SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-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, 2000
OR
/x/ 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 (IRS Employer Identification No.)
incorporation or organization)
201 North Monroe Avenue
P.O. Box 23100
Green Bay, WI 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,
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 8,350,808 shares, at July 31, 2000.
<PAGE>
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Unaudited Consolidated Statements of Financial
Condition as of June 30, 2000
and December 31, 1999 3
Unaudited Consolidated Statements of Income
for the Three Months Ended
June 30, 2000 and June 30, 1999 4
Unaudited Consolidated Statements of Income
for the Six Months Ended
June 30, 2000 and June 30, 1999 5
Unaudited Consolidated Statements of
Stockholders' Equity
for the Six Months Ended
June 30, 2000 and June 30, 1999 6
Unaudited Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 2000 and June 30, 19997
Notes to Unaudited Consolidated
Financial Statements 8 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 31
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 32
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 32
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
June 30, 2000 December 31, 1999
------------- -----------------
(In Thousands)
Assets
<S> <C> <C>
Cash $ 10,735 $ 8,043
Interest-earning deposits 499 4,329
---------- ---------
CASH AND CASH EQUIVALENTS 11,234 12,372
Securities available-for-sale, at fair value
Investment securities 10,941 8,444
Mortgage-related securities 5,304 5,554
Securities held-to-maturity
Investment securities
(estimated fair value of $26,440 - 2000;
$25,644 - 1999) 26,920 26,215
Mortgage-related securities
(estimated fair value of $9,442 -
2000; $9,976 - 1999) 9,515 10,048
Loans held for sale 2,083 1,085
Loans receivable 795,094 736,880
Accrued interest receivable 4,852 4,229
Foreclosed properties and repossessed assets 456 382
Office properties and equipment 8,092 7,463
Federal Home Loan Bank stock 12,500 9,250
Life insurance policies 14,076 13,548
Prepaid expense and other assets 3,808 4,153
-------- --------
$904,875 $839,623
======== ========
Liabilities
Deposits $568,625 $566,908
Borrowings 247,353 185,899
Advance payments by borrowers for taxes
and insurance 7,402 3,887
Other liabilities 5,891 6,134
-------- --------
TOTAL LIABILITIES 829,271 762,828
Commitments and Contingencies (See Note 8)
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 -
2000 and 1999 shares outstanding:
8,375,808 - 2000; 8,548,658 - 1999 9,135 9,135
Additional paid-in capital 8,528 8,780
Retained earnings 65,971 64,468
Accumulated other comprehensive income 381 479
Treasury stock at cost (758,927 shares - 2000;
586,077 shares - 1999) (8,411) (6,067)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 75,604 76,795
-------- --------
$904,875 $839,623
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months Ended
June 30
2000 1999
------ ------
(In Thousands,
Except Per Share Amounts)
Interest and dividend income:
<S> <C> <C>
Loans $14,459 $11,944
Investment securities 731 559
Interest-earning deposits 21 23
Mortgage-related securities 244 210
------- -------
TOTAL INTEREST AND DIVIDEND INCOME 15,455 12,736
Interest expense:
Deposits 6,443 5,776
Borrowings 3,560 1,389
Advance payments by borrowers for taxes and insurance 31 30
------- -------
TOTAL INTEREST EXPENSE 10,034 7,195
------- -------
NET INTEREST INCOME 5,421 5,541
Provision for loan losses 165 114
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,256 5,427
Non-interest income:
Fees on serviced loans 50 45
Loan fees and service charges 66 64
Deposit account service charges 409 336
Insurance commissions 87 101
Gain on sale of security 10 -
Gains on sales of loans 43 140
Other 431 347
------- -------
TOTAL NON-INTEREST INCOME 1,096 1,033
Non-interest expense:
Compensation, payroll taxes and other employee benefits 2,067 1,964
Federal insurance premiums 29 79
Occupancy 308 209
Data processing 409 399
Furniture and equipment 130 97
Telephone and postage 99 100
Marketing 162 99
Other 654 721
------- ------
TOTAL NON-INTEREST EXPENSE 3,858 3,668
INCOME BEFORE INCOME TAXES 2,494 2,792
Income taxes 774 917
------- ------
NET INCOME $ 1,720 $1,875
======= ======
BASIC NET INCOME PER SHARE $0.20 $0.21
===== =====
DILUTED NET INCOME PER SHARE $0.20 $0.21
===== =====
CASH DIVIDENDS PAID PER SHARE $0.11 $0.10
===== =====
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<page
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Six Months Ended
June 30
2000 1999
------ ------
(In Thousands,
Except Per Share Amounts)
Interest and dividend income:
<S> <C> <C>
Loans $28,104 $23,678
Investment securities 1,409 1,104
Interest-earning deposits 40 41
Mortgage-related securities 498 395
------- -------
TOTAL INTEREST AND DIVIDEND INCOME 30,051 25,218
Interest expense:
Deposits 12,602 11,506
Borrowings 6,541 2,787
Advance payments by borrowers for taxes and insurance 43 42
------- -------
TOTAL INTEREST EXPENSE 19,186 14,335
------- -------
NET INTEREST INCOME 10,865 10,883
Provision for loan losses 330 174
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,535 10,709
Non-interest income:
Fees on serviced loans 105 81
Loan fees and service charges 124 117
Deposit account service charges 799 652
Insurance commissions 198 161
Gain on sale of security 10 -
Gains on sales of loans 54 308
Other 814 634
------- -------
TOTAL NON-INTEREST INCOME 2,104 1,953
Non-interest expense:
Compensation, payroll taxes and other employee benefits 4,180 3,818
Federal insurance premiums 59 160
Occupancy 608 450
Data processing 812 790
Furniture and equipment 242 200
Telephone and postage 217 221
Marketing 267 214
Other 1,309 1,303
------- -------
TOTAL NON-INTEREST EXPENSE 7,694 7,156
INCOME BEFORE INCOME TAXES 4,945 5,506
Income taxes 1,569 1,840
------- -------
NET INCOME $ 3,376 $ 3,666
======= =======
BASIC NET INCOME PER SHARE $0.40 $0.42
===== =====
DILUTED NET INCOME PER SHARE $0.39 $0.41
===== =====
CASH DIVIDENDS PAID PER SHARE $0.22 $0.20
===== =====
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Accumulated
Additional Other-
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income Total
----- ------- -------- --------- ------------ -----
(In Thousands)
For the Six Months Ended June 30, 2000
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $9,135 $8,780 $64,468 $(6,067) $479 $76,795
Comprehensive income:
Net income 3,376 3,376
Other comprehensive losses (98) (98)
------
Total comprehensive income 3,278
Cash dividends ($.11 per share) (1,873) (1,873)
Purchase of treasury stock (2,749) (2,749)
Exercise of stock options - (252) - 405 - 153
------ ------ ------- ------- ---- -------
Balance at June 30, 2000 $9,135 $8,528 $65,971 $(8,411) $381 $75,604
====== ====== ======= ======= ==== =======
For the Six Months Ended June 30, 1999
--------------------------------------
Balance at January 1, 1999 $9,135 $9,126 $60,582 $(3,710) $960 $76,093
Comprehensive income:
Net income 3,666 3,666
Other comprehensive losses (234) (234)
-------
Total comprehensive income 3,432
Cash dividends ($.10 per share) (1,755) (1,755)
Purchase of treasury stock (1,151) (1,151)
Exercise of stock options - (291) - 495 - 204
------ ------ ------- ------- ---- -------
Balance at June 30, 1999 $9,135 $8,835 $62,493 $(4,366) $726 $76,823
====== ====== ======= ======= ==== =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Six Months Ended
June 30
2000 1999
(In Thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,376 $ 3,666
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for losses on loans 330 174
Provision for depreciation and amortization 444 424
Gains on sales of loans (54) (308)
Gain on sale of security (10) -
Loans originated for sale (3,601) (15,767)
Proceeds from loan sales 2,657 18,686
Increase in interest receivable (623) (221)
Increase in interest payable 747 23
Increase in other assets (24) (936)
Decrease in other liabilities (777) (236)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,465 5,505
Cash flows from investing activities:
Proceeds from maturities of available-for-sale
investment securities 1,750 1,000
Proceeds from maturities of held-to-maturity
investment securities 1,996 7,057
Purchases of available-for-sale investment securities (4,510) (495)
Purchases of held-to-maturity investment securities (2,679) (9,467)
Principal payments on available-for-sale
mortgage-related securities 111 177
Principal payments on held-to-maturity
mortgage-related securities 1,688 1,096
Purchase of available-for-sale mortgage-related securities - (2,982)
Purchases of held-to-maturity mortgage-related securities (991) (1,491)
Proceeds from the sale of securities 121 -
Net increase in loans receivable (58,672) (38,323)
Purchases of office properties and equipment (1,073) (266)
Purchase of Federal Home Loan Bank stock (3,250) (500)
------- --------
NET CASH USED BY INVESTING ACTIVITIES (65,509) (44,194)
Cash flows from financing activities:
Net increase in deposits 1,431 8,766
Net increase in short-term borrowings 7,315 19,188
Proceeds from long-term borrowings 95,020 20,195
Repayments of long-term borrowings (40,881) (13,202)
Cash dividend paid (1,873) (1,755)
Purchase of treasury stock (2,749) (1,151)
Proceeds from exercise of stock options 128 204
Net increase in advance payments by borrowers
for taxes and insurance 3,515 3,483
------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,906 35,728
DECREASE IN CASH AND CASH EQUIVALENTS (1,138) (2,961)
Cash and cash equivalents at beginning of period 12,372 7,211
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,234 $ 4,250
======== ========
Supplemental Information to the Statement of Cash Flows:
Interest on deposits $12,315 $11,468
Interest on borrowings 6,080 2,726
Income taxes 2,729 1,970
Loans transferred to foreclosed properties
and repossessed assets 186 143
</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.
1. 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 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, 2000
and December 31, 1999, the results of their income for the
three and six months ended June 30, 2000 and 1999,
the changes in stockholders' equity for the six months
ended June 30, 2000 and 1999, and their cash flows for
the six months ended June 30, 2000 and 1999.
The accompanying Unaudited Consolidated Financial Statements
and related notes should be read in conjunction with First
Northern's 1999 Annual Report on Form 10-K. Operating results
for the three and six months ended June 30, 2000, are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2000.
3. Securities Available-for-Sale
The amortized cost and estimated fair values of securities
available-for-sale are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In Thousands)
At June 30, 2000:
<S> <C> <C> <C> <C>
U.S. government and agency securities $ 9,506 $ 26 $(124) $ 9,408
Asset Management Funds 579 (18) 561
Federal Home Loan Mortgag
Corporation stock 33 939 - 972
-------- ----- ----- -------
10,118 965 (142) 10,941
-------- ----- ----- -------
Mortgage-related securities
Federal Home Loan Mortgage Corporation 1,875 (97) 1,778
Federal National Mortgage Association 1,708 1,708
Government National Mortgage Association 1,907 (89) 1,818
-------- ----- ----- -------
5,490 - (186) 5,304
-------- ----- ----- -------
$15,608 $ 965 $(328) $16,245
======= ====== ===== =======
At December 31, 1999:
U.S. government and agency securities $ 6,737 $ 6 $ (86) $ 6,657
Asset Management Funds 563 (17) 546
Federal Home Loan Mortgage
Corporation stock 33 1,097 1,130
Northwest Equities Corporation stock 111 - - 111
------- ------ ----- ------
7,444 1,103 (103) 8,444
------- ------ ----- -------
Mortgage-related securities
Federal Home Loan Mortgage Corporation 1,938 (92) 1,846
Federal National Mortgage Association 1,862 1,862
Government National Mortgage Association 1,955 - (109) 1,846
------- ------ ----- -------
5,755 - (201) 5,554
------- ------ ----- -------
$13,199 $1,103 $(304) $13,998
======= ====== ===== =======
</TABLE>
<PAGE>
At June 30, 2000, the U.S. government and agency securities
available-for-sale have the following maturities:
<TABLE>
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 999 $1,000
Due after one year through 5 years 8,507 8,408
------- ------
$9,506 $9,408
====== ======
</TABLE>
Expected maturities from mortgage-related securities will
differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without
prepayment penalties
4. Securities Held-to-Maturity
The amortized cost and estimated fair values of
mortgage-related securities held-to-maturity are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------- ------ -------- ------------
(In Thousands)
At June 30, 2000:
Investment Securities:
<S> <C> <C> <C> <C>
U.S. government and agency securities $25,921 $(480) $25,441
Corporate Bonds 999 - - 999
------- ---- ----- -------
Total investment securities 26,920 - (480) 26,440
------- ---- ----- -------
Mortgage-related securities:
Federal Home Loan
Mortgage Corporation 6,419 $10 (58) 6,371
Federal National
Mortgage Association 3,096 - (25) 3,071
------- --- ----- -------
Total mortgage-related securities 9,515 10 (83) 9,442
------- --- ----- -------
Total investment securities and
mortgage-related securities $36,435 $10 $(563) $35,882
======= === ===== =======
At December 31, 1999:
Investment Securities:
U.S. government and agency securities $25,216 $(571) $24,645
Corporate bond 999 - - 999
------- --- ------ -------
Total investment securities 26,215 - (571) 25,644
------- --- ------ -------
Mortgage-related securities
Federal Home Loan
Mortgage Corporation 6,192 $15 (60) 6,147
Federal National
Mortgage Association 3,856 1 (28) 3,829
------- --- ------ -------
Total mortgage-related securities 10,048 16 (88) 9,976
------- --- ------ -------
Total investment securities and
mortgage-related securities $36,263 $16 $(659) $35,620
======= === ===== =======
</TABLE>
At June 30, 2000, the investment securities have the
following maturities:
<TABLE>
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 6,001 $ 5,977
Due after one year through 5 years 18,623 18,224
Due after 5 years through 10 years 2,296 2,239
-------- -------
$26,920 $26,440
======= =======
</TABLE>
5. Loans Receivable
The composition of loans follows:
<TABLE>
June 30 December 31
2000 1999
(In Thousands)
First mortgage loans:
<S> <C> <C>
One to four family residential $489,180 $465,737
Five or more family residential 37,843 35,815
Commercial real estate 22,727 17,699
Construction-residential 36,326 29,758
Construction-commercial 6,769 6,910
Other 3,909 3,769
-------- --------
596,754 559,688
Consumer loans:
Consumer 23,207 20,153
First mortgage 88,472 78,223
Automobile 98,326 96,356
-------- --------
210,005 194,732
Commercial loans 10,661 4,771
-------- --------
817,420 759,191
Less:
Undisbursed loan proceeds 17,667 17,852
Allowance for losses 4,218 3,910
Unearned loan fees 441 549
-------- --------
22,326 22,311
-------- --------
$795,094 $736,880
======== ========
</TABLE>
6. The weighted average number of shares outstanding,
including common stock equivalents, for the three months
ended June 30, 2000 and 1999 were 8,657,170 and 8,901,033,
respectively and for the six months ended June 30, 2000
and 1999 there were 8,685,923 and 8,943,369, respectively.
7. Certain amounts in the 1999 financial statements have
been reclassified to conform to the 2000 presentations.
8. Off-balance sheet financial instruments whose contract
amounts represent credit and/or interest rate risk at
June 30, 2000 are as follows:
Commitment to extend credit:
Fixed rate (8.50% to 8.625%) $ 622
Adjustable rate (7.625% to 10.00%) 4,350
Commitment to sell loans (8.50% to 8.625%) 898
Unused overdraft protection lines
of credit for checking accounts 1,396
Unused equity lines of credit 21,154
Unused commercial lines of credit 7,494
Unused commercial letters of credit 1,153
Unused credit card lines of credit 7,796
9. On February 21, 2000, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement")
with Mutual Savings Bank ("Mutual"), a
Wisconsin-chartered mutual savings bank and a wholly
owned subsidiary of Mutual organized for the purpose
of effecting the transactions contemplated by the
Merger Agreement. Mutual intends to assign the rights
and obligations of this subsidiary to Bank Mutual
Corporation ("Bank Mutual"). The Merger Agreement
provides for the acquisition of the Company by Mutual
through a merger of the Company into Bank Mutual.
Subject to the terms and conditions of the Merger Agreement,
at the time of the merger, each outstanding share of the
Company's common stock will be converted into the right to
receive cash in the amount of $15.00 or 1.5 shares of common
stock of the Bank Mutual or a combination of cash and shares
of Bank Mutual.
In connection with the Merger, the Company and Mutual will
engage in a restructuring. As part of the restructuring,
Mutual will form a mutual holding company. The mutual
holding company will own a majority of Bank Mutual's common
stock. The balance of the shares of Bank Mutual will be
offered for sale to Mutual's depositors and issued to
First Northern stockholders in the Merger. As a result
of the restructuring, the Savings Bank and Mutual will
become wholly owned subsidiaries of Bank Mutual
The Merger and Mutual restructuring and stock offering are
subject to approval by the stockholders of the Company
(for the Merger), depositors of Mutual (for the
restructuring), and various regulatory agencies
(for all transactions).
Concurrent with the execution of the Merger Agreement,
the parties entered into a Stock Option Agreement by
which the Company granted Mutual an irrevocable option
to purchase up to 1,708,675 shares of the Company's stock
equal to 19.9% of the number of shares of the Company's
stock outstanding on February 21, 2000, at an exercise
price of $9.0375 per share. The option would become
exercisable under certain circumstances if the Company
becomes the subject of a third party proposal for a
competing transaction.
Through June 30, 2000, First Northern has incurred
direct expenditures relating to the merger of $321,000.
If the merger is not consummated, these expenditures
will be expensed.
Item 2. Managements' Discussion and Analysis of
Financial Condition and Results of Operations.
CAUTIONARY FACTORS
This document 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;
changes in the quality or composition of the Savings Bank's
and FNII's loan and investment portfolios; the status of
our proposed merger with Mutual Savings Bank; and other
factors referred to in the reports filed with the
Securities and Exchange Commission.
RECENT DEVELOPMENTS
Merger Agreement with Mutual Savings Bank. On February 22, 2000,
First Northern, and Mutual Savings Bank, a Wisconsin-chartered
mutual savings bank ("Mutual"), announced that they had entered
into an Agreement and Plan of Merger, dated as of
February 21, 2000 ( the "Merger Agreement"), by and
among Mutual, First Northern and OV Corp., a Wisconsin
corporation organized as a wholly owned subsidiary of
Mutual for the purpose of effecting the transactions
contemplated by the Merger Agreement . Mutual intends
to assign the rights and obligations of this subsidiary
to Bank Mutual Corporation ("Bank Mutual"). The Merger
Agreement provides for the acquisition of First Northern
by Mutual through a merger of First Northern with and into
Bank Mutual (the "Merger"), which will be the surviving
corporation ("Bank Mutual"). The Merger Agreement has been
approved by the boards of directors of Mutual and First Northern.
Subject to the terms and conditions of the Merger Agreement,
at the time of the Merger, each outstanding share of First
Northern common stock, par value $1.00 per share ("First
Northern Common Stock"), will be converted into the right
to receive cash in the amount of $15.00, or 1.5 shares of
common stock, par value $.01 per share, of Bank Mutual
("Bank Mutual Common Stock"), or a combination of cash and
shares of Bank Mutual Common Stock (the "Merger
Consideration"). Prior to the closing date, Mutual
will select the percentage of the total Merger Consideration
to be paid in Bank Mutual Common Stock, which may not be less
than 40% or more than 70%; the balance will be paid in cash.
Each First Northern stockholder will be entitled to elect to
receive (a) cash, (b) Bank Mutual Common Stock or (c) as to
First Northern stockholders holding not less than 170 shares
of First Northern Common Stock, a combination of cash and
Bank Mutual Common Stock, with the percentage of such shares
of their First Northern Common Stock equal to the lesser of
the Stock Percentage and 50% converted into Bank Mutual
Common Stock and the balance converted into cash. Elections
will be subject to proration if the cash or stock elections
exceed the maximum amounts permitted under the Merger
Agreement. Cash will be paid in lieu of any fractional
shares of Bank Mutual Common Stock which holders of First
Northern Common Stock would otherwise receive.
In a separate transaction related to the Merger, Mutual
will engage in a restructuring involving a number of steps
(the "Restructuring"). As a part of the Restructuring,
Mutual will form a mutual holding company in which Mutual's
depositors will hold all the voting rights. The mutual
holding company will own a majority of Bank Mutual Common
Stock; the balance of the shares of Bank Mutual Common Stock
will be offered for sale to Mutual's depositors and issued
to First Northern stockholders in the Merger. As a result
of the Restructuring, Mutual Savings Bank and the Savings
Bank will become wholly owned subsidiaries of Bank
Mutual. Thus, Bank Mutual will be a subsidiary mid-tier
stock holding company.
Consummation of the Merger is subject to the satisfaction
of certain closing conditions set forth in the Merger
Agreement, including approval by the stockholders of First
Northern and approval by the OTS, the FDIC and the
WDFI--Administrator. The depositors of Mutual must
also approve Mutual's plan for the Restructuring.
The Merger is also subject to receipt of an opinion
of counsel to the effect that the Merger will
constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code as
to the federal income tax treatment of certain transactions
contemplated by the Merger Agreement. In addition,
the Merger is conditioned upon the approval for
listing on the NASDAQ National Market of the shares
of Bank Mutual Common Stock to be issued in the
Merger, which shares will be registered under the
Securities Act of 1933.
At August 7, 2000, First Northern and Mutual continued
the process of filing all necessary regulatory filings
with the OTS and Securities and Exchange Commission and
anticipates that the acquisition of First Northern by
Mutual will be completed by the end of 2000.
Concurrently with the execution of the Merger Agreement,
in order to induce Mutual to enter into the Merger
Agreement, the parties entered into a Stock Option
Agreement by which First Northern granted to Mutual
an irrevocable option to purchase up to 1,708,675
shares of First Northern Common Stock, which equals
19.9% of the number of shares of First Northern
Common Stock outstanding at February 21, 2000, at
an exercise price of $9.0375 per share. The option
would become exercisable under certain circumstances
if First Northern becomes the subject of a third-party
proposal for a competing transaction.
FINANCIAL CONDITION
BALANCE SHEET
Cash and Cash Equivalents. Cash and cash equivalents
decreased $1.1 million at June 30, 2000, as compared
to December 31, 1999, primarily because the Savings
Bank maintained additional cash at December 31, 1999,
as a precaution against possible events associated with
Year 2000 concerns. Shortly after December 31, 1999,
the cash was redeployed by paying down short-term borrowings.
Securities Available-for-Sale. Investment securities
available-for-sale increased $2.5 million as of June 30, 2000,
as compared to December 31, 1999, primarily as a result of
the reinvestment of maturing securities, the interest
earnings on securities being reinvested and the purchase
of additional securities, partially offset by decreased
market value. (See Notes to Unaudited Consolidated
Financial Statements--3. Securities Available-for-Sale)
Mortgage-related securities available-for-sale decreased
$0.3 million at June 30, 2000, as compared to
December 31, 1999, as a result of prepayments and
repayments of the underlying securities.
Securities Held-to-Maturity. Investment securities
held-to-maturity increased $0.7 million as of June 30, 2000
as compared to December 31, 1999 as a result of additional
investment securities purchases.
Mortgage-related securities held-to-maturity decreased
$0.5 million as a result of prepayments and repayments
of the underlying securities.
Loans Held for Sale. At June 30, 2000, First Northern
had $2.1 million of fixed interest rate mortgage and
education loans classified as held for sale as compared
to $1.1 million at December 31, 1999. The increase in
loans held for sale is primarily the result of education
loans originated during the six months of 2000, all of
which are contractually assigned to be sold.
Loans Receivable. Loans receivable increased $58.2
million at June 30, 2000, as compared to December 31, 1999,
as a result of: (i) increased adjustable interest rate
mortgage loan originations and purchases; (ii) reduced
prepayments or refinancing of mortgage loans; and (iii)
commercial lending. Loan originations and purchases
are as follows:
<TABLE>
LOAN ORIGINATIONS AND PURCHASES
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
(In Thousands) (In Thousands)
Mortgage loans originated and purchased:
<S> <C> <C> <C> <C>
Construction $ 13,019 $ 20,822 $ 28,332 $ 29,643
Loans on existing property 25,584 18,365 42,831 27,072
Refinancing 5,993 18,124 11,179 47,326
Other loans 1,234 1,238 1,807 1,479
Total mortgage loans originated -------- -------- ------- --------
and purchased 45,830 58,549 84,149 105,520
Consumer loans originated and
purchased:
Consumer 5,149 4,697 7,560 6,450
First mortgage 14,867 15,261 25,853 24,390
Automobile 12,939 20,412 28,213 32,269
Education 94 71 1,272 1,021
-------- -------- ------- --------
Total consumer loans originated
and purchased 33,049 40,441 62,898 64,130
-------- -------- ------- --------
Commercial loans 1,858 2,887 7,166 2,887
-------- -------- ------- --------
Total loans originated and purchased $ 80,737 $101,877 $154,213 $172,537
======== ======== ======== ========
</TABLE>
Mortgage loan originations and purchases decreased $12.7
million for the second quarter of 2000, as compared to the
same period in 1999 and $21.4 million for the first six
months of 2000 as compared to the first six months of
1999, primarily as the result of decreased refinancing
of existing First Northern mortgage loans. Purchase
mortgage loan originations increased in the second
quarter of 2000 primarily as a result of increased
purchase activity within First Northern's market. Although
total mortgage loan originations decreased for the second
quarter of 2000 and the first six months of 2000, the
mortgage loan portfolio outstanding increased $20.2 and
$37.1 million, respectively (before deductions for
undisbursed loan proceeds, allowance for loan losses
and unearned loan fees). The increased mortgage loan
portfolio was primarily the result of: (i) increased
adjustable interest rate mortgage loan originations;
(ii) reduced prepayments of principal on outstanding
loans; and (iii) reduced refinancing of existing
mortgage loans, all of which, management believes,
is attributable to the increase of interest rates
on fixed interest rate mortgage loans.
First Northern added commercial banking services to
its existing product lines in the second quarter of 1999.
To manage the commercial banking department,
First Northern hired a commercial loan manager
with 20 years of commercial banking experience.
At June 30, 2000, First Northern's commercial loan
portfolio outstanding was at $10.7 million and
management anticipates that this segment of its
loan portfolio will continue to increase.
Management believes commercial banking will
enable First Northern to enhance its interest
earning assets and its interest rate spread management.
Consumer loan originations and purchases decreased
$7.4 million in the second quarter of 2000 and
$1.2 million in the first six months of 2000 as
compared to the same periods in 1999, primarily as
the result of decreased indirect automobile originations
through SFC. As market interest rates rose, the
indirect automobile interest loan interest rates
also rose. This increase in the interest rates on indirect
automobile loans decreased the volume of originations.
<TABLE>
LOAN SALES
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage Loans $1,818 $6,753 $2,121 $16,392
Education Loans 316 1,985 482 1,986
------ ------ ------ -------
Total Loans Sold $2,134 $8,738 $2,603 $18,378
====== ====== ====== =======
</TABLE>
Loans sold in the second quarter of 2000 and for the six
months ended June 30, 2000, as compared to the same periods
in 1999, decreased as a result of the reduction in 30 year
fixed interest rate mortgage loan originations. 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 loans in
the secondary market. First Northern is contractually
committed to sell its current education loan portfolio as
well as, future originations.
Office Properties and Equipment. First Northern entered
into an operating lease for approximately 14,000 square
feet of office space in the third quarter of 1999. This
office space centralized the loan servicing, loan
origination processing, information systems, marketing
and customer support services departments of the Savings
Bank. The additional leased space is needed to
accommodate growth in these areas. Total annual cost of
this office space and its associated equipment is
approximately $152,000 (after-tax).
Federal Home Loan Bank Stock. Stock in the Federal
Home Loan Bank ("FHLB") increased $3.3 million to
$12.5 million at June 30, 2000, as compared to
$9.3 million at December 31, 1999. This increase in
FHLB stock is the result of increased borrowings
outstanding from the FHLB of Chicago. The FHLB requires
member institutions to purchase one share of FHLB stock
for every $20,000 of FHLB borrowings. The FHLB borrowings
are secured by First Northern's 1-4 family residential
mortgage loans.
Life Insurance Policies. Life insurance policies or
bank owned life insurance ("BOLI") increased $0.5 million
in the first six months of 2000 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 $0.9 million for the
second three months of 2000 and $1.7 million for the
first six months of 2000 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, negotiated retail and
municipal deposits which at times, are a cheaper source
of funds than retail deposits or borrowing. First
Northern's total jumbo deposits were $53.1 million at
June 30, 2000.
Borrowings. FHLB borrowings increased $61.5 million in
the first six months of 2000, primarily to fund the growth
of the loan portfolio. First Northern will borrow monies
if borrowing is a less costly form of funding for loans
and investments than the cost of acquiring deposits.
First Northern anticipates that it will continue to utilize
borrowings in 2000 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 $3.5 million at June 30, 2000, as
compared to December 31, 1999. The increase of escrow
dollars was the result of the payments received for
First Northern's customers' escrow accounts.
Stockholders' Equity. First Northern paid a cash
dividend of $0.11 per share on May 15, 2000, to stockholders
of record on May 8, 2000. The increase of $0.01 per share
represents a 10.0% increase over the second quarter of 1999
cash dividend of $0.10 per share. The cash dividend payout
ratio was 55.00% and 47.62% for the quarter ended June 30, 2000
and 1999, respectively and 55.00% and 47.62% for the six
months ended June 30, 2000 and 1999, respectively.
On March 20, 2000, First Northern approved a fourth stock
repurchase program to repurchase up to 429,315 shares
(5% of total shares then outstanding) in the open
market. At June 30, 2000, 210,500 shares had been
purchased at an average price of $13.06 per share.
ASSET QUALITY
First Northern currently classifies any loan on
which a payment is greater than 90 days past due
as non-performing. The following table summarizes
non-performing loans and assets:
<TABLE>
NON-PERFORMING LOANS AND ASSETS
At June 30 At December 31
2000 1999
---------- --------------
(Dollars in Thousands)
<S> <C> < C>
Non-accrual mortgage loans $177 $243
Non-accrual consumer loans 78 40
---- ----
Total non-performing loans 255 283
Properties subject to foreclosure 397 318
Foreclosed properties and
repossessed assets 59 63
---- ----
Total non-performing assets $711 $664
==== ====
Non-performing loans as a percent
of total loans 0.03% 0.04%
==== ====
Non-performing assets as a percent
of total assets 0.08% 0.08%
==== ====
</TABLE>
Total non-performing loans decreased as of June 30, 2000,
as compared to December 31, 1999, primarily as a result
of a decrease 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 material accruing loans
which, at June 30, 2000, management has reason to
believe will become non-performing or result in
potential losses.
In addition, management believes that First Northern's
allowance 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' judgement 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>
LOAN LOSS ALLOWANCE
At and for the At and for the
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------- -----------------
(Dollars in Thousands)
Mortgage Loans:
<S> <C> <C>
Balance at the beginning of the period $2,108 $1,813
Provisions for the period 290 295
Charge-offs:
One-to-four family residential - -
Recoveries:
One to four family residential 3 -
----- ------
Net recoveries 3 -
----- ------
Balance at the end of the period 2,401 2,108
Consumer Loans:
Balance at the beginning of the period 1,678 1,718
Provisions for the period 30 53
Charge-offs:
Consumer (26) (79)
Automobile (12) (43)
------ ------
Total charge-offs (38) (122)
Recoveries:
Consumer 10 9
Automobile 3 20
------ ------
Total recoveries 13 29
------ ------
Net charge-offs (25) (93)
------ ------
Balance at the end of the period 1,683 1,678
------ ------
Commercial Loans
Balance at the beginning of the period 124
Provisions for the period 10 124
------ ------
Balance at the end of the period 134 124
------ ------
Total loan loss allowances at the end
of the period $4,218 $3,910
====== ======
Allowance as a percent of total loans 0.53% 0.53%
==== ====
Allowance as a percent of non-performing loans 1,654.12% 1,381.63%
======== ========
Allowance as a percent of total assets 0.47% 0.47%
==== ====
Allowance as a percent of non-performing assets 593.25% 588.86%
====== ======
</TABLE>
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 since First Northern's investment
portfolio does not contain tax-exempt securities.
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 June 30, 2000
and 1999, have been annualized.
<TABLE>
Six Months Ended June 30
2000 1999
--------------------------------------------------
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 $557,371 $19,771 7.09% $485,549 $17,154 7.07%
Consumer loans 204,224 7,968 7.80% 162,835 6,476 7.95%
Commercial loans 7,961 365 9.17% 1,191 48 8.06%
Investment securities (2) 44,773 1,409 6.29% 37,222 1,104 5.93%
Interest-earning deposits 1,610 40 4.97% 1,836 41 4.47%
Mortgage-related
securities (2) 15,756 498 6.32% 13,113 395 6.02%
--------- ------ ---- ------- ------- ----
TOTAL 831,695 30,051 7.23% 701,746 25,218 7.19%
Interest-bearing liabilities:
Passbook accounts 70,595 673 1.91% 68,865 682 1.98%
NOW and variable rate insured
money market accounts 137,427 1,805 2.63% 130,510 1,477 2.26%
Time deposits 354,698 10,124 5.71% 345,218 9,347 5.42%
Advance payments by borrowers
for taxes and insurance 3,952 43 2.18% 3,573 42 2.35%
Borrowings 215,535 6,541 6.07% 101,085 2,787 5.51%
-------- ------- ---- -------- ------- ----
TOTAL 782,207 19,186 4.91% 649,251 14,335 4.42%
-------- ------- ---- -------- ------- ----
Net interest-earning assets
balance and interest
rate spread $ 49,488 2.32% $ 52,495 2.77%
======== ==== ======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $831,695 $10,865 2.61% $701,746 $ 10,883 3.10%
======== ======= ==== ======== ======== ====
Average interest-earning
assets to interest-bearing
liabilities 106.3% 108.1%
===== =====
</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>
Year Ended December 31
1999
Interest
Average Earned/ Yield/
Balance Paid Rate
(Dollars in Thousands)
Interest-earning assets (1):
<S> <C> <C> <C>
Mortgage loans $500,111 $35,164 7.03%
Consumer loans 175,577 13,816 7.87%
Commercial loans 5,454 468 8.58%
Investment securities (2) 38,789 2,336 6.02%
Interest-earning deposits 1,702 82 4.82%
Mortgage-related securities (2) 14,765 904 6.12%
-------- ------- ----
TOTAL 736,398 52,770 7.17%
Interest-bearing liabilities:
Passbook accounts 70,425 1,385 1.97%
NOW and variable rate insured
money market accounts 132,629 3,085 2.33%
Time deposits 350,423 19,090 5.45%
Advance payments by borrowers
for taxes and insurance 7,002 162 2.31%
Borrowings 124,186 6,964 5.61%
-------- ------- ----
TOTAL 684,665 30,686 4.48%
-------- ------- ----
Net interest-earning assets balance
and interest rate spread $ 51,733 2.69%
======== ====
Average interest-earning assets, net
interest income and net yield on
average interest-earning assets $736,398 $22,084 3.00%
======== ======= ====
Average interest-earning assets to
interest-bearing liabilities 107.6%
=====
</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.
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>
Six Month Ended June 30
2000 vs 1999
Increase(decrease) due to:
Rate/
Rate Volume Volume Total
---- ------ ------ -----
(In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C>
Mortgage loans $ 49 $2,561 $ 7 $2,617
Consumer loans (122) 1,645 (31) 1,492
Commercial loans 7 272 38 317
Investments securities 67 224 14 305
Interest-earning deposits 5 (5) (1) (1)
Mortgage-related securities 20 79 4 103
----- ------ ---- ------
TOTAL $ 26 $4,776 $31 4,833
===== ====== === ------
Interest-bearing liabilities:
Passbook accounts $(24) $ 16 $ (1) (9)
NOW and variable rate
insured money market accounts 237 78 13 328
Time deposits 506 257 14 777
Advance payments by borrowers
for taxes and insurance (3) 4 - 1
Borrowings 283 3,151 320 3,754
---- ------ ---- ------
TOTAL $999 $3,506 $346 4,851
==== ====== ==== ------
Net change in net interest income $ (18)
======
</TABLE>
<TABLE>
Year Ended December 31
1999 vs 1998
Increase(decrease) due to:
Rate/
Rate Volume Volume Total
(In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C>
Mortgage loans $(1,371) $3,154 $(129) $1,654
Consumer loans (627) 1,228 (58) 543
Commercial loans 468 468
Investments securities (42) 245 (5) 198
Interest-earning deposits (20) (52) 7 (65)
Mortgage-related securities (10) 297 (5) 282
------- ------ ----- ------
TOTAL $(2,070) $4,872 $ 278 3,080
======= ====== ===== ------
Interest-bearing liabilities:
Passbook accounts $(108) $141 $ (12) 21
NOW and variable rate
insured money market accounts(177) 357 (22) 158
Time deposits (1,114) 1,302 (77) 111
Advance payments by borrowers
for taxes and insurance (1) 8 - 7
Borrowings (201) 1,646 (59) 1,386
------- ------ ----- ------
TOTAL $(1,601) $3,454 $(170) 1,683
======= ====== ===== ------
Net change in net interest income $1,397
======
</TABLE>
The following table set forth the weighted average yields at the dates
indicated.
<TABLE>
At June 30,
2000 1999
Weighted average rate of return at June 30:
<S> <C> <C>
Mortgage loans 7.13% 6.93%
Consumer loans 8.15 8.06
Commercial loans 9.17 7.68
Mortgage loans, consumer loans and
commercial loans 7.43 7.22
Investment securities 6.42 5.91
Mortgage-related securities 6.36 6.15
Total loan portfolio, mortgage-backed
and investment securities 7.35 7.13
Weighted average rate paid at June 30:
Deposits 4.62% 4.19%
Borrowings 6.64 5.49
Total deposits and borrowings 5.23 4.42
Spread at June 30 2.12 2.71
</TABLE>
STATEMENTS OF INCOME
General. Net income decreased 8.3% for the second quarter
of 2000 and 7.9% for the six months ended June 30, 2000 as
compared to the same periods in 1999. This decrease was
primarily the result of a reduction of the net interest
margin and increased operating expenses.
Interest and Dividend Income. Interest income on loans
increased $2,515,000 in the second quarter of 2000 and
$4,426,000 in the first six months of 2000 as a result of
the increased dollar amount of mortgage, consumer, and
commercial loans outstanding. The average mortgage loans
outstanding increased $71.8 million or 14.8% in the second
quarter of 2000 as compared to the same period in 1999 and
average consumer loans outstanding increased $41.4 million.
Commercial loans, which were introduced to First Northern
customers in the second quarter of 1999, had a balance
outstanding at June 30, 2000 of $10.7 million. The yield on
the mortgage loan portfolio increased in the first six
months of 2000 as compared to the first six months of 1999
as a result of interest rates on mortgage loan originations
being more than the yield on the existing portfolio and
escalations to interest rate adjustable mortgage loans in
the portfolio. Since September of 1999, the interest rates
on mortgage loan originations have exceeded the yield on the
existing mortgage portfolio. See Financial Condition -
Balance Sheet - Loans Receivable. Consumer loan yields
decreased during the first six months of 2000 as compared
to the same period in 1999 as a result of interest rates
on originations and purchases being below the portfolio
average yield.
Interest income on investment securities increased $172,000
for the three months ended June 30, 2000 and $305,000 for
the six months ended June 30, 2000, as a result of an increase
in the dollar amount of investment securities outstanding and
an increase in the yield earned on investment securities.
Interest income on interest-earning deposits increased slightly
for the second quarter of 2000 and six months ended June 30, 2000
primarily as a result of additional interest-earning deposits
outstanding.
Interest income on mortgage-related securities increased $34,000
for the second quarter of 2000 and $103,000 for the six months
ended June 30, 2000 as a result of the increased average
mortgage-related securities outstanding and the increase in
the average interest rate earned.
Interest Expense. Interest expense on deposits increased $667,000
for the three months ended June 30, 2000 and $1,096,000 for the
six months ended June 30, 2000 primarily as the result of
increased cost of deposits and increased deposits outstanding.
The average cost of deposits increased as a result of rising
general market interest rates and competition's deposit interest
rates offered. Since June 1999, the Federal Open Market
Committee ("FOMC") has increased interest rates substantially.
The rise in FOMC interest rates raises the interest rate
expectations of consumers and hence the need to increase
interest rates on new or renewing deposits.
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 in its deposit growth.
See Financial Condition - Balance Sheet - Deposits.
Interest expense on borrowings increased $2,171,000 in the
second quarter of 2000 and $3,754,000 in the first six months
of 2000 as compared to the same periods in 1999 as a result
of increased dollars outstanding and increased average
interest paid on those borrowings. First Northern's growth
in interest earning assets outpaced the growth in deposits
thereby necessitating an increase in borrowings. First Northern
anticipates it will continue to emphasize growth in interest
earning assets and will fund a portion of that growth with
borrowings. First Northern primarily borrows from the Federal
Home Loan Bank of Chicago and staggers the borrowing maturities
from overnight to 9 years in term.
Provision for Loan Losses. First Northern provided $165,000 to
its general loan loss allowance in the second quarter of 2000
as compared to $114,000 for the second quarter of 1999 and
$330,000 for the first six months of 2000 as compared to
$174,000 for the same period in 1999. The increased
provisions were the result of growth in loans, especially
those that have higher inherent credit risks. Multi-family
mortgage loans increased $0.5 million in the second quarter
of 2000 and $2.00 million for the six months ended
June 30, 2000, commercial loans increased $0.9 million
in the second quarter of 2000 and $5.9 million for the
six months ended June 30, 2000, and consumer loans increased
$8.2 million in the second quarter of 2000 and $15.3 million
for the six months ended June 30, 2000. Mortgage loans,
other than multi-family, increased $20.2 million in the
second quarter of 2000 and $35.0 million for the six months
ended June 30, 2000.
First Northern uses a risk-based assessment of its loan
portfolio to determine the level of loan loss allowance.
The assessment is based on internal reviews intended to
determine the adequacy of the allowance in view of presently
known factors. Management believes the current loan loss
allowance is adequate.
Non-Interest Income. Fees on serviced loans increased $5,000
in the second quarter of 2000 and $24,000 in the first six
months of 2000 as a result of decreased repayments or prepayments
on loans sold (with servicing retained). As the principal of a
mortgage loan which was sold, repays or prepays, the mortgage
servicing asset is reduced and netted from fees on serviced
loans, thereby reducing the income on the serviced loans.
When the repayments or prepayments decrease, such as in the
second quarter of 2000 and the first six months of 2000, the
amortization from the mortgage servicing assets also decreases
and hence, the income on serviced loans increases. First
Northern's mortgage loan servicing asset at June 30, 2000
was $528,800.
Loan fees and service charges increased slightly in the second
quarter and first six months of 2000 primarily as the result
of late charges collected on loans and fees collected from the
Savings Bank's line-of-credit home equity loans.
Income from deposit account service charges increased $73,000 in
the second quarter and $147,000 in the first six months of 2000
as a result of debit card fee income and fees from customers who
overdraw their checking account and other depository fees.
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.
Insurance commissions decreased $14,000 in the second quarter
and increased $37,000 in the first six months of 2000. The
second quarter of 2000 decrease was the result of decreased
insurance bonus in 2000 as compared to the insurance
bonuses in 1999. The increase for the six months was
the result of insurance bonuses. If First Northern
obtains a predetermined threshold of insurance sales
and insurance losses are below another threshold,
insurance bonuses are earned. First Northern received
$49,000 in insurance bonuses in the first quarter of 2000.
Gains on the sale of loans decreased $97,000 and $254,000
for the second quarter and six months ended June 30, 2000,
respectively as a result of decreased loan sales. First
Northern sold $2,134,000 of loans in the second quarter of
2000 as compared to $8,738,000 in the second quarter of 1999
and $2,603,000 of loans in the six months ended June 30, 2000
as compared to $18,378,000 for the same period in 1999.
Loan sales decreased substantially in the second quarter
of 2000 and the first six months of 2000 as a result of
decreased thirty-year fixed interest rate mortgage loan
originations, which are sold to the secondary market.
Other income increased $84,000 for the three months ended
June 30, 2000 and $180,000 for the six months ended
June 30, 2000, as compared to the same periods last
year as a result of: (i) ATM surcharges; (ii) interest
income on Bank Owned Life Insurance; and (iii) interest
from officers' life insurance.
Non-Interest Expense. Compensation expense increased
$103,000 for the three months ended and $362,000 for
the six months ended June 30, 2000 as a result of:
(i) increased number of employees; (ii) increased
compensation to existing employees; (iii) increased
education and training costs; (iv) reduced expense
deferrals associated with loan originations; and
(v) 2000 being a leap year which added one
additional day of compensation for hourly paid employees.
Federal insurance premiums decreased $50,000 for the
second quarter of 2000 and $101,000 for the six months
ended June 30, 2000 as a result of a decrease in
federal deposit premiums charged First Northern and
other Savings Association Insurance Fund ("SAIF")
insured institutions. Beginning in the year 2000,
the Financing Income Corporation Obligations ("FICO")
bonds interest cost was spread to all insured financial
institutions rather than just the SAIF insured institutions.
Thus, the deposit insurance cost to SAIF institutions was reduced.
Occupancy expense increased $99,000 in the second quarter of
2000 and $158,000 for the six months ended June 30, 2000
primarily as a result of the Savings Bank's rental of
approximately 14,000 square feet of office space in
downtown Green Bay. This rental space consolidated
various operational departments into one location
whereas previously they were located in three separate
Savings Bank offices.
Data processing expense increased $10,000 in the three
months ended June 30, 2000 and $22,000 for the six months
ended June 30, 2000, as a result of an increase in service
bureau expense and service contracts on data processing
equipment. Service bureau expense increased as a result
of increased contract cost, additional transactions
processed and additional products offered.
Furniture and equipment expense increased $33,000 in the
second quarter of 2000 and $42,000 in the first six months
of 2000 as a result of increased cost of service contracts
on equipment and increased depreciation on furniture and
equipment at the remodeled Kiel Office.
Marketing expense increased $63,000 in the second quarter
of 2000 and $53,000 in the first six months of 2000
primarily as a result of increased marketing of First
Northern's products and services.
Other expenses decreased $67,000 in the three months
ended June 30, 2000 and increased slightly for the six
months ended June 30, 2000. The decrease was primarily
the result of a $53,700 environmental clean-up cost of
a lot at a subdivision owned by GNFSC in 1999.
Income Taxes. The effective income tax rate for the second
quarter of 2000 was 31.0% and 31.7% for the six months ended
June 30, 2000 as compared to 32.8% in the second quarter
of 1999 and 33.4% for the six months ended June 30, 2000.
The decrease in the effective income tax rate was the
result of the purchase of BOLI and an increase in the
earnings of 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 1999,
which has reduced state income taxes. In March 1999,
First Northern moved approximately $56.3 million in
mortgage loan participations to FNII and further reduced its
state income tax.
Legislation. The Gramm-Leach-Bliley Act ("Act") passed
by Congress could significantly alter the environment in
which First Northern and the Savings Bank operate. This
Act tore down the former artificial statutory barriers
between financial institutions, insurance companies,
and investment firms and may lead to increased
competition among such entities. In addition, the
Act will prevent the sale of unitary thrift holding
companies, such as First Northern, to commercial
companies. Finally, the Act placed additional
obligations on First Northern and the Savings Bank
in the areas of customer privacy, CRA-related agreements,
and the operation of ATMs.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Historically, federal regulations have required the
Savings Bank to maintain a minimum percentage of
liquid assets to net withdrawable accounts plus
short-term borrowings. The required percentage
(liquidity ratio) has varied from time to time based
upon economic conditions and deposit flows. The
liquidity ratio is set by the Office of Thrift Supervision
("OTS") and it is currently 4% of average of net withdrawable
accounts plus short-term borrowings payable on demand or
in one year or less during the current calendar
quarter. In general, liquid assets, for the purposes
of calculating the liquidity ratio, include cash,
certain time deposits, and U.S. government and agency
obligations. The Savings Bank has historically maintained
a liquidity ratio that exceeds the OTS requirement.
The Savings Bank's quarterly average liquidity ratio at
June 30, 2000, was 7.09%. At December 31, 1999, its
monthly average liquidity ratio was 7.15%. The slight
decrease in the liquidity ratio at June 30, 2000, is
mainly attributable to the growth in the loan portfolio.
The Savings Bank believes that its maintenance of excess
liquidity, above the 4% federally required liquidity ratio,
is an appropriate strategy to aid in proper asset/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 management's
assessment of: (i) expected loan demand; (ii) expected
deposit flows; (iii) yields available on interest-earning
deposits; and (iv) the objectives of its asset/liability
management program. Excess liquidity is 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
June 30, 2000, for State of Wisconsin regulatory
requirements was 8.40%, or 2.4% 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.
As of June 30, 2000, 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 following 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 that, at June 30, 2000, the Savings Bank exceeded
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>
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 June 30, 2000:
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital $74,979 12.60% >=$47,703 >=8.00% >=$59,629 >=10.00%
(to risk-weighted assets)
Tier 1 (core) capital $70,787 11.90% >=$23,852 >=4.00% >=$35,777 >=6.00%
(to risk-weighted assets)
Tier 1 (core) capital $70,787 7.80% >=$36,170 >=4.00% >=$45,212 >=5.00%
(to adjusted assets)
Tangible equity $70,787 7.80% >=$36,170 >=4.00% >=$45,212 >=5.00%
(to tangible assets)
State of Wisconsin capital $75,698 8.40% >=$54,320 >=6.00% N/A N/A
(to total assets)
As of December 31, 1999:
Risk-based capital $76,326 14.00% >=$43,770 >=8.00% >=$54,713 >=10.00%
(to risk-weighted assets)
Tier 1 (core) capital $72,416 13.20% >=$21,885 >=4.00% >=$32,828 >=6.00%
(to risk-weighted assets)
Tier 1 (core) capital $72,416 8.60% >=$33,546 >=4.00% >=$41,783 >=5.00%
(to adjusted assets)
Tangible equity $72,416 8.60% >=$33,546 >=4.00% >=$41,783 >=5.00%
(to tangible assets)
State of Wisconsin capital $77,197 9.20% >=$50,377 >=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 1999 Form 10-K.
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 26, 2000, 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 2003. 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 For Withheld
Directors with terms
expiring in 2003
Thomas J. Lopina, Sr. 7,252,812 126,666
Robert B. Olson 7,249,883 129,595
Messrs. Michael D. Meeuwsen and J. Gus Swoboda
terms as directors continue until 2001.
Messrs. Howard M. Frankenthal and Richard C. Smits
terms as directors continue until 2002.
Further information concerning this matter is contained
in Proxy Statement/1999 Form 10-K Annual report with
respect to First Northern's 2000 Annual Meeting of Stockholders.
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 second quarter of 2000.
<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 14, 2000 /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)
FIRST NORTHERN CAPITAL CORP
(the "Registrant")
Commission File No. 0-27982
* * * *
EXHIBIT INDEX
TO
SECOND QUARTER 2000 REPORT ON FORM 10-Q
Exhibit Incorporated Herein Filed or Submitted
Number Description By Reference To Herewith
2.1 Agreement and Plan of Exhibit 2.1 to Registrant's
Merger, dated as of Current Report on Form 8-k
February 21, 2000, by and dated as of February 21, 2000
among Mutual Savings Bank, (the "2/21/00 8-KK")
OV Corp. and First Northern
Capital Corp.
2.2 Stock Option Agreement, Exhibit 2.2 to the 2/21/00 8-K
dated as of February 21, 2000,
by and between Mutual Savings
Bank and First Northern Capital Corp.
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
<PAGE>
Exhibit 11.1
First Northern Capital Corp.
Computation of Net Income Per Common Share
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ -----
BASIC:
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding during each period 8,462,725 8,733,146 8,521,029 8,762,082
========= ========= ========= =========
DILUTED:
Weighted average common shares
outstanding during each period 8,462,725 8,733,146 8,521,029 8,762,082
Incremental shares relating to:
dilutive stock options outstanding
at end of each period (1) 194,445 167,887 164,894 181,287
--------- --------- --------- ---------
8,657,170 8,901,033 8,685,923 8,943,369
========= ========= ========= =========
NET INCOME FOR EACH PERIOD $1,719,875 $1,874,785 $3,376,178 $3,666,125
========== ========== ========== ==========
PER COMMON SHARE AMOUNTS:
Basic net income $0.20 $0.21 $0.40 $0.42
===== ===== ===== =====
Diluted net income $0.20 $0.21 $0.39 $0.41
===== ===== ===== =====
</TABLE>
----------------------------
Notes:
(1) Based on treasury stock method using average market price.
