<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, 1994
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. [ ]
Based upon the closing price of the registrant's common stock as of
March 24, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant is: $397,515,101.
As of March 24, 1995, 29,224,165 shares of the registrant's common
stock were outstanding.
Documents Incorporated by Reference.
Part II:
Portions of First Financial Corporation's 1994 Annual Report to
Shareholders.
Part III:
Portions of definitive proxy statement for the 1995 Annual Meeting of
Shareholders.
<PAGE>
PART I
ITEM 1. BUSINESS
FIRST FINANCIAL CORPORATION
First Financial Corporation ("FFC"), which was formed in 1984, conducts
business as a unitary savings and loan holding company. As a Wisconsin
corporation, FFC is authorized to engage in any activity permitted by the
Wisconsin Business Corporation Law.
The principal asset of FFC is all of the outstanding stock of First
Financial Bank, FSB, ("FF Bank" or the "Bank"). The business of FFC is the
business of the Bank. Other activities of FFC could be funded by dividends paid
by the Bank, borrowings or the issuance of additional shares of capital stock.
FFC is headquartered at 1305 Main Street, Stevens Point, Wisconsin, 54481,
telephone number is (715) 341-0400.
FIRST FINANCIAL BANK, F.S.B.
FF Bank 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"). As of
February 28, 1995 business is conducted in both Wisconsin and Illinois through
130 full-service branch offices and one limited loan origination office. Based
on total assets of $5.1 billion at December 31, 1994, FF Bank is the largest
thrift institution headquartered in Wisconsin. The principal mortgage lending
area of FF Bank is Wisconsin and Illinois. In addition to real estate loans, FF
Bank originates a significant volume of consumer loans, credit card loans and
student loans. FF Bank has a limited volume of commercial business lending
arising from a 1994 business combination. 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. Nearly all long-term fixed-rate real estate mortgage loans generated
are sold in the secondary market and to other financial institutions with FF
Bank retaining the servicing of those loans. FF Bank offers brokerage services
and also operates a full-line independent insurance agency and a real estate
appraisal company.
FF Bank has grown significantly through mergers and acquisitions since
its stock conversion in 1980, when FF Bank had total assets of $244 million and
14 branch offices in central Wisconsin. In 1984, FF Bank and First State Savings
of Wisconsin ("First State"), concurrently with First State's stock conversion,
combined to form FFC, which operated as a multiple savings and loan holding
company from 1984 until late 1985 when FFC acquired First Savings Association of
Wisconsin ("First Savings"). At that time, all three institutions were merged
together. In 1988, FF Bank acquired National Savings and Loan Association
("National") of Milwaukee, Wisconsin through a merger conversion. By the end of
1988, FF Bank's total assets had grown to $2.3 billion and FF Bank operated 63
full-service banking offices throughout Wisconsin.
Beginning in 1990, FF Bank 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, FF Bank acquired two western-Wisconsin
area branch banking offices from the RTC. During 1992, FF Bank 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, FF Bank
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").
<PAGE>
In 1994, FFC and FF Bank acquired NorthLand Bank of Wisconsin, SSB
("NorthLand") of Ashland, Wisconsin through an exchange of stock. Also, in 1994
FFC merged First Financial - Port Savings Bank, FSB ("Port") of Port Washington,
Wisconsin, which had been acquired by FFC in 1989 and had operated under a
separate charter since that time, into FF Bank.
While pursuing its strategy of expansion by acquisition in Wisconsin
and Illinois, management of FF Bank has also curtailed certain lending
activities outside of the Midwest in recent years. In 1988, FF Bank liquidated
the West Coast mortgage banking operation which FF Bank had acquired as part of
the acquisition of First Savings. This operation had incurred continuing
operating losses. Also in 1988, FF Bank sold a portion of its credit card loan
portfolio, consisting of loans concentrated in California, Texas, and the
Northeastern states. FF Bank's credit card lending activities are now focused
primarily on Wisconsin, Illinois and other Midwestern states. During 1989, FF
Bank also curtailed manufactured housing lending outside of the Midwest. In
1994, FF Bank exited the manufactured housing lending business altogether due to
competitive practices in the marketplace.
FF Bank is a member of the Federal Home Loan ("FHL") Bank System. FF
Bank 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".
RECENT DEVELOPMENT
On February 28, 1995, FFC acquired FirstRock Bancorp, Inc.
("FirstRock") of Rockford, Illinois through a merger of FirstRock and a
subsidiary of FFC formed to facilitate the acquisition. Approximately 4,366,000
shares of FFC common stock were issued for 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 only 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 has been accounted for as a pooling-of-interests. As of December 31,
1994, FirstRock had total assets and shareholders' equity of $398.1 million and
$49.4 million, respectively.
<PAGE>
FINANCIAL RATIOS
Year Ended December 31,
-----------------------------
1994 1993 1992*
---- ---- -----
Return on average assets .97% .98% .79%
Return on average equity 18.59 21.23 15.78
Average equity to average assets 5.22 4.62 4.99
Dividend payout ratio 20.94 18.62 17.93
Net interest margin:
During the period 3.43 3.41 3.35
At end of period 3.34 3.36 3.32
* Ratios for 1992 are based upon net income from continuing operations.
MARKET AREA AND COMPETITION
At December 31, 1994, FF Bank conducted business from 124 full-service
branch banking offices located in 59 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 MSAs, Illinois' largest
outside of Chicago.
The counties in Wisconsin and Illinois in which FF Bank has offices had
a total population of 5.0 million in 1990. 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 $30,449 according to the 1990 Census,
compared to $31,402 for the two- state area. It increased 63.2% 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 FF Bank's market include
Briggs & Stratton, A.O. Smith, General Electric Medical Systems, Allen Bradley,
Miller Brewing, Johnson Controls and Caterpillar.
FF Bank also does business outside of Wisconsin and Illinois. At
December 31, 1994, outstanding credit card accounts of FF Bank were distributed
approximately 46% to Wisconsin residents, 12% to Illinois, 4% to Texas, 3% to
California, 3% to Michigan, 2% to New York, 2% to Ohio and 28% to other states.
Consumer and student loans are made principally to Wisconsin, Illinois and other
Midwestern residents.
FF Bank is 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. Consumer loan competition comes principally 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.
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present selected historical consolidated financial
information of FFC.
<TABLE>
<CAPTION>
December 31,
1994 (e) 1993(f)(i) 1992(g) 1991 1990 (h)
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Financial Condition and Other Data
Total assets........................................... $5,103,706 $4,773,783 $3,908,286 $3,220,002 $3,142,293
Investments (a)........................................ 160,089 275,696 163,800 104,022 186,139
Loans receivable and mortgage-related securities....... 4,674,586 4,247,447 3,457,466 2,847,175 2,685,162
Loans held for sale-net................................ 6,078 73,919 54,840 38,061 53,103
Intangible assets...................................... 26,726 31,392 23,278 20,388 23,178
Deposits............................................... 4,064,166 4,050,520 3,206,112 2,935,645 2,883,214
Borrowings............................................. 682,063 438,598 461,948 77,243 60,351
Shareholders' equity (substantially restricted)(b)..... 277,955 233,835 194,095 164,535 149,576
Number of full-service offices......................... 124 117 94 86 86
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 (e) 1993 (f) 1992 (g) 1991 1990 (h)
---------- ---------- ---------- --------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data
Interest income........................................ $ 356,143 $ 340,123 $ 296,871 $ 300,081 $ 292,141
Interest expense....................................... (192,530) 189,734 181,896 203,749 204,748
--------- -------- -------- -------- --------
Net interest income.................................... 163,613 150,389 114,975 96,332 87,393
Provision for losses on loans.......................... (6,540) (10,219) (13,851) (18,333) (16,044)
Unrealized loss on impairment of mortgage-related
securities............................................ (9,000) -- -- -- --
Loan fees and servicing income......................... 14,111 14,112 12,961 15,143 15,884
Gain on sale of loans and securities................... 3,226 7,575 4,900 5,560 1,503
Other non-interest income.............................. 17,464 16,034 14,348 13,628 13,996
Non-interest expense................................... (106,740) (105,804) (88,711) (81,395) (76,840)
--------- -------- -------- -------- --------
Income before income taxes and the cumulative effect
of a change in accounting principle................... 76,134 72,087 44,622 30,935 25,892
Income taxes........................................... 27,809 26,872 16,190 12,409 9,870
--------- -------- -------- -------- --------
Income before the cumulative effect of a change in
accounting principle.................................. 48,325 45,215 28,432 18,526 16,022
Cumulative effect of a change in accounting
principle (c)....................................... -- -- 5,600 -- --
--------- -------- -------- -------- --------
Net income............................................. $ 48,325 $ 45,215 $ 34,032 $ 18,526 $ 16,022
========= ======== ======== ======== ========
Earnings per share (c):
Primary:
Income before the cumulative effect of a change in
accounting principle (d) ........................ $ 1.91 $ 1.88 $ 1.21 $ .80 $ .70
Net income......................................... 1.91 1.88 1.45 .80 .70
Fully diluted:
Income before extraordinary items and the
cumulative effect of a change in accounting
principle (d).................................... $ 1.91 $ 1.86 $ 1.19 $ .79 $ .70
Net income......................................... 1.91 1.86 1.43 .79 .70
Cash dividends declared and paid per share (c)......... $ .40 $ .35 $ .22 $ .16 $ .16
</TABLE>
<PAGE>
(a) Consists of federal funds sold, interest-earning deposits, and
investment securities.
(b) See Note L to FFC's consolidated financial statements.
(c) Per share data have been adjusted to reflect A) a two-for-one stock
split distributed in March 1993 and B) a two-for-one stock split
distributed in April 1992. See Note A to FFC's consolidated financial
statements.
(d) 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 FFC's consolidated
financial statements.
(e) In 1994, FFC completed the acquisition of NorthLand. The acquisition
of NorthLand has been accounted for as a pooling-of-interests. Since
NorthLand was not material to the balance sheet or operating results
of FFC, balances for prior years have not been restated. However, 1994
amounts have been adjusted to reflect the acquisition as if it had
occurred on January 1, 1994.
(f) In 1993, FF Bank 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 FFC's consolidated
financial statements since the respective dates of acquisition. See
Note B to FFC's consolidated financial statements.
(g) During the first quarter of 1992, FF Bank completed the assumption of
deposits and the purchase of branch facilities of ten Peoria,
Illinois-area branches including eight from Talman and two from the
RTC. Each of these transactions was accounted for as a purchase. See
Note B to FFC's consolidated financial statements.
(h) FFC 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 FFC's
consolidated financial statements since the respective dates of
acquisition.
(i) 1993 data has been restated to reflect the transfer of certain
securities to the available-for-sale portfolio as of the end of 1993.
See Note D to FFC's consolidated financial statements.
<PAGE>
Lending Activities, Including Mortgage-Related Securities
General. FF Bank has traditionally concentrated on origination of
conventional mortgage loans secured by first liens on one- to four-family
residences. FF Bank also makes loans which are insured by the Federal Housing
Authority ("FHA"), Farmers Home Administration ("FmHA"), and the Rural Economic
Development Community ("REDC"), or partially guaranteed by the Veterans
Administration ("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, 1994, FFC's total loan
portfolio, including mortgage-related securities, amounted to $4.74 billion,
including mortgage loans totaling $2.22 billion of which $1.91 billion, or 40.3%
of the total loan portfolio, before net items, were loans secured by one- to
four-family residences. In addition, FF Bank makes 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, FF Bank has 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 and consumer loans. At December 31,
1994, these loans amounted to $1.06 billion, or 22.3%, before net items, of the
total loan portfolio. Fixed-rate mortgage loans with terms up to 15 years and
loans with adjustable interest rates are originated for FF Bank' own portfolio,
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 FF
Bank. 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.
FF Bank also periodically purchases mortgage-related securities as a lending
alternative when excess liquidity is available. At December 31, 1994, these
securities amounted to $1.46 billion, or 30.7% of the total loan portfolio,
before net items. For further discussion of the mortgage-related securities
portfolio, see "Mortgage-Related Securities" below as well as Notes A and D to
FFC's consolidated financial statements, filed as an exhibit hereto.
<PAGE>
Loan Portfolio Composition. The following table sets forth information
concerning the composition of FFC'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 FFC's consolidated financial statements. The data presented in this
table include the accounts of FFC and FF Bank for all periods, and the balances
of interest-sensitive assets and liabilities arising from the 1990, 1992, 1993
and 1994 acquisitions are included from the respective dates of the related
transactions.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
--------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
--------- -------- --------- ------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Conventional loans:
One- to four-family................. $1,878,202 39.7% $1,766,519 41.1% $1,230,914 34.5%
Multi-family........................ 191,807 4.0 183,619 4.3 155,798 4.4
FHA and VA.......................... 32,300 .7 36,410 .8 43,708 1.2
Commercial and other real estate...... 122,089 2.6 94,789 2.2 101,865 2.9
---------- ----- ---------- ----- ---------- -----
Total real estate mortgage loans....... 2,224,398 47.0 2,081,337 48.4 1,532,285 43.0
---------- ----- ---------- ----- ---------- -----
Other loans:
Credit card loans..................... 200,747 4.2 209,414 4.9 178,436 5.0
Home equity loans..................... 234,354 5.0 193,291 4.5 162,283 4.6
Education loans....................... 190,457 4.0 167,385 3.9 163,261 4.6
Manufactured housing loans............ 152,674 3.2 165,017 3.8 133,195 3.7
Consumer loans........................ 259,885 5.5 153,574 3.6 89,028 2.5
Other loans........................... 19,023 .4 111 -- 3,298 .1
---------- ----- ---------- ----- ---------- -----
Total other loans...................... 1,057,140 22.3 888,792 20.7 729,501 20.5
---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items........................... 3,281,538 69.3 2,970,129 69.1 2,261,786 63.5
Mortgage-related securities............ 1,455,301 30.7 1,324,943 30.9 1,301,589 36.5
---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities.................... $4,736,839 100.0% $4,295,072 100.0% $3,563,375 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
<PAGE>
================================================================================
TABLE CONTINUED FROM THE PREVIOUS PAGE
<TABLE>
<CAPTION>
December 31,
1991 1990
---------------------- ----------------------
Amount Percent Amount Percent
------- -------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Conventional loans:
One- to four-family................. $1,084,541 37.0% $1,245,965 44.7%
Multi-family........................ 133,965 4.6 133,485 4.8
FHA and VA.......................... 53,299 1.8 59,286 2.1
Commercial and other real estate...... 100,915 3.4 111,569 4.0
--------- ----- ---------- -----
Total real estate mortgage loans....... 1,372,720 46.8 1,550,305 55.6
---------- ----- ---------- -----
Other loans:
Credit card loans..................... 160,712 5.5 152,320 5.5
Home equity loans..................... 141,285 4.8 113,426 4.0
Education loans....................... 158,664 5.4 144,054 5.2
Manufactured housing loans............ 140,384 4.8 155,466 5.6
Consumer loans........................ 64,578 2.2 99,514 3.6
Other loans........................... 4,831 .1 5,166 .1
---------- ----- ---------- -----
Total other loans...................... 670,454 22.8 669,946 24.0
---------- ----- ---------- -----
Total loans receivable before
net items........................... 2,043,174 69.6 2,220,251 79.6
Mortgage-related securities............ 893,733 30.4 569,085 20.4
---------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities.................... $2,936,907 100.0% $2,789,336 100.0%
========== ===== ========== =====
</TABLE>
<PAGE>
A summary of FFC'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, 1994 December 31, 1993 December 31, 1992
--------------------- --------------------- -------------------
Percent Percent Percent
Balance Of Total Balance Of Total Balance Of Total
--------- ---------- --------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate:
Mortgage-related securities............. $ 1,339,382 $1,150,050 $1,140,581
Mortgage................................ 786,702 515,755 498,118
Home equity............................. 234,354 193,291 162,283
Education............................... 190,457 167,385 163,261
Consumer................................ 14,346 5,816 1,741
Other................................... 13,947 -- --
Manufactured housing.................... 4,125 5,857 7,111
----------- ---------- ----------
Total adjustable-rate............... 2,583,313 54.5% 2,038,154 47.5% 1,973,095 55.4%
Short-term*:
Credit card............................. 200,747 209,414 178,436
Consumer................................ 70,084 55,414 32,608
Mortgage................................ 34,168 230,054 158,351
Mortgage-related securities............. 29,640 -- --
Deposit account......................... 4,502 4,158 3,889
Other................................... 3,014 -- --
Manufactured housing.................... 2,869 1,443 5,761
---------- ---------- ----------
Total short-term.................... 345,024 7.3 500,483 11.6 379,045 10.6
---------- ----- ---------- ----- ---------- -----
Total adjustable-rate and
short-term........................ 2,928,337 61.8 2,538,637 59.1 2,352,140 66.0
Maturities greater than three years:
Conventional mortgage................... 1,371,205 1,299,057 831,993
Consumer................................ 170,953 88,187 50,790
Mortgage-related securities............. 86,279 174,893 161,008
FHA/VA manufactured housing............. 85,384 85,552 39,170
Manufactured housing.................... 60,296 72,165 81,153
FHA/VA mortgage......................... 32,323 36,470 43,823
Other................................... 2,062 111 3,298
---------- ---------- ----------
Total fixed-rate.................... 1,808,502 38.2 1,756,435 40.9 1,211,235 34.0
---------- ----- ---------- ----- ---------- -----
Total loan portfolio................ $4,736,839 100.0% $4,295,072 100.0% $3,563,375 100.0%
========== ===== ========== ===== ========== =====
<FN>
* Credit card and fixed-rate loans with remaining contractual life of three
years or less.
</TABLE>
As of December 31, 1994, the total amount of loans held by FF Bank
repricing or maturing after December 31, 1995 was $2.44 billion. Of these loans,
$1.81 billion have fixed rates of interest and $624.9 million have terms of
three years or less or adjustable interest rates.
The following table sets forth, at December 31, 1994, the dollar amount
of loans maturing in FF Bank's loan portfolios before net items, plus loans held
for sale and mortgage-related securities, based on either their contractual
terms to maturity or the remaining time before the loans can be repriced during
the periods indicated.
<TABLE>
<CAPTION>
1996 - 1998 - 2000 - 2005 - After
1995 1997 1999 2004 2014 2014 Total
------ ------- -------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans.................... $ 306,653 $283,629 $146,417 $458,493 $864,255 $ 98,043 $2,157,490
Construction mortgage loans................... 7,868 39,273 13,992 2,357 3,418 66,908
Mortgage-related securities................... 1,339,365 29,640 1,711 26,989 38,932 18,664 1,455,301
Credit card and home equity
loans...................................... 412,499 22,602 435,101
Other loans*.................................. 230,867 69,234 83,736 175,671 57,300 5,231 622,039
---------- -------- -------- -------- -------- -------- ----------
Total.................................. $2,297,252 $444,378 $245,856 $663,510 $963,905 $121,938 $4,736,839
========== ======== ======== ======== ======== ======== ==========
<FN>
* Includes consumer, manufactured housing, student loans and small business
loans.
</TABLE>
<PAGE>
One- to Four-Family First Mortgage Loans. The primary mortgage loan
product of FF Bank 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, FF Bank has available various other programs
including FHA-insured, VA-guaranteed, FmHA- guaranteed, and RECD-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. FF Bank
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. FF Bank, 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. FF Bank
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. FF Bank provides servicing of these loans for participants (see
"Loan Servicing").
Among the projects financed by FF Bank 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. FF Bank's commercial real estate division has emphasized
multi-family mortgage loans in recent years. 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 FF Bank, 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. FF Bank generally requires 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 FF Bank
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 FF
Bank's Board of Directors.
Lending terms for FF Bank's 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.
<PAGE>
Borrowers may experience a 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 FF Bank to provide interim financing
during the construction period for i) builder-owned residential properties and
ii) commercial properties are typically originated for periods of six to
eighteen months. These loans are generally limited to 75% of the value of the
property upon completion. Construction loans for properties intended to be
owner-occupied are typically structured as adjustable-rate permanent loans and
can be granted up to 95% of the 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. FF Bank's 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, FF Bank 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. FF Bank had construction loans outstanding of $66.9
million at December 31, 1994, of which $55.6 million was collateralized by
residential real estate.
Manufactured Housing Loans. Through a series of dealer relationships in
Wisconsin and other Midwestern states, FF Bank had indirectly originated
manufactured housing loans until late 1994. The dealers closed the loans at
their locations after forwarding all necessary documentation to FF Bank for
underwriting, processing, and credit checks in order to receive approval to
originate the loans for purchase by FF Bank. The loans were either conventional
or originated under the FHA-insured or VA-guaranteed programs throughout the
various states. The term of such loans was usually up to 15 years at fixed
interest rates. During 1994, FF Bank ceased originating such loans due to
adverse competitive practices in this market.
Consumer and Other Loans. FF Bank offers 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 to the customer
and are secured by automobiles, recreational vehicles, first or second mortgages
on real estate or deposit accounts. FF Bank provides financing on both new and
used automobiles and recreational vehicles using different rates and terms to
maturity to compensate for the difference in collateral value and credit risk.
In addition to secured consumer loans, FF Bank extends 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 FF Bank.
<PAGE>
Several student loan programs are offered by FF Bank 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, FF Bank offers a
consolidation loan plan whereby various student loans can be combined for the
convenience and benefit of the borrower.
FF Bank offers credit card programs to the general public and has also
placed additional emphasis on issuing cards through organizations whose
membership substantially meets qualifying criteria ("affinity programs").
Certain additional benefits can be linked to card usage under the affinity
programs. These affinity programs are based on the Visa/Mastercard credit card
programs which operate on a nationwide basis. In addition to the regular credit
card products, FF Bank 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 all balances and advances.
During the last decade FF Bank placed additional emphasis on its 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
primary home equity loan product 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. A fixed-rate home-equity product
is also offered. 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.
Business Loans. With the acquisition of NorthLand, FFC acquired a
business loan portfolio of approximately $23 million. FF Bank, however, is
primarily a retail lender and its strategy has been to consider business loans
only to those customers who maintain acceptable deposit balances with FF Bank.
As such, FF Bank does not aggressively market business loans and year-end loans
outstanding approximated $19.0 million.
Mortgage Related Securities. FF Bank purchases mortgage-related
securities as a lending alternative when excess liquidity is available.
Mortgage-related securities include government agency mortgage-backed
securities, privately issued adjustable rate mortgage-backed securities and
shorter-term or adjustable-rate government agency collateralized mortgage
obligations. FF Bank reviews the geographic distribution of collateral when
purchasing private issue mortgage-related securities and limits the portfolio
concentration of underlying collateral located in certain states or metropolitan
areas; however, FF Bank has not purchased any private issue mortgage-backed
securities since 1992. With the exception of three non-agency securities, all
securities in the non-agency mortgage-backed securities portfolio are, at a
minimum, of investment grade quality. The three securities rated below
investment grade, one of which continues to be performing, are discussed as part
of "Non- Performing Assets" in Management's Discussion and Analysis, filed as an
exhibit hereto. 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 i)
"Mortgage-Related Securities" in Management's Discussion and Analysis and ii)
Notes A and D to FFC's consolidated financial statements, each of which is filed
as an exhibit hereto.
<PAGE>
Loan Originations, Purchases and Sales. FF Bank's 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, FF Bank also acquires refinanced residential mortgage loans which
were previously originated by FF Bank, but sold to and serviced for other
investors. 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. Prior to late 1994, VA-guaranteed,
FHA-insured and conventional manufactured housing loans were 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. FF Bank also
periodically purchases student loan portfolios from other lenders.
Real estate loans are originated by loan officers in FF Bank's offices.
Relative to FF Bank'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 FF
Bank. Loans in excess of this amount up to $400,000 are approved by designated
officers. Individual loans in excess of $400,000 up to $1,500,000, as well as
loans to one borrower in excess of three loans or in the amount of $500,000, or
greater, 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 FF Bank, and loans in excess of $5,000,000 require approval of FF Bank'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 FF Bank'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 FF Bank or outside appraisers preapproved by
FF Bank's Board of Directors.
In general, FF Bank 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 thereof. In practice, most of FF Bank's 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 primarily to
title insurance or an attorney's title opinion in certain areas 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.
FF Bank encounters certain environmental risks in its 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 FF
Bank, 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 FF Bank lends include comments on environmental influences and
conditions. FF Bank attempts to control its 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 FF Bank's
portfolio will not be adversely affected by the presence of hazardous materials
or that future changes in federal or state laws will not increase FF Bank's
exposure to liability for environmental cleanup.
<PAGE>
The following table shows loan and mortgage-related securities
originations, purchases, sales and repayment activities of FF Bank on a
consolidated basis for 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 1993 1992
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Loans originated:
Mortgage loans:
One- to four-family......................................... $ 593,229 $1,045,795 $ 598,477
Multi-family................................................ 50,917 85,719 54,643
Commercial real estate...................................... 53,102 10,712 6,821
Refinanced residential mortgage loans
previously sold and serviced for others.................... 52 187,066 294,477
---------- ---------- ----------
697,300 1,329,292 954,418
Consumer loans................................................. 218,631 136,766 93,967
Education loans................................................ 51,828 31,885 30,115
Home equity loans - net increase............................... 41,064 31,008 19,385
Credit card loans - net increase............................... 5,124 30,978 17,724
Manufactured housing loans..................................... 16,669 23,405 17,292
Other loans.................................................... 5,874 -- --
Refinanced manufactured housing loans pre-
viously sold and serviced for others......................... 475 36,953 --
Decrease (increase) in undisbursed
loan proceeds................................................. (12,538) 8,142 322
---------- ---------- ----------
Total loans originated................................ 1,024,427 1,628,429 1,133,223
Mortgage-related securities purchased............................ 588,352 240,640 696,206
---------- ---------- ----------
Total originations and purchases...................... 1,612,779 1,869,069 1,829,429
---------- ---------- ----------
Add (deduct):
Loans and mortgage-related securities
from acquisitions (before net items).......................... 114,462 540,474 146
Market valuation adjustment:
available-for-sale mortgage-related
securities.................................................... (10,224) 1,669 --
Unrealized loss on impairment of
mortgage-related securities................................... (9,000) -- --
Loan repayments and sales:
Repayments of loans and mortgage-
related securities......................................... (795,706) (949,794) (711,259)
Sales of one- to four-family real
estate loans.................................................. (253,104) (614,664) (481,586)
Sales of multi-family and
commercial real estate loans.................................. (25,741) (25,621) (9,128)
Sales of consumer-related loans................................ (22,712) -- --
Sales of mortgage-related
securities.................................................... (181,561) (81,294) (812)
---------- ---------- ----------
Total repayments and sales............................ (1,278,824) (1,671,373) (1,202,785)
---------- ---------- ----------
Increase in total loans before net items
(excluding change in undisbursed loan
proceeds), including loans held for sale
and mortgage-related securities................................ $ 429,193 $ 739,839 $ 626,790
========== ========== ==========
</TABLE>
<PAGE>
FF Bank 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, FF Bank and its predecessors have purchased selected groups of
loans or a portfolio of loans. FF Bank 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, FF Bank
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. FF Bank, in general, has forward sales commitments
to cover the sale of all fixed-rate mortgage loans having maturities of greater
than 15 years which are closed or approved as well as a majority of accepted
applications for such loans.
Loan Servicing. FF Bank has originated the majority of the loans it
services for others. FF Bank receives 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, 1994, FF Bank was servicing $1.36 billion of mortgage and
manufactured housing loans owned by others. Mortgage loans totaling $1.32
billion were being serviced for annual fees ranging from 1/8 to 1/2 of 1% of the
unpaid principal, and $36.6 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 FF
Bank's loan servicing portfolio, net of loans in process, at the dates shown.
<TABLE>
<CAPTION>
December 31,
1994 1993
-------------------------- ------------------------
Amount % Amount %
---------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans owned by FF Bank........................... $3,250,000 70.6% $2,951,000 69.4%
Loans serviced for others........................ 1,355,000 29.4 1,302,000 30.6
---------- ----- ---------- -----
Total loans serviced....................... $4,605,000 100.0% $4,253,000 100.0%
========== ===== ========== =====
</TABLE>
Information concerning FF Bank's servicing income from loans serviced for
others is summarized in the following table for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Loan servicing income........................................... $ 5,326 $5,233 $4,395
Servicing spread for the year*.................................. .401% .401% .307%
<FN>
* 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.
</TABLE>
<PAGE>
Net loan servicing income has increased in 1994 and 1993 from the level
experienced in 1992, as a net result of A) an increase 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) a decrease in the expense
from the amortization of purchased mortgage servicing rights and capitalized
excess servicing rights totaling $500,000, $1.4 million and $3.5 million for
1994, 1993 and 1992, respectively. 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, were fully amortized at the end of
1994.
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. FF Bank is amortizing
these amounts, using the level yield method, over the contractual lives of the
related loans.
FF Bank also receives 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 FF Bank. 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 FF Bank by offering loans and securities in its portfolio to
third parties for their use as collateral. FF Bank has 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 FF Bank. Under the terms of these agreements, FF Bank i) issues
uncollateralized letters of credit or ii) maintains, 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. FF Bank continues to receive principal and interest payments on the
mortgage loans or securities used as collateral. If any of such bonds were in
default, FF Bank would have the primary obligation to either pay any amount in
default or to acquire the bonds on which the default had occurred. If FF Bank
was required to perform under these agreements, it would foreclose on the
existing mortgage and security interest in the real and personal property
financed with the proceeds of the bonds. FF Bank has discontinued this line of
business and does not currently anticipate entering into any new agreements,
except for the purpose of facilitating the refinancing of existing bond issues.
At December 31, 1994, certain mortgage-related securities and investment
securities with a carrying value of approximately $6.5 million were pledged as
collateral for bonds in the aggregate 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. The bond agreements have expiration dates through
2008.
At December 31, 1994, 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.
<PAGE>
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 FF Bank 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, 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
FF Bank prior to its conversion to a federal savings bank charter may be subject
to the above provisions.
<PAGE>
Other states in which FF Bank makes loans have varying laws concerning
usury. Management believes that all loans made by FF Bank 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 FF Bank follow a form
which provides for a six-month equity of redemption. Unless the equity of
redemption is exercised, FF Bank generally acquires title to the property
pursuant to public bidding at a sheriff's sale. Thereafter, FF Bank attempts 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 FF Bank's 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 within 15 days 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 effected 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 FF Bank 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 FF Bank.
<PAGE>
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 FF Bank 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. FF Bank monitors the delinquency status of its loan
portfolio on a regular basis and initiates 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 loan is 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, 1994 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:
Balance At December 31,
1994 1993
------ -----
(In thousands)
30 - 59 Days Delinquent
Residential real estate loans $ 5,444 $ 5,844
Manufactured housing loans 2,886 2,999
Credit card loans 1,964 1,988
Commercial real estate loans 121 3,798
Consumer, student and other loans 6,997 4,493
------- --------
$17,412 $ 19,122
======= ========
60 - 90 Days Delinquent
Residential real estate loans $ 1,341 $ 1,111
Manufactured housing loans 974 1,035
Credit card loans 883 904
Commercial real estate loans 1,696 707
Consumer, student and other loans 5,816 4,287
------- --------
$10,710 $ 8,044
======= ========
Total 30 - 90 Day Delinquent Loans
Residential real estate loans $ 6,785 $ 6,955
Manufactured housing loans 3,860 4,034
Credit card loans 2,847 2,892
Commercial real estate loans 1,817 4,505
Consumer, student and other loans 12,813 8,780
------- --------
$28,122 $ 27,166
======= ========
At December 31, 1994, the 30-90 day delinquencies increased
approximately $900,000 to $28.1 million from $27.2 million at year-end 1993. As
a percent of total loans receivable, loan delinquencies decreased from 0.93% at
the end of 1993 to 0.87% at December 31, 1994 due to the greater size of the
loan portfolio at the later date resulting from the NorthLand acquisition. The
$900,000 increase, at December 31, 1994, relates to i) an increase of $3.3
million in delinquent student loans (which are government guaranteed) delinquent
30-90 days, ii) an increase of $500,000 of delinquent commercial business loans
acquired in the NorthLand acquisition, iii) the $2.7 million net reduction in
the 30-90 day delinquency categories for commercial real estate loans returning
to satisfactory contractual performance during 1994, and iv) a decrease of
$200,000 in other categories of loans delinquent 30-90 days.
<PAGE>
All of these delinquent loans have been considered by management in its
evaluation of the adequacy of the allowances for loan losses.
Foreclosed Properties and Real Estate Investments Held For Sale.
Non-performing assets of $29.7 million and $15.1 million at December 31, 1994
and 1993, 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 real estate investments
held for sale included in the non-performing assets at December 31, 1994 and
1993 are comprised of large (having a carrying value in excess of $1.0 million)
commercial real estate properties. A list of the properties referred to in that
discussion is presented below.
Carrying Value At December 31,
Property Type Location 1994 1993
- ------------- -------- ------ -----
(In thousands)
Retail Milwaukee, Wisconsin $ 1,089 $1,089
Office Madison, Wisconsin -- 1,500
The office building in Madison, Wisconsin was sold in a cash
transaction during 1994.
The retail property in Milwaukee, Wisconsin had previously been developed
and owned by a wholly-owned subsidiary of FF Bank. The subsidiary carried the
property as real estate held for investment prior to foreclosure in 1994 by FF
Bank. At December 31, 1994 the property was transferred to FFC and is now
classified as a real estate investment held for sale. The 84% occupancy level at
December 31, 1994 is a slight improvement over the previous year and efforts to
lease additional space will continue to be management's primary focus in 1995
for this property. At December 31, 1994, the estimated fair value of this
property was $1.1 million. 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.
Foreclosed properties are valued at the lower of cost or fair value.
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, 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 regulators.
<PAGE>
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 FF Bank has obtained title.
<PAGE>
Classified assets, including non-performing assets, for FF Bank and FFC,
are set forth in the following table, as of December 31, 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
December 31,
1994 1993
-------- ------
(In thousands)
<S> <C> <C>
Classified assets:
Non-performing assets:
Non-accrual loans $ 9,121 $ 8,240
Non-accrual MBSs 15,455 --
Real estate held for sale by FFC 1,089 --
Foreclosed properties and other
repossessed assets 4,056 6,817
-------- --------
Total Non-Performing Assets 29,721 15,057
Add back valuation allowances netted against
foreclosed properties above 1,146 1,386
Adjustment for non-performing residential loans
not classified due to low loan-to-
appraisal value (414) (707)
Adjustment for real estate held for sale
not included in FFB classified assets (1,089) --
Additional classified performing loans:
Residential real estate 1,858 1,919
Commercial real estate 8,057 9,747
Consumer (including manufactured housing
and credit cards) 451 241
Commercial business 219 --
Other assets 135 757
-------- --------
Total Classified Assets $ 40,084 $ 28,400
======== ========
</TABLE>
During the year ended December 31, 1994, classified assets increased
$11.7 million to $40.1 million from the December 31, 1993 total of $28.4 million
as a result of the net effect of various 1994 events. As a percentage of total
assets, classified assets increased from 0.59% at December 31, 1993 to 0.79% at
December 31, 1994.
The non-performing asset segment of classified assets similarly
increased $13.5 million during 1994. 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 had been adversely
classified due to the possible adverse effects of identifiable future events
decreased $1.7 million in 1994. This decrease is due to the net effect of i) the
removal from classified asset status of four contractually performing loans
totaling $2.2 million which had previously been classified due to cash flow
problems which have been resolved, ii) principal payments received on performing
loans and offset by iii) the inclusion in this category of a $500,000 loan,
which financed the 1994 sale of an office building foreclosure property, pending
future contractual performance by the borrower and improved property operations.
At December 31, 1994, exclusive of non-performing assets, the major
concentration of classified assets consists of the approximately $8.1 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):
<PAGE>
<TABLE>
<CAPTION>
Loan Amount Classified
Property Type Of Property December 31, December 31,
Loan Collateral Location 1994 1993
- ---------------- ---------------- ------------ --------
<S> <C> <C> <C>
Office/Land Sheboygan, Wisconsin $ 3,633 $ 3,670
Motels Various-Tennessee 2,553 (a) 2,600(a)
Office Independence, Missouri -- (b) 1,091(b)
<FN>
(a) Represents a 20% participating interest in a $13.2 million loan at
December 31, 1994 for which FF Bank is the lead lender. The loan has
been classified pending receipt of contractual principal payments in
early 1995.
(b) Represents loan to finance the 1993 sale of a former foreclosed real
estate property. The loan is no longer classified due to performance by
the borrower.
</TABLE>
All adversely classified assets at December 31, 1994 have been considered
by management in its evaluation of the adequacy of allowances for losses.
Investment Activities
In addition to lending activities, FF Bank conducts 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 Board of Directors. In addition to satisfying regulatory
liquidity requirements, investments are used as part of FF Bank's asset and
liability program to minimize FF Bank's vulnerability to changing interest
rates. At December 31, 1994, 63.9% of FF Bank's investments mature or reprice
within one year or less.
Certain of FF Bank's investment policies relate to the term of the
investment. For example, FF Bank 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.
<PAGE>
Management determines the appropriate classification of debt securities
(including mortgage-related securities) at the time of purchase in accordance
with its investment policy. Debt securities are classified as held to maturity
when FFC 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), which are believed
to be temporary, reported as a separate component of stockholders' equity. See
"Mortgage-Related Securities" in Management's Discussion and Analysis,
incorporated herein by reference, for a discussion of the correction of an error
in the classification of certain MBSs, reclassifying the securities from held to
maturity status to available for sale at the end of 1993.
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 FF Bank at certain
dates, see Note C to FFC's consolidated financial statements, filed as an
exhibit hereto.
The following table sets forth the maturity/repricing characteristics of
FF Bank's investment securities at December 31, 1994 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.................. $ 41,448 4.62% $50,532 4.59% $ 243 7.02% $ -- --%
Interest-earning deposits
in banks..................... 837 5.24 -- -- -- -- -- --
Federal funds sold............... 23,890 5.90 -- -- -- -- -- --
Corporate and bank notes
receivable................... 32,222 5.30 5,980 5.80 -- -- -- --
State and municipal
obligations.................. 3,385 3.41 654 5.66 394 8.00 -- --
Certificate of deposit........... 504 8.87 -- -- -- -- -- --
-------- ------- ------ ------
Total........................ $102,286 5.12% $57,166 4.73% $ 637 7.63% $ -- --%
======== ======= ====== ======
</TABLE>
At December 31, 1994, FF Bank had no investments in any issuer in excess
of 10% of net worth.
<PAGE>
The following table sets forth the aggregate amortized cost and estimated
fair value of investment securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
U.S. Government and agency obligations.......................... $ 92,268 $138,400 $ 40,828
Adjustable-rate mortgage mutual fund............................ -- 34,585 --
Interest-earning deposits....................................... 837 25,768 31,067
Federal funds sold.............................................. 23,890 21,873 29,100
Corporate and bank notes
(investment grade).......................................... 38,202 49,053 52,020
State and municipal obligations................................. 4,433 4,453 598
Certificates of deposit......................................... 504 -- 198
Commercial paper................................................ -- -- 9,989
-------- -------- --------
Total amortized cost........................................ $160,134 $274,132 $163,800
======== ======== ========
Total estimated fair value.................................. $155,222 $275,576 $165,116
======== ======== ========
</TABLE>
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, FF Bank derives 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. FF Bank has not generally solicited deposits outside the market area
served by its offices or used brokers to obtain deposits and has no brokered
deposits at December 31, 1994.
Deposit Activities. FF Bank offers a variety of deposits having a wide
range of interest rates and terms.
The following table presents, by various interest-rate intervals, FF
Bank's long-term (one year and over) certificates as of the date indicated.
<TABLE>
<CAPTION>
December 31,
Interest Rate 1994 1993 1992
------------- -------- -------- ------
(In thousands)
<S> <C> <C> <C>
3.50 - 4.00%....................... $ 149,146 $ 209,813
4.01 - 6.00%....................... 1,869,378 1,434,598 $ 788,460
6.01 - 8.00%............. ......... 175,143 273,664 425,662
8.01 - 10.00%....................... 124,828 242,502 394,585
---------- ---------- ----------
$2,318,495 $2,160,577 $1,608,707
========== ========== ==========
</TABLE>
<PAGE>
The following table presents, by various similar interest-rate intervals,
the amounts of long-term (one year and over) time deposits at December 31, 1994
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, 1995................. $149,146 $ 956,999 $ 21,784 $118,852 $1,246,781
December 31, 1996................. -- 529,656 70,324 1,666 601,646
December 31, 1997................. -- 205,061 38,048 159 243,268
After December 31, 1997 -- 177,662 44,987 4,151 226,800
-------- ---------- -------- -------- ----------
$149,146 $1,869,378 $175,143 $124,828 $2,318,495
======== ========== ======== ======== ==========
</TABLE>
The following table presents the maturities of FF Bank's certificates in
amounts of $100,000 or more at December 31, 1994 by time remaining to maturity.
December 31,
Maturities 1994
- ---------- -------------
(In thousands)
January 1, 1995 through March 31, 1995........................... $ 31,356
April 1, 1995 through June 30, 1995.............................. 29,286
July 1, 1995 through December 31, 1995........................... 46,807
January 1, 1996 and after........................................ 58,653
--------
$166,102
========
FF Bank's deposit base at December 31, 1994 included $2.642 billion of
certificates of deposit with a weighted average rate of 5.10%. Of these
certificates of deposit, $1.570 billion with a weighted average rate of 4.85%
will mature during the 12 months ending December 31, 1995. FF Bank 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, FF Bank's cost of funds may be
significantly affected by the rollover of these funds.
<PAGE>
Other Sources of Funds. The following table sets forth certain
information as to FFC's advances and other borrowings at the dates and for the
periods indicated. See Note J to FFC's consolidated financial statements,
incorporated herein by reference.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
FHL Bank advances.......................... $617,752 $371,974 $397,193
Subordinated notes......................... 54,977 54,997 55,000
Industrial development revenue bonds....... 6,315 6,410 9,755
Collateralized mortgage obligations........ 3,019 5,217 --
-------- -------- --------
Total borrowings.................... $682,063 $438,598 $461,948
======== ======== ========
Weighted average interest cost of total
borrowings during the year............. 5.35% 5.29% 4.98%
Average month-end balance of short-term
borrowings............................. $ 11,509 $ -- $ 10,792
Weighted average interest rate of
short-term borrowings during year...... 5.21% --% 7.71%
Weighted average interest rate of
short-term borrowings at end of year... --% --% --%
</TABLE>
Service Corporations and Operating/Finance Subsidiaries
FF Bank has i) five active, wholly-owned service corporations, ii) an
operating subsidiary, and iii) a limited-purpose finance subsidiary. The net
book value of FF Bank's aggregate investment in active service corporations at
December 31, 1994 was as follows (in thousands):
Wisconsin Insurance Management, Inc........................ $1,138
Appraisal Services, Inc.................................... 150
First Service Corporation of Wisconsin..................... 13
Illini Service Corporation................................. --
Mortgage Finance Corporation............................... --
------
Total.................................................. $1,301
======
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 FF Bank'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 $1.6 million, $1.3 million and $1.3 million for 1994, 1993
and 1992, respectively.
Appraisal Services, Inc. performs real estate appraisals for FF Bank'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 $69,000, $111,000 and $124,000 for
1994, 1993 and 1992, respectively.
<PAGE>
First Service Corporation of Wisconsin ("FSC") previously engaged in the
management and sale of commercial real estate and apartments for FF Bank and
others, as well as acting as general partner for several real estate
partnerships. In 1993, FSC's activities were sharply cut back and its principal
assets were transferred to FF Bank. This subsidiary had a net loss of $207,000
and $435,000 for 1993 and 1992, respectively. FSC's remaining function is to
serve as general partner for 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 FF Bank 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 FF
Bank from the former affiliate.
First Financial Investments, Inc. ("FFII") is an operating subsidiary of
FF Bank and was incorporated in 1991. FFII, which is located in the State of
Nevada, was formed for the purpose of managing a portion of FF Bank'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 FF Bank'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 FF Bank and
functions as an issuer of certain collateralized mortgage obligation bonds. As a
finance subsidiary, UFSCC's results of operations are combined with FF Bank's
for financial and regulatory reporting purposes.
Employees of FFC
At December 31, 1994, FFC and its subsidiaries employed 1,283 full-time
employees and 332 part-time employees. FFC promotes equal employment opportunity
and considers its employee relations to be good. FFC's employees are not
represented by any collective bargaining group.
FFC sponsors retirement plans covering all full-time employees with one
or more years of service who are at least 21 years old. Additionally, FFC
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 FF Bank has offices.
<PAGE>
Executive Officers
The following table sets forth information regarding each of the
executive officers of FFC and FF Bank:
<TABLE>
<CAPTION>
Age At
Executive December 31, Business Experience
Officer 1994 During Past Five Years
- ---------- ------------ -----------------------
<S> <C> <C>
John C. Seramur 52 Mr. Seramur joined FF Bank in 1966 and serves
as Director, President, Chief Executive Officer
and Chief Operating Officer of FFC and FF
Bank.
Robert M. Salinger 44 Mr. Salinger joined FFC as Corporate Secretary
and General Counsel in 1985. He also serves as
an Executive Vice President of FF Bank. In
1984, he had served as General Counsel and
Corporate Secretary for an institution acquired by
FFC. 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 &
Dudek, S.C.
Thomas H. Neuschaefer 48 Mr. Neuschaefer joined FF Bank in 1988 and
serves as Vice President, Treasurer and Chief
Financial Officer of FFC. He also serves as
Executive Vice President-Finance of FF Bank.
From 1978 to 1988, he served as Chief Financial
Officer of National. Prior to 1978, he was
associated with the national accounting firm of
Ernst & Young LLP.
Donald E. Peters 45 Mr. Peters joined FF Bank in 1982 and serves as
Executive Vice President - Retail Banking of FF
Bank. Prior to 1982, he was an officer of
another thrift institution.
Harry K. Hammerling 44 Mr. Hammerling joined FF Bank in 1984 and
serves as Executive Vice President -
Administration and Servicing for FF Bank.
From 1972 to 1984, he served as an officer of
First State.
Kenneth F. Csinicsek 55 Mr. Csinicsek joined FF Bank in 1987 and serves
as Senior Vice President of Marketing and
Investor Relations. Prior to joining FF Bank, he
served as president of another thrift institution for
two years and operated two financial institution
consulting firms over a thirteen year period.
</TABLE>
<PAGE>
REGULATION
FFC, as a savings and loan holding company, and FF Bank, as a federally
chartered savings bank, are subject to regulation, supervision and examination
by the OTS as their primary federal regulator. The Bank also is subject to
regulation, supervision and examination by the FDIC, and as to certain matters
by the Federal Reserve Board.
Federal deposit insurance is required for all federally chartered savings
institutions such as FF Bank. FF Bank's deposits are insured to applicable
limits by the Savings Association Insurance Fund ("SAIF"), as administered by
the FDIC. National and state-chartered banks generally are insured by the Bank
Insurance Fund ("BIF"), also administered by the FDIC. The FDIC sets the annual
rates for insurance premiums, which currently are between 0.23% and 0.31% of
deposits (based on an institution's supervisory evaluations and capital level)
for both the SAIF and the BIF. The FDIC, however, has proposed reducing BIF
premiums to as low as 0.04% of deposits for the healthiest rated banks. Because
SAIF premiums may be unaffected by the FDIC proposal, SAIF insurance
institutions like FF Bank could be at a competitive disadvantage to BIF insured
institutions if the FDIC proposal is promulgated as proposed.
As a FDIC insured institution and a federal savings bank, FF Bank is
required to maintain specified levels of minimum capital, including: (1) "core
capital" in an amount not less than 3% of total assets, (ii) "tangible capital"
in an amount not less than 1.5% of total assets, and (iii) "risk-based" capital
not less than 8.0% of risk-weighted assets. During 1994, the federal bank
regulatory agencies revised the method for calculating risk-based capital such
that FF Bank now must identify the concentration of credit risk and the risks
arising from nontraditional activities, as well as the Bank's ability to manage
such risks. Furthermore, the OTS revised its risk-based capital requirement to
implement a standard of actual performance and expected risk of loss of
multi-family mortgages as well as a calculation for intangible assets including
purchased mortgage servicing rights and purchased credit card relationships.
Management does not anticipate any significant impact on FF Bank as a result of
these changes.
During 1994, the OTS implemented a final rule for calculating an interest
rate risk component of capital. Under the final rule, 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 association's
assets. That dollar amount is deducted from the institution's total capital in
calculating risk-based capital. At December 31, 1994, FF Bank was not required
to deduct any amount from capital as a result of interest rate risk exposure.
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". See Note L to the
Consolidated Financial Statements, at Exhibit 13(a) hereto.
<PAGE>
The OTS currently imposes limitations on all capital distributions by
savings institutions, including dividends, stock repurchases and cash-out
mergers. Under the current rule institutions are grouped into three
classifications depending upon their level of regulatory capital both before and
after giving effect to a proposed capital distribution. Under a proposed rule,
the OTS would conform the three classifications to the five capital
classifications set forth under the PCA regulations. Under the OTS proposal, a
savings institution which is a subsidiary of a holding company (such as FF Bank)
could make a capital distribution following notice to the OTS if, after the
capital distribution, the institution would remain at least "adequately
capitalized" under the PCA regulations. In making the proposal, the OTS stated
that it intends to use net income to date during the calendar year plus 50% of
surplus capital above the adequately capitalized level as the general rule of
thumb for determining the permissible amount of a capital distribution. In
recent periods, FF Bank generally has paid dividends of 33.6% of net income to
FFC.
During 1994, certain legislation was enacted that could effect the
operations of FF Bank and FFC. Among other things, the Community Development
Banking and Financial Institutions Act (the "CDB Act") requires the federal
banking agencies to streamline and harmonize regulatory, reporting and
examination requirements, expedite the processing of regulatory applications and
reduce regulatory burdens with respect to the operations of financial
institutions and the protection of the deposit insurance funds. The CDB Act also
requires that regulations which impose additional reporting, disclosure or other
new requirements must become effective only on the first day of a calendar
quarter.
Also enacted during 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "IBBEA") authorized the acquisition of banks in any
state by bank holding companies, subject to compliance with federal and state
antitrust laws, the Community Reinvestment Act ("CRA") and specific deposit
concentration limits. The IBBEA removes most state law barriers to interstate
acquisitions of banks and ultimately will permit multi-state banking operations
to merge into a single bank. Although FF Bank, as a federal savings bank,
already has interstate branching authority, enactment of the IBBEA may result in
increased competition and financial institution acquisition activity from out of
state financial institutions and their holding companies.
During 1994, various regulations were promulgated that could impact the
operations of FF Bank and FFC. Consistent with the requirements of the CDB Act,
the federal bank regulatory agencies have attempted to conform many of their
regulations to eliminate the disparity that has developed among the four
financial institution regulators. For example, the OTS amended its internal
rating system for savings associations by adopting the "CAMEL" (Capital, Assets,
Management, Earnings and Liquidity) system developed by the FDIC, in lieu of the
"MACRO" (Management, Asset Quality, Capital Adequacy, Risk Management and
Operating Results). The Bank's CAMEL rating is used to determine, in part, FDIC
insurance assessments. The OTS also revised its regulations concerning mergers,
transfers of assets, and combinations with other depository institutions to
facilitate the acquisition of savings institutions by other FDIC-insured
institutions, as well as the acquisition of such institutions by savings
associations.
<PAGE>
During 1994, the federal bank regulatory agencies also jointly issued
proposed changes to the rules and regulations implementing the CRA that could
impact how FF Bank's CRA performance is measured. Pursuant to the CRA, FF Bank
is required to demonstrate how its deposit facilities serve the convenience and
needs of the communities in which it is chartered to do business, including the
credit needs of low- and moderate-income populations within such communities.
The Bank's CRA rating is a factor reviewed in connection with mergers,
acquisitions, and in connection with other regulatory applications. The proposed
revision would adopt a performance-based evaluation system, measuring FF Bank's
lending, investment and service to its delineated lending community, in lieu of
the current process- based system of evaluation. FF Bank's current CRA rating is
"Outstanding", and the Bank believes that it can continue to receive comparable
CRA ratings if the new evaluation system is adopted as proposed.
Legislation has been introduced in the Congress to merge FF Bank's primary
federal regulator, the OTS, with the Office of the Comptroller of the Currency,
the primary federal regulator of National banks, and to create a new bank
regulatory agency, the Federal Banking Agency. There can be no assurance that
this legislation or similar legislation will be enacted, or the impact on FF
Bank and FFC of such legislation.
TAXATION
Federal
FFC files on behalf of itself, FF Bank, and its 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 FF Bank, 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, FF Bank generally has computed additions to its
reserves for losses on qualifying loans using the experience method. It is
anticipated that FF Bank will continue to use this method in future years.
To the extent that FF Bank makes distributions to its stockholders that
are considered withdrawals from that excess bad debt reserve, the amounts
withdrawn will be included in FF Bank's 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 FF Bank's 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 FF Bank's
current and accumulated earnings and profits, distributions in redemptions of
stock, and distributions in partial or complete liquidation of FF Bank will be
considered to result in withdrawals from the Bank's bad debt reserves. At
December 31, 1994, FF Bank had $70.1 million in accumulated federal income tax
bad debt reserves that would not be available for distribution to their
stockholder without the imposition of additional tax.
<PAGE>
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
FFC and FF Bank 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. FF Bank also has an operating subsidiary (FFII) located in Nevada
which manages a portion of FF 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 FFC and FF Bank through 1988. The IRS is currently examining the
consolidated returns of FFC and FF Bank 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 FF Bank of Wisconsin net operating losses carried forward from
that institution.
ITEM 2. PROPERTIES
At December 31, 1994, FF Bank operated through 124 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, 1994 of the properties owned or leased, including headquarters,
properties and leasehold improvements at the leased offices, was $40.1 million.
The leases expire between 1995 and 2021. See Note H to FFC's consolidated
financial statements, filed as an exhibit hereto, for information regarding FF
Bank's premises and equipment. Management believes that all of these properties
are in good condition. The following tables set forth the location of FFC's
banking and other offices.
<PAGE>
Wisconsin
<TABLE>
<CAPTION>
Address City
- ----------------------- -----------------------
<S> <C>
609 East Spruce Street Abbotsford, Wisconsin
103 West Cleveland Arcadia, Wisconsin
926 West College Avenue Appleton, Wisconsin
221 Fourth Avenue West Ashland Wisconsin
117 South Broad Street Bayfield, Wisconsin
201 Park Avenue Beaver Dam, Wisconsin
203 Main Street Black River Falls, Wisconsin
1 North Moorland Road Brookfield, Wisconsin (a)
197 West Chestnut Street Burlington, Wisconsin
709 East Geneva Street Delavan, Wisconsin
308 Third Avenue West Durand, Wisconsin
3292 Main Street East Troy, Wisconsin (a)
130 South Barstow Commons Eau Claire, Wisconsin
806 South Hastings Way Eau Claire, Wisconsin
23 South Washington Elkhorn, Wisconsin
One North Madison Street Evansville, Wisconsin
211 North Highland Drive Fredonia, Wisconsin
1930 Wisconsin Avenue Grafton, Wisconsin (a)
1482 West Mason Street Green Bay, Wisconsin
2235 Main Street Green Bay, Wisconsin
5651 Broad Street Greendale, Wisconsin
4981 South 76th Street Greenfield, Wisconsin
10 Main Street Hayward, Wisconsin
Holmen Square Holmen, Wisconsin
117 Second Avenue North Hurley, Wisconsin
420 South Main Street Iron River, Wisconsin
2525 Milton Avenue Janesville, Wisconsin (a)
620 Main Street LaCrosse, Wisconsin
300 East Lake Street Lake Mills, Wisconsin
205 North Eighth Street Manitowoc, Wisconsin
630 South Central Avenue Marshfield, Wisconsin (a)
705 North Center Avenue Merrill, Wisconsin
200 East Wisconsin Avenue Milwaukee, Wisconsin (a)
829 West Mitchell Street Milwaukee, Wisconsin
3027 West Lincoln Avenue Milwaukee, Wisconsin
3432 South 27th Street Milwaukee, Wisconsin (a)
5350 West Fond du Lac Avenue Milwaukee, Wisconsin
5900 West North Avenue Milwaukee, Wisconsin
<FN>
_________________
(a) Leased
</TABLE>
<PAGE>
Wisconsin (Continued)
<TABLE>
<CAPTION>
Address City
- ----------------------- -----------------------
<S> <C>
7900 West Brown Deer Road Milwaukee, Wisconsin
Highways 51 & 70 West Minocqua, Wisconsin (a)
600 East Main Street Mondovi, Wisconsin
306 North Rochester Street Mukwonago, Wisconsin
600 Hewett Street Neillsville, Wisconsin
15665 West National Avenue New Berlin, Wisconsin
1093 Summit Avenue Oconomowoc, Wisconsin (a)
1101 Main Street Onalaska, Wisconsin
429 North Sawyer Street Oshkosh, Wisconsin
1414 South Fourth Avenue Park Falls, Wisconsin
Post Road & South Drive Plover, Wisconsin
222 North Wisconsin Street Port Washington, Wisconsin
1733 Douglas Avenue Racine, Wisconsin
140 South Brown Rhinelander, Wisconsin
135 South Mill Street Saukville, Wisconsin
1230 North Taylor Drive Sheboygan, Wisconsin
2815 South Chicago Avenue South Milwaukee, Wisconsin (a)
1325 Church Street Stevens Point, Wisconsin
108 West Prospect Thorp, Wisconsin (a)
213 North Lake Avenue Twin Lakes, Wisconsin
104 South Washington Avenue Washburn, Wisconsin
600 Main Street Watertown, Wisconsin
633 South Church Street Watertown, Wisconsin (a)
100 East Sunset Drive Waukesha, Wisconsin (a)
300 Wisconsin Avenue* Waukesha, Wisconsin
704 North Grand Avenue Waukesha, Wisconsin
1200 Delafield Street Waukesha, Wisconsin (a)
2306 West St. Paul Avenue Waukesha, Wisconsin (a)
2831 North Grandview Boulevard Waukesha, Wisconsin (a)
330 Third Street Wausau, Wisconsin (a)
2711 West Stewart Avenue Wausau, Wisconsin
2645 North Mayfair Road Wauwatosa, Wisconsin
2825 South 108th Street West Allis, Wisconsin (a)
7101 West Greenfield Avenue West Allis, Wisconsin (a)
430 East Silver Spring Drive Whitefish Bay, Wisconsin
1714 Scranton Street Whitehall, Wisconsin
219 Center Street Whitewater, Wisconsin
711 West Grand Avenue Wisconsin Rapids, Wisconsin (a)
<FN>
_______________
(a) Leased
* Insurance Agency Office
</TABLE>
<PAGE>
Illinois
<TABLE>
<CAPTION>
Address City
- ----------------------- -----------------------
<S> <C>
104 Southeast 3rd Avenue Aledo, Illinois
104 Homer Adams Parkway Alton, Illinois
101 East Broadway Astoria, Illinois
301 West Galena Boulevard Aurora, Illinois
100 East Washington Belleville, Illinois
6902 West Main Belleville, Illinois (a)
1007 North Fourth Street Chillicothe, Illinois
238 North Main Columbia, Illinois
305 East Locust DeKalb, Illinois (a)
1325 Sycamore Road DeKalb, Illinois (a)
12200 North Route 88 Dunlap, Illinois (a)
300 East Washington Street East Peoria, Illinois
326 Missouri Avenue East St. Louis, Illinois
101 East Evergreen Elmwood, Illinois
6550 North Illinois Fairview Heights, Illinois
10280 Lincoln Trail Fairview Heights, Illinois
16 East Fort Street Farmington, Illinois (a)
50 East Main Street Galesburg, Illinois
1865 North Henderson Galesburg, Illinois
#1 Junction Drive West Glen Carbon, Illinois
318 West College Greenville, Illinois
1035 Broadway Hamilton, Illinois
333 West Main Havana, Illinois
313 Fifth Street Lacon, Illinois
143 South Main Street Lewistown, Illinois
217 West Washington Millstadt, Illinois
119 West 5th Street Minonk, Illinois
122 West Boston Avenue Monmouth, Illinois
21 Boulder Hill Pass Montgomery, Illinois (a)
1645 State Highway 121 Mount Zion, Illinois
300 South 4th Street Pekin, Illinois
3500 Court Street Pekin, Illinois (a)
103 West Forrest Hill Peoria, Illinois
111 North Jefferson Avenue Peoria, Illinois
201B Northwoods Mall Peoria, Illinois (a)
700 Main Street Peoria, Illinois
2515 West Lake Avenue Peoria, Illinois
3222 West Harmon Highway Peoria, Illinois
4125 North Sheridan Road Peoria, Illinois (a)
4600 Brandywine Drive Peoria, Illinois
7620 North University Peoria, Illinois (a)
525 West Washington Street Pittsfield, Illinois
<FN>
__________________
(a) Leased
</TABLE>
<PAGE>
Illinois (Continued)
<TABLE>
<CAPTION>
Address City
- ----------------------- -----------------------
<S> <C>
116 East Main Street Princeville, Illinois
706 Maine Street Quincy, Illinois (a)
24th and Broadway Quincy, Illinois
416 West Front Street Roanoke, Illinois
116 South Congress Rushville, Illinois
2659 Farragut Drive** Springfield, Illinois (a)
1881 Washington Road Washington, Illinois
200 South Market Waterloo, Illinois
<FN>
___________________
(a) Leased
** Loan Origination Office
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
FFC and FF Bank 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 FFC not to represent an adverse risk of loss which would be
material to the financial condition or operations of FFC. See Note Q to FFC'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. FFC's
Board of Directors has discretion to declare and pay dividends on FFC's common
stock from time to time under Wisconsin law, unless such payment would render
FFC insolvent. Also, see Exhibit 10(l), "Form of Indenture", for further
limitations on payment of dividends on FFC's common stock.
Also, relative to OTS restrictions on the payment of dividends by FF Bank
to FFC, see Note L to FFC's consolidated financial statements filed at Exhibit
13(a) hereto. Also, see Item 1, "Business - Regulation".
<PAGE>
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
FFC'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 II 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 5 to 9 and 16 of the proxy statement for FFC's 1995 annual
meeting of shareholders, filed with the Securities and Exchange Commission on
March 24, 1995. Information acquired by this item regarding executive officers
is included herein at page 29 and regarding directors at pages 5 - 7 of the
proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation required by this item is
incorporated herein by reference from pages 9 - 15 of the proxy statement for
FFC's 1995 annual meeting of shareholders, filed with the Securities and
Exchange Commission on March 24, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
<PAGE>
The information required by this item is incorporated herein by reference
from pages 3 - 4 of the proxy statement for FFC's 1995 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 24,
1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from page 17 of the proxy statement for FFC's 1995 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 24,
1995.
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, 1994, including the related
notes and the report of the independent auditors are incorporated herein by
reference from Exhibit 13a of this Report.
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Income - Years ended December 31, 1994, 1993
and 1992.
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - Years Ended December 31, 1994,
1993 and 1992.
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.
<PAGE>
3(a) Articles of Incorporation of Registrant dated February 21, 1984,
as amended, and restated on January 18, 1995. (Incorporated
herein by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on January 26, 1995).
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) Employment 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) 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(h) 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(i) Employment 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.)
<PAGE>
10(j) Employment 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(k) Acquisition Agreement among Westinghouse Financial Services,
Inc., Westinghouse Savings Corporation and FF 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(l) 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(m) 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(n) 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(o) Agreement and Plan of Merger by and among NorthLand Bank of
Wisconsin, SSB, First Financial Corporation and FF 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(p) Deferred Compensation Plan and Trust, dated January 1, 1988 and
amended January 1, 1993. (Incorporated herein by reference from
Annual Report on Form 10-K for 1993 filed on March 29, 1994.)
10(q) Promissory Note relating to Registrant's commercial bank
line-of-credit agreement dated April 30, 1994.
10(r) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994.
10(s) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994.
10(t) Agreement and Plan of Reorganization among First Financial
Corporation, First Financial Acquisition Company, and FirstRock
Bancorp, Inc. dated October 26, 1994 and amended December 5,
1994 (incorporated herein by reference to Exhibits 2.1 and 2.2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on December 12, 1994).
13(a) Consolidated Financial Statements
<PAGE>
13(b) Management Discussion and Analysis of Financial Condition and
Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young LLP for Registration Statement No.
2-90005 as filed with the Securities and Exchange Commission
("SEC") on March 16, 1984, for Registration Statement No.
33-17304 as filed with the SEC 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 SEC on May 12,
1988 for Registration Statement No. 33-36295 as filed with the
SEC on August 9, 1990, Registration Statement No. 33-69856 as
filed with the SEC on October 1, 1993, Registration Statement
No. 33-51487 filed with the SEC on January 13, 1994 and
Registration Statement No. 33-56823 filed with the SEC on
January 27, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On November 3, 1994, the Registrant filed a Current Report on
Form 8-K with the SEC announcing that FFC entered into a
definitive agreement, on October 26, 1994, to acquire FirstRock
Bancorp, Inc. (FirstRock) of Rockford, Illinois.
On December 7, 1994, the Registrant filed a Current Report on
Form 8-K with the SEC reporting an amendment to the above noted
definitive agreement to acquire FirstRock.
(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 auditors 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 27, 1995
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 By: /s/ Thomas H. Neuschaefer
------------------------------------ ----------------------------
John C. Seramur Thomas H. Neuschaefer
President Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
Director Date: March 27, 1995
Date: March 27, 1995
By: /s/ Robert S. Gaiswinkler
-------------------------------
Robert S. Gaiswinkler
Chairman of the Board
Director
Date: March 27, 1995
By: /s/ Gordon M. Haferbecker By: /s/ James O. Heinecke
----------------------------------- ------------------------
Gordon M. Haferbecker James O. Heinecke
Director Director
Date: March 27, 1995 Date: March 27, 1995
<PAGE>
By: /s/ Robert T. Kehr By:
----------------------------------- --------------------------
Robert T. Kehr Paul C. Kehrer
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Robert P. Konopacky By: /s/ Dr. George R. Leach
----------------------------------- --------------------------
Robert P. Konopacky Dr. George R. Leach
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Ignatius H. Robers By: /s/ John H. Sproule
------------------------------------ ----------------------
Ignatius H. Robers John H. Sproule
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Ralph R. Staven By: /s/ Norman L. Wanta
------------------------------------ ---------------------
Ralph R. Staven Norman L. Wanta
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Arlyn G. West
------------------------------------
Arlyn G. West
Director
Date: March 27, 1995
<PAGE>
EXHIBIT INDEX
Schedule II Guarantees of Securities of Other Issuers
3(a) Articles of Incorporation of Registrant dated February 21, 1984,
as amended, and restated on January 18, 1995. (Incorporated
herein by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on January 26, 1995).
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) Employment 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) 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(h) 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).
<PAGE>
10(i) Employment 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(j) Employment 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(k) Acquisition Agreement among Westinghouse Financial Services,
Inc., Westinghouse Savings Corporation and FF 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(l) 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(m) 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(n) 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(o) Agreement and Plan of Merger by and among NorthLand Bank of
Wisconsin, SSB, First Financial Corporation and FF 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(p) Deferred Compensation Plan and Trust, dated January 1, 1988 and
amended January 1, 1993. (Incorporated herein by reference from
Annual Report on Form 10-K for 1993 filed on March 29, 1994.)
10(q) Promissory Note relating to Registrant's commercial bank
line-of-credit agreement dated April 30, 1994.
10(r) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994.
10(s) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994.
10(t) Agreement and Plan of Reorganization among First Financial
Corporation, First Financial Acquisition Company, and FirstRock
Bancorp, Inc. dated October 26, 1994 and amended December 5,
1994 (incorporated herein by reference to Exhibits 2.1 and 2.2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on December 12, 1994).
<PAGE>
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 LLP for Registration Statement No.
2-90005 as filed with the SEC on March 16, 1984, for
Registration Statement No. 33-17304 as filed with the SEC 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 SEC
on May 12, 1988 for Registration Statement No. 33-36295 as filed
with the SEC on August 9, 1990, Registration Statement No.
33-69856 as filed with the SEC on October 1, 1993, Registration
Statement No. 33-51487 filed with the SEC on January 13, 1994
and Registration Statement No. 33-56823 filed with the SEC on
January 27, 1995.
27 Financial Data Schedule
<PAGE>
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
<PAGE>
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
FIRST FINANCIAL CORPORATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
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 Redemption
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 $ 2,685,000 None None P&I None
City of Maplewood, MN $4,525,000 Variable
Angeles Partners 16, A Rate Demand Multi-
California Limited family Housing Revenue
Partnership Refunding 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 2,055,000 None None P&I None
Housing Authority For $7,000,000 Convertible
The City of Waukesha, Variable Rate Demand
WI, Caroline Apart- Multifamily Housing
ments Limited Part- Revenue Bonds,
nership Series A $ 1,950,000 None None P&I None
TOTAL $11,215,000
</TABLE>
P&I = Principal and Interest Payments on Securities Guaranteed.
<PAGE>
EXHIBIT 10(q) - PROMISSORY NOTE
<PAGE>
FIRST FINANCIAL CORPORATION
PROMISSORY NOTE
$18,000,000.00 Milwaukee, Wisconsin
April 30, 1994
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,
1995. 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, 1994 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 of 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:
<PAGE>
(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 State 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, F.S.B.
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 or default 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;
<PAGE>
(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 loans 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, a Fourth Amendment to Collateral Pledge Agreement
dated April 30, 1993, and a Fifth Amendment to Collateral Pledge Agreement dated
April 30, 1994, 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:
<PAGE>
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
<PAGE>
(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.
<PAGE>
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)
EMPLOYMENT AGREEMENT - THOMAS H. NEUSCHAEFER
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of June
14, 1994, among First Financial Corporation (the "Company"), First Financial
Bank, FSB, a wholly owned subsidiary of the Company (the "Bank"), and Thomas H.
Neuschaefer, (the "Employee").
WHEREAS, Employee is currently serving as an executive of the Company
and/or the Bank;
WHEREAS, the Company and Bank consider it important to retain competent
executives when the company and Bank are potential takeover targets; and
WHEREAS, the Company and Bank wish to take steps to ensure that each
will receive advice from its top management which is unaffected by concerns of
distractions caused by personal risks associated with an actual or threatened
change in control, thus guaranteeing that all action taken in a takeover context
is done in the best interests of the constituents and shareholders served by the
Company and Bank.
NOW, THEREFORE, IT IS AGREED:
1. Term. The initial term of employment under this Agreement shall be
for a three-year period from January 1, 1994, which is the effective date of
this Agreement. No later than 60 days after the second and, if appropriate, each
subsequent anniversary date of the effective date of this Agreement, the
Employee and the full Boards of Directors of both the Company and the Bank by a
majority vote may extend the term of this Agreement for one additional year. It
is anticipated that the Board of Directors of the Bank will consider the matter
in the month of December immediately prior to the anniversary date in question,
and the Board of Directors of the Company in the month of February immediately
subsequent thereto. If the Employee and the Board of Directors of the Company
and the Bank fail to extend the term of this Agreement within 60 days of any
such anniversary date, this Agreement shall automatically terminate one year
after the anniversary date in question. Each initial term and all such extended
terms are collectively referred to herein as the term of this Agreement.
2. Change in Control. No compensation or benefits shall be payable
hereunder unless there shall have been a Change in Control.
(a) A "Change in Control of the Company" for purposes of this
Agreement, shall be deemed to have taken place if: (i) any person becomes the
beneficial owner of 25 percent or more of the total number of outstanding voting
shares of the Company; (ii) any person becomes the beneficial owner of 10
percent or more, but less than 25 percent, of the total number of outstanding
voting shares of the Company, provided that, if the FHLBB has approved a
rebuttal agreement filed by such person or such person has filed a certification
with the FHLBB, a Change in Control will not be so deemed to have occurred
unless the Board of Directors of the Company has made a determination that such
a beneficial ownership constitutes or will constitute control of the Company;
(iii) any person (other than the persons named as proxies solicited on behalf of
the Board of Directors of the Company) holds revocable or irrevocable proxies,
as to the election or removal of two or more directors of the Company, for 25
percent or more of the total number of outstanding voting shares of the Company;
(iv) any person has received the approval of the FHLBB under Section 408 of the
National Housing Act (the "Holding Company Act"), or regulations issued
thereunder, to acquire control of the Company; (v) any person has received
approval of the FHLBB under the Change in Savings and Loan Control Act of 1978
(the "Control Act"), or regulations issued thereunder, to acquire control of the
Company; (vi) any person has commenced a tender or exchange offer, or entered
into any agreement or received an option, to acquire beneficial ownership of 25
percent or more of the total number of outstanding voting shares of the Company,
whether or not the requisite regulatory approval for such acquisition has been
received under the Holding Company Act, the Control Act, or the respective
regulations issued thereunder, provided that a Change in Control will not be
deemed to have occurred under this clause (vii) unless the Board of Directors of
the Company has made a determination that such action constitutes or will
constitute a Change in Control; or (viii) as a result of, or in connection with,
any cash tender or exchange offer, merger, or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company before such
transaction shall cease to constitute at least two-thirds of the Board of
Directors of the Company or any successor institution. For purposes of this
Section, a "person" includes an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, unincorporated organization,
joint-stock company or similar organization or group acting in concert, but does
not include any employee stock ownership plan or similar employee benefit plan
of the Company or the Bank. A person for these purposes shall be deemed to be a
beneficial owner as that term is used in Rule 13d-3 under the Securities
Exchange Act of 1934.
(b) A "Change in Control of the Bank," for purposes of this
Agreement, shall be deemed to have taken place if the Company's beneficial
ownership of the total number of outstanding voting shares of the Bank is
reduced to less than 50 percent.
3. Good Reason. Employee shall be deemed to have resigned for Good
Reason if Employee resigns within twenty-four months following a Change in
Control as a result of one or more of the following events:
(a) Employee is assigned any duties materially inconsistent
with his principal responsibilities as compared to his principal
responsibilities immediately prior to such Change in Control.
(b) The Company or Bank reduces the Employee's total
compensation (including base salary and bonus) below the rate in effect
immediately prior to such Change in Control.
(c) The Company or Bank fails to provide the Employee with
benefits at least as favorable as those provided by the Company and/or Bank
immediately prior to such Change in Control; provided, however, that Good Reason
shall not exist under this paragraph 3(c) if Employee is provided benefits equal
to those provided the executives in the Company or Bank and their affiliates
following the Change in Control.
(d) The Company or Bank shall change the location of the
primary worksite of Employee to a location more than 50 miles from the worksite
immediately prior to the Change in Control, without Employee's consent.
4. Benefits Payable upon Termination or Resignation for Good Reason
Following Change in Control. The Board of Directors of the Company or Bank may
terminate Employee's employment at any time; however, if termination of
Employee's employment shall occur within 24 months of a Change in Control and is
not for cause as defined in paragraph 5 (c), or if Employee resigns within 24
months of a Change in Control for Good Reason as defined in paragraphs 3(a)
through 3(d), Employee shall be entitled to receive:
(a) For services previously rendered to the Bank and/or the
Company, a cash payment equal to two times Employee's average annual
compensation (including base salary and bonus) which was payable by the Company
and/or the Bank and was includable by Employee in his gross income for federal
income tax purposes with respect to the five most recent taxable years ending
prior to such Change in Control of the Company or of the Bank. The cash payment
may be made, at the option of the Company or the Bank, (i) in a lump sum within
ten (10) business days after the date of termination or resignation for Good
Reason or (ii) in twenty-four (24) consecutive equal monthly installments with
the first installment commencing no later than ten (10) business days after the
date of termination or resignation for Good Reason. If no payment is made to
Employee within ten (10) business days of the date of termination or resignation
for Good Reason, the Bank and Company shall lose the option of making
installment payments to Employee and the lump sum payment shall be immediately
due and payable together with interest at the rate of 12% per annum from the
date of termination or resignation for Good Reason until paid.
(b) The Company and Bank shall maintain in full force and
effect for Employee's continued benefit for two years after the date of
termination or resignation for Good Reason, all insurance plans (including
medical, dental, life and disability) in which Employee was entitled to
participate immediately prior to the Change in Control, provided that Employee's
participation is possible under the general terms and provisions of such plans.
In the event that Employee's participation in any such plan is barred, the
Company or Bank shall arrange to provide the Employee with benefits
substantially similar to those to which he was entitled to receive under such
plans.
(c) The Company and Bank shall also pay all legal fees and
expenses incurred by Employee as a result of such termination of resignation for
Good Reason, including such fees and expenses, if any, incurred in good faith in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement.
(d) Employee shall have the right to exercise on or within 90
days after termination or resignation for Good Reason all unexercised stock
options granted under the First Financial Stock Option Plans prior to the Change
in Control unless such exercise is prohibited by law.
(e) To the extent that any payment or benefit to be extended
by the Bank under paragraphs 4(a) through 4(d) of the Employment Agreement shall
exceed any of the limitations provided for in RB 27 (or any other applicable
regulatory or statutory limitation to which the Bank is or may be subject from
time to time), then the Bank shall not be responsible for payment of any such
benefit in excess of the applicable limitation and the Company shall be solely
liable for payment of such excess benefits; provided, however, that nothing
contained in this paragraph 4(d) shall decrease or diminish the total payments
or benefits to be extended to the Employee under the Employment Agreement.
5. Restrictions on Benefits. Notwithstanding the provisions of
paragraphs 4(a) through 4(d) hereof, the following restrictions on benefits
shall apply:
(a) Employee shall not have any right to receive any payment
or benefit under this Agreement or any other agreement or benefit plan if such
payment or benefit, taking into account all other payments or benefits to the
Employee, would cause any payment to the Employee under this Agreement to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code as then in effect (a "Parachute Payment"). In the event
that the receipt of any such payment or benefit under this Agreement, or any
other agreement or benefit plan, would cause Employee to be considered to have
received a Parachute Payment under this Agreement, then the Employee shall have
the right, in the Employee's sole discretion, to designate those payment or
benefits under this Agreement, or any other agreements or benefit plans, which
should be reduced or eliminated so as to avoid having a payment to the Employee
under this Agreement to be deemed a Parachute Payment.
(b) Employee shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment. However,
upon Employee's employment by another employer after the date of termination or
resignation for Good Reason, payments provided for in this Agreement payable or
attributable to periods after commencement of such new employment shall be
reduced by fifty percent (50%) and the benefits coverage provided for in
paragraph 4(b) shall terminate.
(c) Employee shall have no right to receive compensation or
other benefits under this Agreement for any period after termination for cause.
"Termination for Cause" shall include termination because of personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. In determining incompetence or intentional failure to perform
stated duties, the acts or omissions shall be measured against standards
generally prevailing in financial institutions of similar size and type;
provided it shall be the Company's or the Bank's burden to prove by a
preponderance of evidence the alleged acts and omissions and the prevailing
nature of the standards the Company or the Bank shall have alleged are violated
by such acts and omissions.
(d) If Employee is suspended and/or temporarily prohibited in
participating in the conduct of the Bank's affairs by notice served under
Section 5(e)(4)(D), or Section 5(d)(5)(A) of the Homeowners Loan Act or under
Section 407(g)(4) or 407(h) of the National Housing Act, the Company's and
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Company and/or Bank may in its discretion (i) pay Employee
all or part of the compensation withheld while his contract obligations are
suspended and (ii) reinstate (in whole or part) any of its obligations which
were suspended.
(e) If Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 5(e)(4)(e) or Section 5(d)(5)(A) of the Homeowners Loan Act or under
Section 407(g)(5) or Section 407(h) of the National Housing Act, all obligations
of the Company and Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the parties shall not be affected.
(f) If the Bank is in default (as defined in Section 401(d) of
the National Housing Act), all obligations under this Agreement shall terminate
as of the date of default, but this paragraph shall not affect any vested rights
of the contracting parties.
(g) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank, (i) by the Federal Savings and Loan
Insurance Corporation, at the time such Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 406(f) of the National Housing Act; or (ii) by the Federal Home Loan
Bank Board, at the time the Board or its Principal Supervisory Agent approves a
supervisory merger to resolve problems related to operation of the Bank or when
the Bank is determined by the Board to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(h) This Agreement shall automatically terminate in the event
that prior to a Change in Control the Employee shall die, become permanently
totally disabled, or terminate his employment with the Company and Bank.
6. Miscellaneous.
(a) Applicable Law. This Agreement and all questions of its
interpretation, performance, enforcement and the rights and remedies of the
parties hereto shall be determined in accordance with the laws of the State of
Wisconsin and any applicable federal laws, rules, and regulations, including but
not limited to the Internal Revenue Code, the Homeowners Loan act, the National
Housing Act, and the rules and regulations of the Federal Home Loan Bank Board.
Any reference to statutes or regulations shall be deemed to include any
successor statute or regulation.
(b) Binding Effect. The obligations of this Agreement will be
binding upon the Company and Bank and any successor organization to all or
substantially all of the business and/or assets of the Company or Bank, whether
direct or indirect, by purchase, merger, consolidation or otherwise; and this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of death of the Employee, all
rights to receive payments hereunder shall become rights of Employee's estate.
(c) Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
approved by a majority vote of the full Board of Directors of the Company and
Bank and is agreed to in writing signed by the Employee and such officer as may
be specifically designated by the Board of Directors of the Company and Bank. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
(d) Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date, month and year first written above.
ATTEST: FIRST FINANCIAL CORPORATION
/s/ Patricia A. Janowski By: /s/ John C. Seramur
- ------------------------- -------------------------------
Assistant Secretary John C. Seramur, President
ATTEST: FIRST FINANCIAL BANK, FSB
/s/ Patricia A. Janowski By: /s/ John C. Seramur
- ------------------------- -------------------------------
Assistant Secretary John C. Seramur, President
EMPLOYEE
/s/ Thomas H. Neuschaefer
-------------------------------
Thomas H. Neuschaefer
<PAGE>
EXHIBIT 10(s)
EMPLOYMENT AGREEMENT - KENNETH F. CSINICSEK
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of June
14, 1994, among First Financial Corporation (the "Company"), First Financial
Bank, FSB, a wholly owned subsidiary of the Company (the "Bank"), and Kenneth F.
Csinicsek, (the "Employee").
WHEREAS, Employee is currently serving as an executive of the Company
and/or the Bank;
WHEREAS, the Company and Bank consider it important to retain competent
executives when the company and Bank are potential takeover targets; and
WHEREAS, the Company and Bank wish to take steps to ensure that each
will receive advice from its top management which is unaffected by concerns of
distractions caused by personal risks associated with an actual or threatened
change in control, thus guaranteeing that all action taken in a takeover context
is done in the best interests of the constituents and shareholders served by the
Company and Bank.
NOW, THEREFORE, IT IS AGREED:
1. Term. The initial term of employment under this Agreement shall be
for a three-year period from January 1, 1994, which is the effective date of
this Agreement. No later than 60 days after the second and, if appropriate, each
subsequent anniversary date of the effective date of this Agreement, the
Employee and the full Boards of Directors of both the Company and the Bank by a
majority vote may extend the term of this Agreement for one additional year. It
is anticipated that the Board of Directors of the Bank will consider the matter
in the month of December immediately prior to the anniversary date in question,
and the Board of Directors of the Company in the month of February immediately
subsequent thereto. If the Employee and the Board of Directors of the Company
and the Bank fail to extend the term of this Agreement within 60 days of any
such anniversary date, this Agreement shall automatically terminate one year
after the anniversary date in question. Each initial term and all such extended
terms are collectively referred to herein as the term of this Agreement.
2. Change in Control. No compensation or benefits shall be payable
hereunder unless there shall have been a Change in Control.
(a) A "Change in Control of the Company" for purposes of this
Agreement, shall be deemed to have taken place if: (i) any person becomes the
beneficial owner of 25 percent or more of the total number of outstanding voting
shares of the Company; (ii) any person becomes the beneficial owner of 10
percent or more, but less than 25 percent, of the total number of outstanding
voting shares of the Company, provided that, if the FHLBB has approved a
rebuttal agreement filed by such person or such person has filed a certification
with the FHLBB, a Change in Control will not be so deemed to have occurred
unless the Board of Directors of the Company has made a determination that such
a beneficial ownership constitutes or will constitute control of the Company;
(iii) any person (other than the persons named as proxies solicited on behalf of
the Board of Directors of the Company) holds revocable or irrevocable proxies,
as to the election or removal of two or more directors of the Company, for 25
percent or more of the total number of outstanding voting shares of the Company;
(iv) any person has received the approval of the FHLBB under Section 408 of the
National Housing Act (the "Holding Company Act"), or regulations issued
thereunder, to acquire control of the Company; (v) any person has received
approval of the FHLBB under the Change in Savings and Loan Control Act of 1978
(the "Control Act"), or regulations issued thereunder, to acquire control of the
Company; (vi) any person has commenced a tender or exchange offer, or entered
into any agreement or received an option, to acquire beneficial ownership of 25
percent or more of the total number of outstanding voting shares of the Company,
whether or not the requisite regulatory approval for such acquisition has been
received under the Holding Company Act, the Control Act, or the respective
regulations issued thereunder, provided that a Change in Control will not be
deemed to have occurred under this clause (vii) unless the Board of Directors of
the Company has made a determination that such action constitutes or will
constitute a Change in Control; or (viii) as a result of, or in connection with,
any cash tender or exchange offer, merger, or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company before such
transaction shall cease to constitute at least two-thirds of the Board of
Directors of the Company or any successor institution. For purposes of this
Section, a "person" includes an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, unincorporated organization,
joint-stock company or similar organization or group acting in concert, but does
not include any employee stock ownership plan or similar employee benefit plan
of the Company or the Bank. A person for these purposes shall be deemed to be a
beneficial owner as that term is used in Rule 13d-3 under the Securities
Exchange Act of 1934.
(b) A "Change in Control of the Bank," for purposes of this
Agreement, shall be deemed to have taken place if the Company's beneficial
ownership of the total number of outstanding voting shares of the Bank is
reduced to less than 50 percent.
3. Good Reason. Employee shall be deemed to have resigned for Good
Reason if Employee resigns within twenty-four months following a Change in
Control as a result of one or more of the following events:
(a) Employee is assigned any duties materially inconsistent
with his principal responsibilities as compared to his principal
responsibilities immediately prior to such Change in Control.
(b) The Company or Bank reduces the Employee's total
compensation (including base salary and bonus) below the rate in effect
immediately prior to such Change in Control.
(c) The Company or Bank fails to provide the Employee with
benefits at least as favorable as those provided by the Company and/or Bank
immediately prior to such Change in Control; provided, however, that Good Reason
shall not exist under this paragraph 3(c) if Employee is provided benefits equal
to those provided the executives in the Company or Bank and their affiliates
following the Change in Control.
(d) The Company or Bank shall change the location of the
primary worksite of Employee to a location more than 50 miles from the worksite
immediately prior to the Change in Control, without Employee's consent.
4. Benefits Payable upon Termination or Resignation for Good Reason
Following Change in Control. The Board of Directors of the Company or Bank may
terminate Employee's employment at any time; however, if termination of
Employee's employment shall occur within 24 months of a Change in Control and is
not for cause as defined in paragraph 5 (c), or if Employee resigns within 24
months of a Change in Control for Good Reason as defined in paragraphs 3(a)
through 3(d), Employee shall be entitled to receive:
(a) For services previously rendered to the Bank and/or the
Company, a cash payment equal to two times Employee's average annual
compensation (including base salary and bonus) which was payable by the Company
and/or the Bank and was includable by Employee in his gross income for federal
income tax purposes with respect to the five most recent taxable years ending
prior to such Change in Control of the Company or of the Bank. The cash payment
may be made, at the option of the Company or the Bank, (i) in a lump sum within
ten (10) business days after the date of termination or resignation for Good
Reason or (ii) in twenty-four (24) consecutive equal monthly installments with
the first installment commencing no later than ten (10) business days after the
date of termination or resignation for Good Reason. If no payment is made to
Employee within ten (10) business days of the date of termination or resignation
for Good Reason, the Bank and Company shall lose the option of making
installment payments to Employee and the lump sum payment shall be immediately
due and payable together with interest at the rate of 12% per annum from the
date of termination or resignation for Good Reason until paid.
(b) The Company and Bank shall maintain in full force and
effect for Employee's continued benefit for two years after the date of
termination or resignation for Good Reason, all insurance plans (including
medical, dental, life and disability) in which Employee was entitled to
participate immediately prior to the Change in Control, provided that Employee's
participation is possible under the general terms and provisions of such plans.
In the event that Employee's participation in any such plan is barred, the
Company or Bank shall arrange to provide the Employee with benefits
substantially similar to those to which he was entitled to receive under such
plans.
(c) The Company and Bank shall also pay all legal fees and
expenses incurred by Employee as a result of such termination of resignation for
Good Reason, including such fees and expenses, if any, incurred in good faith in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement.
(d) Employee shall have the right to exercise on or within 90
days after termination or resignation for Good Reason all unexercised stock
options granted under the First Financial Stock Option Plans prior to the Change
in Control unless such exercise is prohibited by law.
(e) To the extent that any payment or benefit to be extended
by the Bank under paragraphs 4(a) through 4(d) of the Employment Agreement shall
exceed any of the limitations provided for in RB 27 (or any other applicable
regulatory or statutory limitation to which the Bank is or may be subject from
time to time), then the Bank shall not be responsible for payment of any such
benefit in excess of the applicable limitation and the Company shall be solely
liable for payment of such excess benefits; provided, however, that nothing
contained in this paragraph 4(d) shall decrease or diminish the total payments
or benefits to be extended to the Employee under the Employment Agreement.
5. Restrictions on Benefits. Notwithstanding the provisions of
paragraphs 4(a) through 4(d) hereof, the following restrictions on benefits
shall apply:
(a) Employee shall not have any right to receive any payment
or benefit under this Agreement or any other agreement or benefit plan if such
payment or benefit, taking into account all other payments or benefits to the
Employee, would cause any payment to the Employee under this Agreement to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code as then in effect (a "Parachute Payment"). In the event
that the receipt of any such payment or benefit under this Agreement, or any
other agreement or benefit plan, would cause Employee to be considered to have
received a Parachute Payment under this Agreement, then the Employee shall have
the right, in the Employee's sole discretion, to designate those payment or
benefits under this Agreement, or any other agreements or benefit plans, which
should be reduced or eliminated so as to avoid having a payment to the Employee
under this Agreement to be deemed a Parachute Payment.
(b) Employee shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment. However,
upon Employee's employment by another employer after the date of termination or
resignation for Good Reason, payments provided for in this Agreement payable or
attributable to periods after commencement of such new employment shall be
reduced by fifty percent (50%) and the benefits coverage provided for in
paragraph 4(b) shall terminate.
(c) Employee shall have no right to receive compensation or
other benefits under this Agreement for any period after termination for cause.
"Termination for Cause" shall include termination because of personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. In determining incompetence or intentional failure to perform
stated duties, the acts or omissions shall be measured against standards
generally prevailing in financial institutions of similar size and type;
provided it shall be the Company's or the Bank's burden to prove by a
preponderance of evidence the alleged acts and omissions and the prevailing
nature of the standards the Company or the Bank shall have alleged are violated
by such acts and omissions.
(d) If Employee is suspended and/or temporarily prohibited in
participating in the conduct of the Bank's affairs by notice served under
Section 5(e)(4)(D), or Section 5(d)(5)(A) of the Homeowners Loan Act or under
Section 407(g)(4) or 407(h) of the National Housing Act, the Company's and
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Company and/or Bank may in its discretion (i) pay Employee
all or part of the compensation withheld while his contract obligations are
suspended and (ii) reinstate (in whole or part) any of its obligations which
were suspended.
(e) If Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 5(e)(4)(e) or Section 5(d)(5)(A) of the Homeowners Loan Act or under
Section 407(g)(5) or Section 407(h) of the National Housing Act, all obligations
of the Company and Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the parties shall not be affected.
(f) If the Bank is in default (as defined in Section 401(d) of
the National Housing Act), all obligations under this Agreement shall terminate
as of the date of default, but this paragraph shall not affect any vested rights
of the contracting parties.
(g) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank, (i) by the Federal Savings and Loan
Insurance Corporation, at the time such Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 406(f) of the National Housing Act; or (ii) by the Federal Home Loan
Bank Board, at the time the Board or its Principal Supervisory Agent approves a
supervisory merger to resolve problems related to operation of the Bank or when
the Bank is determined by the Board to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(h) This Agreement shall automatically terminate in the event
that prior to a Change in Control the Employee shall die, become permanently
totally disabled, or terminate his employment with the Company and Bank.
6. Miscellaneous.
(a) Applicable Law. This Agreement and all questions of its
interpretation, performance, enforcement and the rights and remedies of the
parties hereto shall be determined in accordance with the laws of the State of
Wisconsin and any applicable federal laws, rules, and regulations, including but
not limited to the Internal Revenue Code, the Homeowners Loan act, the National
Housing Act, and the rules and regulations of the Federal Home Loan Bank Board.
Any reference to statutes or regulations shall be deemed to include any
successor statute or regulation.
(b) Binding Effect. The obligations of this Agreement will be
binding upon the Company and Bank and any successor organization to all or
substantially all of the business and/or assets of the Company or Bank, whether
direct or indirect, by purchase, merger, consolidation or otherwise; and this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of death of the Employee, all
rights to receive payments hereunder shall become rights of Employee's estate.
(c) Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
approved by a majority vote of the full Board of Directors of the Company and
Bank and is agreed to in writing signed by the Employee and such officer as may
be specifically designated by the Board of Directors of the Company and Bank. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
(d) Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date, month and year first written above.
ATTEST: FIRST FINANCIAL CORPORATION
/s/ Patricia A. Janowski By: /s/ John C. Seramur
- ------------------------- -------------------------------
Assistant Secretary John C. Seramur, President
ATTEST: FIRST FINANCIAL BANK, FSB
/s/ Patricia A. Janowski By: /s/ John C. Seramur
- ------------------------- -------------------------------
Assistant Secretary John C. Seramur, President
EMPLOYEE
/s/ Kenneth F. Csinicsek
-------------------------------
Kenneth F. Csinicsek
<PAGE>
EXHIBIT 13(a)
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED BALANCE SHEETS
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
December 31,
1993
(Restated-
1994 Note D)
---------- -----------
(In Thousands)
<S> <C> <C>
ASSETS
Cash $ 75,411 $ 63,241
Federal funds sold 23,890 21,873
Interest-earning deposits 837 25,768
---------- ----------
CASH AND CASH EQUIVALENTS 100,138 110,882
Securities available for sale (at fair value):
Investment securities 6,061 84,487
Mortgage-related securities 164,572 347,137
Securities held to maturity:
Investment securities (fair value of
$124,434,000--1994 and $143,448,000
--1993) 129,301 143,568
Mortgage-related securities (fair value of
$1,253,365,000--1994 and $991,455,000
--1993) 1,290,729 977,806
Loans receivable:
Held for sale 6,078 73,919
Held for investment 3,219,285 2,848,585
Foreclosed properties and repossessed
assets 4,056 6,817
Real estate held for investment or sale 7,706 16,810
Office properties and equipment, at cost 48,957 50,120
Intangible assets, less accumulated
amortization 26,726 31,392
Other assets 100,097 82,260
---------- ----------
$5,103,706 $4,773,783
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
1993
(Restated-
1994 Note D)
------------ ------------
(In Thousands)
<S> <C> <C>
LIABILITIES
Deposits $ 4,064,166 $ 4,050,520
Borrowings 682,063 438,598
Advance payments by borrowers for
taxes and insurance 14,526 13,805
Other liabilities 64,996 37,025
----------- -----------
TOTAL LIABILITIES 4,825,751 4,539,948
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: 24,803,842--1994;
23,586,827--1993 24,804 23,587
Additional paid-in capital 32,506 27,340
Net unrealized gain (loss) on securities
available for sale (5,400) 1,851
Retained earnings (substantially
restricted) 226,045 181,057
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 277,955 233,835
----------- -----------
$ 5,103,706 $ 4,773,783
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
Interest income:
Mortgage loans $ 162,542 $ 160,372 $ 131,206
Other loans 96,771 81,272 73,148
Mortgage-related securities 85,895 86,052 83,040
Investments 10,935 12,427 9,477
--------- --------- ---------
TOTAL INTEREST INCOME 356,143 340,123 296,871
Interest expense:
Deposits 165,500 169,741 174,042
Borrowings 27,030 19,993 7,854
--------- --------- ---------
TOTAL INTEREST EXPENSE 192,530 189,734 181,896
--------- --------- ---------
NET INTEREST INCOME 163,613 150,389 114,975
Provision for losses on loans 6,540 10,219 13,851
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISIONS
FOR LOSSES ON LOANS 157,073 140,170 101,124
Non-interest income:
Loan fees and service charges 8,785 8,879 8,566
Deposit account service fees 7,976 7,567 5,933
Insurance and brokerage sales commis-
sions 6,769 6,276 5,666
Service fees on loans sold 5,326 5,233 4,395
Net gain on sales of loans held for sale 1,851 7,997 4,859
Net gain (loss) on sales of securities
available for sale 1,375 (422) 41
Unrealized loss on impairment of
mortgage-related securities (9,000)
Other 2,719 2,191 2,749
--------- --------- ---------
TOTAL NON-INTEREST INCOME 25,801 37,721 32,209
--------- --------- ---------
182,874 177,891 133,333
Non-interest expense:
Compensation, payroll taxes and other
employee benefits 44,606 43,765 37,177
Federal deposit insurance premiums 9,552 7,341 6,968
Occupancy 8,232 7,534 5,973
Data processing 7,107 7,462 6,622
Loan expense 6,161 6,059 4,234
Telephone and postage 5,535 5,068 4,668
Amortization of intangible assets 5,365 6,427 3,713
Furniture and equipment 5,194 5,256 3,902
Marketing 4,592 3,801 2,572
Net cost of operations of foreclosed
properties 528 3,501 4,772
Other 9,868 9,590 8,110
--------- --------- ---------
TOTAL NON-INTEREST EXPENSE 106,740 105,804 88,711
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 76,134 72,087 44,622
Income taxes 27,809 26,872 16,190
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 48,325 45,215 28,432
Cumulative effect on prior years of changing
the method of accounting for income taxes 5,600
--------- --------- ---------
NET INCOME $ 48,325 $ 45,215 $ 34,032
========= ========= =========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME--Continued
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
----- ----- ----
(In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
Earnings per share:
Primary:
Income before cumulative effect of a
change in accounting principle $ 1.91 $ 1.88 $ 1.21
Cumulative effect of accounting
change .24
----- ----- -----
NET INCOME $ 1.91 $ 1.88 $ 1.45
===== ===== =====
Fully Diluted:
Income before cumulative effect of a
change in accounting principle $ 1.91 $ 1.86 $ 1.19
Cumulative effect of accounting
change .24
----- ----- -----
NET INCOME $ 1.91 $ 1.86 $ 1.43
===== ===== =====
Cash dividends paid per share $ .40 $ .35 $ .22
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Net
Unrealized
Gain
(Loss) On
Additional Securities Total
Common Paid-In Available Retained Stockholders'
Stock Capital For Sale Earnings Equity
------ ---------- ---------- --------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Balances at January 1, 1992 $23,038 $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)
Exercise of stock options 321 591 912
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
$1,382,000 (Restated-Note D) $ 1,851 1,851
------- ------- -------- -------- --------
BALANCES AT DECEMBER 31, 1993
(Restated-Note D) 23,587 27,340 1,851 181,057 233,835
Net income 48,325 48,325
Cash dividends ($.40 per share) (9,950) (9,950)
Exercise of stock options 279 1,316 1,595
Issuance of common stock in
conjunction with acquisition 938 3,850 6,613 11,401
Change in net unrealized gain
(loss) on securities available
for sale, net of tax benefit of
$4,585,000 (7,251) (7,251)
------- ------- -------- -------- --------
BALANCES AT DECEMBER 31, 1994 $24,804 $32,506 $ (5,400) $226,045 $277,955
======= ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 48,325 $ 45,215 $ 34,032
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 (2,391) 3,678 (107)
Decrease in accrued interest on
deposits (28) (1,670) (3,783)
Loans originated for sale (184,976) (599,126) (392,515)
Proceeds from sales of loans held
for sale 303,881 648,282 495,573
Provision for depreciation 5,626 5,516 4,441
Provision for losses on loans 6,540 10,219 13,851
Provision for losses on real
estate and other assets 525 3,564 5,019
Unrealized loss on impairment of
mortgage-related securities 9,000
Amortization of cost in excess of
acquired businesses 873 554 592
Amortization of core deposit
intangibles 4,492 5,873 3,121
Amortization of purchased mortgage
servicing rights 473 1,283 2,566
Net gain on sales of loans and other
assets (3,842) (7,772) (5,023)
Other 19,155 (7,523) (72)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 207,653 108,093 152,095
INVESTING ACTIVITIES
Proceeds from sales of investment
securities available for sale 65,088 45,000 20,012
Proceeds from maturities of investment
securities held to maturity 32,445 60,886 213,480
Purchases of available for sale
investment securities (1,008) (80,000)
Purchases of investment securities held
to maturity (515) (126,409) (280,109)
Proceeds from sales of mortgage-related
securities available for sale 181,890 81,287 853
Principal payments received on
mortgage-related securities 273,951 364,046 287,538
Purchases of mortgage-related securities (588,352) (240,640) (696,206)
Principal collected on loans
receivable 503,376 575,093 394,627
Loans originated for portfolio (839,451) (1,029,303) (740,708)
Additions to office properties and
equipment (3,075) (5,546) (6,538)
Proceeds from sales of foreclosed
properties and repossessed assets 8,535 17,832 22,763
Proceeds from sales of real estate
held for investment 10,130 293 569
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
INVESTING ACTIVITIES--Continued
Business acquisitions, net of cash and
cash equivalents acquired of $4,593,000
--1994; $443,795,000--1993; and
$316,401,000--1992
Loans receivable (96,748) (316,305) (146)
Investment securities held to
maturity (4,785) (22,775)
Mortgage-related securities available
for sale (81,287)
Mortgage-related securities held to
maturity (16,742) (145,098)
Office properties and equipment (2,387) (8,445) (397)
Real estate held for investment -- (3,400)
Intangible assets (699) (14,541) (6,603)
Deposits and related accrued
interest 114,297 970,162 327,134
Borrowings 750 71,897
Shareholders' equity 11,401
Other--net (494) (9,813) (187)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (352,393) 106,334 (467,318)
FINANCING ACTIVITIES
Net decrease in deposits (100,623) (124,084) (52,884)
Increase in advance payments by
borrowers for taxes and insurance 259 831 2,572
Decrease in short-term borrowings (12,000)
Proceeds of borrowings 955,327 826,500 1,014,920
Repayments of borrowings (712,612) (921,747) (618,215)
Proceeds from exercise of stock options 1,595 912 626
Payments of cash dividends to
stockholders (9,950) (8,238) (5,098)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 133,996 (225,826) 329,921
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (10,744) (11,399) 14,698
Cash and cash equivalents at beginning of
year 110,882 122,281 107,583
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 100,138 $ 110,882 $ 122,281
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid or credited to accounts for:
Interest on deposits and borrowings $ 191,068 $ 190,806 $ 184,310
Income taxes 31,279 28,399 19,738
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 (Restated for 1993-
Note D) 21,909 345,468 812
Mortgage loans transferred to loans
held for sale portfolio 26,028 60,238 114,978
Loans receivable transferred to
foreclosed properties 6,843 7,350 14,963
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST FINANCIAL CORPORATION
December 31, 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: First Financial Corporation ("FFC") provides a full range of financial
services to individual customers in Wisconsin and Illinois through its
wholly-owned insured banking subsidiary, First Financial Bank, FSB ("FF Bank")
and its subsidiaries, all of which are wholly-owned. FFC and its subsidiary are
subject to competition from other financial institutions. FFC and its subsidiary
also are subject to the regulations of certain federal 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 FFC and FF Bank. 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 FFC
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 beginning December 31, 1993. No securities are held by FFC
in a trading account.
The amortized 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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.
In connection with the amortization of premiums and discounts and in determining
if declines in value are other than temporary, management estimates future cash
flows to be generated by pools of loans underlying the mortgage-related
securities. Included in this evaluation are such factors as i) estimated loan
prepayment rates, ii) a review of delinquencies, foreclosures, repossessions and
recovery rates relative to the underlying mortgage loans collateralizing each
security, iii) the level of available subordination or other credit
enhancements, iv) an assessment of the servicer of the underlying mortgage
portfolio and v) the rating assigned to each security by independent national
rating agencies.
Short-term securities include certificates of deposit, commercial paper,
banker's acceptances and similar instruments.
FFC 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 ($586,000--1994; $651,000--1993) are established for
uncollected interest on non-accrual loans. Generally, a loan is classified as
nonaccrual and the accrual of interest on such loan is discontinued when the
contractual payment of principal or interest has become more than 90 days past
due or management has serious doubts about further collectibility of principal
or interest, even though the loan currently is performing. When a loan is placed
on nonaccrual status, accrued but unpaid interest is reversed. Generally, loans
are restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
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. FF Bank is amortizing these amounts, using the level yield method,
over the contractual life of the related loans. Such deferred fees are recorded
as income upon prepayment of the related loans.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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.
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 FF Bank's loans are collateralized by real estate in
Wisconsin and Illinois. Accordingly, the ultimate collectibility of a
substantial portion of FF Bank's 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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.
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 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 ten to twenty-five years using the straight-line and
accelerated methods. The cost in excess of net assets of acquired businesses,
aggregating $4,996,000 and $3,070,000 at December 31, 1994 and 1993,
respectively, is net of accumulated amortization. During 1994, $2,100,000 of a
previously-classified core deposit intangible was reclassified to cost in excess
of net assets of acquired businesses upon the finalization of the valuation
review of the deposit base acquired in a 1993 acquisition.
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 $21,730,000 and $28,322,000 at December 31,
1994 and 1993, respectively, are net of accumulated amortization. During 1994,
the core deposit intangible amount has been reduced for the above-noted
$2,100,000 reclassification.
Income Taxes: FFC and its subsidiary 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.
FFC 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 FFC's tax status.
Consequently, tax expense in future years may be impacted by changes in tax
rates and tax return limitations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Per Share Amounts: 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.
FFC's common equivalent shares consist entirely of stock options. The resulting
number of shares used in computing primary earnings per share in 1994, 1993 and
1992 is 25,324,000, 24,112,000 and 23,498,000, respectively. The resulting
number of shares used in computing fully diluted earnings per share in 1994,
1993 and 1992 is 25,320,000, 24,369,000 and 23,860,000, respectively. Cash
dividends per share have also been restated for the above-mentioned stock
splits.
Accounting Changes: Effective January 1, 1992, FFC changed its method of
accounting for income taxes from the deferred method to the liability method
required by Statement of Financial Accounting Standards ("Statement") 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
Statement 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 Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As
permitted under the Statement, FFC elected to adopt the provisions of the new
standard as of December 31, 1993. In accordance with Statement No. 115, prior
period financial statements have not been restated to reflect the change in
accounting principle. As a result of adopting Statement No. 115, the December
31, 1994 and restated 1993 balances (see Note D) of stockholders' equity were
increased (decreased) by $(5,400,000) and $1,851,000 (net of $3,203,000 and
$(1,382,000) in deferred income taxes), respectively, to reflect the net
unrealized holding gain or loss on securities classified as available for sale
previously carried at the lower of amortized cost or fair value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Pending Accounting Changes: The FASB issued Statement No. 114, ("Accounting by
Creditors for Impairment of a Loan") in May, 1993 and Statement No. 118
("Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures") in October, 1994. FFC will adopt Statements No. 114 and 118 as of
January 1, 1995. Statement No. 114 requires that impaired loans be measured at
the present value of expected future cash flows discounted at the loan's
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. Statement No. 118 eliminates the provisions in Statement No. 114 that
describe how a creditor should report interest income on an impaired loan and
allows a creditor to use existing methods to recognize, measure and display
interest income on an impaired loan. Management does not believe that the
adoption of Statements No. 114 and 118 will have a material impact on FFC's
financial condition or results of operations.
Reclassifications: Certain 1993 accounts have been reclassified to conform to
the 1994 presentations.
NOTE B--BUSINESS COMBINATIONS
On February 26, 1994, FFC completed the acquisition of NorthLand Bank of
Wisconsin, SSB ("NorthLand") of Ashland, Wisconsin. FFC 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 has been accounted for as
a pooling-of-interests. NorthLand was not material to the balance sheet or
operating results of FFC; therefore, balances for prior years have not been
restated. However, 1994 amounts have been adjusted to reflect the transaction as
if it had occurred on January 1, 1994. NorthLand, which was merged into FF Bank,
had total assets and stockholders' equity of $125.6 million and $11.4 million,
respectively, at December 31, 1993.
Condensed 1993 and 1992 operating results for NorthLand were as follows (in
thousands):
1993 1992
-------- ------
Net interest income $5,917 $5,489
Provision for losses on loans (482) (563)
Non-interest income 1,460 1,330
Non-interest expense (4,962) (5,092)
Income taxes (858) 79
------ ------
Net income $1,075 $1,243
====== ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE B--BUSINESS COMBINATIONS--Continued
On January 4, 1993, FF Bank 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
FF Bank. FFC did not issue any stock as a result of this transaction. The
acquisition of United by FF Bank has been accounted for as a purchase with
United's nineteen branch offices now operating as branches of FF Bank. 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 adjustments, United had total assets, deposits
and stockholder's equity of $821,000,000, $694,000,000 and $54,000,000,
respectively.
Had the United acquisition been consummated on January 1, 1992, FFC's 1992
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 (in thousands,
except per share amounts):
Total income $397,086
Net income 40,112
Earnings per share:
Primary 1.74
Fully diluted 1.72
Also, in August, 1993, FF Bank 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 FF Bank, was accounted for as a purchase
and, consequently, the related accounts and results of operations are included
in FFC's consolidated financial statements from the date of acquisition.
In two transactions during the first quarter of 1992, FF Bank 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 FF Bank; consequently, the related accounts and results of operations
are included in FFC'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.
Amortized Gross Unrealized
------------------
Cost Gains Losses Fair Value
--------- ------- -------- ----------
(In Thousands)
At December 31, 1994:
Available-for-sale:
U.S. Government and
federal agency
obligations $ 6,106 $ 8 $ 53 $ 6,061
--------- --------- --------- ---------
$ 6,106 $ 8 $ 53 $ 6,061
========= ========= ========= =========
Held-to-maturity:
Corporate and bank notes
receivable (investment
grade) $ 38,202 $ 1 $ 501 $ 37,702
U.S. Government and
federal agency
obligations 86,162 1 4,339 81,824
State and municipal
obligations 4,433 1 26 4,408
Certificates of Deposit 504 4 500
--------- --------- --------- ---------
$ 129,301 $ 3 $ 4,870 $ 124,434
========= ========= ========= =========
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
========= ========= ========= =========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE C--INVESTMENT SECURITIES--Continued
The amortized cost and fair value of investment securities at December 31, 1994,
by contractual maturity or repricing date, are shown below.
Available-For-Sale Held-To-Maturity
-------------------- -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -----
(In Thousands)
Due in one year or less $ 2,492 $ 2,493 $ 75,066 $ 72,792
Due after one year through
five years 3,614 3,568 53,598 51,026
Due after five years through
ten years 637 616
-------- -------- -------- --------
$ 6,106 $ 6,061 $129,301 $124,434
======== ======== ======== ========
During the years ended December 31, 1994, 1993 and 1992, investment securities
available for sale with a fair value at the date of sale of $65,088,000,
$45,000,000 and $20,012,000, respectively, were sold. The gross realized gains
on such sales totaled $1,200,000 and $12,000 in 1994 and 1992, respectively.
Gross realized losses on such sales totaled $155,000 and $415,000 in 1994 and
1993, respectively.
Accrued interest on investment securities, including those securities classified
as federal funds sold, interest-earning deposits and short-term securities, was
$2,770,000 and $3,003,000 at December 31, 1994 and 1993, 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
Cost Gains Losses Fair Value
------------ ----------- --------- ------------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1994:
Available-for-sale:
Adjustable-rate mortgage-
backed securities $ 163,147 $ 23 $ 8,086 $ 155,084
Adjustable-rate collater-
alized mortgage
obligations 9,982 494 9,488
---------- ---------- ---------- ----------
$ 173,129 $ 23 $ 8,580 $ 164,572
========== ========== ========== ==========
Held-to-maturity:
Mortgage-backed securities:
Adjustable-rate $ 830,916 $ 22,138 $ 808,778
Fixed-rate 130,942 $ 645 4,327 127,260
Collateralized mortgage
obligations:
Adjustable-rate 326,756 35 11,525 315,266
Fixed-rate 2,115 1 55 2,061
---------- ---------- ---------- ----------
$1,290,729 $ 681 $ 38,045 $1,253,365
========== ========== ========== ==========
At December 31, 1993 (Restated):
Available-for-sale:
Adjustable-rate mortgage-
backed securities $ 315,572 $ 5,217 $ 3,765 $ 317,024
Adjustable-rate collater-
alized mortgage
obligations 29,896 217 30,113
---------- ---------- ---------- ----------
$ 345,468 $ 5,434 $ 3,765 $ 347,137
========== ========== ========== ==========
Held-to-maturity:
Mortgage-backed securities:
Adjustable-rate $ 802,007 $ 7,846 $ 815 $ 809,038
Fixed-rate 171,637 6,572 4 178,205
Collateralized mortgage
obligations:
Adjustable-rate 957 1 956
Fixed-rate 3,205 51 3,256
---------- ---------- ---------- ----------
$ 977,806 $ 14,469 $ 820 $ 991,455
========== ========== ========== ==========
</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 security
type and issuer.
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993 (Restated)
---------------------------------- --------------------------------
Amortized Fair Carrying Amortized Fair Carrying
Issuer/Security Type Cost Value Value Cost Value Value
- -------------------- ---------- --------- -------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agencies:
Mortgage-backed certi-
ficates $ 360,219 $ 348,479 $ 359,928 $ 157,504 $ 162,258 $ 157,631
Collateralized mortgage
obligations 336,738 324,754 336,243 30,854 31,069 31,070
---------- ---------- ---------- ---------- ---------- ----------
Total agencies 696,957 673,233 696,171 188,358 193,327 188,701
---------- ---------- ---------- ---------- ---------- ----------
Private issuers:
Mortgage-backed certi-
ficates
Senior position 660,922 644,136 658,508 924,037 935,085 926,113
Mezzanine position 103,864 98,507 98,507 207,675 206,924 206,924
Collateralized mort-
gage obligations 2,115 2,061 2,115 3,204 3,256 3,205
---------- ---------- ---------- ---------- ---------- ----------
Total private issuers 766,901 744,704 759,130 1,134,916 1,145,265 1,136,242
---------- ---------- ---------- ---------- ---------- ----------
Totals $1,463,858 $1,417,937 $1,455,301 $1,323,274 $1,338,592 $1,324,943
========== ========== ========== ========== ========== ==========
Total carrying value per
consolidated financial
statements, by
classification:
Available-for-sale
portfolio $ 164,572 $ 347,137
Held-to-maturity portfolio 1,290,729 977,806
---------- ----------
Total carrying value $1,455,301 $1,324,943
========== ==========
</TABLE>
FFC has restated its December 31, 1993 consolidated financial statements to
reflect a correction of an error relating to the misclassification of certain of
its mortgage-backed securities ("MBSs"). Subsequent to the issuance of its 1993
consolidated financial statements, management determined that investment
officers in 1991 and 1992 mistakenly interpreted the investment policy to permit
the purchase of mezzanine securities, which consisted of "a" senior position but
not "the" senior position. A mezzanine security is subordinate to the most
senior position of an individual security but is still superior to other
subordinate classes or positions designed to absorb first losses, if any, for
that security. Since the inherent risk of ownership of the mezzanine securities
could affect management's intent and/or ability to hold such securities, it was
determined that the held-to-maturity classification was in error at December 31,
1993. All financial data contained herein has been restated to reflect the
reclassification as of December 31, 1993 of mezzanine securities with a carrying
value of $170.1 million and a fair value of $168.8 million from held to maturity
to available for sale status. In addition, stockholders' equity has been
restated to reflect the $850,000 reduction in the unrealized gain on securities
available for sale (net of tax) resulting from the above reclassification.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE D--MORTGAGE-RELATED SECURITIES--Continued
At December 31, 1994, the private issuers categories above include securities
with a carrying value of $695,000,000 which have been AA rated by an independent
rating agency. Excluding downgraded securities totaling $34.0 million, all other
securities in the private issuer category are, at a minimum, of investment grade
quality. FFC has taken a $9.0 million permanent impairment loss on two of the
downgraded securities. The third downgraded security continues to be performing.
With the exception of collateralized mortgage obligations, noted in the tables
above, FFC does not invest in, nor is a party to, derivative investment
instruments.
During the years ended December 31, 1994, 1993 and 1992, mortgage-related
securities available for sale with a fair value at the date of sale of
$181,890,000, $81,287,000 and $853,000, respectively, were sold. The gross
realized gains on such sales totaled $461,000, $14,000 and $41,000 in 1994, 1993
and 1992, respectively. The gross realized losses on such sales totaled $132,000
and $21,000 in 1994 and 1993, respectively. The 1994 sales were related to the
sales of subordinated securities reclassified as available-for-sale status as
well as sales of mortgage-related securities previously classified as available
for sale. The 1993 sales related to the mortgage-related securities portfolio
acquired in the United acquisition which did not meet FFC's investment
guidelines.
Accrued interest receivable on mortgage-related securities was $7,702,000 and
$7,285,000 at December 31, 1994 and 1993, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE E--LOANS RECEIVABLE
Loans receivable held for investment consist of the following:
December 31,
1994 1993
---------- ---------
(In Thousands)
Real estate mortgage loans:
Residential (including multi-family) $ 2,040,322 $ 1,855,298
Commercial and other 115,170 93,528
Construction - residential (including
multi-family) 55,558 58,132
Construction - commercial 7,270 460
----------- -----------
Total real estate mortgage loans 2,218,320 2,007,418
Consumer and other loans:
Consumer 259,885 153,574
Home equity 234,354 193,291
Credit card 200,747 209,414
Education 190,457 167,385
Manufactured housing 152,674 165,017
Business 19,023 111
----------- -----------
Total consumer and other loans 1,057,140 888,792
----------- -----------
Total loans before net items 3,275,460 2,896,210
Less:
Allowances for losses 22,457 23,266
Undisbursed loan proceeds 31,279 18,705
Deferred loan fees 1,061 2,591
Discount on loans of acquired businesses 894 1,979
Unearned discounts 484 1,084
----------- -----------
56,175 47,625
----------- -----------
$ 3,219,285 $ 2,848,585
=========== ===========
Accrued interest on loans receivable was $19,677,000 and $16,895,000 at December
31, 1994 and 1993, respectively.
The following table sets forth the composition of the non-residential real
estate loan portfolio, including both permanent and construction loans, by
geographic location of the related collateral properties.
December 31,
1994 1993
----------------------- -----------------------
Percent Percent
Of Of
Property Location Amount Total Amount Total
- ----------------- ------ ------- ------ -------
(Dollars in Thousands)
Wisconsin $ 93,530 76.4% $ 67,257 71.6%
Minnesota 7,525 6.2 4,749 5.1
Illinois 5,444 4.5 6,816 7.3
Georgia 4,106 3.3 4,170 4.4
Tennessee 2,829 2.3 2,874 3.0
Arizona 2,503 2.0 2,029 2.1
Texas 1,817 1.5 1,854 2.0
Other 4,686 3.8 4,239 4.5
-------- ----- -------- -----
$122,440 100.0% $ 93,988 100.0%
======== ===== ======== =====
<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:
December 31,
1994 1993
------ -----
(In Thousands)
Real estate owned $ 2,432 $ 5,804
Real estate judgments subject to redemption 2,503 2,236
Manufactured housing owned 171 115
Repossessed collateral assets 96 48
------- -------
5,202 8,203
Less allowance for losses 1,146 1,386
------- -------
$ 4,056 $ 6,817
======= =======
NOTE G--ALLOWANCES FOR LOSSES
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 23,266 $ 17,067 $ 16,706
Acquired banks' allowance 718 4,885
Provisions 6,540 10,219 13,851
Charge-offs (9,548) (10,294) (14,727)
Recoveries 1,481 1,389 1,237
--------- --------- ---------
BALANCE AT END OF YEAR $ 22,457 $ 23,266 $ 17,067
========= ========= =========
</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,
1994 1993 1992
------ ------ -----
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,386 $ 552 $ 738
Provisions 400 3,519 4,794
Charge-offs (640) (2,685) (4,980)
-------- -------- --------
BALANCE AT END OF YEAR $ 1,146 $ 1,386 $ 552
======== ======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE H--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
December 31,
1994 1993
------- -------
(In Thousands)
Land and parking lot improvements $11,257 $11,328
Office buildings and improvements 46,066 44,785
Furniture and equipment 32,481 31,498
Leasehold improvements 2,448 2,171
------- -------
92,252 89,782
Less allowances for depreciation and
amortization 43,295 39,662
------- -------
$48,957 $50,120
======= =======
NOTE I--DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------- --------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Checking accounts:
Interest-bearing $ 287,176 1.51% $ 280,401 1.76%
Non-interest-bearing 107,661 -- 82,637 --
---------- ----------
Total checking
accounts 394,837 1.10 363,038 1.36
Passbook accounts 736,307 2.99 812,138 2.76
Variable-rate insured
money market accounts 287,925 3.70 311,085 2.83
Certificate accounts (by
original maturity):
Less than one year 323,235 4.42 400,478 3.64
One to two years 831,990 4.55 666,896 3.99
Two to three years 696,416 4.97 653,834 4.72
Three to four years 284,651 5.23 307,711 5.78
Four years or more 505,438 6.52 532,136 7.24
---------- ----------
Total certificates 2,641,730 5.10 2,561,055 5.01
---------- ----------
4,060,799 4.23% 4,047,316 4.06%
==== ====
Accrued interest 3,367 3,204
---------- ----------
$4,064,166 $4,050,520
========== ==========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE I--DEPOSITS--Continued
Aggregate annual maturities of certificate accounts at December 31, 1994 are as
follows (in thousands):
Matures During
Year Ended
December 31,
----------------
1995 $1,570,016
1996 601,646
1997 243,268
1998 139,131
1999 82,127
Thereafter 5,542
----------
$2,641,730
Interest expense on deposits consists of the following:
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(In Thousands)
Passbook $ 24,339 $ 25,953 $ 27,154
Checking 5,112 5,427 4,658
Variable-rate insured
money market 8,943 9,497 10,921
Certificates 127,106 128,864 131,309
-------- -------- --------
$165,500 $169,741 $174,042
======== ======== ========
NOTE J--BORROWINGS
FFC periodically undertakes sales of securities under agreements to repurchase
the identical securities (reverse repurchase agreements). These agreements are
treated as financings with the obligations to repurchase securities reflected as
a liability and the dollar amount of the securities underlying the agreements
remaining in the asset accounts. The securities underlying the agreements are
held by the counter-party brokers in FF Bank's account. Based upon month-end
balances, securities sold under agreements to repurchase averaged $10,179,000
during 1994. The maximum amount outstanding at any month-end was $34,000,000
during 1994. There were no reverse repurchase agreements outstanding at the end
of 1994 or 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS-Continued
At December 31, 1994, FFC has an unused line-of-credit in the amount of
$18,000,000. The line-of-credit is available to FFC for working-capital purposes
or for potential future acquisitions. Under the terms of the line-of-credit,
which is available through April, 1995, 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 FFC and FF Bank.
Included among the covenants are restrictions on levels of total borrowings and
the interest-bearing asset/liability ratio for FFC, on a consolidated basis, and
a requirement that FF Bank maintain a minimum risk-based regulatory capital of
8.0%. All of such covenants are met at December 31, 1994. In addition, FFC would
pledge its stock in FF Bank as collateral should the line-of-credit be drawn
upon.
Federal Home Loan Bank ("FHL Bank") advances and other borrowings are comprised
of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
------------------ -----------
Weighted Weighted
Average Average
Maturity Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank: On Demand $446,000 6.01% $140,500 3.24%
1994 60,053 5.18
1995 150,250 4.61 150,000 4.61
1996 21,309 6.20 21,228 6.48
1997 31 7.00 31 7.00
2000 162 7.00 162 7.00
Subordinated notes 1999 54,977 8.51 54,997 8.51
Collateralized mortgage
obligations 2003 3,019 7.33 5,217 8.43
Industrial development
revenue bonds 2021 6,315 7.07 6,410 7.04
-------- --------
$682,063 5.93% $438,598 4.91%
======== ===== ======== =====
</TABLE>
Aggregate maturities on borrowings at December 31, 1994 are, as follows.
Payments on collateralized mortgage obligations are included based upon
estimated prepayments on the underlying mortgage portfolios.
Matures During
Year Ended
December 31,
--------------
(In Thousands)
1995 $596,345
1996 22,144
1997 1,018
1998 832
1999 55,621
Thereafter through 2021 6,103
--------
$682,063
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS--Continued
FF Bank is required to maintain unencumbered first mortgage loans in its
portfolio aggregating at least 167% of the amount of outstanding advances from
the FHL Bank as collateral. In addition, these borrowings are collateralized by
FHL Bank stock of $32,692,000 at December 31, 1994, 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 FFC. Under the terms of the indenture relating to the
Notes, the ability of FFC 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 FFC's subsidiary to incur indebtedness
(except for indebtedness that is guaranteed by, or secured by, property of FFC).
Unamortized issuance costs relating to the Notes totaled $1,346,000 and
$1,625,000 at December 31, 1994, and 1993, respectively, and are being amortized
using the interest method.
UFS Capital Corporation, FF Bank'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-backed securities with a carrying value of $3,777,000 and a fair value
of $3,509,000 at December 31, 1994.
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 $8,934,000 at December 31, 1994. FF Bank has a loan receivable
from the buyer of $5,880,000 at December 31, 1994, which is secured by a first
mortgage on the apartment project.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES
The provision for income taxes consists of the following:
Year Ended December 31,
1994 1993 1992
----------- ---------- -------
(In Thousands)
Current:
Federal $ 28,593 $ 26,029 $ 17,492
State 1,466 3,043 692
--------- --------- ---------
30,059 29,072 18,184
Deferred (credit):
Federal (2,360) (1,875) (2,005)
State 110 (325) 11
--------- --------- ---------
(2,250) (2,200) (1,994)
--------- --------- ---------
$ 27,809 $ 26,872 $ 16,190
========= ========= =========
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
Year Ended December 31,
1994 1993 1992
-------- -------- -------
(In Thousands)
Income before income taxes and
cumulative effect of a change
in accounting principle $ 76,134 $ 72,087 $ 44,622
======== ======== ========
Tax at federal statutory rate
(35%-1994 and 1993 and 34%-1992) $ 26,647 $ 25,230 $ 15,171
Add (deduct) effect of:
State income taxes (net of
federal income taxes) 1,707 2,061 329
Goodwill amortization 392 301 291
Other (937) (720) 399
-------- -------- --------
INCOME TAX PROVISION $ 27,809 $ 26,872 $ 16,190
======== ======== ========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES--Continued
The components of the deferred tax asset (liability) are as follows:
Deferred Tax
Asset (Liability)
At December 31,
1994 1993
------- ------
(In Thousands)
Deferred loan fees and other
loan yield adjustments $ 3,115 $ 3,255
Excess tax depreciation (1,763) (1,575)
Loss reserves for loans and
other assets 11,112 8,737
Deferred compensation 1,663 1,919
Core deposit intangible
amortization 2,588 2,294
FHL Bank stock dividend (838) (868)
Market valuation adjustments 2,985 (1,363)
Tax net operating loss
carryforwards 1,641 1,553
Other (524) (103)
-------- --------
19,979 13,849
Valuation allowance for
deferred tax assets (3,016) (3,547)
-------- --------
$ 16,963 $ 10,302
======== ========
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
subsidiary, 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.
FF Bank qualifies under provisions of the Internal Revenue Code which permit as
a deduction from taxable income allowable bad debt deductions which,
particularly in prior years, significantly exceed 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, 1994, FF Bank's
tax bad debt reserves are approximately $74,048,000. Upon the adoption of
Statement No. 109 as of January 1, 1992, FF Bank was 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. FF Bank's base year tax bad debt
reserves are approximately $70,104,000. Income taxes would be imposed at the
then applicable rates if FF Bank was to use these reserves for any purpose other
than to absorb bad debt losses.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY
The Board of Directors of FFC 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.
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 FF Bank are insured to the maximum allowable amounts by the Savings
Association Insurance Fund ("SAIF") as administered by the Federal Deposit
Insurance Corporation ("FDIC"). As a SAIF-insured institution, FF Bank is
required to meet tangible, core and risk-based regulatory capital requirements
as determined by the Office of Thrift Supervision ("OTS").
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
FF Bank's various OTS regulatory capital measurements at December 31, 1994 are
set forth below (in thousands):
Stockholder's equity $ 320,675
Add: Net unrealized loss on securities
available for sale 5,400
Less:
Core deposit intangibles (21,730)
Goodwill (4,996)
Non-qualifying investment in subsidiary (1,350)
Other (956)
---------
TANGIBLE CAPITAL 297,043
Add: qualifying intangibles 21,730
---------
CORE CAPITAL 318,773
Add: qualifying general allowances for
loan losses 21,249
RISK-BASED CAPITAL $ 340,022
The following table compares FF Bank's regulatory capital with OTS capital
requirements at December 31, 1994:
<TABLE>
<CAPTION>
Actual Required Actual Required
Amount Amount Excess Ratio Ratio Excess
-------- ----------- -------- -------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $297,043 $ 76,606 $220,437 5.82% 1.50% 4.32%
Core capital 318,773 153,864 164,909 6.22 3.00 3.22
Risk-based
capital 340,022 201,520 138,502 13.50 8.00 5.50
</TABLE>
The OTS has also added an interest-rate risk calculation such that an
institution with a measured interest-rate risk exposure, as defined, greater
than specified levels must deduct an interest rate risk component when
calculating the OTS risk-based capital requirement. At December 31, 1994, FF
Bank was not required to deduct any interest rate risk component under the OTS
regulations. The OTS has adopted another final rule, which was effective on
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. Management of FFC and FF
Bank do not believe these rules will significantly impact the capital
requirements of FF Bank or cause it to fail to meet its regulatory capital
requirements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
Under the terms of the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), FF Bank is 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, 1994, management believes that FF Bank had capital in excess of the
requirements to be a "well capitalized" institution under the PCA provisions of
FDICIA.
Applicable rules and regulations of the OTS impose limitations on dividends by
FF Bank. 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.
NOTE M--EMPLOYEE BENEFIT PLANS
FFC 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. The
options expire no later than ten years from the grant date.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Number Of Option Price
Shares Per Share
---------- ---------------
<S> <C> <C>
Balance January 1, 1992 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
Granted 175,250 14.75 - 16.75
Exercised (282,155) 1.68 - 9.44
Cancelled (26,000) 6.38 - 16.75
--------- ---------------
BALANCE DECEMBER 31, 1994 1,556,006 $ 3.09 - $16.75
========= ===============
</TABLE>
Options for 1,021,616 shares and 322,411 shares were exercisable at December 31,
1994 and 1993, respectively. At December 31, 1994, options for 635,250 shares
were available for future grant.
FFC 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 1994, 1993 and 1992 was $3,353,000, $3,666,000 and $2,950,000,
respectively.
FFC 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, 1994, the projected future obligation
under this plan amounted to $1,202,000, 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
$227,000, $434,000, and $166,000 for 1994, 1993 and 1992, respectively.
FFC sponsors an unfunded defined-benefit retirement plan for all outside
directors. At December 31, 1994, the projected future obligation under this plan
totaled $1,249,000, 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 $183,000,
$122,000 and $280,000 in 1994, 1993 and 1992, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
FFC 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:
December 31,
1994 1993
-------- ------
(In Thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,621,000--1994 and
$2,289,000--1993 $ 2,677 $ 2,373
======== ========
Plan assets at fair value, primarily fixed
income securities $ 3,704 $ 3,939
Projected benefit obligation 2,770 2,516
-------- --------
Plan assets in excess of projected
benefit obligation 934 1,423
Unrecognized prior service cost 194
Unrecognized net (gain) loss from past experience
different from that assumed and effects
of changes in assumptions 729 620
Unrecognized net transition asset (1,303) (1,432)
-------- --------
Prepaid pension cost included in other assets $ 554 $ 611
======== ========
Net periodic expense (benefit) for the Illinois Plan, as determined by actuarial
consultants, was $57,000, $7,000 and ($179,000) in 1994, 1993 and 1992,
respectively.
The principal actuarial assumptions used to develop the net pension benefit for
the Illinois Plan were as follows:
Year Ended December 31,
1994 1993 1992
-------- -------- ------
Weighted average discount rate 8.25% 7.25% 8.00%
Rate of increase in future compensation 5.00 5.00 6.00
Expected long-term rate of return on plan
assets 8.50 7.75 8.00
FFC does not, as a policy, offer post-retirement benefits other than profit
sharing, pensions and certain supplemental retirement benefits noted above.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FFC 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 FFC has
in particular classes of financial instruments.
FFC'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. FFC 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:
December 31,
1994 1993
-------- ------
(In Thousands)
Commitments to extend credit:
Fixed rate (5.25% to 10.375% at
December 31, 1994) $ 3,879 $ 52,079
Adjustable rate 18,995 10,259
Commitments to purchase adjustable-rate
mortgage-related securities -- 87,753
Unused lines of credit:
Credit cards 764,953 702,364
Home equity 304,655 250,344
Business lines 858
Other 8,800
Loans sold with recourse 44,000 59,000
Financial guarantees written 11,215 10,951
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. FFC evaluates each customer's creditworthiness on a case-by-case
basis. With the exception of credit card lines-of-credit, FFC 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK--
Continued
Commitments to extend credit on a fixed-rate basis expose FFC 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 $6,078,000 at December 31, 1994. 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, 1994
amount to $5,100,000.
All loans currently sold to others are sold on a nonrecourse basis and the
servicing of these loans is retained by FF Bank. At December 31, 1994, 1993 and
1992, $44,000,000, $59,000,000 and $119,000,000, respectively, of the serviced
loans were previously sold with recourse. Of these recourse loans, approximately
$36,000,000, $47,000,000 and $104,000,000 were federally-insured or
federally-guaranteed at December 31, 1994, 1993 and 1992, respectively. In
addition, management has considered the remaining uninsured or non-guaranteed
balance in the determination of the adequacy of the allowance for losses.
Financial guarantees represent agreements whereby, for an annual fee, certain of
FF Bank's 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, FF Bank is required to either pay the amount in default
or acquire the then outstanding bonds. FF Bank 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, 1994, certain mortgage-related securities and investment securities
with a carrying value of approximately $6,458,000 were pledged as collateral for
bonds in the aggregate principal amount of $4,005,000. Additional bond issues
totaling $7,210,000 are supported by letters of credit issued by FF Bank, in
lieu of specific collateral. The bond agreements have expiration dates through
2008.
Except for the above-noted commitments to originate and/or sell mortgage loans
in the normal course of business, FFC and FF Bank have not undertaken the use of
off-balance sheet derivative financial instruments for any purpose.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement 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. Statement 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 FFC. FFC 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 FFC 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 FFC's future earnings or cash flows.
The following methods and assumptions were used by FFC 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: The fair value of accrued interest
income and expense approximates 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 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
Mortgage servicing rights: Mortgage loan servicing rights, which consist of
FFC'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. Due to lack of practicability, the value of
those rights, except to the extent that purchased mortgage servicing rights
exist, is not reflected in FFC's consolidated balance sheets.
Federal Home Loan Bank stock: FHL Bank stock is carried at cost which is
its redeemable value since the market for this stock is restricted.
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 FFC's long-term borrowings are estimated
using discounted cash flow analyses, based on FFC's current incremental
borrowing rates for similar types of borrowing arrangements.
Off-balance-sheet instruments: Fair values for FFC'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, 1994 and 1993.
<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 FFC's financial instruments consist of
the following.
<TABLE>
<CAPTION>
December 31,
1994 1993 (Restated)
---------------------- ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
<S> <C> <C> <C> <C>
Cash equivalents $ 24,727 $ 24,727 $ 47,641 $ 47,641
Investment securities avail-
able-for-sale $ 6,061 $ 6,061 $ 84,487 $ 84,487
Investment securities held-
to-maturity $ 129,301 $ 124,434 $ 143,568 $ 143,448
Federal Home Loan Bank stock $ 32,692 $ 32,692 $ 29,832 $ 29,832
Mortgage-related securities
available for sale (restated) $ 164,572 $ 164,572 $ 347,137 $ 347,137
Mortgage-related securities
held to maturity (restated) $ 1,290,729 $ 1,253,365 $ 977,806 $ 991,455
Loans held for sale $ 6,078 $ 6,139 $ 73,919 $ 74,567
Loans receivable:
Real estate $ 2,172,466 $ 2,110,826 $ 1,973,172 $ 1,997,107
Credit cards 194,538 194,538 202,912 202,912
Home equity 235,737 235,737 192,862 192,862
Education 190,612 190,612 167,333 167,333
Manufactured housing 148,499 151,823 160,349 177,230
Consumer and other 277,433 268,607 151,957 152,177
----------- ----------- ----------- -----------
$ 3,219,285 $ 3,152,143 $ 2,848,585 $ 2,889,621
=========== =========== =========== ===========
Accrued interest receivable $ 30,149 $ 30,149 $ 27,183 $ 27,183
Deposits:
Checking $ 394,837 $ 394,837 $ 363,038 $ 363,038
Passbooks 736,307 736,307 812,138 812,138
Money market 287,925 287,925 311,085 311,085
Certificates 2,641,730 2,582,789 2,561,055 2,587,730
----------- ----------- ----------- -----------
$ 4,060,799 $ 4,001,858 $ 4,047,316 $ 4,073,991
=========== =========== =========== ===========
Borrowings:
Federal Home Loan Bank
advances $ 617,752 $ 617,133 $ 371,974 $ 373,317
Collateralized mortgage
obligations 3,019 2,892 5,217 5,296
Subordinated notes 54,977 53,103 54,997 55,547
Industrial development
revenue bonds 6,315 5,058 6,410 6,776
----------- ----------- ----------- -----------
$ 682,063 $ 678,186 $ 438,598 $ 440,936
=========== =========== =========== ===========
Accrued interest payable $ 6,188 $ 6,188 $ 4,535 $ 4,535
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE P--MORTGAGE BANKING ACTIVITIES
Loans serviced for investors amounted to $1,355,000,000, $1,302,000,000 and
$1,311,000,000 at December 31, 1994, 1993 and 1992, respectively. These loans
are not reflected in the consolidated financial statements. FF Bank originates
mortgage loans which, depending whether the loans meet FF Bank's investment
objectives, may be sold in the secondary mortgage market or to other private
investors.
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,
1994 1993 1992
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Consolidated balance sheet information:
Mortgage loans held for sale $ 6,078 $ 73,919 $ 54,840
Unamortized purchased mortgage
servicing rights and capitalized
excess servicing (included in
"Other Assets") 473 1,756
Consolidated statement of income information:
Service fees on loans
sold (gross) $ 5,799 $ 6,621 $ 7,898
Amortization of purchased
mortgage servicing rights
and capitalized excess
servicing (473) (1,388) (3,503)
--------- --------- ---------
Service fees on loans
sold (net) $ 5,326 $ 5,233 $ 4,395
========= ========= =========
Gain on sales of mortgage loans
held for sale $ 574 $ 7,997 $ 4,859
Consolidated statement of cash flow
information:
Mortgage loans originated for
sale $ 184,976 $ 599,126 $ 392,515
Mortgage loans transferred to
held for sale portfolio 26,028 60,238 114,978
Sales of mortgage loans held for
sale 278,845 648,282 495,573
</TABLE>
NOTE Q--LITIGATION
FF Bank is involved in certain lawsuits in the course of its general lending
business and other operations. FFC 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 FFC's financial
condition.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE R--PENDING BUSINESS COMBINATION
On October 26, 1994, FFC entered into a definitive agreement to acquire
FirstRock Bancorp, Inc. of Rockford, Illinois through a tax-free exchange of
stock. The agreement calls for shareholders of FirstRock to receive FFC common
stock valued at $27.10 for each FirstRock share, subject to certain limitations
discussed below. FFC stock will be valued at the average price over the 15-day
trading period which predates the closing of the transaction by three trading
days. The agreement also allows for possible termination of the transaction or
modification of the exchange ratio if the average price of FFC's stock falls
below $13.25 or goes above $20.00 during the valuation period prior to closing.
Based upon the potential range of FFC share valuation and FirstRock shares
outstanding at the end of 1994, FFC shares to be issued in the transaction could
range from 3,272,000 shares to 4,939,000 shares.
The acquisition is subject to shareholder approval. This transaction is expected
to close during the first quarter of 1995 and will be accounted for as a
pooling-of-interests. FirstRock's sole subsidiary, First Federal Savings Bank,
FSB ("First Federal") of Rockford, Illinois, will be merged into FF Bank upon
the closing and First Federal's branches will become FF Bank offices.
In conjunction with the definitive agreement, FirstRock has issued a warrant
entitling FF Bank to purchase an aggregate 475,246 shares of FirstRock common
stock at $22.50, the closing price of FirstRock's stock on October 25, 1994,
under certain circumstances related primarily to third party offers for
FirstRock if the transaction is not completed.
As of December 31, 1994, FirstRock had total assets and stockholders' equity of
$398,118,000 (unaudited) and $49,353,000 (unaudited), respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY
FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1993
1994 (Restated)
(In Thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,513 $ 4,878
Investment in subsidiary 320,503 282,133
Prepaid expenses and other assets 4,691 2,471
--------- ---------
$ 333,707 $ 289,482
========= =========
LIABILITIES
Subordinated notes $ 54,977 $ 54,997
Other liabilities 775 650
--------- ---------
TOTAL LIABILITIES 55,752 55,647
STOCKHOLDERS' EQUITY
Common stock 24,804 23,587
Additional paid-in capital 32,506 27,340
Retained earnings 220,645 182,908
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 277,955 233,835
--------- ---------
$ 333,707 $ 289,482
========= =========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Interest income from subsidiary $ 271 $ 255 $ 758
Interest expense on borrowings 4,686 4,736 1,696
--------- --------- ---------
NET INTEREST EXPENSE (4,415) (4,481) (938)
Equity in net income from subsidiary 52,234 49,027 34,841
--------- --------- ---------
47,819 44,546 33,903
Management fees paid to subsidiary 628 735
Other expenses 765 482 288
--------- --------- ---------
INCOME BEFORE INCOME TAX CREDITS 46,426 43,329 33,615
Income tax credits (1,899) (1,886) (417)
--------- --------- ---------
NET INCOME $ 48,325 $ 45,215 $ 34,032
========= ========= =========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY
FINANCIAL INFORMATION--Continued
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 48,325 $ 45,215 $ 34,032
Adjustments to reconcile net income
to net cash used in operating
activities:
Equity in net income of subsidiary (52,234) (49,027) (34,841)
Other (301) (645) 159
-------- -------- --------
NET CASH USED IN OPERATING
ACTIVITIES (4,210) (4,457) (650)
INVESTING ACTIVITIES
Cash dividends from subsidiary 16,200 5,500 23,200
Investment in subsidiary (24,000) (26,000)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 16,200 (18,500) (2,800)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 8,000
Repayment of short-term borrowings (20,000)
Proceeds from issuance of
subordinated debt 53,051
Exercise of stock options 1,595 912 626
Cash dividends paid (9,950) (8,238) (5,098)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (8,355) (7,326) 36,579
-------- -------- --------
Increase (decrease) in cash and cash
equivalents 3,635 (30,283) 33,129
Cash and cash equivalents at beginning
of year 4,878 35,161 2,032
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,513 $ 4,878 $ 35,161
======== ======== ========
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, 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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 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.
January 24, 1995
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.
John C. Seramur
President & Chief Executive Officer
Thomas H. Neuschaefer
Vice President, Treasurer & Chief Financial Officer
Dr. George R. Leach
Chairman, Audit Committee
January 24, 1995
<PAGE>
EXHIBIT 13(b)
MANAGEMENT DISCUSSION & ANALYSIS
<PAGE>
ELEVEN-YEAR SUMMARY (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 (a) 1993 (b) 1992 (c) 1991 1990 (d) 1989 (e)
----------- ---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
items and the cumulative effect of
an accounting change (g) $ 48,325 $ 45,215 $ 28,432 $ 18,526 $ 16,022 $ 14,376
Net income (loss) (g) $ 48,325 $ 45,215 $ 34,032 $ 18,526 $ 16,022 $ 14,376
Earnings per share (g)(h):
Primary:
Income (loss) before extraordinary
items and the cumulative effect
of an accounting change $ 1.91 $ 1.88 $ 1.21 $ .80 $ .70 $ .63
Net income (loss) 1.91 1.88 1.45 .80 .70 .63
Fully Diluted:
Income (loss) before extraordinary
items and the cumulative effect
of an accounting change $ 1.91 $ 1.86 $ 1.19 $ .79 $ .70 $ .63
Net income (loss) 1.91 1.86 1.43 .79 .70 .63
Interest income $ 356,143 $ 340,123 $ 296,871 $ 300,081 $ 292,141 $ 235,890
Interest expense 192,530 189,734 181,896 203,749 204,748 162,059
Net interest income 163,613 150,389 114,975 96,332 87,393 73,831
Provisions for losses on loans 6,540 10,219 13,851 18,333 16,064 18,306
Loss on impairment of mortgage-related
securities (g) (9,000) -- -- -- -- --
Non-interest income 34,801 37,721 32,209 34,331 31,383 32,389
Non-interest expense 106,740 105,804 88,711 81,395 76,840 64,868
Total assets 5,103,706 4,773,783 3,908,286 3,220,002 3,142,293 2,456,695
Loans receivable and mortgage-related
securities 4,680,664 4,247,447 3,512,306 2,885,236 2,738,265 2,142,264
Intangible assets 26,726 31,392 23,278 20,388 23,178 5,505
Deposits 4,064,166 4,050,520 3,206,112 2,935,645 2,883,214 2,098,234
Borrowings 682,063 438,598 461,948 77,243 60,351 177,253
Stockholders' equity (k) 277,955 233,835 194,095 164,535 149,576 137,081
Shares outstanding (h) 24,803,842 23,586,827 23,266,414 23,038,404 22,978,604 22,915,604
Stockholders' equity per share (h)(k) 11.21 9.91 8.34 7.14 6.51 5.98
Dividends declared per share (h) .40 .35 .22 .16 .16 .15
Return (loss) on average assets (j) .97% .98% .79% .58% .54% .60%
Return (loss) on average equity (j)(k) 18.59% 21.24% 15.78% 11.85% 11.21% 10.82%
Average equity to average assets (k) 5.22% 4.62% 4.99% 4.86% 4.78% 5.59%
</TABLE>
<PAGE>
=======================
ELEVEN-YEAR SUMMARY (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
TABLE CONTINUED FROM THE PREVIOUS PAGE
1988 1987 (f) 1986 (f) 1985 (f) 1984 (f)
--------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
items and the cumulative effect of
an accounting change (g) $ 10,769 $ 6,252 $ 9,324 $ (11,909) $ (2,826)
Net income (loss) (g) $ 14,553 $ 11,279 $ 13,186 $ (9,527) $ (1,239)
Earnings per share (g)(h):
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 $ 249,447
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
Loss on impairment of mortgage-related
securities (g) -- -- -- -- --
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 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 (k) 126,248 105,559 96,048 83,656 94,511
Shares outstanding (h) 22,841,464 19,241,340 19,091,924 18,394,480 18,330,680
Stockholders' equity per share (h)(k) 5.53 (i) (i) (i) (i)
Dividends declared per share (h) .14 .11 .09 .09 .08
Return (loss) on average assets (j) .48% .29% .43% (.53)% (.11)%
Return (loss) on average equity (j)(k) 9.06% 6.16% 10.51% (13.50)% (3.10)%
Average equity to average assets (k) 5.35% 4.70% 4.10% 3.85% 3.93%
<FN>
(a) In February, 1994, First Financial Corporation ("FFC") acquired NorthLand
Savings Bank of Wisconsin, SSB ("NorthLand") of Ashland, Wisconsin through
an exchange of stock. This transaction was accounted for as a
pooling-of-interests. Since the NorthLand acquisition was immaterial in
relation to FFC, prior years' results have not been restated.
(b) In January, 1993, FFC's major subsidiary First Financial Bank, FSB ("FF
Bank") acquired Westinghouse Federal Bank, FSB, d/b/a United Federal Bank
("United"), of Galesburg, Illinois for cash. In addition, in August, 1993,
FFC 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.
(c) In separate transactions during 1992, FFC 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.
(d) FFC 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.
(e) FFC completed the acquisition of Port Washington Savings and Loan ("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.
(f) 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.
<PAGE>
(g) Net income for 1994 was negatively affected by a pre-tax $9.0 million
impairment loss relative to two private-issue subordinated
mortgage-related securities, having a net carrying value of $15.5 million,
which were downgraded to below investment grade and became non-performing
during 1994.
(h) 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.
(i) Stockholders' equity per share is not meaningful due to the National
merger-conversion in 1988.
(j) Ratio is based upon income (loss) prior to extraordinary items and the
cumulative effect of an accounting change.
(k) Restated for 1993 to reflect the effect on stockholders' equity of
reporting certain investments as available for sale rather than held to
maturity. See Note D to the consolidated financial statements.
<PAGE>
QUARTERLY DATA
The following table sets forth FFC's unaudited quarterly income and expense data
for 1994 and 1993.
</TABLE>
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1994 1994 1994 1994 (a) 1993 1993 (b) 1993 1993 (c)
-------- --------- -------- --------- -------- -------- -------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and mortgage-related
securities $90,667 $87,893 $85,007 $81,640 $81,507 $82,027 $82,702 $81,460
Investments 2,666 2,365 2,630 3,274 4,022 3,174 2,307 2,924
------- ------- ------- ------- ------- ------- ------- -------
Interest income 93,333 90,258 87,637 84,914 85,529 85,201 85,009 84,384
Interest expense:
Deposits 42,259 41,162 40,908 41,171 41,412 42,365 41,388 44,576
Borrowings 8,703 7,264 6,231 4,831 4,456 5,157 5,618 4,762
------- ------- ------- ------- ------- ------- ------- -------
Interest expense 50,962 48,426 47,139 46,002 45,868 47,522 47,006 49,338
------- ------- ------- ------- ------- ------- ------- -------
Net interest income 42,371 41,832 40,498 38,912 39,661 37,679 38,003 35,046
Provisions for losses on loans (1,662) (1,662) (1,836) (1,380) (2,395) (2,180) (2,800) (2,844)
Unrealized loss on impairment of
mortgage-related securities -- -- (9,000) -- -- -- -- --
Gain on sales of assets (d) 187 153 1,352 1,536 2,445 2,657 1,329 1,341
Non-interest income 8,195 7,541 7,640 8,197 7,631 7,336 7,655 7,327
------- ------- ------- ------- ------- ------- ------- -------
49,091 47,864 38,654 47,265 47,342 45,492 44,187 40,870
Non-interest expense 26,103 26,634 26,544 27,459 26,003 27,462 26,657 25,682
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 22,988 21,230 12,110 19,806 21,339 18,030 17,530 15,188
Income taxes 8,218 7,484 4,581 7,526 8,167 6,704 6,362 5,639
------- ------- ------- ------- ------- ------- ------- -------
Net income $14,770 $13,746 $ 7,529 $12,280 $13,172 $11,326 $11,168 $ 9,549
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share:
Primary $ .58 $ .54 $ .30 $ .49 $ .54 $ .48 $ .47 $ .40
Fully diluted $ .58 $ .54 $ .30 $ .49 $ .54 $ .46 $ .46 $ .40
Cash dividends per share $ .10 $ .10 $ .10 $ .10 $ .10 $ .10 $ .075 $ .075
<FN>
(a) The NorthLand acquisition was completed in February, 1994 and results of operations were included from January 1, 1994.
(b) The American Savings acquisition was completed in August, 1993 and results of operations have been included
from the date of acquisition.
(c) The United acquisition was completed in January, 1993 and the related results of operations have been
included from January 1, 1993.
(d) Includes net gains (losses) on the disposition of loans held for sale, available for sale securities and other assets.
</TABLE>
<PAGE>
Results of Operations
Comparison of Years Ended December 31, 1994 and 1993
General. For the year ended December 31, 1994, FFC reported net income of $48.3
million, up from the $45.2 million reported for 1993. Earnings for fiscal 1994
were negatively affected by a pre-tax $9.0 million impairment loss recorded
relative to two private issue subordinated mortgage-related securities ("MBS")
which were (i) transferred to non-performing status during 1994 and (ii) also
downgraded to below investment grade by a national independent rating agency. As
a result of the impairment loss, the returns on average assets and average
stockholders' equity decreased to 0.97% and 18.59%, respectively, for fiscal
1994 from 0.98% and 21.24%, respectively, for fiscal 1993. Fully diluted
earnings per share improved to $1.91 for the year ended December 31, 1994 from
$1.86 for 1993.
Net Interest Income. Net interest income increased $13.2 million to $163.6
million for 1994 from $150.4 million for 1993. The net interest margin of 3.43%
for 1994 was up from the 3.41% reported for 1993. Interest income and interest
expense increased $16.0 million and $2.8 million, respectively, for 1994 as
compared to 1993. The average balances of interest-earning assets and
interest-bearing liabilities increased from $4.41 billion and $4.34 billion,
respectively, in 1993 to $4.78 billion and $4.66 billion, respectively, in 1994.
The ratio of average interest-earning assets to average interest-bearing
liabilities increased to 102.53% for 1994 as compared to 101.68% for 1993. The
1994 increases in average balances were due to i) asset growth funded via
Federal Home Loan Bank ("FHL Bank") advances and ii) the effect of recent
acquisitions. The increase in average interest-earning assets, as well as the
improved earning-asset ratio noted above, were primarily responsible for the
stability in the net interest margin. The net interest spread remained at 3.33%
in 1994 as the average yield on interest-earning assets (7.70% in 1993 versus
7.46% in 1994) decreased in proportion to the decrease in the average cost of
interest-bearing liabilities (4.37% in 1993 versus 4.13% in 1994). At the end of
1994, FFC's net interest margin was 3.34% as compared to 3.36% at the end of
1993. Historically, FFC's net interest margin has been at its lowest point at
year-end due to seasonal factors, including the disbursement of mortgage loan
escrow accounts for real estate taxes at year-end.
Provisions for Losses On Loans. Provisions for losses on loans decreased $3.7
million from $10.2 million for 1993 compared to $6.5 million for 1994,
reflecting i) a continuing low charge-off experience, ii) a lower level of loan
delinquencies in 1994 and iii) a change in the mix of the loan portfolio due to
the growth in the residential mortgage loan portfolio, which traditionally
displays a much lower charge-off experience. For a further discussion of
allowances for 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 decreased $11.9 million during 1994 as
compared to 1993 with the primary decrease relating to the $9.0 million MBS
impairment loss (see "Non-Performing Assets"). Increases of $400,000 in deposit
account service fees, $500,000 in insurance and brokerage sales commissions and
$1.8 million in gains on sales of available-for-sale securities were offset by a
$6.1 million decrease in gains on sales of loans held for sale. Other income
increased $500,000 for 1994, as compared to 1993, primarily due to a $500,000
gain realized on the sale of finance company receivables of NorthLand in 1994.
The net gains on sales of loans for 1994 decreased $6.1 million as noted above
to $1.9 million, including a $1.3 million gain on the sale of credit card loans,
aggregating $13.0 million, upon the termination of a credit card affinity group
relationship. Exclusive of this latter sale, gains realized from the sale of
mortgage loans held for sale decreased $7.4 million to $600,000 in 1994. FFC's
subsidiary bank, First Financial Bank, FSB ("FF Bank") 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. As a result of the recent rise
in interest rates, management believes it is unlikely that gains on sales of
loans for 1995 will attain the levels reported in recent years. The $1.4 million
of net gains realized on sales of available-for-sale securities relates
primarily to actions taken by management to protect the value of that portfolio
as interest rates rose sharply in the first half of 1994. Sales of subordinated
mezzanine position MBSs transferred to available-for-sale status (see "Loans and
Mortgage-Related Securities") during 1994 resulted in a net gain of
approximately $100,000.
Non-Interest Expense. Non-interest expenses increased $900,000 for 1994, as
compared to 1993. The level of non-interest expenses reflects i) inherent
increases in the expanded scope of operations as a result of the 1993 and 1994
acquisitions, ii) effective cost controls, iii) reductions in writedowns of
foreclosed commercial real estate properties in 1994 and iv) a higher level of
federal deposit insurance costs. The major categories of non-interest expense
affected by acquisitions are compensation, occupancy and federal deposit
insurance.
<PAGE>
Federal deposit insurance expense increased $2.3 million in 1994 as compared to
1993, due in part to the increase in insured deposits as a result of the recent
acquisitions. However, also affecting the comparison was a reduction in the
level of premiums assessed to FF Bank in 1993 as the Federal Deposit Insurance
Corporation ("FDIC") allowed a one-time premium reduction (approximately $1.5
million) representing FF Bank's previously unutilized credits from the dissolved
Secondary Reserve of the Federal Savings and Loan Insurance Corporation. The
credits in the Secondary Reserve had been written-off in 1987 due to the
uncertainty of recoverability. FF Bank does not have control over potential
future rate increases by the FDIC.
The net cost of operations of foreclosed properties decreased $3.0 million in
1994, as compared to 1993 when a higher level of writedowns was experienced
relative to foreclosed commercial real estate properties.
Non-interest expenses decreased as a percentage of average assets to 2.14% for
1994 as compared to 2.29% for 1993. Controllable non-interest expenses, which
exclude the amortization of intangible assets and the net cost of operations of
foreclosed properties, decreased to 2.02% of average assets for 1994 as compared
to 2.08% for 1993. In addition, FFC's efficiency ratio (which represents the
ratio of controllable expenses to net interest income plus recurring
non-interest income) improved to 51.67% in 1994 as compared to 53.16% for 1993.
The merger of FFC's two subsidiaries into FF Bank in late 1994 is expected to
result in annualized cost savings of approximately $1.0 million as a result of
consolidation of operations following the merger.
<PAGE>
Income Taxes. Income tax expense increased $900,000 for 1994 as compared to
1993. The effective income tax rate, as a percent of pre-tax income, decreased
to 36.5% in 1994 from 37.3% in 1993. The decrease in the effective tax rate for
1994 relates to a one-time adjustment arising from a change in filing status for
state tax purposes.
Pending Accounting Changes. The Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("Statement") No. 114,
("Accounting by Creditors for Impairment of a Loan") in May, 1993 and
subsequently issued Statement No. 118 ("Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures") in October, 1994. FFC adopted
Statements No. 114 and 118 effective January 1, 1995. Statement No. 114 requires
that impaired loans be measured at the present value of expected future cash
flows discounted at the loan's 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. Statement No. 118 eliminates the
provisions in Statement No. 114 that describe how a creditor should report
interest income on an impaired loan and allows a creditor to use existing
methods to recognize, measure and display interest income on an impaired loan.
Management does not believe that the adoption of Statements No. 114 and 118 will
have a material impact on FFC's financial condition or results of operations.
The FASB also issued Statement No. 119 ("Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments") in October, 1994 relating
to disclosures about derivative financial instruments. Management believes that
Statement No. 119 has limited applicability to FFC since FFC and FF Bank have
not undertaken the use of off-balance sheet derivative financial instruments
except for i) commitments to originate loans and ii) forward commitments to sell
mortgage loans, in the normal course of business.
<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 No. 109.
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 21.24%, respectively, as compared to 0.79% and 15.78%,
respectively, for 1992 before giving effect to the change in accounting
principle. Average equity per share for 1993 has been restated to reflect the
reporting of certain investments as available for sale rather than as held to
maturity at the end of 1993. See "Mortgage-Related Securities" and Note D to the
consolidated financial statements. Fully diluted earnings per share, prior to
the change in accounting principle, increased to $1.86 for 1993 from $1.19 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 low interest-rate environment and a
continued improvement in the ratio of interest-earning assets to
interest-costing liabilities in 1993 as compared to 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.
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 lower level of charge-offs experienced in 1993.
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. 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.
<PAGE>
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 liquidity purposes. The
remaining $7,000 loss was realized upon the sale of $81.3 million of MBSs,
acquired in conjunction with the United acquisition, which did not meet FFC's
investment guidelines.
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 FDIC as the FDIC allowed a
one-time premium reduction (approximately $1.5 million) representing previously
unutilized credits, from the dissolved Secondary Reserve of the Federal Savings
and Loan Insurance Corporation. The credits in the Secondary Reserve had been
written-off in 1987 due to the uncertainty of recoverability.
The increase of $1.9 million in loan expenses for 1993 represented 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, FFC's efficiency ratio improved to 53.16% for
1993 as compared to 56.43% 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 FFC's scope
of operations increased in that state subsequent to acquisitions and ii) the
1993 increase in the federal tax rate from 34% to 35% for taxable income in
excess of $10.0 million.
<PAGE>
Accounting Change. The FASB issued Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" in May, 1993. As permitted under the
Statement, FFC adopted the provisions of the new standard as of the end of 1993.
As a result of adopting Statement No. 115, stockholders' equity was increased by
$1.9 million (net of deferred income taxes) at December 31, 1993 to reflect the
net unrealized gain on securities, having an estimated fair value of
approximately $431.6 million, classified as available for sale at the end of
1993 and which had been previously recorded at amortized cost. The financial
statement impact of the adoption of Statement No. 115 has been restated to
reflect the reporting of certain investments as available for sale rather than
as held to maturity at the end of 1993. See "Mortgage-Related Securities" and
Note D to the consolidated financial statements.
MARKET PRICE AND DIVIDEND INFORMATION
FFC's common stock trades on The Nasdaq Stock Market's National Market System
("NASDAQ") under the NASDAQ listing symbol of FFHC. At December 31, 1994, FFC
has 24,803,842 outstanding shares and 3,959 shareholders of record.
The following table presents market price information and cash dividends paid on
FFC's common stock. The prices displayed represent high and low sales prices,
for each quarter over the past two years, as reported by NASDAQ.
<TABLE>
<CAPTION>
Market Price Cash
High Low Dividend
------- ------ ---------
<S> <C> <C> <C>
Quarter Ended:
December 31, 1994 $17.250 $13.250 $ .10
September 30, 1994 17.250 14.500 .10
June 30, 1994 17.250 14.500 .10
March 31, 1994 17.000 14.250 .10
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
</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 FFC'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 1994, 1993 and 1992.
Balances of interest-sensitive assets and liabilities arising from the 1992,
1993 and 1994 acquisitions are included from the respective dates of the related
transactions.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
---------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)(2) $2,116,264 $162,543 7.68% $1,957,288 $160,372 8.19%
Mortgage-related Securities (1) 1,452,534 85,895 5.91 1,410,941 86,052 6.10
Other loans (1) 983,793 96,770 9.84 789,073 81,272 10.30
U.S. Government and agency 102,094 5,385 5.27 106,138 5,709 5.38
Other securities 58,135 2,383 4.10 56,194 3,050 5.43
Cash equivalents 31,268 1,250 4.00 66,716 1,952 2.93
FHL Bank stock 32,145 1,917 5.96 28,540 1,716 6.01
---------- -------- ------ ---------- -------- ------
4,776,233 356,143 7.46 4,414,890 340,123 7.70
Interest-costing liabilities:
Passbook 785,903 24,339 3.10 798,058 25,953 3.25
Checking 672,909 14,055 2.09 636,008 14,924 2.35
Certificates 2,695,887 127,106 4.71 2,529,824 128,864 5.09
FHL Bank advances 430,273 21,043 4.89 310,911 14,205 4.57
Other borrowings 75,220 5,987 7.96 67,264 5,788 8.60
---------- -------- ------ ---------- -------- ------
4,660,192 192,530 4.13 4,342,065 189,734 4.37
---------- -------- ------ ---------- -------- ------
Net earning assets and
interest rate spread $ 116,041 3.33% $ 72,825 3.33%
========== ====== ========== ======
Earning asset ratio 102.53% 101.68%
========== ==========
Average interest-earning
assets, net interest income,
and net interest margin on
average interest-earning
assets $4,776,233 $163,613 3.43% $4,414,890 $150,389 3.41%
========== ======== ===== ========== ======== =====
</TABLE>
<PAGE>
==========================
TABLE CONTINUED FROM THE PREVIOUS PAGE
Year Ended December 31,
1992
----------------------------------
Average Average
Balance Interest Rate
---------- -------- -------
(Dollars in thousands)
Interest-earning assets:
Mortgage loans (1)(2) $1,416,264 $131,206 9.26%
Mortgage-related securities (1) 1,137,275 83,040 7.30
Other loans (1) 681,537 73,148 10.73
U.S. Government and agency 31,659 2,036 6.43
Other securities 62,584 3,245 5.19
Cash equivalents 80,906 2,929 3.62
FHL Bank stock 21,004 1,267 6.03
---------- -------- ------
3,431,229 296,871 8.65
Interest-costing liabilities:
Passbook 635,382 27,154 4.27
Checking 548,643 15,579 2.84
Certificates 2,041,100 131,309 6.43
FHL Bank advances 127,618 5,445 4.27
Other borrowings 30,163 2,409 7.99
---------- -------- ------
3,382,906 181,896 5.38
---------- -------- ------
Net earning assets and
interest rate spread $ 48,323 3.27%
========== ======
Earning asset ratio 101.43%
==========
Average interest-earning
assets, net interest income,
and net interest margin on
average interest-earning
assets $3,431,229 $114,975 3.35%
========== ======== =====
(1) Includes non-accruing loans and MBSs.
(2) Includes loans held for sale.
<PAGE>
RATE VOLUME ANALYSIS
The most significant impact on FFC'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 to 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, 1994 Year Ended December 31, 1993
Compared to Year Ended Compared to Year Ended
December 31, 1993 December 31, 1992
--------------------------------------- ----------------------------------------
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 $(10,394) $ 12,565 $ 2,171 $(16,509) $ 45,675 $ 29,166
Mortgage-related securities (2,656) 2,499 (157) (15,016) 18,028 3,012
Other loans (3,795) 19,293 15,498 (3,047) 11,171 8,124
U.S. Government and agency (109) (215) (324) (384) 4,057 3,673
Other securities (769) 102 (667) 147 (342) (195)
Cash equivalents 560 (1,262) (702) (510) (467) (977)
FHL Bank stock (14) 215 201 (4) 453 449
-------- -------- -------- -------- -------- --------
Total $(17,177) $ 33,197 16,020 $(35,323) $ 78,575 43,252
======== ======== ======== ========
Interest-costing liabilities:
Passbook $ (1,223) $ (391) (1,614) $ (7,294) $ 6,093 (1,201)
Checking (1,702) 833 (869) (2,930) 2,275 (655)
Certificates (9,922) 8,164 (1,758) (30,384) 27,939 (2,445)
FHL Bank advances 1,060 5,778 6,838 412 8,348 8,760
Other borrowings (454) 653 199 200 3,179 3,379
-------- -------- -------- -------- -------- --------
Total $(12,241) $ 15,037 2,796 $(39,996) $ 47,834 7,838
======== ======== -------- ======== ======== --------
Increase in net interest income $ 13,224 $ 35,414
======== ========
</TABLE>
<PAGE>
NET INTEREST MARGIN AT YEAR-END
The following table sets forth the weighted average yields on FFC'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.
At December 31,
1994 1993 1992
---- ---- ----
Weighted average yield:
Mortgage loans 7.65% 7.73% 8.74%
Mortgage-related securities 6.42 5.82 6.72
Other loans 9.85 10.00 10.45
Investments 5.25 4.84 4.80
---- ----- -----
Combined weighted average yield on
loans and investments 7.66 7.42 8.17
Weighted average cost:
Deposits and advance payments from
borrowers for taxes and insurance 4.20 4.05 4.91
Borrowings 5.93 4.91 4.81
---- ----- -----
Combined weighted average cost
of deposits and borrowings 4.45 4.13 4.90
---- ----- -----
Interest rate spread 3.21% 3.29% 3.27%
==== ===== =====
Net interest margin 3.34% 3.36% 3.32%
==== ===== =====
<PAGE>
FINANCIAL CONDITION
GENERAL
Total assets of FFC increased to $5.10 billion at the end of 1994 from $4.77
billion at year-end 1993 as a result of the 1994 acquisitions. Stockholders'
equity was $278.0 million, or 5.45% of total assets, at December 31, 1994
compared to $233.8 million and 4.90%, respectively, at the end of 1993.
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, FFC had cash of $8.5 million and subordinated debt
of $55.0 million at December 31, 1994. Management anticipates that the
subordinated debt will be repaid in the future from proceeds of cash dividends
from FF Bank or issuance of stock.
FF Bank is subject to certain regulatory limitations relative to its ability to
pay dividends to FFC. Management believes that FFC will not be adversely
affected by these dividend limitations and that projected future dividends from
FF Bank 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 FF Bank, FFC could also sell capital
stock or debt issues through the capital markets as alternative sources of
funds.
FFC also has available an unused line-of-credit in the amount of $18,000,000
which is available through April, 1995. The line-of-credit agreement contains
various covenants relative to the operations of FFC and FF Bank. All of such
covenants were met. See Note J to the consolidated financial statements for
further discussion. In addition, FFC would pledge its stock in FF Bank as
collateral should the line-of-credit be drawn upon.
FF Bank is 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 average deposits and
short-term borrowings. The required ratio is currently 5%. FF Bank is currently
in compliance with this requirement. FF Bank's principal sources of funds are
amortization and prepayment of loan principal, deposits, sales of mortgage loans
originated for sale, 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 $103.4 million during 1994.
Total consolidated liquidity, as a percent of total assets, decreased from 7.10%
at the end of 1993 to 4.61% of total assets at the end of 1994, as a result of
the net effect of FFC's various operating, investing and financing activities.
Operating activities resulted in a net cash inflow of $207.7 million. Operating
cash flows included earnings of $48.3 million for 1994 and $303.9 million
realized from the sales of mortgage loans held for sale, less $185.0 million
disbursed for loans originated for sale.
<PAGE>
Investing activities resulted in a net cash outflow of $352.4 million. Major
investing activities resulting in cash outflows in 1994 were $588.4 million for
the purchase of MBSs and $839.5 million for the origination of loans for
portfolio. The most significant cash inflows from investing activities were
principal payments of $503.4 million and $274.0 million received on loans
receivable and MBSs, respectively, as well as $32.4 million from the proceeds of
maturities of investment securities. In addition, $247.0 million was received
upon the sale of securities available for sale.
Financing activities for 1994 resulted in a net cash inflow of $134.0 million
represented by a $100.6 million net deposit outflow, a net increase in
borrowings of $242.7 million and $10.0 million in cash dividends paid to our
stockholders.
At December 31, 1994, FF Bank had outstanding commitments to originate mortgage
loans totaling $22.9 million and had no commitments outstanding to purchase
loans. At that date, FF Bank also had commitments outstanding to sell $5.1
million of mortgage loans that were held for sale or for which FF Bank was
committed to originate. Loans held for sale totaled $6.1 million at the end of
1994. FF Bank had no commitments to purchase MBSs at year-end 1994. 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.
<PAGE>
LOANS RECEIVABLE
Total loans receivable, including loans held for sale, increased to $3.23
billion at the end of 1994 from $2.92 billion at the end of 1993. The components
of this increase are summarized, by type of loan collateral, as follows:
<TABLE>
<CAPTION>
December 31, Increase
1994 1993 (Decrease)
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $ 1,905,742 $ 1,797,990 $ 107,752
Multi-family 195,439 188,558 6,881
Commercial and other 123,217 94,789 28,428
----------- ----------- -----------
Total real estate mortgage loans 2,224,398 2,081,337 143,061
Other loans:
Consumer 259,885 153,685 106,200
Home equity 234,354 193,291 41,063
Credit cards 200,747 209,414 (8,667)
Education 190,457 167,385 23,072
Manufactured housing 152,674 165,017 (12,343)
Business 19,023 -- 19,023
Less: net items to loans receivable (56,175) (47,625) (8,550)
----------- ----------- -----------
Total loans receivable (including
loans held for sale) $ 3,225,363 $ 2,922,504 $ 302,859
=========== =========== ===========
</TABLE>
The major components of the increase in total loans receivable during 1994 were
a $143.1 million increase in real estate loans and a $106.2 million increase in
consumer loans.
The increase in residential mortgage loans receivable at the end of 1994 was
attributable to i) the acquisition of NorthLand in February, 1994, and ii) the
retention of an increased level of adjustable-rate mortgage loans as higher
interest rates in 1994 have induced borrowers to prefer such loans as opposed to
fixed rate loans.
Consumer loans increased $106.2 million in 1994 due to the NorthLand
acquisition as well as continuing success in marketing a second mortgage
product. Home equity loans have increased $41.1 million in 1994 as customer
usage of this product has continued to grow. Credit card loans decreased $8.7
million in 1994 due to the sale of $13.0 million of credit card loans relating
to a discontinued California-based affinity group relationship. Manufactured
housing loan balances decreased $12.3 million as the Corporation continued to
restrict new originations of such loans to the Midwest. Late in 1994, FF Bank
exited the manufactured housing lending business due to pricing practices by
competitors. The $19.0 million increase in business loans reflects the
acquisition of NorthLand's business loan portfolio, which FF Bank continues to
service, but does not intent to expand upon.
<PAGE>
MORTGAGE-RELATED SECURITIES
The total carrying value of the MBS portfolio increased $130.4 million to $1.46
billion at December 31, 1994 from $1.32 billion at the end of 1993. This
increase was the net result of i) purchases of $588.4 million of U.S. Government
agency adjustable-rate MBSs, including agency floating-rate collateralized
mortgage obligations (CMOs), ii) dispositions of available-for-sale MBSs of
$181.9 million, iii) repayments of $274.0 million, iv) a second quarter $9.0
million writedown relative to the impairment of two non-performing private-
issue MBSs, v) a $10.2 million decline in the unrealized holding gain/loss on
the available- for-sale MBS portfolio and vi) the acquisition of $16.7 million
of MBSs in connection with the NorthLand transaction. At the end of 1994, FFC
had no commitments to purchase MBSs.
The following tables set forth, at the dates indicated, the composition of the
MBS portfolio including issuer, security type, amortized cost, fair value and
financial statement carrying value as well as classification according to
available-for-sale or held-to-maturity status. See Note D to the consolidated
financial statements for i) a further breakdown of the available- for-sale and
held-to-maturity classifications of the MBS portfolio and ii) a summary of gains
and losses realized upon the disposition of available-for-sale MBSs during the
past three years.
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993 (Restated)
---------------------------------- --------------------------------
Amortized Fair Carrying Amortized Fair Carrying
Issuer/Security Type Cost Value Value Cost Value Value
- -------------------- ---------- --------- -------- ---------- --------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agencies:
Mortgage-backed certi-
ficates $ 360,219 $ 348,479 $ 359,928 $ 157,504 $ 162,258 $ 157,631
Collateralized mortgage
obligations 336,738 324,754 336,243 30,854 31,069 31,070
---------- ---------- ---------- ---------- ---------- ----------
Total agencies 696,957 673,233 696,171 188,358 193,327 188,701
---------- ---------- ---------- ---------- ---------- ----------
Private issuers:
Mortgage-backed certi-
ficates
Senior position 660,922 644,136 658,508 924,037 935,085 926,113
Mezzanine position 103,864 98,507 98,507 207,675 206,924 206,924
Collateralized mortgage
obligations 2,115 2,061 2,115 3,204 3,256 3,205
---------- ---------- ---------- ---------- ---------- ----------
Total private issuers 766,901 744,704 759,130 1,134,916 1,145,265 1,136,242
---------- ---------- ---------- ---------- ---------- ----------
Totals $1,463,858 $1,417,937 $1,455,301 $1,323,274 $1,338,592 $1,324,943
========== ========== ========== ========== ========== ==========
Total carrying value per
consolidated financial
statements, by classification:
Available-for-sale portfolio $ 164,572 $ 347,137
Held-to-maturity portfolio 1,290,729 977,806
---------- ----------
Total carrying value $1,455,301 $1,324,943
========== ==========
</TABLE>
<PAGE>
FFC has restated its December 31, 1993 consolidated financial statements to
reflect the correction of an error relating to the misclassification of certain
of its MBSs. Subsequent to the issuance of its 1993 consolidated financial
statements and the related management discussion and analysis, management
completed the investigation of two delinquent mezzanine position MBSs then
serviced by a California institution under the control of the Resolution Trust
Corporation ("RTC"). See "Non-Accrual MBSs" for a further discussion of the two
non-performing MBSs. A mezzanine security is subordinate to the most senior
position of an individual security but is still superior to other subordinate
classes or positions designed to absorb first losses, if any, for that security.
Management then raised questions as to how such mezzanine securities were
purchased under FFC's existing investment policy which required the purchase of
senior position securities only. It was determined that investment officers in
1991 and 1992 mistakenly interpreted the policy to permit the purchase of
mezzanine securities, which consisted of "a" senior position but not "the"
senior position. Since the inherent risk of ownership of the mezzanine
securities could affect management's intent and/or ability to hold such
securities, it was determined that the held-to-maturity classification was in
error at December 31, 1993. All financial data contained herein has been
restated to reflect this reclassification, as of December 31, 1993, of mezzanine
securities with a carrying value of $170.1 million and a fair value of $168.8
million from held to maturity to available for sale classification. In addition,
stockholders' equity has also been restated to reflect the $850,000 (net of tax
effect of $460,000) reduction from the unrealized gain on securities available
for sale resulting from the above reclassification.
<PAGE>
Since MBSs are asset-backed securities, they are subject to inherent risks based
upon the future performance of the underlying collateral (i.e., mortgage loans)
for these securities. Among these risks are prepayment risk and interest-rate
risk. Should general interest-rate levels decline, the MBS portfolio would be
subject to i) prepayments as borrowers typically would seek to obtain financing
at lower rates, ii) a decline in interest income received on adjustable-rate
MBSs, and iii) an increase in fair value of fixed-rate MBSs. Conversely, should
general interest rate levels increase, the MBS portfolio would be subject to i)
a longer term to maturity as borrowers would be less likely to prepay their
loans, ii) an increase in interest income received on adjustable-rate MBSs, iii)
a decline in fair value of fixed-rate MBSs, and iv) a decline in fair value of
adjustable-rate MBSs to an extent dependent upon the level of interest-rate
increases, the time period to the next interest-rate repricing date for the
individual security and the applicable periodic (annual and/or lifetime) cap
which could limit the degree to which the individual security could reprice
within a given time period.
Also included in the MBS portfolio, as noted in the table above, are private
issuer, primarily adjustable-rate, MBSs, having a carrying value of $757.0
million at December 31, 1994. Unlike U.S. Government agency MBSs which include a
full guarantee of principal and interest, these securities are generally
structured with a senior ownership position and subordinate ownership
position(s) providing credit support for the senior position. In a limited
number of cases, this support is provided through letters of credit or cash
reserves. Included in the private issuer portfolio are the mezzanine MBSs,
referred to above, which are subordinate to the most senior position of a given
security but are also superior to other more subordinate positions. Given the
structure of the private issuer MBSs, FFC has credit risk in addition to
interest-rate risk and prepayment risk discussed above. In this regard,
management has instituted a monitoring system tracking the major factors
affecting the performance of a private issuer MBS including i) a review of
delinquencies, foreclosures, repossessions and recovery rates relative to the
underlying mortgage loans collateralizing each security, ii) the level of
available subordination or other credit enhancements, iii) an assessment of the
servicer of the underlying mortgage portfolio and iv) the rating assigned to
each security by independent national rating agencies. This ongoing monitoring
process has confirmed that all private issuer MBSs, with the exclusion of the
two non-performing MBSs issued by an RTC controlled institution, continue to be
performing and do not display the underlying performance problems experienced in
the case of the two non-performing mezzanine securities. Although management
believes that the private issuer securities will continue to contractually
perform based on its review, there can be no assurance that this performance
will continue in the future should economic conditions, market conditions, or
other factors change significantly.
<PAGE>
The overall decrease in fair value of the senior position private issuer MBSs
was due primarily to i) increased interest-rate levels as interest-rate
repricing dates on the underlying adjustable-rate mortgage loans lag behind rate
increases in the marketplace and ii) difficult overall conditions in the MBS
market as interest rates rose during 1994. The decrease in fair value of the
subordinate mezzanine securities was attributable to the same factors as well as
a thin market for mezzanine securities, thus leading to limited liquidity in
these securities. Based upon i) the results of management's most current review
of the performance characteristics of the underlying mortgage loans
collateralizing these private issue securities (see discussion of FFC's
monitoring system above) and ii) the fact that those securities not classified
as non-accrual continue to perform, management believes that the private issuer
MBSs have a net realizable value in excess of their fair value and/or amortized
cost. Management also has the intent and the ability to retain its investment in
these securities for a period of time sufficient to allow for any anticipated
recovery of market value.
FFC's portfolio of MBSs totaled approximately $1.46 billion at the end of 1994
and, except for those securities discussed in "Non-Accrual MBSs", were either i)
U.S. Government agency-backed or ii) rated at a minimum of investment grade
quality by at least one nationally recognized independent rating agency.
<PAGE>
NON-PERFORMING ASSETS
Non-performing assets (consisting of non-accrual loans, non-accrual MBSs,
foreclosed properties, and other repossessed collateral assets) increased to
$29.7 million at December 31, 1994 from $15.1 million at December 31, 1993. The
1994 increase in non-performing assets is directly attributable to the transfer
of two private-issue mezzanine MBSs to non-accrual status during 1994 (see
"Non-Accrual MBSs" below). As a percentage of total assets, non-performing
assets increased from 0.32% at December 31, 1993 to 0.58% at December 31, 1994.
During the five years ended December 31, 1994, FFC has not had any troubled debt
restructurings. Non-performing assets are summarized as follows for the dates
indicated:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family
residential $ 4,954 $ 5,005 $ 5,660 $ 8,717 $ 9,904
Multi-family residential 84 139 314 332 891
Commercial real estate 193 -- 6,478 2,624 497
Manufactured housing 1,034 1,063 1,295 1,851 2,021
Consumer and other 2,856 2,033 1,912 2,965 3,229
------- ------- ------- ------- -------
Total non-accrual loans 9,121 8,240 15,659 16,489 16,542
Non-accrual MBSs 15,455 -- -- -- --
Real estate judgments 2,503 2,236 2,761 3,572 7,746
Real estate foreclosed
properties 1,286 4,418 10,975 21,065 21,518
Real estate held for sale 1,089 -- -- -- --
Repossessed collateral assets 267 163 462 889 2,143
------- ------- ------- ------- -------
Total non-performing
assets $29,721 $15,057 $29,857 $42,015 $47,949
======= ======= ======= ======= =======
Non-accrual loans as a
percentage of net loans .28% .28% .71% .83% .76%
Non-performing assets as a
percentage of total assets .58% .32% .76% 1.30% 1.52%
</TABLE>
Non-Accrual Loans. FFC places loans into a non-accrual status when loans are
contractually delinquent more than ninety days. When a loan is placed on
non-accrual status, previously accrued but unpaid interest is reversed. Such
loans have remained steady as a percentage of net loans at 0.28% at both
December 31, 1994 and December 31, 1993. Most loan categories demonstrated
normal increases or decreases between year-end 1993 and 1994. The most
significant 1994 increase occurred in the consumer and other category, due
primarily to the $529,000 of non-accrual commercial business loans acquired in
the NorthLand acquisition in early 1994. The non-accrual loans, in the
aggregate, at December 31, 1994, 1993 and 1992 represented $600,000, $700,000
and $1.2 million of interest which would have been reflected in 1994, 1993 and
1992 income, respectively, if the loans had been contractually current.
<PAGE>
Non-Accrual MBSs. During 1994, FFC placed on non-accrual status two mezzanine
MBSs, aggregating approximately $21.2 million. FF Bank 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 mortgage
portfolio and substantially all of the cash flows are currently directed to
owners of the senior position. Further delayed receipt of full monthly principal
and interest payments is probable. The underlying loans comprising these
securities had been serviced by a California institution under the control of
the RTC. In late 1994, the servicing of these securities was transferred from
the RTC to the trustee, a large super-regional bank. FFC's mezzanine position is
superior to several subordinate tranches, currently amounting to approximately
5.9% of the face value of the total portfolios in question, which are designed
to absorb first losses in the underlying mortgage portfolio.
An independent national rating agency has downgraded these two securities as
well as an unrelated senior position security of the same issuer. The senior
position security continues to be a performing asset. Subsequent to this
downgrading, a $9.0 million writedown was recorded relative to the two mezzanine
securities reflecting a permanent impairment of those securities. The writedown
amount was based upon information from the rating agency 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 believes that the writedown is adequate based upon its
evaluations.
Other Non-Performing Assets. An offset to the overall increase in non-performing
assets was the $2.9 million decline in real estate judgments, foreclosed
properties and held for sale properties, as a group, from $6.7 million at the
end of 1993 to $4.9 million at year-end 1994. This decline is directly related
to the sale and/or writedown of certain large commercial real estate properties
during 1994. As a result of these dispositions, FFC has been able to reduce its
inventory of large (having a carrying value in excess of $1.0 million)
commercial real estate properties owned from two properties totaling $2.6
million at December 31, 1993 to one property for $1.1 million at December 31,
1994. The remaining $1.1 million property was held by FF Bank as a foreclosed
property at year-end 1993 but was transferred to FFC during 1994 where it is
real estate held for sale. The remainder of the real estate judgments and
foreclosed properties consist primarily of one- to four-family and smaller
multi-family residential real estate located in the Midwest.
Summary. Non-performing assets have declined significantly during the five year
period ending December 31, 1994 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 non-performing assets have been considered by management in the review of
the adequacy of allowances for losses.
<PAGE>
ALLOWANCES FOR LOSSES ON LOANS AND FORECLOSED PROPERTIES
FFC'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,
------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $23,266 $17,067 $16,706 $15,644 $13,673
Charge-offs:
Residential real estate (642) (691) (1,579) (1,916) (1,260)
Commercial real estate (223) (501) (968) (2,107) (5,422)
Manufactured housing (1,366) (2,731) (4,212) (7,365) (7,650)
Credit card (6,748) (5,890) (6,142) (5,550) (5,248)
Consumer-related (318) (481) (459) (654) (742)
Commercial (251) -- (1,367) (1,051) --
------- ------- ------- ------- -------
Total charge-offs (9,548) (10,294) (14,727) (18,643) (20,322)
------- ------- ------- ------- -------
Recoveries:
Residential real estate 578 131 231 218 546
Commercial real estate -- -- 3 1 --
Manufactured housing 181 179 288 272 450
Credit card 593 653 584 653 656
Consumer-related 127 426 131 228 664
Commercial 2 -- -- -- --
------- ------- ------- ------- -------
Total recoveries 1,481 1,389 1,237 1,372 2,316
------- ------- ------- ------- -------
Net charge-offs (8,067) (8,905) (13,490) (17,271) (18,006)
Provisions for losses 6,540 10,219 13,851 18,333 16,044
Acquired banks' allowances 718 4,885 -- -- 3,933
------- ------- ------- ------- -------
Balance at end of year $22,457 $23,266 $17,067 $16,706 $15,644
======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding .26% .32% .64% .83% .82%
Ratio of allowance for losses
on loans to average loans
outstanding .70% .80% .77% .82% .70%
</TABLE>
<PAGE>
A summary of the activity in the allowance for losses on foreclosed properties
follows.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
------ ------ ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,386 $ 552 $ 738 $1,023 $ 750
Charge-offs (640) (2,685) (4,980) (3,232) (577)
Provision 400 3,519 4,794 2,947 754
Acquired banks' allowances -- -- -- -- 96
------ ------ ------ ------ ------
Balance at end of year $1,146 $1,386 $ 552 $ 738 $1,023
====== ====== ====== ====== ======
</TABLE>
The provisions for losses on foreclosed properties are included in the
consolidated statements of income in "net cost of operations of foreclosed
properties."
FFC's allowance for losses on loans decreased to $22.5 million, or 0.70% of
loans receivable, at December 31, 1994 from $23.3 million and 0.80%,
respectively, at the end of 1993. The decrease in the allowance, as a percentage
of loans receivable, relates to a rise in loans receivable in 1994 as well as
reduced provisions added to the allowances during 1994. The 1994 provisions for
losses on loans and foreclosed properties totaled $6.5 million and $400,000,
respectively, compared to $10.2 million and $3.5 million, respectively, for
1993. The provision for losses has been significantly lower in 1994 and 1993
compared to the 1990-1992 period as FF Bank's charge-off experience has improved
due to the decrease in non-performing loans 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 commercial real estate mortgages. The allowance for
commercial mortgage loan losses decreased to 2.01% of outstanding balances at
the end of 1994 from 4.23% at year-end 1993. The decrease in the commercial
mortgage allowance, as a percentage of commercial mortgage loans, relates to the
1994 growth of that portfolio and to credit provisions which reduced the
allowance during 1994 warranted by improved loss experience and the portfolio
quality.
Another significant change in allowances between 1993 and 1994 year-ends was the
increase of $577,000 for the allowance for commercial business loan losses as
the result of a 1994 acquisition. The allowance for losses on commercial
business loans represents 3.03% of the total balances of commercial business
loans at December 31, 1994. This level of allowance is deemed sufficient by
management based upon management's analysis of the portfolio for the future
maintenance period as FFC is not anticipating increases of this lending product.
The allowance for losses on residential mortgage loans decreased to $5.8
million, or 0.28% of such loans, at the end of 1994 as compared to $5.9 million,
or 0.30%, at the end of 1993. The reduction in the allowance, as a percentage of
residential mortgage loans, relates to the increase in the residential mortgage
portfolio during 1994, reduced additional 1994 provisions and the allowance
acquired in the NorthLand acquisition. Actual charge-offs of residential
mortgage loans as a percentage of average outstandings was 0.03% in 1994 and
1993.
<PAGE>
The allowance for losses on credit card loans increased to $6.7 million, or
3.36% of such loans at year-end 1994, from $6.5 million, or 3.10% of the
portfolio, at year-end 1993. The increase in the allowance, as a percentage of
credit card loans, relates to the increase, to 3.14%, in net charge-offs to
average loans during 1994. It should be noted, however, this ratio is still well
below national averages. The 1994 loss experience was also somewhat higher due
to the portfolio segment which was disposed of during 1994 as management sought
to focus the portfolio more in the Midwest.
FF Bank has also, in the past, undertaken off-balance sheet financial
guarantees, totaling $11.2 million at December 31, 1994, whereby certain of FF
Bank's assets, primarily MBSs and securities, 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, 1994, 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 maintain such provisions at or below current levels.
<PAGE>
A detailed analysis of FFC's allowances for losses on loans and related
charge-off information is as follows for the dates and years indicated:
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
-------------------- --------------------
1994 1993
Charge-offs Charge-offs
Allowance As A Percent Allowance As A Percent
As A % Of Of Average As A % Of Of Average
Outstanding Related Loans Outstanding Related Loans
Allowance Loans In For The Year Allowance Loans In For The Year
Type of Loan Amount Category Ended 12/31/94 Amount Category Ended 12/31/93
- ------------ --------- ---------- -------------- --------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 5,823 .28% .03% $ 5,877 .30% .03%
Commercial real estate 2,474 2.01 .20 4,010 4.23 .51
Manufactured housing 4,267 2.79 .74 4,668 2.83 1.85
Credit cards 6,737 3.36 3.14 6,502 3.10 2.87
Consumer 2,046 .79 .07 1,728 1.12 --
Education 46 .02 -- 52 .03 .01
Home equity 487 .21 .02 429 .22 .02
Commercial 577 3.03 1.20 -- -- --
------- -------
$22,457 .70% .26% $23,266 .80% .32%
======= ===== ===== ======= ===== =====
</TABLE>
=====================
THE PREVIOUS TABLE CONTINUED HERE
At December 31, 1992
--------------------
1992
Charge-offs
Allowance As A Percent
As A % Of Of Average
Outstanding Related Loans
Allowance Loans In For The Year
Type of Loan Amount Category Ended 12/31/92
- ------------ --------- ---------- -------------
(Dollars in thousands)
Residential real estate $ 3,301 .23% .10%
Commercial real estate 3,986 3.91 .94
Manufactured housing 4,325 3.25 2.90
Credit cards 4,034 2.26 3.44
Consumer 860 .97 .08
Education 269 .16 .09
Home equity 292 .18 .08
Commercial -- -- 34.23
-------
$17,067 .77% .64%
======= ===== =====
<PAGE>
FFC's allowances for losses on loans were allocated to various loan categories
as follows for the dates indicated:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
------------------------ ---------------------- -----------------------
(Dollars in thousands)
Percent Of Percent Of Percent Of
Loans in Each Loans In Each Loans In Each
Category to Category to Category to
Type of Loan Amount Total Loans Amount Total Loans Amount Total Loans
- ------------ ------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 5,823 64.0% $ 5,877 66.9% $ 3,301 63.3%
Commercial real estate 2,474 3.8 4,010 3.2 3,986 4.5
Manufactured housing 4,267 4.7 4,668 5.6 4,325 5.9
Credit cards 6,737 6.1 6,502 7.0 4,034 7.9
Consumer and other 2,579 20.8 2,209 17.3 1,421 18.4
Commercial 577 .6 -- -- -- --
------- ----- ------- ----- ------- -----
$22,457 100.0% $23,266 100.0% $17,067 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
===================
THE PREVIOUS TABLE CONTINUED HERE
December 31,
1991 1990
------------------------ ----------------------
(Dollars in thousands)
Percent Of Percent Of
Loans in Each Loans In Each
Category to Category to
Type of Loan Amount Total Loans Amount Total Loans
- ------------ ------ ------------- ------ ------------
Residential real estate $ 2,679 62.3% $ 3,312 64.8%
Commercial real estate 4,628 4.9 4,349 5.1
Manufactured housing 4,492 6.9 2,259 7.0
Credit cards 2,734 7.9 3,195 6.8
Consumer and other 1,083 17.8 969 16.1
Commercial 1,090 .2 1,560 .2
------- ----- ------- -----
$16,706 100.0% $15,644 100.0%
======= ===== ======= =====
<PAGE>
DEPOSITS
Deposits, excluding the $114.3 million resulting from the NorthLand acquisition,
decreased $100.6 million during 1994 as a result of increased competition and
shifting of funds by depositors as interest rates rose substantially during
1994. The weighted average cost of deposits increased to 4.23% at the end of
1994, from the 4.05% reported at the end of 1993, due to increases in general
interest rate levels.
BORROWINGS
At December 31, 1994, FFC's consolidated borrowings increased to $682.1 million
from $438.6 million at the end of 1993. The increase in borrowings is primarily
attributable to i) increases in FHL Bank advances used to fund loan originations
and MBS purchases and ii) $750,000 of borrowings assumed by FFC when it acquired
NorthLand. The weighted average cost of borrowings increased to 5.93% at the end
of 1994 as compared to 4.91% at year-end 1993 as a result of higher interest
rates during 1994.
STOCKHOLDERS' EQUITY
Stockholders' equity at December 31, 1994 was $278.0 million, or 5.45% of total
assets, compared to $233.8 million and 4.90%, respectively, at December 31,
1993. The dollar increase in stockholders' equity resulted from net income of
$48.3 million offset by i) cash dividend payments to stockholders of $10.0
million, ii) $11.4 million of additional equity realized in the NorthLand
acquisition, which was accounted for as a pooling-of-interests (but for which
there was no prior years' restatement due to immateriality), and iii) a decrease
of $7.3 million in the unrealized holding gain (loss) on available-for-sale
securities, reflecting the impact on the market value of the underlying
securities in this portfolio as interest rates increased in 1994. Stockholders'
equity per share increased from $9.91 per share at year-end 1993 to $11.21 per
share at year-end 1994.
REGULATORY CAPITAL
FF Bank is subject to various individual OTS capital measurements and had
regulatory capital well in excess of OTS requirements at December 31, 1994, as
summarized below:
OTS Capital Ratios
Actual Required
Ratio Ratio Excess
Tangible capital 5.82% 1.50% 4.32%
Core leverage capital 6.22% 3.00% 3.22%
Risk-based capital 13.50% 8.00% 5.50%
The OTS has added an interest-rate risk calculation 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. At December 31, 1994, FF Bank was not required to deduct
any interest-rate risk component under the OTS regulations. The OTS has adopted
another final rule, which was effective on 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. Management of the FFC and FF Bank do not believe these
rules will significantly impact the capital requirements of FF Bank or cause FF
Bank to fail to meet its regulatory capital requirements.
<PAGE>
For a more detailed discussion of regulatory capital requirements, see Note L to
the consolidated financial statements.
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.
Summary gap information for FFC is presented below as of December 31, 1994, 1993
and 1992.
<TABLE>
<CAPTION>
Ratio of Cumulative
Positive (Negative) Gap To Total Assets
One Year Three Years Five Years
<S> <C> <C> <C>
December 31, 1994 (2.53)% (5.04)% (6.17)%
December 31, 1993 6.09 (2.63) (2.57)
December 31, 1992 4.85 (2.48) (1.88)
</TABLE>
FFC's positive one-year gap moved to a negative $129.3 million, or 2.53% of
total assets, at the end of 1994 from a positive $290.8 million, or 6.09% of
total assets, at the end of 1993. FFC's consolidated one-year negative gap
position of 2.53% at December 31, 1994 falls within management's currently
acceptable range of 10% positive to 10% negative. Traditionally, management of
FFC and FF Bank have not utilized off-balance sheet derivative financial
instruments as part of its efforts to control interest-rate risk. In view of the
current negative 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.
<PAGE>
In this regard, 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 1994 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 has added an interest-rate
risk calculation 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. At December
31, 1994, FF Bank was not required to deduct an interest-rate risk component
under the OTS regulations.
Asset/Liability Repricing Schedule. The table on the following page sets forth
the combined estimated maturity/repricing structure of FFC's interest-earning
assets (including net items) and interest-costing liabilities at December 31,
1994. Assumptions regarding prepayment and withdrawal rates are based upon FF
Bank's historical experience, and management believes such assumptions are
reasonable. The table does not necessarily indicate the impact of general
interest-rate movements on FF Bank'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 FF Bank'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. 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, 1994
<TABLE>
<CAPTION>
Three Four Greater Greater Greater
Months Months Than One Than Three Than Five
And Through Through Through Through
Under One Year Three Years Five Years Ten Years
--------- -------- ----------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Investments and interest-
earning deposits, including
federal funds (a)(b) $ 46,875 $ 55,411 $ 56,962 $ 204 $ 637
Mortgage-related securities (b) 375,198 978,012 31,184 16,151 30,935
Mortgage loans:
Fixed-rate (c)(d) 45,671 125,362 305,533 223,692 445,021
Adjustable-rate (c)(d) 96,731 301,164 395,620 -- --
Other loans 566,324 162,765 168,219 68,715 64,251
----------- ----------- ----------- ----------- -----------
1,130,799 1,622,714 957,518 308,762 540,844
Rate-sensitive liabilities:
Deposits:
Checking (f) 101,724 23,482 58,556 45,488 70,795
MMDA (f) 86,378 34,827 80,026 41,613 35,163
Savings (Passbook)(f) 249,399 206,089 78,629 56,613 81,523
Certificates of Deposit (e) 423,090 1,161,452 844,914 221,258 5,542
Borrowings (g) 546,000 50,345 23,162 56,453 3,383
----------- ----------- ----------- ----------- -----------
1,406,591 1,476,195 1,085,287 421,425 196,406
----------- ----------- ----------- ----------- -----------
GAP (repricing difference) $ (275,792) $ 146,519 $ (127,769) $ (112,663) $ 344,438
=========== =========== =========== =========== ===========
Cumulative GAP $ (275,792) $ (129,273) $ (257,042) $ (369,705) $ (25,267)
=========== =========== =========== =========== ===========
Cumulative GAP/Total Assets (5.40)% (2.53)% (5.04)% (7.24)% (0.50)%
=========== =========== =========== =========== ===========
</TABLE>
==============================
THE PREVIOUS TABLE CONTINUED HERE
<TABLE>
<CAPTION>
Greater
Than Ten Greater
Through Than
20 Years 20 Years Total
--------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Rate-sensitive assets:
Investments and interest-
earning deposits, including
federal funds (a)(b) $ 32,692 $ -- $ 192,781
Mortgage-related securities (b) 18,545 5,276 1,455,301
Mortgage loans:
Fixed-rate (c)(d) 231,377 8,377 1,385,033
Adjustable-rate (c)(d) -- -- 793,515
Other loans 14,808 1,733 1,046,815
----------- ----------- ----------
297,422 15,386 4,873,445
Rate-sensitive liabilities:
Deposits:
Checking (f) 61,246 33,546 394,837
MMDA (f) 8,926 992 287,925
Savings (Passbook)(f) 51,884 12,170 736,307
Certificates of Deposit (e) -- -- 2,656,256
Borrowings (g) -- 2,720 682,063
----------- ----------- -----------
122,056 49,428 4,757,388
----------- ----------- -----------
GAP (repricing difference) $ 175,366 $ (34,042) $ 116,057
=========== =========== ===========
Cumulative GAP $ 150,099 $ 116,057
=========== =========== ===========
Cumulative GAP/Total Assets 2.94% 2.27%
=========== =========== ===========
<PAGE>
<FN>
(a) Investments are adjusted to include FHL Bank stock and other items
totaling $32.7 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 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 $14.5 million of advance payments by borrowers for tax
and insurance and exclude accrued interest of $3.4 million.
(f) FFC has assumed that its passbook savings, NOW accounts and money market
accounts would have projected annual withdrawal rates, based upon FFC's
historical experience, of 26%, 34% and 42%, respectively.
(g) Collateralized mortgage obligations totaling $3.0 million are included in
the "Greater Than Five Through Ten Years" category.
<PAGE>
</TABLE>
EXHIBIT 22
LIST OF SUBSIDIARIES
<PAGE>
LIST OF SUBSIDIARIES
At December 31, 1994
First Financial Bank, FSB
First Financial Acquisition Company
<PAGE>
EXHIBIT 24
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
<PAGE>
CONSENT OF ERNST & YOUNG LLP, 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 24, 1995, included in
the 1994 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, No. 33-69856 on Form S-8 dated October 1, 1993,
Registration Statement No. 33-51487 on Form S-4 filed with the Securities and
Exchange Commission on January 13, 1994 and Registration Statement No. 33-56823
on Form S-4 filed with the Securities and Exchange Commission on January 27,
1995, 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, 1994.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
March 22, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 75,411
<INT-BEARING-DEPOSITS> 837
<FED-FUNDS-SOLD> 23,890
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 170,633
<INVESTMENTS-CARRYING> 1,420,030
<INVESTMENTS-MARKET> 1,377,799
<LOANS> 3,219,285
<ALLOWANCE> 22,457
<TOTAL-ASSETS> 5,103,706
<DEPOSITS> 4,064,166
<SHORT-TERM> 0
<LIABILITIES-OTHER> 79,522
<LONG-TERM> 682,063
<COMMON> 24,804
0
0
<OTHER-SE> 253,151
<TOTAL-LIABILITIES-AND-EQUITY> 5,103,706
<INTEREST-LOAN> 259,313
<INTEREST-INVEST> 96,830
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 356,143
<INTEREST-DEPOSIT> 165,500
<INTEREST-EXPENSE> 6,540
<INTEREST-INCOME-NET> 163,613
<LOAN-LOSSES> 6,540
<SECURITIES-GAINS> (7,625)
<EXPENSE-OTHER> 106,740
<INCOME-PRETAX> 76,134
<INCOME-PRE-EXTRAORDINARY> 48,325
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,325
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 3.33
<LOANS-NON> 9,121
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10,366
<ALLOWANCE-OPEN> 23,266
<CHARGE-OFFS> 9,548
<RECOVERIES> 1,481
<ALLOWANCE-CLOSE> 22,457
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,097
<PAGE>
</TABLE>
