4,715 $46 $ (89) $4,672
Federal National
Mortgage Association 3,730 17 (56) 3,691
Other 880 4 884
------ ----- ----- ------
$9,325 $67 $(145) $9,247
====== === ===== ======
At December 31, 1995:
Federal Home Loan
Mortgage Corporation $3,019 $54 $(25) $3,048
Federal National
Mortgage Association 998 (33) 965
Other 7 7
------ ---- ---- ------
$4,024 $54 $(58) $4,020
====== ==== ===== ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE D--LOANS RECEIVABLE
Loans receivable consist of the following:
DECEMBER 31
-------------------
1996 1995
--------- ---------
(IN THOUSANDS)
First mortgage loans:
One to four-family residential $376,189 $352,449
Five or more family residential 20,154 17,591
Commercial real estate 9,975 10,028
Construction, primarily one
family residential 18,007 12,007
Other 1,900 1,788
------- --------
426,225 393,863
Consumer loans:
Consumer 18,179 20,307
Second mortgage 59,148 46,528
Automobile 60,339 49,504
------- --------
137,666 116,339
------- --------
563,891 510,202
Less:
Undisbursed loan proceeds 5,942 6,071
Allowance for losses on loans 2,937 2,608
Unearned loan fees 1,017 988
-------- --------
9,896 9,667
-------- --------
$553,995 $500,535
======== ========
The majority of the Company's lending activity is with borrowers within its
primary market area of Northeastern Wisconsin.
Loans serviced for investors were $120,999,358, $123,901,000 and $120,999,000
at December 31, 1996, 1995 and 1994, respectively.
These loans are not reflected in the consolidated financial statements.
Transactions in the allowance for losses on loans are as follows:
Year Ended December 31
-------------------------------
1996 1995 1994
------ ------ ------
(In Thousands)
Balance at beginning of year $2,608 $2,400 $2,306
Provisions 370 240 145
Charge-offs (66) (71) (147)
Recoveries 25 39 45
Adjustment to conform pooled
companies' fiscal year ends 51
------ ------- ------
BALANCE AT END OF YEAR $2,937 $2,608 $2,400
====== ====== ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE E--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
DECEMBER 31
-----------------
1996 1995
------- --------
(IN THOUSANDS)
Land $ 2,117 $ 2,090
Office buildings 7,177 7,088
Furniture and equipment 2,822 2,609
Leasehold improvements 74 74
------- -------
12,190 11,861
Less allowance for depreciation
and amortization 3,840 3,444
------- -------
$ 8,350 $ 8,417
======= =======
NOTE F--DEPOSITS
Deposits are summarized as follows:
DECEMBER 31
-------------------
1996 1995
--------- --------
(IN THOUSANDS)
Passbook $ 57,354 $ 56,969
Negotiable Order
of Withdrawal accounts:
Non-interest bearing 18,010 16,483
Interest bearing 36,224 36,908
Variable rate insured money
market accounts 50,017 44,886
Certificate accounts:
2.00% to 3.99% 1,801 62
4.00% to 4.99% 40,720 51,250
5.00% to 5.99% 191,536 125,955
6.00% to 7.99% 60,283 115,111
8.00% to 9.99% 24 51
-------- --------
294,364 292,429
-------- --------
455,969 447,675
Accrued interest 2,354 2,279
-------- --------
$458,323 $449,954
======== ========
Weighted average interest rate 4.42% 4.56%
==== ====
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE F--DEPOSITS--CONTINUED
Aggregate annual maturities of certificate accounts at December 31, 1996 are
as follows (in thousands):
Maturities during the twelve months ending
December 31:
1997 $193,095
1998 67,528
1999 27,666
2000 2,754
2001 3,321
--------
$294,364
========
Deposit accounts with balances greater than $100,000 were $37,751,000 and
$31,456,000 at December 31, 1996 and 1995, respectively.
NOTE G--BORROWINGS
Borrowings consist of the following:
INTEREST RATE
NOTES AT DECEMBER 31 DECEMBER 31
PAYABLE MATURITY -------------- --------------
TO DATE 1996 1995 1996 1995
- - ------ ------------------ ------ ------ ------ ------
(IN THOUSANDS)
FHLB On Deman $17,622
FHLB April 1, 1996 6.72% $ 2,000
FHLB April 30, 1996 5.99% 1,000
FHLB November 20, 1996 5.65% 5,000
Reverse
repurchase
agreement December 27, 1996 5.65% 1,000
FHLB February 16, 1997 5.08% 12,500
FHLB March 18, 1997 5.51% 3,000
FHLB May 20, 1997 5.71% 2,000
FHLB May 24, 1997 6.38% 2,000
Reverse
repurchase
agreement June 20, 1997 5.50% 1,000
FHLB July 29, 1997 5.40% 5,000
FHLB August 7, 1997 5.72% 1,900
FHLB September 15, 1997 6.04% 6.04% 2,000 2,000
Reverse
repurchase
agreement November 1, 1997 5.75% 500
FHLB November 2, 1997 5.85% 5.85% 3,000 3,000
FHLB May 27, 1998 5.74% 5,000
FHLB June 21, 1998 6.12% 6.12% 5,000 5,000
FHLB September 13, 1998 6.18% 3,000
FHLB October 2, 1998 6.08% 5,000
FHLB March 28, 1999 6.12% 2,000
FHLB October 16, 1999 6.15% 2,000
FHLB April 29, 2000 6.19% 2,700
FHLB November 12, 2001 6.18% 4,050
------- -------
$77,272 $21,000
======= =======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE G--BORROWINGS--CONTINUED
The Company is required to maintain unencumbered mortgage loans in its
portfolio aggregating at least 167% of the amount of outstanding advances from
the FHLB as collateral. In addition, these advances are collateralized by FHLB
stock.
The Company enters into sales of securities under agreements to repurchase
(reverse purchase agreements). Fixed-coupon reverse purchase agreements are
treated as financings and the obligations to repurchase securities sold are
reflected as a borrowing in the statements of financial condition. The dollar
amount of securities underlying the agreements remains in the asset accounts.
Reverse repurchase agreements entered into with local municipalities did not
require delivery of securities. At December 31, 1996 and 1995, these
agreements had a weighted average interest rate of 5.59% and 5.65%,
respectively, and mature within one year. At December 31, 1996 and 1995,
securities sold under agreements to repurchase involve U.S. government or
agency securities with a book value, including accrued interest of $1,510,190
and $1,008,000 and a market value of $1,497,657 and $1,004,000, respectively.
Based on the month-end balances, securities sold under agreements to repurchase
averaged $1,125,000, $2,500,000 and $1,158,000 during the years ended
December 31, 1996, 1995 and 1994, respectively. The maximum amount outstanding
at any month end during the years ended December 31, 1996, 1995 and 1994 was
$1,500,000, $2,900,000 and $2,900,000, respectively.
NOTE H--INCOME TAXES
The Savings Bank qualifies under provisions of the Internal Revenue Code that
previously permitted it to deduct from taxable income an allowance for bad
debts that differs from the provision for such losses charged to income for
financial reporting purposes. Such amounts accumulated prior to 1988 are
considered permanently deferred and accordingly, no provision for federal
income taxes has been made for approximately $15,883,000 of retained income as
of December 31, 1996. If the Company no longer qualifies as a bank for tax
purposes, income taxes of approximately $6,226,000 would be imposed.
The income tax provision, for the years ended December 31, consists of the
following:
1996 1995 1994
------- ------- --------
(In Thousands)
Current:
Federal $1,616 $2,163 $2,501
State 324 454 613
------ ------ ------
1,940 2,617 3,114
Deferred:
Federal (132) 88 62
State (41) 13 16
------ ------ ------
(173) 101 78
------ ------ ------
$1,767 $2,718 $3,192
====== ====== ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE H--INCOME TAXES--CONTINUED
The provision for income taxes, for the years ended December 31, differs from
that computed at the federal statutory corporate tax rate as follows:
1996 1995 1994
------ ------ ------
(In Thousands)
Income before income taxes
and cumulative effect of
a change in accounting principle $5,050 $7,308 $7,390
====== ====== ======
Income tax expense at federal
statutory rate of 34% $1,717 $2,485 $2,513
Increase (decrease) resulting from:
Nondeductible merger costs 157
Nondeductible reorganization costs 26
State income taxes, net of federal
income tax benefits 187 310 403
Other (137) (103) 119
------ ------ ------
$1,767 $2,718 $3,192
====== ====== ======
The components of the Savings Bank's deferred tax assets and liabilities as of
December 31 are as follows:
1996 1995
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Deferred compensation $ 619 $ 557
Deferred loan fees 197 199
Loss reserves 460 332
Excess servicing gains 62 75
Tax net operating loss carryforwards 5
Other 10 5
------ ------
Total deferred tax assets 1,353 1,168
Deferred tax liabilities:
FHLB stock dividends 160 141
Depreciation 231 257
Unrealized securities gains 251 204
Other 28 9
------ ------
Total deferred tax liabilities 670 611
------ ------
$ 683 $ 557
====== ======
There is no valuation allowance recognized for financial statement purposes
at December 31, 1996 or 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE I--STOCKHOLDERS' EQUITY
The Board of Directors of the Company is authorized to issue cumulative
preferred stock in series and to establish the relative rights and preferences
of each series with respect to rates, redemption rights and prices, conversion
terms, voluntary liquidation rights and voting powers. Cumulative preferred
stock will rank prior to common stock as to dividend rights and liquidation
preferences. Under Wisconsin State law, preferred stockholders are entitled
to vote as a separate class or series in certain circumstances, including any
amendment which would adversely change the specific terms of such series of
stock or which would create or enlarge any class or series ranking prior
thereto in rights and preferences (excluding substituting the surviving
entity in a merger or consolidation of the Company).
The Savings Bank is subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary-- actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank's financial statements. Under federal
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Savings Bank must meet specific capital guidelines that involve
quantitative measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Savings Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings,
and other factors.
As of December 31, 1996, the most recent notification from the Office of Thrift
Supervision ("OTS") categorized the Savings Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Savings Bank must maintain minimum tangible, core and risk
based ratios as set forth in the table. As a state-chartered savings
institution, the Savings Bank is also subject to a minimum capital requirement
of the State of Wisconsin. Management believes, as of December 31, 1996, that
the Savings Bank meets all capital adequacy requirements to which it is
subject. There are no conditions or events since that notification that
management believes have changed the Savings Bank's category.
The Savings Bank's required and actual capital amounts and ratios are presented
in the following table.
REQUIRED EXCESS ACTUAL
REGULATORY CAPITAL OVER
ACTUAL CAPITAL REGULATORY CAPITAL
------------ ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
As of December 31, 1996:
Tangible Capital $64,489 10.5% $ 9,204 1.5% $55,285 9.0%
(to Tangible Assets)
Core Capital 64,489 10.5% 18,409 3.0% 46,080 7.5%
(to Tangible Assets)
Risk-Based Capital 67,426 17.8% 30,295 8.0% 37,131 9.8%
(to Risk-Weighted Assets)
State of Wisconsin Capital 68,754 11.2% 36,915 6.0% 31,839 5.2%
(to Total Assets)
As of December 31, 1995:
Tangible Capital 71,317 12.9% 8,282 1.5% 63,035 11.4%
(to Tangible Assets)
Core Capital 71,317 12.9% 16,564 3.0% 54,753 9.9%
(to Tangible Assets)
Risk-Based Capital 73,925 21.9% 27,005 8.0% 46,920 13.9%
(to Risk-Weighted Assets)
State of Wisconsin Capital 75,187 13.6% 33,208 5.8% 43,363 7.8%
(to Total Assets)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE I--STOCKHOLDERS' EQUITY--CONTINUED
Applicable rules and regulations of the OTS impose limitations on dividends by
the Savings Bank. Within those limitations, certain "safe harbor" dividends
are permitted, subject to providing the OTS at least 30 days advance notice.
The safe harbor amounts are based upon an institution's regulatory capital
level. Thrift institutions which have capital in excess of all capital
requirements before and after the proposed dividend are permitted to make
capital distributions during any calendar year up to the greater of (1) 100%
of net income to date during the calendar year, plus one-half of the surplus
over such institution's capital requirements at the beginning of the calendar
year, or (2) 75% of net income over the most recent four-quarter period.
Additional restrictions would apply to an institution which does not meet its
capital requirement before or after a proposed dividend.
Unlike the Savings Bank, the Company is not subject to these regulatory capital
requirements or restrictions on the payment of dividends to its stockholders.
However, the source of its future dividends may depend upon dividends from the
Savings Bank.
On March 20,1996, the Company began its first stock repurchase program for its
common stock to be used for the exercise of stock options. During 1996, the
Company purchased 228,467 shares at an average price of $15.82 under this
program. A second repurchase program began on October 18, 1996 for up to
219,057 shares to be used for general corporate purposes, including the
exercise of stock options under the stock option plans.
NOTE J--EMPLOYEE BENEFIT PLANS
The Savings Bank has a participatory defined contribution 401(k) plan. The
plan covers all employees with at least one year of service and who have
attained age twenty-one. The Savings Bank will annually contribute three
percent of an employee's cash compensation and may fund an additional
discretionary dollar amount to the plan. Employees may annually contribute up
to 4% of their compensation and the Savings Bank will contribute 50% of the
amount of each employee's contribution up to 4%. In addition, each employee
may contribute amounts in excess of the 4% limit, up to the lesser of 15% of
compensation or federal tax limits, with no Savings Bank participation.
The Savings Bank has an unfunded deferred retirement plan for directors. All
members of the Savings Bank's Board of Directors are eligible under the plan.
Directors of a predecessor institution and who are members of an advisory board
are eligible at the discretion of the Savings Bank. Currently, there are four
advisory board members in the plan. The Savings Bank, also has supplemental
retirement plans for several of its executives. Total expense relating to
these plans for 1996, 1995 and 1994 was $265,000, $256,000 and $349,000,
respectively. The Savings Bank does not, as a policy, offer post retirement
benefits other than the plans discussed above.
The Company has elected to continue following Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its employee and directors' stock options
because, as discussed below, the alternative fair value accounting provided
for under FASB Statement No. 123, "Accounting for Stock-Based Compensation"
requires the use of option valuation models that were not developed for use
in valuing the Company's employee and directors' stock options. Under APB
No. 25, because the exercise price of the Company's employee and directors'
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company has a "1984 Stock Option Plan," "1989 Executive Stock Option Plan,"
"1989 Directors' Stock Option Plan," a "1989 Stock Option and Incentive Plan,"
a "1992 Advisory Directors' Stock Option Plan," a "1994 Directors' Stock Option
Plan" and a "1994 Executive Stock Plan." The 1984 Stock Option Plan had
240,000 shares of common stock reserved for the grant of incentive stock
options or non-qualified stock options to key officers and non-qualified stock
options to directors. The plan provided that incentive stock option prices
will not be less than the fair market value of the stock at the grant date and
non-incentive stock option prices will not be less than 95% nor more than 99%
of the fair value of the stock at the grant date.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE J--EMPLOYEE BENEFIT PLANS--CONTINUED
The 1989 Executive Stock Option Plan had 170,000 shares of common stock
reserved for executive officers and the 1989 Directors' Stock Option Plan had
70,000 shares of common stock reserved for directors. The executive officers
were granted incentive stock options. Since February 1, 1990, directors have
been receiving 1,800 non-qualified stock options annually on the first business
day of February. The option price for the directors' non-qualified stock
options will be equal to the fair value on the date of the grant. Upon a
director's retirement, the options become fully vested. All options vest at a
maximum of 33 1/3% for each year of completed continuous service from the
grant date and expire no later than ten years from the grant date.
The 1989 Stock Option and Incentive Plan was acquired with the merger of Prime
Federal and has 23,140 stock options outstanding at December 31, 1996. All
options are vested and will expire no later than ten years from date of grant.
The 1992 Advisory Directors' Stock Option Plan had 24,000 shares of common
stock reserved for the grant of non-qualified stock options to certain
advisory directors. The option price for the 1992 Advisory Directors non-
qualified stock options will be equal to the fair market value on the date of
the grant. All options vest at the end of one year and expire no later than
ten years from the grant date. All options in the 1992 Advisory Directors'
Stock Option Plan were granted in 1992.
The 1994 Directors' Stock Option Plan has 70,000 shares of common stock
reserved for directors. Directors will receive 1,800 non-qualified stock
options on the first business day of February of each year. The option price
for the directors' non-qualified stock options will be equal to the fair market
value on the date of the grant. All options vest at a maximum of 33 1/3% for
each year. Upon a director's retirement, the options become fully vested.
Options expire no later than ten years from the grant date.
The 1994 Executive Stock Plan has 380,000 shares of common stock reserved for
the grant of incentive stock options, non-qualified stock options, stock
appreciation rights ("SARs") or restrictive stock to key executives. The plan
provides that incentive stock option prices will not be less than the fair
value of the stock at the grant date and non-incentive stock option prices
will not be less than 90% of the fair value of the stock at the grant date.
The fair value for these options was estimated at the date of grant of using
Black-Scholes option pricing model with the following weighted-average
assumptions for both 1996 and 1995, risk-free interest rates of 6.4%; dividend
yield of 5%; volatility factors of the expected market price of the Company's
common stock of .174; and a weighted-average expected life of the options of
7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee and directors' stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee and directors' stock options.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE J--EMPLOYEE BENEFIT PLANS--CONTINUED
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
DECEMBER 31
--------------------------
1996 1995
--------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net income $3,283 $4,590
====== ======
Pro forma net income $3,220 $4,560
====== ======
Pro forma earnings per share $0.71 $0.98
===== =====
A summary of stock option transactions for each of the three years ended
December 31, 1996 is as follows:
Number Weighted Average
of Shares Exercise Price
---------- ------------------
Balance at January 1, 1994 353,661 $ 7.67
Granted 36,200 14.94
Exercised (41,298) 4.81
------- ------
Balance at December 31, 1994 348,563 8.76
Granted 54,000 12.75
Exercised (60,171) 7.34
Expired (10,600) 14.54
------- ------
Balance at December 31, 1995 331,792 9.49
Granted 45,800 15.75
Exercised (69,782) 9.31
Expired (4,000) 15.75
------- ------
Balance at December 31, 1996 303,810 $10.39
======= ======
At December 31, 1996, options for 220,777 shares were exercisable.
Concurrent with the merger the Company approved the termination of Prime
Federal's Employee Stock Ownership Plan ("ESOP") and the ESOP was terminated
in February of 1995. Participants in the ESOP had the option of receiving
their benefits in a lump-sum distribution or rolling them over into the
Savings Bank's defined contribution 401(k) plan. For ESOP Plan year ended
September 30, 1994, expenses related to the ESOP were $41,700.
NOTE K--COMMITMENTS
The Company is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit and forward
commitments to sell mortgage loans. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statements of financial condition. The contract amounts
reflect the extent of involvement the Company has in the particular class of
financial instrument. The Company's maximum exposure to credit loss for
commitments to extend credit is represented by the contract amount of those
instruments. For forward commitments to sell loans, the contract amounts do
not represent exposure to credit loss.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE K--COMMITMENTS--CONTINUED
Off-balance sheet financial instruments whose contract amounts represent credit
and/or interest rate risk are as follows:
December 31
---------------------
1996 1995
------- -------
(In Thousands)
Commitments to extend credit:
Fixed rate (7.375% to 7.875% at
December 31, 1996) $ 511 $ 394
Adjustable (6.12 % to 7.62% at
December 31, 1996) 1,983 2,401
Commitments to sell loans
(7.625% to 8.25% at December 31, 1996) 974 571
Unused overdraft protection lines
of credit for checking accounts 1,476 1,438
Unused equity lines of credit 12,869 11,979
Unused commercial real estate lines of credit 237 114
Unused credit card lines of credit 2,636 8,852
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and generally require payment of a
fee. As some commitments expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates the credit worthiness of each customer on a case-by-case basis. The
Company generally extends credit only on a secured basis. Collateral obtained
varies, but consists primarily of one- to four-family residences.
Commitments to extend credit on a fixed rate basis expose the Company to a
certain amount of interest rate risk if market rates of interest substantially
increase during the commitment period.
Forward commitments to sell mortgage loans represent commitments obtained by
the Company from a secondary market agency to purchase mortgages from the
Company and place them in a mortgage-related security pool with a defined
yield. Commitments to sell loans expose the Company to interest rate risk if
market rates of interest decrease during the commitment period. Commitments to
sell loans are made to mitigate interest rate risk on the existing loan
portfolio and on commitments to extend credit.
The Company neither has any investments in nor is a party to transactions
involving derivative investments, except mortgage related securities which
represent minimal risk to the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE L--FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or
not recognized in the statements of financial condition, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement to the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The Company does not routinely measure the market value of financial
instruments because such measurements represent point-in-time estimates of
value. It is not the intent of the Company to liquidate and therefore realize
the difference between market value and carrying value and even if it were,
there is no assurance that the estimated market values could be realized.
Thus, the information presented is not particularly relevant to predicting the
Company's future earnings or cash flows.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the statements
of financial condition for cash and interest-earning deposits approximate
those assets' fair values.
SECURITIES AVAILABLE-FOR-SALE AND HELD TO MATURITY: Fair values for
securities available-for-sale and held to maturity are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
LOANS HELD FOR SALE AND LOANS RECEIVABLE: For variable-rate mortgage loans
that reprice frequently and with no significant change in credit risk, fair
values are based on carrying values. The fair values for all other loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
ACCRUED INTEREST RECEIVABLE AND PAYABLE: The carrying amounts reported in
the statements of financial condition approximate their fair values.
FEDERAL HOME LOAN BANK STOCK: Fair value for the Federal Home Loan Bank
stock is based on its redeemable (carrying) value, as a market for this
stock is restricted.
MORTGAGE SERVICING RIGHTS: The estimated fair value of mortgage servicing
rights is determined using discounted cash flow techniques. Expected cash
flows are adjusted for estimated future loan prepayments as provided by
third-party market sources or as estimated by management using historical
prepayment expense.
DEPOSITS: The fair values disclosed for interest- and non interest-bearing
negotiable order of withdrawal accounts, passbook accounts and money market
accounts and advances from borrowers for taxes and insurance are, by
definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The fair values for fixed-rate
certificates of deposit are estimated using discounted cash flow analysis
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities of the outstanding
certificates of deposit.
BORROWINGS: The fair values disclosed for borrowings are based on a
discounted cash flows basis using current offering rates of like term
borrowings.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE L--FAIR VALUES OF FINANCIAL INSTRUMENTS--CONTINUED
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's off-balance
sheet instruments (lending commitments and unused lines of credit) are
based on quoted market prices or fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the credit standing of the related counter party. The fair
value of these off-balance sheet items approximates the recorded amounts of
the related fees and is not material at December 31, 1996.
The carrying amounts and fair values of the Company's financial instruments
consist of the following at December 31:
1996 1995
----------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
Cash and cash equivalents $ 3,563 $ 3,563 $ 1,274 $ 1,274
======== ======== ======== ========
Investment and mortgage-related
securities available-for-sale $ 7,472 $ 7,472 $ 4,991 $ 4,991
======== ======== ======== ========
Investment and mortgage-related
securities held-to-maturity $ 25,908 $ 25,880 $ 23,388 $ 23,551
======== ======== ======== ========
Loans receivable $559,464 $555,171 $506,132 $505,861
======== ======== ======== ========
Accrued interest receivable $ 3,295 $ 3,295 $ 3,074 $ 3,074
======== ======== ======== ========
Mortgage servicing rights $ 101 $ 101
======== ========
Federal Home Loan Bank stock $ 3,773 $ 3,773 $ 3,768 $ 3,768
======== ======== ======== ========
Deposits $455,969 $416,775 $447,675 $447,693
======== ======== ======== ========
Accrued interest on deposits $ 2,354 $ 2,354 $ 2,279 $ 2,279
======== ======== ======== ========
Borrowings $ 77,272 $ 77,109 $ 21,000 $ 19,466
======== ======== ======== ========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE M--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of December 31,
1996 and 1995 and the condensed statements of income and cash flows for the
two years ended December 31, 1996 should be read in conjunction only with the
consolidated financial statements and the notes thereto. The statements of
income and cash flows have been presented as if the Company had been formed
as of January 1, 1995.
STATEMENTS OF FINANCIAL CONDITION
FIRST NORTHERN CAPITAL CORP.
DECEMBER 31
------------------
1996 1995
-------- -------
(IN THOUSANDS)
ASSETS
Cash $ 4,337 $ 1
Equity in net assets of subsidiaries 65,817 72,579
Other assets 74
-------- -------
$ 70,228 $72,580
======== =======
LIABILITIES
Other liabilities $ 4 $ 1
-------- -------
Total Liabilities 4 1
STOCKHOLDERS' EQUITY
Common stock 4,568 4,555
Additional paid-in capital 14,389 14,590
Unrealized gain on securities
available for sale, net of taxes 385 315
Treasury stock at cost (2,853)
Retained earnings 53,735 53,119
-------- -------
Total stockholders' equity 70,224 72,579
-------- -------
$70,228 $72,580
======== =======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE M--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS--CONTINUED
STATEMENTS OF INCOME
FIRST NORTHERN CAPITAL CORP.
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- --------
(IN THOUSANDS)
INTEREST INCOME
Interest-earning deposits $ 46
NON-INTEREST INCOME
Equity in net income of Savings Bank 3,373 $4,590
NON-INTEREST EXPENSE
Compensation 13
Postage 4
Other 119
------- -------
Total non-interest expense 136
------- -------
Income before taxes 3,283 4,590
Income taxes
------- -------
NET INCOME $3,283 $4,590
======= ======
STATEMENTS OF CASH FLOWS
FIRST NORTHERN CAPITAL CORP.
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 3,283 $ 4,590
Adjustments to reconcile net
income to cash provided
(used) by operating activities:
Less equity in earnings of the Bank (3,373) (4,590)
Increase in other liabilities 2 1
------- ------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (88) 1
------- ------
FINANCING ACTIVITIES:
Cash dividends received 10,205
Cash dividends paid (2,667)
Purchase of treasury stock (3,698)
Retirement of common stock (66)
Proceeds from exercise of stock options 650
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,424
------- ------
INCREASE IN CASH AND CASH EQUIVALENTS 4,336 1
Cash and cash equivalents at
beginning of period 1
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,337 $ 1
======= =======
SUPPLEMENTAL INFORMATION TO THE STATEMENT OF CASH FLOWS:
Investment in subsidiary swapped for shares in
First Northern Capital Corp. $71,859
<PAGE>
FIRST NORTHERN CAPITAL COPR.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
First Northern Capital Corp.
We have audited the accompanying consolidated statements of financial condition
of First Northern Capital Corp. (the "Company") and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and
subsidiaries at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/Ernst & Young LLP
ERRNST & YOUNG LLP
January 24, 1997
Milwaukee, Wisconsin
EXHIBIT 23.1
(1996 10-K)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of First Northern Capital Corp. Of our report dated January 24,
1997, included in the 1996 Annual Report to Shareholders of First Northern
Capital Corp.
We consent to the incorporation by reference in the Registration Statements
No.333-1326 on Form S-3 dated February 13, 1996, related to the Dividend
Reinvestment Plan; No. 33-80853 on Form S-8, dated December 28, 1995,
related to the 1984 Stock Option Plan; No. 33-80847 on form S-8, dated
December 28, 1985, related to the 1989 Executive Stock Option Plan;
No. 33-80851 on Form S-8, dated December 28, 1995, related to the 1989
Directors Stock Option Plan; No. 33-80857 on Form S-8, dated December 28, 1995,
related to the 1989 Stock Option and Incentive Plan; No. 33-80859 on Form S-8,
dated December 28, 1995, related to the 1994 Executive Stock Plan; No.33-80861
on Form S-8, dated December 28, 1995 related to the 1994 Directors Stock
Option Plan; and No. 33-80863 on Form S-8 dated December 28, 1995, related to
the First Northern Savings Bank, S.A. 401(k) Savings Plan and the related
Prospectuses constituting a part thereof of our report dated January 24,
1997, incorporated by reference in this Annual Report (Form 10-K) of First
Northern Capital Corp.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMETNS OF FIRST NORTHERN CAPITAL CORP. FOR THE
FISCAL YEAR ENDED DECEMBER 31,1996, AND IS QULAIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,965
<INT-BEARING-DEPOSITS> 1,598
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,472
<INVESTMENTS-CARRYING> 25,908
<INVESTMENTS-MARKET> 25,880
<LOANS> 559,464<F1>
<ALLOWANCE> 2,937
<TOTAL-ASSETS> 615,503
<DEPOSITS> 458,323
<SHORT-TERM> 17,622
<LIABILITIES-OTHER> 4,237
<LONG-TERM> 59,650
0
0
<COMMON> 4,568
<OTHER-SE> 65,6563
<TOTAL-LIABILITIES-AND-EQUITY> 615,503
<INTEREST-LOAN> 39,556
<INTEREST-INVEST> 2,320
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 41,876
<INTEREST-DEPOSIT> 20,244
<INTEREST-EXPENSE> 23,203
<INTEREST-INCOME-NET> 18,673
<LOAN-LOSSES> 370
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,939
<INCOME-PRETAX> 5,050
<INCOME-PRE-EXTRAORDINARY> 5,050
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,283
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
<YIELD-ACTUAL> 3.31
<LOANS-NON> 744
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,608
<CHARGE-OFFS> 66
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 2,937
<ALLOWANCE-DOMESTIC> 2,937
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>See financial statements and notes thereto in Form 10-K.
</FN>
</TABLE>
