<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition report from _______________ to ________________
Commission File Number 0-11889
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1471963
_________________________________ ______________________________
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1305 Main Street
Stevens Point, Wisconsin 54481
(Address of principal executive office)
Registrant's telephone number, including area code (715) 341-0400
Securities registered pursuant to Section 12(b) of the Act Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
_______________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
X _____ No ______
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 or Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
Based upon the closing price of the registrant's common stock as of
March 7, 1994, the aggregate market value of the voting stock held by
non-affiliates of the registrant is: $324,311,850.
As of March 7, 1994, 24,564,999 shares of the registrant's common
stock were outstanding.
Documents Incorporated by Reference.
Part II:
Portions of First Financial Corporation's 1993 Annual Report to
Shareholders.
Part III:
Portions of definitive proxy statement for the 1994 Annual Meeting
of Shareholders.
<PAGE>
PART I
ITEM 1. BUSINESS
FIRST FINANCIAL CORPORATION
First Financial Corporation (the "Corporation"), which was
formed in 1984, conducts business as a multiple savings and loan
holding company. As a Wisconsin corporation, the Corporation is
authorized to engage in any activity permitted by the Wisconsin
Business Corporation Law.
The principal assets of the Corporation are all of the
outstanding stock of First Financial Bank, F.S.B., ("First
Financial") and First Financial-Port Savings Bank, F.S.B.
("Port") - collectively the "Banks". The business of the
Corporation is the business of the Banks. Other activities of
the Corporation could be funded by dividends paid by the Banks,
borrowings or the issuance of additional shares of capital stock.
The Corporation is headquartered at 1305 Main Street, Stevens
Point, Wisconsin, 54481, telephone number
(715) 341-0400.
FIRST FINANCIAL BANK, F.S.B.
First Financial is a federally-chartered, stock savings
institution whose deposits are insured by the Savings Association
Insurance Fund ("SAIF"), as administered by the Federal Deposit
Insurance Corporation ("FDIC"). Business is conducted through
114 full-service branch offices, one limited loan origination
office, an insurance agency and an appraisal company in both
Wisconsin and Illinois. Based on total assets of $4.6 billion at
December 31, 1993, First Financial is the largest thrift
institution headquartered in Wisconsin. The principal mortgage
lending area of First Financial is Wisconsin and Illinois. In
addition to real estate loans, First Financial originates a
significant volume of consumer loans, manufactured housing loans,
credit card loans and student loans. Consumer, home equity and
student lending activities are principally conducted in Wisconsin
and Illinois, while the credit card base and resulting loans are
principally centered in the Midwest. Manufactured housing
lending activity is conducted in Wisconsin, Illinois and other
Midwestern states. Nearly all long-term fixed-rate real estate
mortgage loans generated are sold in the secondary market and to
other financial institutions with First Financial retaining the
servicing of those loans. First Financial offers brokerage
services and also operates a full-line independent insurance
agency and a real estate appraisal company.
First Financial has grown significantly through mergers and
acquisitions since its stock conversion in 1980, when First
Financial had total assets of $244 million and 14 branch offices
in central Wisconsin. In 1984, First Financial and First State
Savings of Wisconsin ("First State"), concurrently with First
State's stock conversion, combined to form the Corporation, which
operated as a multiple savings and loan holding company from 1984
until late 1985 when the Corporation acquired First Savings
Association of Wisconsin ("First Savings"). At that time, all
three institutions were merged together. In 1988, First
Financial acquired National Savings and Loan Association of
Milwaukee, Wisconsin through a merger conversion. By the end of
1988, First Financial's total assets had grown to $2.3 billion
and First Financial operated 63 full-service banking offices
throughout Wisconsin.
Beginning in 1990, First Financial expanded into the
southern Illinois (suburban St. Louis) and Peoria, Illinois
markets by acquiring Illini Federal Savings and Loan Association
of Fairview Heights ("Illini") in a voluntary supervisory merger
conversion and by purchasing the deposits and nine branch banking
offices of two former Peoria thrifts from the Resolution Trust
Corporation ("RTC"). Also during 1990, First Financial acquired
two western-Wisconsin area branch banking offices from the RTC.
During 1992, First Financial acquired ten additional branch
banking offices in the Peoria market, including eight from
LaSalle Talman Bank, FSB ("Talman"), and two from the RTC. In
1993, First Financial acquired Westinghouse Federal Bank, FSB
d/b/a United Federal Bank (United) of Galesburg, Illinois and
also purchased the deposits and the four Quincy, Illinois-area
branch banking offices of Citizens Federal Bank, a FSB
(Citizens).
While pursuing its strategy of expansion by acquisition in
Wisconsin and Illinois, management of First Financial has also
curtailed certain lending activities outside of the Midwest in
recent years. In 1988, First Financial liquidated the West Coast
mortgage banking operation which First Financial had acquired as
part of the acquisition of First Savings. This operation had
incurred continuing operating losses. Also in 1988, First
Financial sold a portion of its credit card loan portfolio,
totaling $44.8 million, consisting of loans concentrated in
California, Texas, and the Northeastern states. First
Financial's credit card lending activities are now focused
primarily on Wisconsin, Illinois and other Midwestern states.
During 1989, First Financial also curtailed manufactured housing
lending outside of the Midwest.
First Financial is a member of the Federal Home Loan ("FHL")
Bank System. First Financial is subject to comprehensive
examination, supervision and regulation by the Office of Thrift
Supervision (the "OTS") and the FDIC, and is also regulated by
the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") as to reserves required to be maintained
against deposits and certain other matters. See "Regulation".
FIRST FINANCIAL - PORT SAVINGS BANK, F.S.B.
Port is a federally-chartered stock savings institution,
acquired by the Corporation in 1989, whose deposits are insured
by SAIF. Effective March 1, 1992, Port was converted to a
federal savings bank charter, having operated as a state-
chartered stock savings institution prior to that date. Business
is conducted through three offices located in Ozaukee County,
Wisconsin. Assets totaled $99.5 million at December 31, 1993.
In addition to real estate loans, Port originates consumer loans,
credit card loans and student loans. Port's lending activities
are principally conducted in Ozaukee County and surrounding
communities.
Port is a member of the FHL Bank System. Port is also
subject to comprehensive examination, supervision and regulation
by the OTS and the FDIC, and is also regulated by the Federal
Reserve Board as to reserves required to be maintained against
deposits and certain other matters. See "Regulation".
RECENT DEVELOPMENT
On February 26, 1994, the Corporation acquired NorthLand
Bank of Wisconsin, SSB (NorthLand), of Ashland, Wisconsin,
through an exchange of stock valued at 130 percent of NorthLand's
defined tangible stockholders' equity at closing. Upon closing,
NorthLand was merged into First Financial. The transaction has
been accounted for as a pooling-of-interests. As of December 31,
1993, NorthLand had total assets and shareholders' equity of
$127.4 million and $11.4 million, respectively.
FINANCIAL RATIOS
Year Ended December 31,
1993 1992 1991
Return on average assets* .98% .79% .58%
Return on average equity* 21.23 15.78 11.85
Average equity to average assets 4.62 4.99 4.86
Dividend payout ratio* 18.62 17.93 19.87
Net interest spread:
During the period 3.33 3.27 3.12
At end of period 3.29 3.27 3.27
* Ratio for 1992 is based upon net income prior to the
$5.6 million increase in net income arising from the
cumulative effect of a change in accounting principle.
MARKET AREA AND COMPETITION
At December 31, 1993, the Banks conducted business from 117
full-service branch banking offices located in 53 Wisconsin and
35 Illinois communities. The offices are located throughout most
of Wisconsin and much of downstate Illinois, including the Peoria
and suburban St. Louis areas. These offices include 27 locations
in the Milwaukee Metropolitan Statistical Area ("MSA"), the
largest in Wisconsin, and 29 locations in the Peoria and
St. Louis MSA's, Illinois' largest outside of Chicago.
In 1990, the counties in which the Banks had offices in
Wisconsin and Illinois had a total population of 5.0 million.
Between 1980 and 1990, the population of this area increased
1.4%, compared to 1.2% for the two-state area. The median
household income in these counties was $30,598 according to the
1990 Census, compared to $31,402 for the two-state area. It
increased 63.1% between 1980 and 1990. This area, in both
states, contains a diversity of major urban and suburban areas,
smaller less-urbanized communities and predominantly rural areas.
Some of the larger companies headquartered in First Financial's
market include Briggs & Stratton Company, A.O. Smith, General
Electric Medical Systems, Allen Bradley, Miller Brewing Company,
Johnson Controls and Caterpillar.
First Financial also does business outside of Wisconsin and
Illinois. At December 31, 1993, the credit card loan portfolio
of First Financial was distributed approximately 42% to Wisconsin
residents, 11% to Illinois, 5% to California, 4% to Michigan, 3%
to New York, 3% to Texas, 3% to Ohio and 29% to other states.
First Financial originates manufactured housing loans in
Wisconsin, Indiana, Ohio, Illinois, Iowa, Michigan, Minnesota and
Missouri. Consumer and student loans are made principally to
Wisconsin, Illinois and other Midwestern residents.
The Banks are subject to competition from other savings
institutions as well as commercial banks and credit unions in
both attracting and retaining deposits and in real estate and
other lending activities. Competition for deposits also comes
from money market funds, bond funds, corporate debt and
government securities. Competition for the origination of real
estate loans comes principally from other savings institutions,
commercial banks and mortgage banking companies. Competition for
manufactured housing loans is primarily from other financial
institutions or entities. Consumer loan competition principally
emanates from other savings institutions, commercial banks,
automobile manufacturers and their financing subsidiaries,
consumer finance companies and credit unions.
The principal methods used by competing financial
institutions to attract deposit accounts include rates of return,
types of accounts, convenience of office locations, and other
services. The primary factors in competing for loans are
interest rates, loan fee charges, and timing and quality of
service to the borrower.
As a Wisconsin-based savings and loan holding company, the
Corporation may acquire savings institutions or savings and loan
holding companies located in the states of Illinois, Indiana,
Iowa, Kentucky, Michigan, Minnesota, Missouri, Ohio and Wisconsin
("Regional Compact States"). Further, the OTS's statement of
policy on branching by federally chartered savings institutions
permits nationwide branching. However, nationwide branching is
not permitted to the extent that it would result in formation of
a multiple savings and loan holding company (such as the
Corporation) controlling savings institutions in more than one
state. Generally, the formation of multi-state multiple savings
and loan holding companies are prohibited unless one of three
exemptions exists. The first exemption authorizes a savings and
loan holding company or any of its savings institution
subsidiaries to acquire an institution or operate branches in
another state following a supervisory acquisition. The second
exemption relates to grandfathered branching rights and the third
exemption relates to specific approvals under the laws of the
state in which the acquired institution or branches are located.
Additionally, OTS regulations allow federal savings
institutions to establish, in any state in which the institution
has its home or a branch office, agency offices which only
service and originate (but do not approve) loans and contracts,
manage or sell real estate owned by the institution or engage in
such other activities (other than accepting payments on savings
accounts or approving loans) as may be approved by the District
Director of the OTS for the region in which the institution is
located.
Management of the Corporation is not able to predict, at
this time, what new laws will be enacted, if any, or what effect
such new laws would have on the financial condition and prospects
of the Corporation and the Banks.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present selected historical consolidated financial
information of the Corporation.
<TABLE>
<CAPTION>
December 31,
1993 (e) 1992 (f) 1991 1990 (g) 1989 (h)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Financial Condition and Other Data
Total assets . . . . . . . . . . . . . . $4,774,633 $3,908,286 $3,220,002 $3,142,293 $2,456,695
Investments (a). . . . . . . . . . . . . 275,696 163,800 104,022 186,139 137,839
Loans receivable and mortgage-related
securities . . . . . . . . . . . . . . 4,174,838 3,457,466 2,847,175 2,685,162 2,125,376
Loans held for sale-net. . . . . . . . . 73,919 54,840 38,061 53,103 16,888
Intangible assets. . . . . . . . . . . . 31,392 23,278 20,388 23,178 5,505
Deposits . . . . . . . . . . . . . . . . 4,050,520 3,206,112 2,935,645 2,883,214 2,098,234
Borrowings . . . . . . . . . . . . . . . 438,598 461,948 77,243 60,351 177,253
Shareholders' equity (substantially
restricted)(b) . . . . . . . . . . . . 234,685 194,095 164,535 149,576 137,081
Number of full-service offices . . . . . 117 94 86 86 67
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1993 (e) 1992 (f) 1991 1990 (g) 1989 (h)
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data
Interest income. . . . . . . . . . . . . $ 340,123 $ 296,871 $ 300,081 $ 292,141 $ 235,890
Interest expense . . . . . . . . . . . . 189,734 181,896 203,749 204,748 162,059
Net interest income. . . . . . . . . . . 150,389 114,975 96,332 87,393 73,831
Provision for losses on loans. . . . . . (10,219) (13,851) (18,333) (16,044) (18,306)
Loan fees and servicing income . . . . . 14,112 12,961 15,143 15,884 14,510
Other non-interest income. . . . . . . . 16,034 14,348 13,628 13,996 12,344
Gain on sale of loans and securities . . 7,575 4,900 5,560 1,503 5,535
Non-interest expense . . . . . . . . . . (105,804) (88,711) (81,395) (76,840) (64,868)
Income before income taxes and the
cumulative effect of a change in
accounting principle . . . . . . . . . 72,087 44,622 30,935 25,892 23,046
Income taxes . . . . . . . . . . . . . . 26,872 16,190 12,409 9,870 8,670
Income before the cumulative effect of a
change in accounting principle. . . . . 45,215 28,432 18,526 16,022 14,376
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Cumulative effect of a change in
accounting principle (c). . . . . . . . -- 5,600 -- -- --
Net income . . . . . . . . . . . . . . . $ 45,215 $ 34,032 $ 18,526 $ 16,022 $ 14,376
Earnings per share (d):
Primary:
Income before the cumulative effect
of a change in accounting principle
(c) . . . . . . . . . . . . . . . $ 1.88 $ 1.21 $ .80 $ .70 $ .63
Net income. . . . . . . . . . . . . 1.88 1.45 .80 .70 .63
Fully Diluted:
Income before extraordinary items
and the cumulative effect of a change
in accounting principle (c) . . . . $ 1.86 $ 1.19 $ .79 $ .70 $ .63
Net income. . . . . . . . . . . . . 1.86 1.43 .79 .70 .63
Cash dividends declared and paid per
share (f) . . . . . . . . . . . . . . $ .35 $ .22 $ .16 $ .16 $ .15
</TABLE>
(a) Consists of federal funds sold, interest-earning deposits,
and investment securities.
(b) See Note L to the Corporation's consolidated financial
statements.
(c) A $5.6 million credit was realized in 1992 from the
cumulative effect of the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes". See Note A to the Corporation's consolidated
financial statements.
(d) Per share data have been adjusted to reflect A) a two-for-
one stock split distributed in March, 1993, B) a two-for-
one stock split distributed in April, 1992 and C) a ten
percent stock dividend distributed in March, 1989. See
Note A to the Corporation's consolidated financial
statements.
(e) In 1993, First Financial acquired United and also purchased
the deposits and the four Quincy, Illinois-area branch
banking offices of Citizens. Each transaction has been
accounted for as a purchase and the related results of
operations have been included in the Corporation's
consolidated financial statements since the respective
dates of acquisition. See Note B to the Corporation's
consolidated financial statements.
(f) During the first quarter of 1992, First Financial completed
the assumption of deposits and the purchase of branch
facilities of ten Peoria, Illinois-area branches including
eight from the Talman and two from the RTC. Each of these
transactions was accounted for as a purchase. See Note B
to the Corporation's consolidated financial statements.
(g) The Corporation completed the acquisition of Illini on
January 19, 1990 and, at various dates during 1990, the
assumption of the deposits and purchase of certain assets
of three former thrift institutions from the RTC. Each of
these transactions has been accounted for as a purchase and
the related results of operations have been included in the
Corporation's consolidated financial statements since the
respective dates of acquisition.
(h) The acquisition of Port was completed on May 31, 1989 and
was accounted for as a purchase. Accordingly, the results
of Port's operations have been included in the
Corporation's consolidated financial statements since that
date.
Lending Activities (Including Mortgage-Related Securities)
General. The Banks have traditionally concentrated on
origination of conventional mortgage loans secured by first liens
on one- to four-family residences. The Banks also make loans
which are insured by the FHA or partially guaranteed by the VA as
well as home loans on behalf of or for immediate sale to the
Wisconsin Department of Veterans Affairs ("WDVA"), the Wisconsin
Housing and Economic Development Authority ("WHEDA") and the
Illinois Housing and Development Authority (IHDA). At December
31, 1993, the Corporation's total loan portfolio, including
mortgage-related securities, amounted to $4.3 billion, including
mortgage loans totaling $2.1 billion of which $1.8 billion, or
41.1% of the total loan portfolio, before net items, were loans
secured by one- to four-family residences. In addition, the
Banks make long-term, first mortgage real estate loans on
multiple dwelling units and commercial properties, second
mortgages and short-term construction loans. As a means of
better matching maturities of its asset and liability products,
the Banks have also originated other types of high-yielding loan
products which have either a short term to maturity or contain
adjustable-rate features. These products include education
loans, credit card loans, home equity loans, consumer loans
principally consisting of automobile collateral and manufactured
housing loans consisting of conventional loans, VA-guaranteed
loans and FHA-insured loans. At December 31, 1993, these loans
amounted to $888.8 million, or 20.7%, before net items, of the
total loan portfolio. Loans with terms up to 15 years and loans
with adjustable interest rates are originated for the Banks' own
portfolios, while longer-term fixed-rate mortgage loans are
originated for sale in the secondary market. The Federal Reserve
Board is authorized to promulgate regulations limiting the
maximum interest rate that may apply during the term of
adjustable-rate mortgage loans originated by savings institutions
such as the Banks. Under the regulation adopted by the Federal
Reserve Board, no specific interest rate limit is set, but
lenders are required to impose interest rate caps on all
adjustable-rate mortgage loans and all dwelling-secured consumer
loans, including home equity loans, which provide for interest
rate adjustments. The regulation is applicable to loans made
after December 8, 1987.
The Banks also periodically purchase mortgage-related securities
as a lending alternative when excess liquidity is available. At
December 31, 1993, these securities amounted to $1.3 billion, or
30.9% of the total loan portfolio, before net items. Included in
mortgage-related securities are adjustable-rate securities
totaling $1.1 billion. The Banks also review the geographic
distribution of collateral when purchasing non-agency mortgage-
related securities. In an effort to decrease the concentration
of collateral located in the states of California, New York and
New Jersey, the Banks have implemented a policy of limiting the
concentration of underlying collateral in those three states to
15% of the total collateral underlying any new non-agency issue
that is purchased for the Banks' portfolio. For a related
discussion of the accounting for debt securities, including
mortgage-related securities, see "Investment Securities." For
further discussion of the mortgage-related securities portfolio,
see Notes A and D to the Corporation's consolidated financial
statements, filed as an exhibit hereto.
Loan Portfolio Composition. The following table sets forth
information concerning the composition of the Corporation's total loan
portfolio including loans held for sale and mortgage-related
securities, on a consolidated basis, before net items, by type of loan.
Total loans receivable, including net items but excluding loans held
for sale and mortgage-related securities are set forth in Note E to
the Corporation's consolidated financial statements. The data
presented include the accounts of the Corporation (on a parent-company
only basis) and First Financial for all periods, Port since its
acquisition in 1989, and the balances of interest-sensitive assets and
liabilities arising from the 1990, 1992 and 1993 acquisitions are
included from the respective dates of the related transactions.
<PAGE>
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990 1989
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loans
Real estate mortgage loans:
Conventional loans:
One- to four-family . . $1,766,519 41.1% $1,230,914 34.5% $1,084,541 37.0% $1,245,965 44.7% $1,104,530 50.3%
Multi-family. . . . . . 183,619 4.3 155,798 4.4 133,965 4.6 133,485 4.8 95,161 4.3
FHA and VA . . . . . . . 36,410 .8 43,708 1.2 53,299 1.8 59,286 2.1 59,769 2.7
Commercial and other real
estate.. . . . . . . . 94,789 2.2 101,865 2.9 100,915 3.4 111,569 4.0 129,079 5.9
Total real estate mortgage
loans . . . . . . . . 2,081,337 48.4 1,532,285 43.0 1,372,720 46.8 1,550,305 55.6 1,388,539 63.2
Other loans:
Credit card loans. . . . 209,414 4.9 178,436 5.0 160,712 5.5 152,320 5.5 142,946 6.5
Home equity loans. . . . 193,291 4.5 162,283 4.6 141,285 4.8 113,426 4.0 98,877 4.5
Education loans. . . . . 167,385 3.9 163,261 4.6 158,664 5.4 144,054 5.2 125,445 5.8
Manufactured housing loans . 165,017 3.8 133,195 3.7 140,384 4.8 155,466 5.6 174,123 7.9
Consumer loans . . . . . 153,574 3.6 89,028 2.5 64,578 2.2 99,514 3.6 98,034 4.5
Other loans. . . . . . . 111 -- 3,298 .1 4,831 .1 5,166 .1 5,409 .2
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total other loans. . . . 888,792 20.7 729,501 20.5 670,454 22.8 669,946 24.0 644,834 29.4
Total loans receivable before
net items . . . . . 2,970,128 69.1 2,261,786 63.5 2,043,174 69.6 2,220,251 79.6 2,033,373 92.6
Mortgage-related
securities. . . . . . 1,326,253 30.9 1,301,589 36.5 893,733 30.4 569,085 20.4 162,056 7.4
Total Loans Receivable Before
Net Items And Mortgage-
Related Securities . . .$4,296,382 100.0% $3,563,375 100.0% $2,936,907 100.0% $2,789,336 100.0% $2,195,429 100.0%
</TABLE>
A summary of the Corporation's loan portfolio, before net items,
including loans held for sale and mortgage-related securities is set forth
below by adjustable-rate loans, short-term loans and fixed-rate loans.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992 December 31, 1991
Percent Percent Percent
Balance Of Total Balance Of Total Balance Of Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate loans:
Mortgage-related securities. . . . . . . . . $ 1,151,360 $1,140,581 $ 679,983
Mortgage loans . . . . . . . . . . . . . . . 515,755 498,118 632,965
Education loans. . . . . . . . . . . . . . . 167,385 163,261 158,664
Home equity loans. . . . . . . . . . . . . . 193,291 162,283 141,285
Manufactured housing loans . . . . . . . . . 5,857 7,111 10,626
Consumer loans . . . . . . . . . . . . . . . 5,816 1,741 2,709
Total . . . . . . . . . . . . . . . . . 2,039,464 47.5% 1,973,095 55.4% 1,626,232 55.4%
Short-term loans*:
Credit card loans. . . . . . . . . . . . . . 209,414 178,436 160,712
Mortgage loans . . . . . . . . . . . . . . . 230,054 158,351 120,028
Consumer loans . . . . . . . . . . . . . . . 55,414 32,608 26,925
Deposit account loans. . . . . . . . . . . . 4,158 3,889 5,641
Manufactured housing loans . . . . . . . . . 1,443 5,761 5,461
Total . . . . . . . . . . . . . . . . . 500,483 11.6 379,045 10.6 318,767 10.8
Total adjustable-rate and
short-term loans. . . . . . . . . . . . . 2,539,947 59.1 2,352,140 66.0 1,944,999 66.2
Loans having maturities greater than
three years:
Conventional mortgage loans. . . . . . . . . 1,299,057 831,993 568,124
FHA/VA mortgage loans. . . . . . . . . . . . 36,470 43,823 51,603
Mortgage-related securities. . . . . . . . . 174,893 161,008 213,750
Conventional manufactured
housing loans. . . . . . . . . . . . . . . 72,165 81,153 94,057
FHA/VA manufactured housing
loans. . . . . . . . . . . . . . . . . . . 85,552 39,170 30,240
Consumer loans . . . . . . . . . . . . . . . 88,187 50,790 29,303
Other loans. . . . . . . . . . . . . . . . . 111 3,298 4,831
Total fixed-rate loans. . . . . . . . . 1,756,435 40.9 1,211,235 34.0 991,908 33.8
Total . . . . . . . . . . . . . . . . . $4,296,382 100.0% $3,563,375 100.0% $2,936,907 100.0%
* Credit card and fixed-rate loans with remaining contractual life of three
years or less.
</TABLE>
As of December 31, 1993, the total amount of loans held by
the Banks repricing or maturing after December 31, 1994 was
$2.18 billion. Of these loans, $1.84 billion have fixed rates of
interest and $340.5 million have short-terms or adjustable
interest rates.
The following table sets forth, at December 31, 1993, the
dollar amount of loans maturing in the Banks' loan portfolios
before net items, plus loans held for sale and mortgage-related
securities, based on either their contractual terms to maturity
or for the remaining time before the loans can be repriced during
the periods indicated.
<TABLE>
<CAPTION>
1995 - 1997 - 1999 - 2004 - After
1994 1996 1998 2003 2013 2013 Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans . . . . . $ 382,149 $147,791 $110,622 $395,785 $ 896,899 $ 89,499 $2,022,745
Construction mortgage loans. . . . . 12,586 21,125 5,095 6,600 12,939 247 58,592
Mortgage-related securities. . . . . 1,151,360 28,183 6 33,807 61,142 51,755 1,326,253
Credit card and home equity
loans. . . . . . . . . . . . . . . 379,185 23,520 -- -- -- -- 402,705
Other loans* . . . . . . . . . . . . 189,974 51,927 62,439 107,956 63,988 9,803 486,087
Total . . . . . . . . . . . . $2,115,254 $272,546 $178,162 $544,148 $1,034,968 $151,304 $4,296,382
* Includes consumer, manufactured housing and student loans.
</TABLE>
One- to Four-Family First Mortgage Loans. The primary
mortgage loan product of the Banks is the single family home loan
with some additional volume being secured by two- to four-family
residential units. In addition to a conventional mortgage loan
program, the Banks have available various other programs
including FHA-insured, VA-guaranteed, FmHA-guaranteed, Wisconsin
and Illinois state agency and veterans programs and jumbo
mortgage loans in excess of a specified balance. These mortgage
loan products are originated using either a fixed-rate, or an
adjustable-rate of interest indexed primarily to one-year U.S.
Treasury securities yields, three-year Treasury securities yields
or the national cost of funds index as published by the FHL
Banks. Original terms to maturity vary from 15 years to 30
years. First Financial currently holds in its portfolio loans
for terms up to 15 years and generally sells fixed-rate mortgage
loans having maturities greater than 15 years in the secondary
mortgage market.
Income-Producing Real Estate Property Loans. First
Financial, through its commercial mortgage real estate division,
has sought to diversify its loan portfolio through the
origination of loans on selected income-producing real estate
properties, which meet strict internal underwriting guidelines.
First Financial also periodically seeks to limit its overall
exposure relative to such loans through the sale of participation
interests and whole loans to other financial institutions. First
Financial provides servicing of these loans for participants (see
"Loan Servicing").
Among the projects financed by First Financial and Port are
apartments, office buildings, retail centers, medical clinics,
industrial buildings, elderly housing and other commercial real
estate located primarily in Wisconsin, Illinois and other
Midwestern states. The level of originations of commercial real
estate loans, excluding multi-family mortgage loans, has declined
significantly in recent years because management has chosen to
de-emphasize this product due to market conditions and regulatory
capital requirements. First Financial has, beginning in 1993,
emphasized multi-family mortgage loans, targeting five- to
twelve-family units. Multi-family and commercial real estate
lending involves greater risks than does one- to four-family
residential lending. The repayment of loans collateralized by
income-producing real estate is dependent upon the successful
operation of the related real estate property and also on the
credit and net worth of the borrower and thus is subject to
conditions in the real estate market, interest-rate levels and
overall economic conditions. The underwriting process for such
loans is structured to ascertain that each property has
sufficient value and market appeal to provide adequate security
for the loan and that the property will produce sufficient income
to meet minimum debt service coverage ratios established by the
Banks, which vary depending upon the property type. All
properties are also inspected, independently appraised in
accordance with applicable regulatory standards, and reviewed by
a qualified engineer. Loans on such properties are generally not
permitted to exceed a loan-to-value ratio of 75%. Also, each
borrower is reviewed as to management talent, integrity,
experience and available financial resources. The Banks
generally require the personal guarantee of the debt by all
parties holding a major equity interest in the secured property
when the owner/borrower is a business entity.
Additionally, the portfolio of income-producing properties is
reviewed on a continuing basis to identify any potential risk
that exists for the Banks through undue concentration of the
portfolio in any one borrower, property type or geographic
location. These and other underwriting standards are documented
in written policy statements, which are periodically updated, and
approved by the Banks' respective Boards of Directors.
Lending terms for the Banks' income-producing real estate
property loans generally call for a maturity of three to fifteen
years based upon an amortization schedule of fifteen to thirty
years and an interest rate periodically adjustable based upon a
cost of funds index.
Borrowers may experience cash flow from the property which is
inadequate to service the debt. This cash flow shortage may
result in the failure to make loan payments. Additionally, the
repayment of loans secured by income-producing properties is
dependent on the successful operation of the related real estate
project and the financial strength of the borrower and thus, is
subject to adverse conditions in the real estate market or the
economy in general.
Construction Loans. Loans made by the Banks to provide
interim financing for residential and commercial properties
during the construction period are typically originated for
periods of six to eighteen months. These loans are generally
limited to 75% of value of the property upon completion.
Construction loan funds are periodically disbursed as
construction progresses. At any stage of construction, remaining
undisbursed funds are in amounts estimated to be adequate for
completion or sale of the property.
Construction lending is generally considered to involve a
higher level of risk than lending secured by existing properties
because properties securing these loans are generally more
speculative and more difficult to evaluate and monitor. The
Banks' risk of loss on construction or development loans is
dependent upon the accuracy of the initial estimate of the
property's value at completion of the project and the estimated
cost of the project. If the estimate of construction or
development costs proves to be inaccurate, the Banks may be
required to advance funds beyond the amount originally committed
to permit completion of the project. If the estimate of the
value proves to be inaccurate, the lender may be confronted with
a property having a value which is insufficient to assure full
repayment of the construction loan upon securing a permanent
mortgage loan. The Banks had construction loans outstanding of
$58.6 million, at December 31, 1993, of which $53.1 million was
collateralized by residential real estate.
Manufactured Housing Loans. Through a series of dealer
relationships in Wisconsin and other Midwestern states, First
Financial indirectly originates manufactured housing loans. The
dealers close the loans at their locations after forwarding all
necessary documentation to First Financial for underwriting,
processing, and credit checks in order to receive approval to
originate the loans for ultimate purchase by First Financial.
Funds for the purchase of the loan are disbursed directly to the
dealers either by check or direct deposit. The loans are either
conventional or originated under the FHA-insured or VA-guaranteed
programs throughout the various states. The term of such loans
is usually up to 15 years at fixed interest rates.
Consumer and Other Loans. The Banks offer a variety of
lending products to meet the specific needs of consumers. These
products include secured and unsecured installment loans with
fixed repayments, student loans, credit card programs and home
equity loans. Consumer loans are made directly with the customer
and are secured by automobiles, recreational vehicles,
manufactured homes, junior mortgages on real estate or deposit
accounts. The Banks provide financing on both new and used
automobiles, recreational vehicles and manufactured homes using
different rates and terms to maturity to compensate for the
difference in the collateral value of the property and the
related credit risk. In addition to the secured consumer loans,
the Banks extend unsecured loans to qualified borrowers based
upon their financial statements and creditworthiness. The vast
majority of the consumer loan originations are made within
Wisconsin and Illinois through the extensive branch network of
the Banks.
Several student loan programs are offered by the Banks
through three guarantor programs, with the majority being
originated within Wisconsin. The various student lending
programs meet a variety of borrower financial qualifications with
varying rate structures. Additionally, First Financial offers a
consolidation loan plan whereby various student loans can be
combined for the convenience and benefit of the borrower.
First Financial offers credit card programs to the general
public and have also placed additional emphasis on issuing cards
through organizations whose membership substantially meets the
qualifying criteria ("affinity programs"). Certain additional
benefits can be linked to card usage under the affinity programs.
These affinity programs are related to the Visa/Mastercard credit
card programs operating on a nationwide basis. In addition to
the regular credit card products, First Financial also operates
the BasiCard program which offers the consumer a lower cost, no-
frills charge card bearing an interest rate of 14.9% applied to
balances and advances.
During the last decade the Banks placed additional emphasis
on their home equity loan program. The new emphasis was tied to
federal income tax law changes which were brought about during
1986, causing consumers to look for a new vehicle through which
to finance future needs on a tax-deductible basis. As a result
of federal tax legislation adopted in 1987, however, interest on
a home equity line of credit is deductible only up to $100,000 of
principal. The home equity loan calls for a floating interest
rate which is linked to the prime interest rate and is secured by
a mortgage, either a primary or a junior lien, on the borrower's
residence. As an additional convenience to consumers, the home
equity lines are generally tied to a Gold or a standard
Mastercard credit card account whereby consumers can conveniently
draw against their approved line through the use of their credit
card. Fixed-rate non-revolving second mortgage loans are also
offered.
Loan Originations, Purchases and Sales. The Banks' loan
originations come from a number of sources. Residential mortgage
loan originations are attributable primarily to depositors, walk-
in customers, referrals from real estate brokers and builders,
out-of-state originators and direct solicitations. In addition,
the Banks also acquire refinanced residential mortgage loans
which were previously originated by the Banks, but sold to and
serviced for other financial institutions. Prior to acquisition,
these loans are refinanced to a lower rate, as per the borrower's
request. Commercial mortgage loan originations are obtained by
direct solicitation and referrals. VA-guaranteed, FHA-insured
and conventional manufactured housing loans are obtained from
approved dealers. Consumer loans are originated from walk-in
customers, existing depositors and mortgagors and direct
solicitations. Student loans are originated from solicitation of
eligible students and from walk-in customers. First Financial
also periodically purchases student loan portfolios from other
lenders.
Real estate loans are originated by loan officers in the
Banks' offices. Relative to First Financial's real estate loans,
loans up to the FHLMC/FNMA upper limit authority (currently
$203,150 for single-family mortgage loans) for one- to four-
family residences are approved by an underwriter who is employed
by First Financial. Loans in excess of this amount up to
$250,000 are approved by designated officers. Loans in excess of
$250,000 up to $1,500,000 are approved by an officer loan
committee. Loans in excess of $1,500,000 require approval of the
Executive Committee of the Board of Directors of First Financial,
and loans in excess of $5,000,000 require approval of First
Financial's full Board of Directors. The majority of
conventional home mortgage loans are written to comply with
underwriting standards of FHLMC and/or FNMA to ensure that
national standards are being met and that First Financial's loans
meet or exceed national secondary market requirements. All loans
are centrally reviewed by an underwriting staff prior to final
approval to ensure compliance with loan underwriting policies.
With respect to the appraisal of properties, borrowers may use
the appraisal subsidiary of First Financial or outside appraisers
preapproved by First Financial's Board of Directors. Relative to
real estate loan originations by Port, loans of up to $200,000
for one- to four-family residences and all other loans under
$100,000 can be approved by a designated officer of Port. Loans
above these parameters are approved by a committee consisting of
three officers and three outside directors. All loan approvals
are subsequently reviewed by the Board of Directors of Port.
In general, the Banks may lend up to 100% of the appraised
value of real property for residential purposes provided loans in
excess of 80% have private mortgage insurance, a government
guarantee, additional collateral or a combination of both. In
practice, most of the Banks' mortgage loans are written in the
range of 75% to 95% loan-to-value ratio.
Real estate loans are secured by a first mortgage, subject to
title insurance and are covered by fire and casualty insurance.
When appropriate, flood insurance is also required. Related
costs, together with private mortgage insurance as required, are
paid by the borrower.
The Banks encounter certain environmental risks in their
lending activities. Under federal and state environmental laws,
lenders may become liable for costs of cleaning up hazardous
materials found on secured properties. Certain states may also
impose liens with higher priorities than first mortgages on
properties to recover funds used in such efforts. Although the
foregoing environmental risks are more usually associated with
industrial and commercial loans, environmental risks may be
substantial for residential lenders, like the Banks, since
environmental contamination may render the secured property
unsuitable for residential use. In addition, the value of
residential properties may become substantially diminished by
contamination of nearby properties. In accordance with the
guidelines of FNMA and FHLMC, appraisals for single-family homes
on which the Banks lend include comments on environmental
influences and conditions. The Banks attempt to control their
exposure to environmental risks with respect to loans secured by
larger properties by monitoring available information on
hazardous waste disposal sites and requiring environmental
inspections of such properties prior to closing the loan. No
assurance can be given, however, that the value of properties
securing loans in the Banks' portfolios will not be adversely
affected by the presence of hazardous materials or that future
changes in federal or state laws will not increase the Banks'
exposure to liability for environmental cleanup.
The following table shows loan and mortgage-related
securities originations, purchases, sales and repayment
activities of the Banks on a consolidated basis for 1993, 1992
and 1991.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Loans originated:
Mortgage loans:
One- to four-family . . . . . . . . . . . . . . . . $1,045,795 $ 598,477 $ 295,206
Multi-family. . . . . . . . . . . . . . . . . . . . 85,719 54,643 28,900
Commercial real estate. . . . . . . . . . . . . . . 10,712 6,821 5,956
Refinanced residential mortgage loans
previously sold and serviced for others. . . . . . 187,066 294,477 44,334
1,329,292 954,418 374,396
Consumer loans. . . . . . . . . . . . . . . . . . . . . 136,766 93,967 59,854
Education loans . . . . . . . . . . . . . . . . . . . . 31,885 30,115 36,875
Home equity loans - net increase. . . . . . . . . . . . 31,008 19,385 27,860
Credit card loans - net increase. . . . . . . . . . . . 30,978 17,724 8,393
Manufactured housing loans. . . . . . . . . . . . . . . 23,405 17,292 11,361
Refinanced manufactured housing loans pre-
viously sold and serviced for others. . . . . . . . . 36,953 -- --
Decrease (increase) in undisbursed
loan proceeds. . . . . . . . . . . . . . . . . . . . . 8,142 322 (1,910)
Total loans originated. . . . . . . . . . . . 1,628,429 1,133,223 516,829
Mortgage-related securities purchased. . . . . . . . . . 240,640 696,206 616,306
Total originations and purchases. . . . . . . 1,869,069 1,829,429 1,133,135
Loans and mortgage-related securities from
acquisitions (before net items) . . . . . . . . . . . . 540,474 146 --
Market valuation adjustment: available-
for-sale mortgage-related securities . . . . . . . . . 2,979 -- --
Loan repayments and sales:
Repayments of loans and mortgage-related
securities. . . . . . . . . . . . . . . . . . . . . 949,794 711,259 504,342
Sales of one- to four-family real estate
loans . . . . . . . . . . . . . . . . . . . . . . . 614,664 481,586 285,355
Sales of multi-family and commercial
real estate loans . . . . . . . . . . . . . . . . . 25,621 9,128 10,179
Sales of mortgage-related securities. . . . . . . . . . 81,294 812 154,506
Sales of manufactured housing loans . . . . . . . . . . -- -- 503
Sales of indirect automobile loans. . . . . . . . . . . -- -- 30,679
Total repayments and sales. . . . . . . . . . 1,671,373 1,202,785 985,564
Increase in total loans before net items
(excluding change in undisbursed loan
proceeds), including loans held for sale
and mortgage-related securities . . . . . . . . . . . . $ 741,149 $ 626,790 $ 147,571
</TABLE>
First Financial has been actively engaged in secondary
mortgage market activities on a national basis through the sale
of whole loans and participations to pension funds, insurance
companies, banks, other savings institutions and governmental
units such as FHLMC, FNMA, GNMA and special Wisconsin programs.
On a limited basis, the Banks and their predecessors have
purchased selected groups of loans or a portfolio of loans.
First Financial also periodically has used its loans to
securitize mortgage-related securities sold by registered broker-
dealers. Sales of loans are used to provide additional funds for
lending, to generate servicing fee income and to reduce the risk
resulting from fluctuating interest rates and loan concentrations.
Under loan sales and participation agreements, First Financial
sells mortgage loans on a non-recourse basis and pays participants
an agreed upon yield on the participant's portion of the loan out of
monthly payments received from the borrowers. First Financial, in
general, has forward commitments to sell all of its fixed-rate
mortgage loans, having maturities of greater than 15 years, which
are closed or approved and one-half of the amount of such loans
pursuant to accepted applications for loans. The sale of $30.7
million of indirect automobile loans in 1991 was the result of
management's decision to discontinue this line of customer business.
Loan Servicing. The Banks have originated the majority of
the loans they service for others. They receive fees for those
servicing activities, which include collecting and remitting loan
payments, inspecting the properties and making certain insurance
and tax payments on behalf of the borrowers. At December 31,
1993, the Banks were servicing $1.30 billion of mortgage and
manufactured housing loans owned by others. Mortgage loans
totaling $1.25 billion were being serviced for annual fees
ranging from 1/4 to 1/2 of 1% of the unpaid principal, and
$50.0 million of manufactured housing loans were being serviced
for investors. Servicing fees retained on manufactured housing
loans average approximately 2.3% of the unpaid principal,
reflecting the higher costs of servicing these loans. The
following table sets forth information as to the Banks' loan
servicing portfolio, net of loans in process, at the dates shown.
<TABLE>
<CAPTION>
December 31,
1993 1992
Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans owned by the Banks . . . . . . . . . . . . . . . $2,951,000 69.0% $2,235,000 63.0%
Loans serviced for others. . . . . . . . . . . . . . . 1,301,000 31.0 1,311,000 37.0
Total loans serviced . . . . . . . . . . . . . . $4,252,000 100.0% $3,546,000 100.0%
</TABLE>
Information concerning the Banks' servicing income from loans
serviced for others is summarized in the following table for the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Loan servicing income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,233 $4,395 $6,920
Servicing spread for the year* . . . . . . . . . . . . . . . . . . . . . .401% .307% .443%
</TABLE>
*
The servicing spread represents the average fee earned as a
percentage of average balances of loans serviced for others,
net of undisbursed proceeds, as reduced by the periodic
amortization of purchased and capitalized excess mortgage
servicing rights.
Net loan servicing income has decreased in 1993 and 1992 from
the levels experienced in 1991 and prior to 1991, as a result of
A) a decrease in the average servicing spread on serviced
mortgage loans, B) a decline in the size of the manufactured
housing servicing portfolio due to management's decision to
restrict manufactured housing lending to the Midwest, and C)
increased amortization of purchased mortgage servicing rights and
capitalized excess servicing rights totaling $1.4 million,
$3.5 million and $2.8 million for 1993, 1992 and 1991,
respectively. The remaining purchased mortgage servicing rights,
which are amortized over the expected lives of the related loans
using the level yield method and are adjusted for prepayments,
had a carrying value of $453,000 at the end of 1993.
Fee Income From Lending Activities. Loan origination and
commitment fees and certain direct loan origination costs are
being deferred and the net amounts amortized as an adjustment of
the related loan's yield. The Banks are amortizing these
amounts, using the level yield method, over the contractual lives
of the related loans.
The Banks also receive other fees and charges relating to
existing mortgage loans which include prepayment penalties, late
charges and fees collected in connection with a change in
borrower or other loan modifications. Other types of loans also
generate fee income for the Banks. These include annual fees
assessed on credit card accounts, transactional fees relating to
credit card usage and late charges on consumer loans and
manufactured housing loans.
Collateralized Industrial Development Revenue Bonds.
Additional income has been earned by First Financial and Port by
offering loans and securities in their portfolios to third
parties for their use as collateral. The Banks have previously
entered into agreements under which mortgage loans and investment
securities held in portfolio are pledged as secondary collateral
in connection with the issuance of Industrial Development Revenue
Bonds. The bonds were issued by municipalities to finance multi-
family or commercial real estate owned by third parties unrelated
to the Banks. Under the terms of these agreements, the Banks
i) issue uncollateralized letters of credit or ii) maintain, with
a trustee, mortgage loans or securities with a fair market value,
as defined, aggregating up to 180% of the outstanding principal
balance of the bonds to provide security for the payment of
principal, interest and any mandatory redemption premium owing on
the bonds. The Banks continue to receive principal and interest
payments on the mortgage loans or securities used as collateral.
If any of such bonds were in default, the Banks would have the
primary obligation to either pay any amount in default or to
acquire the bonds on which the default had occurred. If the
Banks were required to perform under these agreements, they would
foreclose on the existing mortgage, and security interest in, the
real and personal property financed with the proceeds of the
bonds. The Banks have discontinued this line of business and do
not currently anticipate entering into any new agreements, except
for the purpose of facilitating the refinancing of existing bond
issues.
At December 31, 1993, certain mortgage-related securities and
investment securities with a carrying value of approximately
$5,394,000 were pledged as collateral for bonds in the aggregate
of $3,341,000. Additional bond issues totaling $7,610,000 are
supported by letters of credit issued by First Financial in lieu
of specific collateral. The bond agreements have expiration
dates through 2008.
At December 31, 1993, each of the outstanding agreements was
current with regard to bond debt-service payments. Management
has considered these agreements in its review of the adequacy of
allowances for losses relating to contingent liabilities.
Usury Limitations. Federal law has preempted state usury law
interest-rate limitations on first-lien residential mortgage
loans unless the state legislature acted before a certain date to
override the exemption. The Wisconsin legislature acted to
override the preemption and, therefore, loans made by the Banks
in Wisconsin are subject to Wisconsin usury limitations,
described below.
The Illinois legislature did not override the federal
preemption, and at present Illinois law imposes no ceiling on
interest rates for residential real estate loans, including
junior mortgage loans. Additionally, in Illinois, federally-insured
savings institutions can charge the highest rate permitted any
other lender in Illinois. The Illinois State Legislature has
allowed state banks to charge any interest rate on any type of
loan, and, thus, there are effectively no ceilings on the
interest rate which a federal savings bank may charge on a loan
in Illinois.
On November 1, 1981, Wisconsin enacted a comprehensive
revision of its usury statutes overriding federal preemption and
deregulating interest rates. After that date, maximum interest
rates were eliminated for loans secured by first lien mortgages
on residential real estate. Maximum interest rates have also
been eliminated for most forms of fixed and variable rate
consumer loans made by savings institutions after October 31,
1984. Variable rate revolving consumer loans which are not
secured by real estate remain subject to a maximum interest rate
of 18%, except that the limit does not apply following notice to
the borrower if the auction yield on two-year U.S. Treasury notes
exceeds 15% per year for five consecutive weeks.
With respect to first-lien residential real estate loans, the
1981 Wisconsin usury legislation clarified the Wisconsin law
requirement that unearned interest be refunded. However, certain
items are now deemed not to be interest for purposes of
calculating the rebate. These items include charges paid to
third parties, fees and other amounts required to be passed on to
secondary market purchasers of any loans, up to two points to the
lender for "loan administration", commitment fees, loan fees paid
by third parties ("seller's points") and a prepayment penalty of
not more than 60 days interest on that amount of the prepayment
which exceeds 20% of the original amount of the loan, provided
the prepayment is made within five years of the date of the loan
and the parties have agreed to such a prepayment penalty.
Since November 1, 1981, Wisconsin-chartered savings
institutions have been permitted to use two forms of interest-
rate adjustment clauses in mortgage loans secured by one- to
four-family homes. Interest rates may either be adjusted based
on changes in an "approved index" ("indexed adjustable rate") or
by providing for no more than a 1% increase in the interest rate
not more than once during each six-month period and by permitting
decreases in the interest rate to be made at any time ("non-
indexed adjustable rate"). An "approved index" is defined as (i)
the national average mortgage contract rate for major lenders on
the purchase of previously occupied houses, as computed by the
FHL Banks; (ii) the monthly average of weekly auction rates on
U.S. Treasury bills with a maturity of three months or six months
made available by the Federal Reserve Board; (iii) the monthly
average yield on U.S. Treasury securities adjusted to a constant
maturity of one, two, three or five years, made available by the
Federal Reserve Board; or (iv) an index approved by the Wisconsin
Commissioner of Savings and Loans. Loans made after November 1,
1981, containing either form of adjustment mechanism, are not
subject to any maximum usury interest rate; however, increases in
the rate based on increases in the index are optional with the
lender. Adjustments under the non-indexed version are solely at
the option of the lender and if no increase is made during any
six-month period, the lender may accumulate such increases and
impose them at any time. A notice to the borrower is required at
least 30 days prior to an interest rate adjustment during which
period the loan may be prepaid without penalty. Loans originated
by First Financial and Port prior to their respective conversions
to a federal savings bank charter are subject to the above
provisions.
Other states in which First Financial makes loans have
varying laws concerning usury. Management believes that all
loans made by First Financial in other states are in compliance
with the applicable usury provisions.
Collection Procedures - Residential and Commercial Mortgage
Loans. Under Wisconsin and Illinois law, a mortgage loan
borrower is afforded a period of time, subsequent to the entry of
judgment and prior to sale of the mortgaged property, within
which to redeem the foreclosure judgment ("equity of
redemption"). During this period, the loan is generally a non-
earning asset. The length of the equity of redemption available
in any case is dependent upon the form of legal proceeding
selected by the lender at the time the suit is initiated and can
vary between two months and one year. Further delays can be
incurred if bankruptcy proceedings intervene. A judgment of
foreclosure for residential mortgage loans will normally provide
for the recovery of all sums advanced by the mortgagor including,
but not limited to, insurance, repairs, taxes, appraisals, post-
judgment interest, attorneys' fees, costs and disbursements. The
majority of foreclosure actions by the Banks follow a form which
provides for a six-month equity of redemption. Unless the right
of redemption is exercised, the Banks generally acquire title to
the property pursuant to public bidding at a sheriff's sale.
Thereafter, the Banks attempt to sell the property.
Collection Procedures - Non-Mortgage Loans. Collection
procedures for manufactured housing loans, credit card loans,
consumer loans and student loans are done in accordance with
state and federal Fair Debt Collection Practices Acts and, where
applicable, governmental agencies procedures. The intent of the
collection procedures is either to assist the borrower in
performing in accordance with contract terms or to work out the
problem loan in a timely manner so as to minimize the Banks'
loss. Generally, collection efforts are started 10 to 15 days
after the payment on account was due.
Procedures for Nonaccrual Loans, Delinquencies and
Foreclosures. Delinquent and problem loans are a normal part of
any lending business. When a borrower fails to make a required
payment by the 15th day following the date on which the payment
is due, the loan is considered delinquent and internal collection
procedures generally are instituted. The borrower is contacted
by a Bank representative who seeks to determine the reason for
the delinquency, and attempts are made to effect a cure. In most
cases deficiencies are cured promptly. The loan status is
reviewed and, where appropriate, the condition of the property
and the financial circumstances of the borrower are evaluated.
Based upon the results of any such investigation, (i) a repayment
program of the arrearage from the borrower may be accepted; (ii)
evidence may be sought (in the form of a listing contract) of
efforts by the borrower to sell the property if the borrower has
stated that he is seeking to sell; (iii) a deed in lieu of
foreclosure or voluntary surrender of the property may be
requested in compliance with applicable laws; or (iv)
foreclosure, replevin or collection proceedings may be initiated.
A decision as to whether and when to initiate legal
proceedings is based upon such factors as the amount of the
outstanding loan in relation to the original indebtedness, the
extent of delinquency and the borrower's ability and willingness
to cooperate in curing deficiencies. At a foreclosure sale,
representatives of the Banks will generally bid an amount
reasonably equivalent to the lower of the fair value of the
foreclosed property or the amount of judgment due to the Banks.
If the sum of the outstanding loan principal balance and
costs of foreclosure that have been capitalized exceed the fair
market value of the property, in the judgment of management, an
allowance for loss in an amount equal to such excess is
established. In such circumstances, a deficiency judgment may be
sought against the borrower.
When one of the Banks acquires real estate through
foreclosure or deed in lieu of foreclosure, such real estate is
placed on its books at the lower of the carrying value of the
loan or the fair market value of the real estate based upon a
current appraisal. Any reduction from the value previously
recorded on the books is charged against the appropriate
allowance for loan losses.
Loan Delinquencies. The Banks monitor the delinquency status
of their respective loan portfolios on a regular basis and
initiate borrower contact and additional collection procedures as
necessary at an early date. Delinquencies and past due loans
are, however, a normal part of the lending function. When the
delinquency reaches the status of greater than 90 days, the loans
are placed on a non-accrual basis until such time as the
delinquency is reduced again to 90 days or less. Non-accrual
loans at December 31, 1993 have been presented separately as a
part of the discussion of Non-Performing Assets in Management's
Discussion and Analysis, filed as an exhibit hereto.
Delinquencies of 30 to 90 days are summarized as follows:
<TABLE>
<CAPTION>
Balance At December 31,
1993 1992
(In thousands)
<S> <C> <C>
30 - 59 Days Delinquent
Residential real estate loans $ 5,844 $ 5,626
Commercial real estate loans 3,798 1,553
Manufactured housing loans 2,999 4,215
Credit card loans 1,988 1,594
Consumer, student and other loans 4,493 3,762
$19,122 $ 16,750
60 - 90 Days Delinquent
Residential real estate loans $ 1,111 $ 492
Commercial real estate loans 707 980
Manufactured housing loans 1,035 1,849
Credit card loans 904 782
Consumer, student and other loans 4,287 4,029
$ 8,044 $ 8,132
Total 30 - 90 Day Delinquent Loans
Residential real estate loans $ 6,955 $ 6,118
Commercial real estate loans 4,505 2,533
Manufactured housing loans 4,034 6,064
Credit card loans 2,892 2,376
Consumer, student and other loans 8,780 7,791
$27,166 $ 24,882
</TABLE>
At December 31, 1993, the 30-90 day delinquencies increased
$2.3 million to $27.2 million from $24.9 million at year-end
1992. As a percent of total loans receivable, loan delinquencies
decreased from 1.13% at the end of 1992 to 0.93% at December 31,
1993 due to the greater size of the loan portfolio at the later
date resulting from the United acquisition. The $2.3 million
increase, at December 31, 1993, relates to i) the inclusion in
the 30-59 day delinquency category of a $3.4 million commercial
real estate loan during 1993 (offset by the return to
satisfactory contractual performance of several other commercial
real estate loans), ii) an increase of $700,000 in delinquent
student loans (which are government guaranteed) delinquent 30-90
days, iii) a decrease of $2.0 million in manufactured housing
loans delinquent 30-90 days and iv) an increase of $800,000 of
delinquent residential mortgage loans. The 1993 increase in
residential delinquencies relates to the addition of such loans
following the United acquisition.
All of these delinquent loans have been considered by
management in its evaluation of the adequacy of the allowances
for loan losses.
Foreclosed Properties. Non-performing assets of
$15.1 million and $29.9 million at December 31, 1993 and 1992,
respectively, are discussed as a part of Management's Discussion
and Analysis, filed as an exhibit hereto. In that discussion, it
is noted that a portion of the balances of foreclosed properties
and other repossessed assets included in the non-performing
assets at December 31, 1993 and 1992 are comprised of large
(having a carrying value in excess of $500,000) commercial real
estate properties. A list of the properties referred to in that
discussion is presented below.
<PAGE>
<TABLE>
<CAPTION>
Carrying Value At December 31,
Property Type Location 1993 1992
(In thousands)
<S> <C> <C> <C>
Office Madison, Wisconsin $ 1,500 $1,573
Retail Milwaukee, Wisconsin 1,089 --
Office Phoenix, Arizona 700 1,020
Office/Retail Carpentersville, Illinois -- 3,425
Office Independence, Missouri -- 1,550
</TABLE>
During 1993, the Illinois and Missouri properties were
written down $1.4 million and, subsequently, sold and financed by
First Financial at market terms.
A discussion of the commercial real estate foreclosures
listed above, at December 31, 1993, follows:
* The office building in Madison, Wisconsin was acquired as a
result of the exercise of a previous industrial revenue bond
guarantee by First Financial whereby the bondholders were
paid after default by the borrower. The 100% occupancy level
at December 31, 1993 is the same as last year and efforts to
sell the building will be management's primary focus in 1994
for this property. At December 31, 1993, the estimated fair
value of this property was $1.5 million.
* The retail property in Milwaukee, Wisconsin had previously
been developed and owned by a wholly-owned subsidiary of
First Financial. The subsidiary carried the property as real
estate held for investment prior to foreclosure in 1993 by
First Financial. The 79% occupancy level at December 31,
1993 is a slight improvement over the previous year and
efforts to lease additional space will be management's
primary focus in 1994 for this property. At December 31,
1993, the estimated fair value of this property was
$1.1 million.
* The office building in Phoenix, Arizona had previously been
owned by a joint venture in which a wholly-owned subsidiary
of First Financial was a joint venturer. That subsidiary
subsequently acquired its co-venturer's interest and had
carried this property as real estate held for investment
prior to foreclosure by First Financial. The decrease in
carrying value of this office building from $1.0 million at
December 31, 1992 to $700,000 at December 31, 1993 reflects a
writedown of this property to its current estimated fair
value. The overbuilt Phoenix market is a primary concern for
the project. The 45% occupancy level at December 31, 1993 is
less than the previous year. The property is currently under
contract to sell with a projected closing in the first
quarter of 1994.
During 1992, the Corporation adopted an American Institute of
Certified Public Accountants' Statement of Position ("SOP"),
"Accounting for the Results of Operations of Foreclosed Assets
Held For Sale". The SOP requires that foreclosed properties be
valued at fair value in lieu of the net realizable value method
previously used. Fair value calculations use a market rate of
interest to discount estimated cash flows compared to net
realizable value calculations in which an internal cost of funds
rate was used.
The above listed foreclosed properties, as well as all other
non-performing assets, have been considered in the evaluation of
the adequacy of allowances for losses. See the Management
Discussion and Analysis referred to above for management's review
of adequacy of allowances for losses relative to these
properties.
Classified Assets:
For regulatory purposes, the Banks utilize a comprehensive
classification system for thrift institution problem assets.
This classification system requires that problem assets be
classified as "substandard", "doubtful" or "loss", depending upon
certain characteristics of the particular asset or group of
assets as defined by supervisory regulators.
An asset is classified "substandard" if it contains defined
characteristics relating to borrower net worth, paying capacity
or value of collateral which indicate that some loss is
distinctly possible if noted deficiencies are not corrected.
"Doubtful" assets have the same characteristics present in
substandard assets but to a more serious degree so that it is
improbable that the asset could be collected or liquidated in
full. "Loss" assets are deemed to be uncollectible or of such
minimal value that their continuance as assets without being
specifically reserved is not warranted. Substandard and doubtful
classifications require the establishment of prudent general
allowances for loss amounts while loss assets require a 100%
specific allowance or that the asset be charged off.
In general, classified assets include non-performing assets
plus other loans and assets, including contingent liabilities,
meeting the criteria for classification. Non-performing assets
include loans or assets which were previously loans i) which are
not performing to a serious degree under the contractual terms of
the original notes or ii) for which known information about
possible credit problems of borrowers causes management to have
serious doubts as to the ability of such borrowers to comply with
current contractual terms. This non-performance characteristic
impacts directly upon the interest income normally expected from
such assets. Specifically included are the loans held on a non-
accrual basis, real estate judgments subject to redemption, and
foreclosed properties for which the Bank has obtained title.
Classified assets, including non-performing assets, for the
Banks, are set forth in the following table, as of December 31,
1993 and 1992, respectively.
<TABLE>
<CAPTION>
December 31,
1993 1992
(In thousands)
<S> <C> <C>
Classified assets:
Non-performing assets:
Non-accrual loans $ 8,240 $ 15,659
Foreclosed properties and other
repossessed assets 6,817 14,198
Total Non-Performing Assets 15,057 29,857
Add back valuation allowances netted against
foreclosed properties above 1,386 --
Adjustment for non-performing residential loans
not classified due to low loan-to-
appraisal value (707) (771)
Additional classified performing loans:
Residential real estate 1,919 --
Commercial real estate 9,747 7,240
Consumer (including manufactured housing
and credit cards) 241 378
Collateralized industrial development revenue
bond agreements -- 4,555
Other assets 757 1,945
Total Classified Assets $ 28,400 $ 43,204
</TABLE>
During the year ended December 31, 1993, classified assets
decreased $14.8 million to $28.4 million from the December 31,
1992 total of $43.2 million as a result of the net effect of
various 1993 events. As a percentage of total assets, classified
assets decreased from 1.11% at December 31, 1992 to 0.59% at
December 31, 1993.
The non-performing asset segment of classified assets
similarly decreased $14.8 million during 1993. For further
discussions of such non-performing assets, see Management's
Discussion and Analysis, filed as an exhibit hereto, as well as
the "Foreclosed Properties" review immediately preceding this
discussion of classified assets. Offsetting changes in the
remaining classified asset categories are discussed below.
Performing commercial real estate loans which earlier had
been adversely classified due to the possible adverse effects of
identifiable future events increased $2.5 million in 1993. This
increase is due to the net effect of i) the improvement in
delinquency status of loans, totaling $5.4 million, that were in
non-accrual status at year-end 1992 and are now included in the
adversely classified performing loan category, ii) the inclusion
in this category of a $1.1 million loan, to facilitate the 1993
sale of an office foreclosure property, pending future
contractual performance by the borrower and offset by iii) the
removal from classified asset status of a contractually
performing $4.2 million loan on a motel in Georgia, which had
been previously classified due to cash flow problems which have
been resolved.
The increase in adversely classified performing residential
mortgage loans of $1.9 million relates to groups of performing
residential mortgage loans to several borrowers which have been
adversely classified in 1993 due to the possible impact of
identifiable potential future events.
The collateralized industrial revenue bond agreement
included above in classified assets at December 31, 1992 was
refinanced and removed from classified assets in 1993.
At December 31, 1993, exclusive of non-performing assets,
the major concentration of classified assets consists of the
approximately $9.7 million of currently performing commercial
real estate loans that have been classified due to prior
delinquency and/or the potential adverse effects of possible
identifiable future events or other factors. Loans in excess of
$1.0 million included in this category are noted below (in
thousands):
<TABLE>
<CAPTION>
Loan Amount Classified
Property Type Of Property December 31, December 31,
Loan Collateral Location 1993 1992
<S> <C> <C> <C>
Office/Land Sheboygan, Wisconsin $ 3,670 (a) $ 874
Motels Various-Tennessee 2,600 (a)(b) --
Office Independence, Missouri 1,091 (c) --
Motel Norcross, Georgia -- 4,229
</TABLE>
(a) Loan(s) were in non-accrual status at year-end 1992.
(b) Represents a 20% participating interest in loans totaling
$14.6 million, for which First Financial is the lead lender.
(c) Represents loan to finance the 1993 sale of a former
foreclosed real estate property. The loan has been
classified pending future performance by the borrower.
All adversely classified assets at December 31, 1993 have
been considered by management in its evaluation of the adequacy
of allowances for losses.
Also, First Financial is closely monitoring the performance
of two privately issued second tranche adjustable rate mortage-backed
securities, aggregating approximately $21 million. First Financial has
not received full monthly payments due on these securities since late
1993. The payments have been interrupted due to delinquencies and
foreclosures in the underlying mortage portfolio and substantially all
of the cash flows are currently directed to owners of the senior tranche.
Both securities are serviced by a California institution under the control
of the RTC. First Financial's second tranche position is senior to several
subordinate tranches (currently amounting to approximately 11% of the value
of the total portfolios in question) which are designed to absorb losses in
the underlying mortgage portfolio, and as a result, management does not
believe at this time that material losses will be realized in connection with
either of these securities. First Financial's portfolio of mortage-
related securities totaled approximately $1.3 billion at December 31, 1993,
and except for one of the referenced securities which was recently downgraded,
all of First Financial's mortgage-related securities are rated investment
grade by at least one nationally recognized independent rating
agency.
Investment Activities
In addition to lending activities, the Banks conduct other
investment activities on an ongoing basis in order to diversify
assets, obtain maximum yield and meet levels of liquid assets
required by regulatory authorities. Investment decisions are
made by authorized officers in accordance with policies
established by the boards of directors. In addition to
satisfying regulatory liquidity requirements, investments are
used as part of the Banks' asset and liability program to
minimize the Banks' vulnerability to changing interest rates. At
December 31, 1993, 62.1% of the Banks' investments mature or
reprice within one year or less.
Certain of First Financial's investment policies relate to
the term of the investment. For example, First Financial invests
in U.S. government, agency and instrumentality obligations
maturing in three years or less; obligations of state and other
political subdivisions maturing in two years or less;
certificates of deposits of insured institutions which will
mature in nine months or less; negotiable federal funds which
will mature in nine months or less; nonnegotiable federal funds
which will mature in 30 days or less; corporate debt obligations
maturing in three years or less; and commercial paper maturing in
270 days or less. Additionally, corporate debt obligations must
be rated in one of the four highest categories by a nationally
recognized investment rating service, and commercial paper must
be rated in one of the two highest categories by two nationally
recognized rating services.
Other investment policies relate to the aggregate amount of
certain investments. For example, state and municipal general
obligations and revenue bonds are limited to 1% of assets;
industrial revenue bonds to 2% of assets in the aggregate and 1%
of assets for any single issue; repurchase agreements to 10% of
stockholders' equity plus an additional 10% if secured by readily
marketable collateral; banker's acceptances to no more than 1/4
of 1% of such institution's total deposits; and all other
obligations, except those of the U.S. or guaranteed thereby, to
the lesser of 10% of stockholders' equity or 1% of total assets.
Subject to limitations of its investment policy, Port
increases or decreases its investments depending upon regulatory
requirements, the availability of funds and comparative yields in
relation to its return on loans. The primary responsibility for
the investment function rests with executive management of Port.
Management determines the appropriate classification of debt
securities (including mortgage-related securities) at the time of
purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity
when the Corporation has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are
stated at amortized cost.
Debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities
are stated at fair value with the unrealized gains and losses
(net of income tax effect) reported as a separate component of
stockholders' equity.
The cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-
related securities, over the estimated life of the security.
Such amortization is included in interest income from the related
security. Interest and dividends are included in interest income
from the related securities. Realized gains and losses, and
declines in value judged to be other-than-temporary are included
in net securities gains (losses). The costs of securities sold
is based on the specific identification method.
For a breakdown of investment securities held by the Banks at
certain dates, see Note C to the Corporation's consolidated
financial statements, incorporated herein by reference.
The following table sets forth the maturity/repricing
characteristics of the Banks' investment securities at December
31, 1993 and the weighted average yields of such securities.
<TABLE>
<CAPTION>
After One, But After Five, But
Within One Year Within Five Years Within 10 Years After 10 Years
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
obligations . . . . . . . . $ 77,456 5.15% $57,520 4.72% $ -- --% $4,988 7.65%
Adjustable-rate mortgage
mutual funds. . . . . . . . 34,585 4.42 -- -- -- -- -- --
Interest-earning deposits
in banks. . . . . . . . . . 25,768 3.35 -- -- -- -- -- --
Federal funds sold . . . . . . 21,873 2.79 -- -- -- -- -- --
Corporate and bank notes
receivable. . . . . . . . . 11,437 4.72 37,616 5.23 -- -- -- --
State and municipal
obligations . . . . . . . . 20 6.05 3,983 3.72 350 8.00 100 8.00
Total . . . . . . . . . . . $171,139 4.40% $99,119 4.87% $ 350 8.00% $5,088 7.66%
</TABLE>
At December 31, 1993, the Banks had no investments in any
issuer in excess of 10% of net worth.
The following table sets forth the aggregate amortized cost
and estimated fair value of investment securities at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
(In thousands)
<S> <C> <C> <C>
U.S. Government and agency obligations . . . . . . . . . . . . . . . . . $138,400 $ 40,828 $ 14,661
Corporate and bank notes
(investment grade). . . . . . . . . . . . . . . . . . . . . . . . . . 49,053 52,020 26,638
Adjustable-rate mortgage mutual fund . . . . . . . . . . . . . . . . . . 34,585 -- --
Interest-earning deposits. . . . . . . . . . . . . . . . . . . . . . . . 25,768 31,067 3,898
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,873 29,100 42,870
State and municipal obligations. . . . . . . . . . . . . . . . . . . . . 4,453 598 598
Certificates of deposit. . . . . . . . . . . . . . . . . . . . . . . . . -- 198 392
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,989 14,965
Total amortized cost. . . . . . . . . . . . . . . . . . . . . . . . . $274,132 $163,800 $104,022
Total estimated fair value. . . . . . . . . . . . . . . . . . . . . . $275,576 $165,116 $104,817
</TABLE>
<PAGE>
Sources of Funds
General. Deposit accounts, sales of loans in the secondary
market and loan repayments are the primary sources of funds for
use in lending and for other general business purposes. In
addition, the Banks derive funds from maturity of investments,
advances from the FHL Bank and other borrowings. Repayments of
loans and mortgage-related securities are a relatively stable
source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money
market and economic conditions. Borrowings may be used on a
short-term basis to compensate for reduction in normal sources of
funds such, as deposit inflows, at less than projected levels.
They may also be used on a longer-term basis to support expanded
lending and investment activities. The Banks have not generally
solicited deposits outside the market area served by their
offices or used brokers to obtain deposits and have no brokered
deposits at December 31, 1993.
Deposit Activities. The Banks offer a variety of deposits
having a wide range of interest rates and terms.
<PAGE>
The following table presents, by various interest-rate
intervals, the Banks' long-term (one year and over) certificates
as of the date indicated.
<TABLE>
<CAPTION>
December 31,
Interest Rate 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
3.50 - 4.00%. . . . . . . . . . . . . . . . . . . . . . . . . $ 209,813
4.01 - 6.00%. . . . . . . . . . . . . . . . . . . . . . . . . 1,434,598 $ 788,460 $ 149,698
6.01 - 8.00%. . . . . . . . . . . . . . . . . . . . . . . . . 273,664 425,662 717,162
8.01 - 10.00%. . . . . . . . . . . . . . . . . . . . . . . . . 242,502 394,585 768,772
$2,160,577 $1,608,707 $1,635,589
</TABLE>
The following table presents, by various similar interest-rate
intervals, the amounts of long-term (one year and over) time
deposits at December 31, 1993 maturing during the period
indicated.
<TABLE>
<CAPTION>
Interest Rates
3.50-4.00% 4.01-6.00% 6.01-8.00% 8.01-10.00% Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts
maturing in the 12
months ending:
December 31, 1994. . . . . . . . . . . $206,826 $ 670,222 $ 93,334 $132,118 $1,102,500
December 31, 1995. . . . . . . . . . . 2,987 488,612 17,554 104,956 614,109
December 31, 1996. . . . . . . . . . . -- 185,796 57,741 1,566 245,103
After December 31, 1996 -- 89,968 105,035 3,862 198,865
$209,813 $1,434,598 $273,664 $242,502 $2,160,577
</TABLE>
The following table presents the maturities of the Banks'
certificates in amounts of $100,000 or more at December 31, 1993
by time remaining to maturity.
<TABLE>
<CAPTION>
December 31,
Maturities 1993
(In thousands)
<S> <C>
January 1, 1994 through March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,170
April 1, 1994 through June 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,654
July 1, 1994 through December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,872
January 1, 1995 and after. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,193
$164,889
</TABLE>
The Banks' deposit base at December 31, 1993 included
$2.56 billion of certificates of deposit with a weighted average
rate of 5.01%. Of these certificates of deposit, $1.50 billion
with a weighted average rate of 4.71% will mature during the 12
months ending December 31, 1994. The Banks will seek to retain
these deposits to the extent consistent with its long-term
objective of maintaining positive interest rate spreads.
Depending upon interest rates existing at the time such
certificates mature, the Banks' cost of funds may be
significantly affected by the rollover of these funds.
Other Sources of Funds. The following table sets forth
certain information as to the Corporation's advances and other
borrowings at the dates and for the periods indicated. See Note
J to the Corporation's consolidated financial statements,
incorporated herein by reference.
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
(In thousands)
<S> <C> <C> <C>
FHL Bank advances. . . . . . . . . . . . . . . . . . . . . . . . . . . $371,974 $397,193 $ 58,693
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . 54,997 55,000
--
Industrial development revenue bonds . . . . . . . . . . . . . . . . . 6,410 9,755 6,550
Collateralized mortgage obligations. . . . . . . . . . . . . . . . . . 5,217 --
--
Notes payable to bank. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 12,000
Total borrowings. . . . . . . . . . . . . . . . . . . . . . . . $438,598 $461,948 $ 77,243
Weighted average interest cost of total
borrowings during the year. . . . . . . . . . . . . . . . . . . . . 5.29% 4.98% 8.41%
Average month-end balance of short-term
borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- $ 10,792 $ 15,700
Weighted average interest rate of short-term
borrowings during year. . . . . . . . . . . . . . . . . . . . . . . -- 7.71% 8.59%
Weighted average interest rate of short-term
borrowings at end of year . . . . . . . . . . . . . . . . . . . . . -- -- 6.50%
</TABLE>
Service Corporations and Operating/Finance Subsidiaries
First Financial has i) five active, wholly-owned service
corporations, ii) an operating subsidiary, and iii) a limited-
purpose finance subsidiary. Port has no active service
corporations. The net book value of First Financial's aggregate
investment in active service corporations at December 31, 1993
was as follows (in thousands):
Wisconsin Insurance Management, Inc. . . . . . . $ 998
Appraisal Services, Inc. . . . . . . . . . . . . 142
First Service Corporation of Wisconsin . . . . . 12
Illini Service Corporation . . . . . . . . . . . --
Mortgage Finance Corporation . . . . . . . . . . --
Total . . . . . . . . . . . . . . . . . . . . $1,152
Wisconsin Insurance Management, Inc. ("WIM") is a full-
service, independent insurance agency. This subsidiary offers a
broad range of insurance products, including hazard, mortgage,
life and disability policies, to First Financial's customers, as
well as a full line of commercial and personal coverages to the
general public. Brokerage services are also provided through
this subsidiary. WIM had net income of $1.3 million,
$1.3 million and $1.4 million for 1993, 1992 and 1991,
respectively.
Appraisal Services, Inc. performs real estate appraisals for
First Financial's loan customers, governmental agencies and the
general public. Insurance valuations and ad valorem tax services
for outside sources are also performed. Appraisal Services,
Inc., had net income of $111,000, $124,000 and $90,000 for 1993,
1992 and 1991, respectively.
First Service Corporation of Wisconsin ("FSC") previously
engaged in the management and sale of commercial real estate and
apartments for First Financial and others, as well as acting as
general partner for several real estate partnerships. This
subsidiary had a net loss of $207,000, $435,000 and $600,000 for
1993, 1992 and 1991, respectively. At December 31, 1993, FSC's
activities were sharply cut back and its principal assets were
transferred to First Financial. FSC's remaining function is to
serve as general partner for the remaining two real estate
partnerships in each of which FSC has a minor investment.
Illini Service Corporation ("ISC") was acquired in
conjunction with the Illini transaction and acts as nominal
trustee on deeds of trust in Missouri. ISC's sole corporate
function is to provide the trustee's signature capability.
Mortgage Finance Corporation ("MFC") was a subsidiary of a
former mortgage banking affiliate of First Financial and acts as
a nominal trustee on deeds of trust in California and other
states. MFC's sole corporate function is to provide the
trustee's signature capability on such deeds of trust acquired by
First Financial from the former affiliate.
First Financial Investments, Inc. ("FFII") is an operating
subsidiary of First Financial and was incorporated in 1991.
FFII, which is located in the State of Nevada, was formed for the
purpose of managing a portion of First Financial's investment
portfolio (primarily mortgage-related securities purchased
subsequent to the recent Illinois-area acquisitions) having long-
term maturities. As an operating subsidiary, FFII's results of
operations are combined with First Financial's for financial and
regulatory reporting purposes.
UFS Capital Corporation ("UFSCC"), which was acquired in
conjunction with the United acquisition, is a limited-purpose
finance subsidiary of First Financial and functions as an issuer
of certain collateralized mortgage obligation bonds. As a
finance subsidiary, UFSCC's results of operations are combined
with First Financial's for financial and regulatory reporting
purposes.
<PAGE>
Employees of the Corporation
At December 31, 1993, the Corporation and its subsidiaries
employed 1,320 full-time employees and 337 part-time employees.
The Corporation promotes equal employment opportunity and
considers its employee relations to be good. The Corporation's
employees are not represented by any collective bargaining group.
The Corporation sponsors retirement plans covering all
employees with one or more years of service who are at least 21
years old. Additionally, the Corporation maintains an employee
benefit program providing, among other items, hospitalization and
major medical insurance, limited dental and life insurance, and
educational assistance. Such employee benefits are considered by
management to be competitive with employee benefits provided by
other financial institutions and major employers in the counties
in which First Financial and Port have offices.
Executive Officers
The following table sets forth information regarding each of
the executive officers of the Corporation and First Financial:
Age At
Executive December 31, Business Experience
Officer 1993 During Past Five Years
- --------------------------------------------------------------
John C. Seramur 51 Mr. Seramur joined First Financial
in 1966 and serves as Director,
President, Chief Executive Officer
and Chief Operating Officer of the
Corporation and First Financial.
He has also served as Chairman of
the Board of Port since May, 1989.
Robert M. Salinger 43 Mr. Salinger joined the
Corporation as Corporate Secretary
and General Counsel in 1985. He
also serves as an Executive Vice
President of First Financial. In
1984, he had served as General
Counsel and Corporate Secretary
for an institution acquired by the
Corporation. Prior to 1984, he
was a partner in the law firm of
Petrie & Stocking, S.C., and
associated with the law firm of
Whyte & Hirschboeck, S.C.
Donald E. Peters 44 Mr. Peters joined First Financial
in 1982 and serves as Executive
Vice President - Retail Banking of
First Financial. Prior to 1982,
he was an officer of another
thrift institution.
Harry K. Hammerling 43 Mr. Hammerling joined First
Financial in 1984 and serves as
Executive Vice President -
Administration and Servicing for
First Financial. From 1972 to
1984, he served as an officer of
First State.
Kenneth F. Csinicsek 54 Mr. Csinicsek joined First
Financial in 1987 and serves as
Senior Vice President of Marketing
and Investor Relations. Prior to
joining First Financial, he served
as president of another thrift
institution for two years and
operated two financial institution
consulting firms over a thirteen
year period.
<PAGE>
REGULATION
General
The Corporation, as a savings institution holding company (a
"thrift holding company"), and First Financial and Port, as
federally chartered savings banks, are subject to extensive
regulation, supervision and examination by the OTS as their
primary federal regulator. First Financial and Port are also
subject to regulation, supervision and examination by the FDIC
and as to certain matters by the Federal Reserve Board.
In recent years there have been a significant number of
changes in the manner in which insured depository institutions
and their holding companies are regulated. Such changes have
imposed additional regulatory restrictions on the operations of
insured depository institutions and their holding companies. In
particular, regulatory capital requirements for insured
depository institutions have increased significantly. The
Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires the bank regulatory agencies to impose
certain sanctions on insured depository institutions which fail
to meet minimum capital requirements. In addition, the deposit
premiums paid by insured depository institutions have increased
significantly in recent years and may increase in the future.
Thrift Holding Company Regulation
General. Under the Home Owners Loan Act (the "HOLA"), the
Corporation, as a thrift holding company, is subject to
regulation, supervision and examination by, and the reporting
requirements of, the OTS.
The HOLA permits, subject to a number of conditions, the
acquisition by a thrift holding company, such as the Corporation,
of control of another thrift institution or thrift holding
company with prior written approval of the OTS, including in
certain situations an acquisition that would result in the
creation of a multiple thrift holding company controlling thrift
institutions located in more than one state. No director,
officer, or controlling shareholder of the Corporation may,
except with the prior approval of the OTS, acquire control of any
thrift institution which is not a subsidiary of the Corporation.
Restrictions relating to service as an officer or director of an
unaffiliated holding company or thrift institution are applicable
to the directors and officers of the Corporation and its thrift
institution subsidiaries and their affiliates under the
Depository Institutions Management Interlocks Act.
Under the HOLA, transactions engaged in by a thrift
institution or one of its subsidiaries with affiliates of the
thrift institution generally are subject to the affiliate
transaction restrictions contained in Sections 23A and 23B of the
Federal Reserve Act. Section 23A of the Federal Reserve Act
imposes both quantitative and qualitative restrictions on
transactions with an affiliate, while Section 23B of the Federal
Reserve Act requires, among other things, that all transactions
with affiliates be on terms substantially the same, and at least
as favorable, as the terms that would apply to, or would be
offered in, a comparable transaction with an unaffiliated party.
Exemptions from, and waivers of, the provisions of Sections 23A
and 23B of the Federal Reserve Act may be granted only by the
Federal Reserve Board. The HOLA contains certain other
restrictions on loans and extensions of credit to affiliates, and
authorizes the OTS to impose additional restrictions on
transactions with affiliates if the OTS determines such
restrictions are necessary to ensure the safety and soundness of
any thrift institution. Current OTS regulations are similar to
Sections 23A and 23B of the Federal Reserve Act.
Restrictions on Activities of Multiple Savings and Loan
Holding Companies. As a multiple savings and loan holding
company, the Corporation is prohibited from engaging in any
activities other than (i) furnishing or providing management
services for First Financial or Port; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing or
liquidating assets owned or acquired from First Financial or
Port; (iv) holding or managing properties used or occupied by
First Financial or Port; (v) acting as trustee under deeds of
trust; (vi) engaging in any other activity in which multiple
savings and loan holding companies were authorized by regulation
to engage as of March 5, 1987; and (vii) engaging in any activity
which the Federal Reserve Board by regulation has determined to
be permissible for bank holding companies under Section 4(c) of
the Bank Holding Company Act (the "BHCA") (unless the Director of
the OTS, by regulation, prohibits or limits any such activity for
savings and loan holding companies). The activities in which
multiple savings and loan holding companies were authorized by
regulation to engage in as of March 5, 1987, consist of
activities similar to those permitted for service corporations of
federally chartered savings institutions and include, among other
things, various types of lending activities, furnishing or
performing clerical, accounting and internal audit services
primarily for affiliates, certain real estate development and
leasing activities and underwriting credit life or credit health
and accident insurance in connection with extension of credit by
savings institutions or their affiliates. The activities which
the Federal Reserve Board by regulation has permitted for bank
holding companies under Section 4(c) of BHCA generally consist of
those activities that the Federal Reserve Board has found to be
so closely related to banking or managing or controlling banks as
to be a proper incident thereto, and include, among other things,
various lending activities, certain real and personal property
leasing activities, certain securities brokerage activities,
acting as an investment or financial advisor subject to certain
conditions, and providing management consulting to depository
institutions subject to certain conditions. OTS regulations do
not limit the extent to which savings and loan holding companies
and their non-savings institutions subsidiaries may engage in
activities permitted for bank holding companies pursuant to
Section 4(c)(8) of the BHCA, although prior OTS approval is
required to commence any such activity. The Corporation could be
prohibited from engaging in any activity (including those
otherwise permitted under the HOLA) not allowed for bank holding
companies if First Financial or Port fail to constitute a
qualified thrift lender. See "-- Savings Institution Regulation
- -- Qualified Thrift Lender Requirement."
Savings Institution Regulation
General. First Financial and Port are subject to supervision
and regulation by the OTS. Under OTS regulations, First
Financial and Port are required to obtain annual audits by
independent accountants and to be examined periodically by the
OTS. Examinations are required to be conducted no less
frequently than every 12 months. First Financial and Port are
subject to assessments by the OTS to cover the costs of such
examinations. The OTS may revalue assets of First Financial and
Port, based upon appraisals, and require the establishment of
specific reserves in amounts equal to the difference between such
revaluation and the book value of the assets. The OTS is
authorized to promulgate regulations to ensure the safe and sound
operations of savings institutions and may impose various
requirements and restrictions on the activities of savings
institutions. Additionally, under the FDICIA, the OTS has
recently proposed safety and soundness regulations relating to
(i) internal controls, information systems, and internal audit
systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate exposure; (v) asset growth; and
(vi) compensation and benefit standards for officers, directors,
employees and principal shareholders. The HOLA requires that all
regulations and policies of the OTS for the safe and sound
operations of savings institutions are to be no less stringent
than those established by the Office of the Comptroller of the
Currency (the "OCC") for national banks. First Financial and
Port, as members of the SAIF, are also subject to regulation and
supervision by the FDIC, in its capacity as administrator of the
SAIF to ensure the safety and soundness of the SAIF. See
"Regulation--Savings Institution-- Insurance of Deposits."
Capital Requirements. Under OTS regulations, savings
institutions must maintain (i) "core capital" in an amount of not
less than 3% of total assets, (ii) "tangible capital" in an
amount not less than 1.5% of total assets and (iii) a level of
risk-based capital equal to 8.0% of risk-weighted assets.
Capital standards established by the OTS for savings
institutions must generally be no less stringent than those
applicable to national banks. Under OTS regulations, the term
"core capital" generally includes common stockholders' equity,
noncumulative perpetual preferred stock and related surplus, and
minority interests in the equity accounts of consolidated
subsidiaries less intangible assets and certain investments in
subsidiaries plus 90% of the fair market value of readily
marketable purchased mortgage servicing rights ("PMSRs") (subject
to certain conditions).
"Tangible capital" is core capital minus intangible assets
and certain investments in subsidiaries, provided, however, that
savings institutions may include 90% of the fair market value of
readily marketable PMSRs as tangible capital (subject to certain
conditions, including any limitations imposed by the FDIC on the
maximum percentage of the tangible capital requirement that may
be satisfied with such servicing rights).
In establishing risk-based capital requirements for savings
institutions, the OTS may deviate from the risk-based capital
standards applicable to national banks to reflect interest-rate
risk or other risks so long as such deviations, in the aggregate,
do not result in a materially lower risk-based capital
requirement for savings institutions than would be required under
the national bank standards.
In determining total risk-weighted assets for purposes of the
risk-based requirement, (i) each off-balance sheet asset must be
converted to its on-balance sheet credit equivalent amount by
multiplying the face amount of each such item by a credit
conversion factor ranging from 0% to 100% (depending upon the
nature of the asset), (ii) the credit equivalent amount of each
off-balance sheet asset and each on-balance sheet asset must be
multiplied by a risk factor ranging from 0% to 100% (again
depending upon the nature of the asset) and (iii) the resulting
amounts are added together and constitute total risk-weighted
assets. Total capital, for purposes of the risk-based capital
requirement, equals the sum of core capital plus supplementary
capital (which, as defined, includes the sum of, among other
items, perpetual preferred stock not counted as core capital,
limited life preferred stock, subordinated debt, and general loan
and lease loss allowances up to 1.25% of risk-weighted assets)
less certain deductions. The amount of supplementary capital
that may be counted towards satisfaction of the total capital
requirement may not exceed 100% of core capital, and OTS
regulations require the maintenance of a minimum ratio of core
capital to total risk-weighted assets of 4.0%. At December 31,
1993, First Financial and Port exceeded all capital requirements
on a fully phased-in basis. (See table under Regulatory Capital
in Management's Discussion and Analysis, included in the
Corporation's 1993 Annual Report to Shareholders, which is
incorporated herein by reference.)
Under an OCC rule, all national banks must maintain "core" or
"Tier 1" capital of at least 3% of total assets. The rule
further provides that a national bank operating at or near the 3%
capital level is expected to have well-diversified risks,
including no undue interest rate risk exposure; excellent control
systems; good earnings; high asset quality; high liquidity; well-
managed on and off-balance sheet activities; and in general be
considered a strong banking organization with a composite 1
rating under the CAMEL rating system for banks. For all but the
most highly rated banks meeting the above conditions, the minimum
leverage requirement will be 4% to 5% of total assets. The OTS
is required to issue capital standards that are no less stringent
than those applicable to national banks. The OTS has issued
notice of a proposed regulation that would require all but the
most highly rated savings institutions to maintain a minimum
leverage ratio (defined as the ratio of core capital to total
assets) of between 4% and 5%. At December 31, 1993, First
Financial and Port had ratios of core capital to total assets of
5.78% and 7.38%, respectively.
In August, 1993, the OTS issued new regulations, effective
January 1, 1994, which add an interest-rate risk component to the
risk-based capital measurement. Under the new regulations, an
institution's interest rate risk exposure is measured based upon
a 200 basis point change in market interest rates. A savings
institutions whose measured interest rate risk exposure is
greater then specified levels must deduct an interest-rate risk
component when calculating total capital for purposes of
determining regulatory risk-based capital levels. As of December
31, 1993, the Banks would not have been required to deduct any
interest-rate risk component under the OTS interest-rate risk
capital regulations. The new interest-rate risk requirements are
not expected to have any material effect on the Banks' ability to
meet the risk-based capital measurement. The OTS also is
required to revise its risk-based capital standards to ensure
that its standards provide adequately for concentration of credit
risk, risk from nontraditional activities and actual performance
and expected risk of loss on multi-family mortgages. Further
increases in capital requirements are possible in future periods.
Capital requirements higher than the generally applicable
minimum requirement may be established for a particular savings
institution if the OTS determines that the institution's capital
was or may become inadequate in view of its particular
circumstances. Individual minimum capital requirements may be
appropriate where the savings institution is receiving special
supervisory attention, has a high degree of exposure to interest
rate risk, or poses other safety or soundness concerns. No such
requirements have been established for First Financial or Port.
<PAGE>
The following is a reconciliation of the Banks' equity
capital under generally accepted accounting principles ("GAAP")
to regulatory capital at December 31, 1993.
<TABLE>
<CAPTION>
First
Financial Port
<S> <C> <C>
GAAP capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $276,138 $7,400
Less: intangible assets. . . . . . . . . . . . . . . . . . . . . . (3,070) --
Investment in subsidiaries and activities
not permitted for national banks . . . . . . . . . . . . . . . . (1,792) (59)
Other adjustments. . . . . . . . . . . . . . . . . . . . . . . . . (321) --
Regulatory core capital (Tier 1) . . . . . . . . . . . . . . . . . $270,955 $7,341
</TABLE>
The following table sets forth the actual and required
minimum levels of regulatory capital for the Banks under
applicable OTS regulations as of December 31, 1993.
<TABLE>
<CAPTION>
Actual Required Actual Required
Amount Amount Excess Ratio Ratio Excess
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
First Financial:
Tangible capital $242,633 $ 69,881 $172,752 5.21% 1.50% 3.71%
Core capital 270,955 140,611 130,344 5.78 3.00 2.78
Risk-based capital 290,629 185,133 105,496 12.56 8.00 4.56
Port:
Tangible capital $ 7,341 $ 1,494 $ 5,847 7.38% 1.50% 5.88%
Core capital 7,341 2,987 4,354 7.38 3.00 4.38
Risk-based capital 7,865 4,325 3,540 14.55 8.00 6.55
</TABLE>
Prompt Corrective Action. Pursuant to FDICIA, the federal
banking agencies are required to establish, by regulation, for
each capital measure, the levels at which an insured institution
is well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized,
and to take prompt corrective action with respect to insured
institutions which fall below minimum capital standards. The
degree of regulatory intervention mandated by FDICIA is tied to
an insured institution's capital category, with increasing
scrutiny and more stringent restrictions being imposed as an
institution's capital declines. Any insured depository
institution which falls below the minimum capital standards must
submit a capital restoration plan. Effective December 19, 1992,
the FDICIA requires any company that controls an undercapitalized
savings institution, in connection with the submission of a
capital restoration plan by the savings institution, to guarantee
that the institution will comply with the plan and to provide
appropriate assurances of performance. The aggregate liability
of any such controlling company under such guaranty is limited to
the lesser of (i) 5% of the savings institution's assets at the
time it became undercapitalized; or (ii) the amount necessary to
bring the savings institution into capital compliance at the time
the institution fails to comply with the terms of its capital
plan. If either First Financial or Port becomes
undercapitalized, the Corporation would be required to provide
such a guarantee. Both First Financial and Port were classified
as well capitalized, the highest capital category, at December
31, 1993.
Pursuant to FDICIA, undercapitalized institutions are
precluded from increasing their assets, acquiring other
institutions, establishing additional branches, or engaging in
new lines of business without an approved capital plan and an
agency determination that such actions are consistent with the
plan. Savings institutions that are significantly
undercapitalized may be required to take one or more of the
following actions: (i) raise additional capital so that the
institution will be adequately capitalized; (ii) be acquired by,
or combined with, another institution if grounds exist for
appointing a receiver; (iii) refrain from affiliate transactions;
(iv) limit the amount of interest paid on deposits to the
prevailing rates of interest in the region where the institution
is located; (v) further restrict asset growth; (vi) hold a new
election for directors, dismiss any director or senior executive
officer who held office for more than 180 days immediately before
the institution became undercapitalized, or employ qualified
senior executive officers; (vii) stop accepting deposits from
correspondent depository institutions; (viii) divest or liquidate
any subsidiary which the OTS determines poses a significant risk
to the institution; (ix) restrict payments of bonuses to or
increases in compensation of executive officers; and (x) obtain
prior OTS approval of newly appointed executive officers and
directors. Any company which controls a significantly
undercapitalized savings institution may be required to: (i)
divest or liquidate any affiliate other than an insured
depository institution; (ii) divest the institution if the OTS
determines that divestiture would improve the institution's
financial condition and future prospects; and (iii) if such
company is a bank holding company, refrain from making any
capital distribution without the prior approval of the Federal
Reserve Board.
Critically undercapitalized institutions are subject to
additional restrictions. No later than 90 days after a savings
institution becomes critically undercapitalized, the OTS is
required to appoint a conservator or receiver for the
institution, unless the OTS determines, with the concurrence of
the FDIC, that other action would better achieve the purpose of
FDICIA. The OTS must make periodic redeterminations that the
alternative action continues to be justified no less frequently
than every 90 days. The OTS is required to appoint a receiver if
the institution remains critically undercapitalized nine months
later, unless the institution is in compliance with an approved
capital plan and the OTS and FDIC certify that the institution is
viable.
Under prompt corrective action regulations adopted by the
OTS, an institution will be considered (i) "well capitalized" if
the institution has a total risk-based capital ratio of 10% or
greater, a Tier 1 or core capital to risk-weighted assets ratio
of 6% or greater, and a leverage ratio of 5% or greater (provided
that the institution is not subject to an order, written
agreement, capital directive or prompt corrective action
directive to meet and maintain a specific capital level for any
capital measure); (ii) "adequately capitalized" if the
institution has a total risk-based capital ratio of 8% or
greater, a Tier 1 or core capital to risk-weighted assets ratio
of 4% or greater, and a leverage ratio of 4% or greater (3% or
greater if the institution is rated composite 1 in its most
recent report of examination); (iii) "undercapitalized" if the
institution has a total risk-based capital ratio that is less
than 8%, a Tier 1 or core capital to risk-weighted assets ratio
of less than 4%, or a leverage ratio that is less than 4% (3% if
the institution is rated composite 1 in its most recent report of
examination); (iv) "significantly undercapitalized" if the
institution has a total risk-based capital ratio that is less
than 6%, a Tier 1 or core capital to risk-weighted assets ratio
that is less than 3%, or a leverage ratio that is less than 3%;
and (v) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets that is less than or
equal to 2%. The regulation also permits the OTS to determine
that a savings institution should be classified in a lower
category based on other information, such as the institution's
examination report, after written notice. Under the OTS's prompt
corrective action regulations, at December 31, 1993, each of
First Financial and Port were classified as well capitalized
based on its capital ratios as of such date.
FDICIA prohibits any depository institution that is not well
capitalized from accepting deposits through a deposit broker.
Previously, only troubled institutions were prohibited from
accepting brokered deposits. The FDIC may allow adequately
capitalized institutions that apply for a waiver to accept
brokered deposits. Institutions that receive a waiver are
subject to limits on the rates of interest they may pay on
brokered deposits. FDICIA also prohibits undercapitalized
institutions from offering rates of interest on insured deposits
that significantly exceed the prevailing rate in their normal
market area or the area in which the deposits would otherwise be
accepted.
Safety and Soundness Regulations. Under FDICIA, the OTS is
required to prescribe safety and soundness regulations relating
to (i) internal controls, information systems and internal audit
systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate exposure; (v) asset growth; and (vi) compensation
and benefit standards for officers, directors, employees and
principal shareholders. In November, 1993, the OTS, along with
the other federal banking agencies, published revised proposed
regulations for the purpose of implementing this provision of
FDICIA. As proposed, savings institutions, such as the Banks,
would be required, among other things, to maintain a ratio of
classified assets to total risk-based capital and allowances for
loan losses not eligible for inclusion in risk-based capital that
is no greater than 1.0. At December 31, 1993, First Financial
and Port had a ratio of classified assets to total risk-based
capital and ineligible allowances of 0.10 and 0.05, respectively.
The proposed regulations also would impose safety and soundness
standards on holding companies such as the Corporation. Under
the proposed regulations, an institution or holding company not
meeting one or more of the safety and soundness standards would
be required to file a compliance plan with the appropriate
federal banking agency. In the event that an institution or
holding company fails to submit an acceptable compliance plan or
fails in any material respect to implement an accepted compliance
plan within the time allowed by the agency, the institution or
holding company would be required to correct the deficiency and
the appropriate federal agency would also be authorized to:
(i) restrict asset growth; (ii) require the institution or
holding company to increase its ratio of tangible equity to
assets; (iii) restrict the rates of interest that the institution
may pay; or (iv) take any other action that would better carry
out the purpose of the corrective action. Until adopted in final
form, the Corporation is unable to predict the precise effect of
these regulations on the Corporation or the Banks.
Qualified Thrift Lender Requirement. In order for First
Financial and Port to exercise the powers granted to federally
chartered savings institutions and maintain full access to FHLB
advances, they must meet the definition of a "qualified thrift
lender" ("QTL"). Pursuant to recent amendments effected by
FDICIA, a savings institution will be a QTL if the savings
institution's qualified thrift investments continue to equal or
exceed 65% of the institution's portfolio assets on a monthly
average basis in nine out of every 12 months. Subject to certain
exceptions, qualified thrift investments generally consist of
housing related loans and investments, certain obligations of
federal instrumentalities and certain groups of assets, such as
consumer loans, to a limited extent. The term "portfolio assets"
means the savings institution's total assets minus goodwill and
other intangible assets, the value of property used by the
savings institution to conduct its business, and liquid assets
held by the savings institution in an amount up to 20% of its
total assets.
OTS regulations provide that any savings institution that
fails to meet the definition of a QTL must either convert to a
bank charter, other than a savings bank charter, or limit its
future investments and activities (including branching and
payments of dividends) to those permitted for both savings
institutions and national banks. Additionally, any such savings
institution that does not convert to a bank charter will be
ineligible to receive further FHLB advances and, beginning three
years after the loss of QTL status, will be required to repay all
outstanding FHLB advances and dispose of or discontinue any
preexisting investment or activities not permitted for both
savings institutions and national banks. Further, within one
year of the loss of QTL status, the holding company of a savings
institution that does not convert to a bank charter must register
as a bank holding company and will be subject to all statutes
applicable to bank holding companies.
Both First Financial and Port are QTLs under the current test
with investments in qualified thrift investments substantially in
excess of required limits.
Liquidity. Under applicable federal regulations, savings
institutions are required to maintain an average daily balance of
liquid assets (including cash, certain time deposits, certain
bankers' acceptances, certain corporate debt securities and
highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than a
specified percentage of the average daily balance of the savings
institution's net withdrawable deposits plus short-term
borrowings. Under the HOLA, this liquidity requirement may be
changed from time to time by the Director of the OTS to any
amount within the range of 4% to 10% depending upon economic
conditions and the deposit flows of member institutions, and
currently is 5%. Savings institutions are also required to
maintain an average daily balance of short-term liquid assets at
a specified percentage (currently 1%) of the total of the average
daily balance of its net withdrawable deposits and short-term
borrowings. First Financial and Port are in compliance with
these liquidity requirements.
Loans to One Borrower Limitations. The HOLA generally
requires savings institutions to comply with the loans to one
borrower limitations applicable to national banks. National
banks generally may make loans to a single borrower in amounts up
to 15% of their unimpaired capital and surplus, plus an
additional 10% of capital and surplus for loans secured by
readily marketable collateral. FIRREA provides exceptions under
which a savings institution may make loans to one borrower in
excess of the generally applicable national bank limits. A
savings institution may make loans to one borrower in excess of
such limits under one of the following circumstances: (i) for
any purpose, in any amount not to exceed $500,000; (ii) to
develop domestic residential housing units, in an amount not to
exceed the lesser of $30 million or 30% of the savings
institution's unimpaired capital and unimpaired surplus, provided
other conditions are satisfied; or (iii) to finance the sale of
real property acquired in satisfaction of debts previously
contracted in good faith in amounts up to 50% of the savings
institution's unimpaired capital and unimpaired surplus.
However, the OTS has modified the third standard by limiting
loans to one borrower to finance the sale of real property
acquired in satisfaction of debts to 15% of unimpaired capital
and surplus. That rule provides, however, that purchase money
mortgages received by a savings institution to finance the sale
of such real property do not constitute "loans" (provided the
savings institution is not placed in a more detrimental position
holding the note than holding the real estate) and, therefore,
are not subject to the loans to one borrower limitations.
Neither First Financial nor Port has loans to any one borrower in
violation of these regulations.
Commercial Real Property Loans. HOLA limits the aggregate
amount of commercial real estate loans that a federal savings
institution may make to an amount not in excess of 400% of the
savings institution's capital. First Financial and Port are in
compliance with this limitation.
Limitation on Capital Distributions. An OTS rule imposes
limitations on all capital distributions by savings institutions
(including dividends, stock repurchases and cash-out mergers).
Under the rule, a savings institution is classified as a tier 1
institution, a tier 2 institution or a tier 3 institution,
depending on its level of regulatory capital both before and
after giving effect to a proposed capital distribution. A tier 1
institution (i.e., one that both before and after a proposed
capital distribution has net capital equal to or in excess of its
fully phased-in regulatory capital requirement) and a tier 2
institution (i.e., one that both before and after a proposed
capital distribution has net capital equal to its then-applicable
minimum capital requirement but would fail to meet its fully
phased-in capital requirement either before or after the
distribution) would be allowed to make certain capital
distributions in specified amounts in any calendar year without
prior regulatory approval. A tier 3 institution (i.e., one that
either before or after a proposed capital distribution fails to
meet its then-applicable minimum capital requirement) may not
make any capital distributions without
the prior written approval of the OTS or the OTS may prohibit a
capital distribution. For purposes of this regulation, First
Financial and Port are tier 1 institutions and all capital
distributions made by the Banks in 1993 were in compliance with
these regulations.
Effective December 19, 1992, FDICIA prohibits an insured
depository institution from declaring any dividend, making any
other capital distribution, or paying a management fee to a
controlling person if, following the distribution or payment, the
institution would be classified as undercapitalized,
significantly undercapitalized or critically undercapitalized.
The OTS has indicated that it intends to review its existing
capital distribution regulations to determine whether amendments
are necessary based on FDICIA. In the interim, the OTS has
indicated that it intends for the permissibility of capital
distributions to be determined by the prompt corrective action
regulations recently adopted under FDICIA. A savings institution
permitted to make a capital contribution under the prompt
corrective action regulation may do so only if the amount and
type would also be permitted under the OTS's existing capital
distribution regulation.
Limitation on Equity Risk Investments. First Financial and
Port are generally prohibited from investing directly in equity
securities and real estate (other than that used for offices and
related facilities or acquired through, or in lieu of,
foreclosure or on which a contract purchaser has defaulted). In
addition, existing regulations limit the aggregate investment by
savings institutions in certain equity risk investments,
including equity securities, real estate, service corporations
and operating subsidiaries and loans for the purchase of land and
construction loans made after February 27, 1987 on non-
residential properties with loan-to-value ratios exceeding 80%.
First Financial and Port are in compliance with the requirements
of the equity risk investment limitations.
Activities of Subsidiaries. FIRREA requires a savings
institution seeking to establish a new subsidiary, acquire
control of an existing company (after which it would be a
subsidiary), or conduct a new activity through a subsidiary, to
provide 30 days prior notice to the FDIC and the OTS and conduct
any activities of the subsidiary in accordance with regulations
and orders of the OTS. The OTS has the power to require a
savings institution to divest any subsidiary or terminate any
activity conducted by a subsidiary that the OTS determines is a
serious threat to the financial safety, soundness or stability of
such savings institution or is otherwise inconsistent with sound
banking practices.
Insurance of Deposits. Federal deposit insurance is required
for all federally chartered savings institutions. Savings
institutions' deposits are insured to a maximum of $100,000 for
each insured account by the SAIF. As SAIF-insured institutions,
First Financial and Port are subject to regulation and
supervision by the FDIC, to the extent deemed necessary by the
FDIC to ensure the safety and soundness of the SAIF. The FDIC is
entitled to have access to reports of examination of First
Financial and Port made by the OTS and all reports of condition
filed by First Financial and Port with the OTS, and may require
First Financial and Port to file such additional reports as the
FDIC determines to be advisable for insurance purposes. The FDIC
may determine by regulation or order that any specific activity
poses a serious threat to the SAIF and that no SAIF member may
engage in the activity directly. The FDIC is also authorized to
issue and enforce such regulations or orders as it deems
necessary to prevent actions of savings institutions that pose a
serious threat to SAIF.
Insurance premiums are paid in semiannual assessments. Under
the risk-based assessment system adopted pursuant to FDICIA, the
FDIC is required to calculate a savings institution's semiannual
assessment based on (i)The probability that the insurance fund
will incur a loss with respect to the institution (taking into
account the institution's asset and liability concentration),
(ii) the potential magnitude of any such loss, and (iii) the
revenue and reserve needs of the insurance fund. Until
December 31, 1997, the minimum semi-annual assessments under the
risk-based assessment system must equal or exceed the assessments
that would have applied prior to enactment of FDICIA. The
semiannual assessment imposed on the Banks may be higher
depending on SAIF revenue and expense levels, and the risk
classification applied to the Banks. Effective January 1, 1998,
the FDIC is required to set SAIF semiannual assessments rates in
an amount sufficient to increase the reserve ratio of the SAIF to
1.25% of insured deposits over no more than a 15 year period.
FDICIA also gives the FDIC the authority to establish a higher
reserve ratio.
As part of the risk-based deposit insurance system, the
deposit insurance assessment rate was increased from .23% of an
institution's assessment base (generally all insured accounts
subject to certain adjustments) to an assessment rate within the
range of .25% to .31% for all BIF and SAIF members, depending on
the assessment risk classifications assigned to each institution,
effective January 1, 1993. Each BIF and SAIF member is assigned
to one of three capital groups: "well capitalized," "adequately
capitalized," or "less than adequately capitalized." Such terms
are defined in the same manner as under the OTS's prompt
corrective action regulation (discussed above), except that "less
than adequately capitalized" includes any institution that is not
well capitalized or adequately capitalized. Within each capital
group, institutions are assigned to one of three supervisory
subgroups -- "healthy (institutions that are financially sound
with only a few minor weaknesses), "supervisory concern"
(institutions with weaknesses which, if not corrected could
result in significant deterioration of the institution and
increased risk to BIF or SAIF) or "substantial supervisory
concern" (institutions that pose a substantial probability of
loss to the BIF or SAIF unless corrective action is taken). The
FDIC will place each institution into one of nine assessment risk
classifications based on the institution's capital group and
supervisory subgroup classification. The deposit insurance rate
for each Bank under these regulations is currently .23% and each
of the Banks is "well capitalized" under the transitional
regulations. There can be no assurance that premiums will not
further increase in the future.
During the five-year period following enactment of FIRREA,
savings institutions are precluded from engaging in any
transaction which would result in a conversion from SAIF to BIF
insurance (subject to certain exceptions for limited branch sales
and supervisory transactions). FDICIA expanded the list of
permitted conversion transactions that may be effected during the
five-year moratorium. Under FDICIA, BIF and SAIF insured
institutions may merge, consolidate or engage in asset transfer
and liability assumption transactions. The resulting institution
will continue to be subject to BIF and SAIF assessments in
relation to that portion of its combined deposit base which is
attributable to the deposit base of its respective predecessor
BIF and SAIF institutions. After August 9, 1994, the resulting
institution may apply to the FDIC to convert all of its deposits
to either insurance fund upon payment of the then applicable
entrance and exit fees for each fund.
Insurance of deposits may be terminated by the FDIC after
notice and hearing, upon a finding by the FDIC that the savings
institution has engaged in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has
violated any applicable law, rule, regulation, order or condition
imposed by, or written agreement with, the FDIC. Additionally,
if insurance termination proceedings are initiated against a
savings institution, the FDIC may temporarily suspend insurance
on new deposits received by an institution under certain
circumstances. The Corporation is not aware of any activity or
condition which could result in a termination of the deposit
insurance of First Financial or Port.
Under the Federal Deposit Insurance Act, as amended by
FIRREA, a savings institution may be held liable to the FDIC for
any loss incurred by the FDIC in connection with the default of a
commonly controlled savings institution or in connection with the
provision of assistance by the FDIC to a commonly controlled
savings institution in danger of default. First Financial and
Port are commonly controlled for purposes of this provision of
FIRREA. Accordingly, if a receiver, conservator or other legal
custodian is appointed for one of the institutions, or if the
FDIC is required to provide financial assistance to one of the
institutions, the other institution could be held liable to the
FDIC for any loss incurred in connection with such appointment or
assistance.
FDICIA requires any company that has control of an
undercapitalized savings institution, in connection with the
submission of a capital restoration plan by the savings
institution, to guarantee that the institution will comply with
the plan and provide appropriate assurances of performance. The
aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the savings
institution's assets at the time it became undercapitalized; or
(ii) the amount necessary to bring the savings institution into
capital compliance at the time the institution fails to comply
with the terms of its capital plan. If either Bank becomes
undercapitalized the Corporation will be required to guarantee
performance of the capital plan submitted under the FDICIA as a
condition to OTS approval.
Federal Home Loan Bank System
The Federal Home Loan Bank System consists of 12 regional
FHLBs, each subject to supervision and regulation by the Federal
Housing Finance Board (the "FHFB"). The FHLBs provide a central
credit facility for member savings institutions. First Financial
and Port, as members of the FHLB of Chicago, are required to own
shares of capital stock in the FHLB of Chicago in an amount at
least equal to 1% of the aggregate principal amount of unpaid
residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 1/20 of the their
advances (borrowings) from the FHLB, whichever is greater. First
Financial and Port are in compliance with this requirement. The
maximum amount which the FHLB of Chicago will advance fluctuates
from time to time in accordance with changes in policies of the
FHFB and the FHLB of Chicago, and the maximum amount generally is
reduced by borrowings from any other source. In addition, the
amount of FHLB advances that a savings institution may obtain
will be restricted in the event the institution fails to
constitute a QTL. See "-- Qualified Thrift Lender Requirement."
Federal Reserve System
The Federal Reserve Board has adopted regulations that
require savings institutions to maintain nonearning reserves of
3% on the first $51.9 million and 10% on the remaining balance of
net transaction accounts (primarily NOW and regular checking
accounts). First Financial and Port are in compliance with these
requirements. These reserves may be used to satisfy liquidity
requirements imposed by the OTS. Because required reserves must
be maintained in the form of cash or a noninterest-bearing
account at a Federal Reserve Bank, the effect of this reserve
requirement is to reduce the amount of the institution's
interest-earning assets.
Savings institutions also have the authority to borrow from
the Federal Reserve "discount window." Federal Reserve Board
regulations, however, require savings institutions to exhaust all
FHLB sources before borrowing from a Federal Reserve Bank.
TAXATION
Federal
The Corporation files on behalf of itself, First Financial,
Port, and their subsidiaries a calendar tax year consolidated
federal income tax return. Income and expense are reported on
the accrual method of accounting.
Savings institutions, such as the Banks, are generally taxed
in the same manner as other corporations. Unlike other
corporations, however, qualifying savings institutions that meet
certain definitional tests relating to the nature of their
supervision, income, assets and business operations are allowed
to establish a reserve for bad debts and each tax year are
permitted to deduct additions to that reserve on qualifying real
property loans using the more favorable of the following two
alternative methods: (i) a method based on the institution's
actual loss experience (the "experience" method) or (ii) a method
based upon a specified percentage of the institution's taxable
income (the "percentage of taxable income method"). Qualifying
real property loans are, in general, loans secured by interests
in improved real property. The addition to the reserve for
nonqualifying loans must be computed under the experience method.
In recent years, First Financial generally has computed additions
to its reserves for losses on qualifying loans using the
experience method and Port has used the percentage of taxable
income method (PTI). It is anticipated that each Bank will
continue to use its respective methods in future years.
Under the PTI, a qualifying institution may deduct 8% of its
taxable income, subject to the limitations discussed below. The
net effect of the PTI deduction is that the effective federal
income tax rate on income computed without regard to actual bad
debts would be 32.20%. Under the experience method, a qualifying
institution is permitted to deduct the amount needed to increase
the tax loss reserve to a prescribed level after charge-offs.
The prescribed level is calculated as the greater of an amount
based on average loan losses over the current and previous five
years or the balance in the tax loss reserve at December 31, 1987
(the base year). The experience method deduction is limited to
the extent the tax loan loss reserve exceeds the prescribed
level.
The amount of bad debt deduction that a savings institution
may claim with respect to additions to its reserve for bad debts
is subject to certain limitations. First, the deduction may be
eliminated entirely (regardless of the method of computation) if
at least 60% of the savings institution's assets do not fall
within certain designated categories. Second, the PTI deduction
is limited to the amount by which the sum of surplus and
undivided profits at the beginning of the tax year is less than
12% of total deposits and withdrawable accounts at the close of
such year. Third, the amount of the bad debt deduction
attributable to qualifying real property loans computed using PTI
is permitted only to the extent that the institution's reserve
for losses on qualifying real property loans at the close of the
taxable year, taking into account the addition to the reserve for
that taxable year, does not exceed 6% of such loans outstanding
at that time. Finally, the amount of the PTI deduction is
reduced, but not below zero, by the amount of the addition to
reserves for losses on nonqualifying loans for the taxable year.
The Banks do not expect that these restrictions will operate to
limit the amount of their otherwise available bad debt deductions
in the reasonably foreseeable future.
To the extent that the Banks make distributions to their
stockholder that are considered withdrawals from that excess bad
debt reserve, the amounts withdrawn will be included in the
Banks' taxable income. The amount considered to be withdrawn by
such a distribution will be the amount of the distribution, plus
the amount necessary to pay the tax with respect to the
withdrawal. Dividends paid out of the Banks' current or
accumulated earnings and profits as calculated for federal income
tax purposes, however, will not be considered to result in
withdrawals from their bad debt reserves. Distributions in
excess of the Banks' current and accumulated earnings and
profits, distributions in redemptions of stock, and distributions
in partial or complete liquidation of one of the Banks will be
considered to result in withdrawals from that Banks' bad debt
reserves. At December 31, 1993, First Financial and Port had
$69.9 million and $3.5 million, respectively, in accumulated
federal income tax bad debt reserves that would not be available
for distribution to their stockholder without the imposition of
additional tax.
Depending on the composition of its items of income and
expense, a savings institution may be subject to the alternative
minimum tax (AMT) to the extent the AMT exceeds the regular tax
liability. AMT is calculated by multiplying alternative minimum
taxable income (AMTI) by 20%. AMTI equals regular taxable income
increased by certain tax preferences, including depreciation
deductions in excess of that allowable for alternative minimum
tax purposes, the amount of the bad debt reserve deduction
claimed in excess of the deduction based on the experience
method, and 75% of the excess of adjusted current earnings (ACE)
over AMTI. ACE is defined as AMTI adjusted for certain items
such as accelerated tax depreciation, tax exempt interest, the
dividends received deduction, and other tax preferences. Only
90% of AMTI may be reduced by net operating loss carryovers and
most alternative minimum tax paid may be used as a credit against
regular tax paid in future years.
State
The Corporation and the Banks are headquartered in Wisconsin
and have significant operations in Illinois. The State of
Wisconsin imposes a corporate franchise tax measured by the
separate Wisconsin taxable income of each of the members. The
State of Illinois imposes a corporate income tax based on the
apportionment of Illinois taxable income by the entire group to
their Illinois activities. The current corporate tax rates
imposed by Wisconsin and Illinois are 7.9% and 7.3% respectively.
First Financial also has an operating subsidiary (FFII) located
in Nevada which manages a portion of the Bank's investment
portfolio. The income of FFII is only subject to taxation in
Nevada which currently does not impose a corporate income or
franchise tax other than a nominal registration fee.
Examinations
The Internal Revenue Service (IRS) has examined the consolidated
federal income tax returns of the Corporation and the Banks
through 1988. The IRS is currently examining the consolidated
returns of the Corporation and the Banks for 1989, 1990 and 1991.
The separate Wisconsin state income tax returns of the members of
the group through 1986 are closed to examination by the Wisconsin
Department of Revenue (WDR) due to the expiration of the statute
of limitations. However, the WDR is currently examining earlier
returns of a previously acquired institution due to the
utilization by First Financial of Wisconsin net operating losses
carried forward from that institution.
ITEM 2. PROPERTIES
At December 31, 1993, First Financial and Port operated
through 117 full-service savings bank branch offices, one loan
origination limited office and one insurance agency office,
located in Wisconsin and Illinois. The aggregate net book value
at December 31, 1993 of the properties owned or leased, including
headquarters, properties and leasehold improvements at the leased
offices, was $40.2 million. The leases expire between 1994 and
2021. See Note H to the Corporation's consolidated financial
statements, filed as an exhibit hereto, for information regarding
First Financial's and Port's premises and equipment. Management
believes that all of these properties are in good condition. The
following tables set forth the location of the Corporation's
banking and other offices.
<PAGE>
<TABLE>
<CAPTION>
Metropolitan Milwaukee, Wisconsin Region (First Financial)
<S> <C> <C>
1 North Moorland Road 5900 West North Avenue 1733 Douglas Avenue
Brookfield, Wisconsin (a) Milwaukee, Wisconsin Racine, Wisconsin
1930 Wisconsin Avenue 7900 West Brown Deer Road 2815 South Chicago Avenue
Grafton, Wisconsin (a) Milwaukee, Wisconsin South Milwaukee, Wisconsin
5651 Broad Street 3432 South 27th Street 2645 North Mayfair Road
Greendale, Wisconsin Milwaukee, Wisconsin (a) Wauwatosa, Wisconsin
4981 South 76th Street 200 East Wisconsin Avenue 7101 West Greenfield Avenue
Greenfield, Wisconsin Milwaukee, Wisconsin West Allis, Wisconsin (a)
829 West Mitchell Street 5350 West Fond du Lac Ave. 2825 South 108th Street
Milwaukee, Wisconsin Milwaukee, Wisconsin West Allis, Wisconsin (a)
3027 West Lincoln Avenue 15665 West National Avenue 430 East Silver Spring Drive
Milwaukee, Wisconsin New Berlin, Wisconsin Whitefish Bay, Wisconsin
Southeast Wisconsin Region (First Financial)
201 Park Avenue 300 East Lake Street 704 North Grand Avenue
Beaver Dam, Wisconsin Lake Mills, Wisconsin Waukesha, Wisconsin
197 West Chestnut Street 306 North Rochester Street 2831 North Grandview Blvd.
Burlington, Wisconsin Mukwonago, Wisconsin Waukesha, Wisconsin (a)
709 East Geneva Street 1093 Summit Avenue 100 East Sunset Drive
Delavan, Wisconsin Oconomowoc, Wisconsin (a) Waukesha, Wisconsin (a)
3292 Main Street 213 North Lake Avenue 2306 West St. Paul Avenue
East Troy, Wisconsin (a) Twin Lakes, Wisconsin Waukesha, Wisconsin (a)
23 South Washington 600 Main Street 1200 Delafield Street
Elkhorn, Wisconsin Watertown, Wisconsin Waukesha, Wisconsin (a)
One North Madison Street 633 South Church Street 219 Center Street
Evansville, Wisconsin Watertown, Wisconsin (a) Whitewater, Wisconsin
2525 Milton Avenue
Janesville, Wisconsin (a)
North Central Wisconsin Region (First Financial)
926 West College Avenue Highways 51 & 70 West 1230 North Taylor Drive
Appleton, Wisconsin Minocqua, Wisconsin (a) Sheboygan, Wisconsin
2235 Main Street 429 North Sawyer Street 1305 Main Street
Green Bay, Wisconsin Oshkosh, Wisconsin Stevens Point, Wisconsin
1482 West Mason Street Post Road & South Drive 330 Third Street
Green Bay, Wisconsin Plover, Wisconsin Wausau, Wisconsin (a)
205 North Eighth Street 140 South Brown 2711 West Stewart Avenue
Manitowoc, Wisconsin Rhinelander, Wisconsin Wausau, Wisconsin
705 North Center Avenue
Merrill, Wisconsin
Western Wisconsin Region (First Financial)
609 East Spruce Street 806 South Hastings Way 600 Hewett Street
Abbotsford, Wisconsin Eau Claire, Wisconsin Neillsville, Wisconsin
103 West Cleveland Holmen Square 1101 Main Street
Arcadia, Wisconsin Holmen, Wisconsin Onalaska, Wisconsin
203 Main Street 620 Main Street 108 West Prospect
Black River Falls, Wisconsin LaCrosse, Wisconsin Thorp, Wisconsin (a)
308 Third Avenue West 630 South Central Avenue 1714 Scranton Street
Durand, Wisconsin Marshfield, Wisconsin (a) Whitehall, Wisconsin
130 South Barstow Commons 600 East Main Street 711 West Grand Avenue
Eau Claire, Wisconsin Mondovi, Wisconsin Wisconsin Rapids, Wisconsin(a)
</TABLE>
- --------------------------
(a) Leased
<PAGE>
<TABLE>
<CAPTION>
Southern Illinois Region (First Financial)
<S> <C> <C>
104 Homer Adams Pkwy. 326 Missouri Avenue 318 West College
Alton, Illinois East St. Louis, Illinois Greenville, Illinois
100 East Washington 6550 North Illinois 217 West Washington
Belleville, Illinois Fairview Heights, Illinois Millstadt, Illinois
6902 West Main 10280 Lincoln Trail 1645 State Highway 121
Belleville, Illinois (a) Fairview Heights, Illinois Mount Zion, Illinois
238 North Main #1 Junction Drive West 200 South Market
Columbia, Illinois Glen Carbon, Illinois Waterloo, Illinois
Central Illinois Region (First Financial)
1007 North Fourth Street 300 South 4th Street 103 West Forrest Hill
Chillicothe, Illinois Pekin, Illinois Peoria, Illinois
12200 North Route 88 4125 North Sheridan Road 4600 Brandywine Drive
Dunlap, Illinois (a) Peoria, Illinois (a) Peoria, Illinois
300 East Washington Street 111 North Jefferson Avenue 700 Main Street
East Peoria, Illinois Peoria, Illinois Peoria, Illinois
313 Fifth Street 201B Northwoods Mall 2515 West Lake Avenue
Lacon, Illinois Peoria, Illinois (a) Peoria, Illinois
119 West 5th Street 3222 West Harmon Highway 416 West Front Street
Minonk, Illinois Peoria, Illinois (a) Roanoke, Illinois
3500 Court Street 7620 North University 1881 Washington Road
Pekin, Illinois (a) Peoria, Illinois (a) Washington, Illinois
Western & Northern Illinois Region (First Financial)
104 Southeast 3rd Avenue 1865 North Henderson 21 Boulder Hill Pass
Aledo, Illinois Galesburg, Illinois Montgomery, Illinois (a)
101 East Broadway 50 East Main Street 525 West Washington Street
Astoria, Illinois Galesburg, Illinois Pittsfield, Illinois
301 West Galena Boulevard 1035 Broadway 116 East Main Street
Aurora, Illinois Hamilton, Illinois Princeville, Illinois
1325 Sycamore Road 333 West Main 706 Maine Street
DeKalb, Illinois (a) Havana, Illinois Quincy, Illinois (a)
305 East Locust 143 South Main Street 24th and Broadway
DeKalb, Illinois (a) Lewistown, Illinois Quincy, Illinois
101 East Evergreen 122 West Boston Avenue 116 South Congress
Elmwood, Illinois Monmouth, Illinois Rushville, Illinois
16 East Fort Street
Farmington, Illinois (a)
Insurance Agency Office (First Financial)
300 Wisconsin Avenue
Waukesha, Wisconsin
Loan Origination Office (First Financial)
2659 Farragut Drive
Springfield, Illinois (a)
First Financial - Port Savings Bank, S.A.
222 North Wisconsin Street 135 South Mill Street
Port Washington, Wisconsin Saukville, Wisconsin
211 North Highland Drive
Fredonia, Wisconsin
</TABLE>
- ------------------------
(a) Leased
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Corporation and the Banks are involved as plaintiff or
defendant in various legal actions incidental to their business,
all of which in the aggregate are believed by management of the
Corporation not to represent an adverse risk of loss which would
be material to the financial condition or operations of the
Corporation. See Note Q to the Corporation's consolidated
financial statements, filed at Exhibit 13(a) hereto, for further
discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated herein
by reference from Management's Discussion and Analysis filed at
Exhibit 13(b) hereto. The Corporation's Board of Directors has
discretion to declare and pay dividends on the Corporation's
common stock from time to time under Wisconsin law, unless such
payment would render the Corporation insolvent.
Also, relative to OTS restrictions on the payment of
dividends by the Banks to the Corporation, see Note L to the
Corporation's consolidated financial statements filed at Exhibit
13(a) hereto. Also, see Item 1, "Business - Regulation - Savings
Institution Regulation - Limitation on Capital Distribution from
the Banks to the Corporation."
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this item is
incorporated herein by reference from "Management's Discussion
and Analysis" filed at Exhibit 13(b) hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" is filed at Exhibit 13(b) hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's consolidated financial statements are filed
at Exhibit 13(a) hereto. Quarterly financial information is
included as a part of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" filed at Exhibit
13(b) hereto. Schedule 28(a) includes the required schedule for
"Guarantees of Securities of Other Issuers".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item regarding directors is
incorporated by reference from pages 4 to 8 and 16 of the proxy
statement for the Corporation's 1994 annual meeting of
shareholders, filed with the Securities and Exchange Commission
on March 21, 1994. Information acquired by this item regarding
executive officers is included herein at page 29 and at page 16
of the proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation required by
this item is incorporated herein by reference from pages 8 - 14
of the proxy statement for the Corporation's 1994 annual meeting
of shareholders, filed with the Securities and Exchange
Commission on March 21, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein
by reference from pages 2 - 3 of the proxy statement for the
Corporation's 1994 annual meeting of shareholders, filed with the
Securities and Exchange Commission on March 21, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein
by reference from page 14 of the proxy statement for the
Corporation's 1994 annual meeting of shareholders, filed with the
Securities and Exchange Commission on March 21, 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The following consolidated financial statements of
the Registrant and its subsidiaries for the year ended December
31, 1993, including the related notes and the report of the
independent auditors are incorporated herein by reference from
Exhibits 21 and 28(b), respectively, of this Report.
Report of Independent Auditors
Consolidated Statements of Financial Condition - December 31,
1993 and 1992.
Consolidated Statements of Income - Years ended December 31,
1993, 1992 and 1991.
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1993, 1992 and 1991.
Consolidated Statements of Cash Flows - Years Ended December
31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
(a)(2) The following consolidated financial statement
schedule of the Registrant is filed at Exhibit 13(a) to this
Report in response to the requirement of Items 8 and 14(d) of
this Report and should be read in conjunction with the
consolidated financial statements incorporated herein by
reference to Item 8 of this Report:
Schedule II - Guarantees of Securities of Other Issuers
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore, have been omitted.
(a)(3) The following exhibits are either filed as part of
this Report on Form 10-K or are incorporated herein by reference.
3(a) Articles of Incorporation of Registrant dated February
21, 1984 and amended on April 24, 1987.
3(b) Bylaws of the Registrant, as amended (incorporated
herein by reference to the Registrant's Annual Report
on Form 10-K filed on March 25, 1985).
4(b) Form of Certificate of Common Stock (incorporated
herein by reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-1 (Registration No.
2-88289) filed on December 7, 1983).
10(a) Employment Contract of Registrant with John C. Seramur
dated January 1, 1989, (incorporated by reference from
Annual Report on Form 10-K for 1989 filed on March 29,
1990).
10(b) Severance Agreement between Registrant and Robert M.
Salinger dated August 16, 1989, (incorporated by
reference from Annual Report on Form 10-K for 1989
filed on March 29, 1990).
10(c) Deferred Compensation Agreement between First State
Savings of Wisconsin and Paul C. Kehrer (incorporated
herein by reference to Exhibit 10.8 to Amendment No. 2
to Registrant's Registration Statement on Form S-1
(Registration No. 2-88289) filed on February 14, 1984).
10(d) Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 2 to
Registrant's Registration Statement on Form S-1
(Registration No. 2-88289) filed on February 14, 1984).
10(e) Supplemental Executive Profit Sharing Plan dated
December 21, 1987 (incorporated herein by reference to
Exhibit 10(q) to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-1
(Registration No. 33-16948) filed on February 29,
1988).
10(f) Form of Executive Supplemental Life Insurance Plan
dated April 10, 1989 (incorporated herein by reference
from Annual Report on Form 10-K for 1989 filed on March
26, 1990).
10(g) Collateral Pledge Agreement, dated March 22, 1991, with
the Federal Home Loan Bank of Chicago (incorporated
herein by reference from Annual Report on Form 10-K for
1991 filed on March 27, 1992).
10(h) First Financial Corporation Stock Option Plan III dated
April 24, 1991 (incorporated herein by reference from
Annual Report on Form 10-K for 1991 filed on March 27,
1992).
10(i) Form of Supplemental Executive Retirement Plan dated
August 1, 1989, and amended on November 1, 1991
(incorporated herein by reference from Annual Report on
Form 10-K for 1991 filed on March 27, 1992).
10(j) Severance Agreement between Registrant and Donald E.
Peters dated August 16, 1989 and amended August 19,
1992. (Incorporated herein by reference from Annual
Report on Form 10-K for 1992 filed on March 26, 1993.)
10(k) Severance Agreement between Registrant and Harry K.
Hammerling dated August 16, 1989 and amended August 19,
1992. (Incorporated herein by reference from Annual
Report on Form 10-K for 1992 filed on March 26, 1993.)
10(l) Acquisition Agreement among Westinghouse Financial
Services, Inc., Westinghouse Savings Corporation and
First Financial Bank, FSB dated September 14, 1992
(incorporated herein by reference to the Current Report
filed by the Registrant on Form 8-K on September 29,
1992).
10(m) Form of Indenture between the Registrant and Norwest
Bank Wisconsin, N.A. as trustee relative to issuance of
8.0% Subordinated Notes due November 1, 1999
(incorporated herein by reference to Exhibit 4.2 to
Amendment No. 1 to Registrant's Registration Statement
on Form S-3 [Registration No. 33-52638] on October 9,
1992).
10(n) Directors' Retirement Plan dated November 18, 1992.
(Incorporated herein by reference from Annual Report on
Form 10-K for 1992 filed on March 26, 1993.)
10(o) Consulting Agreement between Registrant and Robert S.
Gaiswinkler dated January 1, 1993. (Incorporated
herein by reference from Annual Report on Form 10-K for
1992 filed on March 26, 1993.)
10(p) Promissory Note relating to Registrant's commercial
bank line-of-credit agreement dated April 30, 1993.
10(q) Agreement and Plan of Merger by and among NorthLand
Bank of Wisconsin, SSB, First Financial Corporation and
First Financial Bank, FSB dated October 13, 1993
(incorporated herein by reference to Exhibit 2 to the
Registrant's Registration Statement on Form S-4
[Registration No. 33-51487] filed on December 16,
1993.)
10(r) Deferred Compensation Plan and Trust, dated January 1,
1988 and amended January 1, 1993.
13(a) Consolidated Financial Statements
13(b) Management Discussion and Analysis of Financial
Condition and Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young for Registration Statement No.
2-90005 as filed with the Securities and Exchange
Commission on March 16, 1984, for Registration
Statement No. 33-17304 as filed with the Securities and
Exchange Commission on September 17, 1987, Post-
Effective Amendment No. 5 to Form S-1 on Form S-8
(Registration No. 33-16948), as filed with the
Securities and Exchange Commission on May 12, 1988 for
Registration Statement No. 33-36295 as filed with the
Securities and Exchange Commission on August 9, 1990
and Registration Statement No. 33-69856 as filed with
the Securities and Exchange Commission on October 1,
1993.
(b) Reports on Form 8-K.
On October 13, 1993, the Registrant filed a Current
Report on Form 8-K with the Securities and Exchange
Commission (SEC) reporting that the Corporation had
released its earnings information as well as other
related financial and operating data for the quarter
ended September 30, 1993.
On October 19, 1993, the Registrant filed a Current
Report on Form 8-K with the Securities and Exchange
Commission announcing that the Corporation entered into
a definitive agreement to acquire NorthLand Bank of
Wisconsin, SSB of Ashland, Wisconsin.
(c) Exhibits to this Report on Form 10-K required by Item
601 of Regulation S-K are attached or incorporated
herein by reference as stated in the Index to Exhibits.
(d) The report of independent accountants and the financial
statement schedules listed in subsections (a)(1) and
(2) above are filed at Exhibits 13(a) to this Report on
Form 10-K in response to the requirements of Items 8
and 14(d) of this Report on Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST FINANCIAL CORPORATION
By: /s/ John C. Seramur
-------------------------
John C. Seramur
President
Chief Executive Officer
Date: March 28, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ John C. Seramur
------------------------
John C. Seramur
President
Chief Executive Officer
Director
Date: March 28, 1994
By: /s/ Thomas H. Neuschaefer
--------------------------
Thomas H. Neuschaefer
Principal Accounting Officer
Date: March 28, 1994
By: /s/ John C. Seramur By: /s/ Robert S. Gaiswinkler
----------------------- --------------------------
John C. Seramur Robert S. Gaiswinkler
President Chairman of the Board
Chief Executive Officer Director
Director Date: March 28, 1994
Date: March 28, 1994
By: /s/ Gordon M. Haferbecker By: /s/ James O. Heinecke
-------------------------- --------------------------
Gordon M. Haferbecker James O. Heinecke
Director Director
Date: March 28, 1994 Date: March 28, 1994
By: /s/ Robert T. Kehr By: /s/ Paul C. Kehrer
-------------------------- --------------------------
Robert T. Kehr Paul C. Kehrer
Director Director
Date: March 28, 1994 Date: March 28, 1994
By: /s/ Robert P. Konopacky By: /s/ Dr. George R. Leach
-------------------------- --------------------------
Robert P. Konopacky Dr. George R. Leach
Director Director
Date: March 28, 1994 Date: March 28, 1994
By: /s/ Ignatius H. Robers By: /s/ John H. Sproule
-------------------------- --------------------------
Ignatius H. Robers John H. Sproule
Director Director
Date: March 28, 1994 Date: March 28, 1994
By: /s/ Ralph R. Staven By: /s/ Norman L. Wanta
-------------------------- --------------------------
Ralph R. Staven Norman L. Wanta
Director Director
Date: March 28, 1994 Date: March 28, 1994
By: /s/ Arlyn G. West
--------------------------
Arlyn G. West
Director
Date: March 28, 1994
<PAGE>
EXHIBIT INDEX
3(a) Articles of Incorporation of Registrant dated February
21, 1984 and amended on April 24, 1987.
3(b) Bylaws of the Registrant, as amended (incorporated
herein by reference to the Registrant's Annual Report on
Form 10-K filed on March 25, 1985).
4(b) Form of Certificate of Common Stock (incorporated herein
by reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-1 (Registration No. 2-
88289) filed on December 7, 1983).
10(a) Employment Contract of Registrant with John C. Seramur
dated January 1, 1989, (incorporated by reference from
Annual Report on Form 10-K for 1989 filed on March 29,
1990).
10(b) Severance Agreement between Registrant and Robert M.
Salinger dated August 16, 1989, (incorporated by
reference from Annual Report on Form 10-K for 1989 filed
on March 29, 1990).
10(c) Deferred Compensation Agreement between First State
Savings of Wisconsin and Paul C. Kehrer (incorporated
herein by reference to Exhibit 10.8 to Amendment No. 2
to Registrant's Registration Statement on Form S-1
(Registration No. 2-88289) filed on February 14, 1984).
10(d) Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 2 to
Registrant's Registration Statement on Form S-1
(Registration No. 2-88289) filed on February 14, 1984).
10(e) Supplemental Executive Profit Sharing Plan dated
December 21, 1987 (incorporated herein by reference to
Exhibit 10(q) to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-1
(Registration No. 33-16948) filed on February 29, 1988).
10(f) Form of Executive Supplemental Life Insurance Plan dated
April 10, 1989 (incorporated herein by reference from
Annual Report on Form 10-K for 1989 filed on March 26,
1990).
10(g) Collateral Pledge Agreement, dated March 22, 1991, with
the Federal Home Loan Bank of Chicago (incorporated
herein by reference from Annual Report on Form 10-K for
1991 filed on March 27, 1992).
10(h) First Financial Corporation Stock Option Plan III dated
April 24, 1991 (incorporated herein by reference from
Annual Report on Form 10-K for 1991 filed on March 27,
1992).
10(i) Form of Supplemental Executive Retirement Plan dated
August 1, 1989, and amended on November 1, 1991
(incorporated herein by reference from Annual Report on
Form 10-K for 1991 filed on March 27, 1992).
10(j) Severance Agreement between Registrant and Donald E.
Peters dated August 16, 1989 and amended August 19,
1992. (Incorporated herein by reference from Annual
Report on Form 10-K for 1992 filed on March 26, 1993.)
10(k) Severance Agreement between Registrant and Harry K.
Hammerling dated August 16, 1989 and amended August 19,
1992. (Incorporated herein by reference from Annual
Report on Form 10-K for 1992 filed on March 26, 1993.)
10(l) Acquisition Agreement among Westinghouse Financial
Services, Inc., Westinghouse Savings Corporation and
First Financial Bank, FSB dated September 14, 1992
(incorporated herein by reference to the Current Report
filed by the Registrant on Form 8-K on September 29,
1992).
10(m) Form of Indenture between the Registrant and Norwest
Bank Wisconsin, N.A. as trustee relative to issuance of
8.0% Subordinated Notes due November 1, 1999
(incorporated herein by reference to Exhibit 4.2 to
Amendment No. 1 to Registrant's Registration Statement
on Form S-3 [Registration No. 33-52638] on October 9,
1992).
10(n) Directors' Retirement Plan dated November 18, 1992.
(Incorporated herein by reference from Annual Report on
Form 10-K for 1992 filed on March 26, 1993.)
10(o) Consulting Agreement between Registrant and Robert S.
Gaiswinkler dated January 1, 1993. (Incorporated herein
by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(p) Promissory Note and collateral pledge agreement relating
to Registrant's commercial bank line-of-credit agreement
dated April 30, 1993.
10(q) Agreement and Plan of Merger by and among NorthLand Bank
of Wisconsin, SSB, First Financial Corporation and First
Financial Bank, FSB dated October 13, 1993 (incorporated
herein by reference to Exhibit 2 to the Registrant's
Registration Statement on Form S-4 [Registration No. 33-
51487] filed on December 16, 1993.)
10(r) Deferred Compensation Plan and Trust, dated January 1,
1988 and amended January 1, 1993.
13(a) Consolidated Financial Statements
13(b) Management Discussion and Analysis of Financial
Condition and Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young for Registration Statement No.
2-90005 as filed with the Securities and Exchange
Commission on March 16, 1984, for Registration Statement
No. 33-17304 as filed with the Securities and Exchange
Commission on September 17, 1987, Post-Effective
Amendment No. 5 to Form S-1 on Form S-8 (Registration
No. 33-16948), as filed with the Securities and Exchange
Commission on May 12, 1988 for Registration Statement
No. 33-36295 as filed with the Securities and Exchange
Commission on August 9, 1990 and Registration Statement
No. 33-69856 as filed with the Securities and Exchange
Commission on October 1, 1993.
<PAGE>
EXHIBIT 10(P)
FIRST FINANCIAL CORPORATION
PROMISSORY NOTE
<PAGE>
FIRST FINANCIAL CORPORATION
PROMISSORY NOTE
$18,000,000.00 Milwaukee, Wisconsin
April 30, 1993
SECTION 1. FOR VALUE RECEIVED, FIRST FINANCIAL
CORPORATION, a Wisconsin corporation (the "Company"), hereby
promises to pay to the order of M&I MARSHALL & ILSLEY BANK, a
Wisconsin banking corporation ("M&I"), the principal sum of
EIGHTEEN MILLION AND 00/100 DOLLARS ($18,000,000.00) or such
lesser amount of loans which remain outstanding under this Note
on April 30, 1994. The unpaid principal shall bear interest from
the date hereof until paid, computed on the basis of a 360 day
year, at an annual rate equal to the prime rate of interest (the
"Prime Rate") adopted by M&I from time to time as the base rate
for interest rate determinations, changing on each day that the
Prime Rate changes. Interest shall be payable monthly in arrears
on the first day of each month in each year, commencing on
June 1, 1993 and continuing thereafter until the principal is
paid in full, with a final payment of interest due at maturity.
The Company agrees to pay interest on any overdue amounts at the
Prime Rate plus 2%. Each loan shall be in an integral multiple
of One Hundred Thousand and 00/100 Dollars ($100,000.00) and
shall be made on telephonic notice from an authorized officer of
the Company to M&I. The Company may reborrow any amounts paid or
prepaid on this Note, provided, however, that the aggregate
amount of loans outstanding hereunder shall never exceed
$18,000,000.00. All interest under this Note shall be computed
for the actual number of days elapsed on the basis of a 360 day
year.
Payments of both principal and interest are to be made in
lawful money of the United States of America at the offices of
M&I Marshall & Ilsley Bank, Attention: Loan and Discount
Department, 770 North Water Street, Milwaukee, Wisconsin, 53201,
or at such other place as the holder shall designate in writing
to the maker.
SECTION 2. PREPAYMENT. The Company may, at any time and
from time to time, prepay the loan in whole or in part without
premium or penalty. At the time of making any prepayment, the
Company shall pay all accrued interest upon the amount prepaid.
SECTION 3. The Company hereby waives presentment for
payment, protest and demand, notice of protest, demand and or
dishonor and nonpayment of this Note.
SECTION 4. DEFINITIONS. When used in this Note, the
following terms shall have the meanings specified:
Automatic Event of Default. "Automatic Event of Default"
shall mean any one or more of the following:
(a) the Company or FFB, shall: (i) become insolvent or
take or fail to take any action which constitutes an admission of
inability to pay its debts as they mature, (ii) make a general
assignment for the benefit of creditors or to an agent authorized
to liquidate any substantial amount of its assets, (iii) become
the subject of an "order for relief" within the meaning of the
United States Bankruptcy Code, (iv) file a petition in
bankruptcy, or for reorganization, or to effect a plan or other
arrangement with creditors, (v) file an answer to a creditor's
petition, admitting the material allegations thereof, for an
adjudication of bankruptcy or for reorganization or to effect a
plan or other arrangement with creditors, (vi) apply to a court
for the appointment of a receiver or custodian for any of its
assets or properties, or (vii) have a receiver or custodian
appointed for any of its assets or properties, with or without
consent, and such receiver shall be discharged within sixty (60)
days after his appointment; or
(b) the Company or FFB adopts a plan of complete
liquidation of its assets.
Consolidated Assets. "Consolidated Assets" shall mean
all consolidated assets of the Company and all Subsidiaries but shall
not include goodwill, patents, trademarks, trade names, copyrights
and other assets properly classified as intangible assets.
Event of Default. "Event of Default" shall mean any
automatic Event of Default and any Notice Event of Default.
FFB. "FFB" means First Financial Bank, FSB.
Indebtedness. "Indebtedness" shall mean, as to any
Person, all liabilities or obligations of that Person, whether
primary or secondary or absolute or contingent: (a) for borrowed
money, whether secured or unsecured; (b) evidenced by notes,
bonds, debentures, guarantees, endorsements or similar
obligations; (c) for capital lease obligations; (d) secured by
any Liens or (e) for deferred indebtedness whether secured or
unsecured, incurred in connection with the acquisition or
carrying of property.
Lien. "Lien" shall mean, with respect to any asset:
(a) any mortgage, pledge, lien, charge, security interest or
encumbrance of any kind; and (b) the interest of a vendor or
lessor under any conditional sale agreement, financing lease or
other title retention agreement relating to such asset.
Notice Event of Default. "Notice Event of Default" shall
mean any one or more of the following and such failure remains
uncured for a period of thirty (30) days after notice of such
occurrence is given by M&I to the Company:
(a) the Company shall fail to pay when due any
installment of the principal of or interest upon this Note;
(b) there shall be a default in the performance or
observance of any of the covenants and agreements contained in
this Note;
(c) there shall be a default in the performance or
observance of any of the covenants and agreements contained in
the Pledge Agreement or contained in other instruments delivered
by the Company to M&I;
(d) any representation or warranty made by the Company
in this Note or in any document or financial statement delivered
to M&I pursuant to this Note shall prove to have been false in
any material respect as of the time when made or given;
(e) the amount of any final judgment entered against the
Company or any Subsidiary, when added to the amount of all other
final judgments against the Company and all Subsidiaries, exceeds
the aggregate amount of $1,000,000 and such final judgments shall
remain outstanding and unsatisfied, unbonded or unstayed after
thirty (30) days from the date of entry thereof; or
(f) the Company or FFB defaults on any Indebtedness in
excess of $500,000 other than the loan represented by the Note,
or the Company's or FFB's failure to perform or observe any term,
covenant or condition for other Indebtedness in excess of
$500,000 if the effect of such failure is to accelerate such
Indebtedness and require such Indebtedness to be prepaid prior to
maturity.
Person. "Person" shall mean and include an individual,
partnership, corporation, trust, incorporated organization and a
government or any department or agency thereof.
Pledge Agreement. "Pledge Agreement" shall mean the
Collateral Pledge Agreement between the Company and M&I dated
June 29, 1990, as amended by the First Amendment to Collateral
Pledge Agreement dated as of May 1, 1991 between the Company and
M&I, a Second Amendment to Collateral Pledge Agreement dated as
of April 30, 1992, a Third Amendment to Collateral Pledge
Agreement dated as of November 30, 1992, and a Fourth Amendment
to Collateral Pledge Agreement dated April 30, 1993, and as
further amended from time to time.
Subsidiary. "Subsidiary" shall mean any corporation at
least fifty percent (50%) of the outstanding stock of which (of
any class or classes, however designated, having ordinary voting
power for the election of at least a majority of the members of
the board of directors of such corporation, other than stock
having such power only by reason of the happening of a
contingency) shall at the time be owned by the Company directly
or through FFB; provided, however, that an affiliate of FFB shall
only be considered a Subsidiary if such entity is reflected in
the annual consolidated and consolidating financial statements of
the Company and all Subsidiaries described in Section 5.5(b)
hereof or in any footnotes to such financial statements.
SECTION 5. Covenants. From and after the date of this
Note and until the entire amount of principal and interest due
under the Note and the entire amounts of fees and payments due
under this Note and the Collateral Pledge Agreement are paid in
full:
5.1 Indebtedness. The Company will not, and will cause
each Subsidiary to not, at any time permit the sum of the
following described Indebtedness to exceed 12% of Consolidated
Assets:
(a) Indebtedness of the Company and all Subsidiaries to
the Federal Home Loan Bank System; plus
(b) the maximum amount of Indebtedness which the Company
and all Subsidiaries could incur under commitments made by M&I;
plus
(c) all other Indebtedness of the Company and all
Subsidiaries.
5.2 Asset/Liability Ratio. The Company, on a consolidated
basis, will not at any time allow earning assets that mature or
are repriced within one year to fall below 84% or rise above 116%
of liabilities that mature or are repriced within one year, such
assets and liabilities being classified according to regulatory
requirements as reported by the Subsidiaries to the Office of
Thrift Supervision.
5.3 Risk-Based Capital Ratio. The Company shall cause FFB
to maintain at all times Risk-Based Capital, as measured by the
Office of Thrift Supervision, of at least 8% of Risk Weighted
Assets, as measured by the Office of Thrift Supervision.
5.4 Liquidity. The Company and its Subsidiaries shall
maintain Cash and Interest-earning Deposits, as defined in
accordance with generally accepted accounting principles, of at
least 4.5% of Consolidated Assets.
5.5 Reporting Requirements. The Company shall furnish to
M&I such information respecting the business, assets and
financial condition of the Company and the Subsidiaries as M&I
may reasonably request and without request furnish to M&I:
(a) within 45 days after the end of each fiscal quarter
in each fiscal year, a consolidated and consolidating balance
sheet of the Company and all Subsidiaries as of the end of each
such fiscal quarter and of the comparable fiscal quarter in the
preceding fiscal year and consolidated and consolidating
statements of income, stockholders equity and cash flow of the
Company and all Subsidiaries for each such fiscal quarter and for
that part of the fiscal year ending with each fiscal quarter and
for the corresponding periods of the preceding fiscal year, all
in reasonable detail and certified as true and correct, subject
to audit and normal year-end adjustments, by the chief financial
officer of the Company; and
(b) as soon as available, and in any event within 120
days after the close of each fiscal year, a copy of the detailed
annual audit report for such year and accompanying consolidated
and consolidating financial statements of the Company and all
Subsidiaries prepared in reasonable detail and in accordance with
generally accepted accounting principles consistently applied by
public accountants of recognized standing selected by the
Company, and reasonably satisfactory to M&I, which audit report
shall be accompanied by: (i) an opinion of such accountants, in
form and substance reasonably satisfactory to M&I to the effect
that the same fairly presents the consolidated financial
condition and the consolidated results of operations of the
Company and all Subsidiaries for the periods and as of the
relevant dates thereof, and (ii) a certificate of such
accountants setting forth their computations as to the Company's
compliance with Sections 5.1, 5.2, 5.3 and 5.4 of this Note and
stating that in the ordinary course of their audit, conducted in
accordance with generally accepted auditing practices, they did
not become aware of any Event of Default or, if their audit
disclosed an Event of Default, a specification of the Event of
Default and the actions taken or proposed to be taken by the
Company with respect thereto; and
(c) promptly after the same are available, copies of all
such proxy statements, reports and financial statements as the
Company shall send to its stockholders; and
(d) together with each delivery required by Sections
5.5(a) and (b) of this Note, a certificate of the Company in form
reasonably satisfactory to M&I as to the Company's compliance
with the covenants contained in this Note; and
(e) Promptly after the same are available, copies of all
reports submitted to the Company or any Subsidiary by independent
certified public accountants in connection with any annual or
special audit made of the books and records of the Company or any
Subsidiary or relating to the management, operation, accounting
procedures or internal controls of the Company or any Subsidiary.
5.6 Inspection of Properties and Records. The Company
shall, and shall cause each Subsidiary to, permit representatives
of M&I to visit any of its properties and examine any of its
books and records at any reasonable time and as often as may be
reasonably desired and facilitate such inspection and
examination.
SECTION 6. REMEDIES.
6.1 Acceleration. (a) Upon the occurrence of an Automatic
Event of Default, then, without notice, demand or action of any
kind by M&I, the entire amount of unpaid principal and accrued
and unpaid interest under this Note and the entire amount of
unpaid fees and expenses under this Note shall be automatically
and immediately due and payable.
(b) Upon the occurrence of a Notice Event of Default,
M&I may, by written notice to the Company, declare that the
entire amount of unpaid principal and accrued and unpaid interest
under this Note and the entire amount of unpaid fees and expenses
under this Note are immediately due and payable.
(c) No remedy herein conferred upon M&I is intended to
be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other
remedy given under this Note or the Pledge Agreement or now or
hereafter existing by law. No failure or delay on the part of
M&I in exercising any right or remedy shall operate as a waiver
thereof nor shall any single or partial exercise of any right
preclude other or further exercise thereof or the exercise of any
other right or remedy.
6.2 Fees, Expenses and Attorney's Fees. The Company shall
pay all reasonable fees and expenses incurred by M&I, including
the reasonable fees of counsel, in connection with the
maintenance, reissuance and amendment of this Note, the Pledge
Agreement and the consummation of the transactions contemplated
by this Note and the administration, protection or enforcement of
M&I's rights under this Note and the Pledge Agreement.
FIRST FINANCIAL CORPORATION
(CORPORATE SEAL)
By /s/ John C. Seramur
---------------------------
John C. Seramur, President
Attest:
/s/ Robert M. Salinger
----------------------------
Robert M. Salinger, Secretary
<PAGE>
EXHIBIT 10(R)
FIRST FINANCIAL CORPORATION
DEFERRED COMPENSATION PLAN AND TRUST
Effective January 1, 1988
As Amended Through January 1, 1993
<PAGE>
FIRST FINANCIAL CORPORATION
DEFERRED COMPENSATION PLAN AND TRUST
Table of Contents
-------------------
Section Page
- ---------- ---------
I General . . . . . . . . . . . . . . . . . . . . .. . . 1
II Definition . . . . . . . . . . . . . . . . . . . . . . . 2
III Eligibility and Selection of Participants . . . . . . . 5
IV Election to Defer . . . . . . . . . . . . . . . . . . . 6
V Deferral Amount Selection . . . . . . . . . . . . . . . 8
VI Timing and Manner of Distribution. . . . . . . . . . . . 9
VII The Trust. . . . . . . . . . . . . . . . . . . . . . . . 10
VIII Rights of Participants . . . . . . . . . . . . . . . . . 19
IX Death or Disability of Participant . . . . . . . . . . . 20
X Distribution in the Event of Financial Hardship. . . . . 21
XI Distribution in the Event of Significant Change
in Tax Law . . . . . . . . . . . . . . . . . . . . . . 23
XII Administration . . . . . . . . . . . . . . . . . . . . . 24
XIII Funding. . . . . . . . . . . . . . . . . . . . . . . . . 26
XIV Special Provisions Applicable to Insiders. . . . . . . . 27
XV Execution. . . . . . . . . . . . . . . . . . . . . . . . 31
EXHIBITS
Exhibit 7.3 Investment Vehicles
Exhibit 7.4 Election of Investment Vehicle
Exhibit 9.1 Designation of Beneficiary
Exhibit 12.3 Election of Deferment
<PAGE>
SECTION I
General
------------
The purpose of this Deferred Compensation Plan and Trust is to
provide flexibility to eligible employees of First Financial
Corporation and its direct and indirect subsidiaries in their
receipt of Base Salary and Annual Incentive Compensation.
<PAGE>
SECTION II
Definitions
-----------------
The following definitions shall be applicable throughout the
Deferred Compensation Plan and Trust:
2.1 "Annual Incentive Compensation" shall include any amount
earned by certain executives of First Financial Corporation
or its direct or indirect subsidiaries under a Company-
sponsored incentive plan or through discretionary bonuses.
2.2 "Beneficiary" shall mean the person or persons who upon the
death, disability or incompetency of a Participant shall
have acquired, by will, by laws of decent and distribution
or by other legal proceedings, the right to the
Participant's Account.
2.3 "Base Salary" shall mean the monthly amount payable to the
executive for performance of services exclusive of any
amounts included as Annual Incentive Compensation.
2.4 "Base Salary Deferral Year" shall mean the calendar year.
2.5 "Company" shall mean First Financial Corporation or any
direct or indirect subsidiary of First Financial Corporation
which employs the Participant.
2.6 "Compensation Committee" shall mean the Compensation
Committee of the Board of Directors of First Financial
Corporation.
2.7 "Disabled" shall mean that a Participant has suffered a
permanent and total disability as determined by the
Compensation Committee.
2.8 "Effective Date" shall mean January 1, 1988 as amended
through January 1, 1993.
2.9 "Participant" shall mean an employee designated as eligible
under Section 3.1 who has elected, under the terms and
conditions of the Plan, to defer payments of all or
allowable portions of Base Salary and/or Annual Incentive
Compensation.
2.10 "Participant Account" shall mean the Participant's account
established pursuant to Section 4.1.
2.11 "Plan" shall mean this Deferred Compensation Plan and Trust.
2.12 "Plan Year" shall mean the calendar year.
2.13 "Retirement" shall mean retirement from employment of a
Participant in accordance with the Company's normal
retirement policies, as amended from time to time and as
determined by the Compensation Committee.
2.14 "Trust" shall mean the trust created under Section VII of
this Plan.
2.15 "Trustee" shall initially mean Marshall & Ilsley Trust
Company which is hereby appointed to administer the Trust
and the Participant Accounts in accordance with this Plan
and pursuant to the requirement of Section VII hereof.
"Trustee" shall also refer to any substitute or replacement
Trustee appointed under Section VII hereof.
<PAGE>
SECTION III
Eligibility and Selection of Participants
----------------------------------------------
3.1 Participation in the Plan shall be determined by the
Compensation Committee.<PAGE>
SECTION IV
Election to Defer
----------------------
4.1 An eligible employee may elect, under the terms and
conditions of the Plan, to defer all or an allowable portion
specified under Section 5.2 of Base Salary or Annual
Incentive Compensation. Such election shall be made by
written notice in the manner specified by the Compensation
Committee and shall be irrevocable when made.
4.2 Election to defer Annual Incentive Compensation shall be
made on or before December 1 of the Plan Year.
4.3 Election to defer Base Salary shall be made prior to the
first day of the Base Salary Deferral Year.
4.4 All amounts earned by the Participant and deferred under
this Section IV shall be forthwith paid by the Company to
the Trustee which shall administer the funds in accordance
with its duties under Section VII hereof and the other
requirements of the Plan.
4.5 No distribution of funds deferred hereunder shall be made by
the Trustee to a Participant or a Participant's Beneficiary
prior to the earliest of the following dates:
(a) the date of payment specified by the Participant in
his/her deferral election, provided that such date shall
be no less than five (5) years from the date of the
election;
(b) the Retirement date of a Participant;
(c) the date that a Participant becomes Disabled;
(d) the date of death of a Participant;
(e) the date the Compensation Committee determines a
Financial Hardship or Significant Change in Tax Law
exists pursuant to Sections 10.1 or 11.1 of this Plan
and Trust; or
(f) the date of termination of employment as provided in
Section 8.3 of this Plan and Trust.
<PAGE>
SECTION V
Deferral Amount Selection
-------------------------------
5.1 Participants of the Plan may select to defer a percentage of
Annual Incentive Compensation (if any) and/or a percentage
of Base Salary. Alternatively, a specified dollar amount of
deferral may be selected by the Participant.
5.2 If percentage deferral is selected, any percentage amount up
to 100% shall be permitted.
5.3 Plan Participants may independently select, to defer amounts
from Annual Incentive Compensation and from Base Salary.
<PAGE>
SECTION VI
Timing and Manner of Distribution
---------------------------------------
6.1 Plan Participants may choose to receive payment of deferred
amounts by one of the alternative methods stated hereunder:
(a) Lump sum payment in any year at least five years from
the date of election as specified by the Participant;
(b) Equal annual installments, the first such installment to
be paid at least five years from the date of election as
specified by the Participant; or
(c) Upon the anticipated retirement date (or one tax year
thereafter) in either:
(i) One lump sum payment in the year so specified by the
Participant.
(ii) Equal annual installments, the first of which shall be
paid commencing in the year so specified by the
Participant.
The Compensation Committee shall provide the Trustee with
a copy of the Participant's deferral election.
<PAGE>
SECTION VII
The Trust
--------------
7.1 The Company shall deliver to the Trustee all amounts
deferred under Section IV of this Plan as soon as
practicable after such amounts have been earned by the
Participant, to be administered and disposed of by the
Trustee as provided herein.
7.2 (a) As used herein, the term "Trust Corpus" shall mean the
amounts delivered to the Trustee by the Company from time to
time on behalf of each Participant pursuant to the terms
hereof, less amounts distributed to the Participants
pursuant to the terms hereof, plus all income earned by the
Trust, in such amounts in whatever form held or invested as
provided herein.
(b) The Trust is intended to be a grantor trust, of which
the Company is the grantor, within the meaning of subpart E,
part 1, subchapter J, chapter 1, subtitle A of the Internal
Revenue Code of 1986, as amended, and shall be construed
accordingly. The principal of the Trust and any earnings
thereon shall be held separate and apart from any other
funds of the Company and shall be used exclusively for the
uses and purposes of Plan Participants and general creditors
as herein set forth.
7.3 That portion of the Trust Corpus held on behalf of each
Participant (the "Participant's Account") shall be invested
or reinvested at the option of the Participant in one of the
investments provided on Exhibit 7.3 hereto.
7.4 The Compensation Committee shall permit each Participant to
select the investment vehicle(s), as provided in Section
7.3, for such portion of the Trust Corpus allocated to such
Participant's Account. The Compensation Committee or the
Trustee shall provide descriptive information regarding each
investment vehicle to the Participant at least annually.
The Participant may allocate his or her Participant Account
among two or more investment vehicles on a percentage basis.
Such selection shall be made on or before December 1 of each
Plan Year on a form to be provided to the Participant from
the Compensation Committee or Trustee in the form attached
hereto as Exhibit 7.4. If the Trustee fails to receive
notification on or before December 1 of each Plan Year of a
change in the investment vehicle selection by any
Participant, such Participant's Account shall continue to be
invested in such investment vehicle(s) as last previously
selected by the Participant.
7.5 The Trustee shall be permitted to withhold from any payment
due to a Participant hereunder the amount required by law to
be so withheld under federal, state and local wage
withholding requirements or otherwise, and shall pay over to
the appropriate government authority the amounts so
withheld. Except as otherwise provided herein, in the event
of any final determination by the Internal Revenue Service
or a court of competent jurisdiction, which determination is
not appealable or with respect to which the time for appeal
has expired, or the receipt by the Trustee of a
substantially unqualified opinion of tax counsel selected by
the Trustee, which determination determines, or which
opinion opines, that the Participant is subject to federal
income taxation on amounts held in Trust hereunder prior to
the distribution to the Participant of such amounts, the
Trustee shall, on receipt by the Trustee of such opinion or
notice of such determination, pay to the Participant the
portion of the Trust Corpus includable in the Participant's
federal gross income.
7.6 The Trust Corpus is and shall remain at all times subject to
the claims of the general creditors of the Company in the
event of the Company's insolvency as defined in Section 7.7.
Accordingly, the Company shall not create, and this Plan
shall not be construed to create, a preferred claim on or
any beneficial ownership interest in the Trust Corpus in
favor of any Participant or any creditor. Any rights
created under the Plan and this Trust Agreement shall be
mere unsecured contractual rights of Plan Participants and
their beneficiaries against the Company. If the Trustee
receives the notice provided for in Section 7.7 hereof, or
otherwise receives actual notice that the Company is
insolvent as defined in Section 7.7 hereof, the Trustee will
make no further distributions of the Trust Corpus to any
Participant but will deliver the Trust Corpus only to
satisfy such claims, including those of any Participant, as
a court of competent jurisdiction may direct. In such
event, the Trustee is authorized to institute or participate
in appropriate legal proceedings to obtain such directions.
The Trustee shall resume distribution of Trust Corpus to the
Participants under the terms hereof, including any
arrearages, after so notifying the Company, if it determines
that the Company was not, or is no longer insolvent.
7.7 The Company, through its Board of Directors or Chief
Executive Officer, shall advise the Trustee promptly in
writing of the Company's insolvency. The Company shall be
deemed insolvent upon (a) the appointment of a conservator
or receiver (a "receiver") due to a finding that the Company
is unable to pay its debts as such debts become due and the
expiration, without revocation of the receiver's authority,
of the receiver's notice period to the Company's creditors
all in accordance with 12 CFR Part 549, or (b) the
institution of bankruptcy or dissolution proceedings with
respect to the Company.
7.8 The duties and responsibilities of the Trustee shall be
limited to those expressly set forth in this Plan, and no
implied covenants or obligations shall be read into this
Plan or Trust against the Trustee. The interests of any
Participant hereunder are not subject to assignment or
alienation except in accordance with the terms of the Plan.
Notwithstanding any powers granted to the Trustee pursuant
to this Plan or applicable law, the Trustee shall not have
any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the
Internal Revenue Code.
7.9 The Trustee shall maintain such books, records and accounts
as may be necessary for the proper administration of the
Trust Corpus and the Participant Accounts, and shall render
to the Company and to any Participant, on or prior to each
April 1 following the date of this Plan until the
termination of this Plan (and on the date of such
termination), an accounting with respect to the Trust Corpus
and each Participant's Account as of the end of the then
most recent calendar year (and as of the date of such
termination), provided that no such accounting shall be
required if the Trust Corpus has a zero balance. Upon the
written request of any Participant or the Company, the
Trustee shall deliver to the Participant or the Company, as
the case may be, a written report setting forth the amount
held in the Participant's Account for the Participant, the
current status of the investment vehicle including earnings
on the investment, and a record of the contributions made
with respect thereto by the Company. Unless the Company or
the Participant shall have filed with the Trustee written
exceptions or objections to any such statement and account
within 180 days after receipt thereof, the Company or the
Participant, as the case may be, shall be deemed to have
approved such statement and account, and in such case the
Trustee shall be forever released and discharged with
respect to all matters and things reported in such statement
and account as though it had been settled by a decree of a
court of competent jurisdiction in an action or proceeding
to which the Company and the Participant were parties.
7.10 The Trustee shall not be liable for any act taken or omitted
to be taken hereunder if taken or omitted to be taken by it
in good faith. The Trustee shall also be fully protected in
relying upon any notice given hereunder which it in good
faith believes to be genuine and executed and delivered in
accordance with this Plan. The Trustee may consult with
legal counsel to be selected by it, and the Trustee shall
not be liable for any action taken or suffered by it in good
faith in accordance with the advice of such counsel.
7.11 The Trustee shall be reimbursed by the Company for its
reasonable expenses incurred in connection with the
performance of its duties hereunder and shall be paid
reasonable fees for the performance of such duties in the
manner provided by Section 7.12 or 7.13.
7.12 The Company agrees to indemnify and hold harmless the
Trustee from and against any and all damages, losses, claims
or expenses as incurred (including expenses of investigation
and fees and disbursements of counsel to the Trustee and any
taxes imposed on the Trust Corpus or income of the Trust)
arising out of or in connection with the performance by the
Trustee of its duties hereunder. Any amount payable to the
Trustee under Section 7.11, this Section 7.12, or Section
7.13 and not previously paid by the Company shall be paid by
the Company promptly upon demand therefor by the Trustee or,
if the Trustee so chooses in its sole discretion, from the
Trust Corpus. In the event that payment is made hereunder
to the Trustee from the Trust Corpus, the Trustee shall
promptly notify the Company in writing of the amount of such
payment. The Company agrees that, upon receipt of such
notice, it will deliver to the Trustee to be held in the
Trust an amount in cash equal to any payments made from the
Trust Corpus to the Trustee pursuant to Section 7.11, this
Section 7.12, or Section 7.13. The failure of the Company
to transfer any such amount shall not in any way impair the
Trustee's right to indemnification, reimbursement and
payment pursuant to Section 7.11, this Section 7.12, or
Section 7.13.
7.13 The Trustee is specifically authorized and required to take
such action as may be necessary or appropriate, including
the institution of litigation or other legal process, to
enforce the Company's obligations hereunder on behalf of
either itself or a Participant, and any expenses thus
incurred by the Trustee shall be paid or reimbursed by the
Company.
7.14 The Trustee may resign and be discharged from its duties
hereunder at any time by giving notice in writing of such
resignation to the Company and all Participants specifying a
date (not less than thirty days after the giving of such
notice) when such resignation shall take effect. Promptly
after such notice, the Company shall appoint a successor
trustee, such trustee to become Trustee hereunder upon the
resignation date specified in such notice. The Company may
at any time substitute a new trustee by giving 15 days'
notice thereof to the Trustee then acting. In the event of
such removal or resignation, the Trustee shall duly file
with the Company a written statement or statements of
accounts and proceedings as provided in Section 7.9 hereof
for the period since the last previous annual accounting of
the Trust. The Trustee and any successor thereto appointed
hereunder shall be a corporate professional trustee which is
not an affiliate of the Company.
7.15 Except as provided herein, this Trust shall be irrevocable.
This Trust shall be terminated upon the earliest to occur of
the following events:
(a) the written agreement to so terminate signed by the
Company and all Participants;
(b) the final payment from the Trust Corpus of all amounts
payable hereunder to the Participants.
7.16 Subject to Sections 12.1 and 12.2 hereof, this Plan and
Trust may only be amended by written agreement signed by the
Company and a majority of the Participants provided that the
Trustee must consent to any amendment which would increase
its duties hereunder and provided further that no amendment
shall impair any benefit vested to any Participant who has
not agreed to such amendment and no amendment shall make
this Plan and Trust revocable.
7.17 The Company shall, at any time and from time to time, upon
the reasonable request of the Trustee, execute and deliver
such further instruments and do such further acts as may be
necessary or proper to effectuate the purposes of this Plan.
7.18 This Plan sets forth the entire understanding of the parties
with respect to the subject matter hereof and supersedes any
and all prior agreements, arrangements and understandings
relating thereto. This Plan shall be binding upon and inure
to the benefit of the parties and their respective
successors and legal representatives. This Plan shall be
governed by and construed in accordance with the laws of the
State of Wisconsin other than and without reference to any
provisions of such laws regarding choice of laws or conflict
of laws. In the event that any provision of this Plan of
the application thereof to any person or circumstances shall
be determined by a court of proper jurisdiction to be
invalid or unenforceable to any extent, the remainder of
this Plan, or the application of such provision to persons
or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and
each provision of this Plan shall be valid and enforced to
the fullest extent permitted by law.
<PAGE>
SECTION VIII
Rights of Participants
----------------------------
8.1 Nothing contained in the Plan or Trust shall:
(a) Confer upon any employee any right with respect to
continuation of employment with the company;
(b) Interfere in any way with the right of the Company to
terminate his or her employment at any time; or
(c) Confer upon any employee or other person any claim or
right to any distribution under the Plan or Trust except
in accordance with its terms.
8.2 No right or interest of any Participant in the Plan shall,
prior to actual payment or distribution to such Participant,
be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, or be
subject to payment of debts of any Participant by execution,
levy, garnishment, attachment, pledge, bankruptcy or in any
other manner.
8.3 If a Participant has elected to defer pursuant to Section
4.1 and his or her services with the Company are terminated
voluntarily or involuntarily, the Participant shall retain
all rights to the undistributed amounts credited to his or
her Participant Account. Such amounts will be distributed
by the Trustee to the Participant in a lump sum as soon as
practical following the Participant's termination.
SECTION IX
Death or Disability of Participant
--------------------------------------
9.1 Should a Participant die, or become Disabled, as defined
herein, the amount of such Participant's Account on the date
of death or disability shall be distributed by the Trustee
to the Participant or the Participant's Beneficiary, as the
case may be. Such distributions shall be made in a lump
sum. Each Participant shall designate his/her beneficiary
to the Compensation Committee and Trustee in writing as
provided on Exhibit 9.1 hereto, and shall have the right to
change such designation from time to time.
<PAGE>
SECTION X
Distribution in the Event of Financial Hardship
---------------------------------------------------
10.1 The Compensation Committee may, in its sole discretion,
direct the Trustee to make a partial or total distribution
of amounts in a Participant's Account upon the Participant's
request and a demonstration by the Participant of an
unforeseeable emergency. An unforeseeable emergency is a
severe financial hardship to the Participant resulting from
a sudden and unexpected illness or accident of the
Participant or of a dependent of the Participant, loss of
the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, but, in
any case, payment may not be made to the extent that such
hardship is or may be relieved -
(i) through reimbursement or compensation by insurance
or otherwise,
(ii) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not itself
cause severe financial hardship, or
(iii) by cessation of deferrals under the Plan.
Examples of what are not considered to be unforeseeable
emergencies include the need to send a Participant's child
to college or the desire to purchase a home.
The amount of any such distribution shall be limited to the
amount deemed necessary by the Compensation Committee to
alleviate or remedy the Participant's unforeseeable
emergency. The Trustee shall forthwith distribute such
amounts as directed by the Compensation Committee.
<PAGE>
SECTION XI
Distribution in the Event of Significant Change in Tax Law
-------------------------------------------------------------
11.1 The Compensation Committee may, in its sole discretion,
direct the Trustee to make a partial or total distribution
of amounts in a Participant's Account upon the Participant's
distribution request provided that the Committee has
determined that proposed changes in tax law which are
reasonably anticipated to be passed by Congress would cause
a significant financial impact to the Participant by
adversely affecting the deferred treatment of amounts
invested pursuant to this Plan. Any distribution made under
this paragraph shall be made at the beginning of the
calendar year following receipt of such distribution request
where such request was received at least six months in
advance of such distribution, and if such distribution
request is received less than six months prior to the
beginning of a calendar year, the distribution shall be made
at the beginning of the following calendar year.
<PAGE>
SECTION XII
Administration
------------------
12.1 The Compensation Committee may from time to time amend,
suspend, terminate or reinstate any or all of the provisions
of the Plan as may seem necessary or advisable for the
administration of the Plan, provided that no such action
shall affect, without the Participant's written consent, a
Participant's right to receive on a deferred basis funds
previously deferred hereunder.
12.2 The Compensation Committee shall, subject to express
provisions of the Plan, have power to construe the Plan, to
prescribe rules and regulations relating to the Plan and to
make all other determinations necessary or advisable for the
administration of the Plan, and the Compensation Committee
may correct any defect or supply and omission or reconcile
any inconsistency in the Plan in the manner and to the
extent it shall deem expedient to carry it into effect,
provided however, that no such action under this Section
12.2 shall affect, without the Participant's written
consent, a Participant's right to receive on a deferred
basis the funds previously deferred hereunder.
12.3 The Compensation Committee shall ensure that all individuals
entitled to make the election to defer are provided an
election form (in the form annexed hereto as Exhibit 12.3)
at least ninety (90) days before such election must be made
in accordance with Section 4.1 and all such elections must
be received in writing in order to be effective. This
election form shall include the following items, which must
be completed in full in order to be effective:
(a) The amount to be deferred, expressed as a percentage
of Annual Incentive Compensation (if any) or Base
Salary to become payable during the calendar year in
question;
(b) The number of installments for the payment of the
deferred compensation; and
(c) The date of the first installment payment.
12.4 All expenses and costs incurred in connection with the
administration and operation of the Plan shall be borne by
the Company.<PAGE>
SECTION XIII
Funding
------------
13.1 Benefits under this Plan shall be paid by the Trustee from
the Trust Corpus, provided however, that the Trust Corpus
shall be deemed the general assets of the Company and shall
be subject to the claims of the Company's creditors in the
event of the insolvency of the Company as provided in
Sections 7.6 and 7.7 hereof. This Plan shall be
administered as an unfunded plan which is not intended to
meet the qualification requirements of Section 401 of the
Internal Revenue Code.
13.2 The Company shall be liable to the Participant to make all
payments required under this Plan to the extent such
payments have not been made by the Trustee. Distributions
made from the Trust to or for the Participant pursuant to
the Plan shall, to the extent of such distributions, satisfy
the Company's obligation to pay benefits to such Participant
under this Plan.<PAGE>
SECTION XIV
Special Provisions Applicable to Insiders
---------------------------------------------
Anything in this Plan to the contrary notwithstanding, the
following provisions shall apply to any Participant who is or
becomes a "reporting person"subject to Section 16 of the
Securities Exchange Act of 1934 (an "Insider-Participant") and
shall continue to apply for six months after he or she ceases to
be subject to Section 16.
14.1 Any payment due an Insider-Participant under the Plan shall
be made only in cash. No payment may be made to an Insider-
Participant in the form of equity securities of First
Financial Corporation.
14.2 An Insider-Participant's election to invest, or not to
invest, all or any portion of an amount deferred under this
Plan in First Financial Corporation Common Stock shall be
irrevocable when made as to such deferred amount. Such
investment election shall be made at the time of his or her
deferral election. A different investment election may be
made with respect to each deferred amount.
In the case of a Participant who is not an Insider-
Participant and who thereafter becomes an Insider-
Participant, his or her most recent election, or deemed
election, to invest, or not to invest, in First Financial
Corporation Common Stock prior to becoming an Insider-
Participant shall automatically, upon his or her becoming an
Insider-Participant, and without any action on the part of
the Insider-Participant, the Compensation Committee or any
other party, be deemed irrevocable.
Notwithstanding the foregoing, an Insider-Participant may,
in accordance with Section 7.4, change the allocation of his
or her Participant Account to the extent not invested in
First Financial Corporation Common Stock among any of the
other investment vehicles provided in this Plan.
14.3 Notwithstanding the provisions of section 8.4, an Insider-
Participant may not, as to that portion of his or her
Participant Account invested in First Financial Corporation
Common Stock, request to further defer the date of payment
elected, and the Compensation Committee shall have no
authority to grant any such request if made. The foregoing
shall apply without regard to whether the Insider-
Participant was an Insider-Participant at the time the date
of payment was originally elected under Section 6.1, or
further deferred under Section 8.4, or at the time any
portion of his or her Participant Account was invested in
First Financial Corporation Common Stock.
14.4 No distribution may be made to an Insider-Participant under
Section 10.1 or 11.1 of any portion of his or her
Participant Account invested in First Financial Corporation
Common Stock, without regard to whether the Insider-
Participant was an Insider-Participant at the time any
portion of his or her Participant Account was invested in
First Financial Corporation Common Stock.
14.5 An Insider-Participant may choose to receive payment of
deferred amounts invested in First Financial Corporation
Common Stock only on a fixed date or dates, or incident or
death, retirement, disability or termination of employment,
within the meaning of SEC Rule 16a-1(c)(3)(ii). Any such
election by an Insider-Participant shall be made at the time
of his or her deferral election and shall be irrevocable.
If in the opinion of counsel to the Compensation Committee,
who may be counsel to First Financial Corporation, the
timing and manner of any distribution election made by a
Participant who thereafter becomes an Insider-Participant
with respect to any portion of his or her Participant
Account invested in First Financial Corporation Common Stock
would not satisfy the requirements of SEC Rule 16a-
1(c)(3)(ii), then upon his or her becoming an Insider-
Participant, each such election shall automatically, and
without any action on the part of the Insider-Participant,
the Compensation Committee or any other party, be deemed
irrevocably amended to provide, as to that portion of his or
her Participant Account invested in First Financial
Corporation Common Stock, for payment in a lump sum six
months after such Insider-Participant's death, retirement,
disability or other termination of employment. The
foregoing shall not apply to any such distribution election
that is amended, with the consent of the Compensation
Committee, prior to the time the Participant becomes an
Insider-Participant to satisfy the requirements of SEC Rule
16a-1(c)(3)(ii), provided that the Compensation Committee
has received, prior to giving its consent to any such
amendment, an opinion of counsel, who maybe counsel to First
Financial Corporation, that such amended distribution
election would satisfy the requirements of such SEC Rule and
would not result in the constructive receipt of income to
the Participant.
14.6 It is intended that as to Insider-Participants, any amounts
deferred pursuant to, and any securities, rights or
interests created under, this Plan be excluded from the
definition of "derivative security" pursuant to SEC Rule
16a-1(c)(3)(ii). Accordingly, no Plan or Trust amendment
and no action under the Plan or Trust shall become effective
if, in the opinion of counsel to the Compensation Committee,
who may be counsel to First Financial Corporation, such
amendment or action could cause such exclusion to become
unavailable, unless such counsel also opines that Insider-
Participants will, nevertheless, not be subject to avoidable
liability under Section 16.
<PAGE>
SECTION XV
Execution
-------------
IN WITNESS HEREOF, First Financial Corporation by its proper
officer duly authorized, has caused these presents to be
executed, on the date hereinafter set forth.
FIRST FINANCIAL CORPORATION
DATE: January 1, 1993 By: /s/ John C. Seramur
----------------------------
John C. Seramur, President
ATTEST:
/s/ Robert M. Salinger
- -----------------------------
Robert M. Salinger, Secretary
MARSHALL & ILSLEY TRUST COMPANY,
TRUSTEE
DATE: July 1, 1993 By: /s/ Russell G. Odenbeck
-------------------------------
Title: Vice President
-------------------------
ATTEST:
/s/ Forrest Dupre
- ----------------------------
Trust Officer
<PAGE>
EXHIBIT 13(A)
Consolidated Financial Statements
FIRST FINANCIAL CORPORATION
December 31, 1993
<PAGE>
CONSOLIDATED BALANCE SHEETS
FIRST FINANCIAL CORPORATION
December 31,
1993 1992
----------------------
(In Thousands)
ASSETS
Cash $ 63,241 $ 62,114
Federal funds sold 21,873 29,100
Interest-earning deposits 25,768 31,067
CASH AND CASH EQUIVALENTS 110,882 122,281
Securities available-for-sale (at fair value):
Investment securities 84,487
Mortgage-related securities 178,362
Securities held-to-maturity:
Investment securities (fair value of
$143,448,000--1993 and $104,949,000--1992) 143,568 103,633
Mortgage-related securities (fair value of
$1,160,230,000--1993 and $1,314,270,000
--1992) 1,147,891 1,301,589
Loans receivable:
Held for sale 73,919 54,840
Held for investment 2,848,585 2,155,877
Foreclosed properties and repossessed
assets 6,817 14,198
Real estate held for investment or sale 16,810 17,101
Office properties and equipment 50,120 42,367
Intangible assets, less accumulated
amortization 31,392 23,278
Other assets 81,800 73,122
$4,774,633 $3,908,286
December 31,
1993 1992
----------------------
(In Thousands)
LIABILITIES
Deposits $4,050,520 $3,206,112
Borrowings 438,598 461,948
Advance payments by borrowers for
taxes and insurance 13,805 11,521
Other liabilities 37,025 34,610
TOTAL LIABILITIES 4,539,948 3,714,191
STOCKHOLDERS' EQUITY
Serial preferred stock, $1 par value,
3,000,000 shares authorized; none
outstanding
Common stock, $1 par value, 30,000,000
shares authorized; shares issued and
outstanding: 23,586,827--1993;
23,266,414--1992 23,587 23,266
Additional paid-in capital 27,340 26,749
Net unrealized holding gain on securi-
ties available-for-sale 2,701
Retained earnings (substantially
restricted) 181,057 144,080
TOTAL STOCKHOLDERS' EQUITY 234,685 194,095
-------- --------
$4,774,633 $3,908,286
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
-----------------------------------------
(In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
Interest income:
Mortgage loans $160,372 $131,206 $143,574
Mortgage-related securities 86,052 83,040 67,650
Other loans 81,272 73,148 75,204
Investments 12,427 9,477 13,653
TOTAL INTEREST INCOME 340,123 296,871 300,081
Interest expense:
Deposits 169,741 174,042 199,768
Borrowings 19,993 7,854 3,981
TOTAL INTEREST EXPENSE 189,734 181,896 203,749
NET INTEREST INCOME 150,389 114,975 96,332
Provision for losses on loans 10,219 13,851 18,333
NET INTEREST INCOME AFTER PROVISIONS
FOR LOSSES ON LOANS 140,170 101,124 77,999
Non-interest income:
Loan fees and service charges 8,879 8,566 8,223
Deposit account service fees 7,567 5,933 5,053
Insurance and brokerage sales commissions 6,276 5,666 5,681
Service fees on loans sold 5,233 4,395 6,920
Net gain on sale of mortgage loans 7,997 4,859 3,241
Net gain (loss) on sale of securities
available-for-sale (422) 41 2,319
Other 2,191 2,749 2,894
TOTAL NON-INTEREST INCOME 37,721 32,209 34,331
177,891 133,333 112,330
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Non-interest expense:
Compensation, payroll taxes and other
employee benefits 43,765 37,177 34,047
Occupancy 7,534 5,973 6,558
Data processing 7,462 6,622 6,339
Federal deposit insurance premiums 7,341 6,968 6,276
Amortization of intangible assets 6,427 3,713 2,790
Loan expense 6,059 4,234 3,947
Furniture and equipment 5,256 3,902 3,754
Telephone and postage 5,068 4,668 4,683
Marketing 3,801 2,572 3,077
Net cost of operations of foreclosed
properties 3,501 4,772 2,703
Other 9,590 8,110 7,221
TOTAL NON-INTEREST EXPENSE 105,804 88,711 81,395
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 72,087 44,622 30,935
Income taxes 26,872 16,190 12,409
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 45,215 28,432 18,526
Cumulative effect on prior years of changing
the method of accounting for income taxes 5,600
NET INCOME $ 45,215 $ 34,032 $ 18,526
Earnings per share:
Primary:
Income before cumulative effect of a
change in accounting principle $ 1.88 $ 1.21 $ .80
Cumulative effect of accounting change .24
NET INCOME $ 1.88 $ 1.45 $ .80
Fully Diluted:
Income before cumulative effect of a
change in accounting principle $ 1.86 $ 1.19 $ .79
Cumulative effect of accounting change .24
NET INCOME $ 1.86 $ 1.43 $ .79
Dividends paid per share $ .35 $ .22 $ .16
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Net
Unrealized
Holding
Gain On
Additional Securities Total
Common Paid-In Available Retained Stockholders'
Stock Capital For Sale Earnings Equity
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1991 $22,979 $26,295 $100,302 $149,576
Net income 18,526 18,526
Cash dividends ($.16 per share) (3,682) (3,682)
Exercise of stock options 59 56 115
BALANCES AT DECEMBER 31, 1991 3,038 26,351 115,146 164,535
Net income 34,032 34,032
Cash dividends ($.22 per share) (5,098) (5,098)
Exercise of stock options 228 398 626
BALANCES AT DECEMBER 31, 1992 23,266 26,749 144,080 194,095
Net income 45,215 45,215
Cash dividends ($.35 per share) (8,238) (8,238)
Net unrealized holding gain
recognized upon reclassifi-
cation of securities to
available-for-sale portfolio
at December 31, 1993, net of
deferred income taxes of
$1,842,000 $ 2,701 2,701
Exercise of stock options 321 591 912
BALANCES AT DECEMBER 31, 1993 $23,587 $27,340 $ 2,701 $181,057 $234,685
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
------------------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 45,215 $ 34,032 $ 18,526
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of change in
accounting principle (5,600)
Decrease (increase) in accrued
interest on loans 3,678 (107) 1,989
Decrease in accrued interest on
deposits (1,670) (3,783) (2,053)
Mortgage loans originated for sale (599,126) (392,515) (157,571)
Proceeds from sales of mortgage
loans held for sale 648,282 495,573 299,278
Provision for depreciation 5,516 4,441 4,044
Provision for losses on loans 10,219 13,851 18,333
Provision for losses on real
estate and other assets 3,564 5,019 3,082
Amortization of cost in excess of
acquired businesses 554 592 628
Amortization of core deposit
intangibles 5,873 3,121 2,162
Amortization of purchased mortgage
servicing rights 1,283 2,566 1,637
Net gain on sales of loans and other
assets (7,772) (5,023) (6,027)
Other (7,523) (72) (7,618)
NET CASH PROVIDED BY OPERATING ACTIVITIES 108,093 152,095 176,410
INVESTING ACTIVITIES
Proceeds from sales of investment
securities available-for-sale 45,000 20,012
Proceeds from maturities of investment
securities held-to-maturity 60,886 213,480 395,650
Purchases of available-for-sale
investment securities (80,000)
Purchases of investment securities held-
to-maturity (126,409) (280,109) (311,736)
Proceeds from sales of mortgage-related
securities available-for-sale 81,287 853 156,825
Principal payments received on
mortgage-related securities 364,046 287,538 137,152
Purchases of mortgage-related securities (240,640) (696,206) (616,306)
Proceeds from sale of consumer loans 30,679
Principal collected on loans
receivable 575,093 394,627 339,764
Loans originated for portfolio (1,029,303) (740,708) (359,258)
Additions to office properties and
equipment (5,546) (6,538) (5,314)
Proceeds from sales of foreclosed
properties and repossessed assets 17,832 22,763 13,259
Proceeds from sales of real estate
held for investment 293 569 3,897
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
INVESTING ACTIVITIES--Continued
Business acquisitions, net of cash and
cash equivalents acquired of $443,795,000--
1993; $316,401,000--1992
Loans receivable (316,305) (146)
Investment securities held-to-maturity (22,775)
Mortgage-related securities available-
for-sale (81,287)
Mortgage-related securities held-to-
maturity (145,098)
Office properties and equipment (8,445) (397)
Real estate held for investment (3,400)
Intangible assets (14,541) (6,603)
Deposits and related accrued interest 970,162 327,134
Borrowings 71,897
Other--net (9,813) (187)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 106,334 (467,318) (215,388)
FINANCING ACTIVITIES
Net increase (decrease) in deposits (124,084) (52,884) 54,484
Increase (decrease) in advance payments by
borrowers for taxes and insurance 831 2,572 (1,294)
Decrease in short-term borrowings (12,000) (3,700)
Proceeds of borrowings 826,500 1,014,920 97,500
Repayments of borrowings (921,747) (618,215) (76,908)
Proceeds from exercise of stock options 912 626 115
Payments of cash dividends to stockholders (8,238) (5,098) (3,682)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (225,826) 329,921 66,515
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (11,399) 14,698 27,537
Cash and cash equivalents at beginning of year 122,281 107,583 80,046
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 110,882 $ 122,281 $ 107,583
Supplemental disclosure of cash flow information:
Cash paid or credited to accounts during
period for:
Interest on deposits and borrowings $ 190,806 $ 184,310 $ 206,573
Income taxes 28,399 19,738 12,463
Non-cash investing activities:
Investment securities transferred to
available-for-sale portfolio (at amortized
cost) 48,338 20,012
Mortgage-related securities transferred
to available-for-sale portfolio (at
amortized cost) 175,383 812 154,506
Mortgage loans transferred to loans
held for sale portfolio 60,238 114,978 162,707
Loans receivable transferred to
foreclosed properties 7,350 14,963 9,710
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST FINANCIAL CORPORATION
December 31, 1993
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: First Financial Corporation (the Corporation) provides
a full range of financial services to individual customers
through its subsidiaries in Wisconsin and Illinois. The
Corporation is subject to competition from other financial
institutions. The Corporation and its subsidiaries also are
subject to the regulations of certain federal and state agencies
and undergo periodic examinations by those regulatory
authorities.
Basis Of Financial Statement Presentation: The consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts
of the Corporation and its wholly-owned subsidiaries, First
Financial Bank, FSB (First Financial) and First Financial - Port
Savings Bank, FSB (Port), collectively the Banks, and their
subsidiaries, all of which are wholly-owned. Significant
intercompany accounts and transactions have been eliminated.
Investments in joint ventures, which are not material, are
accounted for on the equity method.
In preparing financial statements, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results could
differ significantly from those estimates. Material estimates
that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for loan
losses, the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans as well as the valuation
of intangible assets. In connection with the determination of the
allowance for loan losses and real estate owned, management
obtains independent appraisals for significant properties.
Investment And Mortgage Related Securities Held-To-Maturity And
Available-For-Sale: Management determines the appropriate
classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the
Corporation has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated
at amortized cost.
Debt securities not classified as held-to-maturity are classified
as available-for-sale. Available-for-sale securities are stated
at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity as of
December 31, 1993.
The amortized cost of debt securities classified as held-to-
maturity or available-for-sale is adjusted for amortization of
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
premiums and accretion of discounts to maturity, or in the case
of mortgage-related securities, over the estimated life of the
security. Such amortization is included in interest income from
the related security.
Interest and dividends are included in interest income from the
related securities. Realized gains and losses, and declines in
value judged to be other-than-temporary are included in net
securities gains (losses). The cost of securities sold is based
on the specific identification method.
Short-term securities include certificates of deposit, commercial
paper, banker's acceptances and similar instruments.
The Corporation considers its interest-earning deposits which
have original maturities of three months or less to be cash
equivalents.
Interest, Fees, And Discounts On Loans: Interest on loans is
recorded using the accrual method. Allowances ($651,000--1993;
$1,193,000--1992) are established for uncollected interest on
loans for which any payments are more than 90 days past due.
Loan origination and commitment fees and certain direct loan
origination costs are being deferred and the net amounts
amortized as an adjustment to the related loan's yield. The
Corporation is amortizing these amounts, using the level yield
method, over the contractual life of the related loans.
Unearned discounts on consumer, home improvement and manufactured
housing loans are amortized over the term of the loans using a
method which approximates the level yield method.
The discounts on loans of acquired businesses are being amortized
using the level yield method, adjusted for prepayments.
Loans Held For Sale: Loans held for sale are recorded at the
lower of aggregate cost or market value and generally consist of
current production of certain fixed-rate first mortgage loans.
Fees received from the borrower are deferred and recorded as an
adjustment of the sales price.
Fees For Loans Serviced For Others: Servicing fees, on loans
sold to and serviced for others, are recognized when related loan
payments are received. Any premium or discount recorded at the
time of sale (reflecting the present value of the difference
between the contractual interest rate of the loans sold and the
yield to the investor, adjusted for an estimated normal servicing
fee) is recognized in loan servicing income over the estimated
lives of the related loans using the level yield method adjusted
periodically for prepayments.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Purchased servicing rights resulting from the valuation of loan
servicing acquired in business acquisitions or in the purchase of
loan servicing rights from other financial institutions are
amortized over the estimated lives of the loans using the level
yield method, adjusted for prepayments and are shown as a
reduction of "Servicing Fees on Loans Sold" in the consolidated
statements of income.
Foreclosed Properties And Repossessed Assets: Real estate and
manufactured homes which were acquired by foreclosure or by deed
in lieu of foreclosure and other repossessed assets are carried
at the lower of cost or fair value. Costs relating to the
development and improvement of property are capitalized; holding
costs are charged to expense.
Allowances For Losses: Allowances for losses on loans,
foreclosed properties and repossessed assets are established when
a loss is probable and can be reasonably estimated. These
allowances are provided based on past experience and on
prevailing market conditions. Management's evaluation of loss
considers various factors including, but not limited to, general
economic conditions, loan portfolio composition, prior loss
experience, estimated sales price and holding and selling costs.
A substantial portion of the Banks' loans are collateralized by
real estate in Wisconsin and Illinois. Accordingly, the ultimate
collectibility of a substantial portion of the Banks' loan
portfolio and the recovery of a substantial portion of the
carrying amount of real estate owned are susceptible to changes
in market conditions in Wisconsin and Illinois.
Management believes that the allowances for losses on loans,
foreclosed properties and repossessed assets are adequate. While
management uses available information to recognize losses, future
additions to the allowances may be necessary based on changes in
economic conditions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically
review the Banks' allowances for losses. Such agencies may
require the Banks to recognize additions to the allowances based
on their judgments of information available to them at the time
of their examination.
Real Estate Held For Investment Or Sale: Real estate held for
investment or sale includes land, buildings and equipment. These
investments are carried at the lower of initial cost plus
capitalized development period interest and real estate taxes,
less accumulated depreciation, or estimated fair value.
Depreciation And Amortization: The cost of office properties and
equipment and real estate held for investment or sale is being
depreciated principally by the straight-line method over the
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
estimated useful lives of the assets. The cost of leasehold
improvements is being amortized on the straight-line method over
the lesser of the term of the respective lease or estimated
economic life.
Intangible Assets: The cost in excess of net assets of acquired
businesses is being amortized over twenty to twenty-five years
using the straight-line and accelerated methods. The cost in
excess of net assets of acquired businesses, aggregating
$3,070,000 and $3,624,000 at December 31, 1993 and 1992,
respectively, is net of accumulated amortization.
The premiums resulting from the valuation of core deposits
acquired in business combinations or in the purchase of branch
offices are amortized over the estimated useful life of seven to
ten years using the level yield method. Core deposit
intangibles, aggregating $28,322,000 and $19,654,000 at
December 31, 1993 and 1992, respectively, are net of accumulated
amortization.
Income Taxes: The Corporation and its subsidiaries file a
consolidated federal income tax return and separate state income
tax returns. Financial statement provisions are made in the
income tax expense accounts for deferred taxes applicable to
income and expense items reported in different periods than for
income tax purposes.
The Corporation accounts for income taxes using the liability
method. Deferred income tax assets and liabilities are adjusted
regularly to amounts estimated to be receivable or payable based
on current tax law and the Corporation's tax status.
Consequently, tax expense in future years may be impacted by
changes in tax rates and tax return limitations.
Earnings Per Share: Primary and fully diluted earnings per share
are based on the weighted average number of common shares
outstanding during each period and common equivalent shares
(using the treasury share method) outstanding at the end of each
period, as adjusted for two-for-one stock splits in 1993 and
1992. The Corporation's common equivalent shares consist
entirely of stock options. The resulting number of shares used
in computing primary earnings per share in 1993, 1992 and 1991 is
24,112,000, 23,498,000 and 23,114,000, respectively. The
resulting number of shares used in computing fully diluted
earnings per share in 1993, 1992 and 1991 is 24,369,000,
23,860,000 and 23,395,000, respectively.
Accounting Changes: Effective January 1, 1992, the Corporation
changed its method of accounting for income taxes from the
deferred method to the liability method required by Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." As permitted under this statement, prior years'
financial statements were not restated. The cumulative effect of
the adoption of SFAS No. 109 as of January 1, 1992 was to
increase net income by $5,600,000 or $0.24 per share for 1992.
The primary component of this credit resulted from the
recognition of a deferred tax asset in relation to the cumulative
excess of book loan loss provisions over certain limited amounts
previously claimed as income tax deductions, as defined by SFAS
No. 109.
In May, 1993, the Financial Accounting Standards Board (FASB)
issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". As permitted under the Statement, the
Corporation has elected to adopt the provisions of the new
standard as of the end of its current fiscal year. In accordance
with SFAS No. 115, prior period financial statements have not been
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
restated to reflect the change in accounting principle. As a result
of adopting SFAS No.115, the December 31, 1993 balance of stockholders'
equity was increased by $2,701,000 (net of $1,842,000 in deferred income
taxes) to reflect the net unrealized holding gain on securities
classified as available-for-sale previously carried at the lower
of amortized cost or fair value.
Pending Accounting Change: In May, 1993, the FASB issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan".
SFAS No. 114 requires that impaired loans be measured at the
present value of expected future cash flows discounted at the
loan's original effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent.
SFAS No. 114 is effective for fiscal years beginning after
December 15, 1994. Management does not believe that the adoption
of SFAS No. 114 will have a material impact on the Corporation's
financial condition or results of operations.
Reclassifications: Certain 1991 and 1992 accounts have been
reclassified to conform to the 1993 presentations.
NOTE B--BUSINESS COMBINATIONS
On January 4, 1993, First Financial acquired Westinghouse Federal
Bank, FSB, d/b/a United Federal Bank (United), of Galesburg,
Illinois for an aggregate cash purchase price of approximately
$53.0 million. United was merged with and into First Financial.
The Corporation did not issue any stock as a result of this
transaction. The acquisition of United by First Financial has
been accounted for as a purchase with United's nineteen branch
offices now operating as branches of First Financial. The assets
and liabilities of United were recorded at their estimated fair
value at the date of acquisition; results of operations have been
included in the 1993 consolidated Corporation income from January
1, 1993. Prior to purchase accounting and post-acquisition
restructuring transactions, United had total assets, deposits and
stockholder's equity of $821,000,000, $694,000,000 and
$54,000,000, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE B--BUSINESS COMBINATIONS--Continued
Had the United acquisition been consummated on January 1, 1991,
the Corporation's operating results on a pro-forma basis before
the cumulative effect of a change in accounting principle, as
adjusted for the effect of fair market values used in the
purchase method of accounting, would have been as follows:
Year Ended December 31,
1992 1991
----------- -----------
(In Thousands, Except
Per Share Amounts)
Total income $397,086 $412,903
Net income 40,112 26,325
Earnings per share:
Primary 1.74 1.14
Fully dilute 1.72 1.13
Also, in August, 1993, First Financial completed the assumption
of deposits (approximately $268,000,000) and the purchase of the
branch facilities of the four Quincy, Illinois-area branches of
another thrift. The acquisition of these offices, now operating
as branches of First Financial, was accounted for as a purchase
and, consequently, the related accounts and results of operations
are included in the Corporation's consolidated financial
statements from the date of acquisition.
In two transactions during the first quarter of 1992, First
Financial completed the assumption of deposits (approximately
$327,000,000) and the purchase of the office facilities of ten
Peoria, Illinois-area branches. Each transaction was accounted
for as a purchase with the acquired offices now operating as
branch offices of First Financial; consequently, the related
accounts and results of operations are included in the
Corporation's consolidated financial statements from the date of
acquisition.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE C--INVESTMENT SECURITIES
The following is a summary of available-for-sale investment
securities and held-to-maturity investment securities.
<TABLE>
<CAPTION>
Amortized Gross Unrealized Estimated
------------------------
Cost Gains Losses Fair Value
------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1993:
Available-For-Sale:
U.S. Government and
federal agency
obligations $ 48,338 $1,608 $ 44 $ 49,902
Adjustable-rate mortgage
mutual fund 34,585 34,585
$ 82,923 $1,608 $ 44 $ 84,487
Held-To-Maturity:
Corporate and bank notes
receivable (investment
grade) $ 49,053 $ 328 $ 60 $ 49,321
U.S. Government and
federal agency
obligations 90,062 101 516 89,647
State and municipal
obligations 4,453 27 4,480
$143,568 $ 456 $ 576 $143,448
At December 31, 1992:
Held-to-maturity:
Corporate and bank notes
receivable (investment
grade) $ 52,020 $ 108 $194 $ 51,934
U.S. Government and
federal agency
obligations 40,828 1,411 11 42,228
Commercial paper 9,989 9,989
State and municipal
obligations 598 2 600
Certificates of deposit 198 198
$103,633 $1,521 $205 $104,949
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE C--INVESTMENT SECURITIES--Continued
The amortized cost and estimated fair value of investment
securities at December 31, 1993, by contractual maturity, are
shown below.
<TABLE>
<CAPTION>
Available-For-Sale Held-To-Maturity
-------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 64,718 $ 65,170 $ 58,328 $ 58,066
Due after one year through
five years 14,210 14,329 84,790 84,932
Due after five years through
ten years 350 350
Due after ten years 3,995 4,988 100 100
$ 82,923 $ 84,487 $143,568 $143,448
</TABLE>
During the years ended December 31, 1993 and 1992, investment
securities available-for-sale with a fair value at the date of
sale of $45,000,000 and $20,012,000, respectively, were sold.
The gross realized losses on such sales totaled $415,000 in 1993
and gross realized gains on such sales totaled $12,000 in 1992.
There were no sales of available-for-sale investment securities
in 1991.
Accrued interest on investment securities, including those
securities classified as federal funds sold, interest-earning
deposits and short-term securities, was $3,003,000 and $1,558,000
at December 31, 1993 and 1992, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE D--MORTGAGE-RELATED SECURITIES
The following is a summary of available-for-sale and held-to-
maturity mortgage-related securities.
<TABLE>
<CAPTION>
Amortized Gross Unrealized Estimated
Cost Gains Losses Fair Value
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1993:
Available-for-sale:
Adjustable-rate mortgage-
backed securities $ 145,487 $ 2,762 $ 148,249
Adjustable-rate collater-
alized mortgage
obligations 29,896 217 30,113
$ 175,383 $ 2,979 $ 178,362
Held-to-maturity:
Mortgage-backed securities:
Adjustable-rate $ 972,092 $10,301 $4,580 $ 977,813
Fixed-rate 171,637 6,572 4 178,205
Collateralized mortgage
obligations:
Adjustable-rate 957 1 956
Fixed-rate 3,205 51 3,256
$1,147,891 $16,924 $4,585 $1,160,230
At December 31, 1992:
Mortgage-backed securities:
Adjustable-rate $1,140,581 $ 7,847 $3,193 $1,145,235
Fixed-rate 161,008 8,030 3 169,035
$1,301,589 $15,877 $3,196 $1,314,270
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE D--MORTGAGE-RELATED SECURITIES--Continued
The following tables summarize aggregate mortgage-related
securities by issuer.
<TABLE>
<CAPTION>
Amortized Gross Unrealized Estimated
Cost Gains Losses Fair Value
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1993:
Private issuers $1,165,421 $15,145 $4,580 $1,175,986
Federal Home Loan Mortgage
Corporation (FHLMC) 71,411 2,787 1 74,197
Federal National Mortgage
Association (FNMA) 68,133 1,201 2 69,332
Government National Mort-
gage Association (GNMA) 18,309 770 2 19,077
$1,323,274 $19,903 $4,585 $1,338,592
At December 31, 1992:
Private issuers $1,168,888 $ 9,746 $3,193 $1,175,441
FHLMC 108,865 5,153 114,018
FNMA 13,377 341 13,718
GNMA 10,459 637 3 11,093
$1,301,589 $15,877 $3,196 $1,314,270
</TABLE>
At December 31, 1993, the private issuers category above includes
securities with an amortized cost of $1,080,000,000 which have
been AA rated by an independent rating agency. Other securities
in the private issuer category are, at a minimum, of investment
grade quality.
During the years ended December 31, 1993, 1992 and 1991,
mortgage-related securities available-for-sale with a fair value
at the date of sale of $81,287,000, $853,000 and $156,825,000,
respectively, were sold. The gross realized gains on such sales
totaled $14,000, $41,000 and $3,221,000 in 1993, 1992 and 1991,
respectively. The gross realized losses on such sales totaled
$21,000 and $901,000, respectively, in 1993 and 1991. The 1993
sales related to the restructuring of the mortgage-related
securities portfolio acquired in the United acquisition.
Accrued interest receivable on mortgage-related securities was
$7,285,000 and $8,637,000 at December 31, 1993 and 1992,
respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE E--LOANS RECEIVABLE
Loans receivable held for investment consist of the following:
<TABLE>
<CAPTION>
December 31,
1993 1992
------------------------------------------
(In Thousands)
<S> <C> <C>
Real estate mortgage loans:
Residential (including multi-family) $1,855,298 $1,301,582
Commercial and other 93,528 97,204
Construction - residential (including
multi-family) 58,132 73,998
Construction - commercial 460 4,661
Total real estate mortgage loans 2,007,418 1,477,445
Consumer-related loans:
Credit card 209,414 178,436
Home equity 193,291 162,283
Education 167,385 163,261
Manufactured housing 165,017 133,195
Consumer 153,574 89,028
Other 111 3,298
Total consumer-related loans 888,792 729,501
Total loans before net items 2,896,210 2,206,946
Less:
Allowances for losses 23,266 17,067
Undisbursed loan proceeds 18,705 26,847
Deferred loan fees 2,591 2,357
Discount on loans of acquired businesses 1,979 3,546
Unearned discounts 1,084 1,252
47,625 51,069
$2,848,585 $2,155,877
</TABLE>
<PAGE>
The following table sets forth the composition of the commercial
real estate loan portfolio, including both conventional and
construction loans, by geographic location of the related
collateral properties.
<TABLE>
<CAPTION>
December 31,
1993 1992
--------------------------- --------------------------
Percent Percent
Of Of
Property Location Amount Total Amount Total
------------------ ---------- --------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Wisconsin $ 67,257 71.6% $ 79,311 77.9%
Illinois 6,816 7.3 2,967 2.9
Minnesota 4,749 5.1 4,941 4.8
Georgia 4,170 4.4 4,229 4.2
Tennessee 2,874 3.0 2,924 2.9
Arizona 2,029 2.1 2,029 2.0
Texas 1,854 2.0 1,887 1.8
Other 4,239 4.5 3,577 3.5
$ 93,988 100.0% $101,865 100.0%
</TABLE>
Accrued interest on loans receivable was $16,895,000 and
$15,491,000 at December 31, 1993 and 1992, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE F--FORECLOSED PROPERTIES AND REPOSSESSED ASSETS
Foreclosed properties and repossessed assets are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
----------- ----------
(In Thousands)
<S> <C> <C>
Real estate owned $ 5,804 $11,527
Real estate judgments subject to redemption 2,236 2,761
Manufactured housing owned 115 256
Repossessed collateral assets 48 206
8,203 14,750
Less allowance for losses 1,386 552
$ 6,817 $14,198
</TABLE>
NOTE G--ALLOWANCE FOR LOSSES
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
-------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $17,067 $16,706 $15,644
Acquired bank's allowance 4,885
Provisions 10,219 13,851 18,333
Charge-offs (10,294) (14,727) (18,643)
Recoveries 1,389 1,237 1,372
BALANCE AT END OF YEAR $23,266 $17,067 $16,706
</TABLE>
A summary of the activity in the allowance for losses on
foreclosed properties and repossessed assets follows. The
provisions for losses are included in the Consolidated Statements
of Income in "Net Cost of Operations of Foreclosed Properties."
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
-------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 552 $ 738 $1,023
Provisions 3,519 4,794 2,947
Charge-offs (2,685) (4,980) (3,232)
BALANCE AT END OF YEAR $1,386 $ 552 $ 738
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE H--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
----------- ----------
(In Thousands)
<S> <C> <C>
Land and parking lot improvements $11,328 $ 8,796
Office buildings and improvements 44,785 36,510
Furniture and equipment 31,498 24,775
Leasehold improvements 2,171 1,660
89,782 71,741
Less allowances for depreciation and
amortization 39,662 29,374
$50,120 $42,367
</TABLE>
NOTE I--DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------ --------- ---------- ---------
(Dollars in Thousands)
<S> <S> <C> <C> <C>
Checking accounts:
Interest-bearing $ 280,401 1.76% $ 174,969 2.29%
Non-interest-bearing 82,637 -- 49,759 --
Total checking
accounts 363,038 1.36 224,728 1.78
Passbook accounts 812,138 2.76 751,811 3.74
Variable-rate insured
money market accounts 311,085 2.83 296,181 3.46
Certificate accounts:
Less than one year 400,478 3.64 321,034 4.19
One to two years 666,896 3.99 561,796 4.58
Two to three years 653,834 4.72 494,890 6.61
Three to four years 307,711 5.78 143,281 7.48
Four years or more 532,136 7.24 408,740 8.10
Total certificates 2,561,055 5.01 1,929,741 6.00
4,047,316 4.06% 3,202,461 4.94%
Accrued interest 3,204 3,651
$4,050,520 $3,206,112
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE I--DEPOSITS--Continued
Aggregate annual maturities of certificate accounts at
December 31, 1993 are as follows (in thousands):
Matures During
Year Ended
December 31,
1994 $1,488,542
1995 628,272
1996 245,467
1997 69,127
1998 123,484
Thereafter 6,163
$2,561,055
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
------------ ------------- ------------
(In Thousands)
<S> <C> <C> <C>
Passbook $ 25,953 $ 27,154 $ 14,275
Checking 5,427 4,658 7,445
Variable-rate insured
money market 9,497 10,921 16,547
Certificates 128,864 131,309 161,501
$169,741 $174,042 $199,768
</TABLE>
NOTE J--BORROWINGS
At December 31, 1993, the Corporation has an unused line-of-
credit in the amount of $18,000,000. The line-of-credit is
available to the Corporation for working-capital purposes or for
potential future acquisitions. Under the terms of the line-of-
credit, which is available through April, 1994, interest on
outstanding notes would be payable at the lender's then
prevailing prime rate. The line-of-credit agreement contains
various covenants relative to the operations of the Corporation
and First Financial. Included among the covenants are
restrictions on levels of total borrowings and the interest-
bearing asset/liability ratio for the Corporation, on a
consolidated basis, and a requirement that First Financial
maintain a minimum risk-based regulatory capital of 8.0%. All of
such covenants are met at December 31, 1993. In addition, the
Corporation has pledged its stock in First Financial as
collateral for the line-of-credit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS-Continued
Borrowings are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1993 1992
------------------------ -------------------------
Weighted Weighted
Average Average
Maturity Amount Rate Amount Rate
-------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank: On Demand $140,500 3.24% $237,000 3.73%
1993 60,000 4.58
1994 60,053 5.18 50,000 4.78
1995 150,000 4.61 50,000 5.38
1996 21,228 6.48
1997 31 7.00 31 7.00
2000 162 7.00 162 7.00
Subordinated Notes 1999 54,997 8.51 55,000 8.51
Collateralized mortgage
obligations 2003 5,217 8.43
Industrial Development
Revenue Bonds: 1994 2,585 10.11
2021 6,410 7.04 7,170 7.03
$438,598 4.91% $461,948 4.87%
</TABLE>
First Financial is required to maintain unencumbered first
mortgage loans in its portfolio aggregating at least 167% of the
amount of outstanding advances from the Federal Home Loan Bank as
collateral. In addition, these borrowings are collateralized by
Federal Home Loan Bank stock of $29,832,000 at December 31, 1993,
which is included in "Other Assets" in the consolidated balance
sheets.
Subordinated notes (the Notes) are payable at maturity on
November 1, 1999. Interest at the rate of 8% per annum is
payable monthly. The Notes are redeemable at par plus accrued
interest on or after November 1, 1995 in whole or in part at the
option of the Corporation. Under the terms of the indenture
relating to the Notes, the ability of the Corporation to incur
additional indebtedness, pay cash dividends or make other capital
distributions is limited under certain circumstances. The
indenture does not limit the ability of the Corporation's
subsidiaries to incur indebtedness (except for indebtedness that
is guaranteed by, or secured by, property of the Corporation).
Unamortized issuance costs relating to the Notes totaled
$1,625,000 and $1,903,000 at December 31, 1993, and 1992,
respectively, which is being amortized using the interest method.
UFS Capital Corporation, the Corporation's wholly-owned finance
subsidiary, has issued the collateralized mortgage obligations.
Principal repayments are scheduled in varying amounts through
January, 2003. The obligations are collateralized by mortgage-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS--Continued
backed securities with a carrying value of $5,640,000 and a fair
value of $5,693,000 at December 31, 1993.
Industrial Development Revenue Bonds are payable in ten annual
installments ranging from $90,000 to $150,000 with additional
payments of $1,910,000 and $3,320,000 due October 1, 2012 and
2021, respectively. Interest is payable semi-annually. The
bonds were issued to refinance an apartment project which was
sold in 1992. The bonds are collateralized by mortgage-backed
securities with a carrying value of $9,278,000 at December 31,
1993. First Financial has a loan receivable from the buyer of
$5,947,000 at December 31, 1993, which is secured by a first
mortgage on the apartment project.
Aggregate annual payments on borrowings at December 31, 1993 are,
as follows (in thousands):
Matures During
Year Ended
December 31,
1994 $201,044
1995 150,491
1996 20,536
1997 136
1998 115
Thereafter through 2021 61,059
433,381
Collateralized Mortgage
Obligations 5,217
$438,598
NOTE K--INCOME TAXES
The provision for income taxes, for the years ended December 31,
consists of the following:
<TABLE>
<CAPTION>
Deferred
Liability Method Method
1993 1992 1991
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $26,029 $17,492 $12,624
State 3,043 692 2,404
29,072 18,184 15,028
Deferred (credit):
Federal (1,875) (2,005) (2,615)
State (325) 11 (4)
(2,200) (1,994) (2,619)
$26,872 $16,190 $12,409
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES--Continued
The provision for income taxes, for the years ended December 31,
differs from that computed at the federal statutory corporate tax
rate as follows:
<TABLE>
<CAPTION>
Deferred
Liability Method Method
1993 1992 1991
------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income before income taxes and
cumulative effect of a change
in accounting principle $72,087 $44,622 $30,935
Tax at federal statutory rate (35%-
1993 and 34%-1992 and 1991) $25,230 $15,171 $10,518
Add (deduct) effect of:
State income taxes (net of
federal income taxes) 2,061 329 1,625
Goodwill amortization 301 291 213
Other (720) 399 53
INCOME TAX PROVISION $26,872 $16,190 $12,409
</TABLE>
The components of the provision (credit) for deferred income
taxes, for the years ended December 31, and the deferred tax
asset (liability) as of December 31, are as follows:
<TABLE>
<CAPTION>
Provision (Credit) For
Deferred Income Taxes Deferred Tax
Deferred Asset (Liability)
Liability Method Method December 31,
1993 1992 1991 1993 1992
---------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Deferred loan fees and other
loan yield adjustments $ (737) $(2,088) $(1,077) $ 3,255 $ 2,268
Excess tax depreciation 67 (172) (312) (1,575) (1,535)
Loan loss reserves (1,164) (673) (341) 8,737 7,355
Deferred compensation (154) (178) (237) 1,919 1,725
Excess book core deposit
intangible amortization (367) (240) 2,294 1,883
FHL Bank stock dividend (3) 462 398 (868) (851)
Internal Revenue Service
examination (1,350)
Market valuation adjustments (1,823)
Tax net operating loss
carryforwards 1,553 1,436
Other 431 (58) 300 (103) 251
(1,427) (2,947) (2,619) 13,389 12,532
Valuation allowance for
deferred tax assets (273) 953 (3,547) (3,333)
$(2,200) $(1,994) $(2,619) $ 9,842 $ 9,199
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES--Continued
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes.
For financial reporting purposes, a valuation allowance has been
recognized to offset deferred tax assets related to state net
operating loss carryforwards of subsidiaries, core deposit
intangibles and other timing differences. When realized, the tax
benefit for these items will be used to reduce current tax
expense for that period.
Previously the Banks qualified under provisions of the Internal
Revenue Code which permitted as a deduction from taxable income
allowable bad debt deductions which significantly exceeded actual
experience and the financial statement loan loss provisions. A
deferred tax liability was not required on these excess tax bad
debt reserves. At December 31, 1993, the Banks' tax bad debt
reserves are approximately $73,395,000. Upon the adoption of
SFAS No. 109 as of January 1, 1992, the Banks were required to
establish a deferred tax liability for the excess of its tax bad
debt reserves over the balance at the close of the base year.
The amount of the base year reserves is considered to meet the
indefinite reversal criteria of Accounting Principle Board
Opinion No. 23, "Accounting for Income Taxes-Special Area," and
accordingly is not subject to deferred taxes. The Banks' base
year tax bad debt reserves are approximately $70,104,000. Income
taxes would be imposed at the then applicable rates if the Banks
were to use these reserves for any purpose other than to absorb
bad debt losses.
NOTE L--STOCKHOLDERS' EQUITY
The Board of Directors declared a two-for-one stock split of the
Corporation's common stock to stockholders of record on March 13,
1992, payable on April 16, 1992. This stock split was effected
in the form of a 100% stock dividend by the distribution of
shares. The par value of the common stock remained at $1.00. On
February 17, 1993, the Board of Directors declared an additional
two-for-one stock split payable on March 5, 1993 to stockholders
of record on February 24, 1993. All numbers of shares and per
share amounts included in the financial statements and notes
thereto have been adjusted to reflect these distributions.
The Board of Directors of the Corporation is authorized to issue
preferred stock in series and to establish the voting powers,
other special rights of the shares of each such series and the
qualifications and restrictions thereof. Preferred stock may
rank prior to the common stock as to dividend rights, liquidation
preferences or both, and may have full or limited voting rights.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
Under Wisconsin state law, preferred stockholders would be
entitled to vote as a separate class or series in certain
circumstances, including any amendment which would adversely
change the specific terms of such series of stock or which would
create or enlarge any class or series ranking prior thereto in
rights and preferences. No preferred stock has been issued.
Deposits in the Banks are insured to the maximum allowable
amounts by the Savings Association Insurance Fund (SAIF) as
administered by the Federal Deposit Insurance Corporation (FDIC).
As SAIF-insured institutions, the Banks are required to meet
tangible, core and risk-based regulatory capital requirements as
determined by the Office of Thrift Supervision (OTS). Tangible
capital generally consists of stockholder's equity minus certain
intangible assets. Core capital generally consists of
stockholder's equity. The risk-based capital requirements
presently address credit risk related to both recorded assets and
off-balance sheet commitments and obligations.
The Banks' various OTS regulatory capital measurements at
December 31, 1993 are set forth below.
First
Financial Port
------------- --------
(In Thousands)
Bank's stockholder's equity $276,138 $7,400
Less:
Core deposit intangibles (28,322)
Goodwill (3,070)
Investment in subsidiaries
and activities not permitted for
national banks (1,792) (59)
Purchased mortgage servicing rights
adjustment (44)
Other (277)
TANGIBLE CAPITAL 242,633 7,341
Add: qualifying intangibles 28,322
CORE CAPITAL 270,955 7,341
Add: qualifying general allowances for
loan losses 19,674 524
RISK-BASED CAPITAL $290,629 $7,865
The following table compares the Banks' regulatory capital with
OTS capital requirements at December 31, 1993:
<TABLE>
<CAPTION>
Actual Required Actual Required
Amount Amount Excess Ratio Ratio Excess
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
First Financial:
Tangible capital $242,633 $ 69,881 $172,752 5.21% 1.50% 3.71%
Core capital 270,955 140,611 130,344 5.78 3.00 2.78
Risk-based capital 290,629 185,133 105,496 12.56 8.00 4.56
Port:
Tangible capital $ 7,341 $ 1,494 $ 5,847 7.38% 1.50% 5.88%
Core capital 7,341 2,987 4,354 7.38 3.00 4.38
Risk-based capital 7,865 4,325 3,540 14.55 8.00 6.55
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
The OTS has adopted a final rule which would add an interest-rate
risk component to the OTS risk-based capital requirement
effective July 1, 1994. The OTS has adopted another final rule,
effective March 4, 1994, disallowing any new core deposit
intangibles, acquired after the rule's effective date, from
counting as regulatory capital. Core deposit intangibles
acquired prior to the effective date have been grandfathered for
purposes of this rule. The OTS also has proposed to increase the
minimum required core capital ratio from the current 3.00% to a
range of 4.00% to 5.00% for all but the most healthy financial
institutions.
Under the terms of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), the Banks are further subject
to the prompt corrective action (PCA) provisions of FDICIA.
Under FDICIA, thrift institutions are assigned, based upon
regulatory capital ratios and other subjective supervisory
criteria, to one of five PCA categories, ranging from "well
capitalized" to "critically undercapitalized". Institutions
assigned to the three lowest categories are subject to PCA
sanctions by the OTS. PCA sanctions include, among other items,
additional restrictions on dividends and capital distributions.
As of December 31, 1993, management believes that both Banks had
capital in excess of the requirements to be "well capitalized"
institutions under the PCA provisions of FDICIA.
Applicable rules and regulations of the OTS impose limitations on
dividends by the Banks. Within those limitations, certain "safe
harbor" dividends are permitted, subject to providing the OTS at
least 30 days' advance notice. The safe harbor amount is based
upon an institution's regulatory capital level. Thrift
institutions which have capital in excess of all fully phased-in
capital requirements before and after the proposed dividend are
permitted to make capital distributions during any calendar year
up to the greater of (i) 100% of net income to date during the
calendar year, plus one-half of the surplus over such
institution's fully-phased-in capital requirements at the
beginning of the calendar year, or (ii) 75% of net income over
the most recent four-quarter period. Additional restrictions
would apply to an institution which does not meet its fully
phased-in capital requirement before or after a proposed
dividend. In addition, as a result of the PCA provisions of
FDICIA, the OTS has indicated that it intends to review existing
regulations on dividends to determine whether amendments are
necessary based on such provisions. In the interim, the OTS has
indicated that it intends to determine the permissibility of
dividends consistent with the PCA provisions of FDICIA.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS
The Corporation has a stock option plan under which shares of
common stock are reserved for the grant of both incentive and
non-incentive stock options to directors, officers and employees.
The plan provides that option prices will not be less than the
fair market value of the stock at the grant date. The date on
which the options are first exercisable, generally two or more
years from the grant date, is determined by the Stock Option
Committee of the Board of Directors and expire no later than ten
years from the grant date.
A summary of stock option activity follows:
Number Of Option Price
Shares Per Share
----------------------------------------
Balance January 1, 1991 928,388 $ .85 - $ 4.19
Exercised (59,800) .85 - 3.69
Cancelled (21,560) 1.68 - 3.09
Balance December 31, 1991 847,028 .85 - 4.19
Granted 1,394,000 6.38 - 9.44
Exercised (230,876) .85 - 4.19
Cancelled (5,000) 3.09 - 8.00
Balance December 31, 1992 2,005,152 1.68 - 9.44
Granted 40,500 13.63 - 15.00
Exercised (348,741) 1.70 - 9.44
Cancelled (8,000) 6.38 - 9.44
BALANCE DECEMBER 31, 1993 1,688,911 $ 1.68 - $15.00
Options for 322,411 shares and 603,100 shares were exercisable at
December 31, 1993 and 1992, respectively. At December 31, 1993,
options for 784,500 shares were available for future grant.
The Corporation sponsors a defined-contribution profit sharing
plan which covers all full time Wisconsin-based employees who
have completed one year of service and are at least twenty-one
years old. Corporate contributions are discretionary. Expense
for this plan for 1993, 1992 and 1991 was $3,666,000, $2,950,000
and $1,650,000, respectively.
The Corporation sponsors a supplemental executive retirement plan
for certain executive officers, which is funded through life
insurance and provides additional benefits at retirement. At
December 31, 1993, the projected future obligation under this
plan amounted to $2,465,000, which is being accrued through a
combination of annual amortization of prior service costs plus
current annual provisions for additional service costs and
interest. Expense for this plan was $434,000 and $166,000 for
1993 and 1992, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
The Corporation sponsors an unfunded defined-benefit retirement
plan for all outside directors. At December 31, 1993, the
projected future obligation under this plan totaled $1,271,000,
which is being accrued through a combination of annual
amortization of prior service costs plus current annual
provisions for additional service costs and interest. Expense
for this plan was $122,000, $280,000 and $273,000 in 1993, 1992
and 1991, respectively.
The Corporation also sponsors a defined-benefit pension plan
covering substantially all of its Illinois-based employees (the
Illinois Plan). Benefits are based upon a formula using years of
service and the participant's compensation during the term of
employment.
The following tables set forth the Illinois Plan's funded status
and amounts recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
December 31,
1993 1992
------------------------
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,289,000--1993 and
$1,766,000--1992 $ 2,373 $ 1,813
Plan assets at fair value, primarily fixed
income securities $ 3,939 $ 3,907
Projected benefit obligation 2,516 2,107
Plan assets in excess of projected
benefit obligation 1,423 1,800
Unrecognized net gain from past experience
different from that assumed and effects
of changes in assumptions 620 378
Unrecognized net transition asset (1,432) (1,560)
Prepaid pension cost included in other assets $ 611 $ 618
</TABLE>
Net pension benefits for the Illinois Plan include the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
-----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the
period $ 259 $ 87 $ 90
Interest cost on projected benefit
obligation 197 165 149
Actual return on plan assets (327) (302) (312)
Net amortization and deferral (122) (129) (111)
Net periodic pension expense (benefit) $ 7 $ (179) $(184)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
The principal actuarial assumptions used to develop the net
pension benefit for the Illinois Plan were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
-------------------------------------
(In Thousands)
<S> <C> <C> <C>
Weighted average discount rate 7.25% 8.00% 8.00%
Rate of increase in future compensation 5.00 6.00 6.00
Expected long-term rate of return on plan assets 7.75 8.00 8.00
</TABLE>
The Corporation does not, as a policy, offer post-retirement
benefits other than profit sharing, pensions, and certain
supplemental retirement benefits noted above.
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and financial guarantees and
involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of those instruments
reflect the extent of involvement First Financial has in
particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and financial guarantees written is
represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet
instruments.
Financial instruments whose contract amounts represent credit
risk are as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
----------------------------------
(In Thousands)
<S> <C> <C>
Commitments to extend credit:
Fixed rate (6.25% to 8.75% at
December 31, 1993) $ 52,079 $ 15,630
Adjustable rate 10,259 6,834
Commitments to purchase adjustable-rate
mortgage-related securities 87,753 25,000
Unused lines of credit:
Credit cards 702,364 550,668
Home equity 250,344 190,623
Loans sold with recourse 59,000 119,000
Financial guarantees written 10,951 18,346
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK--
Continued
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
As some such commitments expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. With the exception of
credit card lines-of-credit, the Corporation generally extends
credit only on a secured basis. Collateral obtained varies but
consists primarily of one- to four-family residences and income-
producing commercial properties.
Commitments to extend credit on a fixed-rate basis expose the
Corporation to a certain amount of interest-rate risk if market
rates of interest increase substantially during the commitment
period. Similar risks exist relative to loans classified as held
for sale, which totaled $73,919,000 at December 31, 1993. This
exposure, however, is mitigated by the hedge of firm commitments
to sell the majority of these loans. Commitments outstanding to
sell mortgage loans at December 31, 1993 amount to $111,500,000.
Financial guarantees represent agreements whereby, for an annual
fee, certain of the Banks' mortgage loans, investments and
mortgage-backed securities are pledged as collateral for
Industrial Development Revenue Bonds which were issued by
municipalities to finance commercial or multi-family real estate
owned by third parties. In the event the third party borrowers
default on principal or interest payments on the bonds, the Banks
are required to either pay the amount in default or acquire the
then outstanding bonds. First Financial and Port may foreclose
on the underlying real estate to recover amounts in default.
Management has considered these agreements in its review of the
adequacy of the allowance for losses. At December 31, 1993,
certain mortgage-related securities and investment securities
with a carrying value of approximately $5,394,000 were pledged as
collateral for bonds in the aggregate of $3,341,000. Additional
bond issues totaling $7,610,000 are supported by letters of
credit issued by First Financial in lieu of specific collateral.
The bond agreements have expiration dates through 2008.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not necessarily represent the underlying
value of the Corporation. The Corporation does not routinely
measure the market value of financial instruments because such
measurements represent point-in-time estimates of value. It is
generally not the intent of the Corporation to liquidate and
therefore realize the difference between market value and
carrying value and even if it were, there is no assurance that
the estimated market values could be realized. Thus, the
information presented is not particularly relevant to predicting
the Corporation's future earnings or cash flows.
The following methods and assumptions were used by the
Corporation in estimating its fair value disclosures for
financial instruments:
Cash and cash equivalents: The carrying amounts reported in
the balance sheet for cash and short-term instruments
approximate those assets' fair values.
Accrued interest income and expense: Accrued interest income
and expense are carried at the respective book value.
Investment and mortgage-related securities: Fair values for
investment and mortgage-related securities are based on quoted
market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices
of comparable instruments.
Loans receivable: For variable-rate mortgage loans that
reprice frequently and with no significant change in credit
risk, fair values are based on carrying values. The fair
values for residential mortgage loans are based on quoted
market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. The fair values for commercial real estate
loans, rental property mortgage loans and consumer and other
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
loans are estimated using discounted cash flow analyses and
using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Mortgage servicing rights: Due to the lack of practicability,
the fair value of mortgage loan servicing rights has not been
determined and is not presented below. These rights, which
consist of the Corporation's contractual right to service
loans for others, represent a distinct income producing
intangible asset that could be realized by selling those
rights to another institution. The value of those rights,
except to the extent that purchased mortgage servicing rights
exist, is not reflected in the Corporation's consolidated
balance sheets.
Federal Home Loan Bank stock: Federal Home Loan Bank stock is
carried at cost which is its redeemable value since the market
for this stock is limited.
Deposits: The fair values disclosed for interest-bearing and
non-interest-bearing checking accounts, passbook accounts and
money market accounts are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying
amounts). The fair values of fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly
maturities of the outstanding certificates of deposit.
Borrowings: The fair values of the Corporation's long-term
borrowings are estimated using discounted cash flow analyses,
based on the Corporation's current incremental borrowing rates
for similar types of borrowing arrangements.
Off-balance-sheet instruments: Fair values for the
Corporation's off-balance-sheet instruments (lending
commitments and unused lines of credit) are based on fees
currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the
counterparties' credit standing and discounted cash flow
analyses. The fair value of these off-balance-sheet items
approximates the recorded amounts of the related fees and is
not material at December 31, 1993 and 1992.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
The carrying amounts and fair values of the Corporation's
financial instruments consisted of the following.
<TABLE>
<CAPTION>
December 31,
1993 1992
----------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
<S> <C> <C> <C> <C>
Cash equivalents $ 47,641 $ 47,641 $ 60,167 $ 60,167
Investment securities available-
for-sale $ 84,487 $ 84,487
Investment securities held-to-
maturity $ 143,568 $ 143,448 $ 103,633 $ 104,949
Federal Home Loan Bank stock $ 29,832 $ 29,832 $ 22,244 $ 22,244
Mortgage-related securities
available-for-sale $ 178,362 $ 178,362
Mortgage-related securities
held-to-maturity $1,147,891 $1,160,230 $1,301,589 $1,314,270
Loans held for sale $ 73,919 $ 74,567 $ 54,840 $ 55,280
Loans receivable:
Real estate $1,973,172 $1,997,107 $1,436,947 $1,453,626
Credit cards 202,912 202,912 174,845 174,845
Home equity 192,862 192,862 163,397 163,397
Education 167,333 167,333 160,298 160,298
Manufactured housing 160,349 177,230 128,544 141,183
Consumer and other 151,957 152,177 91,846 93,321
$2,848,585 $2,889,621 $2,155,877 $2,186,670
Accrued interest receivable $ 27,183 $ 27,183 $ 25,686 $ 25,686
Deposits:
Checking $ 363,038 $ 363,038 $ 224,728 $ 224,728
Passbooks 812,138 812,138 751,811 751,811
Money market 311,085 311,085 296,181 296,181
Certificates 2,561,055 2,587,730 1,929,741 1,959,075
$4,047,316 $4,073,991 $3,202,461 $3,231,795
Borrowings:
Federal Home Loan Bank
advances $ 371,974 $ 373,317 $ 397,193 $ 397,251
Collateralized mortgage obli-
gations 5,217 5,296
Subordinated notes 54,997 55,547 55,000 55,000
Industrial development revenue
bonds 6,410 6,776 9,755 10,008
$ 438,598 $ 440,936 $ 461,948 $ 462,259
Accrued interest payable $ 4,535 $ 4,535 $ 5,285 $ 5,285
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE P--MORTGAGE BANKING ACTIVITIES
Loans serviced for investors amounted to $1,302,000,000,
$1,311,000,000 and $1,556,000,000 at December 31, 1993, 1992 and
1991, respectively. These loans are not reflected in the
consolidated financial statements. The Banks originate mortgage
loans which, depending upon whether the loans meet the Banks'
investment objectives, may be sold in the secondary mortgage
market or to other private investors. All loans are currently
sold on a nonrecourse basis and the servicing of these loans is
retained by the Banks. At December 31, 1993, 1992 and 1991,
$59,000,000, $119,000,000 and $150,000,000, respectively, of the
serviced loans were sold with recourse. Of these recourse loans,
approximately $47,000,000, $104,000,000 and $128,000,000 were
federally-insured or federally-guaranteed at December 31, 1993,
1992 and 1991, respectively. In addition, management has
considered the remaining uninsured or non-guaranteed balance in
the determination of the adequacy of the allowance for losses.
Direct origination and servicing costs for mortgage banking
activities cannot be presented as these operations are integrated
with and not separable from the origination and servicing of
portfolio loans, and, as a result, cannot be accurately
estimated.
Mortgage banking activities are summarized as follows:
<TABLE>
<CAPTION>
At Or For The Year Ended
December 31,
1993 1992 1991
------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Consolidated balance sheet information:
Mortgage loans held for sale $ 73,919 $ 54,840 $ 38,061
Unamortized purchased mortgage
servicing rights and capitalized
excess servicing (included in
"Other Assets") 473 1,756 4,322
Consolidated statement of income
information:
Service fees on loans
sold (gross) $ 6,621 $ 7,898 $ 9,830
Amortization of purchased
mortgage servicing rights
and capitalized excess
servicing (1,388) (3,503) (2,910)
Service fees on loans
sold (net) $ 5,233 $ 4,395 $ 6,920
Gain on sales of mortgage loans
held for sale $ 7,997 $ 4,859 $ 3,241
Consolidated statement of cash flow
information:
Mortgage loans originated for
sale $599,126 $392,515 $157,571
Mortgage loans transferred to
held for sale portfolio 60,238 114,978 162,707
Sales of mortgage loans held for
sale 648,282 495,573 299,278
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE Q--LITIGATION
The Banks are involved in certain lawsuits in the course of their
general lending business and other operations. The Corporation
believes there are sound defenses against the claims asserted
therein and is vigorously defending these actions. Management,
after review with its legal counsel, is of the opinion that the
ultimate disposition of its litigation will not have a material
effect on the Corporation's financial condition.
NOTE R--PENDING BUSINESS COMBINATION
On October 13, 1993, the Corporation entered into a definitive
agreement to acquire NorthLand Bank of Wisconsin, SSB
(NorthLand), of Ashland, Wisconsin, through an exchange of stock
valued in the aggregate in the range of 130 to 135 percent of
NorthLand's defined tangible stockholders' equity at closing,
subject to certain adjustments. Upon closing, NorthLand will be
merged into First Financial. The acquisition is subject to
approval by the shareholders of NorthLand. This transaction is
expected to close during the first quarter of 1994 and will be
accounted for as a pooling-of-interests. As of December 31,
1993, NorthLand had total assets and shareholders' equity of
$127.4 million (unaudited) and $11.4 million (unaudited),
respectively.
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1993 1992
-------------------------------
(In Thousands)
ASSETS
Cash and cash equivalents $ 4,878 $ 35,161
Investment in subsidiaries 282,983 212,755
Prepaid expenses and other assets 2,471 2,217
$290,332 $250,133
LIABILITIES
Subordinated notes $ 54,997 $ 55,000
Other liabilities 650 1,038
TOTAL LIABILITIES 55,647 56,038
STOCKHOLDERS' EQUITY
Common stock 23,587 23,266
Additional paid-in capital 27,340 26,749
Retained earnings 183,758 144,080
TOTAL STOCKHOLDERS' EQUITY 234,685 194,095
$290,332 $250,133
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY
FINANCIAL INFORMATION--Continued
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Interest income from subsidiaries $ 255 $ 758 $ 248
Interest expense on borrowings 4,736 1,696 552
NET INTEREST EXPENSE (4,481) (938) (304)
Equity in net income from subsidiaries 49,027 34,841 18,774
44,546 33,903 18,470
Management fees paid to subsidiaries 735
Other expenses 482 288 73
INCOME BEFORE INCOME TAXES 43,329 33,615 18,397
Income tax credits (1,886) (417) (129)
NET INCOME $45,215 $34,032 $18,526
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1993 1992 1991
------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $45,215 $34,032 $18,526
Adjustments to reconcile net income
to net cash used in operating
activities:
Equity in net income of subsidiaries (49,027) (34,841) (18,774)
Other (645) 159 (1,032)
NET CASH USED IN OPERATING ACTIVITIES (4,457) (650) (1,280)
INVESTING ACTIVITIES
Dividends from subsidiaries 5,500 23,200 1,000
Investment in subsidiaries (24,000) (26,000) (3,500)
NET CASH USED IN INVESTING ACTIVITIES (18,500) (2,800) (2,500)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 8,000 6,300
Repayment of short-term borrowings (20,000)
Proceeds from issuance of
subordinated debt 53,051
Exercise of stock options 912 626 115
Cash dividends paid (8,238) (5,098) (3,682)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (7,326) 36,579 2,733
Increase (decrease) in cash and cash
equivalents (30,283) 33,129 (1,047)
Cash and cash equivalents at beginning
of year 35,161 2,032 3,079
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,878 $35,161 $ 2,032
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Board of Directors and Stockholders
First Financial Corporation
We have audited the accompanying consolidated balance sheets of
First Financial Corporation and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of First Financial Corporation and
subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements,
the Corporation changed its method of accounting for income taxes
in 1992 and its method of accounting for certain debt and equity
securities in 1993.
/s/ Ernst & Young
- ----------------------
January 17, 1994
Milwaukee, Wisconsin
<PAGE>
MANAGEMENT AND AUDIT COMMITTEE REPORT
Management is responsible for the preparation, content and
integrity of the financial statements and all other financial
information included in this annual report. The financial
statements have been prepared in accordance with generally
accepted accounting principles.
The Corporation maintains a system of internal controls
designed to provide reasonable assurance as to the integrity of
financial records and the protection of assets. The system of
internal controls includes written policies and procedures,
proper delegation of authority, organizational division of
responsibilities and the careful selection and training of
qualified personnel. In addition, the internal auditors and
independent auditors periodically test the system of internal
controls.
Management recognizes that the cost of a system of internal
controls should not exceed the benefits derived and that there
are inherent limitations to be considered in the potential
effectiveness of any system. However, management believes that
the system of internal controls provides reasonable assurances
that financial transactions are recorded properly to permit the
preparation of reliable financial statements.
The Audit Committee of the Board of Directors is composed of
outside directors and has the responsibility for the
recommendation of the independent auditors for the Corporation.
The committee meets regularly with the independent auditors and
internal auditors to review the scope of their audits and audit
reports and to discuss any action to be taken. The independent
auditors and the internal auditors have free access to the Audit
Committee.
/s/ John C. Seramur
John C. Seramur
President and Chief Executive Officer
/s/ Thomas H. Neuschaefer
Thomas H. Neuschaefer
Senior Vice President
/s/ Dr. George R. Leach
Dr. George R. Leach
Chairman, Audit Committee
January 17, 1994
<PAGE>
ITEM 14(a) -- FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
FIRST FINANCIAL CORPORATION
December 31, 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
Nature Of Any
Amount Default By Issuer
Owned By Of Securities
Person Amount In Guaranteed
Total Or Treasury In Principal,
Name Of Amount Persons Of Interest, Sinking
Issuer of Securities Title Of Issue Guaranteed For Which Issuer Of Fund Or Redeemption
Guaranteed By Person For Of Each Class Of And Statement Securities Nature Of Provisions, or
Which Statement Is Filed Securities Guaranteed Outstanding Is Filed Guaranteed Guarantee Payment Of
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Industrial Development Revenue Bonds:
City of Greenfield, WI $3,185,000 Industrial
Edgewood Plaza Joint Development Revenue
Venture Refunding Bonds,
Series 1992 $ 3,085,000 None None P&I None
City of Maplewood, MN $4,525,000 Variable Rate
Angeles Partners 16, A Demand Multifamily
California Limited Housing Revenue Refund-
Partnership ing Bonds, Series 1993 4,525,000 None None P&I None
City of Maple Grove, MN
Maple Investments, a $2,300,000 Industrial
Minnesota General Part- Revenue Bonds, Series
nership 1986 2,105,000 None None P&I None
Housing Authority For $7,000,000 Convertible
The City of Waukesha, WI Variable Rate Demand
Caroline Apartments Multifamily Housing
Limited Partnership Revenue Bonds,
Series A 1,236,000 None None P&I None
TOTAL $10,951,000
</TABLE>
P&I = Principal and Interest Payments on Securities Guaranteed.
<PAGE>
EXHIBIT 13-B
FIRST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION
<PAGE>
TEN-YEAR SUMMARY (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 (a) 1992 (b) 1991 1990 (c) 1989 (d)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
items and the cumulative effect of
an accounting change $ 45,215 $ 28,432 $ 18,526 $ 16,022 $ 14,376
Net income (loss) $ 45,215 $ 34,032 $ 18,526 $ 16,022 $ 14,376
Earnings per share (f):
Primary:
Income (loss) before extraordinary
items and the cumulative effect
of an accounting change $ 1.88 $ 1.21 $ .80 $ .70 $ .63
Net income (loss) 1.88 1.45 .80 .70 .63
Fully Diluted:
Income (loss) before extraordinary
items and the cumulative effect
of an accounting change $ 1.86 $ 1.19 $ .79 $ .70 $ .63
Net income (loss) 1.86 1.43 .79 .70 .63
Interest income $ 340,123 $ 296,871 $ 300,081 $ 292,141 $ 235,890
Interest expense 189,734 181,896 203,749 204,748 162,059
Net interest income 150,389 114,975 96,332 87,393 73,831
Provisions for losses on loans 10,219 13,851 18,333 16,064 18,306
Non-interest income 37,721 32,209 34,331 31,383 32,389
Non-interest expense 105,804 88,711 81,395 76,840 64,868
Total assets 4,774,633 3,908,286 3,220,002 3,142,293 2,456,695
Loans receivable and held for sale
(includes mortgage-related securities) 4,248,757 3,512,306 2,885,236 2,738,265 2,142,264
Intangible assets 31,392 23,278 20,388 23,178 5,505
Deposits 4,050,520 3,206,112 2,935,645 2,883,214 2,098,234
Borrowings 438,598 461,948 77,243 60,351 177,253
Stockholders' equity 234,685 194,095 164,535 149,576 137,081
Shares outstanding (f) 23,586,827 23,266,414 23,038,404 22,978,604 22,915,604
Stockholders' equity per share (f) 9.95 8.34 7.14 6.51 5.98
Dividends declared per share (f) .35 .22 .16 .16 .15
Return (loss) on average assets (h) .98% .79% .58% .54% .60%
Return (loss) on average equity (h) 21.23% 15.78% 11.85% 11.21% 10.82%
Average equity to average assets 4.62% 4.99% 4.86% 4.78% 5.59%
</TABLE>
TEN-YEAR SUMMARY (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1988 1987 (e) 1986 (e) 1985 (e) 1984 (e)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
items and the cumulative effect of
an accounting change $ 10,769 $ 6,252 $ 9,324 $ (11,909) $ (2,826)
Net income (loss) $ 14,553 $ 11,279 $ 13,186 $ (9,527) $ (1,239)
Earnings per share (f):
Primary:
Income (loss) before extraordinary
items and the cumulative effect
of an accounting change $ .49 $ .33 $ .37 $ (.69) $ (.15)
Net income (loss) .66 .59 .57 (.56) (.06)
Fully Diluted:
Income (loss) before extraordinary
items and the cumulative effect
of an accounting change $ .49 $ .33 $ .37 $ (.69) $ (.15)
Net income (loss) .66 .59 .57 (.56) (.06)
Interest income $ 212,809 $ 206,546 $ 220,054 $ 240,718 $ 249,449
Interest expense 143,069 139,223 160,204 194,464 209,583
Net interest income 69,740 67,323 59,850 46,254 39,864
Provisions for losses on loans 16,185 8,777 9,302 11,405 3,829
Non-interest income 30,060 41,471 43,853 35,274 33,746
Non-interest expense 65,550 86,109 80,365 80,867 68,949
Total assets 2,300,129 2,169,911 2,124,190 2,173,063 2,381,170
Loans receivable and held for sale
(includes mortgage-related securities) 2,026,445 1,824,726 1,743,169 1,747,593 1,891,381
Intangible assets 6,197 9,196 11,666 12,662 13,680
Deposits 1,969,217 1,889,018 1,800,316 1,913,174 1,996,741
Borrowings 155,568 119,912 182,682 128,605 246,912
Stockholders' equity 126,248 105,559 96,048 83,656 94,511
Shares outstanding (f) 22,841,464 19,241,340 19,091,924 18,394,480 18,330,680
Stockholders' equity per share (f) 5.53 (g) (g) (g) (g)
Dividends declared per share (f) .14 .11 .09 .09 .08
Return (loss) on average assets (h) .48% .29% .43% (.53)% (.11)%
Return (loss) on average equity (h) 9.06% 6.16% 10.51% (13.50)% (3.10)%
Average equity to average assets 5.35% 4.70% 4.10% 3.85% 3.93%
<FN>
(a) In January, 1993, the Corporation's major subsidiary First Financial
Bank, FSB (First Financial) acquired Westinghouse Federal Bank, FSB,
d/b/a United Federal Bank ("United"), of Galesburg, Illinois for cash.
In addition, in August, 1993, the Corporation completed the assumption
of deposits and the purchase of the branch facilities of four Quincy,
Illinois-area branches of American Savings. Each acquisition has been
accounted for as a purchase.
(b) In separate transactions during 1992, the Corporation completed the
assumption of deposits and the purchase of branch facilities of ten
Peoria, Illinois-area branches from the LaSalle Talman Bank, FSB and
the Resolution Trust Corporation (RTC). Each acquisition has been
accounted for as a purchase.
(c) The Corporation completed the acquisition of Illini Federal Savings and
Loan Association (Illini) in January, 1990 and, at various dates during
1990, the assumption of the deposits and purchase of certain assets of
three former thrift institutions from the RTC. Each of these
transactions has been accounted for as a purchase and the related results
of operations have been included in the consolidated financial statements
since the respective dates of acquisition.
(d) The Corporation completed the acquisition of First Financial-Port Savings
Bank, S.A. (Port) in May, 1989. This cash acquisition was accounted for
as a purchase and the results of Port's operations have been included in
the financial statements since that date.
(e) Restated, except per share data, to reflect the March, 1988 merger-
conversion of National Savings & Loan (National) which was accounted
for as a pooling-of-interests.
(f) As adjusted for a 2-for-1 stock split of March 5, 1993, a 2-for-1 stock
split of April 16, 1992, a 10% stock dividend of March 31, 1989, and for
a 2-for-1 stock split of September 30, 1985.
(g) Stockholders' equity per share is not meaningful due to the National
merger-conversion in 1988.
(h) Ratio is based upon income (loss) prior to extraordinary items and
the cumulative effect of an accounting change.
</TABLE>
<PAGE>
QUARTERLY DATA
The following table sets forth the Corporation's unaudited quarterly income
and expense data for 1992 and 1993.
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1993 1993 (a) 1993 1993 (b) 1992 1992 1992 1992 (c)
--------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and mortgage-related
securities $81,507 $82,027 $82,702 $81,460 $74,919 $72,329 $71,347 $68,799
Investments 4,022 3,174 2,307 2,924 2,171 2,223 3,022 2,061
Interest income 85,529 85,201 85,009 84,384 77,090 74,552 74,369 70,860
Interest expense:
Deposits 41,412 42,365 41,388 44,576 40,510 43,082 46,195 44,255
Borrowings 4,456 5,157 5,618 4,762 3,983 1,710 861 1,300
Interest expense 45,868 47,522 47,006 49,338 44,493 44,792 47,056 45,555
Net interest income 39,661 37,679 38,003 35,046 32,597 29,760 27,313 25,305
Provisions for losses on loans (2,395) (2,180) (2,800) (2,844) (3,546) (2,666) (3,501) (4,138)
Gain on sales of assets (d) 2,445 2,657 1,329 1,341 1,423 1,735 481 1,384
Non-interest income 7,631 7,336 7,655 7,327 6,618 6,510 7,132 6,926
47,342 45,492 44,187 40,870 37,092 35,339 31,425 29,477
Non-interest expense 26,003 27,462 26,657 25,682 22,604 23,474 21,937 20,696
Income before income taxes and
cumulative effect of a change
in accounting principle 21,339 18,030 17,530 15,188 14,488 11,865 9,488 8,781
Income taxes 8,167 6,704 6,362 5,639 5,353 4,335 3,368 3,134
Income before cumulative effect
of a change in accounting
principle 13,172 11,326 11,168 9,549 9,135 7,530 6,120 5,647
Cumulative effect of a change
in accounting principle (e) -- -- -- -- -- -- -- 5,600
Net income $13,172 $11,326 $11,168 $ 9,549 $ 9,135 $ 7,530 $ 6,120 $11,247
Earnings per share (f):
Primary:
Income before cumulative
effect of an accounting
change (e) $ .54 $ .48 $ .47 $ .40 $ .38 $ .33 $ .26 $ .24
Net income .54 .48 .47 .40 .38 .33 .26 .48
Fully Diluted:
Income before cumulative
effect of an accounting
change (e) $ .54 $ .46 $ .46 $ .40 $ .38 $ .32 $ .25 $ .24
Net income .54 .46 .46 .40 .38 .32 .25 .48
Cash dividends per share (f) $ .10 $ .10 $ .075 $ .075 $ .06 $ .06 $ .05 $ .05
<FN>
(a) The American Savings acquisition was completed in August, 1993 and
results of operations have been included from the date of acquisition.
(b) The United acquisition was completed in January, 1993 and the related
results of operations have been included from January 1, 1993.
(c) The 1992 acquisitions were completed in the first quarter and the
results of the related operations have been included since the dates
of acquisition.
(d) Includes net gains (losses) on sales of loans, mortgage-related
securities, investment securities and other assets.
(e) The change in accounting principle relates to the adoption of Statement
of Financial Accounting Standards No. 109 in the first quarter of 1992.
(f) Per share data have been adjusted to reflect the 2-for-1 stock splits
distributed in March, 1993 and April, 1992.
</TABLE>
<PAGE>
Results of Operations
Comparison of Years Ended December 31, 1993 and 1992
General. Net income increased 59.1% to $45.2 million in 1993
from the $28.4 million earned in 1992 prior to the 1992
$5.6 million cumulative effect of a change in accounting for
income taxes upon the adoption of Statement of Financial
Accounting Standards (SFAS) No. 109. Continued low interest
rates and the 1993 acquisitions, principally the acquisition of
Westinghouse Federal Bank, FSB, d/b/a United Federal Bank
(United) of Galesburg, Illinois, played important roles in the
significantly improved results for 1993. The returns on average
assets and average stockholders' equity for 1993 were 0.98% and
21.23%, respectively, as compared to 0.79% and 15.78%,
respectively, for 1992 before giving effect to the change in
accounting principle. Primary earnings per share, prior to the
change in accounting principle, increased 55.4% to $1.88 for 1993
from $1.21 for 1992.
Net Interest Income. Net interest income increased $35.4 million
to $150.4 million during 1993 from $115.0 million for 1992. The
net interest margin increased from 3.35% for 1992 to 3.41% for
1993 due to the effect of the lower cost of funds in 1993
reflecting the current low interest-rate environment and a
continued improvement in the ratio of interest-earning assets to
interest-costing liabilities in 1993 as compared to the 1992.
Interest income increased $43.2 million and interest expense
increased $7.8 million, respectively for 1993 as compared to
1992. The average balances of interest-earning assets and
interest-costing liabilities increased from $3.43 billion and
$3.38 billion, respectively, in 1992 to $4.41 billion and
$4.34 billion, respectively, in 1993. The ratio of average
interest-earning assets to average interest-costing liabilities
increased from 101.43% in 1992 to 101.68% in 1993. The 1993
increases in average balances are primarily due to the 1993
acquisitions. The improvement in the ratio of interest-earning
assets to interest-costing liabilities was complemented by a
slightly greater decrease in the average cost of interest-costing
liabilities (5.38% in 1992 versus 4.37% in 1993) than in the
average yield on interest-earning assets (8.65% in 1992 versus
7.70% in 1993.) These various factors are reflected in the
rate/volume analysis, of changes in net interest income, which
indicates a net increase of $30.7 million from volume-related
factors and a net increase of $4.7 million from rate-related
factors.
At the end of 1993, the Corporation's net interest margin was
3.36% as compared to 3.32% at the end of 1992. Historically the
Corporation's net interest margin has been at its lowest point at
year-end due to seasonal factors. Although the 1993 acquisitions
contributed to lower margins than historically experienced by the
Corporation, the combination of the low interest-rate environment
during 1993 and asset/liability management decisions made during
1993 have enabled the Corporation to continue to build the net
interest margin to a higher level at the end of 1993.
Provisions for Losses On Loans. Provisions for losses on loans
decreased $3.7 million from $13.9 million for 1992 compared to
$10.2 million for 1993, reflecting a continuing lower level of
charge-offs experienced in 1993. For a further discussion of
allowances for loan losses on loans and related loan portfolio
information, see "Allowances for Loan and Foreclosure Losses" and
"Loans and Mortgage-Related Securities."
Non-Interest Income. Non-interest income increased $5.5 million
to $37.7 million for 1993 compared to $32.2 million for 1992 as
the net result of several significant factors. Gains realized on
an increased volume of sales of mortgage loans, including loans
originated for sale and refinanced mortgage loans transferred to
held for sale status, increased $3.1 million in 1993 as compared
to 1992. The increased volume of such sales is directly related
to the low interest-rate environment experienced throughout 1993.
The Corporation's subsidiary banks, First Financial Bank, FSB and
First Financial-Port Savings Bank, FSB (the Banks), sell long-
term fixed-rate mortgage loans in the normal course of interest-
rate risk management. Gains or losses realized from the sale of
mortgage loans held for sale can fluctuate significantly from
year to year depending upon the volatility of interest rates and
the volume of loan originations. Thus, results of sales in any
one year may not be indicative of future results. In this
regard, many observers believe that refinancing activities in
1994 will be down from 1993. As such, management does not
believe that 1994 gains on sales of mortgage loans will be at
1993 levels. Deposit account service fees increased $1.7 million
for 1993 as compared to 1992. The 1993 acquisitions and pricing
changes were the major reasons for the increase in these fees.
Net fees earned relative to loans serviced for others increased
$800,000 to $5.2 million in 1993 from $4.4 million in 1992 as a
net result of i) a decrease in the average servicing spread on
mortgage loans serviced for others, ii) a slight decrease in the
size of the mortgage loan servicing portfolio, iii) a decrease in
the size of the manufactured housing loan servicing portfolio due
to the refinancing of loans previously serviced for others and
iv) decreased 1993 charges to adjust the amortization of the
carrying value of purchased and capitalized excess mortgage
servicing rights. The 1993 charges of $1.4 million were
$2.1 million less than similar charges of $3.5 million in 1992
and reflect changes in loan prepayment assumptions, revised for
recent experience, used in management's periodic review of the
value of these servicing rights. At the end of 1993, the
carrying value of servicing rights have been reduced to $473,000.
Thus, amortization of such rights in the future will be
significantly less than in recent years, which will favorably
affect servicing income in the future.
Net losses on sales of available-for-sale securities in 1993
amounted to $422,000 as compared to a gain of $41,000 in 1992.
A loss of $415,000 was realized upon the disposition of a
$45.0 million available-for-sale investment, in an adjustable-
rate mortgage mutual fund during late 1993, for liquidity
purposes. This investment was acquired during 1993 for such
purposes. The remaining $7,000 loss was realized upon the sale
of $81.3 million of mortgage-related securities (MBS) acquired in
conjunction with the United acquisition. These MBSs were
classified as available-for-sale to facilitate the restructuring
of the mortgage-related securities portfolio acquired from
United.
Non-Interest Expense. Non-interest expense increased
$17.1 million for the year ended December 31, 1993 to
$105.8 million as compared to $88.7 million for 1992. The higher
level of non-interest expense reflects inherent increases in the
expanded scope of operations as a result of the 1993
acquisitions. The major categories of non-interest expense
affected by acquisitions are compensation, occupancy, furniture
and equipment, federal deposit insurance, marketing and
amortization of core deposit intangibles.
Federal deposit insurance expense increased $300,000 in 1993 due
to an increase in insured deposits as a result of acquisitions.
The full effect of the increase was offset by a reduction in
premiums charged by the Federal Deposit Insurance Corporation
(FDIC) as the FDIC allowed a one-time premium reduction
(approximately $1.5 million) representing the Banks' previously
unutilized credits, from the dissolved Secondary Reserve of the
Federal Savings and Loan Insurance Corporation. The Banks'
credits in the Secondary Reserve had been written-off in 1987 due
to the uncertainty of recoverability. In addition, each of the
Banks qualifies for the lowest FDIC assessment rate and
management of the Corporation believes that the Banks will
continue to qualify for the lowest FDIC assessment rate, thus
enabling the Banks to keep deposit insurance expense under
control. The Banks, however, do not have control over potential
future rate increases by the FDIC.
The increase of $1.8 million in loan expenses for 1993 represents
the impact of higher 1993 mortgage loan production as well as the
cost of a program to attract new credit card accounts through
affinity groups.
The net cost of operations of foreclosed properties decreased
$1.3 million in 1993 as compared to 1992, when an increased level
of writedowns was experienced relative to foreclosed commercial
real estate properties.
Non-interest expense decreased as a percentage of average assets
to 2.29% in 1993 as compared to 2.46% in 1992. The improvement
in this ratio is reflective of the effectiveness of the
consolidation of operations after the acquisitions in 1993 and
1992. In addition, the Corporation's efficiency ratio (which
represents the ratio of controllable expenses to net interest
income plus recurring non-interest income) improved to 53% for
1993 as compared to 56% for 1992.
Income Taxes. Income tax expense increased $10.7 million for
1993 as compared to 1992 due to the increase in pre-tax income in
1993 and other factors. As a percent of pre-tax income, the
effective income tax rate increased slightly from 36.3% for 1992
to 37.3% in 1993. The increase in the effective income tax rate
primarily relates to i) increased provisions for Illinois taxes
as the Corporation's scope of operations has increased in that
state subsequent to the recent acquisitions and ii) the 1993
increase in the federal tax rate from 34% to 35% for taxable
income in excess of $10.0 million.
Accounting Change. The Financial Accounting Standards Board
(FASB) issued SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" in May, 1993. As permitted under
the Statement, the Corporation adopted the provisions of the new
standard as of the end of 1993. As a result of adopting SFAS
No. 115, stockholders' equity was increased by $2.7 million (net
of deferred income taxes) at December 31, 1993 to reflect the net
unrealized holding gain on securities, having an estimated fair
value of approximately $262.8 million, classified as available-
for-sale at the end of 1993 and which had been previously
recorded at amortized cost.
Pending Accounting Change. In May, 1993, the FASB also issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan".
SFAS No. 114 requires that impaired loans be measured at the
present value of expected future cash flows discounted at the
loan's original effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent.
SFAS No. 114 is effective for fiscal years beginning after
December 15, 1994. Management does not believe that the adoption
of SFAS No. 114 will have a material impact on the Corporation's
financial condition or results of operations.
Results of Operations
Comparison of Years Ended December 31, 1992 and 1991
General. Net income increased to $34.0 million in 1992 from
$18.5 million in 1991. Net income for 1992, prior to a
$5.6 million credit representing the cumulative effect of a
change in accounting for income taxes, increased 53.5% to
$28.4 million from the $18.5 million earned in 1991. The returns
on average assets and average stockholders' equity for 1992,
before giving effect to the change in accounting principle, were
0.79% and 15.78%, respectively, as compared to 0.58% and 11.85%,
respectively, for 1991. Earnings per share, prior to the change
in accounting, increased 51.3% to $1.21 for 1992 from $0.80 for
1991.
Net Interest Income. Net interest income increased $18.6 million
to $115.0 million during 1992 from $96.3 million for 1991. The
net interest margin increased from 3.17% for 1991 to 3.35% for
1992 due to a lower cost of funds in 1992 reflecting a declining
interest-rate environment, managed asset growth by the Banks in
1992 and an improvement in the ratio of interest-earning assets
to interest-costing liabilities in 1992 as compared to the 1991.
Interest income decreased $3.2 million and interest expense
decreased $21.8 million, respectively for 1992 as compared to
1991. The average balances of interest-earning assets and
interest-costing liabilities increased from $3.042 billion and
$3.019 billion, respectively, in 1991 to $3.431 billion and
$3.383 billion, respectively, in 1992. The ratio of average
interest-earning assets to average interest-costing liabilities
increased from 100.76% in 1991 to 101.43% in 1992. The 1992
increases in average balances are due to internal growth as well
as the 1992 acquisitions. The improvement in the ratio of
interest-earning assets to interest-costing liabilities was
complemented by a greater decrease in the average cost of
interest-costing liabilities (6.75% in 1991 versus 5.38% in 1992)
than in the average yield on interest-earning assets (9.87% in
1991 versus 8.65% in 1992.) These factors are reflected in the
analysis of changes in net interest income arising from factors
relating to the volume of interest-bearing dollars and the rates
paid on those dollars. This analysis indicates an increase of
$17.5 million from volume-related factors and $1.1 million from
rate-related factors.
Provisions for Losses On Loans. Provisions for losses on loans
decreased $4.4 million from $18.3 million for 1991 compared to
$13.9 million for 1992, reflecting a lower level of charge-offs
experienced in 1992 as well as management's actions to build a
higher level of loan loss allowances during 1991 for the
manufactured housing and commercial real estate portfolios. The
Corporation's allowances for losses on loans increased to
$17.1 million, or 0.77% of loans receivable, at December 31, 1992
from $16.7 million and 0.82%, respectively, at December 31, 1991.
The decrease in allowances as a percentage of loans receivable
was attributable to the growth of the loan portfolio in 1992.
This growth was concentrated in single-family mortgage loans,
which portfolio historically has a much lower loss experience
than the non-mortgage loan portfolios. In addition, the
manufactured housing and commercial real estate loan portfolios
decreased in 1992, further contributing to the lower allowance
ratio at year-end 1992 since these portfolios historically had
higher loss experience.
Non-Interest Income. Non-interest income decreased $2.1 million
to $32.2 million for 1992 compared to $34.3 million for 1991 as
the net result of several significant factors. Gains realized on
an increased volume of sales of mortgage loans, including loans
originated for sale and refinanced mortgage loans transferred to
available for sale status, increased $1.7 million in 1992 as
compared to 1991. The increased volume of such sales is directly
related to the declining interest-rate environment experienced
throughout 1992. Deposit account service fees increased $800,000
for 1992 as compared to 1991. Pricing changes initiated in the
last half of 1991 and early 1992 were the major reason for the
increase in these fees. Net fees earned relative to loans
serviced for others decreased $2.5 million to $4.4 million in
1992 from $6.9 million in 1991 as a result of i) a decrease in
the average servicing spread on mortgage loans serviced for
others, ii) a decrease in the size of the mortgage loan servicing
portfolio, iii) a decrease in the size of the manufactured
housing loan servicing portfolio due to management's decision to
restrict manufactured housing lending to the Midwest and
iv) increased 1992 charges to adjust the amortization of the
carrying value of purchased and capitalized excess mortgage
servicing rights. The 1992 charges of $3.5 million were $700,000
over similar charges of $2.8 million in 1991 and reflect changes
in loan prepayment assumptions, revised for recent experience,
used in management's periodic review of the value of these
servicing rights.
Gains on sales of MBSs declined from $2.3 million in 1991 to
$41,000 in 1992. During 1991, an asset/liability management
decision was made to conform the composition of the MBS
portfolio, of previously acquired institutions, to existing
investment policies. As such, all long-term fixed-rate MBSs,
totaling $45.5 million, were sold in late 1991. Also, in 1990,
an asset/liability management decision was made to limit
purchases of MBSs to no more than a two percent premium to par
value. During 1991, this policy was extended to include all
similar securities already held in First Financial's MBS
portfolio. At that time, approximately $111.3 million of MBSs
having unamortized premiums exceeding two percent of par value
were sold. During 1992, the Corporation had one minor MBS sale,
for $853,000, when Port sold its longer-term fixed-rate MBS
portfolio.
Non-Interest Expense. Non-interest expense increased
approximately $7.3 million for 1992 as compared to 1991 for the
reasons noted below. Such expenses decreased as a percentage of
average assets to 2.46% for 1992 as compared to 2.53% for 1991.
The higher dollar level of non-interest expense reflects inherent
increases in the expanded scope of operations as a result of the
1992 acquisitions (each of which was accounted for as a purchase)
in addition to increased writedowns of foreclosed real estate
properties during 1992. Provisions for losses on foreclosed real
estate properties (primarily commercial real estate) increased
$1.8 million in 1992 as compared to 1991 (see "Foreclosed
Properties"). Increases in other categories of non-interest
expense were primarily the result of the 1992 acquisitions (i.e.,
compensation, FDIC insurance of accounts premiums, and
amortization of core deposit intangibles).
Income Taxes. Income tax expense increased $3.8 million for 1992
as compared to 1991. As a percent of pre-tax income, however,
the effective tax rate declined from 40.11% for 1991 to 36.28%
for 1992. The decrease in the effective tax rate was the result
of low Nevada state income taxes on an operating subsidiary of
First Financial, which was formed in late 1991. This subsidiary
manages an investment portfolio having long-term maturities.
Previously, this portfolio was managed by First Financial in
Wisconsin and subject to applicable taxes at higher state tax
rates.
Accounting Change. In February, 1992, the FASB issued SFAS No.
109, "Accounting for Income Taxes." As permitted by the
Statement, the Corporation adopted SFAS No. 109 in 1992. The
cumulative effect of the adoption of SFAS No. 109 on prior years,
through December 31, 1991, resulted in an increase in net income
of $5.6 million, or $0.24 per share, in 1992. The primary
component of this change resulted from the recognition of a
deferred tax asset in relation to the cumulative excess of book
loan loss provisions over certain limited amounts previously
claimed as income tax deductions, as defined in SFAS No. 109.
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The Corporation's common stock trades on the NASDAQ National
Market System (NASDAQ) under the NASDAQ listing symbol of FFHC.
At December 31, 1993, the Corporation had 23,586,827 outstanding
shares and 3,512 shareholders of record.
The following table presents market price information and cash
dividends paid on First Financial Corporation's common stock.
The prices displayed represent high and low sales prices, for
each quarter over the past two years, as reported by NASDAQ. The
data in the table have been adjusted for the two-for-one stock
splits distributed in March, 1993 and April, 1992.
<TABLE>
<CAPTION>
Market Price Cash
High Low Dividend
----------------------------------------------------
Quarter Ended:
<S> <C> <C> <C>
December 31, 1993 $19.750 $14.250 $ .10
September 30, 1993 18.000 13.500 .10
June 30, 1993 15.750 12.250 .075
March 31, 1993 16.000 11.250 .075
December 31, 1992 $11.750 $ 7.500 $ .06
September 30, 1992 9.313 7.250 .06
June 30, 1992 8.500 6.375 .05
March 31, 1992 7.500 5.625 .05
</TABLE>
<PAGE>
AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-COSTING LIABILITIES,
INTEREST RATE SPREAD AND NET INTEREST MARGIN
The following table sets forth the weighted average yields earned on the
Corporation's consolidated loan and investment portfolios, the weighted
average interest rates paid on deposits and borrowings, the interest rate
spread between yields earned and rates paid and the net interest
margin during the years 1993, 1992 and 1991. Balances of interest-sensitive
assets and liabilities arising from the 1992 and 1993 acquisitions are
included from the respective dates of the related transactions.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
--------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)(2) $1,957,288 $160,372 8.19% $1,416,264 $131,206 9.26% $1,427,702 $143,574 10.06%
Mortgage-related securities 1,410,941 86,052 6.10 1,137,275 83,040 7.30 764,895 67,650 8.84
Other loans (1) 789,073 81,272 10.30 681,537 73,148 10.73 645,424 75,204 11.65
U.S. Government and agency 106,138 5,709 5.38 31,659 2,036 6.43 18,326 1,521 8.30
Other securities 56,194 3,050 5.43 62,584 3,245 5.19 93,678 7,060 7.54
Cash equivalents 66,716 1,952 2.93 80,906 2,929 3.62 72,539 3,755 5.18
FHL Bank stock 28,540 1,716 6.01 21,004 1,267 6.03 19,363 1,317 6.80
4,414,890 340,123 7.70 3,431,229 296,871 8.65 3,041,927 300,081 9.87
Interest-costing liabilities:
Passbook 798,058 25,953 3.25 635,382 27,154 4.27 285,496 14,275 5.00
Checking 636,008 14,924 2.35 548,643 15,579 2.84 531,754 23,992 4.51
Certificates 2,529,824 128,864 5.09 2,041,100 131,309 6.43 2,154,524 161,501 7.50
FHL Bank advances 310,911 14,205 4.57 127,618 5,445 4.27 31,487 2,500 7.95
Other borrowings 67,264 5,788 8.60 30,163 2,409 7.99 15,852 1,481 9.34
4,342,065 189,734 4.37 3,382,906 181,896 5.38 3,019,113 203,749 6.75
Net earning assets and
interest rate spread $ 72,825 3.33% $ 48,323 3.27% $ 22,814 3.12%
Earning asset ratio 101.68% 101.43% 100.76%
Average interest-earning
assets, net interest income,
and net interest margin on
average interest-earning
assets $4,414,890 $150,389 3.41% $3,431,229 $114,975 3.35% $3,041,927 $ 96,332 3.17%
</TABLE>
(1) Includes non-accruing loans.
(2) Includes loans held for sale.
RATE VOLUME ANALYSIS
The most significant impact on the Corporation's net income between periods
is derived from the interaction of changes in the volume of and rates
earned or paid on interest-earning assets and interest-costing liabilities.
The volume of earning dollars in loans and investments, compared to the
volume of interest-costing liabilities represented by deposits and
borrowings, combined with the spread, produces the changes in net interest
income between periods.
The following table shows the relative contribution of changes in average
volume and average interest rates on changes in net interest income
for the periods indicated. The change in interest income and interest
expense attributable to changes in both volume and rate, which cannot
be segregated, has been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
Compared to Year Ended Compared to Year Ended
December 31, 1992 December 31, 1991
Rate Volume Total Rate Volume Total
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans, including loans
held for sale $(16,509) $ 45,675 $ 29,166 $(11,226) $ (1,142) $(12,368)
Mortgage-related securities (15,016) 18,028 3,012 (13,315) 28,705 15,390
Other loans (3,047) 11,171 8,124 (6,126) 4,070 (2,056)
U.S. Government and agency (384) 4,057 3,673 (401) 916 515
Other securities 147 (342) (195) (1,848) (1,967) (3,815)
Cash equivalents (510) (467) (977) (1,223) 397 (826)
FHL Bank stock (4) 453 449 (156) 106 (50)
Total $(35,323) 78,575 43,252 $(34,295) $ 31,085 (3,210)
Interest-costing liabilities:
Passbook $ (7,294) $ 6,093 (1,201) $ (2,343) $ 15,222 12,879
Checking (2,930) 2,275 (655) (9,153) 740 (8,413)
Certificates (30,384) 27,939 (2,445) (22,016) (8,176) (30,192)
FHL Bank advances 412 8,348 8,760 (1,621) 4,566 2,945
Other borrowings 200 3,179 3,379 (242) 1,170 928
Total $(39,996) $ 47,834 7,838 $(35,375) $ 13,522 (21,853)
Increase in net interest income $ 35,414 $ 18,643
</TABLE>
<PAGE>
NET INTEREST MARGIN AT YEAR-END
The following table sets forth the weighted average yields on the
Corporation's loan and investment portfolios, the weighted
average cost of deposits and borrowings, the interest rate spread
between the anticipated yields and costs and the resulting net
interest margin at the indicated dates.
<TABLE>
<CAPTION>
At December 31,
1993 1992 1991
-----------------------------------------
<S> <C> <C> <C>
Weighted average yield:
Mortgage loans 7.73% 8.74% 9.75%
Mortgage-related securities 5.82 6.72 8.48
Other loans 0.00 10.45 11.25
Investments 4.84 4.80 5.73
Combined weighted average yield on
loans and investments 7.42 8.17 9.54
Weighted average cost:
Deposits and advance payments from
borrowers for taxes and insurance 4.05 4.91 6.27
Borrowings 4.91 4.81 6.57
Combined weighted average cost
of deposits and borrowings 4.13 4.90 6.27
Interest rate spread 3.29% 3.27% 3.27%
Net interest margin 3.36% 3.32% 3.28%
/TABLE
<PAGE>
FINANCIAL CONDITION
GENERAL
Total assets of the Corporation increased to $4.77 billion at the
end of 1993 from $3.91 billion at year-end 1992 as a result of
the 1993 acquisitions. Stockholders' equity was $234.7 million,
or 4.92% of total assets, at December 31, 1993 compared to
$194.1 million and 4.97%, respectively, at the end of 1992.
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, the Corporation had cash of
$4.9 million and subordinated debt of $55.0 million at
December 31, 1993. Management anticipates that the subordinated
debt will be repaid in the future from proceeds of cash dividends
from its subsidiary Banks or issuance of stock.
The Banks are subject to certain regulatory limitations relative
to their ability to pay dividends to the Corporation. Management
believes that the Corporation will not be adversely affected by
these dividend limitations and that projected future dividends
from the Banks will be sufficient to meet the parent company's
liquidity needs. See Note L to the consolidated financial
statements for further discussion of these limitations. In
addition to dividends from the Banks, the Corporation could also
sell capital stock or debt issues through the capital markets as
alternative sources of funds.
The Corporation also has available an unused line-of-credit in
the amount of $18,000,000 which is available through April, 1994.
The line-of-credit agreement contains various covenants relative
to the operations of the Corporation and First Financial. All of
such covenants were met. See Note J to the consolidated
financial statements for further discussion. In addition, the
Corporation has pledged its stock in First Financial as
collateral for the line-of-credit.
The Banks are required to maintain minimum levels of liquid
assets as defined by the Office of Thrift Supervision ("OTS")
regulations. This requirement, which may be varied by the OTS,
is based upon a percentage of deposits and short-term borrowings.
The required ratio is currently 5%. Both Banks are in compliance
with this requirement. The Banks' principal sources of funds are
amortization and prepayment of loan principal, deposits, sales of
mortgage loans originated for sale, Federal Home Loan (FHL) Bank
advances, other borrowings and funds provided from operations.
These funds are used to meet loan commitments, make other
investments, fund deposit withdrawals and repay borrowings.
Total consolidated liquidity, consisting of cash, cash
equivalents, short-term securities and investment securities,
increased $113.0 million during 1993. Total consolidated
liquidity, as a percent of total assets, increased from 5.78% at
the end of 1992 to 7.10% of total assets at the end of 1993, as a
result of the net effect of the Corporation's various operating,
investing and financing activities.
Operating activities resulted in a net cash inflow of
$108.1 million. Operating cash flows included earnings of
$45.2 million for 1993 and $648.3 million realized from the sales
of mortgage loans available for sale, less $599.1 million
disbursed for loans originated for sale.
Investing activities resulted in a net cash inflow of
$106.3 million. The most significant cash inflows in 1993 from
investing activities were principal payments of $575.1 million
and $364.0 million received on loans receivable and MBSs,
respectively, as well as $60.9 million from the proceeds of
maturities of investment securities. In addition, $126.4 million
was realized upon the sale of securities available for sale.
Major investing activities resulting in cash outflows were
$240.6 million for the purchase of MBSs, $1.03 billion for the
origination of loans for portfolio and $206.4 million for the
purchase of securities. In addition, cash of $443.8 million was
received in conjunction with the 1993 acquisitions representing
primarily $970.2 million of assumed deposits less $565.5 million
of loans and securities acquired. As a result of adopting SFAS
No. 115, securities having an estimated fair value of
$262.8 million, and previously carried at the lower of amortized
cost or estimated fair value, were classified as available-for-
sale.
Financing activities for 1993 resulted in a net cash outflow of
$225.8 million represented by a $124.1 million net deposit
outflows, a net decrease in borrowings of $95.2 million and
$8.2 million in cash dividends paid to our stockholders.
At December 31, 1993, the Banks had outstanding commitments to
originate mortgage loans totaling $62.3 million and had no
commitments outstanding to purchase loans. At that date, the
Banks also had commitments outstanding to sell $111.5 million of
mortgage loans that were held for sale or for which the Banks
were committed to originate. Loans held for sale totaled
$73.9 million at the end of 1993. In addition, First Financial
had commitments to purchase $87.8 million of adjustable-rate MBSs
at year-end 1993. Management believes liquidity levels are
proper and that adequate capital and borrowings are available
through the capital markets, the FHL Bank of Chicago and other
sources.
LOANS AND MORTGAGE-RELATED SECURITIES
Total loans, including loans held for sale and MBSs, increased to
$4.25 billion at the end of 1993 from $3.51 billion at the end of
1992. The components of this increase are summarized, by type of
loan collateral, as follows:
<TABLE>
<CAPTION>
December 31, Increase
1993 1992 (Decrease)
-------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $1,797,990 $1,267,108 $ 530,882
Multi-family 188,558 163,312 25,246
Commercial and other 94,789 101,865 (7,076)
Total real estate mortgage loans 2,081,337 1,532,285 549,052
Other loans:
Credit cards 209,414 178,436 30,978
Home equity 193,291 162,283 31,008
Education 167,385 163,261 4,124
Manufactured housing 165,017 133,195 31,822
Consumer and other 153,685 92,326 61,359
Less: net items to loans receivable (47,625) (51,069) 3,444
Total loans (including loans
held for sale) 2,922,504 2,210,717 711,787
Mortgage-related securities 1,326,253 1,301,589 24,664
Total loans and mortgage-related
securities $4,248,757 $3,512,306 $ 736,451
</TABLE>
One- to four-family residential mortgage loans increased
$530.9 million during 1993. The increase in residential mortgage
loans during 1993 is attributable to the United acquisition and
high levels of originations and refinancings as a result of the
continuing low interest-rate environment during 1993. In
addition, First Financial refinanced approximately $187.1 million
of mortgage loans that were previously serviced for others. Such
refinanced loans typically are fixed-rate residential mortgage
loans. The Corporation has retained in its loan portfolio
certain fixed-rate mortgage loans with shorter maturities as well
as all adjustable-rate mortgage loans. The Corporation typically
sells longer-term fixed-rate mortgage loans as a part of its
ongoing interest-rate risk management program. Income-producing
real estate loans increased $18.1 million in 1993 with a
continuing change in emphasis as multi-family residential loans
increased $25.2 million and commercial real estate mortgage loans
decreased $7.1 million.
Consumer loans increased $61.4 million in 1993 due to the United
acquisition as well as increased marketing efforts and a new
second mortgage product. Both the credit card loan and home
equity loan portfolios increased $31.0 million during 1993 as the
Corporation continues to promote growth in these product areas in
order to diversify the loan portfolio and to provide higher
yielding assets. Manufactured housing loans increased
$31.8 million primarily due to the refinancing of $37.0 million
of such loans which had previously been serviced for others.
After giving effect to the $226.4 million of MBSs received in the
United acquisition, the MBS portfolio declined $201.7 million
during 1993 primarily as the net result of i) purchases of
$240.6 million of adjustable-rate MBSs, ii) repayments of
$364.0 million and iii) sales of $81.3 million of MBSs acquired
in the United transaction (as management restructured the United
MBS portfolio to meet the Corporation's investment portfolio
guidelines). There were no sales of MBSs during 1993 other than
the above-mentioned post-merger restructuring sales. In
conjunction with the adoption of SFAS No. 115, the Banks
transferred MBSs with a cost of $175.4 million and a fair value
of $178.4 million to the available-for-sale portfolio at the end
of 1993.
<PAGE>
NON-PERFORMING ASSETS
Non-performing assets (consisting of non-accrual loans,
foreclosed properties and other repossessed collateral assets)
decreased to $15.1 million at December 31, 1993 from
$29.9 million at December 31, 1992. As a percentage of total
assets, non-performing assets decreased from 0.76% at
December 31, 1992 to 0.32% at December 31, 1993. During the five
years ended December 31, 1993, the Corporation has not had any
troubled debt restructurings. Non-performing assets are
summarized as follows for the dates indicated:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990 1989
-------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family
residential $ 5,005 $ 5,660 $ 8,717 $ 9,904 $ 5,022
Multi-family residential 139 314 332 891 1,464
Commercial real estate -- 6,478 2,624 497 684
Manufactured housing 1,063 1,295 1,851 2,021 6,376
Consumer and other 2,033 1,912 2,965 3,229 3,497
Total non-accrual loans 8,240 15,659 16,489 16,542 17,043
Real estate judgments 2,236 2,761 3,572 7,746 5,762
Real estate foreclosed
properties 4,418 10,975 21,065 21,518 21,380
Repossessed collateral assets 163 462 889 2,143 3,688
Total non-performing
assets $15,057 $29,857 $42,015 $47,949 $47,873
Non-accrual loans as a
percentage of net loans .28% .71% .83% .76% .86%
Non-performing assets as a
percentage of total assets .32% .76% 1.30% 1.52% 1.95%
</TABLE>
The Corporation places loans into a non-accrual status when loans
are contractually delinquent more than ninety days. Such loans
have decreased as a percentage of net loans to 0.28% at
December 31, 1993 from .71% at December 31, 1992 showing an
improvement in most categories with a significant $6.5 million
decrease in the commercial mortgage real estate loan category.
This decrease represents the improvement in the contractual
delinquency and subsequent removal from non-accrual status of
several large commercial real estate mortgage loans. The non-
accrual loans, in the aggregate, at December 31, 1993, 1992 and
1991 represented $700,000, $1.2 million and $1.3 million of
interest which would have been reflected in 1993, 1992 and 1991
income, respectively, if the loans had been contractually
current.
Another significant factor in the 1993 decrease in non-performing
assets was the $7.0 million decline in real estate judgments and
foreclosed properties from $13.7 million at the end of 1992 to
$6.7 million at year-end 1993. This decline is directly related
to the sale and/or writedown of several large commercial real
estate properties during 1993. As a result of these
dispositions, the Corporation has been able to reduce its
inventory of large (having a carrying value in excess of
$500,000) commercial real estate properties owned from four
properties totaling $7.6 million at December 31, 1992 to three
properties totaling $3.3 million at December 31, 1993. The
remainder of the real estate foreclosed properties consist
primarily of one- to four-family and smaller multi-family
residential real estate located in the Midwest.
Non-performing assets have declined significantly during the five
year period ending December 31, 1993 due to i) the disposition of
such properties acquired in the acquisition of a troubled thrift
institution in 1985, ii) improved collection efforts, and iii) a
management decision to restrict lending primarily to Wisconsin,
Illinois and other selected Midwestern states.
All of the above non-accrual loans and foreclosed properties have
been considered by management in the review of the adequacy of
allowances for losses.
ALLOWANCES FOR LOSSES ON LOANS AND FORECLOSED PROPERTIES
The Corporation's loan portfolios, foreclosed properties and off-
balance sheet financial guarantees are evaluated on a continuing
basis to determine the additions to the allowances for losses and
the related balance in the allowances. These evaluations
consider several factors including, but not limited to, general
economic conditions, loan portfolio composition, prior loss
experience and management's estimation of future potential
losses. The evaluation of allowances for loan losses includes a
review of both known loan problems as well as a review of
potential problems based upon historical trends and ratios. The
allowances for losses on foreclosed properties are determined by
reducing the carrying value of such foreclosed properties to the
estimated fair value.
A summary of activity in the allowances for losses on loans
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
-------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $17,067 $16,706 $15,644 $13,673 $11,922
Charge-offs:
Residential real estate (691) (1,579) (1,916) (1,260) (1,884)
Commercial real estate (501) (968) (2,107) (5,422) (2,407)
Manufactured housing (2,731) (4,212) (7,365) (7,650) (7,362)
Credit card (5,890) (6,142) (5,550) (5,248) (5,255)
Consumer-related (481) (459) (654) (742) (933)
Commercial -- (1,367) (1,051) -- --
Total charge-offs (10,294) (14,727) (18,643) (20,322) (17,841)
Recoveries:
Residential real estate 131 231 218 546 116
Commercial real estate -- 3 1 -- --
Manufactured housing 179 288 272 450 94
Credit card 653 584 653 656 509
Consumer-related 426 131 228 664 524
Total recoveries 1,389 1,237 1,372 2,316 1,243
Net charge-offs (8,905) (13,490) (17,271) (18,006) (16,598)
Provisions for losses 10,219 13,851 18,333 16,044 18,306
Acquired banks' allowances 4,885 -- -- 3,933 43
Balance at end of year $23,266 $17,067 $16,706 $15,644 $13,673
Ratio of net charge-offs to
average loans outstanding .32% .64% .83% .82% .83%
</TABLE>
A summary of the activity in the allowance for losses on
foreclosed properties follows.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 552 $ 738 $1,023 $ 750 $ 760
Charge-offs (2,685) (4,980) (3,232) (577) (1,013)
Provision 3,519 4,794 2,947 754 957
Acquired banks' allowances -- -- -- 96 46
Balance at end of year $1,386 $ 552 $ 738 $1,023 $ 750
</TABLE>
The provisions for losses on foreclosed properties are included
in the consolidated statements of income in "net cost of
operations of foreclosed properties."
The Corporation's allowance for losses on loans increased to
$23.3 million, or 0.80% of loans receivable, at December 31, 1993
from $17.1 million and 0.77%, respectively, at the end of 1992.
The increase in the allowance relates to a rise in loans
receivable in 1993 as well as allowances acquired in conjunction
with the United acquisition. The 1993 provisions for losses on
loans and foreclosed properties totaled $10.2 million and
$3.5 million, respectively, compared to $13.9 million and
$4.8 million, respectively, for 1992. The provision for losses
has been significantly lower in 1993 and 1992 compared to the
1989-1991 period as the Banks' charge-off experience has improved
due to the decrease in non-performing assets during this period.
See "Non-Performing Assets" for further discussion.
The most significant change in allowances for individual loan
portfolios took place in the allowance for credit card losses.
The allowance for credit card loan losses increased to 3.10% of
outstanding balances at the end of 1993 from 2.26% at year-end
1992. The increase in the credit card allowance relates to the
1993 growth of that portfolio and to management's decision to
build the allowance for this portfolio to a higher level. Credit
card loan charge-offs leveled off at $5.9 million compared to
$6.1 million and $5.6 million for 1992 and 1991, respectively.
First Financial's credit card loan charge-offs, 2.87% for 1993
and 3.44% for 1992, have been historically well below national
averages.
The allowance for losses on residential mortgage loans increased
to $5.9 million, or 0.30% of such loans, at the end of 1993 as
compared to $3.3 million, or 0.23%, at the end of 1992. The
growth in the allowance relates to the increase in the
residential mortgage portfolio during 1993 and the allowance
acquired in the United acquisition. Charge-offs of residential
mortgage loans as a percentage of average outstandings decreased
to 0.03% in 1993 from 0.10% in 1992.
The level of charge-offs for the commercial real estate loan
portfolio for 1993 and 1992 were significantly lower than in 1991
and 1990 when $2.1 million and $5.4 million, respectively, of
such loans were transferred to loss status by management in the
course of reviews of such loans. The allowance for commercial
real estate loan losses increased, as a percentage of
outstandings, to 4.23% at the end of 1993 from 3.91% at the end
of 1993.
Commercial loan charge-offs in 1991 and 1992 of $1.1 million and
$1.4 million, respectively, were directly related to the
writedown of a working capital loan, to a limited partnership,
for an apartment project located in Milwaukee, Wisconsin. This
loan was acquired in the acquisition of a troubled thrift
institution in 1985. The Corporation has no commercial loans in
its loan portfolio at the end of 1993.
The Banks have also, in the past, undertaken off-balance sheet
financial guarantees, totaling $11.0 million at December 31,
1993, whereby certain of the Banks' assets, primarily MBSs, are
pledged as collateral for Industrial Development Revenue Bonds
which were issued by municipalities to finance real estate owned
by third parties. Management has considered these guarantees,
all of which are performing, in its review of the adequacy of
allowance for possible losses relating to contingent liabilities.
See Note N to the consolidated financial statements for further
discussion of off-balance sheet financial guarantees.
Management believes that the December 31, 1993, allowances for
loan and foreclosed property losses are adequate based upon the
current evaluation of loan delinquencies, non-performing assets,
charge-off trends, economic conditions and other factors.
Management also continues to pursue all practical and legal
methods of collection, repossession and disposal, as well as
adhering to high underwriting standards in the origination
process, in order to continue to reduce provisions for losses of
all types in future years.
<PAGE>
A detailed analysis of the Corporation's allowances for losses on loans
and related charge-off information is as follows for the dates and
periods indicated:
<TABLE>
<CAPTION>
At December 31, 1993 At December 31, 1992 At December 31, 1991
---------------------------------- ---------------------------------- ---------------------------------
1993 1992 1991
Charge-offs Charge-offs Charge-offs
Allowance As A Percent Allowance As A Percent Allowance As A Percent
As A % Of Of Average As A % Of Of Average As A % Of Of Average
Outstanding Related Loans Outstanding Related Loans Outstanding Related Loans
Allowance Loans In For The Year Allowance Loans In For The Year Allowance Loans In For The Year
Type of Loan Amount Category Ended Amount Category Ended Amount Category Ended
12/31/93 12/31/92 12/31/91
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate $ 5,877 .30% .03% $ 3,301 .23% .10% $ 2,679 .21% .13%
Commercial real estate 4,010 4.23 .51 3,986 3.91 .94 4,628 4.59 1.98
Manufactured housing 4,668 2.83 1.85 4,325 3.25 2.90 4,492 3.20 4.88
Credit cards 6,502 3.10 2.87 4,034 2.26 3.44 2,734 1.70 3.32
Consumer 1,728 1.12 -- 860 .97 .08 510 .79 .26
Education 52 .03 .01 269 .16 .09 288 .18 .12
Home equity 429 .22 .02 292 .18 .08 285 .20 .04
Commercial -- -- -- -- -- 34.23 1,090 22.60 20.90
$23,266 .80% .32% $17,067 .77% .64% $16,706 .82% .83%
</TABLE>
<PAGE>
The Corporation's allowances for losses on loans were allocated to various
loan categories as follows for the dates indicated:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990 1989
------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Percent Of Percent Of Percent Of Percent Of Percent Of
Loans in Each Loans In Each Loans In Each Loans In Each Loans In Each
Category to Category to Category to Category to Category to
Type of Loan Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate $ 5,877 66.9% $ 3,301 63.2% $ 2,679 62.3% $ 3,312 64.8% $ 457 62.0%
Commercial real
estate 4,010 3.2 3,986 4.5 4,628 4.9 4,349 5.1 6,073 6.4
Manufactured housing 4,668 5.6 4,325 5.9 4,492 6.9 2,259 7.0 2,229 8.5
Credit cards 6,502 7.0 4,034 7.9 2,734 7.9 3,195 6.8 3,342 7.0
Consumer and other 2,209 17.3 1,421 18.4 1,083 17.8 969 16.1 1,004 15.8
Commercial -- -- -- .1 1,090 .2 1,560 .2 568 .3
$23,266 100.0% $17,067 100.0% $16,706 100.0% $15,644 100.0% $13,673 100.0%
/TABLE
<PAGE>
DEPOSITS
Deposits increased $844.0 million to $4.05 billion at
December 31, 1993. This growth was achieved primarily as a
result of acquisitions. The weighted-average cost of deposits
decreased to 4.06% at year-end 1993 compared to 4.94% at year-end
1992, as a result of continued lower market rates during 1993.
BORROWINGS
The Corporation's total borrowings decreased from $461.9 million
at year-end 1992 to $438.6 million at the end of 1993. The
weighted average cost of borrowings increased slightly to 4.91%
at the end of 1993 as compared to 4.81% at year-end 1992,
representing a moderate lengthening of the average maturity of
the Banks' borrowings.
STOCKHOLDERS' EQUITY
Stockholders' equity at December 31, 1993 was $234.7 million, or
4.92% of total assets, compared to $194.1 million and 4.97%,
respectively, at December 31, 1992. The dollar increase in
stockholders' equity resulted from net income of $45.2 million
and a $2.7 million increase in stockholders' equity recorded upon
the adoption of SFAS No. 115 as offset by cash dividend payments
to stockholders of $8.2 million. Stockholders' equity per share
increased from $8.34 per share at year-end 1992 to $9.95 per
share at year-end 1993.
REGULATORY CAPITAL
The Corporation's subsidiary Banks are each subject to various
individual OTS capital measurements. Both First Financial and
Port have regulatory capital well in excess of OTS requirements
at December 31, 1993, as summarized below:
<TABLE>
<CAPTION>
OTS Capital Ratios
Actual Required
Ratio Ratio Excess
<S> <C> <C> <C>
Tangible capital:
First Financial 5.21% 1.50% 3.71%
Port 7.38 1.50 5.88
Core leverage capital:
First Financial 5.78% 3.00% 2.78%
Port 7.38 3.00 4.38
Risk-based capital:
First Financial 12.56% 8.00% 4.56%
Port 14.55 8.00 6.55
</TABLE>
In addition, First Financial and Port each meet the definition of
a "well capitalized" thrift institution at year-end 1993 per FDIC
rules employing OTS measurements.
The OTS has issued a final regulation relating to capital
requirements based upon interest-rate risk effective July 1,
1994. In addition, under the terms of FDICIA the OTS is required
to revise its risk-based capital standards to reflect various
risk factors. Management believes that the Banks will not need
additional capital to meet this regulation. The OTS has adopted
another final rule, effective March 4, 1994, disallowing any new
core deposit intangibles, acquired after the rule's effective
date, from counting as regulatory capital. Core deposit
intangibles acquired prior to the effective date have been
grandfathered for purposes of this rule. The OTS also has
proposed to increase the core capital requirement from the
current 3.00% level to between 4.00% and 5.00%, for all but the
most healthy thrift institutions. The additional requirements
could potentially increase the current requirement levels.
Management of the Corporation believes that the Banks will
continue to exceed these regulatory capital requirements in the
future through core earnings.
For a more detailed discussion of regulatory capital
requirements, see Note L to the consolidated financial
statements.
ASSET/LIABILITY MANAGEMENT
The objective of the Corporation's asset/liability policy is to
manage interest-rate risk so as to maximize net interest income
over time in changing interest-rate environments. To this end,
management believes that strategies for managing interest-rate
risk must be responsive to changes in the interest-rate
environment and must recognize and accommodate the market demands
for particular types of deposit and loan products.
Interest-bearing assets and liabilities can be analyzed by
measuring the magnitude by which such assets and liabilities are
interest-rate sensitive and by monitoring an institution's
interest-rate sensitivity "gap." An asset or liability is
determined to be interest-rate sensitive within a specific time
frame if it matures or reprices within that time period. An
interest-rate sensitivity "gap" is defined as the difference
between the amount of interest-earning assets anticipated to
mature or reprice within a specific time period and the amount of
interest-costing liabilities anticipated to mature or reprice
within the same time period. A gap is considered positive when
the amount of interest-rate sensitive assets exceeds the amount
of interest-rate sensitive liabilities that mature or reprice
within a given time frame. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds the amount
of interest-rate sensitive assets that mature or reprice within a
specified time period.
Summary gap information for the Corporation is presented below as
of December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Ratio of Cumulative
Positive (Negative) Gap To Total Assets
One Year Three Years Five Years
<S> <C> <C> <C>
December 31, 1993 6.09% (2.63)% (2.57)%
December 31, 1992 4.85 (2.48) (1.88)
December 31, 1991 6.72 (3.04) (4.75)
</TABLE>
The Corporation's positive one-year gap increased to
$290.8 million, or 6.09% of total assets, at the end of 1993 from
$189.5 million, or 4.85% of total assets, at the end of 1992.
The Corporation's consolidated one-year positive gap position of
6.09% at December 31, 1993 falls within management's currently
acceptable range of 10% positive to 10% negative. In view of the
current low interest-rate environment and the related impact on
customer behavior, management believes that it is important to
weigh and balance the effect of asset/liability management
decisions in the short-term in its efforts to maintain net
interest margins and acceptable future profitability. As such,
management believes that it has been able to achieve a consistent
net interest margin while still meeting asset/liability
management objectives.
In this regard, the Banks also measure and evaluate interest-rate
risk via a separate methodology. The net "market value" of
interest-sensitive assets and liabilities is determined by
measuring the net present value of future cash flows under
varying interest-rate scenarios in which interest rates would
theoretically increase or decrease up to 400 basis points on a
sudden and prolonged basis. This complex theoretical analysis at
December 31, 1993 indicates that the Banks' current financial
position should adequately protect the Banks, and thus the
Corporation, from the effects of rapid rate changes. The OTS has
issued final regulations, as noted above, that call for further
regulatory capital requirements based upon this market value
methodology effective July 1, 1994. Management of the
Corporation anticipates that current asset/liability management
practices should place the Banks in compliance with this
regulation and that further capital will not be required as a
result thereof.
Asset/Liability Repricing Schedule. The table on the following
page sets forth the combined estimated maturity/repricing
structure of the Banks' interest-earning assets (including net
items) and interest-costing liabilities at December 31, 1993.
Assumptions regarding prepayment and withdrawal rates are based
upon the Banks' historical experience, and management believes
such assumptions are reasonable. The table does not necessarily
indicate the impact of general interest-rate movements on the
Banks' net interest income because repricing of certain
categories of assets and liabilities through, for example,
prepayments of loans and withdrawals of deposits, is beyond the
Banks' control. As a result, certain assets and liabilities
indicated as repricing within a stated period may in fact reprice
at different times and at different rate levels. Certain
shortcomings are inherent in the method of analysis presented in
the gap table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing,
they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets,
such as adjustable-rate loans, have features which restrict
changes in interest rates on a short-term basis and over the life
of the asset. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the data in the
table.
<PAGE>
FIRST FINANCIAL CORPORATION CONSOLIDATED GAP ANALYSIS AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
Greater Greater Greater Greater
Than One Than Three Than Five Than Ten Greater
Under Through Through Through Through Than
One Year Three Years Five Years Ten Years 20 Years 20 Years Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Investments and interest-
earning deposits (a)(b) $ 171,139 $ 91,963 $ 7,156 $ 350 $ 34,920 $ -- $ 305,528
Mortgage-related securities(b) 1,233,107 78,928 14,181 7 30 -- 1,326,253
Mortgage loans:
Fixed-rate (c)(d) 249,674 403,126 296,706 511,556 19,365 170 1,480,597
Adjustable-rate (c)(d) 412,109 148,930 2,348 99 -- -- 563,486
Other loans 645,602 144,477 30,963 55,200 2,179 -- 878,421
2,711,631 867,424 351,354 567,212 56,494 170 4,554,285
Rate-sensitive liabilities:
Deposits (e)(f) 2,219,743 1,112,718 348,282 208,028 126,978 45,372 4,061,121
Borrowings (g) 201,044 171,027 251 61,046 1,910 3,320 438,598
2,420,787 1,283,745 348,533 269,074 128,888 48,692 4,499,719
GAP (repricing difference) $ 290,844 $ (416,321) $ 2,821 $298,138 $ (72,394) $(48,522) $ 54,566
Cumulative GAP $ 290,844 $ (125,477) $ (122,656) $175,482 $ 103,88 $ 54,566
Cumulative GAP/Total Assets 6.09% (2.63)% (2.57)% 3.68% 2.16% 1.14%
</TABLE>
[FN]
(a) Investments are adjusted to include FHL Bank stock and other items
totaling $29.8 million as investments in the "Greater than Ten Through
20 Years" category.
(b) Investment and mortgage-related securities are presented at carrying
value, including net unrealized holding gain on available-for-sale
securities.
(c) Based upon 1) contractual maturity, 2) repricing date, if applicable,
3) scheduled repayments of principal and 4) projected prepayments of
principal based upon the Corporation's historical experience as modified
for current market conditions.
(d) Includes loans held for sale.
(e) Deposits include $13.8 million of advance payments by borrowers for
tax and insurance and exclude accrued interest of $3.2 million.
(f) The Corporation has assumed that its passbook savings, NOW accounts
and money market accounts would have projected annual withdrawal
rates, based upon the Corporation's historical experience, of 26%,
34% and 42%, respectively.
(g) Collateralized mortgage obligations totaling $5.2 million are included
in the "Greater Than Five Through Ten Years" category.
<PAGE>
EXHIBIT 22
LIST OF SUBSIDIARIES
<PAGE>
LIST OF SUBSIDIARIES
First Financial Bank, FSB
First Financial - Port Savings Bank, FSB
<PAGE>
EXHIBIT 24
CONSENT OF ERNST & YOUNG,
INDEPENDENT AUDITORS
<PAGE>
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of First Financial Corporation of our report
dated January 17, 1994, included in the 1993 Annual Report to
Shareholders of First Financial Corporation.
Our audits also included the financial statement schedule of
First Financial Corporation listed in Item 14(a). This schedule
is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the
Registration Statements No. 2-90005 on Form S-8 dated March 16,
1984, No. 33-17304 on Form S-8 dated September 17, 1987, and
No. 33-36295 on Form S-8 dated August 9, 1990, in the Post-
Effective amendment No. 5 to Form S-1 on Form S-8 (Registration
No. 33-16948) dated May 12, 1988, and No. 33-69856 on Form S-8
dated October 1, 1993, with respect to the consolidated financial
statements and schedule of First Financial Corporation
incorporated by reference in the Annual Report (Form 10-K) for
the year ended December 31, 1993.
/s/ Ernst & Young
Milwaukee, Wisconsin
March 28, 1994
<PAGE>
March 29, 1994
BY EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: First Financial Corporation
Annual Report on Form 10-K
SEC File No. 0-11889
Gentlemen and Ladies:
Filed herewith on behalf of First Financial Corporation (the "Company")
is the Company's Annual Report on Form 10-K for the year ended December 31,
1993. Pursuant to Rule 13a-1 under the Securities Exchange Act of 1934,
applicable filing fees of $250.00 have already been paid by the Company.
Under separate cover, three complete copies of the Annual Report on
Form 10-K, one of which is manually signed, are being filed with the National
Association of Securities Dealers, Inc.
If you have any questions or comments regarding the enclosed, please
call the undersigned.
Sincerely,
Stuart G. Stein
Enclosures
cc: Robert M. Salinger
First Financial Corporation
