<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-11889
FIRST FINANCIAL CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Wisconsin 39-1471963
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1305 Main Street, Stevens Point, Wisconsin 54481
_________________________________________________
(Address of principal executive office)
(715) 341-0400
_________________________________________________
(Registrant's telephone number, including area code)
(Former name, address and former fiscal year, if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share 29,293,620 Shares
--------------------------------------- -----------------------------
Class Outstanding at April 30, 1995
<PAGE>
FIRST FINANCIAL CORPORATION
Form 10-Q Index
Part I - Financial Information
Consolidated Balance Sheets as of March 31, 1995
(Unaudited) and December 31, 1994
Unaudited Consolidated Statements of Income for
the Three Months Ended March 31, 1995 and 1994
Unaudited Consolidated Statement of Changes In
Stockholders' Equity for the Three Months Ended
March 31, 1995
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1995 and
1994
Notes to Unaudited Consolidated Financial Statements
Management's Discussion and Analysis:
Comparison of the Consolidated Balance Sheets
at March 31, 1995 (Unaudited) and December 31,
1994
Comparison of the Unaudited Consolidated Statements of Income
for the Three Months Ended March 31, 1995 and 1994
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibits
-1-
<PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31,
1995 December 31,
(Unaudited) 1994
------------ ----------
(In thousands)
<S> <C> <C>
Cash $ 98,148 $ 94,064
Federal funds sold 10,035 23,890
Interest-earning deposits 7,646 1,024
---------- ----------
Cash and cash equivalents 115,829 118,978
Securities available for sale (at fair value):
Investment securities 62,871 68,959
Mortgage-related securities 199,917 201,373
Securities held to maturity (at amortized cost):
Investment securities (fair value
of $142,345,000--1995 and
124,434,000--1994) 144,939 129,301
Mortgage-related securities (fair
value of $1,245,409,000--1995
and $1,263,755,000--1994) 1,266,485 1,301,118
Loans receivable:
Held for sale 10,722 11,736
Held for investment 3,495,843 3,458,711
Foreclosed properties and repossessed
assets 5,141 5,216
Real estate held for investment or sale 7,823 7,706
Office properties and equipment, at cost 53,208 53,927
Intangible assets, less accumulated
amortization 25,415 26,726
Other assets 114,232 118,073
---------- ----------
$5,502,425 $5,501,824
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $4,403,121 $4,381,455
Borrowings 688,226 708,446
Advance payments by borrowers for
taxes and insurance 33,701 15,986
Other liabilities 37,910 68,629
---------- ----------
Total liabilities 5,162,958 5,174,516
---------- ----------
Stockholders' equity:
Serial preferred stock, $1 par value,
3,000,000 shares authorized; none
outstanding
Common stock, $1 par value, 75,000,000
shares authorized; shares issued and
outstanding: 29,251,255-1995;
29,125,858-1994 29,251 29,126
Additional paid-in capital 47,719 50,129
Net unrealized loss on
securities available for sale (5,712) (8,619)
Treasury stock -- (3,669)
Common stock purchased by
employee benefit plans (1,061) (1,608)
Retained earnings (substantially
restricted) 269,270 261,949
---------- ----------
Total stockholders' equity 339,467 327,308
---------- ----------
$5,502,425 $5,501,824
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
-2-
<PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1995 1994
--------- -------
(In thousands, except
per share amounts)
<S> <C> <C>
Interest income:
Mortgage loans $ 45,523 $ 43,715
Other loans 28,359 23,684
Mortgage-related securities 25,480 19,486
Investments 3,440 4,294
-------- --------
Total interest income 102,802 91,179
Interest expense:
Deposits 45,167 43,444
Borrowings 11,437 5,391
-------- --------
Total interest expense 56,604 48,835
-------- --------
Net interest income 46,198 42,344
Provision for losses on loans 2,119 1,468
-------- --------
44,079 40,876
Non-interest income:
Deposit account service fees 2,620 2,431
Loan fees and service charges 2,457 2,261
Insurance and brokerage sales
commissions 2,052 1,971
Service fees on loans sold 1,969 1,832
Net gain on sales of loans 37 1,337
Net gain on sales of securities
available for sale 11 936
Other 1,107 851
-------- --------
Total non-interest income 10,253 11,619
-------- --------
Operating income 54,332 52,495
-------- --------
Non-interest expense:
Compensation, payroll taxes
and benefits 13,177 13,367
Acquisition-related costs 6,458 --
Federal deposit insurance premiums 2,529 2,590
Occupancy 2,350 2,380
Marketing 2,115 1,137
Data processing 1,725 1,876
Telephone and postage 1,693 1,566
Loan expenses 1,455 1,616
Furniture and equipment 1,412 1,538
Amortization of intangible assets 1,311 1,344
Net cost (income) from operations
of foreclosed properties 18 345
Other 2,755 2,994
-------- --------
Total non-interest expense 36,998 30,753
-------- --------
Income before income taxes 17,334 21,742
Income taxes 6,507 8,261
-------- --------
Net income $ 10,827 $ 13,481
======== ========
Earnings per share:
Primary $ 0.36 $ 0.45
Fully diluted $ 0.36 $ 0.45
Cash dividends per share $ 0.12 $ 0.10
</TABLE>
See notes to unaudited consolidated financial statements.
-3-
<PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Three Month Period Ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Holding Common
Common Gain Stock
Stock and (Loss) On Purchased
Additional Securities by Employee
Paid-In Retained Available Treasury Benefit Stockholders
Capital Earnings For Sale Stock Plans (1) Equity
--------- -------- ---------- -------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 $ 57,310 $226,045 $ (5,400) $ -- $ -- $277,955
Pooling-of-interests--
FirstRock Bancorp,
Inc. 21,945 35,904 (3,219) (3,669) (1,608) 49,353
-------- -------- -------- -------- -------- --------
Restated balances at
December 31, 1994 79,255 261,949 (8,619) (3,669) (1,608) 327,308
Net income for the
three months ended
March 31, 1995 10,827 10,827
Payment for fractional
shares (5) (5)
Cash dividends
($0.12 per share) (3,506) (3,506)
Exercise of stock
options 369 423 792
Payment on ESOP loan 38 38
Amortization of Retention
and Recognition Plan
(RRP) shares 31 31
Vesting of RRP shares at
acquisision 464 464
Reversion of unallocated
RRP shares to FFC (14) 14 --
Tax benefit related to
vested RRP shares and
non-incentive options
exercised 611 611
Treasury shares retired
upon acquisition of
FirstRock Bancorp,
Inc. (3,260) 3,260 --
Change in net unrealized
holding loss on
securities available
for sale 2,907 2,907
-------- -------- -------- -------- -------- --------
Balances at March 31,
1995 $ 76,970 $269,270 $ (5,712) $ -- $ (1,061) $339,467
======== ======== ======== ======== ======== ========
<FN>
(1) Balance at March 31, 1995 consists entirely of common stock purchased by
the Employee Stock Ownership Plan (ESOP).
</TABLE>
See notes to unaudited consolidated financial statements.
-4-
<PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1995 1994
---------- ---------
OPERATING ACTIVITIES (In thousands)
<S> <C> <C>
Net income $ 10,827 $ 13,481
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in accrued interest on loans (1,559) (62)
Increase in accrued interest on deposits 1,695 301
Mortgage loans originated for sale (22,105) (143,679)
Proceeds from sales of loans held for sale 23,429 198,737
Provision for depreciation 1,491 1,755
Provision for losses on loans 2,119 1,468
Provision for losses on real estate and other assets 629 225
Unrealized loss on impairment of mortgage-related securities -- --
Amortization of cost in excess of net assets of
acquired businesses 208 156
Amortization of core deposit intangibles 1,103 1,188
Amortization of purchased mortgage servicing rights 181 342
Net gain on sales of loans and assets (38) (2,353)
Other-net 8,366 (6,645)
--------- ---------
Net cash provided by operating activities 26,346 64,914
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 2,382 45,541
Proceeds from maturities of investment securities held
to maturity 13,785 22,722
Purchases of investment securities held to maturity (25,353) (6,762)
Proceeds from sales of mortgage-related securities available
for sale -- 12,459
Principal payments received on mortgage-related securities 39,625 104,582
Purchases of mortgage-related securities held to maturity -- (164,958)
Proceeds from sale of finance company receivables -- 6,665
Principal received on loans receivable 123,783 151,610
Loans originated for portfolio (165,125) (231,881)
Additions to office properties and equipment (1,538) (408)
Proceeds from sales of foreclosed properties and
repossessed assets 2,008 1,986
Business acquisitions (net of cash and cash equivalents
acquired of $4,593,000--1994):
Investment securities held to maturity -- (4,785)
Mortgage-related securities held to maturity -- (16,742)
Loans receivable -- (96,748)
Office properties -- (2,387)
Intangible assets -- (699)
Deposits and related accrued interest -- 114,297
Borrowings -- 750
Stockholders' equity -- 11,401
Other-net -- (494)
--------- ---------
Net cash used in investing activities (10,433) (53,851)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 19,971 (6,748)
Net increase in advance payments by borrowers for
taxes and insurance 17,715 16,140
Funding of official checks for borrower tax escrows (34,953) --
Proceeds from borrowings 470,370 135,000
Repayments of borrowings (490,590) (196,581)
Proceeds from exercise of stock options 792 371
Proceeds from vesting of employee benefit plans 1,139 104
Payments of cash dividends to stockholders (3,506) (2,538)
--------- ---------
Net cash provided by (used in) financing activities (19,062) (54,252)
--------- ---------
Decrease in cash and cash equivalents (3,149) (43,189)
Cash and cash equivalents at beginning of period 118,978 138,018
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 115,829 $ 94,829
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
-5-
<PAGE>
FIRST FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts and
results of operations of First Financial Corporation (FFC) and its wholly-owned
subsidiary, First Financial Bank, FSB (FF Bank). Significant intercompany
accounts and transactions have been eliminated in consolidation. FFC uses the
calendar year as its fiscal year.
The financial statements reflect adjustments, all of which are of a
normal recurring nature, and in the opinion of management, necessary for a fair
statement of the results for the interim periods, and are presented on an
unaudited basis. The operating results for the first three months of 1995 are
not necessarily indicative of the results which may be expected for the entire
1995 fiscal year. The December 31, 1994 balance sheet included herein is derived
from the consolidated financial statements included in FFC's 1994 Annual Report
to Shareholders. The accompanying unaudited consolidated financial statements
and related notes should be read in conjunction with the consolidated financial
statements and related notes included in FFC's 1994 Annual Report to
Shareholders. See Note B for information relative to business combinations.
NOTE B - FIRST FINANCIAL CORPORATION
At March 31, 1995, FFC conducted business as a nondiversified unitary
thrift holding company and its principal assets were all of the capital stock of
FF Bank. The primary business of FFC is the business of FF Bank. FFC's
activities are currently comprised of providing limited administrative services
to FF Bank.
On February 28, 1995, FFC acquired FirstRock Bancorp, Inc. ("FirstRock")
of Rockford, Illinois. In the acquisition, 4,366,412 shares of FFC common stock
were issued to FirstRock shareholders based upon an exchange ratio of 1.7893
shares of FFC common stock for each outstanding share of FirstRock common stock.
Upon closing, FirstRock's subsidiary, First Federal Savings Bank, FSB ("First
Federal") was merged into FF Bank with First Federal's six offices now operating
as branch banking offices of FF Bank. The transaction was accounted for as a
pooling-of-interests and, accordingly, financial statements for all periods
presented have been restated to include the results of FirstRock.
-6-
<PAGE>
On February 28, 1995 FirstRock had assets (unaudited) of $376,473,000
and shareholders' equity (unaudited) of $48,430,000. The total income and net
income (loss) for the two-month period ended February 28, 1995 (unaudited),
which reflects the pre-merger results of FFC and FirstRock that are included in
the first quarter 1995 results of operations, are as follows:
<TABLE>
<CAPTION>
Net
Total Income
Income (Loss)
------ -------
<S> <C> <C>
FFC $69,579 $ 9,348
FirstRock 5,383 (3,091)
------- -------
$74,962 $ 6,257
======= =======
</TABLE>
A reconciliation of total income, net income and earnings per share
(unaudited), as previously reported, with restated amounts for the first quarter
of 1994 follows:
<TABLE>
<CAPTION>
Earnings
Total Net Per
Income Income Share
-------- ------- -------
<S> <C> <C> <C>
Previously Reported $ 94,647 $12,280 $ 0.49
======
FirstRock 8,151 1,201
-------- -------
As Restated $102,798 $13,481 $ 0.45
======== ======= ======
</TABLE>
As a result of the FirstRock acquisition, FFC and FirstRock incurred
expenses i) in conjunction with the acquisition itself and ii) relative to the
reorganization of FirstRock's operations following the acquisition. The
acquisition/transaction costs and charges aggregated $6.5 million on a pre-tax
basis and $4.0 million on an after-tax basis, or $0.14 per share. Management of
FFC anticipates that, subsequent to the end of the first quarter, significant
cost savings will be realized through the recently completed consolidation of
operations, including data processing, customer servicing and administrative
office functions.
On February 26, 1994, the Corporation completed the acquisition of
NorthLand Bank of Wisconsin, SSB (NorthLand) of Ashland, Wisconsin. The
Corporation issued approximately 938,000 shares of common stock, valued in the
aggregate at $14.2 million, at the time of the acquisition. The acquisition of
NorthLand had been accounted for as a pooling-of-interests and 1994 amounts had
been adjusted to reflect the transaction as if it had occurred on January 1,
1994.
NOTE C - EARNINGS PER SHARE
Primary and fully diluted earnings per share for the periods ended March
31, 1995 and 1994 have been determined 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. FFC's common
stock equivalents consist entirely of stock options. Weighted average common
shares have been adjusted for all periods presented to reflect the restatement
for FirstRock shares. See Exhibit 11 to this Report for a detailed computation
of earnings per share.
-7-
<PAGE>
NOTE D - CONTINGENT LIABILITIES
The Bank has previously entered into agreements whereby, for an annual
fee, certain securities are pledged as secondary collateral in connection with
the issuance of industrial development revenue bonds. At March 31, 1995,
mortgage-related securities and investment securities with a carrying value of
approximately $6.2 million were pledged as collateral for bonds in the aggregate
principal amount of $4.0 million. Additional bond issues totaling $7.2 million
are supported by letters of credit issued by FF Bank, in lieu of specific
collateral. At March 31, 1995, each of the outstanding collateral agreements was
current with regard to bond debt-service payments.
NOTE E - DIVIDENDS PAID OR DECLARED TO STOCKHOLDERS
The Board of Directors of FFC declared a $0.12 per share quarterly cash
dividend payable on March 31, 1995 to shareholders of record of the common stock
on March 15, 1995.
NOTE F - REGULATORY CAPITAL REQUIREMENTS
Current Office of Thrift Supervision (OTS) regulatory capital
requirements for federally-insured thrift institutions include a tangible
capital to tangible assets ratio, a core leverage capital to adjusted tangible
assets ratio and a risk-based capital measurement based upon assets weighted for
their inherent risk. As of March 31, 1995, FF Bank exceeded all OTS capital
requirements as displayed below.
Required Actual
OTS FF Bank
Ratio Ratio
-------- --------
Tangible capital 1.50% 6.45%
Core leverage capital 3.00 6.80
Risk-based capital 8.00 14.42
The OTS also has a requirement for calculating an interest rate risk component
of capital. Under this requirement, savings institutions with "above normal"
interest rate risk exposure are subject to a deduction from total capital for
purposes of calculating their risk-based capital requirements. A savings
institution's interest rate risk is measured by the decline in the net portfolio
value of its assets (i.e., the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance-sheet contracts)
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates (except when the three-month Treasury bond equivalent
yield falls below 4%, then the decrease will be equal to one-half of that
Treasury rate) divided by the estimated economic value of the institution's
assets. That dollar amount is deducted from the institution's total capital in
calculating risk-based capital. At March 31, 1995, FF Bank was not required to
deduct any amount from capital as a result of interest rate risk exposure.
-8-
<PAGE>
The OTS also has proposed to increase the minimum required core capital
ratio from the current 3% level to a range of 4% to 5% for all but the most
highly rated financial institutions. While the OTS has not taken final action on
such proposal, it has adopted a prompt corrective action ("PCA") regulation that
classifies any savings institution with a core capital ratio of less than 4% (3%
for the most highly rated institutions) as "undercapitalized".
FF Bank is not subject to any PCA sanctions.
NOTE G - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For The
Three Months Ended
March 31,
-------------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid or credited to accounts during
period for:
Interest on deposits and borrowings $ 54,211 $ 48,506
Income taxes 1,140 3,441
Non-cash investing activities:
Mortgage loans transferred to held for sale
portfolio 421 12,236
Loans receivable transferred to foreclosed
properties 1,818 1,357
Change in net unrealized holding gain (loss)
on securities available for sale 2,907 (5,702)
</TABLE>
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis, including the
comparison of balance sheet and income statement data, reflects the restatement
of all prior period financial data to include FirstRock. See Note B to the
Financial Statements.
COMPARISON OF THE CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1995 (UNAUDITED) WITH DECEMBER 31, 1994
General:
Total assets remained almost constant at $5.502 billion at March 31,
1995 and at December 31, 1994. Deposits increased to $4.403 billion at March 31,
1995 from $4.381 billion at year-end 1994 while borrowings decreased to $688.2
million from $708.4 million during the same time frame. Advance payments by
borrowers for taxes and insurance increased by $17.7 million between December
31, 1994 and March 31, 1995 and other liabilities decreased $30.7 million from
December 31, 1994 to March 31, 1995. Borrowers advance payments routinely show
net increases throughout the first quarter as receipts exceed insurance premiums
and taxes paid during the quarter. The higher other liabilities balance at
year-end 1994 represented the outstanding real estate property tax checks issued
to municipalities on behalf of the borrowers and as those checks were paid
during the first quarter, other liabilities decreased significantly.
Stockholders' equity at March 31, 1995 was $339.5 million, up from $327.3
million at year-end 1994.
Liquidity and Capital Resources:
At March 31, 1995, total consolidated liquidity, consisting of cash,
cash equivalents, and investment securities represented 5.88% of FFC's total
assets compared with 5.77% at December 31, 1994. The Bank is in compliance with
requirements relating to minimum levels of liquid assets as defined by OTS
regulations. The ongoing management of liquid assets is an integral part of
FFC's overall asset/liability management program as described below under
"Asset/Liability Management." The cash and securities portfolios are among the
most flexible assets available for shorter term liability matching. Total
consolidated liquidity at March 31, 1995 increased by $6.4 million as compared
to December 31, 1994 liquidity as a result of the net effect of significant
changes in various categories of assets and liabilities during the three-month
interim period. Some of the more significant changes in these categories,
including liquid assets, can be summarized as follows:
<TABLE>
<CAPTION>
Consolidated
Statement Of Balance Balance
Financial Condition December 31, Increases March 31,
Classification 1994 (Decreases) 1995
- ------------------- ------------ ----------- --------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents $ 118,978 $ (3,149) $ 115,829
Securities available for
sale:
Investment securities 68,959 (6,088) 62,871
Mortgage-related
securities 201,373 (1,456) 199,917
Securities held to
maturity:
Investment securities 129,301 15,638 144,939
Mortgage-related
securities 1,301,118 (34,633) 1,266,485
-10-
<PAGE>
Loans receivable, in-
cluding loans held
for sale 3,470,447 36,118 3,506,565
Office properties 53,927 (719) 53,208
Intangible assets 26,726 (1,311) 25,415
Deposits 4,381,455 21,666 4,403,121
Borrowings 708,446 (20,220) 688,226
Advance payments by
borrowers for taxes
and insurance 15,986 17,715 33,701
Other liabilities 68,629 (30,719) 37,910
Stockholders' equity 327,308 12,159 339,467
</TABLE>
Changes noted in the "Increases (Decreases)" column of the preceding
table are discussed below in the related sections of "Management's Discussion
and Analysis."
Management believes liquidity levels are proper and that adequate
capital and borrowings are available through the capital markets, the Federal
Home Loan Bank (FHLB) and other sources. For a discussion of regulatory capital
requirements, see Note F to the unaudited consolidated financial statements.
On an unconsolidated basis, FFC had cash of $8.2 million and
subordinated debt of $55.0 million at March 31, 1995. The principal ongoing
sources of funds for FFC are dividends from FF Bank. Applicable rules and
regulations of the OTS impose limitations on capital distributions by savings
institutions such as FF Bank. Savings institutions such as FF Bank which have
capital in excess of all fully phased-in capital requirements before and after a
proposed capital distribution are permitted, after giving prior notice to the
OTS, to make capital distributions during a calendar year up to the greater of
(i) 100% of net income to date during the calendar year, plus the amount that
would reduce by 1/2 its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year, or
(ii) 75% of its net income over the most recent four-quarter period.
Total Loans Receivable and Held for Sale:
Total loans, including loans held for sale, increased $36.1 million from
$3.47 billion at December 31, 1994 to $3.51 billion at March 31, 1995. Total
loans are summarized below as of the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31, Increase
1995 1994 (Decrease)
------------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family $2,059,974 $2,064,232 $ (4,258)
Multi-family 214,392 215,703 (1,311)
Commercial and non-residential 154,559 143,762 10,797
---------- ---------- ---------
Total real estate loans 2,428,925 2,423,697 5,228
Other loans:
Consumer 316,363 304,771 11,592
Home equity 247,774 240,915 6,859
Education 209,997 192,542 17,455
Credit cards 196,109 200,747 (4,638)
Manufactured housing 145,402 152,674 (7,272)
Business 18,029 19,023 (994)
Less net items to loans receivable (56,034) (63,922) 7,888
---------- ---------- ---------
Total loans (including loans held
for sale) $3,506,565 $3,470,447 $ 36,118
========== ========== =========
</TABLE>
-11-
<PAGE>
The major components of the increase in total loans during the first
three months of 1995 were an $11.6 million increase in consumer loans and a
$17.5 million increase in education loans.
Consumer loans increased $11.6 million in 1995 due to continuing
success in marketing a second mortgage product and increased automobile
financing. Student loans have increased during the first three months of 1995 as
a result of increased government guaranteed portfolio acquisitions from other
lenders. Home equity loans have increased $6.9 million in 1995 as customer usage
of this product has continued to grow. Credit card loans decreased $4.6 million
in 1995 reflecting a seasonal decline in this portfolio. Manufactured housing
loan balances decreased $7.3 million as FFC exited the manufactured housing
lending business in late 1994 due to unfavorable pricing practices by
competitors.
Mortgage loans held for sale were $10.7 million at March 31, 1995 as
compared to $11.7 million at the end of 1994. Off-balance sheet commitments to
extend credit and to sell mortgage loans totaled $27.1 million and $18.0
million, respectively, at March 31, 1995 as compared to $31.7 million and $12.4
million, respectively, at December 31, 1994. During the three months ended March
31, 1995, market interest rates generally decreased as compared to interest rate
levels at the end of 1994, and continue to fluctuate. The fair value of
on-balance sheet mortgage loans held for sale and off-balance sheet commitments
to originate and sell mortgage loans can vary substantially depending upon the
movement of interest rates. Management utilizes various methods to insulate FFC
from the effects of such interest-rate movements, principally by securing
forward commitments to sell loans in the secondary mortgage market. However,
there can be no assurance that these means will be totally effective. Future
operations may be affected by the above-discussed risk factors. Loan
originations resulting from refinancing transactions, and consequently gains on
sales of such refinanced loans, have decreased during this period of higher
interest rates.
Mortgage-Related Securities:
The mortgage-related securities (MBS) portfolio decreased $36.1
million during the three months ended March 31, 1995 primarily as a result of
principal repayments of $39.6 million. At the end of the first quarter, FF Bank
had no commitments to purchase MBSs. Also, see "Non-Accrual MBSs" for discussion
of non-performing MBSs.
The following tables set forth, at the dates indicated, the
composition of the MBS portfolio including issuer, security type and financial
statement carrying value as well as classification according to
available-for-sale or held-to-maturity status:
-12-
<PAGE>
<TABLE>
<CAPTION>
Carrying Value At
March 31, December 31,
1995 1994
----------- -----------
(In Thousands)
<S> <C> <C>
Issuer/Security Type
U.S. Government agencies:
Mortgage-backed certificates $ 387,023 $ 395,544
Collateralized mortgage
obligations 346,436 347,817
---------- ----------
Total agencies 733,459 743,361
---------- ----------
Private issuers:
Mortgage-backed certificates
Senior position 632,287 658,508
Mezzanine position 98,688 98,507
Collateralized mortgage
obligations 1,968 2,115
---------- ----------
Total private issuers 732,943 759,130
---------- ----------
Totals $1,466,402 $1,502,491
========== ==========
Total carrying value per consolidated financial
statements, by classification:
Available-for-sale portfolio $ 199,917 $ 201,373
Held to maturity portfolio 1,266,485 1,301,118
---------- ----------
Total carrying value $1,466,402 $1,502,491
========== ==========
</TABLE>
Loan Delinquencies:
FFC monitors the delinquency status of its loan portfolio on a constant
basis and initiates a 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. Nonaccrual loans
are presented separately in the following section. Loan delinquencies of 90 days
or less, for the dates indicated, are summarized in the following chart:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
(In thousands)
<S> <C> <C>
Loans Delinquent 30-59 Days
Residential real estate $ 6,229 $ 8,796
Manufactured housing 2,233 2,886
Credit card 1,977 1,964
Commercial real estate 296 1,079
Consumer, student and other 7,182 7,219
------- -------
$17,917 $21,944
======= =======
Loans Delinquent 60-90 Days
Residential real estate $ 1,230 $ 687
Manufactured housing 818 974
Credit card 949 883
Commercial real estate 705 1,618
Consumer, student and other 7,735 5,715
------- -------
$11,437 $ 9,877
======= =======
-13-
<PAGE>
Total Loans Delinquent 30-90 Days
Residential real estate $ 7,459 $ 9,483
Manufactured housing 3,051 3,860
Credit card 2,926 2,847
Commercial real estate 1,001 2,697
Consumer, student and other 14,917 12,934
------- -------
$29,354 $31,821
======= =======
</TABLE>
At March 31, 1995, the 30-90 day delinquencies decreased $2.4 million to
$29.4 million from $31.8 million at year-end 1994. As a percent of total loans
receivable, loan delinquencies decreased from 0.92% at the end of 1994 to 0.84%
at March 31, 1995. The decrease relates to the net effect of i) the return to
satisfactory contractual performance of various commercial real estate loan, ii)
an increase of $2.3 million in student loans (which are government guaranteed)
delinquent 30-90 days, iii) a decrease of $2.0 million of delinquent residential
real estate loans and iv) a decrease of $800,000 in manufactured housing loans
delinquent 30-90 days. All delinquent loans have been considered by management
in its evaluation of the adequacy of the allowances for loan losses.
Non-Accrual Loans:
FFC places loans into a non-accrual status when loans are contractually
delinquent more than 90 days. If appropriate, loans may be placed into
non-accrual status prior to becoming 90 days delinquent based upon management's
analysis. Non-accrual loans are summarized, for the dates indicated, in the
following table:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- --------
(In thousands)
<S> <C> <C>
One- to four-family residential $ 5,500 $ 5,706
Multi-family residential 595 585
Commercial and other real estate 278 271
Manufactured housing 945 1,034
Credit cards 2,179 2,031
Consumer and other 767 937
------- -------
$10,264 $10,564
======= =======
</TABLE>
Non-accrual loans decreased $300,000 to $10.3 million at March 31, 1995
from $10.6 million at December 31, 1994. As a percentage of net loans
receivable, non-accrual loans decreased slightly to 0.29% at March 31, 1995 from
0.30% at December 31, 1994. The 1995 decrease in non-accrual loans is related to
decreases of $200,000, $100,000 and $100,000 in the residential mortgage,
consumer loans and commercial business loan portfolios, respectively. These
decreases were offset partially by a $200,000 increase in non-accrual credit
card loan balances. All of these relatively minor fluctuations demonstrate the
stability of the entire collection and monitoring processes during a period
including a significant acquisition. FFC has no troubled debt restructurings
during 1995.
All loans included in non-accrual status have been considered by
management in its review of the adequacy of allowances for loan losses.
-14-
<PAGE>
Non-Accrual MBSs:
At March 31, 1995 and December 31, 1994, FFC had two non-accrual MBS's
having a net carrying value, after reduction for an allowance for loss, of $12.9
million and $15.5 million, respectively. The decrease in carrying value relates
to the reclassification of the related reserve for loss from a general reserve
to a specific reserve. Each of these MBSs is a mezzanine security, which is
subordinate to the senior position of that issue but still superior to other
subordinate positions designed to absorb first losses. FFC's mezzanine position
is superior to subordinate positions amounting to 5.65% of the aggregate par
value of the securities in question.
An independent national rating agency downgraded these two securities as
well as an unrelated senior position security of the same issuer during 1994.
The senior position security continues to be a performing asset. Management
believes that the carrying value of these securities is fairly stated based upon
its evaluations, including information from the rating agencies as well as
discounted cash flow analyses performed by management, based upon assumptions
for delinquency levels, foreclosure rates and recovery ratios in the underlying
portfolios.
Management also has the intent and ability to retain its investment in
these securities for a period of time sufficient to allow for anticipated
recovery of fair value.
FFC's portfolio of MBSs totaled approximately $1.5 billion at March 31,
1995, and except for the two non-accrual MBSs. All of FFC's mortgage-related
securities are performing and are i) rated at a minimum of investment grade by
at least one nationally recognized independent rating agency, or ii) are
government agency backed issues.
Allowances for Loan Losses:
FFC's loan portfolios 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 compositions, loan delinquencies, 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.
A summary of activity in the allowances for loan losses, for the three
months ended March 31, 1995 and 1994, follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1995 1994
-------- ------
(In thousands)
<S> <C> <C>
Allowances at beginning of period $25,180 $25,905
From acquired bank -- 816
Provisions 2,119 1,468
Charge-offs (2,538) (2,211)
Recoveries 388 665
------- -------
Allowances at end of period $25,149 $26,643
======= =======
</TABLE>
-15-
<PAGE>
A discussion of loan loss provisions and charge-offs is presented in
"Management's Discussion and Analysis-Comparison of the Unaudited Consolidated
Statements of Income for the Three Months Ended March 31, 1995 and 1994." An
analysis of allowances by loan category and the percentage of such allowances by
category and in the aggregate to loans receivable at the dates indicated,
follows:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
--------------------------- ----------------------
As Percentage As Percentage
Allowance Of Total Loans Allowance Of Total Loans
Amount In Category Amount In Category
----------- -------------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Credit cards $ 6,869 3.50% $ 6,737 3.36%
Residential real estate 7,019 .32 6,990 .32
Manufactured housing 3,605 2.48 4,267 2.79
Commercial and non-resi-
dential real estate 3,826 2.48 3,632 2.53
Consumer 2,620 .83 2,444 .80
Home equity 551 .22 487 .20
Commercial business 614 3.41 577 3.03
Education 45 .02 46 .02
------- -------
$25,149 .72% $25,180 .73%
======= ===== ======= =====
</TABLE>
The allowances for loan losses were $25.1 million, or 0.72% of loans
receivable, at March 31, 1995 compared to $25.2 million, or 0.73%, at December
31, 1994. The allowances for losses represented 245% of non-accrual loans at
March 31, 1995 as compared to 238% at the end of 1994. Management of believes
that the allowances for losses are sufficient based upon current evaluations.
Foreclosed Properties and Repossessed Assets:
Foreclosed properties and other repossessed assets are summarized, for
the dates indicated, as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
(In thousands)
<S> <C> <C>
Foreclosed real estate properties $ 6,040 $ 6,095
Manufactured housing owned 148 171
Consumer and other repossessed assets 48 96
------- -------
6,236 6,362
Less allowances for losses (1,095) (1,146)
------- -------
$ 5,141 $ 5,216
======= =======
</TABLE>
Foreclosed properties, net of allowances for losses, decreased $100,000
to $5.1 million at March 31, 1995 from $5.2 million at December 31, 1994.
-16-
<PAGE>
A summary of the activity in allowances for losses on foreclosed
properties, for the three months ended March 31, 1995 and 1994, is presented
below.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1995 1994
-------- -----
(In thousands)
<S> <C> <C>
Allowances at beginning
of period $1,146 $1,386
Provisions 15 232
Charge-offs (66) (225)
------ ------
Allowances at end of
period $1,095 $1,393
====== ======
</TABLE>
A list of the larger commercial real estate properties (having a
carrying amount of $1.0 million or greater) included in foreclosed properties,
for the dates indicated, is presented below. These properties are carried at the
lower of cost or fair value.
<TABLE>
<CAPTION>
Carrying Value At
---------------------------------
Property March 31, December 31,
Type Property Location 1995 1994
- -------- ----------------- ------------- -----------
(In thousands)
<S> <C> <C> <C>
Retail Milwaukee, Wisconsin $ 1,089 $ 1,089
Retail Fort Worth, Texas 1,012 1,012
</TABLE>
All of the above foreclosed real estate properties and repossessed
assets have been considered by management in its evaluation of the adequacy of
allowances for losses.
Classified Assets, Including Non-Performing Assets:
For regulatory purposes, FF Bank utilizes 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 regulations.
An asset is classified "substandard" if management believes 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, to the belief of
management, such 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 allowance for loss amounts while loss assets,
to the extent that such assets are classified as a "loss", 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 (see Note D), meeting the
criteria for classification. Nonperforming assets include loans or assets i)
which were previously loans which are not substantially performing 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.
-17-
<PAGE>
This non-performing 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 FF Bank has obtained title.
Classified assets, including non-performing assets, for FF Bank,
categorized by type of asset are set forth in the following table:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
(In thousands)
<S> <C> <C>
Classified assets:
Non-performing assets:
Non-accrual loans $10,264 $10,564
Non-accrual MBSs 12,947 15,455
Real estate held for sale by FFC 1,089 1,089
Foreclosed properties and other
repossessed assets 5,141 5,216
------- -------
Total Non-Performing Assets 29,441 32,324
Add back general valuation allowances net-
ted against foreclosed properties above 1,095 1,146
Adjustment for non-performing residential
loans not classified due to low
loan-to-appraisal value (419) (414)
Adjustment for real estate held for sale
not included in FFB classified assets (1,089) (1,089)
Additional classified performing loans:
Residential real estate 2,664 1,858
Commercial real estate 5,936 8,057
Consumer and other 716 672
Other adversely classified assets 135 135
------- -------
Total Classified Assets $38,479 $42,689
======= =======
</TABLE>
During the three months ended March 31, 1995, classified assets
decreased $4.2 million to $38.5 million from $42.7 million at December 31, 1994
as a result of the $2.6 million decrease in the carrying value of two
non-accrual mortgage-backed securities referred to previously (see "Non-Accrual
MBSs") and a $2.2 million decrease in performing commercial real estate loans
which had previously been classified. As a percentage of total assets,
classified assets decreased from 0.78% at year-end 1994 to 0.70% at March 31,
1995.
The decrease in non-accrual loans and the decrease in foreclosed
properties during the first three months of 1995 have been discussed above (see
"Non-Accrual Loans" and "Foreclosed Properties").
-18-
<PAGE>
The following table sets forth, at the dates indicated,
performing commercial real estate mortgage loans (in excess of $1.0 million)
included in classified assets, due to the possible adverse effects of
identifiable future events.
<TABLE>
<CAPTION>
Loan Amount Classified
-----------------------------------------
Property Type Of Property March 31, December 31,
Loan Collateral Location 1995 1994
- ---------------- ---------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Office/Land Sheboygan, Wisconsin $ 3,623 $3,633
Motels Various-Tennessee -- 2,553 (a)
<FN>
(a) Represents FF Bank's 20% interest in loans, aggregating $12.3 million,
for which FF Bank is also the lead lender. The loans have been removed
from the classification listing based upon the receipt of certain
contractual principal payments in early 1995.
</TABLE>
Other adversely classified assets remained relatively
unchanged during the first three months of 1995.
All adversely classified assets at March 31, 1995, have been
considered by management in its evaluation of the adequacy of allowances for
losses.
Deposits and Other Liabilities:
Deposits increased $21.7 million during the three months ended March
31, 1995. The weighted average cost of deposits of 4.42% at March 31, 1995 was
higher than the 4.15% reported at December 31, 1994 due to rising certificate of
deposit rates and more aggressive pricing of certain certificate of deposit
products during 1995.
Advance payments by borrowers for taxes and insurance, increased by
$17.7 million during the first three months of 1995 as a result of the normal
cumulative monthly deposits made by borrowers less interim payments of taxes and
insurance premiums.
Borrowings:
At March 31, 1995, FFC's consolidated borrowings decreased to $688.2
million from $708.4 million at December 31, 1994. The decrease in borrowings is
primarily attributable to the net effect of i) repayments of $100.0 million in
longer-term FHLB advances and ii) a net increase in shorter-term FHLB advances
and reverse repurchase agreements of $81.8 million.
Stockholders' Equity:
Stockholders' equity at March 31, 1995 was $339.5 million, or 6.17% of
total assets, as compared to $327.3 million, or 5.95% of total assets, at
December 31, 1994. The major changes in stockholders' equity included i) net
income of $10.8 million earned during the first three months of 1995, ii) cash
dividend payments to stockholders of $3.5 million, and iii) a $2.9 million
increase in the carrying value of securities available for sale due to market
conditions. Stockholders' equity per share increased from $11.24 per share at
year-end 1994 to $11.61 per share at March 31, 1995.
-19-
<PAGE>
Regulatory Capital:
As set forth in Note F to the unaudited consolidated financial
statements, FF Bank exceeds all fully phased-in regulatory capital requirements
mandated by the OTS.
Loan Originations:
A comparison of loan originations for the first three months of 1995
and 1994, including loans originated for sale (but excluding MBSs), is set forth
below:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------
1995 Percent 1994 Percent
-------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loan Type
Mortgage:
One- to four-family $ 84,330 46.9% $ 257,138 69.0%
Multi-family 7,751 4.3 12,014 3.2
Commercial/non-residential 8,798 4.9 9,301 2.5
Refinanced one- to four-
family loans previously
sold and serviced for others -- -- 17,392 4.7
---------- ----- ---------- -----
100,879 56.1 295,845 79.4
Consumer 47,058 26.2 59,498 16.0
Student 23,976 13.3 5,349 1.4
Home equity-net 6,858 3.8 6,564 1.8
Manufactured housing -- -- 3,449 .9
Commercial business 1,155 .6 1,530 .4
Refinanced manufactured
housing loans previously
sold and serviced for others -- -- 475 .1
Credit cards-net -- -- -- --
---------- ----- ---------- -----
Total loans originated 179,926 100.0% 372,710 100.0%
===== =====
Decrease in undisbursed loan
proceeds 7,304 2,850
---------- ----------
Total loans disbursed $ 187,230 $ 375,560
========== ==========
</TABLE>
Total loan originations decreased to $179.9 million for the first three
months of 1995 from $372.7 million for the same period in 1994. This net 1995
decrease of $192.8 million was primarily attributable to a $195.0 million
decrease in mortgage loan originations.
One- to four-family mortgage loan originations and refinancings
decreased $190.2 million to $84.3 million for the first three months of 1995 as
compared to $274.5 million for the same period in 1994. At March 31, 1995, one-
to four-family mortgage loan applications in process and commitments totaled
$56.4 million and $19.1 million as compared to $42.6 million and $23.3 million
at December 31, 1994. The decrease in originations and refinancings reflects
reduced borrower demand as interest rates have risen during 1994. Approximately
73% of originations for the first quarter of 1995 were adjustable-rate mortgage
loans which are held for investment purposes.
Consumer loan originations decreased $12.4 million to $47.1 million in
the first three months of 1995 primarily due to decreased volumes of
refinancings through a short-term consumer first mortgage product.
-20-
<PAGE>
Student loan originations increased $18.6 million to $24.0 million
during the first three months of 1995 as a result of increased government
guaranteed portfolio acquisitions and subsequent origination referrals from
other lenders.
Home equity loan balances increased $6.9 million for the first three
months of 1995 to $247.8 million as customer usage of this product continues to
grow.
Credit card loans decreased $4.6 million in the first three months of
1995 due to net decreases in credit card loan balances which are included in
loan repayments in FFC's 1consolidated statement of cash flows. Credit card
balances traditionally decrease in the first part of the year due to normal
seasonal reductions of consumer demand following the calendar year end.
FFC exited the manufactured housing lending business in late 1994 due to
pricing practices by competitors.
Asset/Liability Management:
The objective of FFC'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.
The table on page 23 sets forth the combined estimated
maturity/repricing structure of FFC's consolidated interest-earning assets
(including net items) and interest-costing liabilities at March 31, 1995.
Assumptions regarding prepayment and withdrawal rates are based upon FFC's
historical experience, and management believes such assumptions are reasonable.
The table does not necessarily indicate the impact of general interest rate
movements on FFC's net interest income because repricing of certain categories
of assets and liabilities through, for example, prepayments of loans and
withdrawals of deposits, is beyond FFC's 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. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels may
deviate significantly from those assumed in calculating the data in the table.
FFC's consolidated negative one-year interest-rate sensitivity gap at
March 31, 1995 was $340.4 million or 6.19% of total assets. The one-year
negative gap increased $234.3 million from the December 31, 1994 negative gap of
$106.1 million or 1.93% of total assets at that date.
-21-
<PAGE>
FFC's consolidated one-year negative gap position of 6.19% at March 31,
1995 falls within management's current operating range of a 10% positive gap
position to a 10% negative gap position. In view of the current interest-rate
environment and the related impact on customer behavior, management believes
that it is extremely 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 its asset/liability management objectives.
In this regard and in compliance with OTS regulations, FF Bank also
measures and evaluates 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 theoretical analysis at
the end of the first quarter of 1995 indicates that FF Bank's current financial
position should adequately protect FF Bank, and thus FFC, from the effects of
rapid rate changes. The OTS also requires an interest-rate risk capital
measurement such that an institution with a measured interest-rate risk exposure
greater than specified levels must deduct an interest-rate risk component when
calculating the OTS risk-based capital requirement. See Note F to the unaudited
consolidated financial statements for further information. At March 31, 1995, FF
Bank was not required to deduct an interest-rate risk component under the OTS
regulations.
-22-
<PAGE>
FIRST FINANCIAL CORPORATION CONSOLIDATED GAP ANALYSIS AT MARCH 31, 1995
<TABLE>
<CAPTION>
Three Greater Greater Greater Greater
Months Four Months Than One Than Three Than Five Than Ten Greater
and Through Through Through Through Through Than
Under One Year Three Years Five Years Ten Years 20 Years 20 Years Total
--------- ---------- ----------- ----------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Investments and interest-
earning deposits (a)(b) $ 98,153 $ 48,557 $ 68,272 $ 9,873 $ 636 $ 34,919 $ -- $ 260,410
Mortgage-related securities (b) 399,437 926,296 60,034 23,068 34,013 20,944 2,610 1,466,402
Mortgage loans (c)(d):
Fixed-rate 50,183 118,616 301,737 263,857 475,000 223,715 6,015 1,439,123
Adjustable-rate 150,008 363,543 430,457 -- -- -- -- 944,008
Other loans 595,176 176,734 189,956 84,843 61,909 14,816 -- 1,123,434
---------- ---------- ---------- --------- -------- -------- ------- ---------
1,292,957 1,633,746 1,050,456 381,641 571,558 294,394 8,625 5,233,377
Rate-sensitive liabilities:
Deposits (e)(f):
Checkings 115,810 25,982 64,867 50,633 79,203 71,204 39,109 446,808
MMDA 87,117 35,125 80,711 41,969 35,464 9,003 1,000 290,389
Savings (passbook) 292,083 205,024 76,021 54,735 78,818 50,162 11,767 768,610
Certificates of Deposit 588,496 1,322,183 780,512 207,655 26,381 -- -- 2,925,227
Borrowings (g) 569,930 25,345 26,420 59,585 4,226 -- 2,720 688,226
---------- ---------- ---------- ---------- -------- -------- -------- ---------
1,653,436 1,613,659 1,028,531 414,577 224,092 130,369 54,596 5,119,260
---------- ---------- ---------- ---------- -------- -------- -------- ---------
GAP (repricing difference) $ (360,479) $ 20,087 $ 21,925 $ (32,936) $347,466 $164,025 $ (45,971) $ 114,117
========== ========== ========== ========== ======== ======== ======== =========
Cumulative GAP $ (360,479) $ (340,392) $ (318,467) $ (351,403) $ (3,937) $160,088 $ 114,117
========== ========== ========== ========== ======== ======== ========
Cumulative GAP/Total assets (6.55)% (6.19)% (5.79)% (6.39)% (0.07)% 2.91% 2.07%
========== ========== ========== ========== ======== ======== ========
<FN>
(a) Investments are adjusted to include FHLB stock and other items totaling
$34.9 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 gain or loss 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 FFC's historical experience as modified for current market
conditions.
(d) Includes loans held for sale.
(e) Deposits include $33.7 million of tax and insurance accounts and exclude
accrued interest on deposits of $5.8 million.
(f) FFC has assumed that its passbook savings, NOW accounts and money market
deposit accounts would have projected annual withdrawal rates, based upon
FFC's historical experience, of 26%, 34% and 42%, respectively.
(g) Collateralized mortgage obligations totaling $3.4 million are included in
the "Greater Than Five Through Ten Years" category.
</TABLE>
-23-
<PAGE>
COMPARISON OF THE
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994
Selected Income Statement Information:
Net income of $10.8 million for the first quarter of 1995 represents a
decrease of $2.7 million from the $13.5 million reported for the same period in
1994. The decrease in net income was directly related to acquisition costs
incurred relative to the FirstRock acquisition. The acquisition costs aggregated
$6.5 million on a pre-tax basis and $4.0 million on an after-tax basis, or $0.14
per share. The annualized returns on average assets and average equity for the
first quarter of 1995, excluding acquisition costs, were 1.08% and 17.79%,
respectively, as compared to 1.02% and 18.17%, respectively, for the 1994
period. Fully diluted earnings per share decreased to $0.36 per share for the
1995 quarter as compared to the restated $0.45 per share reported for the first
quarter of 1994. Excluding acquisition costs, fully diluted earnings per share
would have been $0.50 per share for 1995.
Net Interest Income:
Net interest income increased $3.9 million to $46.2 million during the
first quarter of 1995 from $42.3 million for the first quarter of 1994. The net
interest margin of 3.46% for the first quarter of 1995 was up from the 3.33%
reported for the first quarter of 1994. Interest income and interest expense
increased $11.6 million and $7.8 million, respectively, for the first quarter of
1995 as compared to 1994. The average balances of interest-earning assets and
interest-bearing liabilities increased from $5.012 billion and $4.856 billion,
respectively, in 1994 to $5.243 billion and $5.084 billion, respectively, in
1995. The 1995 increases in average balances are primarily due to the asset
growth funded via FHLB advances. The increase in average interest-earning
assets, as well as the improved earningasset ratio noted above, was complemented
by a slightly greater increase in the average yield of interest-earning assets
(7.29% in 1994 versus 7.84% in 1995) than in the average cost on
interest-bearing liabilities (4.08% in 1994 versus 4.51% in 1995).
Interest Spread:
The following table sets forth the weighted average yield earned on
FFC's interest-earning assets, the weighted average interest rate paid on
deposits and borrowings, the net spread between yield earned and rates paid and
the net interest margin during the three months ended March 31, 1995 and 1994. A
comparison of similar data as of March 31, 1995 and 1994 is also shown.
-24-
<PAGE>
<TABLE>
<CAPTION>
For the
Three Months Ended At
March, 31, March 31,
-----------------------------------------
1995 1994 1995 1994
----- ----- ------ ------
<S> <C> <C> <C> <C>
Weighted average yield on
interest-earning assets 7.84% 7.29% 7.89% 7.32%
Weighted average rate paid
on deposit accounts and
borrowings 4.51 4.08 4.69 4.10
----- ----- ----- -----
Interest spread 3.33% 3.21% 3.20% 3.22%
===== ===== ===== =====
Net interest margin (net
interest income divided
by earning assets) 3.46% 3.33% 3.32% 3.31%
===== ===== ===== =====
</TABLE>
The interest spread increased to 3.33% for the three months ended March
31, 1995 from 3.21% for the same period in 1994 due to the factors noted above.
The interest margin was 3.46% for the three month period ended March 31, 1995 as
compared to 3.33% for the first quarter of 1994. The interest spread and the net
interest margin were 3.20% and 3.32%, respectively, at March 31, 1995 as
compared to 3.22% and 3.31%, respectively, at March 31, 1994.
Provisions For Losses on Loans:
Provisions for loan losses increased $600,000 for the first quarter of
1995 as compared to the 1994 period. The 1995 increase in provisions for loan
losses reflects the higher three-month 1995 charge-off experience due to the
unusually high residential mortgage loan recoveries during the first quarter of
1994.
The following table summarizes FFC's net charge-off experience by
category for the three months ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------------
1995 1994
------------ ----------
Net Net
Charge-offs Charge-offs
(Recoveries) (Recoveries)
--------------------------------
Loan Type (Dollars in thousands)
<S> <C> <C>
Credit cards $1,411 $1,427
Manufactured housing 380 369
Residential real estate 193 (294)
Consumer and other 52 44
Commercial business 136 --
------ ------
$2,172 $1,546
====== ======
Net charge-offs as a
percent of average loans
outstanding (annualized) 0.25% 0.19%
====== ======
</TABLE>
The OTS and the FDIC, as an integral part of their supervisory
examination process, periodically review FF Bank's allowances for losses. These
agencies may require FF Bank to recognize additions to the allowances based upon
their judgment of information available to them at the time of their
examination. A regularly scheduled supervisory examination was completed in late
1994 and no material corrective actions were required.
-25-
<PAGE>
Management of FFC and FF Bank believe that the current level of
provisions for losses are sufficient based upon its allowance criteria. See
"Allowances for Loan Losses" for further discussion.
Non-Interest Income:
Non-interest income decreased $1.3 million during the first quarter of
1995 as compared to the same period in 1994 primarily due to decreases of $1.3
million and $900,000, respectively, in gains on sales of loans and
available-for-sale securities. Deposit fee income increased $200,000 in 1995.
Insurance and brokerage sales commissions increased $100,000 as FFC's insurance
agency subsidiary continues to perform well. The $900,000 decrease in gain on
sales of available-for-sale securities in 1995 relates to the 1994 sales of
securities as FFC acted to protect the value of the available-for-sale portfolio
as interest rates rose during 1994. Gains realized from the sale of loans
decreased $1.3 million in 1995 due to i) a lower level of gains on secondary
mortgage market sales in 1995 as 1994 included residual sales of loans
originated at the end of the 1993 refinancing boom and ii) a $472,000 gain
realized in 1994 upon the sale of consumer loans previously held by a now
dissolved consumer finance company subsidiary of NorthLand. FFC sells long-term,
fixed-rate mortgage loans in the normal course of interest-rate risk management.
Gains or losses realized from the sale of loans held for sale can fluctuate
significantly from period to period depending upon the volatility of interest
rates and the volume of loan originations. Thus, results of sales in any one
period may not be indicative of future results.
Non-Interest Expense:
Non-interest expenses increased approximately $6.2 million for the
quarter ended March 31, 1995 as compared to the same period in 1994, primarily
due to acquisition costs and charges, totaling $6.5 million, incurred relative
to the FirstRock acquisition. The acquisition costs include i)
transaction-related costs, including investment banker fees, attorneys fees and
accounting fees, ii) payments relating to employment/change-in-control
agreements upon termination of senior officers, iii) retention bonuses and
severance payments made to other FirstRock employees, iv) writedowns of assets
not needed by FFC in the conduct of FirstRock's business following the
acquisition, and v) other writeoffs/accruals relating to those contracts and
business practices of FirstRock not having future value to FFC.
Non-interest expenses decreased as a percentage of average assets to
2.23% for the first quarter of 1995 as compared to 2.34% for the same period in
1994. The improvement in this ratio is reflective of i) the growth in FFC's
assets, ii) the effectiveness of the consolidation of operations after the
NorthLand acquisition in 1994, iii) decreases in writedowns on foreclosed
commercial real estate and iv) ongoing expense control measures.
Controllable non-interest expenses, which exclude the amortization of
intangible assets and the net cost of operations of foreclosed properties,
decreased to 2.13% of average assets for the three months ended March 31, 1995
as compared to 2.21% for the same period in 1994. In addition, FFC's efficiency
ratio (which represents the ratio of controllable expenses to net interest
income plus recurring non-interest income) improved to 51.78% for the three
months ended March 31, 1995, respectively, as compared to 55.72% for the 1994
period.
-26-
<PAGE>
Management of FFC anticipates that, subsequent to the end of the first
quarter, significant cost savings will be realized through the recently
completed consolidation of operations (including data processing, customer
servicing and administrative office functions) following the FirstRock
acquisition.
The Federal Deposit Insurance Corporation (FDIC) has proposed to lower
deposit insurance assessments for financial institutions insured by the Bank
Insurance Fund (BIF) of the FDIC from the current maximum of 23 basis points per
$100 of deposits to as low as 4 basis points per $100 of deposits. At the
current time, no similar decrease has been proposed for those institutions
insured by the Savings Association Insurance Fund (SAIF) of the FDIC. FF Bank's
deposits are insured by the SAIF. This potential disparity could place
SAIF-insured institutions, such as FF Bank, at a competitive disadvantage with
BIF-insured institutions.
In this regard, FFC recently has filed an application with the Wisconsin
Commissioner of Savings and Loans to organize a de novo stock savings bank,
First Financial Savings Bank, SSB ("FFSB"). Applications also were filed with
the OTS and FDIC to obtain necessary regulatory approvals and federal deposit
insurance for FFSB. It is expected that the savings accounts of FFSB will be
insured by the BIF. FFSB is being organized to take advantage of the proposed
lower insurance of accounts assessments for BIF-insured institutions compared to
SAIF-insured institutions. All of the referenced applications are pending. It is
possible that the federal government will provide a legislative or
administrative solution to the BIF-SAIF deposit insurance assessment disparity
in the near future. Such an action could make unnecessary the need for operating
the BIF-insured FFSB.
Income Taxes:
Income tax expense decreased $1.8 million for the first quarter of 1995
as compared to the first quarter of 1994 primarily as a result of tax credits
relating to the costs of restructuring FirstRock's operations. The effective
income tax rate, as a percent of pre-tax income, decreased slightly from 38.0%
for the first quarter of 1994 to 37.5% in 1995.
-27-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a. On February 28, 1995, FFC held a Special Meeting of Shareholders
(the "Special Meeting").
b. Not applicable.
c. Set forth below is a description of the matters voted upon at
the Special Meeting. The number of votes cast for, or withheld
and abstentions follows:
1. Approval of the issuance of up to 5,500,000 shares of FFC
Common Stock in connection with the acquisition of
FirstRock by FFC if such issuance constitutes 20% or more
of the then outstanding shares of FFC Common Stock.
For 15,948,072
Against 542,448
Abstain 132,301
Broker Non-Vote 208,441
2. Approval of adjournment of the Special Meeting if necessary
to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the Special
Meeting to approve the issuance of up to 5,500,000 shares
of FFC Common Stock; and to transact such other business as
may properly come before the Special Meeting, or any
adjournments thereof.
For 14,831,140
Against 1,672,735
Abstain 327,387
Broker Non-Vote --
d. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
Exhibit 11 - Computation of Earnings Per Share.
Exhibit 27 - Financial Data Schedules
b. Reports on Form 8-K - On March 7, 1995, the Registrant filed a
current report on Form 8-K with the Securities and Exchange
Commission announcing that FFC had completed the acquisition of
FirstRock. See Note B to the unaudited consolidated financial
statements for further details.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL CORPORATION
Date: May 12, 1995 /s/ John C. Seramur
--------------------
John C. Seramur, President
(Chief Executive Officer) and Director
Date: May 12, 1995 /s/ Thomas H. Neuschaefer
--------------------------
Thomas H. Neuschaefer
Vice President, Treasurer and Chief
Financial Officer
-29-
<PAGE>
EXHIBIT 11
FIRST FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
For The
Three Months Ended
March 31,
---------------------
1995 1994
------ -----
(In thousands, except
per share data)
PRIMARY EARNINGS PER SHARE
Net income $10,827 $13,481
======= =======
Shares:
Weighted average common shares
outstanding 29,188 28,826
Shares from assumed exercise of options
(as determined by the treasury stock
method) 774 963
------- -------
Common and common equivalent shares 29,962 29,789
======= =======
Primary Earnings Per Common Share $ .36 $ .45
======= =======
FULLY DILUTED EARNINGS PER SHARE
Net income $10,827 $13,481
======= =======
Shares:
Weighted average common shares
outstanding 29,188 28,826
Shares from assumed exercise of options
(as determined by the treasury stock
method) 790 973
------- -------
Common and common equivalent shares 29,978 29,799
======= =======
Fully Diluted Earnings Per Common Share $ .36 $ .45
======= =======
-30-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1994
<PERIOD-END> MAR-31-1995 DEC-31-1994 SEP-30-1994
<CASH> 98,148 94,064 84,151
<INT-BEARING-DEPOSITS> 7,646 1,024 3,337
<FED-FUNDS-SOLD> 10,035 23,890 23,852
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 262,788 270,332 287,025
<INVESTMENTS-CARRYING> 1,411,424 1,430,419 1,468,097
<INVESTMENTS-MARKET> 1,387,754 1,388,189 1,432,699
<LOANS> 3,495,843 3,458,711 3,363,553
<ALLOWANCE> 25,149 25,180 25,833
<TOTAL-ASSETS> 5,502,425 5,501,824 5,459,154
<DEPOSITS> 4,403,121 4,381,455 4,415,100
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 71,611 84,615 99,830
<LONG-TERM> 688,226 708,446 629,719
<COMMON> 29,251 29,126 28,972
0 0 0
0 0 0
<OTHER-SE> 310,216 298,182 285,533
<TOTAL-LIABILITIES-AND-EQUITY> 5,502,425 5,501,824 5,459,154
<INTEREST-LOAN> 73,882 277,669 205,651
<INTEREST-INVEST> 28,920 104,195 76,233
<INTEREST-OTHER> 0 0 0
<INTEREST-TOTAL> 102,802 381,864 281,884
<INTEREST-DEPOSIT> 45,167 174,819 130,128
<INTEREST-EXPENSE> 56,604 204,222 150,116
<INTEREST-INCOME-NET> 46,198 177,642 131,768
<LOAN-LOSSES> 2,119 6,824 5,093
<SECURITIES-GAINS> 11 (7,896) (7,896)
<EXPENSE-OTHER> 36,998 120,367 90,518
<INCOME-PRETAX> 17,334 83,745 59,062
<INCOME-PRE-EXTRAORDINARY> 10,827 53,029 37,213
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 10,827 53,029 37,213
<EPS-PRIMARY> .36 1.78 1.25
<EPS-DILUTED> .36 1.77 1.24
<YIELD-ACTUAL> 3.33 3.33 3.31
<LOANS-NON> 10,264 10,564 10,288
<LOANS-PAST> 0 0 0
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 9,316 10,587 12,173
<ALLOWANCE-OPEN> 25,180 25,905 25,905
<CHARGE-OFFS> 2,538 9,775 7,175
<RECOVERIES> 388 1,507 1,194
<ALLOWANCE-CLOSE> 25,149 25,180 25,833
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 25,149 25,180 25,833
<PAGE>
</TABLE>
