SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------------
F O R M 1 0 - Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
incorporation or organization) Identification No.)
201 North Monroe Avenue
P.O. Box 23100
Green Bay, Wisconsin 54305-3100
(920) 437-7101
----------------------------------------------
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal
executive offices)
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
-----
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON
STOCK, $1.00 PAR VALUE PER SHARE, WAS 8,833,691, AT JULY 31,
1998.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial
Condition as of June 30, 1998
and December 31, 1997. . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Income
for the Three Months Ended
June 30, 1998 and June 30, 1997. . . . . . . . . . .4
Unaudited Consolidated Statements of Income
for the Six Months Ended
June 30, 1998 and June 30, 1997. . . . . . . . . . 5
Unaudited Consolidated Statement of
Changes in Stockholders' Equity
for the Six Months Ended
June 30, 1998 and June 30, 1997. . . . . . . . . . .6
Unaudited Consolidated Statements of Cash
Flows for the Six months Ended
June 30, 1998 and June 30, 1997. . . . . . . . . . 7
Notes to Unaudited Consolidated
Financial Statements . . . . . . . . . . . . . 8 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . 11 - 25
Item 3.Quantitative and Qualitative
Disclosures About Market Risk . . . . . . . . . . 26
PART II - OTHER INFORMATION
Item 4.Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . 26
Item 5.Other Items . . . . . . . . . . . . . . . . . . . . 26
Item 6.Exhibits and Reports on Form 8-K . . . . . . . . . 27
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 28
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(In Thousands)
ASSETS
<S> <C> <C>
Cash $ 6,532 $ 640
Interest-earning deposits 953 324
----------- -----------
CASH AND CASH EQUIVALENTS 7,485 964
Securities available-for-sale,
at fair value
Investment securities 8,738 6,799
Mortgage-related securities 18 932
Securities held-to-maturity
Investment securities
(estimated fair value of
$21,756,000 - 1998;
$21,313,000 - 1997) 21,664 21,231
Mortgage-related securities
(estimated fair value of
$9,515,000 - 1998;
$10,689,000 - 1997) 9,493 10,675
Loans held for sale 2,001 2,119
Loans receivable 609,396 593,529
Accrued interest receivable 3,604 3,646
Foreclosed properties and
repossessed assets 170 153
Office properties and equipment 7,794 8,004
Federal Home Loan Bank stock 5,000 5,250
Prepaid expenses and other assets 15,009 14,394
-------- --------
$690,372 $667,696
======== ========
Liabilities
Deposits $507,823 $481,788
Borrowings 96,106 103,277
Advance payments by borrowers
for taxes and insurance 6,614 3,861
Other liabilities 4,621 4,953
-------- --------
TOTAL LIABILITIES 615,164 593,879
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: 9,134,735 - 1998;
9,136,104 - 1997 shares outstanding:
8,859,173 - 1998; 8,845,676 - 1997 9,135 9,136
Additional paid-in capital 9,214 9,438
Unrealized gains on securities
available-for-sale, net of taxes 688 614
Treasury stock at cost
(275,562 shares - 1998;
290,428 shares - 1997) (2,527) (2,316)
Retained earnings 58,698 56,945
-------- --------
TOTAL STOCKHOLDERS' EQUITY 75,208 73,817
-------- --------
$690,372 $667,696
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30
1998 1997
------- -------
(In Thousands,
Except Per Share Amounts)
Interest income:
<S> <C> <C>
Mortgage loans $ 8,260 $ 7,751
Consumer loans 3,307 3,022
Investment securities 504 458
Interest-earning deposits 26 12
Mortgage-related securities 152 172
------- -------
TOTAL INTEREST INCOME 12,249 11,415
Interest expense:
Deposits 5,743 5,273
Borrowings 1,364 1,143
Advance payments by borrowers
for taxes and insurance 29 28
------- -------
TOTAL INTEREST EXPENSE 7,136 6,444
------- -------
NET INTEREST INCOME 5,113 4,971
Provision for loan losses 105 65
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,008 4,906
Non-interest income:
Fees on serviced loans 56 83
Loan fees and service charges 78 77
Deposit account service charges 316 305
Insurance commissions 62 63
Gains on sales of loans 258 72
Other 322 182
------- -------
TOTAL NON-INTEREST INCOME 1,092 782
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 1,864 1,779
Federal insurance premiums 75 75
Occupancy 215 222
Data processing 371 363
Furniture and equipment 118 123
Telephone and postage 110 118
Marketing 139 79
Other 599 575
------- -------
TOTAL NON-INTEREST EXPENSE 3,491 3,334
------- -------
INCOME BEFORE INCOME TAXES 2,609 2,354
Income taxes 879 895
------- -------
NET INCOME $ 1,730 $ 1,459
======= =======
BASIC NET INCOME PER SHARE $0.19 $0.16
===== =====
DILUTED NET INCOME PER SHARE $0.19 $0.16
===== =====
CASH DIVIDENDS PAID PER SHARE $0.09 $0.08
===== =====
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
-------- --------
(In Thousands,
Except Per Share Amounts)
Interest income:
<S> <C> <C>
Mortgage loans $16,474 $15,349
Consumer loans 6,552 5,911
Investment securities 1,001 877
Interest-earning deposits 42 22
Mortgage-related securities 327 350
------- -------
TOTAL INTEREST INCOME 24,396 22,509
Interest expense:
Deposits 11,280 10,334
Borrowings 2,894 2,299
Advance payments by borrowers for
taxes and insurance 41 42
------- -------
TOTAL INTEREST EXPENSE 14,215 12,675
------- -------
NET INTEREST INCOME 10,181 9,834
Provision for loan losses 210 140
NET INTEREST INCOME AFTER ------- -------
PROVISION FOR LOAN LOSSES 9,971 9,694
Non-interest income:
Fees on serviced loans 100 166
Loan fees and service charges 136 137
Deposit account service charges 615 594
Insurance commissions 169 169
Gains on sales of loans 454 122
Other 606 330
------- -------
TOTAL NON-INTEREST INCOME 2,080 1,518
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 3,671 3,565
Federal insurance premiums 151 135
Occupancy 448 460
Data processing 735 701
Furniture and equipment 228 248
Telephone and postage 236 247
Marketing 237 179
Other 1,180 1,094
------- -------
TOTAL NON-INTEREST EXPENSE 6,886 6,629
------- -------
INCOME BEFORE INCOME TAXES 5,165 4,583
Income taxes 1,806 1,739
------- -------
NET INCOME $ 3,359 $ 2,844
======= =======
BASIC NET INCOME PER SHARE $0.38 $0.32
===== =====
DILUTED NET INCOME PER SHARE $0.37 $0.31
===== =====
CASH DIVIDENDS PAID PER SHARE $0.18 $0.16
===== =====
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized Gain
on Securities
Additional Available-
Common Paid-In for-Sale, Treasury Retained
Stock Capital Net of Taxes Stock Earnings Total
------- ---------- -------------- --------- -------- -------
(In Thousands)
For the Six Months Ended June 30, 1998
- - --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $9,136 $9,438 $614 $(2,316) $56,945 $73,817
Comprehensive income:
Net income 3,359 3,359
Other Comprehensive Income:
Change in net unrealized gain
on securities available-for-
sale, net of income taxes 74 74
------ ------ ---- ------- ------- -------
Total comprehensive income 74 3,359 3,433
Cash dividends ($.18 per share) (1,606) (1,606)
Retirement of common stock (1) (17) (18)
Purchase of treasury stock (1,028) (1,028)
Exercise of stock options (207) 817 610
------ ------ ---- ------- ------- -------
Balance at June 30, 1998 $9,135 $9,214 $688 $(2,527) $58,698 $75,208
====== ====== ==== ======= ======= =======
For the Six Months Ended June 30, 1997
- - --------------------------------------
Balance at December 31, 1996 $9,136 $9,841 $385 $(2,873) $53,735 $70,224
Comprehensive income:
Net income 2,844 2,844
Other Comprehensive Income:
Change in net unrealized gain
on securities available-for-
sale, net of income taxes 110 110
------ ------ ---- ------- ------- -------
Total comprehensive income 110 2,844 2,954
Cash dividends ($.16 per share) (1,411) (1,411)
Retirement of common stock (441) (441)
Exercise of stock options (340) 903 563
------ ------ ---- ------- ------- -------
Balance at June 30, 1997 $9,136 $9,501 $495 $(2,411) $55,168 $71,889
====== ====== ==== ======= ======= =======
</TABLE>
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
------ ------
(In Thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,359 $ 2,844
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for losses on loans and real estate 210 140
Provision for depreciation and amortization 428 436
Gains on sales of loans (454) (122)
Loans originated for sale (29,362) (5,670)
Proceeds from loan sales 29,934 7,755
(Increase) decrease in interest receivable 42 (179)
Increase in interest payable 279 114
Other (836) (493)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,600 4,825
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 6,784 2,800
Purchases of investment securities (9,029) (7,220)
Principal repayments of mortgage-related securities 2,097 553
Purchases of mortgage-related securities (989)
Loan originations and purchases (107,533) (84,614)
Loan principal repayments 91,384 69,947
Purchases of office properties and equipment (218) (661)
(Purchase) sale of Federal Home Loan Bank stock 250 (500)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (16,265) (20,684)
FINANCING ACTIVITIES:
Net increase in deposits 25,755 19,452
Net decrease in short-term borrowings (15,971) (9,728)
Proceeds from long term borrowings 19,800 33,275
Repayments of long term borrowings (11,000) (22,500)
Maturity of security sold under agreement to repurchase (1,000)
Cash dividends paid (1,606) (1,411)
Purchase of treasury stock (1,028) (441)
Retirement of common stock (18)
Proceeds from exercise of stock options 501 465
Net increase in advance payments by
borrowers for taxes and insurance 2,753 1,016
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,186 19,128
INCREASE IN CASH AND CASH EQUIVALENTS 6,521 3,269
Cash and cash equivalents at beginning of period 964 3,563
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,485 $ 6,832
======== ========
</TABLE>
Supplemental Information to the Statement of Cash Flows:
Interest credited and paid on deposits $11,039 $10,259
Interest paid on borrowings 2,888 2,266
Payments for federal and state income taxes 2,147 1,111
Loans transferred to foreclosed properties
and repossessed assets 225 175
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
(1) The consolidated financial statements include the
accounts of First Northern Capital Corp. ("First
Northern" or the "Company") and its wholly-owned
subsidiary First Northern Savings Bank, S.A. and its
subsidiaries (collectively, the "Savings Bank"): Great
Northern Financial Services Corporation ("GNFSC"), First
Northern Investments Incorporated ("FNII"), Keystone
Financial Services, Incorporated ("Keystone") and First
Northern Financial Services, Incorporated. All
significant intercompany balances and transactions have
been eliminated according to generally accepted
accounting principles. The Savings Bank's ownership of
Savings Financial Corporation ("SFC"), a 50% owned
subsidiary, is accounted for by the equity method.
(2) The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information, Rule 10-01
of Regulation S-X and the instructions to Form 10-Q. The
financial statements do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial information.
In the opinion of First Northern, the accompanying
Unaudited Consolidated Statements of Financial Condition,
Unaudited Consolidated Statements of Income, Unaudited
Consolidated Statement of Changes in Stockholders' Equity
and Unaudited Consolidated Statements of Cash Flows
contain all adjustments, which are of a normal recurring
nature, necessary to present fairly the consolidated
financial position of the Company and subsidiaries at
June 30, 1998 and December 31, 1997, the results of their
income for the three and six months ended June 30, 1998
and 1997, the changes in stockholders' equity for the six
months ended June 30, 1998 and 1997, and their cash flows
for the six months ended June 30, 1998 and 1997. The
accompanying Unaudited Consolidated Financial Statements
and related notes should be read in conjunction with
First Northern's 1997 Annual Report on Form 10-K.
(3) Where applicable, the historical financial information
has been adjusted for the August 18, 1997 two-for-one
stock split in the form of a 100% stock dividend.
(4) Securities Available-for-Sale
The amortized cost and estimated fair values of
securities available-for-sale are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ----------- ------------
(In Thousands)
At June 30, 1998:
<S> <C> <C> <C> <C>
Asset Management Funds $ 520 $(3) $ 517
Federal Home Loan Mortgage
Corporation stock 33 $1,097 1,130
U.S. government and
agency securities 7,043 51 (3) 7,091
------ ------ --- ------
7,596 1,148 (6) 8,738
Mortgage-related securities 18 18
------ ------ --- ------
$7,614 $1,148 $(6) $8,756
====== ====== === ======
At December 31, 1997:
Asset Management Funds $ 505 $(5) $ 500
Federal Home Loan Mortgage
Corporation stock 33 $ 974 1,007
U.S. government and
agency securities 5,240 55 (3) 5,292
------ ------ --- ------
5,778 1,029 (8) 6,799
Mortgage-related securities 932 932
------ ------ --- ------
$6,710 $1,029 $(8) $7,731
====== ====== === ======
</TABLE>
(5) Securities Held-to-Maturity
The amortized cost and estimated fair values of investment securities
held-to-maturity, which consist of U.S. government and agency
securities, are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ------------
(In Thousands)
At June 30, 1998 $21,664 $105 $(13) $21,756
======= ==== ==== =======
At December 31, 1997 $21,231 $101 $(19) $21,313
======= ==== === =======
At June 30, 1998, these investment securities have the following maturities:
Amortized Estimated
Cost Fair Value
======== ========
(In Thousands)
Due in one year or less $ 6,754 $ 6,764
Due after one year through 5 years 12,910 12,989
Due after 5 years through 10 years 2,000 2,003
------- -------
$21,664 $21,756
======= =======
<PAGE>
The amortized cost and estimated fair values of mortgage-related securities
held-to-maturity are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In Thousands)
At June 30, 1998:
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation $6,015 $45 $(19) $6,041
Federal National
Mortgage Association 3,478 15 (19) 3,474
------ --- ---- ------
$9,493 $60 $(38) $9,515
====== === ==== ======
At December 31, 1997:
Federal Home Loan
Mortgage Corporation $7,028 $59 $(36) $7,051
Federal National
Mortgage Association 3,647 19 (28) 3,638
------ --- ---- ------
$10,675 $78 $(64) $10,689
======= === ==== =======
</TABLE>
(6) Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
---------- -----------
(In Thousands)
First mortgage loans:
<S> <C> <C>
One to four family residential $410,377 $393,563
Five or more family residential 28,811 24,506
Commercial real estate 5,644 9,269
Construction-residential 17,987 19,192
Construction-commercial 3,371 2,156
Other 2,432 2,226
-------- --------
468,622 450,912
Consumer loans:
Consumer 19,281 18,200
Second mortgage 69,696 68,596
Automobile 71,698 70,276
-------- --------
160,675 157,072
-------- --------
629,297 607,984
Less:
Undisbursed loan proceeds 15,630 10,290
Allowance for losses 3,347 3,177
Unearned loan fees 924 988
-------- --------
19,901 14,455
-------- --------
$609,396 $593,529
======== ========
</TABLE>
(7) The weighted average number of shares outstanding,
including common stock equivalents, for the three
months ended June 30, 1998 and 1997, were 8,893,787 and
8,838,657, respectively and for the six months ended
June 30, 1998 and 1997 were 8,900,048 and 8,828,615,
respectively.
(8) Certain amounts in 1997 financial statements have been
reclassified to conform to the
1998 presentations.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY FACTORS
This 10-Q 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.
FINANCIAL CONDITION
BALANCE SHEET
CASH AND CASH EQUIVALENTS. Cash and cash equivalents were
$6.5 million greater at June 30, 1998, as compared to
December 31, 1997, primarily as the result of month end
customer deposits made to demand deposit accounts on June 30,
1998. These funds are not available to be used until the
following day and therefore, it's recorded as cash for a day.
Any cash that is not immediately needed to fund loans or
operations is invested in overnight interest-earning deposits
or short-term borrowings are repaid.
SECURITIES AVAILABLE-FOR-SALE. Investment securities
available-for-sale increased approximately $1.9 million as of
June 30, 1998, as compared to December 31, 1997, primarily as
the result of purchases of U.S. Agency securities and
increases in the market value of some investment securities.
Mortgage-related securities available-for-sale decreased $0.9
million at June 30, 1998, as compared to December 31, 1997,
as a result of prepayments and repayments of the underlying
mortgage loans.
SECURITIES HELD-TO-MATURITY. Investment securities held-to-
maturity increased $0.4 million primarily as a result of
purchases of U.S. Government and agency securities.
Mortgage-related securities held-to-maturity decreased $1.2
million as a result of prepayments and repayments of the
underlying mortgage loans.
LOANS HELD FOR SALE. At June 30, 1998, First Northern had
$2.0 million of fixed interest rate mortgage and education
loans classified as held for sale. First Northern originates
and sells most of its thirty (30) year fixed interest rate
mortgage loans and all of its education loans. Fifteen (15)
year fixed interest rate mortgage loan originations are
retained in First Northern's loan portfolio and in the first
quarter of 1997, First Northern began to retain its twenty
(20) year fixed interest rate mortgage loan originations.
The retention of the twenty year fixed interest rate mortgage
loans enhances interest-income while fitting into First
Northern's overall asset/liability management.
LOANS RECEIVABLE. Loans receivable increased $15.9 million
at June 30, 1998, as compared to December 31, 1997, as a
result of mortgage loan originations and purchases. Loan
originations and purchases are as follows:
LOAN ORIGINATIONS AND PURCHASES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
------ ------ ------ ------
(In Thousands) (In Thousands)
Mortgage loans originated
and purchased:
<S> <C> <C> <C> <C>
Construction $13,788 $ 7,636 $ 17,800 $ 9,914
Loans on existing property 20,609 18,893 30,795 24,651
Refinancing 25,415 9,389 63,194 16,224
Other loans 327 371 623 977
------- -------- -------- -------
Total mortgage loans
originated and purchased 60,139 36,289 112,412 51,766
Consumer loans originated
and purchased:
Consumer 4,134 3,205 5,949 5,092
Second mortgage 12,153 11,310 20,215 18,794
Automobile 12,696 13,776 23,989 22,194
Education 88 98 1,034 1,052
------- -------- -------- -------
Total consumer loans originated
and purchased 29,071 28,389 51,187 47,132
------- -------- -------- -------
Total loans originated and
purchased $89,210 $64,678 $163,599 $98,898
======= ======= ======== =======
</TABLE>
Mortgage loan originations and purchases increased for the
second quarter of 1998 and the six months ended June 30,
1998, as compared to the same periods in 1997 primarily as
the result of increased refinances of existing First Northern
loans; purchases of mortgage loans originated by others; and
increased construction lending. These increased originations
are the result of the overall low mortgage loan interest
rates of fixed interest rate mortgage loans and the favorable
economy in First Northern's market area.
Consumer loan originations and purchases increased in the
second quarter of 1998 and for the six months ended June 30,
1998, as compared to the same periods in 1997 primarily as a
result of increased automobile loan originations in the
Savings Bank's jointly owned subsidiary, SFC and second
mortgage loan originations. SFC automobile loan originations
increased as a result of new business relationships with
additional automobile dealers throughout the state of
Wisconsin. Second mortgage loan originations increased as a
result of direct marketing of existing First Northern
customers and the continued redesign of the second mortgage
loan product.
LOAN SALES
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
------ ------ ------ ------
(In Thousands) (In Thousands)
Mortgage Loans $15,496 $2,930 $27,241 $5,301
Education Loans 1,420 1,540 2,240 2,332
------- ------ ------- ------
Total Loans Sold $16,916 $4,470 $29,481 $7,633
======= ====== ======= ======
First Northern retains all adjustable interest rate mortgage
loan originations in its portfolio; whereas, most 30 year
fixed interest rate mortgage loan originations are sold in
the secondary market. First Northern's management
contractually committed to sell its existing education loan
portfolio and to sell its ongoing education loan
originations.
PREPAID EXPENSES AND OTHER ASSETS. "Prepaid expenses and
other assets," which is primarily composed of bank owned life
insurance ("BOLI") increased $0.6 million at June 30, 1998,
as compared to December 31, 1997. This increase was the
result of increased cash surrender value of the BOLI. First
Northern's BOLI cash surrender value at June 30, 1998, was
$12.3 million as compared to $11.7 million at December 31,
1997.
DEPOSITS. Deposits increased $26.0 million for the first six
months of 1998 as a result of offering competitive interest
rates, the acquisition of "jumbo" (certificates of deposit in
excess of $100,000) deposits and increased demand deposits.
Jumbo deposits consist of wholesale, retail and municipal
deposits and at times, jumbo deposits are a cheaper source of
funds than retail deposits or borrowing. First Northern's
jumbo deposits increased $9.6 million in the first six months
of 1998.
BORROWINGS. Federal Home Loan Bank ("FHLB") borrowings
decreased $7.2 million in the six months of 1998, primarily
as the result of increased loan sales and increased deposits.
First Northern will borrow monies if the borrowing interest
rate is a less costly form of funding for loans and
investments than acquiring deposits. At June 30, 1998, $84.8
million are fixed interest rate borrowings and $11.3 million
are overnight borrowings. First Northern anticipates that it
will continue to utilize borrowings in 1998 if borrowings
incrementally add to the overall profitability of the
Company.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE.
Advance payments by borrowers for taxes and insurance
("escrow") increased $2.8 million at June 30, 1998, as
compared to December 31, 1997. The increase in escrow
dollars was the result of payments received for customer's
escrow accounts and increased number of escrow accounts.
STOCKHOLDERS' EQUITY. First Northern paid a cash dividend of
$0.09 per share on May 15, 1998, to stockholders of record on
May 4, 1998. The increase of $0.01 per share represents a
12.5% increase over the second quarter of 1997 cash dividend
of $0.08 per share.
On March 20, 1998, First Northern approved a third stock
repurchase program to repurchase up to 446,101 shares (5% of
total shares outstanding) through the open market. These
repurchased shares will be used to satisfy exercises of stock
options. At June 30, 1998, 76,000 shares had been purchased
at an average price of $13.53 per share.
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 June 30 At December 31
1998 1997
---------- --------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual mortgage loans $575 $333
Non-accrual consumer loans 86 107
------ ----
Total non-performing loans 661 440
Properties subject to foreclosure 86 135
Foreclosed properties and
repossessed assets 91 18
---- ----
Total non-performing assets $835 $593
==== ====
Non-performing loans as a percent
total loans .11% .07%
=== ===
Non-performing assets as a percent
of total assets .12% .08%
=== ===
</TABLE>
Total non-performing loans increased $242,000 as of June 30,
1998, as compared to December 31, 1997, primarily as a result
of an increase in non-performing mortgage loans. Management
believes non-performing loans and assets, expressed as a
percentage of total loans and assets, are far below state and
national averages for financial institutions. There are no
accruing, material loans which, at June 30, 1998, management
has reason to believe will become non-performing or result in
potential losses.
In addition, management believes that the Savings Bank's
allowances for loan losses 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.
Furthermore, various regulatory agencies, as an integral part
of their examination process, periodically review First
Northern's allowances for losses on loans and real estate
owned. Such agencies may require First Northern to recognize
additions to the allowances based on the agencies' judgment
of information available to them at the time of their
examination.
All of First Northern's loans are domestic.
A summary of the allowance for losses is shown below.
<TABLE>
<CAPTION>
LOAN LOSS ALLOWANCES
At and for the At and for the
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
---------------- -----------------
(Dollars in Thousands)
Mortgage Loans:
<S> <C> <C>
Balance at the beginning of the period $1,624 $1,453
Provisions for the period 81 170
Recoveries:
Commercial real estate 1
------ ------
Balance at the end of the period 1,705 1,624
Consumer Loans:
Balance at the beginning of the period 1,553 1,484
Provisions for the period 129 150
Charge-offs:
Consumer (17) (44)
Automobile (35) (57)
Recoveries:
Consumer 5 8
Automobile 7 12
------ ------
Balance at the end of the period 1,642 1,553
------ ------
Total loan loss allowances at the
end of the period $3,347 $3,177
====== ======
Allowance as a percent of total loans
.55% .53%
=== ===
Allowance as a percent of
non-performing loans 506.35% 722.05%
====== ======
Allowance as a percent of total assets
.48% .48%
=== ===
Allowance as a percent of
non-performing assets 400.84% 535.75%
====== ======
</TABLE>
<PAGE>
IMPACT OF YEAR 2000
Computer programs generally abbreviated dates by eliminating
the century digits of the year. Many resources, such as
software, hardware, telephones, voicemail, heating,
ventilating and air conditioning, alarms, etc. ("Systems")
are affected. These Systems were designed to assume a
century value of "19" to save memory and disk space within
their programs.
In addition, many Systems use a value of "99" in a year or
"99/99/99" in a date to indicate "no date" or "any date" or
even a default expiration date.
As the year 2000 approaches, this abbreviated date mechanism
within Systems threatens to disrupt the function of computer
software at nearly every business, including First Northern,
which relies heavily on computer systems for account and
other record keeping functions. If the millennium issue is
ignored, system failures or miscalculations could occur,
causing disruptions of operations, including among other
things, a temporary inability to process transactions or
engage in similar normal business activities. First Northern
out sources a majority of its data processing functions to a
Milwaukee, Wisconsin--based company, Fiserv, Inc. ("Fiserv").
Because year 2000 problems could affect Fiserv, and hence the
Savings Bank through its relationship with Fiserv, the
Savings Bank has discussed potential year 2000 problems with
Fiserv. These discussions have kept the Savings Bank abreast
of Fiserv's progress in anticipating and avoiding year 2000
problems that could affect First Northern's operations. At
June 30, 1998, Fiserv has advised First Northern that it has
fully tested or renovated their systems for year 2000 issues.
Client testing, which First Northern will participate in,
will take place in the third or fourth quarter of 1998.
Based on recent assessments, First Northern has determined
that it will be required to modify or replace certain
portions of its internal software and hardware so that its
Systems will function properly with respect to dates on or
after September 9, 1999 ("9/9/99"). It is currently
anticipated that the cost of these modifications will not
exceed a total of $150,000 (pre-tax). At June 30, 1998,
approximately $75,000 has been spent on new equipment,
software or other expenses for year 2000. First Northern
presently believes that with these modifications, the year
2000 will not pose significant operational problems for its
Systems. However, if such modifications and conversions are
not made, or are not completed in a timely manner, the year
2000 could have a adverse impact on the operations of First
Northern.
First Northern has currently completed the awareness,
inventory and assessment phases of its year 2000 project.
The analysis, conversion, implementation and testing phases
are expected to be completed by the fourth quarter of 1998.
At this time, the analysis phase is approximately 95%
completed and the conversion, implementation and testing
phases are approximately 35% completed. The post
implementation phase, which includes contingency planning, is
20% completed and is anticipated to be completed in the
fourth quarter of 1998. First Northern expects to primarily
use internal resources to reprogram, upgrade or replace and
test its internal Systems. External consulting services are
being used to examine SFC.
The costs of the project and the date on which the Company
believes it will complete the year 2000 modifications, are
based on management's best estimates, which were derived
using numerous assumptions of future events, including the
continued availability of certain resources, third party
modification plans and other factors. However, there can be
no guarantee that these estimates will be achieved and actual
results could differ from those anticipated.
<PAGE>
RESULTS OF OPERATIONS
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 daily balances. The yields and rates are established
by dividing income or expense dollars by the average balance
of the asset or liability. The yields and rates for the six
months ended June 30, 1998 and 1997 have been annualized.
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
------------------------- -------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- -------- ------ --------- -------- ------
(Dollars In Thousands)
Interest-earning assets (1):
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $445,444 $16,474 7.40% $419,927 $15,349 7.31%
Consumer loans 159,347 6,552 8.22 141,710 5,911 8.34
Investment securities (2) 32,253 1,001 6.21 27,948 877 6.28
Interest-earning deposits 1,498 42 5.61 732 22 6.01
Mortgage-related securities (2) 10,461 327 6.25 10,959 350 6.39
-------- ------- ---- -------- ------- ----
TOTAL 649,003 24,396 7.52 601,276 22,509 7.49
Interest-bearing liabilities:
Passbook accounts 62,284 685 2.20 59,148 637 2.15
NOW and variable rate insured
money market accounts 112,253 1,388 2.47 103,193 1,229 2.38
Time deposits 318,988 9,207 5.77 302,391 8,468 5.60
Advance payments by borrowers
for taxes and insurance 3,546 41 2.31 3,765 42 2.23
Borrowings 99,379 2,894 5.82 78,761 2,299 5.84
-------- ------- ---- -------- ------- ----
TOTAL 596,450 14,215 4.77 547,258 12,675 4.63
-------- ------- ---- -------- ------- ----
Net interest-earning assets
balance and interest
rate spread $ 52,553 2.75% $ 54,018 2.86%
======== ==== ======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $649,003 $10,181 3.14% $601,276 $ 9,834 3.27%
======== ======= ==== ======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 108.8% 109.9%
===== =====
</TABLE>
- - -------------------------
(1) For the purpose of these computations, non-accruing loans
are included in the average loan amounts outstanding.
(2) For the purpose of these computations, the available-
for-sale investment securities and mortgage-related
securities are presented and yields calculated based upon the
historical cost basis.
<TABLE>
<CAPTION>
Year Ended December 31
1997
------------------------
Interest
Average Earned/ Yield/
Balance Paid Rate
------- ------- ------
(Dollars In Thousands)
Interest-earning assets (1):
<S> <C> <C> <C>
Mortgage loans $426,748 $31,443 7.37%
Consumer loans 148,614 12,529 8.43
Investment securities (2) 29,154 1,844 6.33
Interest-earning deposits 762 45 5.91
Mortgage-related securities (2) 11,558 735 6.36
-------- ------- ----
TOTAL 616,836 46,596 7.55
Interest-bearing liabilities:
Passbook accounts 60,057 1,322 2.20
NOW and variable rate insured
money market accounts 104,665 2,536 2.42
Time deposits 307,423 17,579 5.72
Advance payments by borrowers
for taxes and insurance 6,652 149 2.24
Borrowings 82,644 4,905 5.94
-------- ------- ----
TOTAL 561,441 26,491 4.72
-------- ------- ----
Net interest-earning assets balance
and interest rate spread $ 55,395 2.83%
======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $616,836 $20,105 3.26%
======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 109.9%
=====
</TABLE>
- - ---------------------
(1) For the purpose of these computations, non-accruing
loans are included in the average loan amounts outstanding.
(2) For the purpose of these computations, the available-
for-sale investment securities and mortgage-related securities
are presented and yields calculated based upon the
historical cost basis.
<PAGE>
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 interest income for
the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 vs 1997
---------------------------------
Increase(decrease) due to:
---------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------ -------- -------- -------
Interest-earning assets:
<S> <C> <C> <C> <C>
Mortgage loans $189 $ 925 $ 11 $1,125
Consumer loans (85) 737 (11) 641
Investment securities (10) 136 (2) 124
Interest-earning deposits (1) 23 (2) 20
Mortgage-related securities (8) (15) (23)
---- ------ ---- ------
TOTAL $ 85 $1,806 $ (4) 1,887
==== ====== ==== ------
Interest-bearing liabilities:
Passbook accounts $ 15 $ 32 $ 1 48
NOW and variable rate
insured money market
accounts 46 109 4 159
Time deposits 257 468 14 739
Advance payments by borrowers
for taxes and insurance 2 (3) (1)
Borrowings (8) 605 (2) 595
---- ------ ---- ------
TOTAL $312 $1,211 $ 17 1,540
==== ====== ==== ------
Net change in net interest
income $ 347
======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1997 vs 1996
---------------------------------
Increase(decrease) due to:
---------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------ ------ ------ -----
Interest-earning assets:
<S> <C> <C> <C> <C>
Mortgage loans $ 763 $ 1,801 $ 48 $2,612
Consumer loans (88) 1,908 (16) 1,804
Investment securities 15 245 2 262
Interest-earning deposits 6 (25) (2) (21)
Mortgage-related securities (14) 79 (2) 63
----- ------- ----- ------
TOTAL $ 682 $ 4,008 $ 30 4,720
===== ======= ===== ------
Interest-bearing liabilities:
Passbook accounts $ (23) $ 33 $ (1) 9
NOW and variable rate
insured money market
accounts 92 54 2 148
Time deposits 175 852 9 1,036
Advance payments by borrowers
for taxes and insurance (2) (11) (13)
Borrowings 77 1,976 55 2,108
----- ------ ---- ------
TOTAL $ 319 $2,904 $65 3,288
===== ====== === ------
Net change in net interest
income $1,432
======
</TABLE>
<PAGE>
STATEMENTS OF OPERATIONS AND INCOME
GENERAL. Net income increased 18.6% and 18.1% for the second
quarter of 1998 and the first six months of 1998
respectively, as compared to the same periods in 1997. The
increase was primarily the result of increased interest-
earning assets outstanding non-interest income and gains on
sales of loans.
INTEREST INCOME. Interest income on mortgage loans increased
$509,000 in the second quarter of 1998 and $1,125,000 for the
first six months of 1998, as compared to the same periods in
1997 as a result of the increased dollar amount of mortgage
loans outstanding and the increased average yield on the
mortgage portfolio. The average mortgage loans outstanding
for the six months ended June 30, 1998, increased 6.1% as
compared to the same period in 1997.
However, since the beginning of 1998, First Northern has been
reducing the level of upward interest rate adjustments or in
some cases, de-escalating interest rate adjustable mortgage
loans in response to the current interest rates on fixed and
adjustable mortgage loans. The current interest rate
environment also has made fixed interest rate mortgage loans
more popular. In the first six months of 1998, $60.2 million
of fixed interest rate mortgage loans were originated as
compared to $7.8 million in the first six months of 1997.
Interest income on consumer loans increased $285,000 in the
second quarter of 1998 and $641,000 in the first six months
of 1998 as compared to the same periods in 1997, as a result
of increased consumer loans outstanding. Average consumer
loans outstanding increased $17.6 million in the first six
months of 1998 as compared to the same period in 1997. This
increase in average consumer loans outstanding is the result
of increased purchases of indirect automobile loans from SFC,
increased second mortgage loan originations ( a result of
redesigning the open line-of-credit second mortgage loan
product) and increased originations of other consumer loans.
The average yield on consumer loans decreased slightly for
the first six months of 1998 as compared to the same in 1997
as a result of overall market interest rates declining.
Average investment securities outstanding increased $4.3
million for the first six months of 1998 as compared to the
first six months of 1997 which resulted in an increase in
investment securities income of $124,000. Interest income on
investment securities increased $46,000 for the second
quarter of 1998 as compared to the same period in 1997 as a
result of increased investment securities outstanding. First
Northern purchases investment securities when it
incrementally adds to the overall profitability of the
Company and to aid in its asset and liability management.
Interest income on mortgage-related securities decreased in
the second quarter of 1998 and the six months ended June 30,
1998, as compared to same periods in 1997 as a result of
decreased mortgage-related securities outstanding. Mortgage-
related securities outstanding decreased as a result of pre-
payments to the mortgage loans underlying the securities.
INTEREST EXPENSE. Interest expense on deposits increased
$470,000 in the second quarter of 1998 and $946,000 for the
first six months of 1998 as compared to the same periods in
1997 as a result of increased deposits outstanding and
increased cost of deposits. First Northern has utilized
various time deposit terms and "special" interest rates on
those various time deposit terms to attract new deposits. In
addition, the Savings Bank has acquired jumbo deposits to aid
its deposit growth (See Financial Condition Balance Sheet
Deposits).
Interest expense on borrowing increased $221,000 in the
second quarter of 1998 and $595,000 for the six months ended
June 30, 1998, as compared to the same periods in 1997 as a
result of increased average borrowings outstanding. First
Northern anticipates it will continue to emphasize growth in
interest-earning assets and will fund a portion of this
growth with borrowings if it incrementally adds to the
profitability to the Company. First Northern primarily
borrows from the Federal Home Loan Bank of Chicago and
ladders the borrowings maturities from overnight to 10 years.
PROVISION FOR LOAN LOSSES. First Northern increased its
provision for loan losses in the second quarter of 1998 and
the first six months of 1998 as a result of changes within
the composition of the loan portfolio and growth in the loan
portfolio. The loan loss allowance as of June 30, 1998, was
$3,347,000 or .55% of total loans and 506.4% of non-
performing loans.
Management believes that the current loan loss allowance is
adequate; however, the adequacy of the loan loss allowance is
reviewed as historical loan loss experience changes, the size
and composition of the loan portfolio changes, changes occur
in the general economy and as may otherwise be deemed
necessary.
NON-INTEREST INCOME. Fees on serviced loans for the second
quarter of 1998 and the first six months of 1998 decreased
primarily as a result of the amortization of mortgage
servicing assets in accordance with generally accepted
accounting principles. As the principal of a mortgage loan
which was sold (with servicing retained), repays or prepays,
the mortgage servicing asset is reduced and netted from fees
on serviced loans, thereby reducing the income on the
serviced loans.
Deposit account service charges increased $11,000 in the
second quarter of 1998 and $21,000 for the six months ended
June 30, 1998, primarily as a result of debit card fee
income. Each time a Savings Bank debit card is used, a fee,
which varies with each merchant, is paid to the Savings Bank
by the debit card company. The Savings Bank promotes the use
of its debit card by direct mail.
Gains on the sale of loans increased substantially in the
second quarter of 1998 and the first six months of 1998 as
compared to the first quarter of 1997 as a result of
increased loan sales. (See Financial Condition--Balance
Sheet--Loan Receivable)
Other non-interest income increased $140,000 in the three
months ended June 30, 1998 and $276,000 in the first six
months of 1998, as compared to the same periods in 1997,
primarily as the result of BOLI. In December of 1997, First
Northern purchased $7.4 million of life insurance to
partially offset the future cost of employee benefits.
NON-INTEREST EXPENSE. Compensation expense increased $85,000
in the second quarter of 1998 as a result of salary increases
and accruals for the directors deferred retirement plan and
officers supplemental retirement plan.
Occupancy expenses decreased for the second quarter and first
six months of 1998 as compared to the same periods in 1997
primarily as the result of the reduced amount of landscape
maintenance. In 1997, landscape maintenance expense was
increased as a result of refurbishing the landscape at a
number of offices.
Data processing expense increased $8,000 in the second
quarter of 1998 and $34,000 in the first six months of 1998
primarily as the result of the PC based teller system
installed in 1997 and its related expenses.
Furniture and equipment expense decreased $5,000 in the three
months ended June 30, 1998 and $20,000 in the six months
ended June 30, 1998, primarily as a result of a reduction in
furniture and equipment depreciation. A number of pieces of
furniture were fully depreciated in the fourth quarter of
1997, thereby reducing the depreciation expense on an ongoing
basis.
Marketing expense for the second quarter and the first six
months of 1998 increased substantially as a result of
increased advertising and marketing of deposits and loan
products. First Northern believes that growth in lending and
deposit volumes necessitates increased marketing of those
products and hence, increased marketing costs.
Other expenses increased for the three and six months ended
June 30, 1998, as compared to the same periods in 1997
primarily as a result of increased costs associated with the
operations of SFC, professional fees and costs associated
with the debit-card.
INCOME TAXES. The effective income tax rate for the second
quarter of 1998 was 33.7% as compared to 38.0% in the second
quarter of 1997 and 35.0% for the six months ended June 30,
1998, as compared to 37.9% for the six months ended June 30,
1997. The decrease in effective income tax rate in the
second quarter of 1998 and the first six months of 1998 was
the result of the purchase of BOLI. Since the Company
intends to hold the life insurance policies until the
participants death, BOLI interest income is not taxable. In
addition, First Northern moved its indirect automobile loan
portfolio to FNII at the beginning of the second quarter
which has reduced state franchise taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Federal regulations historically have required the Savings
Bank to maintain minimum levels of liquid assets. The
required percentage has varied from time to time based upon
economic conditions and savings flows, and is currently 5% of
net withdrawable deposits and borrowings payable on demand or
in one year or less during the preceding calendar month.
Liquid assets for purposes of this ratio include cash,
certain time deposits, U.S. Government and agency securities
and other obligations generally having remaining maturities
of less than five years. The Savings Bank has historically
maintained its liquidity ratio at a level in excess of that
required by the Office of Thrift Supervision ("OTS"). The
Savings Bank's monthly average liquidity ratio at June 30,
1998, was 6.19%, as compared to 5.67% at December 31, 1997.
The liquidity ratio increased slightly as compared to the
liquidity ratio at December 31, 1997, as a result of the
purchase of investment securities. The Savings Bank believes
that its maintenance of excess liquidity, above the 5%
federally required total liquidity ratio, is an appropriate
strategy to aid in proper asset and liability management.
Liquidity management is both a daily and long-term
responsibility of management. The Savings Bank adjusts its
investments in liquid assets based upon managements'
assessment of:
(i) expected loan demand; (ii) expected deposit flows; (iii)
yields available on interest-earning deposits; and (iv) the
objectives of its asset and liability management program.
Excess liquidity is invested generally in interest-earning
overnight deposits and other short-term government and agency
obligations. When the Savings Bank requires funds beyond its
ability to generate them internally, it can borrow funds from
the FHLB of Chicago or other sources. The FHLB of Chicago
limits advances to member institutions to an aggregate amount
not to exceed 35% of the member institution's total assets.
Wisconsin law permits First Northern, without the prior
written approval of the Wisconsin Department of Financial
Institutions --- Division of Savings Institutions, to borrow
in the aggregate amount not to exceed 50% of its total
assets.
CAPITAL RESOURCES AND REGULATORY INFORMATION
First Northern's net worth to total assets ratio at June 30,
1998, for State of Wisconsin regulatory requirements was
10.30% or 4.30% over the Wisconsin minimum legal requirement
of 6.00% of total assets established by the Division of
Savings Institutions of the Department of Financial
Institutions, which regulates First Northern. The OTS
capital rules require savings associations to meet three
separate capital standards: (i)Tangible capital equal to 1.5%
of adjusted total assets; (ii) Core capital equal to 3% of
adjusted total assets; and (iii) Risk-based capital equal to
8.0% of the value of risk weighted assets.
As of June 30, 1998, the most recent notification from the
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 June 30, 1998, that the Savings Bank exceeds
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
categorization as well capitalized.
The Savings Bank's required and actual capital amounts and
ratios are presented in the following table.
<TABLE>
<CAPTION>
To Be Well
Maximum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
As of June 30, 1998:
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $66,520 9.7% $10,328 1.5% N/A N/A
(to Tangible Assets)
Core Capital 66,520 9.7% 20,656 3.0% $34,419 5.0%
(to Tangible Assets)
Risk-Based Capital 69,867 15.7% 35,489 8.0% 44,362 10.0%
(to Risk-Weighted Assets)
State of Wisconsin Capital 71,132 10.3% 41,420 6.0% 41,420 6.0%
(to Total Assets)
As of December 31, 1997:
Tangible Capital $68,073 10.2% $ 9,988 1.5% N/A N/A
(to Tangible Assets)
Core Capital 68,073 10.2% 19,976 3.0% 33,293 5.0%
(to Tangible Assets)
Risk-Based Capital 71,250 16.7% 34,232 8.0% 42,790 10.0%
(to Risk-Weighted Assets)
State of Wisconsin Capital 72,318 10.8% 40,062 6.0% 40,062 6.0%
(to Total Assets)
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At First Northern's Annual Meeting of Stockholders
held on April 22, 1998, all of the Board of Directors'
nominees named in the tabulation of votes below were
elected as directors, by the votes cast for and
withheld with respect to each nominee indicated, to
serve for a three year term for the class of directors
whose terms expire in 2001. There was no solicitation
in opposition to the nominees proposed in the Proxy
Statement and there were no abstentions or broker non-
votes with respect to the election of directors.
NAME OF NOMINEE FOR WITHHELD
Directors with terms expiring in 2001
Michael D. Meeuwsen 7,676,460 83,210
J. Gus Swoboda 7,675,882 87,268
Messrs. Howard M. Frankenthal, Robert J. Mettner and Richard C. Smits
terms as directors continue until 1999. Messrs. Thomas J. Lopina, Sr.
and Robert B. Olson terms as directors continue until 2000.
ITEM 5. OTHER INFORMATION
DEADLINES FOR SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934,
as amended effective June 29, 1998:
(1) The deadline for submitting shareholder
proposals for inclusion in the Company's proxy
statement and form of proxy for the Company's
1999 annual meeting of shareholders pursuant
to Rule 14a-8 is November 17, 1998.
(2) The date after which notice of a shareholder
proposal submitted outside the processes of
Rule 14a-8 is considered untimely is February
17, 1999.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Exhibit Index following the signature page of
this report, which is incorporated herein by reference.
(b) Reports on Form 8-K:
No Form 8-K was filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
-----------------------------------
(Registrant)
Date: August 13, 1998 /s/Rick B. Colberg
----------------------- ----------------------------------
Rick B. Colberg
Vice President and Chief Financial Officer
(Mr. Colberg is also duly authorized
to sign on behalf of registrant)
<PAGE>
FIRST NORTHERN CAPITAL CORP.
(THE "REGISTRANT")
COMMISSION FILE NO. 0-27982
* * * * *
EXHIBIT INDEX
TO
SECOND QUARTER 1998 REPORT ON FORM 10-Q
Exhibit Incorporated Herein Filed or Submitted
Number Description By Reference To Herewith
- - -----------------------------------------------------------------------------
11.1 Statement regarding computation
of per share earnings X
27.1 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange
Commission for information
only and not filed. X
27.2 Restated Financial Data Schedule for the
six months ending June 30, 1997, due to the
adoption of FAS 128 in fiscal year 1998,
which is submitted electronically to the
Securities and Exchange Commission
for information only and not filed.
<PAGE>
Exhibit 11.1
First Northern Capital Corp.
Computation of Net Income Per Common Share
</TABLE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
BASIC:
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding during each period 8,893,787 8,838,657 8,900,048 8,828,615
========= ========= ========= =========
DILUTED:
Weighted average common shares
outstanding during each period 8,893,787 8,838,657 8,900,048 8,828,615
Incremental shares relating to:
Dilutive stock options outstanding
at end of each period (1) 257,836 210,462 260,122 204,922
--------- --------- --------- ---------
9,151,623 9,049,119 9,160,170 9,033,537
========= ========= ========= =========
NET INCOME FOR EACH PERIOD $1,730,089 $1,459,119 $3,359,501 $2,844,186
========== ========== ========== ==========
PER COMMON SHARE AMOUNTS:
Basic net income $0.19 $0.16 $0.38 $0.32
===== ===== ===== =====
Diluted net income $0.19 $0.16 $0.37 $0.31
===== ===== ===== =====
</TABLE>
- - -------------------------
Notes:
(1) Based on treasury stock method using average market
price.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of First Northern Capital Corp. for the
six months ended June 30, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,532
<INT-BEARING-DEPOSITS> 953
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,756
<INVESTMENTS-CARRYING> 31,157
<INVESTMENTS-MARKET> 31,271
<LOANS> 614,744<F1>
<ALLOWANCE> 3,347
<TOTAL-ASSETS> 690,372
<DEPOSITS> 507,823
<SHORT-TERM> 11,331
<LIABILITIES-OTHER> 4,621
<LONG-TERM> 84,775
0
0
<COMMON> 9,135
<OTHER-SE> 66,073
<TOTAL-LIABILITIES-AND-EQUITY> 75,208
<INTEREST-LOAN> 11,567
<INTEREST-INVEST> 682
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,249
<INTEREST-DEPOSIT> 5,743
<INTEREST-EXPENSE> 7,136
<INTEREST-INCOME-NET> 5,113
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,491
<INCOME-PRETAX> 2,609
<INCOME-PRE-EXTRAORDINARY> 2,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,730
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 3.14
<LOANS-NON> 661
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,268
<CHARGE-OFFS> 32
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 3,347
<ALLOWANCE-DOMESTIC> 3,347
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>See financial statements and notes thereto in Form 10-Q.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the unaudited financial statements of First Northern Capital Corp. for
the six months ended June 30, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 6,733
<INT-BEARING-DEPOSITS> 99
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,039
<INVESTMENTS-CARRYING> 29,374
<INVESTMENTS-MARKET> 29,294
<LOANS> 572,191<F1>
<ALLOWANCE> 3,043
<TOTAL-ASSETS> 637,725
<DEPOSITS> 477,889
<SHORT-TERM> 7,894
<LIABILITIES-OTHER> 10,628
<LONG-TERM> 68,925
0
0
<COMMON> 71,889
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 637,725
<INTEREST-LOAN> 10,773
<INTEREST-INVEST> 642
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,415
<INTEREST-DEPOSIT> 5,273
<INTEREST-EXPENSE> 6,444
<INTEREST-INCOME-NET> 4,971
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,334
<INCOME-PRETAX> 2,354
<INCOME-PRE-EXTRAORDINARY> 1,459
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,459
<EPS-PRIMARY> .32<F2>
<EPS-DILUTED> .31<F2>
<YIELD-ACTUAL> 3.28
<LOANS-NON> 296
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,987
<CHARGE-OFFS> 15
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 3,043
<ALLOWANCE-DOMESTIC> 3,043
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>See financial statements and notes thereto in Form 10-Q.
<F2>Restated for the six months ending June 30, 1997, due to the adoption of
FAS 128 in the fiscal year 1998.
</FN>
</TABLE>
