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 March 31, 1999
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 8,747,459, at April 30, 1999.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial
Condition as of March 31, 1999
and December 31, 1998. . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Income
for the Three Months Ended
March 31, 1999 and March 31, 1998. . . . . . . . . 4
Unaudited Consolidated Statement of
Changes in Stockholders' Equity
for the Three Months Ended
March 31, 1999 and March 31, 1998. . . . . . . . . 5
Unaudited Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1999 and March 31, 1998. . . . . . . . . 6
Notes to Unaudited Consolidated
Financial Statements . . . . . . . . . . . . . 7 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . 10 - 25
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . .26
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . .26
Signatures . . . . . . . . . . . . . . . . . . . . . . . .27
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -------------------
(In Thousands)
ASSETS
<S> <C> <C>
Cash $ 5,419 $ 6,350
Interest-earning deposits 694 861
-------- --------
CASH AND CASH EQUIVALENTS 6,113 7,211
Securities available-for-sale, at fair value
Investment securities 8,486 9,205
Mortgage-related securities 981 996
Securities held-to-maturity
Investment securities
(estimated fair value of
$25,597,000 - 1999;
$23,935,000 - 1998) 25,521 23,741
Mortgage-related securities
(estimated fair value of
$11,015,000 - 1998;
$11,594,000 - 1997) 10,964 11,522
Loans held for sale 4,230 3,075
Loans receivable 637,349 631,739
Accrued interest receivable 3,804 3,686
Foreclosed properties and
repossessed assets 130 106
Office properties and equipment 7,460 7,573
Federal Home Loan Bank stock 5,750 5,250
Life insurance policies 12,764 12,514
Prepaid expenses and other assets 3,758 3,095
-------- --------
$727,310 $719,713
======== ========
Liabilities
Deposits $546,122 $542,372
Borrowings 96,137 91,977
Advance payments by borrowers for
taxes and insurance 3,058 3,433
Other liabilities 5,558 5,838
-------- --------
TOTAL LIABILITIES 650,875 643,620
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 - 1999;
9,134,735 - 1998
shares outstanding: 8,752,459 - 1999;
8,764,945 - 1998 9,135 9,135
Additional paid-in capital 8,835 9,126
Unrealized gains on securities
available-for-sale, net of taxes 819 960
Treasury stock at cost
(382,276 shares - 1999;
369,790 shares - 1998) (3,847) (3,710)
Retained earnings 61,493 60,582
-------- --------
TOTAL STOCKHOLDERS' EQUITY 76,435 76,093
-------- --------
$727,310 $719,713
======== ========
</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
March 31
1999 1998
-------- --------
(In Thousands,
Except Per Share Amounts)
Interest income:
<S> <C> <C>
Mortgage loans $ 8,557 $ 8,214
Consumer loans 3,177 3,245
Investment securities 545 497
Interest-earning deposits 18 16
Mortgage-related securities 185 175
------- -------
TOTAL INTEREST INCOME 12,482 12,147
Interest expense:
Deposits 5,730 5,537
Borrowings 1,398 1,530
Advance payments by borrowers
for taxes and insurance 12 12
------- -------
TOTAL INTEREST EXPENSE 7,140 7,079
------- -------
NET INTEREST INCOME 5,342 5,068
Provision for loan losses 60 105
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,282 4,963
Non-interest income:
Fees on serviced loans 36 44
Loan fees and service charges 53 58
Deposit account service charges 316 299
Insurance commissions 60 107
Gains on sales of loans 168 196
Other 287 284
------- -------
TOTAL NON-INTEREST INCOME 920 988
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 1,854 1,807
Federal insurance premiums 81 76
Occupancy 241 233
Data processing 391 364
Furniture and equipment 103 110
Telephone and postage 121 126
Marketing 115 98
Other 582 581
------- -------
TOTAL NON-INTEREST EXPENSE 3,488 3,395
------- -------
INCOME BEFORE INCOME TAXES 2,714 2,556
Income taxes 923 927
------- -------
NET INCOME $ 1,791 $ 1,629
======= =======
BASIC NET INCOME PER SHARE $0.20 $0.18
===== =====
DILUTED NET INCOME PER SHARE $0.20 $0.18
===== =====
CASH DIVIDENDS PAID PER SHARE $0.10 $0.09
===== =====
</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 Three Months Ended March 31, 1999
- - -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $9,135 $9,126 $ 960 $(3,710) $60,582 $76,093
Comprehensive income:
Net income 1,791 1,791
Other Comprehensive Income:
Change in net unrealized gain
on securities available-for-
sale, net of income taxes (141) (141)
-------
Total comprehensive income 1,650
Cash dividends ($.10 per share) (880) (880)
Purchase of treasury stock (632) (632)
Exercise of stock options (291) 495 204
------ ------ ---- ------- ------- -------
Balance at March 31, 1999 $9,135 $8,835 $819 $(3,847) $61,493 $76,435
====== ====== ==== ======= ======= =======
For the Three Months Ended March 31, 1998
- - -----------------------------------------
Balance at January 1, 1998 $9,136 $9,438 $614 $(2,316) $56,945 $73,817
Comprehensive income:
Net income 1,629 1,629
Other Comprehensive Income:
Change in net unrealized gain
on securities available-for-
sale, net of income taxes 84 84
------
Total comprehensive income 1,713
Cash dividends ($.09 per share) (803) (803)
Retirement of common stock (1) (17) (18)
Purchase of treasury stock (68) (68)
Exercise of stock options (124) 638 514
------ ------ ---- ------- ------- -------
Balance at March 31, 1998 $9,135 $9,297 $698 $(1,746) $57,771 $75,155
====== ====== ==== ======= ======= ======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
------------ ------------
(In Thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,791 $ 1,629
Adjustments to reconcile
net income to cash provided
(used) by operating activities:
Provision for losses on loans 60 215
Provision for depreciation
and amortization 214 215
Gains on sales of loans (168) (196)
Loans originated for sale (10,795) (17,580)
Proceeds from loan sales 9,808 12,761
(Increase) decrease in
interest receivable (118) 78
Increase (decrease) in
interest payable (3) 179
Other (1,080) 555
--------- --------
NET CASH USED BY OPERATING ACTIVITIES (291) (2,144)
INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities 4,000 4,953
Purchases of investment securities (5,283) (5,256)
Principal repayments of
mortgage-related securities 563 1,284
Net increase in loans receivable (5,716) (474)
Purchases of office properties
and equipment (101) (150)
Purchase of Federal Home
Loan Bank stock (500) (500)
--------- --------
NET CASH USED BY
INVESTING ACTIVITIES (7,037) (143)
FINANCING ACTIVITIES:
Net increase in deposits 3,753 12,941
Net increase (decrease) in
short-term borrowings 7,135 (12,050)
Proceeds from long term borrowings 2,025 8,050
Repayments of long term borrowings (5,000) (1,000)
Cash dividends paid (880) (803)
Purchase of treasury stock (632) (68)
Retirement of common stock (18)
Proceeds from exercise of
stock options 204 514
Net decrease in advance payments by
borrowers for taxes and insurance (375) (852)
--------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,230 6,714
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,098) 4,427
Cash and cash equivalents at
beginning of period 7,211 964
--------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 6,113 $ 5,391
========= ========
Supplemental Information to the Statement of Cash Flows:
Interest credited and paid on deposits $5,733 $5,358
Interest paid on borrowings 1,361 1,480
Payments for federal and state income taxes 165 172
Loans transferred to foreclosed properties
and repossessed assets 82 116
</TABLE>
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 March 31, 1999 and December 31, 1998, the results of their
income for the three months ended March 31, 1999 and 1998, the changes in
stockholders' equity for the three months ended March 31, 1999 and 1998, and
their cash flows for the three months ended March 31, 1999 and 1998. The
accompanying Unaudited Consolidated Financial Statements and related notes
should be read in conjunction with First Northern's 1998 Annual Report on
Form 10-K.
<PAGE>
(3)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 March 31, 1999:
<S> <C> <C> <C> <C>
Asset Management Funds $ 542 $ (6) $ 536
Federal Home Loan Mortgage
Corporation stock 33 $1,343 1,376
U.S. government and
agency securities 6,537 56 (19) 6,574
------ ------ ---- ------
7,112 1,399 (25) 8,486
Mortgage-related securities 995 (14) 981
------ ------ ---- ------
$8,107 $1,399 $(39) $9,467
====== ====== ==== ======
At December 31, 1998:
Asset Management Funds $ 535 $(1) $ 534
Federal Home Loan Mortgage
Corporation stock 33 $1,513 1,546
U.S. government and
agency securities 7,041 88 (4) 7,125
------ ------ --- -------
7,609 1,601 (5) 9,205
Mortgage-related securities 998 (2) 996
------ ------ --- -------
$8,607 $1,601 $(7) $10,201
====== ====== === =======
</TABLE>
(4) 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 March 31, 1999 $25,521 $122 $(46) $25,597
======= ==== ==== =======
At December 31, 1998 $23,741 $205 $(11) $23,935
======= ==== ==== =======
At March 31, 1999, these investment securities have the following maturities:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 5,971 $ 6,001
Due after one year through 5 years 13,249 13,317
Due after 5 years through 10 years 6,301 6,279
------- -------
$25,521 $25,597
======= =======
</TABLE>
<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 March 31, 1999:
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation $ 7,015 $46 $(4) $ 7,057
Federal National
Mortgage Association 3,949 13 (4) 3,958
------- --- --- -------
$10,964 $59 $(8) $11,015
======= === === =======
At December 31, 1998:
Federal Home Loan
Mortgage Corporation $ 7,347 $61 $ 7,408
Federal National
Mortgage Association 4,175 19 $(8) 4,186
------- --- --- --------
$11,522 $80 $(8) $11,594
======= === === =======
</TABLE>
(6) Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
(In Thousands)
First mortgage loans:
<S> <C> <C>
One to four family residential $423,546 $416,974
Five or more family residential 31,923 32,013
Commercial real estate 8,349 7,546
Construction-residential 23,784 25,467
Construction-commercial 5,673 4,470
Other 2,881 3,129
-------- --------
496,156 489,599
Consumer loans:
Consumer 18,593 18,416
Second mortgage 67,893 66,426
Automobile 70,875 73,502
-------- --------
157,361 158,344
-------- --------
653,517 647,943
Less:
Undisbursed loan proceeds 11,756 11,750
Allowance for losses 3,566 3,531
Unearned loan fees 846 923
-------- --------
16,168 16,204
-------- --------
$637,349 $631,739
======== ========
</TABLE>
(7) The weighted average number of shares outstanding, including common stock
equivalents, for the three months ended March 31, 1999 and 1998, were
8,986,029 and 9,168,788, respectively.
(8) Certain amounts in 1998 financial statements have been reclassified to
conform to the 1999 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; unforseen
costs and consequences of the Year 2000 problem; and changes in the quality or
composition of the Savings Bank's and FNII's loan and investment portfolios.
FINANCIAL CONDITION
BALANCE SHEET
CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $1.1 million less at
March 31, 1999, as compared to December 31, 1998, primarily as the result of
March not ending on a Friday. If the end of a reporting period ends on a Friday
or near a holiday, customers will make deposits to their demand deposit accounts
and thereby increasing cash. Any cash that is not immediately needed to fund
loans or operations is invested in overnight interest-earning deposits or used
to repay short-term borrowings.
SECURITIES AVAILABLE-FOR-SALE. Investment securities available-for-sale
decreased approximately $0.7 million as of March 31, 1999, as compared to
December 31, 1998, primarily as the result of investment securities being
called for redemption by the originator of the debt security.
Mortgage-related securities available-for-sale decreased slightly at
March 31, 1999, as compared to December 31, 1998, as a result of prepayments and
repayments of the underlying mortgage loans.
SECURITIES HELD-TO-MATURITY. Investment securities held-to-maturity increased
$1.8 million primarily as a result of purchases of U.S. Government and agency
securities.
Mortgage-related securities held-to-maturity decreased $0.6 million as a result
of prepayments and repayments of the underlying mortgage loans.
LOANS HELD FOR SALE. At March 31, 1999, First Northern had $4.2 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 and
twenty (20) year fixed interest rate mortgage loan originations are retained
in First Northern's loan portfolio.
LOANS RECEIVABLE. Loans receivable increased $5.6 million at March 31, 1999, as
compared to December 31, 1998, as a result of mortgage loan originations and
purchases and reduced prepayments or refinancing of mortgage loans. Loan
originations and purchases are as follows:
LOAN ORIGINATIONS AND PURCHASES
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1999 1998
------------ ------------
(In Thousands)
<S> <C> <C>
Mortgage loans originated and purchased:
Construction $ 8,821 $ 4,012
Loans on existing property 8,707 10,186
Refinancing 29,202 37,779
Other loans 241 296
------- -------
Total mortgage loans originated
and purchased 46,971 52,273
Consumer loans originated and purchased:
Consumer 1,753 1,815
Second mortgage 9,129 8,062
Automobile 11,857 11,293
Education 950 946
------- -------
Total consumer loans originated
and purchased 23,689 22,116
------- -------
Total loans originated and purchased $70,660 $74,389
======= =======
</TABLE>
Mortgage loan originations and purchases decreased $5.3 million for the first
quarter of 1999 as compared to the same period in 1998 primarily as the result
of decreased refinancing of existing First Northern mortgage loans and a
decrease in the purchase mortgage market for existing homes. Construction loan
originations primarily increased as a result of increased construction activity
in First Northern's market. The decrease in total originations is the result
of mortgage loan interest rates on fixed interest rate mortgage loans
increasing from historical low levels in 1998.
Consumer loan originations and purchases increased $1.6 million in the first
quarter of 1999 as compared to the first quarter in 1998 primarily as the result
of the increase in second mortgage loan originations and indirect automobile
originations from SFC. Second mortgage originations have increased as a result
of: (i) management's emphasis; (ii) increased marketing; and (iii) the use of
an introductory interest rate for a line-of-credit product secured by a second
mortgage. SFC increased its automobile originations by continued personalized
service and competitive interest rates.
<PAGE>
LOAN SALES
Three Months Ended
March 31
1999 1998
------ ------
(In Thousands)
Mortgage Loans $9,639 $11,745
Education Loans 1 820
------ -------
Total Loans Sold $9,640 $12,565
====== =======
Loans sold for the first quarter of 1999 decreased as a result of the reduction
in 30 year fixed interest rate mortgage loans originations and the timing of the
education loan sales.
First Northern retains all adjustable interest rate mortgage loan originations
in its portfolio; retains the majority of 15 and 20 year fixed interest rate
mortgage loans; and sells most 30 year fixed interest rate mortgage loan
originations in the secondary market. First Northern is contractually committed
to sell its existing education loan portfolio and to sell its ongoing
education loan originations.
OFFICE PROPERTIES AND EQUIPMENT. First Northern anticipates that it will enter
into a lease for approximately 14,000 square feet of office space in the third
quarter of 1999. This office space will centralize the mortgage loan servicing,
mortgage and consumer loan origination processing, information systems,
marketing and customer support services departments. The additional leased
space is needed to accommodate growth in these areas. Anticipated total annual
cost of this office space and its associated equipment is approximately $152,000
(after-tax).
LIFE INSURANCE POLICIES. Life insurance policies or bank owned life insurance
("BOLI") increased $0.3 million in the first quarter of 1999 as a result of
the increased value of the policies. BOLI is long-term life insurance on the
lives of certain current and past Savings Bank employees where the insurance
policy benefits and ownership are retained by the Savings Bank. The cash value
accumulation on BOLI is permanently tax deferred if the policy is held to the
participant's death. Management believes this an effective method to help
offset a portion of future employee benefit costs.
DEPOSITS. Deposits increased $3.8 million for the first three months of 1999 as
a result of offering competitive interest rates and the acquisition of "jumbo"
(certificates of deposit in excess of $100,000) 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 $7.0 million in the first quarter of 1999.
BORROWINGS. Federal Home Loan Bank ("FHLB") borrowings increased $4.2 million
in the first three months of 1999, primarily as the result of purchases of
investment securities; growth of the loan portfolio; and funding of payment of
customers' real estate taxes. First Northern will borrow monies if borrowing is
a less costly form of funding for loans and investments than acquiring deposits.
First Northern anticipates that it will continue to utilize borrowings in 1999
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") decreased $0.4
million at March 31, 1999, as compared to December 31, 1998. The decrease in
escrow dollars was the result of the payment of First Northern's customers' tax
payments from customers' real estate tax escrow accounts.
STOCKHOLDERS' EQUITY. First Northern paid a cash dividend of $0.10 per share on
February 15, 1999, to stockholders of record on February 1, 1999. The increase
of $0.01 per share represents an 11.1% increase over the first quarter of 1998
cash dividend of $0.09 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) in the open
market. These repurchased shares will be used to satisfy exercises of stock
options. On March 19, 1999, the third stock repurchase program was extended
to March 20, 2000, or until the authorized number of shares or dollar amount
is used. At March 31, 1999, 239,700 shares had been purchased at an average
price of $12.60 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 March 31 At December 31
1999 1998
----------- --------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual mortgage loans $1,030 $223
Non-accrual consumer loans 129 123
------ ----
Total non-performing loans 1,159 346
Properties subject to foreclosure 68 68
Foreclosed properties and
repossessed assets 62 38
------ ----
Total non-performing assets $1,289 $452
====== ====
Non-performing loans as a percent
total loans .18% .05%
=== ===
Non-performing assets as a percent
of total assets .18% .06%
=== ===
</TABLE>
Total non-performing loans increased as of March 31, 1999, as compared to
December 31, 1998, 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 March 31, 1999, 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, meaning the loans are secured by
real estate or other collateral located in the continental United States.
A summary of the allowance for losses is shown below.
<TABLE>
<CAPTION>
LOAN LOSS ALLOWANCES
At and for the At and for the
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
------------------- -----------------
(Dollars in Thousands)
Mortgage Loans:
<S> <C> <C>
Balance at the beginning of the period $1,813 $1,624
Provisions for the period 48 186
Recoveries:
One to four family residential (1)
Commercial real estate 4
------ ------
Balance at the end of the period 1,861 1,813
Consumer Loans:
Balance at the beginning of the period 1,718 1,553
Provisions for the period 12 234
Charge-offs:
Consumer (15) (47)
Automobile (17) (52)
------ ------
Total charge-offs 32 99
Recoveries:
Consumer 2 7
Automobile 5 23
------ ------
Total recoveries 7 30
------ ------
Net charge-offs 25 69
------ ------
Balance at the end of the period 1,705 1,718
------ ------
Total loan loss allowances at the
end of the period $3,566 $3,531
====== ======
Allowance as a percent of total loans 0.56% 0.56%
==== ====
Allowance as a percent of non-performing loans 307.68% 1,020.52%
====== ========
Allowance as a percent of total assets 0.49% 0.49%
==== ====
Allowance as a percent of
non-performing assets 276.65% 781.19%
====== ======
</TABLE>
IMPACT OF YEAR 2000
Historically, 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 operations 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 mission critical computer functions to Fiserv, Inc. ("Fiserv"), a
Brookfield, Wisconsin based financial service bureau. Because Year 2000
problems could affect Fiserv, and hence the Savings Bank through its
relationship with Fiserv, the Savings Bank has been engaged in ongoing
discussions with Fiserv concerning potential Year 2000 problems. 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 December 31, 1998, Fiserv has advised First Northern that it has
fully tested and renovated its systems for Year 2000 issues. Client testing,
in which First Northern participated on October 11, 1998 and February 7, 1999,
revealed no unresolved issues.
Due to the interdependence of First Northern's systems with other third party
systems, there are risks of specific service outages if these parties do not
sufficiently secure their systems from Year 2000 issues. First Northern is
corresponding with these vendors regarding the Year 2000 status of their
systems. In addition to internal testing, where possible, coordinated Year 2000
testing will take place with the third party service providers that have
systems interfaced with First Northern's systems. These third parties
include, but are not limited to, telephone/data service providers, public
utilities, the Federal Reserve, credit bureaus, credit card servicers, ATM
networks, etc.
Based on recent assessments, First Northern has determined that it will be
required to modify or replace certain portions of its software and hardware so
that its Systems will function properly with respect to dates on or after
September 9th, 1999 ("9/9/99"). It is currently anticipated that these
modifications will not exceed a total of $170,000 (pre-tax). At the end of
March, 1999, approximately $130,000 has been spent on new equipment,
software and miscellaneous expenses for Year 2000. First Northern does not
separately track the internal costs incurred for the Year 2000 project, and
that such costs are primarily payroll costs for its information system staff.
First Northern presently believes that with these modifications, Year 2000
issues will not pose significant operational problems for its Systems. If such
modifications and conversions are not made, or are not completed in a timely
manner, the Year 2000 could have an adverse impact on the operations of First
Northern.
First Northern has currently completed the inventory, assessment and analysis,
and renovation phases of its Year 2000 project. The testing and contingency
planning phases for critical systems were completed by the end of the first
quarter of 1999. At March 31, 1999, the overall testing phase (including
non-critical systems) is approximately 80% completed and the overall contingency
planning phase (including non-critical systems) is approximately 70% completed.
Contingency Planning (developing backup procedures to be used in the event of
unforeseen problems) is primarily focused on critical systems. This planning
not only addresses systems issues, but also operational issues such as the cash
needs of our customers.
<TABLE>
<CAPTION>
Year 2000 Initiative Percent Time
Complete Frame
<S> <C> <C>
Inventory and Assessment (List all systems affected by Y2K) . . . . . .100% 11/97-04/98
Analysis (Document systems status for Y2K compliance) . . . . . . . . .100% 01/98-08/98
Renovation (Upgrade non-compliant systems to be Y2K ready). . . . . . .100% 03/98-06/99
Testing (Simulate operations with dates advanced beyond 01/01/2000) . . 80% 05/98-06/99
Contingency Planning (Develop backup plans for critical systems). . . . 70% 06/98-06/99
</TABLE>
Overall, First Northern estimates that 97% of the Year 2000 project has been
completed as of March 31, 1999.
First Northern has used internal resources to reprogram, upgrade or replace and
test its internal Systems. Internal resources have also been used to renovate
Savings Financial Corporation (SFC), a partially owned subsidiary operating in
Hales Corners, Wisconsin.
Even though internal resources are being used to prepare for Year 2000 causing
some other projects to be delayed, First Northern believes there are benefits to
operations through the renovations that have taken place.
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 by 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 three months
ended March 31, 1999 and 1998 have been annualized.
<TABLE>
<CAPTION>
Three Months Ended March 31
1999 1998
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 $482,918 $ 8,557 7.09% $442,440 $8,214 7.43%
Consumer loans 159,373 3,177 7.97 159,304 3,245 8.15
Investment securities (2) 36,828 545 5.92 31,800 497 6.25
Interest-earning deposits 1,677 18 4.29 1,107 16 5.78
Mortgage-related securities (2) 12,287 185 6.02 11,027 175 6.35
-------- ------- ---- -------- ------ ----
TOTAL 693,083 12,482 7.20 645,678 12,147 7.53
Interest-bearing liabilities:
Passbook accounts 66,110 327 1.98 60,370 331 2.19
NOW and variable rate insured
money market accounts 127,945 739 2.31 109,214 675 2.47
Time deposits 342,364 4,664 5.45 315,448 4,531 5.75
Advance payments by borrowers
for taxes and insurance 1,862 12 2.58 2,021 12 2.38
Borrowings 101,626 1,398 5.50 105,376 1,530 5.81
-------- ------- ---- -------- ------ ----
TOTAL 639,907 7,140 4.46 592,429 7,079 4.78
-------- ------- ---- -------- ------ ----
Net interest-earning assets balance
and interest rate spread $ 53,176 2.74% $ 53,249 2.75%
======== ==== ======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $693,083 $5,342 3.08% $645,678 $5,068 3.14%
======== ====== ==== ======== ====== ====
Average interest-earning assets
to interest-bearing liabilities 108.3% 109.0%
===== =====
</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>
<TABLE>
<CAPTION>
Year Ended December 31
1998
-------------------------
Interest
Average Earned/ Yield/
Balance Paid Rate
------- -------- ------
(Dollars In Thousands)
Interest-earning assets (1):
<S> <C> <C> <C>
Mortgage loans $456,977 $33,510 7.33%
Consumer loans 160,706 13,273 8.26
Investment securities (2) 34,828 2,138 6.14
Interest-earning deposits 2,623 147 5.60
Mortgage-related securities (2) 9,996 622 6.22
-------- ------- ----
TOTAL 665,130 49,690 7.47
Interest-bearing liabilities:
Passbook accounts 63,643 1,364 2.14
NOW and variable rate insured
money market accounts 117,944 2,927 2.48
Time deposits 327,674 18,979 5.79
Advance payments by borrowers
for taxes and insurance 6,680 155 2.32
Borrowings 95,890 5,578 5.82
-------- ------- ----
TOTAL 611,831 29,003 4.74
-------- ------- ----
Net interest-earning assets balance
and interest rate spread $ 53,299 2.73%
======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $665,130 $20,687 3.11%
======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 108.7%
=====
</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>
Three Months Ended March 31
1999 vs 1998
---------------------------------
Increase(decrease) due to:
---------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------- ------ ------ ------
Interest-earning assets:
<S> <C> <C> <C> <C>
Mortgage loans $ (376) $ 753 $ (34) $ 343
Consumer loans (69) 1 (68)
Investment securities (26) 78 (4) 48
Interest-earning deposits (4) 8 (2) 2
Mortgage-related securities (9) 20 (1) 10
------ ----- ----- -----
TOTAL $ (484) $ 860 $ (41) 335
====== ===== ===== -----
Interest-bearing liabilities:
Passbook accounts $ (32) $ 31 $ (3) (4)
NOW and variable rate
insured money market accounts (44) 115 (7) 64
Time deposits (237) 390 (20) 133
Advance payments by borrowers
for taxes and insurance 1 (1)
Borrowings (81) (54) 3 (132)
----- ---- ---- -----
TOTAL $(393) $481 $(27) 61
===== ==== ==== -----
Net change in net interest income $ 274
=====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1998 vs 1997
--------------------------------
Increase(decrease) due to:
--------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------ -------- -------- -------
Interest-earning assets:
<S> <C> <C> <C> <C>
Mortgage loans $(171) $2,250 $(12) $ 2,067
Consumer loans (253) 1,018 (21) 744
Investment securities (55) 360 (11) 294
Interest-earning deposits (2) 110 (6) 102
Mortgage-related securities (16) (99) 2 (113)
----- ------ ---- -------
TOTAL $(497) $3,639 $(48) 3,094
===== ====== ==== -------
Interest-bearing liabilities:
Passbook accounts $ (36) $ 80 $ (2) 42
NOW and variable rate
insured money market accounts 63 320 8 391
Time deposits 215 1,171 14 1,400
Advance payments by borrowers
for taxes and insurance 5 1 6
Borrowings (99) 788 (16) 673
----- ------ ---- -------
TOTAL $ 148 $2,360 $ 4 2,512
===== ====== ==== -------
Net change in net interest income $ 582
=======
</TABLE>
STATEMENTS OF OPERATIONS AND INCOME
GENERAL. Net income increased 9.9% for the first quarter of 1999, as compared to
the first quarter in 1998 primarily from the increase on interest-earning assets
outstanding.
INTEREST INCOME. Interest income on mortgage loans increased $343,000 in the
first quarter of 1999, as compared to the same period in 1998 as a result of the
increased dollar amount of mortgage loans outstanding. Average mortgage loans
outstanding for the three months ended March 31, 1999, increased $40.5 million
as compared to the same period in 1998.
However, since the end of 1998 and in the first quarter of 1999, First Northern
has been de-escalating interest rate adjustable mortgage loans in response to
the current interest rates on fixed and adjustable interest rate mortgage loans.
This de-escalation strategy along with mortgage loan originations at interest
rates below the average interest rate on the mortgage loan portfolio has
decreased the average interest rate on the mortgage portfolio to 7.09%.
Also, the current interest rate environment has made fixed interest rate
mortgage loans less popular than adjustable interest rate mortgage loans. In
the first quarter of 1999, 55.8% of total mortgage loan originations were
interest rate adjustable.
Interest income on consumer loans decreased $68,000 in the first quarter of 1999
as compared to the same period in 1998, primarily as a result of the decreased
average interest rate earned on the consumer loan portfolio. The average
interest rate earned on the consumer loan portfolio decreased .18% primarily as
the result of the interest rates on originations and purchases being below the
portfolio average interest rate and the prepayment of consumer loans with
interest rates higher than the portfolio average. In addition, overall market
interest rates on consumer loans continued to decline in the first quarter of
1999.
Average investment securities outstanding increased $5.0 million for the first
three months of 1999 as compared to the first three months of 1998 which
primarily resulted in an increase in investment securities income. First
Northern purchases investment securities when it incrementally adds to the
overall profitability of the Company and to aid in its interest rate risk
management. The average interest rates on investment securities decreased as
a result of maturities and securities with call features being called and the
proceeds being reinvested at interest rates below the portfolio average interest
rate.
Interest income on interest-earning deposits increased slightly in the first
quarter of 1999, as compared to the same period in 1998 as a result of
additional dollars being invested overnight and short-term.
Interest income on mortgage-related securities increased $10,000 in the first
quarter of 1999, as compared to the first quarter in 1998 as a result of an
increase in mortgage-related securities outstanding.
INTEREST EXPENSE. Interest expense on deposits increased $193,000 in the first
quarter of 1999 as compared to the same period in 1998 as a result of increased
deposits outstanding. First Northern has utilized various time deposit terms
and "special" interest rates on 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). The
average cost of deposits decreased as a result of overall market interest rates
being less than the cost of maturing deposits and new deposits being at an
interest rate below the average cost of the deposit portfolio.
Interest expense on borrowing decreased $132,000 in the first quarter of 1999 as
compared to the same period in 1998 as a result of decreased average borrowings
outstanding and a decrease in the average cost of borrowings. First Northern
reduced its average borrowings by $3.8 million as a result of loan sales and
increased deposits. The average cost of borrowings decreased as a result of
borrowings maturing and being re-borrowed at interest rates that were less than
the maturing interest rates.
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 staggers the
borrowings' maturities from overnight to 9 years.
PROVISION FOR LOAN LOSSES. First Northern increased its general loan loss
allowances in the first quarter of 1999 as a result of changes within the
composition of the loan portfolio and growth in the loan portfolio. The loan
loss allowance as of March 31, 1999, was $3,566,000 or .56% of total loans and
307.7% 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 first quarter of 1999
decreased primarily as a result of the amortization of the mortgage servicing
asset 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. First
Northern's mortgage loan servicing asset is $679,900.
Deposit account service charges increased $17,000 in the first quarter of 1999
primarily as a result of debit card fee income. Each time First Northern's
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 decreased in the first quarter of 1999 as compared to
the same period in 1998 as a result of decreased loan sales. (See Financial
Condition--Balance Sheet--Loans Receivable)
Other non-interest income increased slightly in the three months ended March 31,
1999 as compared to the same period in 1998, primarily as the result of BOLI,
debit card income and interest on officers life insurance.
NON-INTEREST EXPENSE. Compensation expense increased $47,000 in the first
quarter of 1999 as a result of salary increases and increases in employee
benefit expenses.
Occupancy expenses increased $8,000 for the first quarter as compared to the
same period in 1998 primarily as the result of the increased cost for snow and
ice removal. (See Financial Condition--Balance Sheet--Office Properties and
Equipment)
Data processing expense increased $27,000 in the first quarter of 1999 primarily
as the result of increased: (i) service bureau expense; (ii) depreciation of the
PC based teller system; and (iii) service contracts on data processing
equipment.
Furniture and equipment expense decreased $7,000 in the three months ended
March 31, 1999 primarily as a result of a reduction in furniture and equipment
service contracts. Service contract expense decreased as a result of placing
furniture and equipment under an insurance service agreement thereby eliminating
individual service contracts.
Telephone and postage expense decreased for the first quarter of 1999 as a
result of negotiating a new long distance telephone contract at a reduced cost
to First Northern.
Marketing expense for the first quarter of 1999 increased 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 months ended March 31, 1999, as compared
to the same period in 1998 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 first quarter of 1999 was
34.0% as compared to 36.3% in the first quarter of 1998. The decrease in the
effective income tax rate in the first quarter of 1999 was the result of the
purchase of BOLI and the increase in earnings at FNII which is not subject to
state income taxes . Since First Northern 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 of 1998 which has reduced state
franchise taxes. In March of 1999, First Northern has moved approximately
$56.3 million in mortgage loan participations to FNII to further reduce its
state franchise tax.
Under current law, the state of Wisconsin imposes a corporate franchise tax of
7.9% on the separate taxable incomes of the members of First Northern's
consolidated income tax group except FNII, which is located in Nevada.
Presently, the income of FNII is only subject to taxation in Nevada which
currently does not impose a corporate income or franchise tax. The Wisconsin
1999-2001 State Budget Bill contains a proposal for the adoption of combined
corporate reporting in Wisconsin beginning in the year 2000. If the state
legislature approves the proposal, then substantially all of the income of all
of the members of First Northern's consolidated federal income tax group,
including FNII, will be subject to Wisconsin corporate franchise tax.
<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 March 31, 1999, was
5.55%, as compared to 5.49% at December 31, 1998. The liquidity ratio increased
slightly as compared to the liquidity ratio at December 31, 1998, 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 an 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 March 31, 1999, for State of
Wisconsin regulatory requirements was 10.21% or 4.21% 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 March 31, 1999, 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 March 31, 1999, 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
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
As of March 31, 1999:
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $69,403 9.57% $10,882 1.50% $36,274 5.00%
(to Tangible Assets)
Core Capital 69,403 9.57% 29,019 4.00% 43,529 6.00%
(to Tangible Assets)
Risk-Based Capital 72,969 15.76% 37,046 8.00% 46,308 10.00%
(to Risk-Weighted Assets)
State of Wisconsin Capital 74,232 10.21% 43,637 6.00% N/A N/A
(to Total Assets)
As of December 31, 1998:
Tangible Capital $68,524 9.55% $10,76 11.50% $35,872 5.00%
(to Tangible Assets)
Core Capital 68,524 9.55% 28,697 4.00% 43,046 6.00%
(to Tangible Assets)
Risk-Based Capital 72,054 15.74% 36,620 8.00% 45,775 10.00%
(to Risk-Weighted Assets)
State of Wisconsin Capital 73,413 10.20% 43,181 6.00% N/A N/A
(to Total Assets)
</TABLE>
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See Item 7A. Quantitative and Qualitative Disclosures about
Market Risk in 1998 Form 10-K.
PART II - OTHER INFORMATION
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: May 13, 1999 /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
FIRST QUARTER 1999 REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Filed or Submitted
Number Description By Reference To Herewith
- - -------------------------------------------------------------------------------------- -------------------------
<S> <C>
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
</TABLE>
<PAGE>
Exhibit 11.1
First Northern Capital Corp.
Computation of Net Income Per Common Share
<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------------------
1999 1998
--------- ---------
BASIC:
<S> <C> <C>
Weighted average common shares
outstanding during each period 8,791,342 8,906,380
========= =========
DILUTED:
Weighted average common shares
outstanding during each period 8,791,342 8,906,380
Incremental shares relating to:
Dilutive stock options outstanding at
end of each period (1) 194,687 262,408
--------- ---------
8,986,029 9,168,788
========= =========
NET INCOME FOR EACH PERIOD $1,791,340 $1,629,412
========== ==========
PER COMMON SHARE AMOUNTS:
Basic net income $0.20 $0.18
===== =====
Diluted net income $0.20 $0.18
===== =====
</TABLE>
- - -------------------------
Notes:
(1) Based on treasury stock method using average market price.
<TABLE> <S> <C>
<ARTICLE> 9
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