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, 1996
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 or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1305 MAIN STREET
STEVENS POINT, WISCONSIN 54481
(Address of principal executive office)
Registrant's telephone number, including area code (715) 341-0400
Securities registered pursuant to Section 12(b) of the Act Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Based upon the closing price of the registrant's common stock as of
February 19, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant is: $826,809,294.
As of February 19, 1997, 36,785,101 shares of the registrant's common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Part II:
Portions of First Financial Corporation's 1996 Annual Report to
Shareholders.
Part III:
Portions of definitive proxy statement for the 1997 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 ("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, and its
telephone number is (715) 341-0400.
First Financial Bank
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"). Business is
conducted in both Wisconsin and Illinois through 128 full-service branch offices
and one limited loan origination office. Based on total assets of $5.7 billion
at December 31, 1996, 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 significant
volumes of consumer loans, credit card loans and student loans. FF Bank has a
limited volume of commercial business loans 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, 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. At
that time, all three institutions were merged together. In 1988, FF Bank
acquired National Savings and Loan Association 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, Fairview Heights 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
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and two from the RTC. In 1993, FF Bank acquired Westinghouse Federal Bank, FSB
d/b/a United Federal Bank of Galesburg, Illinois and also purchased the deposits
and the four Quincy, Illinois-area branch banking offices of Citizens Federal
Bank, a FSB.
In 1994, FFC and FF Bank acquired NorthLand Bank of Wisconsin, SSB of
Ashland, Wisconsin through an exchange of stock. Also in 1994, FFC merged First
Financial - Port Savings Bank, FSB 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.
In 1995, FFC and FF Bank acquired FirstRock Bancorp, Inc. ("FirstRock")
of Rockford, Illinois through an exchange of stock. The five banking offices of
FirstRock's subsidiary, First Federal Savings Bank of Rockford, Illinois were
merged into FF Bank. At the end of 1995, FFC's assets had grown to $5.5 billion.
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, 1994 and 1996, FF Bank sold segments of its
credit card loan portfolio, consisting of loans concentrated in California,
Texas, and the Northeastern states. FF Bank's current 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. Subsequently, in 1994, FF Bank exited the retail 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. FF Bank's limited purpose credit card subsidiary, First Financial
Card Services Bank, N.A. ("FFCSB") is regulated by the Office of the Comptroller
of the Currency ("OCC"). See "Regulation, Legislation and Taxation."
Market Area and Competition
At December 31, 1996, FF Bank conducted business from 128 full-service
branch banking offices located in 60 Wisconsin and 35 Illinois communities. The
offices are located throughout most of Wisconsin and much of Illinois, including
the Peoria, Rockford and suburban St. Louis areas. These offices include 27
locations in the Milwaukee Metropolitan Statistical Area ("MSA"), the largest in
Wisconsin, and 33 locations in the Peoria, Rockford 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 5.3 million in 1990. Between 1980 and 1990, the population
of this area increased 1.3%, compared to 1.2% for the two-state area. The median
household income in these counties was $30,497 according to the 1990 Census,
compared to $31,402 for the two- state area. It increased 62.7% 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
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include A.O. Smith, General Electric Medical Systems, Allen Bradley, Miller
Brewing, Johnson Controls, Caterpillar and Sundstrand.
FF Bank also does business outside of Wisconsin and Illinois. At
December 31, 1996, outstanding credit card accounts of FF Bank were distributed
approximately 52% to Wisconsin residents, 13% to Illinois, 4% to Michigan, 3% to
Texas, 3% to California, 3% to Ohio, 2% to Minnesota, 2% to Missouri, 2% to
Florida, 2% to Indiana and 14% 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 mutual funds, the stock market, corporate debt and
government securities. Competition for the origination of real estate loans
comes principally from other savings institutions, commercial banks, credit
unions 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 methods used by competing financial institutions to attract deposit
accounts include rates of return, types of accounts, convenience of office
locations, and other services. Major factors in competing for loans are interest
rates, loan fee charges, and timing and quality of service to the borrower.
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 and the Rural Development program, or partially guaranteed by the
Veterans Administration as well as home loans on behalf of or for immediate sale
to the Wisconsin Department of Veterans Affairs, the Wisconsin Housing and
Economic Development Authority and the Illinois Housing and Development
Authority. At December 31, 1996, FFC's total loan portfolio, including
mortgage-related securities, amounted to $5.23 billion, including mortgage loans
totaling $2.30 billion of which $1.88 billion, or 36.0% 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, 1996, these
loans amounted to $1.28 billion, or 24.4%, before net items, of the total loan
portfolio. FFCSB, which is a wholly-owned operating subsidiary of FF Bank, was
chartered as a limited-purpose national credit card bank by the OCC on July 19,
1996. FFCSB administers FFC's nationwide credit card operations under uniform
rates and fees as established by the State of Wisconsin.
Fixed-rate mortgage loans with terms up to 15 years, mortgage loans with
adjustable interest rates, and consumer and other loans are originated for FF
Bank's own portfolio, while longer-term fixed-rate mortgage loans are originated
for sale in the secondary market. The
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<PAGE>
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 purchases mortgage-related securities as a lending alternative when
excess liquidity is available. At December 31, 1996, these securities amounted
to $1.65 billion, or 31.6% of the total loan portfolio, before net items. For
further discussion of the mortgage-related securities portfolio, see Notes A and
D to FFC's consolidated financial statements, filed as an exhibit hereto.
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<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 1992, 1993 and
1994 acquisitions are included from the respective dates of the related
transactions.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
--------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
(Dollars in thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Conventional loans:
One- to four-family................. $1,859,815 35.6% $2,006,575 40.6% $2,034,320 40.4%
Multi-family........................ 235,437 4.5 217,288 4.4 212,071 4.2
FHA and VA............................ 28,566 .5 36,093 .7 34,672 .7
Commercial and other real estate...... 175,877 3.4 152,092 3.1 142,634 2.8
---------- ----- ---------- ----- ---------- -----
Total real estate mortgage loans....... 2,299,695 44.0 2,412,048 48.8 2,423,697 48.1
---------- ----- ---------- ----- ---------- -----
Other loans:
Consumer loans........................ 415,155 7.9 362,659 7.3 304,771 6.1
Home equity loans..................... 296,749 5.7 284,700 5.8 240,915 4.8
Education loans....................... 269,633 5.2 240,650 4.9 192,542 3.8
Credit card loans..................... 179,352 3.4 214,107 4.3 200,747 4.0
Manufactured housing loans............ 104,783 2.0 139,385 2.8 152,674 3.0
Other loans........................... 11,728 .2 17,198 .4 19,023 .4
---------- ----- ---------- ----- ---------- -----
Total other loans...................... 1,277,400 24.4 1,258,699 25.5 1,110,672 22.1
---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items........................... 3,577,095 68.4 3,670,747 74.3 3,534,369 70.2
Mortgage-related securities............ 1,650,437 31.6 1,270,761 25.7 1,502,491 29.8
---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities.................... $5,227,532 100.0% $4,941,508 100.0% $5,036,860 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
1993 1992
---------------------- ----------------------
Amount Percent Amount Percent
---------- ------- ---------- -------
Real estate mortgage loans:
<S> <C> <C> <C> <C>
Conventional loans:
One- to four-family................. $$1,915,516 41.7% $1,379,522 35.8%
Multi-family........................ 208,658 4.6 175,511 4.6
FHA and VA............................ 40,133 .9 52,214 1.3
Commercial and other real estate...... 114,431 2.5 123,062 3.2
----------- ----- ---------- -----
Total real estate mortgage loans....... 2,278,738 49.7 1,730,309 44.9
----------- ----- ---------- -----
Other loans:
Consumer loans........................ 180,776 3.9 115,205 3.0
Home equity loans..................... 199,463 4.3 168,434 4.4
Education loans....................... 168,980 3.7 164,149 4.3
Credit card loans..................... 209,414 4.6 178,436 4.6
Manufactured housing loans............ 165,017 3.6 133,195 3.4
Other loans........................... 111 3,298 .1
----------- ----- ---------- -----
Total other loans...................... 923,761 20.1 762,717 19.8
----------- ----- ---------- -----
Total loans receivable before
net items........................... 3,202,499 69.8 2,493,026 64.7
Mortgage-related securities............ 1,387,259 30.2 1,361,068 35.3
----------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities.................... $$4,589,758 100.0% $3,854,094 100.0%
=========== ===== ========== =====
</TABLE>
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<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, 1996 December 31, 1995 December 31, 1994
---------------------- ---------------------- -------------------
Percent Percent Percent
Balance Of Total Balance Of Total Balance Of Total
------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate $ 3,039,868 58.2% $ 2,703,907 54.7% $ 2,709,597 53.8%
Short-term* 373,612 7.1 452,244 9.2 375,681 7.5
Fixed-rate with maturities
greater than three years 1,814,052 34.7 1,785,357 36.1 1,951,582 38.7
----------- ----- ----------- ----- ----------- -----
Total loan portfolio $ 5,227,532 100.0% $ 4,941,508 100.0% $ 5,036,860 100.0%
=========== ===== =========== ===== =========== =====
</TABLE>
* Loans or mortgage-related securities with remaining contractual life of three
years or less.
At December 31, 1996, the aggregate balance of loans held by FF Bank
repricing or maturing after December 31, 1997 was $2.44 billion. Of these loans,
$1.85 billion have fixed rates of interest and $587.5 million have terms of
three years or less or adjustable interest rates.
The following table sets forth, at December 31, 1996, 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>
1998 - 2000 - 2002 - 2007 - After
1997 1999 2001 2006 2016 2016 Total
---------- --------- --------- --------- --------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans.................... $ 679,042 $ 416,651 $ 84,218 $ 396,854 $ 551,959 $ 94,611 $2,223,335
Construction mortgage loans................... 23,525 43,892 4,0772 3,414 1,452 -- 76,360
Mortgage-related securities................... 1,305,667 4,766 46,832 29,018 237,712 26,442 1,650,437
Credit card and home equity
loans...................................... 457,548 18,553 -- -- -- -- 476,101
Other loans*.................................. 322,350 95,177 124,725 182,602 76,445 -- 801,299
---------- --------- --------- --------- --------- --------- ----------
Total.................................. $2,788,132 $ 579,039 $ 259,852 $ 611,888 $ 867,568 $ 121,053 $5,227,532
========== ========= ========= ========= ========= ========= ==========
</TABLE>
* Includes consumer, manufactured housing, education and small business loans.
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<PAGE>
Loan Originations and Purchases. The following table shows loan and
mortgage-related securities originations and purchases for FF Bank on a
consolidated basis for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---------- ---------- -------
(In thousands)
<S> <C> <C> <C>
Loans originated:
Mortgage loans:
One- to four-family......................................... $ 599,913 $ 476,783 $ 756,589
Multi-family................................................ 43,540 34,350 55,658
Commercial real estate...................................... 67,891 31,087 63,002
Refinanced residential mortgage loans
previously sold and serviced for others.................... -- -- 24,643
---------- ---------- ----------
711,344 542,220 899,892
Consumer loans................................................. 261,769 229,697 237,651
Education loans................................................ 64,979 76,299 53,692
Home equity loans - net increase............................... 12,047 43,785 58,791
Credit card loans - net increase............................... 13,189 13,361 5,124
Manufactured housing loans..................................... -- 18,288 17,144
Other loans.................................................... 1,478 5,560 10,074
Decrease (increase) in undisbursed
loan proceeds................................................. (13,717) 7,817 (10,829)
---------- ---------- ----------
Total loans originated................................ 1,051,089 937,027 1,271,539
Mortgage-related securities purchased............................ 803,280 -- 594,952
---------- ---------- ----------
Total originations and purchases...................... $1,854,369 $ 937,027 $1,866,491
========== ========== ==========
</TABLE>
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
status until such time as the delinquency is reduced again to 90 days or less.
Non-accrual loans at December 31, 1996 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,
1996 1995
------ -----
(In thousands)
Total 30 to 90 Day Delinquent Loans
Residential real estate loans $ 7,241 $ 9,138
Manufactured housing loans 2,314 3,654
Credit card loans 2,863 3,870
Commercial real estate loans 125 909
Consumer and other loans 1,658 815
Student loans 23,034 18,438
------- -------
$37,235 $36,824
======= =======
At December 31, 1996, the 30 to 90 day delinquencies increased
approximately $400,000 to $37.2 million from $36.8 million at year end 1995. As
a percent of total loans receivable, loan delinquencies increased from 1.02% at
the end of 1995 to 1.06% at December 31, 1996.
The most significant factor in the overall increase was the increase of
$4.6 million in student loan delinquencies of 30 to 90 days from year end 1995
to December 31, 1996.
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These loans are government guaranteed and the servicing of this portfolio is
performed by a third party under contract. Excluding student loans, FF Bank's 30
to 90 day delinquencies decreased during 1996 from $18.4 million to $14.2
million.
Decreases in 30 to 90 day delinquencies were experienced in most loan
categories from year end 1995 to December 31, 1996. The more significant
decreases were i) a $1.9 million decrease for residential mortgage loans, ii) a
$1.4 million decrease for manufactured housing loans and iii) a $1.0 million
decrease for credit card loans.
The above changes in 30 to 90 day delinquencies should be considered in
conjunction with the information and review in the Non-Performing Assets section
of Management's Discussion and Analysis, as referred to above.
All of these delinquent loans have been considered by management in its
evaluation of the adequacy of the allowances for loan losses.
Classified Assets. For regulatory purposes, FF Bank utilizes a
comprehensive classification system for thrift institution problem assets. 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.
These non-performance characteristics impact directly upon the interest income
normally expected from such assets. Specifically included are the loans held on
a non-accrual basis, real estate judgments subject to redemption, and foreclosed
properties for which FF Bank has obtained title.
Classified assets, including non-performing assets, for FF Bank and FFC,
are set forth in the following table, as of December 31, 1996 and 1995,
respectively.
December 31,
1996 1995
-------- ------
(In thousands)
Classified assets:
Non-performing assets:
Non-accrual loans $ 11,988 $ 12,246
Non-performing mortgage-related securities 12,858
Real estate held for sale by FFC 1,309
Foreclosed properties and other
repossessed assets 3,997 3,379
-------- --------
Total Non-Performing Assets 15,985 29,792
Additional classified performing loans:
Residential real estate 545 1,013
Commercial real estate 6,105 5,890
Consumer (including manufactured housing
and credit cards) 159 280
Commercial business 421 418
Other assets 2,491
Other adjustments - net (1,638) (900)
-------- --------
Total Classified Assets $ 24,068 $ 36,493
======== ========
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<PAGE>
During the year ended December 31, 1996, classified assets decreased
$12.4 million to $24.1 million from the December 31, 1995 total of $36.5 million
as the net result of various 1996 events. As a percentage of total assets,
classified assets decreased from 0.67% at December 31, 1995 to 0.42% at December
31, 1996.
The non-performing asset segment of classified assets similarly
decreased $13.8 million during 1996. For further discussions of such
non-performing assets, see Management's Discussion and Analysis, filed as an
exhibit hereto. Other significant changes in classified assets are discussed
below.
Performing commercial real estate loans which had been classified due
to the possible adverse effects of identifiable future events increased $200,000
in 1996. This nominal increase is due to the net effect of i) the inclusion in
this category of two loans of $300,000 each and ii) principal payments received
on other classified performing loans.
Classified performing residential real estate mortgage loans decreased
from 1995 year end from $1.0 million to $500,000 at December 31, 1996. The
$500,000 reduction was primarily the result of continued efforts involving
certain borrowers with groups of loans requiring intensive monitoring and some
charge-offs.
The other asset category relates to a $2.5 million mortgage-related
security which is continuing to perform but for which certain losses have been
absorbed during 1996.
All adversely classified assets at December 31, 1996 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, 1996, 41.1% of FF Bank's investments mature or reprice in
one year or less, and 80.6% mature or reprice in five years or less.
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.
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The following table sets forth the maturity/repricing characteristics
of FF Bank's investment securities at December 31, 1996 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.................. $ 22,056 5.19% $ 84,705 6.07% $ 140 7.00% $ 41,440 6.94%
Interest-earning deposits
in banks..................... 18,043 5.16
Federal funds sold............... 2,513 6.50
Corporate and bank notes
receivable................... 583 4.80
State and municipal..............
obligations................. 450 5.00 337 7.45 262 8.00
Adjustable-rate mortgage
mutual fund.................. 44,938 6.11
--------
Total........................ $ 88,583 5.68% $ 85,042 6.08% $ 402 7.65% $ 41,440 6.94%
======== ======== ======== ========
</TABLE>
Sources of Funds
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 reductions 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 and has no brokered deposits at December 31, 1996.
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,
1996 1995 1994
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
Short-term borrowings.......................................... $ 54,090 $ 25,972 $ 13,127
FHL Bank advances.............................................. 703,700 475,368 622,209
Subordinated notes............................................. -- 54,925 54,977
Industrial development revenue bonds........................... 6,120 6,219 6,315
Collateralized mortgage obligations............................ 5,616 8,024 11,818
-------- -------- --------
Total borrowings........................................ $769,526 $570,508 $708,446
======== ======== ========
Weighted average interest cost of total
borrowings during the year................................. 5.69% 6.45% 5.58%
Average month-end balance of short-term
borrowings................................................. $ 92,984 $ 59,092 $ 14,006
Weighted average interest rate of short-term
borrowings during the year................................. 5.48% 5.91% 6.02%
-10-
<PAGE>
Weighted average interest rate of short-term
borrowings at end of year.................................. 5.42% 5.89% 5.76%
</TABLE>
Service Corporations and Operating/Finance Subsidiaries
FF Bank has i) five wholly-owned service corporations, ii) two operating
subsidiaries, and iii) two limited-purpose finance subsidiaries.
Appraisal Services, Inc.
First Financial Card Services Bank, N.A. (operating subsidiary)
First Financial Investments, Inc. (operating subsidiary)
First Service Corporation of Wisconsin
Illini Service Corporation
Mortgage Finance Corporation
UFS Capital Corporation and FFS Funding Corp., Inc. (finance subsidiaries)
Wisconsin Insurance Management, Inc.
Employees of FFC
At December 31, 1996, FFC and its subsidiaries employed 1,376 full-time
employees and 402 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.
-11-
<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 1996 During Past Five Years
<S> <C> <C>
John C. Seramur 54 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 46 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 50 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 another
institution acquired by FFC. Prior to 1978, he was
associated with the national accounting firm of
Ernst & Young LLP.
Donald E. Peters 47 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 46 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 a predecessor of FF Bank.
Kenneth F. Csinicsek 57 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>
-12-
<PAGE>
Regulation, Legislation and Taxation
FFC, as a savings and loan holding company, and FF Bank, as a federally
chartered savings bank, are subject to extensive regulation, supervision and
examination by the OTS as their primary federal regulator. FF Bank also is
subject to regulation, supervision and examination by the FDIC and as to certain
matters by the Federal Reserve Board. FF Bank's wholly owned operating
subsidiary, FFCSB, is a limited purpose national credit card bank which is
regulated by the OCC. See "Management's Discussion and Analysis" and "Notes to
Consolidated Financial Statements" as to the impact of certain laws, rules and
regulations on the operations of FFC and FF Bank. Set forth below is a
description of certain recent regulatory developments.
In September 1996, legislation (the "1996 Legislation") was enacted to
address the undercapitalization of the SAIF, of which FF Bank is a member. As a
result of the 1996 Legislation, the FDIC imposed a one-time special assessment
of .657% on deposits insured by the SAIF as of March 31, 1995. FF Bank incurred
a one-time charge of $28.8 million (before taxes) to pay for the assessment
based on its level of SAIF deposits as of March 31, 1995. After the SAIF was
deemed to be recapitalized, FF Bank's deposit insurance premiums to the SAIF
were reduced as of September 30, 1996. FF Bank expects that its future deposit
insurance premiums will continue to be lower than the premiums it paid prior to
the recapitalization.
The 1996 Legislation also contemplates the merger of the SAIF with the
Bank Insurance Fund (the "BIF"), which generally insures deposits in national
and state-chartered banks. The combined deposit insurance fund, which will be
formed no earlier than January 1, 1999, will insure deposits at all FDIC insured
depository institutions. As a condition to the combined insurance fund, however,
no insured depository institution can be chartered as a federal savings
association. The Secretary of the Treasury is required to report to the Congress
no later than March 31, 1997 with respect to the development of a common charter
for all federally chartered depository institutions. If legislation with respect
to the development of a common charter is enacted, FF Bank may be required to
convert its federal charter to either a new federal type of bank charter or to a
state depository institution charter. Future legislation also may result in FFC
becoming regulated as a bank holding company by the Federal Reserve Board rather
than a savings and loan holding company regulated by the OTS. Regulation by the
Federal Reserve Board could subject FFC to capital requirements that are not
currently applicable to FFC as a holding company under OTS regulations and may
result in additional statutory limitations on the type of business activities in
which FFC may engage at the holding company level. FFC and FF Bank are unable to
predict whether such legislation will be enacted.
The 1996 Legislation also contained several provisions that could
impact operations of FF Bank, including regulatory burden relief, environmental
lender liability relief, and less restrictive limitations on investments in
student loans, credit card loans and commercial loans. Furthermore, the
qualified thrift lender ("QTL") test that FF Bank must comply with was
liberalized to provide that small business, credit card and student loans can be
included in the QTL calculation without any limit, and that FF Bank can qualify
as a QTL by meeting either the QTL test set forth in the Home Owners' Loan Act
or under the definition of a domestic building and loan association as defined
in the Internal Revenue Code of 1986, as amended (the "IRC").
-13-
<PAGE>
On August 20, 1996, the President of the United States signed the Small
Business Job Protection Act of 1996 ("the Act"). The Act repealed the "reserve
method" of accounting for bad debts by most thrift institutions, effective for
taxable years beginning after 1995. Most thrift institutions such as FF Bank are
now required to use the "specific charge-off method". The Act also grants
partial relief from reserve recapture provisions which are triggered by the
change in method. This legislation is not expected to have a material impact on
FF Bank's financial condition or results of operations.
During 1996, the OTS continued its comprehensive review of its
regulations to eliminate duplicative, unduly burdensome and unnecessary
regulations concerning lending and investments, corporate governance,
subsidiaries and equity investments, conflicts of interest and usurpation of
corporate opportunity.
The OTS's revised subsidiaries and equity investments regulation
consolidated all OTS regulations that apply to various types of subsidiaries of
federal associations and updates the list of pre-approved service corporation
activities with additional activities that the OTS has deemed to be reasonably
related to the activities of federal savings institutions. The revised corporate
governance regulation is intended to provide greater flexibility with respect to
corporate governance of federal savings institutions, such as FF Bank.
The OTS also converted its policy statement on conflicts of interest to
a regulation that is intended to be based upon common law principles of "duty of
loyalty" and "duty of care." The OTS corporate opportunity regulations and
policy statements also were eliminated and replaced with a standard similar to
common law standards governing usurpation of corporate opportunity, provided
that such activities are in compliance with Sections 23A or 23B of the Federal
Reserve Act.
-14-
<PAGE>
ITEM 2. PROPERTIES
At December 31, 1996, FF Bank operated through 128 full-service savings
bank branch offices, one loan origination limited office and one insurance
agency office, with 76 offices located in Wisconsin and 54 in Illinois. The
aggregate net book value at December 31, 1996 of the properties owned or leased,
including headquarters, properties and leasehold improvements at the leased
offices, was $42.4 million. Thirty-six of the office properties are leased and
the leases expire between 1997 and 2056. 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.
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 or FF Bank.
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, 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.
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.
-15-
<PAGE>
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.
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 1997 annual
meeting of shareholders, filed with the Securities and Exchange Commission on
March 10, 1997. Information required by this item regarding executive officers
is included herein at page 12 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 1997 annual meeting of shareholders, filed with the Securities and
Exchange Commission on March 10, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
from pages 3 - 4 of the proxy statement for FFC's 1997 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 10,
1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from page 16 of the proxy statement for FFC's 1997 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 10,
1997.
-16-
<PAGE>
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, including the related notes and the report of the
independent auditors are incorporated herein by reference from Exhibit 13(a) of
this Report.
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Income for Each Year in the Three Year Period
Ended December 31, 1996.
Consolidated Statements of Stockholders' Equity for Each Year in the
Three Year Period Ended December 31, 1996.
Consolidated Statements of Cash Flows for Each Year in the Three Year
Period Ended December 31, 1996.
Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore, have
been omitted.
(a)(3) The following exhibits are either filed as part of this Report on
Form 10-K or are incorporated herein by reference.
3(a) Articles of Incorporation of Registrant dated February 21,
1984, 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 on April 17, 1996
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q filed on August 8, 1996).
4 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 26,
1990).
-17-
<PAGE>
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
26, 1990).
10(c) 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(d) 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(e) 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(f) 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(g) 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(h) 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(i) 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(j) 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(k) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994. (Incorporated herein by
reference from Annual Report on Form 10-K for 1994 filed
on March 28, 1995.)
10(l) Employment Agreement between Registrant and Kenneth F.
Csinicsek dated June 14, 1994. (Incorporated herein by
reference from Annual Report on Form 10-K for 1994 filed
on March 28, 1995.)
10(m) First Financial Corporation Stock Option Plan III dated
April 24, 1991 and restated August 16, 1995. (Incorporated
herein by reference from annual report on Form 10-K for
1995 filed on March 20, 1996.)
-18-
<PAGE>
10(n) First Federal Savings Bank of Rockford, Illinois Employee
Stock Ownership Plan and Trust, amended February 28, 1995
to reflect a) adoption by FF Bank as successor plan
sponsor and b) related amendments thereto. (Incorporated
herein byreference from annual report on Form 10-K for
1995 filed on March 20, 1996.)
10(o) Supplemental Executive Retirement Plan dated August 1,
1989, and amended and restated February 22, 1996.
11 Computation of Earnings Per Share
13(a) Consolidated Financial Statements
13(b) Management's Discussion and Analysis of Financial
Condition and Results of Operations
21 Subsidiaries of the Registrant - as of the date of this
report, the only subsidiary of the Registrant is FF Bank.
23 Consent of Ernst & Young LLP for Registration Statement
No. 2-90005 as filed with the Securities and Exchange
Commission ("SEC") on March 16, 1984, 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, 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.
33-55823 filed with the SEC on January 27, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On October 17, 1996, the Registrant filed a Current Report on
Form 8-K with the SEC reporting that FFC had announced a
six-month 5% stock repurchase program.
On November 20, 1996, the Registrant filed a Current Report on
Form 8-K with the SEC reporting that FFC had announced a 5-for-4
stock split.
(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.
-19-
<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 25, 1997
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.
<TABLE>
<CAPTION>
<S> <C>
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 25, 1997
Date: March 25, 1997
By: /s/ Robert S. Gaiswinkler
Robert S. Gaiswinkler
Chairman of the Board
Director
Date: March 25, 1997
By: /s/ Gordon M. Haferbecker By: /s/ James O. Heinecke
----------------------------------- ------------------------
Gordon M. Haferbecker James O. Heinecke
Director Director
Date: March 25, 1997 Date: March 25, 1997
-20-
<PAGE>
By: /s/ Robert T. Kehr By: /s/ Robert P. Konopacky
------------------------------------- --------------------------
Robert T. Kehr Robert P. Konopacky
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/ Dr. George R. Leach By: /s/ Ignatius H. Robers
------------------------------------ -------------------------
Dr. George R. Leach Ignatius H. Robers
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/ John H. Sproule By: /s/ Ralph R. Staven
-------------------------------------- ----------------------
John H. Sproule Ralph R. Staven
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/ Norman L. Wanta By: /s/ Arlyn G. West
------------------------------------ --------------------
Norman L. Wanta Arlyn G. West
Director Director
Date: March 25, 1997 Date: March 25, 1997
</TABLE>
-21-
<PAGE>
EXHIBIT INDEX
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 on April 17, 1996
(incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q filed on August 8, 1996).
4 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 26, 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 26, 1990).
10(c) 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(d) 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(e) 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(f) 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(g) 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(h) 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.)
<PAGE>
10(i) 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(j) 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(k) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994. (Incorporated herein by
reference from Annual Report on Form 10-K for 1994 filed on
March 28, 1995.)
10(l) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994. (Incorporated herein by reference from
Annual Report on Form 10-K for 1994 filed on March 28, 1995.)
10(m) First Financial Corporation Stock Option Plan III dated April
24, 1991 and restated August 16, 1995. (Incorporated herein by
reference from annual report on Form 10-K for 1995 filed on
March 20, 1996.)
10(n) First Federal Savings Bank of Rockford, Illinois Employee Stock
Ownership Plan and Trust, amended February 28, 1995 to reflect
a) adoption by FF Bank as successor plan sponsor and b) related
amendments thereto. (Incorporated herein by reference from
annual report on Form 10-K for 1995 filed on March 20, 1996.)
10(o) Supplemental Executive Retirement Plan dated August 1, 1989, and
amended and restated February 22, 1996.
11 Computation of Earnings Per Share
13(a) Consolidated Financial Statements
13(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations
21 Subsidiaries of the Registrant - as of the date of this report,
the only subsidiary of the Registrant is FF Bank.
23 Consent of Ernst & Young LLP for Registration Statement No.
2-90005 as filed with the Securities and Exchange Commission
("SEC") on March 16, 1984, 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, 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.
33-55823 filed with the SEC on January 27, 1995.
27 Financial Data Schedule
EXHIBIT 10 (O)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
FIRST FINANCIAL BANK
RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective August 1, 1989
Amended and Restated November 1, 1991 and February 22, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I PURPOSE; EFFECTIVE DATE 1
ARTICLE II DEFINITIONS 1
2.1 Actuarial Equivalent 1
2.2 Beneficiary 1
2.3 Board 1
2.4 Change in Control 1
2.5 Committee 3
2.6 Company 3
2.7 Compensation 3
2.8 Employer 4
2.9 Highest Average Compensation 4
2.10 Highest Annual Compensation 4
2.11 Normal Retirement Date 4
2.12 Participant 4
2.13 Participation Agreement 4
2.14 Plan 4
2.15 Qualified Plan 4
2.16 Retirement 5
2.17 Supplemental Retirement Benefit 5
2.18 Total and Permanent Disability 5
2.19 Years of Service 5
ARTICLE III PARTICIPATION AND VESTING 5
3.1 Eligibility and Participation 5
3.2 Change in Employment Status 6
3.3 Vesting 6
ARTICLE IV SURVIVOR BENEFITS 7
4.1 Pretermination Survivor Benefit 7
4.2 Posttermination Survivor Benefit 8
4.3 Postretirement Survivor Benefit 8
4.4 Suicide; Misrepresentation 8
ARTICLE V NORMAL RETIREMENT BENEFIT 9
5.1 Normal Retirement Benefit 9
(i)
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE VI EARLY RETIREMENT BENEFIT 10
6.1 Early Retirement Date 10
6.2 Early Retirement Benefit 10
ARTICLE VII TERMINATION BENEFIT 11
7.1 Termination Benefit 11
7.2 Change in Control 12
7.3 Good Reason 13
ARTICLE VIII BENEFIT PAYMENTS 13
8.1 Form of Benefit Payment 13
8.2 Commencement of Benefit Payments 14
8.3 Withholding; Payroll Taxes 14
8.4 Payment to Guardian 14
ARTICLE IX BENEFICIARY DESIGNATION 14
9.1 Beneficiary Designation 14
9.2 Changing Beneficiary 15
9.3 No Beneficiary Designation 15
9.4 Effect of Payment 15
ARTICLE X ADMINISTRATION 15
10.1 Committee; Duties 15
10.2 Agents 15
10.3 Binding Effect of Decisions 15
10.4 Indemnity of Committee 16
ARTICLE XI CLAIMS PROCEDURE 16
11.1 Claim 16
11.2 Denial of Claim 16
11.3 Review of Claim 16
11.4 Final Decision 17
ARTICLE XII TERMINATION, SUSPENSION OR AMENDMENT 17
12.1 Termination, Suspension or Amendment of Plan 17
(ii)
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE XIII MISCELLANEOUS 17
13.1 Unfunded Plan 17
13.2 Unsecured General Creditor 18
13.3 Trust Fund 18
13.4 Nonassignability 19
13.5 Not a Contract of Employment 19
13.6 Protective Provisions 19
13.7 Governing Law 19
13.8 Validity 19
13.9 Notice 19
13.10 Successors 20
(iii)
</TABLE>
<PAGE>
FIRST FINANCIAL BANK
RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
PURPOSE; EFFECTIVE DATE
The purpose of this Supplemental Executive Retirement Plan (the "Plan") is to
provide supplemental retirement benefits for certain key employees of First
Financial Bank. It is intended that the Plan will aid in retaining and
attracting individuals of exceptional ability by providing them with these
benefits. This Plan shall be effective as of August 1, 1989.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated unless the context clearly indicates otherwise:
2.1 Actuarial Equivalent. "Actuarial Equivalent" means equivalence in value
between two (2) or more forms and/or times of payment based on a determination
by an actuary chosen by the Employer, using sound actuarial assumptions at the
time of such determination.
2.2 Beneficiary. "Beneficiary" means the person, persons or entity entitled
under Article IX to receive any Plan benefits payable after a Participant's
death.
2.3 Board. "Board" means the Board of Directors of the Employer.
2.4 Change in Control.
(a) A "Change in Control of the Company," for purposes of this Plan, shall
be deemed to have taken place if: (i) any person becomes the beneficial owner of
twenty-five percent (25%) or more of the total number of outstanding voting
shares of the Company; (ii)
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any person becomes the beneficial owner of ten percent (10%) or more, but less
than twenty-five percent (25%), of the total number of outstanding voting share
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 (2) or more directors of the Company, for twenty-five
percent (25%) 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 an agreement or received an option, to acquire beneficial
ownership of twenty-five percent (25%) 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 (vi) unless the Board of Directors of the Company has made a
determination that such action constitutes or will constitute a Change in
Control; or (vii) 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
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transactions, the persons who were directors of the Company before such
transaction shall cease to constitute at least two-thirds (2/3) 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 Employer. 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. References to the FHLBB shall include its successors and
references to legislation or regulations shall include any successor regulations
or legislation.
(b) A "Change in Control of the Employer," for purposes of this Plan, shall
be deemed to have taken place if the Company's beneficial ownership of the total
number of outstanding voting shares of the Employer is reduced to less than
fifty percent (50%).
2.5 Committee. "Committee" means the Compensation Committee of the Board or
any successor committee appointed by the Board to administer the Plan pursuant
to Article VII.
2.6 Company. "Company" means First Financial Corporation.
2.7 Compensation. "Compensation" means the salary and bonuses paid to a
participant by Employer and considered to be "wages" for purposes of federal
income tax withholding. Compensation shall be calculated before reduction for
any amounts deferred by the Participant pursuant to the Employer's or Company's
tax qualified plans which may be maintained under Section 401(k) or Section 125
of the Internal Revenue Code, or under any nonqualified deferred compensation
plan maintained by the Employer or Company.
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Compensation does not include expense reimbursements or any form of noncash
compensation or benefits.
2.8 Employer. "Employer" means First Financial Bank, a federally chartered
savings bank with principal offices located in Stevens Point, Wisconsin.
2.9 Highest Average Compensation. "Highest Average Compensation" means the
Participant's average monthly Compensation during any three (3) calendar years
of employment with Employer in which Participant's annual compensation was at
the highest level. If the Participant has fewer than three (3) years of
employment with Employer, Highest Average Compensation shall be determined based
on the average of actual employment.
2.10 Highest Annual Compensation. "Highest Annual Compensation" means the
highest level of Participant's Compensation earned during any calendar year of
employment with Employer.
2.11 Normal Retirement Date. "Normal Retirement Date" means the date on which
a Participant terminates employment with Employer on or after attaining age
sixty-two (62).
2.12 Participant. "Participant" means any individual who is participating in
or has participated in this Plan, and who has not yet received full benefits
hereunder, as provided in Article III.
2.13 Participation Agreement. "Participation Agreement" means the agreement
filed by a participant and approved by the Board pursuant to Article III.
2.14 Plan. "Plan" means this Supplemental Executive Retirement Plan as
amended from time to time.
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2.15 Qualified Plan. "Qualified Plan" means the First Financial 401(k) Profit
Sharing Plan, or any successor defined contribution plan maintained by Employer
that qualifies under Section 401(a) of the Internal Revenue Code.
2.16 Retirement. "Retirement" means a participant's termination from
employment with Employer at the Participant's Early Retirement Date or Normal
Retirement Date, as applicable.
2.17 Supplemental Retirement Benefit. "Supplemental Retirement Benefit" means
the benefit determined under Article V, VI, ar VII of this Plan.
2.18 Total and Permanent Disability. "Total and Permanent Disability" means a
physical or mental condition that prevents the Participant from satisfactorily
performing the Participant's usual duties for the Employer. The Committee shall
determine the existence of Total and Permanent Disability and may rely on advice
from a medical examiner satisfactory to the Committee in making the
determination.
2.19 Years of Service. "Years of Service" means the number of years of
service determined in accordance with the provisions of the Qualified Plan,
whether or not the Participant is a participant in such plan.
ARTICLE III
PARTICIPATION AND VESTING
3.1 Eligibility and Participation.
(a) Eligibility. Eligibility to participate in the Plan is limited to those
key employees of Employer who are designated from time to time by the Board or
Committee.
(b) Participation. An employee's participation in the Plan shall be
effective upon notification to the Employee by the Board or Committee of
eligibility to participate,
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completion of a participation Agreement and acceptance of the Participation
Agreement by the Board or Committee. Subject to Section 3.2, participation in
the Plan shall continue until such time as the Participant terminates employment
with Employer and as long thereafter as the participant is eligible to receive
benefits under this Plan.
3.2 Change in Employment Status. If the Board Committee determines that a
Participant's employment performance is no longer at a level that deserves
reward through participation in this Plan, but does not terminate the
Participant's employment with Employer, participation herein and eligibility to
receive benefits hereunder shall be limited to the Participant's vested interest
in such benefits as of the date designated by the Board or Committee
("Participation Termination Date"). Such benefits shall be based solely on the
Participant's Years of Service and Compensation as of the Participation
Termination Date. This Section 3.2 shall not apply to Participants who terminate
employment with Employer within twenty-four (24) months following a Change in
Control.
3.3 Vesting. A Participant whose employment with Employer terminates because
of Disability, Retirement, or death shall be one hundred percent (100%) vested
in the Participant's Supplemental Retirement Benefit. In addition, a Participant
shall be one hundred percent (100%) vested in the Participant's Supplemental
Retirement Benefit following a Change in Control. For any other termination,
other than Termination for Cause, a Participant shall be vested as follows based
on Years of Service:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
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A Participant who is Terminated for Cause and his beneficiary shall forfeit any
right to receive benefits under the Plan. "Termination for Cause" for purposes
of this section shall mean termination because of the Participant's 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 any employment contract between Employer and the participant. For purposes of
this paragraph, no act, or failure to act, on the Participant's part shall be
considered "willful" unless done, or omitted to be done, by the Participant not
in good faith and without reasonable belief that the Participant's action or
omission was in the best interest of Employer. Notwithstanding the foregoing,
the Participant shall not be deemed to have been Terminated for Cause unless and
until there shall have been delivered to the Participant a copy of a notice of
termination, after reasonable notice to the Participant and an opportunity for
the Participant, together with the Participant's counsel, to be heard before the
Board, finding that in the good faith opinion of the Board the Participant was
guilty of conduct set forth above in this paragraph and specifying the
particulars thereof in detail.
ARTICLE IV
SURVIVOR BENEFITS
4.1 Pretermination Survivor Benefit. If a participant dies while employed by
Employer, Employer shall pay a survivor benefit to the Participant's Beneficiary
as follows:
(a) Amount. The amount of the survivor benefit shall be the Actuarial
Equivalent lump sum present value of the participant's Termination Benefit
determined under Section
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7.1, calculated as of the date of death and based on the Participant's
Highest Annual Compensation.
(b) Time and Form of Payment. The survivor benefit shall be paid to the
Beneficiary as soon as practicable after the death of the Participant in the
form of a lump sum payment.
4.2 Posttermination Survivor Benefit. If a Participant dies following
termination of employment with Employer and prior to the commencement of
benefits hereunder, Employer shall pay a survivor benefit to the Participant's
Beneficiary as follows:
(a) Amount. The amount of the survivor benefit shall be equal to the
Actuarial Equivalent lump sum present value of the Participant's vested interest
in the Supplemental Retirement Benefit determined under Section 7.1, calculated
as of the time benefits would have commenced had the Participant survived.
(b) Time and Form of Payment. The survivor benefit shall be paid to the
Beneficiary as soon as practicable after the death of the Participant in the
form of a lump sum payment.
4.3 Postretirement Survivor Benefit. Payment of the Supplemental Retirement
Benefit shall continue to the Beneficiary(ies) designated by the Employee for
the balance of the ten (10) year certain period if the retired Employee should
die after benefits commence but before receiving payments for ten (10) full
years.
4.4 Suicide; Misrepresentation. No benefit shall be paid to a Beneficiary if
the Participant's death occurs as a result of suicide during the twenty-four
(24) calendar months beginning with the calendar month following commencement of
participation in this Plan. The Committee may deny payment if death occurs
within such twenty-four (24) months if the Participant has made a material
misrepresentation in any form or document provided by the Participant to or for
the benefit of Employer.
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ARTICLE V
NORMAL RETIREMENT BENEFIT
5.1 Normal Retirement Benefit.
(a) If a Participant retires at the Normal Retirement Date, Employer shall
pay to the Participant a monthly Supplemental Retirement Benefit equal to sixty
percent (60%) multiplied by Highest Average Compensation, less:
(i) Fifty percent (50%) of the Participant's monthly primary Social
Security benefit determined at age sixty-two (62); and
(ii) The single life annuity payable at age sixty-two (62) which is
actuarially equivalent to the Participant's balance under the Qualified Plan and
the Supplemental Executive Profit Sharing Plan on the date of Participant's
Retirement. Provided, however, that in determining the actuarial equivalent
hereunder, the assumed growth in that portion of any qualified plan account
which is invested in stock of the Company shall be limited to a maximum annual
rate (including dividends) of seven percent (7%).
(b) In the event the balance in the Participant's Qualified Plan Account is
less than the total amount of Employer contributions to such account
("Deficiency"), the benefit shall be further reduced by the annuitized value of
the Deficiency.
(c) The Supplemental Retirement Benefit shall be increased by three-fourths
percent (3/4%) of Highest Average Compensation for each Year of Service in
excess of twenty-five (25).
ARTICLE VI
EARLY RETIREMENT BENEFIT
6.1 Early Retirement Date. "Early Retirement Date" means the date on which a
Participant terminates employment with Employer, if such termination date occurs
on or after
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such Participant's attainment of age fifty-five (55) and completion of ten (10)
Years of Service, but prior to the Participant's Normal Retirement Date.
6.2 Early Retirement Benefit.
(a) If a participant retires at the Early Retirement Date, Employer shall
pay to the Participant a monthly Supplemental Retirement Benefit equal to sixty
percent (60%) multiplied by Highest Average Compensation, less:
(i) Fifty percent (50%) of the Participant's monthly primary Social
Security benefit payable at age sixty-two (62) under the Social Security Act in
effect at the time of commencement of benefits, assuming level earnings to age
sixty-two (62); and
(ii) The single life annuity payable at age sixty-two (62) which is
actuarially equivalent to the Participant's balance under the Qualified Plan and
the Supplemental Executive Profit Sharing Plan on the date of Participant's
Early Retirement. Provided, however, that in determining the actuarial
equivalent hereunder, the assumed growth in that portion of any qualified plan
account which is invested in stock of the Company shall be limited to a maximum
annual rate (including dividends) of seven percent (7%);
(b) In the event the balance in the Participant's Qualified Plan Account is
less than the total amount of Employer contributions to such account
("Deficiency"), the benefit shall be further reduced by the annuitized value of
the Deficiency.
(c) The Supplemental Retirement Benefit shall be increased by three-fourths
percent (3/4%) of Highest Average Compensation for each Year of Service in
excess of twenty-five (25);
(d) The Net Supplemental Retirement Benefit shall be further reduced by two
and one-half percent (2.5%) for each full or partial year by which the
commencement of payment under this section precedes the date of the
Participant's 62nd birthday.
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(e) Benefit payments shall commence as soon as practicable after the
Participant's Early Retirement Date.
ARTICLE VII
TERMINATION BENEFIT
7.1 Termination Benefit.
(a) If a participant terminates employment with Employer prior to
Retirement or death, Employer shall pay to the Participant a Supplemental
Retirement Benefit equal to sixty percent (60%) of Highest Average Compensation
multiplied by a fraction, the numerator of which is the Participant's actual
Years of Service, not to exceed twenty-five (25) and the denominator of which is
twenty-five (25), less:
(i) Fifty percent (50%) of the Participant's monthly primary Social
Security benefit determined at age sixty-two (62); and
(ii) The single life annuity payable at age sixty-two (62) which is
actuarially equivalent to the Participant's balance under the Qualified Plan and
the Supplemental Executive Profit Sharing Plan at the date of termination.
Provided, however, that in determining the actuarial equivalent hereunder, the
assumed growth in value of that portion of any qualified plan account which is
invested in stock of the Company shall be limited to a maximum annual rate
(including dividends) of seven percent (7%);
(b) In the event the balance in the Participant's Qualified Plan Account is
less than the total amount of Employer contributions to such account
("Deficiency"), the benefit shall be further reduced by the annuitized value of
the Deficiency.
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(c) The Supplemental Retirement Benefit shall be increased by three-fourths
percent (3/4%) of Highest Average Compensation for each Year of Service in
excess of twenty-five (25).
The benefit amount shall be rounded to two (2) decimal places. Benefit
payments under this Section 5.3 shall commence on the first day of the month
following the date on which the Participant attains age sixty-two (62).
Provided, however, that if the Participant's termination is on account of Total
and Permanent Disability, benefit payments shall commence on the first day of
the month following the date on which the Board or Committee determines that the
Participant is Totally and Permanently Disabled.
7.2 Change in Control. If the Employer terminates Participant's employment
within twenty-four (24) months following a Change in Control or if the
Participant terminates employment for Good Reason, as defined in Section 7.3,
within twenty-four (24) months following a Change in Control, Employer shall pay
to the Participant a monthly benefit which is the Actuarial Equivalent of the
Supplemental Retirement Benefit as determined under Section 5.1, crediting the
Participant with seven (7) Years of Service or the Participant's actual Years of
Service, whichever is greater. Subject to the provisions of Section 8.2, benefit
payments shall commence as soon as practicable. Any benefit payable under this
section shall be in the form of a ten (10) year certain annuity with payments
continuing to the Beneficiary(ies) designated by the Participant for the balance
of the ten (10) year period if the terminated Participant should die before
receiving payments for ten (10) full years.
7.3 Good Reason. Participant shall be deemed to have resigned for Good Reason
if Participant resigns within twenty-four (24) months following a Change in
Control as a result of one (1) or more of the following events;
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(a) Participant 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 Employer reduces the Participant's total compensation (including
base salary and bonus) below the rate in effect immediately prior to such Change
in Control.
(c) The Employer fails to provide the Participant with benefits as least as
favorable as those provided by the Employer immediately prior to such Change in
Control; provided, however, that Good Reason shall not exist under this
paragraph if Participant is provided benefits equal to those provided to
executives in the Company or Bank and their affiliates following the Change of
Control.
(d) The Employer shall change the location of the primary work site of
Participant to a location more than fifty (50) miles from the work site
immediately prior to the Change of Control, without Participant's consent.
ARTICLE VIII
BENEFIT PAYMENTS
8.1 Form of Benefit Payment. The Supplemental Retirement Benefit shall be
paid in the form of a ten (10) year certain and life annuity with payments
continuing to the Beneficiary(ies) designated by the Participant for the balance
of the ten (10) year period if the retired Participant should die before
receiving payments for ten (10) full years.
8.2 Commencement of Benefit Payments. Payments shall commence as soon as
practicable after the appropriate application for benefits has been made but not
later than sixty (60) days after all information necessary to calculate the
benefit amount has been received by Employer. All payments shall be made as of
the first day of the month.
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8.3 Withholding; Payroll Taxes. Employer shall withhold from payments
hereunder any taxes required to be withheld from such payments under federal,
state or local law. A Beneficiary, however, may elect not to have withholding of
federal income tax pursuant to Section 3405(a)(2) of the Internal Revenue Code,
or any successor provision thereto.
8.4 Payment to Guardian. If a Plan benefit is payable to a minor or a person
declared incompetent or to a person incapable of handling the disposition of
property, the Committee may direct payment to the guardian, legal representative
or person having the care and custody of such minor, incompetent or person. The
Committee may require proof of incompetency, minority, incapacity or
guardianship as it may deem appropriate prior to distribution. Such distribution
shall completely discharge the Committee and the Employer from all liability
with respect to such benefit.
ARTICLE IX
BENEFICIARY DESIGNATION
9.1 Beneficiary Designation. Each Participant shall have the right, at any
time, to designate one (1) or more persons or an entity as Beneficiary (both
primary as well as secondary) to whom benefits under this Plan shall be paid in
the event of a Participant's death prior to complete distribution to the
Participant of the benefits due under the Plan. Each Beneficiary designation
shall be in a written form prescribed by the Committee and will be effective
only when filed with the Committee during the Participant's lifetime.
9.2 Changing Beneficiary. Any Beneficiary designation may be changed by the
filing of a new designation with the Committee. The filing of a new designation
shall cancel all designations previously filed.
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9.3 No Beneficiary Designation. If any Participant fails to designate a
Beneficiary in the manner provided above, if the designation is void, or if the
Beneficiary designated by a deceased Participant dies before the Participant or
before complete distribution of the Participant's benefits, the Participant's
Beneficiary shall be the Participant's estate.
9.4 Effect of Payment. Payment to the Beneficiary shall completely discharge
the Employer's obligations under this Plan.
ARTICLE X
ADMINISTRATION
10.1 Committee; Duties. The Plan shall be administered by the Committee. The
Committee shall have the authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of the Plan and decide
or resolve any and all questions, including interpretations of the Plan, as may
arise in such administration. Member of the Committee may be Participants under
the Plan.
10.2 Agents. The Committee may, from time to time, employ agents and delegate
to them such administrative duties as it sees fit, and may from time to time
consult with counsel who may be counsel to the Company.
10.3 Binding Effect of Decisions. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final, conclusive and binding upon
all persons having any interest in the Plan.
10.4 Indemnity of Committee. The Company shall indemnify and hold harmless
the members of the Committee against any and all claims, loss, damage, expense
or liability arising from any action or failure to act with respect to the Plan
on account of such
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member's service on the Committee, except in the case of gross negligence or
willful misconduct.
ARTICLE XI
CLAIMS PROCEDURE
11.1 Claim. Any person claiming a benefit, requesting an interpretation or
ruling under the Plan, or requesting information under the Plan shall present
the request in writing to the Committee which shall respond in writing as soon
as practicable.
11.2 Denial of Claim. If the claim or request is denied, the written notice
of denial shall state:
(a) The reason for denial, with specific reference to the Plan provisions
on which the denial is based.
(b) A description of any additional material or information required and an
explanation of why it is necessary.
(c) An explanation of the Plan's claims review procedure.
11.3 Review of Claim. Any person whose claim or request is denied or who has
not received a response within thirty (30) days may request a review by notice
given in writing to the Committee. The claim or request shall be reviewed by the
Committee which may, but shall not be required to, grant the claimant a hearing.
On review, the claimant may have representation, examine pertinent documents,
and submit issues and comments in writing.
11.4 Final Decision. The decision on review shall normally be made within
sixty (60) days. If an extension of time is required for a hearing or other
special circumstances, the claimant shall be notified and the time shall be
extended to one hundred twenty (120) days. The decision shall be in writing and
shall state the reason and the relevant Plan provisions.
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All decisions on review shall be final and bind all parties concerned subject
only to judicial review.
ARTICLE XII
TERMINATION, SUSPENSION OR AMENDMENT
12.1 Termination, Suspension or Amendment of Plan. The Board may, in its sole
discretion, terminate or suspend the Plan at any time, in whole or in part. The
Board may amend the Plan at any time. Any amendment may provide different
benefits or amounts of benefits from those herein set forth. However, no such
termination, suspension or amendment shall adversely affect the benefits of
participants which have accrued prior to such action, the benefits of any
Participant who has previously retired, or the benefits of any Beneficiary of a
Participant who has previously died, except as otherwise determined by the Board
under Section 13.1 with respect to any Participant. Furthermore, no termination,
suspension or amendment shall alter the applicability of the vesting schedule in
Section 3.3 with respect to a Participant's accrued benefit at the time of such
termination, suspension or amendment.
ARTICLE XIII
MISCELLANEOUS
13.1 Unfunded Plan. This Plan is an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301, and 401
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of
ERISA. The Board may terminate the Plan and make no further benefit payments or
remove certain employees as Participants if it is determined by the United
States Department of Labor, a court of competent jurisdiction, or
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an opinion of counsel that the Plan constitutes an employee pension benefit plan
within the meaning of Section 3(2) of ERISA (as currently in effect or hereafter
amended) which is not so exempt.
13.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs,
successors, and assigns shall have no secured legal or equitable rights,
interest or claims in any property or assets of Employer, nor shall they be
Beneficiaries of, or have any rights, claims or interests in any life insurance
policies, annuity contracts or the proceeds therefrom owned or which may be
acquired by Employer. Except as provided in Section 13.3, such policies, annuity
contracts or other assets of Employer shall not be held under any trust for the
benefit of Participants, their Beneficiaries, heirs, successors or assigns, or
held in any way as collateral security for the fulfilling of the obligations of
Employer under this Plan. Any and all of Employer's assets and policies shall
be, and remain, the general, unpledged, unrestricted assets of Employer.
Employer's obligation under the Plan shall be that of an unfunded and unsecured
promise to pay money in the future.
13.3 Trust Fund. Employer shall be responsible for the payment of all
benefits provided under the Plan. At its discretion, Employer may establish one
(1) or more trusts, with such trustees as the Board may approve, for the purpose
of providing for the payment of such benefits. Although such a trust shall be
irrevocable, its assets shall be held for payment of all Employer's general
creditors in the event of insolvency. To the extent any benefits provided under
the Plan are paid from any such trust, Employer shall have no further obligation
to pay them. If not paid from the trust, such benefits shall remain the
obligation of Employer.
13.4 Nonassignability. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber,
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transfer, hypothecate or convey in advance of actual receipt the amounts, if
any, payable hereunder, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and nontransferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
13.5 Not a Contract of Employment. This Plan shall not constitute a contract
of employment between Employer and the Participant. Nothing in this Plan shall
give a Participant the right to be retained in the service of Employer or to
interfere with the right of Employer to discipline or discharge a Participant at
any time.
13.6 Protective Provisions. A Participant shall cooperate with Employer by
furnishing any and all information requested by Employer in order to facilitate
the payment of benefits hereunder, and by taking such physical examinations as
Employer may deem necessary and by taking such other action as may be requested
by Employer.
13.7 Governing Law. The provisions of this Plan shall be construed and
interpreted according to the laws of the State of Wisconsin, except as preempted
by federal law.
13.8 Validity. If any provision of this Plan shall be held illegal or invalid
for any reason, said illegality or invalidity shall not affect the remaining
parts hereof, but this Plan shall be construed and enforced as if such illegal
and invalid provision had never been inserted herein.
13.9 Notice. Any notice or filing required or permitted under the Plan shall
be sufficient if in writing and hand delivered or sent by registered or
certified mail. Such notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the
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date shown on the postmark on the receipt for registration or certification.
Mailed notice to the Committee shall be directed to the Employer's address.
Mailed notice to a Participant or Beneficiary shall be directed to the
individual's last known address in Employer's records.
13.10 Successors. The provisions of this Plan shall bind and inure to the
benefit of Employer and its successors and assigns. The term successors as used
herein shall include any corporate or other business entity which shall, whether
by merger, consolidation, purchase or otherwise acquire all or substantially all
of the business and assets of Employer, and successors of any such corporation
or other business entity.
FIRST FINANCIAL BANK
By:
---------------------------------
Robert S. Gaiswinkler
Chairman of the Board
Dated: February 22, 1996
20
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<PAGE>
EXHIBIT 11
FIRST FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For The For The
Three Months Ended Year Ended
December 31, December 31,
------------------ ---------------
1996 1995 1996 1995
------ ------ ------ -----
(In thousands, except
per share data)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Income before extraordinary item $19,240 $19,059 $50,458 $63,984
Extraordinary item -- -- (686) --
------- ------- ------- -------
Net income $19,240 $19,059 $49,772 $63,984
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding 37,158 37,047 37,295 36,789
Shares from assumed exercise of options
(as determined by the treasury stock
method) 843 944 798 943
------- ------- ------- -------
Common and common equivalent shares 38,001 37,991 38,093 37,732
======= ======= ======= =======
Primary Earnings Per Common Share:
Income before extraordinary item $ .51 $ .50 $ 1.33 $ 1.70
Extraordinary item -- -- (0.02) --
------- ------- ------- -------
Net income $ .51 $ .50 $ 1.31 $ 1.70
======= ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE
Income before extraordinary item $19,240 $19,059 $50,458 $63,984
Extraordinary item -- -- (686) --
------- ------- ------- -------
Net income $19,240 $19,059 $49,772 $63,984
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding 37,158 37,047 37,295 36,789
Shares from assumed exercise of options
(as determined by the treasury stock
method) 886 973 925 1,128
------- ------- ------- -------
Common and common equivalent shares 38,044 38,020 38,220 37,917
======= ======= ======= =======
Fully Diluted Earnings Per Common Share:
Income before extraordinary item $ .51 $ .50 $ 1.32 $ 1.69
Extraordinary item -- -- (0.02) --
------- ------- ------- -------
Net income $ .51 $ .50 $ 1.30 $ 1.69
======= ======= ======= =======
</TABLE>
EXHIBIT 13(a)
CONSOLIDATED FINANCIAL STATEMENTS
<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 as of December 31, 1996 and 1995, 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, 1996. 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 at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
January 14, 1997
Milwaukee, Wisconsin
-1-
<PAGE>
CONSOLIDATED BALANCE SHEETS
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -------
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash $ 133,529 $ 123,379
Federal funds sold 2,513 34,929
Interest-earning deposits 18,043 13,801
---------- ----------
CASH AND CASH EQUIVALENTS 154,085 172,109
Securities available for sale (at fair value):
Investment securities 136,477 80,999
Mortgage-related securities 1,048,085 571,293
Securities held to maturity:
Investment securities (fair value of
$57,996,000--1996 and $119,063,000--
1995) 58,434 119,426
Mortgage-related securities (fair value of
$597,106,000--1996 and $691,060,000--
1995) 602,352 699,468
Loans receivable:
Held for sale 19,119 26,651
Held for investment 3,493,700 3,590,149
Foreclosed properties and repossessed
assets 3,997 3,379
Real estate held for investment or sale 7,431 8,289
Office properties and equipment 50,428 51,124
Intangible assets, less accumulated
amortization 12,739 21,481
Other assets 113,584 126,740
---------- ----------
$5,700,431 $5,471,108
========== ==========
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- -------
(Dollars in thousands)
LIABILITIES
<S> <C> <C>
Deposits $4,444,932 $4,424,525
Federal Home Loan Bank advances and
other borrowings 769,526 570,508
Advance payments by borrowers for
taxes and insurance 13,382 13,206
Other liabilities 62,080 77,952
---------- ----------
TOTAL LIABILITIES 5,289,920 5,086,191
STOCKHOLDERS' EQUITY
Serial preferred stock, $1 par value:
Authorized: 3,000,000 shares
None issued
Common stock, $1 par value:
Authorized: 75,000,000 shares
Issued: 37,450,879 (1996) and
37,095,456 (1995) shares
Outstanding: 36,802,484 (1996) and
37,095,456 (1995) shares 37,451 37,095
Additional paid-in capital 43,668 42,337
Net unrealized gain (loss) on
securities available for sale 1,300 (6,021)
Treasury stock, 648,395 shares, at cost (14,447)
Common stock purchased by ESOP (271)
Retained earnings 342,539 311,777
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 410,511 384,917
$5,700,431 $5,471,108
========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FIRST FINANCIAL CORPORATION Year Ended December 31,
1996 1995 1994
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Interest income:
Mortgage loans $175,508 $183,434 $176,914
Other loans 126,186 120,256 100,755
Mortgage-related securities 97,251 98,821 89,379
Investments 20,105 14,797 14,816
-------- -------- --------
TOTAL INTEREST INCOME 419,050 417,308 381,864
Interest expense:
Deposits 199,450 196,823 174,819
Federal Home Loan Bank advances and
other borrowings 32,291 37,348 29,403
-------- -------- --------
TOTAL INTEREST EXPENSE 231,741 234,171 204,222
-------- -------- --------
NET INTEREST INCOME 187,309 183,137 177,642
Provisions for losses on loans 9,030 9,738 6,824
-------- -------- --------
NET INTEREST INCOME AFTER PROVISIONS
FOR LOSSES ON LOANS 178,279 173,399 170,818
Non-interest income:
Deposit account service fees 13,934 12,101 10,582
Loan fees and service charges 12,300 11,109 9,814
Insurance and brokerage sales commis-
sions 7,293 6,849 7,269
Service fees on loans sold 6,193 7,125 7,737
Net gain on sales of loans held for sale 15,082 2,703 2,732
Net gain (loss) on sales of securities
available for sale (11,592) 1,182 (7,896)
Other 3,184 3,222 3,056
-------- -------- --------
TOTAL NON-INTEREST INCOME 46,394 44,291 33,294
-------- -------- --------
224,673 217,690 204,112
Non-interest expense:
Compensation, payroll taxes and other
employee benefits 47,996 45,263 51,496
Federal deposit insurance premiums 38,439 10,169 10,291
Occupancy 9,377 9,006 9,157
Amortization of intangible assets 8,955 5,245 5,365
Data processing 7,577 7,159 7,360
Acquisition-related costs 6,458
Loan expense 7,222 6,257 6,669
Telephone and postage 6,594 6,434 6,083
Marketing 6,012 5,941 5,004
Furniture and equipment 4,855 5,303 6,071
Net cost of (income from) operations
of foreclosed properties (260) (164) 1,123
Other 12,005 11,531 11,748
-------- -------- --------
TOTAL NON-INTEREST EXPENSE 148,772 118,602 120,367
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 75,901 99,088 83,745
Income taxes 25,443 35,104 30,716
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 50,458 63,984 53,029
Extraordinary item, net of tax
effect of $370,000 (686)
-------- -------- --------
NET INCOME $ 49,772 $ 63,984 $ 53,029
======== ======== ========
Earnings per share:
Primary:
Income before extraordinary item $ 1.33 $ 1.70 $ 1.42
Extraordinary item (.02)
-------- -------- --------
Net income $ 1.31 $ 1.70 $ 1.42
======== ======== ========
Fully diluted:
Income before extraordinary item $ 1.32 $ 1.69 $ 1.42
Extraordinary item (.02)
-------- -------- --------
Net income $ 1.30 $ 1.69 $ 1.42
======== ======== ========
Cash dividends paid per share $ .510 $ .384 $ .320
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FIRST FINANCIAL CORPORATION
Net
Unrealized
Gain
(Loss) on Common
Additional Securities Stock
Common Paid-In Available Treasury Purchased
Stock Capital For Sale Stock By ESOP
------ --------- ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994 $34,823 $37,967 $ 1,747 $(4,126) $(2,025)
Net income
Cash dividends ($.320 per share)
Exercise of stock options 349 1,246
Issuance of common stock in
conjunction with acquisition 1,172 3,616
Change in net unrealized gain
(loss) on securities available
for sale, net of tax (10,366)
Pre-merger transactions
of pooled company 63 19 457 417
-------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1994 36,407 42,848 (8,619) (3,669) (1,608)
Net income
Cash dividends ($.384 per share)
Exercise of stock options 630 2,394
Payment on ESOP loan 790
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 2,598
Pre-merger transactions
of pooled company 58 (2,905) 3,669 547
-------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1995 37,095 42,337 (6,021) 0 (271)
Net income
Cash dividends ($.510 per share)
Exercise of stock options 356 1,346
Payment on ESOP loan 271
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 7,321
Purchase of treasury stock (14,447)
Other (15)
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1996 $ 37,451 $ 43,668 $ 1,300 $ (14,447) $ 0
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
FIRST FINANCIAL CORPORATION
Retained Stockholders'
Earnings Equity
-------- ---------
BALANCES AT JANUARY 1, 1994 $212,257 $280,643
Net income 53,029 53,029
Cash dividends ($.320 per share) (9,950) (9,950)
Exercise of stock options 1,595
Issuance of common stock in
conjunction with acquisition 6,613 11,401
Change in net unrealized gain
(loss) on securities available
for sale, net of tax (10,366)
Pre-merger transactions
of pooled company 956
-------- --------
BALANCES AT DECEMBER 31, 1994 261,949 327,308
Net income 63,984 63,984
Cash dividends ($.384 per share) (14,156) (14,156)
Exercise of stock options 3,024
Payment on ESOP loan 790
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 2,598
Pre-merger transactions
of pooled company 1,369
-------- --------
BALANCES AT DECEMBER 31, 1995 311,777 384,917
Net income 49,772 49,772
Cash dividends ($.510 per share) (19,010) (19,010)
Exercise of stock options 1,702
Payment on ESOP loan 271
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 7,321
Purchase of treasury stock (14,447)
Other (15)
-------- ---------
BALANCES AT DECEMBER 31, 1996 $342,539 $ 410,511
======== =========
See notes to consolidated financial statements.
-5-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 49,772 $ 63,984 $ 53,029
Adjustments to reconcile net income
to net cash provided by operating
activities:
Decrease (increase) in accrued
interest on loans 261 (4,657) (2,563)
(Decrease) increase in accrued
interest on deposits (1,090) 4,123 148
Loans originated for sale (225,154) (210,150) (298,813)
Proceeds from sales of loans held
for sale 320,066 211,658 443,931
Provision for depreciation 6,075 5,746 6,513
Provision for losses on loans and
other assets 8,563 10,240 7,949
Amortization of intangible assets
and servicing rights 10,822 6,442 6,255
Net (gain) loss on sales of loans
and other assets (3,447) (3,911) 4,924
Other (17,176) 3,639 (1,971)
---------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 148,692 87,114 219,402
INVESTING ACTIVITIES
Proceeds from sales of investment
securities available for sale 24,343 18,759 65,088
Proceeds from maturities of investment
securities held to maturity 90,327 51,126 24,393
Proceeds from maturities of available
for sale investment securities 6,935 9,615 16,649
Purchases of available for sale
investment securities (82,884) (15,770) (2,627)
Purchases of investment securities held
to maturity (29,849) (62,710) (7,610)
Proceeds from sales of mortgage-related
securities available for sale 395,281 182,563
Principal payments received on
mortgage-related securities 195,168 233,949 292,219
Purchases of mortgage-related securities (803,280) (594,952)
Principal collected on loans
receivable 669,578 564,076 586,875
Loans originated for portfolio (825,935) (726,877) (972,726)
Additions to office properties and
equipment (4,391) (3,473) (3,397)
Proceeds from sales of foreclosed
properties and repossessed assets 7,408 8,048 8,745
Proceeds from sales of real estate
held for investment 1,376 18 14,042
Business acquisition 4,593
---------- ---------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (355,923) 76,761 (386,145)
</TABLE>
-6-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
<TABLE>
<CAPTION>
FIRST FINANCIAL CORPORATION Year Ended December 31,
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
FINANCING ACTIVITIES
<S> <C> <C> <C>
Net increase (decrease) in deposits 21,497 38,947 ( 96,257)
Increase (decrease) in advance payments by
borrowers for taxes and insurance 176 (2,780) 337
Net increase in reverse repurchase
agreements 28,118 12,845 13,127
Proceeds of borrowings 1,718,100 1,094,623 1,119,527
Repayments of borrowings (1,547,200) (1,245,406) (881,342)
Proceeds from exercise of stock options 1,702 3,254 1,845
Proceeds from vesting of employee
benefit plans 271 1,929 416
Purchase of treasury stock (14,447)
Payments of cash dividends to
stockholders (19,010) (14,156) (9,950)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 189,207 (110,744) 147,703
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (18,024) 53,131 (19,040)
Cash and cash equivalents at
beginning of year 172,109 118,978 138,018
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 154,085 $ 172,109 $ 118,978
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid or credited to accounts for:
Interest on deposits and borrowings $ 232,275 $ 230,501 $ 202,520
Income taxes 26,997 35,138 34,111
Non-cash investing activities:
Mortgage loans securitized and trans-
ferred to mortgage-related securities
available for sale 161,087
Investment securities transferred to
available-for-sale portfolio at
amortized cost 20,734 67,337
Mortgage-related securities transferred
to available-for-sale portfolio at
amortized cost 391,537 64,153
Mortgage loans transferred to loans
held for sale portfolio 27,068 15,467 26,028
Loans receivable transferred to
foreclosed properties 7,676 6,158 7,169
See notes to consolidated financial statements.
</TABLE>
-7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST FINANCIAL CORPORATION
December 31, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: First Financial Corporation ("FFC") provides a full range of financial
services from offices in Wisconsin and Illinois through its wholly-owned insured
banking subsidiary, First Financial Bank ("FF Bank") and FF Bank's 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 the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. In addition to those discussed under "Investment And Mortgage-Related
Securities Held To Maturity And Available For Sale" below, material estimates
that are particularly susceptible to change in the near-term relate to the
determination of the allowance for loan losses, the valuation of investments,
mortgage-related securities, and mortgage servicing rights. In connection with
the determination of the allowance for loan losses and real estate owned,
management obtains independent appraisals for significant properties.
Cash and Cash Equivalents: FFC considers its interest-earning deposits and
federal funds sold which have original maturities of three months or less to be
cash equivalents.
Investment and Mortgage-Related Securities Held to Maturity and Available for
Sale: Debt securities are classified as held-to- maturity when FFC has the
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. As a result, the balance of stockholders' equity at
December 31, 1996 was increased by $1,300,000, net of $742,000 in deferred
income
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
taxes, and at December 31, 1995 was decreased by $6,021,000, net of $3,104,000
in deferred income taxes. See Notes C and D. No securities are held by FFC in a
trading account.
In October 1995, the Financial Accounting Standards Board ("FASB") approved a
modification of Statement of Financial Accounting Standards ("Statement") No.
115, wherein from November 15, 1995 through December 31, 1995 FF Bank had the
opportunity to reconsider its classification of investment and mortgage-related
securities as held-to-maturity, trading, or available-for-sale. Accordingly, on
December 21, 1995, FFC chose to reclassify certain investments and
mortgage-related securities from held-to- maturity to available-for-sale. At the
date of transfer, the amortized cost of the investment and mortgage-related
securities was $20,734,000 and $391,537,000, respectively. The net unrealized
gain on those securities was $895,000 and $410,000, which was credited to
stockholders' equity net of income tax effect of $322,000 and $148,000,
respectively.
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.
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.
Interest, Fees, and Discounts on Loans: Interest on loans is recorded using the
accrual method. Allowances ($907,000--1996; $914,000--1995) are established for
uncollected interest on non-accrual loans. Generally, a loan is classified as
non-accrual 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
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
collectibility of principal or interest, even though the loan currently is
performing. When a loan is placed on non-accrual 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. FFC 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.
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.
Mortgage Servicing Rights: Fees charged for servicing loans for other investors
are recognized as income in the period the related loan payments are received
from the borrowers. Effective January 1, 1995, FFC adopted Statement No. 122,
"Accounting for Mortgage Servicing Rights." Statement No. 122 requires that a
mortgage banking enterprise recognize as a separate asset the rights to service
mortgage loans for others, whether those rights are purchased or originated. In
accordance with the Statement, an enterprise that acquires mortgage servicing
rights through either the origination or purchase of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the mortgage loans to the mortgage servicing rights and to the loans
(without the mortgage servicing rights) based on their relative fair values. The
value of mortgage servicing rights originated prior to January 1, 1995 is not
recorded on FFC's consolidated balance sheets. FFC has recognized originated
servicing rights of $2,715,000 and $1,747,000, during 1996 and 1995,
respectively.
Originated servicing rights resulting from the above adoption of Statement No.
122, 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 and excess servicing rights for servicing
income
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
above the normal servicing spread, are amortized in proportion to, and over the
period of, estimated net servicing revenues, and are shown as a reduction of
"Service fees on loan sold" in the consolidated statements of income. Servicing
rights recorded subsequent to the adoption of Statement No. 122 are carried at
the lower of amortized cost or fair value. Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
For purposes of measuring impairment, the rights are stratified based on the
following predominant risk characteristics of the underlying loans: loan product
type (i.e., fixed rate or adjustable) and interest rate. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
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 and estimated collateral value.
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.
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.
Effective January 1, 1995, FFC adopted Statement No. 114, "Accounting by
Creditors for Impairment of a Loan." Statement No. 114, which was amended by
Statement No. 118, 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. 114
permits certain loans with homogeneous characteristics to be excluded from the
effects of this statement. Approximately 95% of FFC's loans outstanding at
December 31, 1996 are included in one or more homogeneous categories. The
adoption of Statements No. 114 and 118 had no effect on FFC's financial
condition or results of operations.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 fifteen years using the straight-line and
accelerated methods. The cost in excess of net assets of acquired businesses,
aggregating $1,356,000 and $4,164,000 at December 31, 1996 and 1995,
respectively, is net of accumulated amortization.
The premiums resulting from the valuation of core deposits acquired in business
combinations or in the purchase of branch offices are amortized over the
estimated life of the deposit base of seven to ten years using the level yield
method. Core deposit intangibles, aggregating $11,383,000 and $17,317,000 at
December 31, 1996 and 1995, respectively, are net of accumulated amortization.
During 1996 $4,200,000 in additional amortization of goodwill and core deposit
intangibles was recorded based on FFC's re-evaluation of these intangibles in
accordance with Statement No. 72, "Accounting for Certain Acquisitions of
Banking and Thrift Institutions" with regard to early 1980's acquisitions.
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.
Per Share Amounts: The Board of Directors declared a five-for-four stock split
of FFC's common stock to stockholders of record on December 16, 1996 payable on
December 30, 1996. This stock split was distributed in the form of a 25% stock
dividend. The par value of the common stock remained at $1.00. All numbers of
shares and per share amounts in the financial statements and notes have been
adjusted to reflect these distributions.
Primary and fully diluted earnings per share are based on the weighted average
number of common shares outstanding during each
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
period and common equivalent shares (using the treasury sharemethod) outstanding
at the end of each period. FFC's common equivalent shares consist entirely of
stock options. The resulting number of shares used in computing primary earnings
per share in 1996, 1995 and 1994 after adjustment is 38,093,000, 37,732,000 and
37,319,000, respectively. The resulting number of shares used in computing fully
diluted earnings per share in 1996, 1995 and 1994 after adjustment is
38,220,000, 37,917,000 and 37,358,000, respectively.
Pending Accounting Changes: The FASB has issued Statement No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" which is effective for transfers occurring after December 31, 1996.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on a
consistent application of a financial-components approach that focuses on
control. The FASB subsequently issued Statement No. 127, in December, 1996,
which provides for the deferral of the effective date of certain provisions of
Statement No. 125. Management believes that the effect of adopting these
statements will not be material to FFC's financial condition or results of
operations.
Reclassifications: Certain 1995 and 1994 accounts have been reclassified to
conform to the 1996 presentations.
NOTE B--BUSINESS COMBINATION
On February 28, 1995, FFC acquired FirstRock Bancorp, Inc. ("FirstRock") of
Rockford, Illinois. In the acquisition, 5,458,015 shares of FFC common stock
were issued to FirstRock shareholders. Upon closing, FirstRock's subsidiary,
First Federal Savings Bank, FSB ("First Federal") was merged into FF Bank with
First Federal's six offices now operating as branch banking offices of FF Bank.
FirstRock was merged into FFC. The transaction was accounted for as a
pooling-of-interests.
As a result of the FirstRock acquisition, FFC and FirstRock incurred expenses i)
in conjunction with the acquisition itself and ii) relative to the
reorganization of FirstRock's operations following the acquisition. The
acquisition/transaction costs and charges aggregated $6.5 million on a pre-tax
basis and $4.0 million on an after-tax basis, or $0.10 per share.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE C--INVESTMENT SECURITIES
The following is a summary of available-for-sale investment securities and
held-to-maturity investment securities.
<TABLE>
<CAPTION>
Amortized Gross Unrealized
Cost Gains Losses Fair Value
December 31, 1996: (Dollars in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government and
federal agency
obligations $ 90,112 $ 1,514 $ 87 $ 91,539
Adjustable-rate mortgage
mutual fund 45,796 858 44,938
-------- ------- ------- --------
$135,908 $ 1,514 $ 945 $136,477
======== ======= ======= ========
Held-to-maturity:
U.S. Government and
federal agency
obligations $ 56,802 $ 166 $ 605 $ 56,363
Corporate and bank notes
receivable (investment
grade) 583 3 580
State and municipal
obligations 1,049 4 1,053
-------- ------- ------- --------
$ 58,434 $ 170 $ 608 $ 57,996
======== ======= ======= ========
December 31, 1995:
Available-for-sale:
U.S. Government and
federal agency
obligations $ 31,812 $ 916 $ 51 $ 32,677
Adjustable-rate mortgage
mutual fund 47,905 17 659 47,263
Corporate and bank notes
receivable (investment
grade) 997 62 1,059
-------- ------- ------- --------
$ 80,714 $ 995 $ 710 $ 80,999
======== ======= ======= ========
Held-to-maturity:
U.S. Government and
federal agency
obligations $113,519 $ 417 $ 777 $113,159
Corporate and bank notes
receivable (investment
grade) 4,859 2 11 4,850
State and municipal
obligations 1,048 8 2 1,054
-------- ------- ------- --------
$119,426 $ 427 $ 790 $119,063
======== ======= ======= ========
</TABLE>
-14-
<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, 1996,
by contractual maturity or repricing date, are shown below.
<TABLE>
<CAPTION>
Available-For-Sale Held-To-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 48,873 $ 47,929 $ 20,098 $ 19,830
Due after one year through
five years 47,003 47,108 37,934 37,762
Due after five years through
ten years 402 404
Due after ten years 40,032 41,440
-------- -------- -------- --------
$135,908 $136,477 $ 58,434 $ 57,996
======== ======== ======== ========
</TABLE>
During the years ended December 31, 1996, 1995 and 1994, investment securities
available for sale with a fair value at the date of sale of $24,343,000,
$18,759,000, and $65,088,000, respectively, were sold. The gross realized gains
on such sales totaled $1,464,000, $1,182,000, and $1,319,000, in 1996, 1995, and
1994, respectively. Gross realized losses on such sales totaled $4,000 and
$544,000 in 1996 and 1994, respectively.
Accrued interest on investment securities, including those securities classified
as federal funds sold, interest-earning deposits and short-term securities, was
$2,208,000 and $3,470,000 at December 31, 1996 and 1995, respectively.
-15-
<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
(Dollars in thousands)
December 31, 1996:
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government agencies:
Mortgage-backed
securities $ 912,071 $ 4,884 $ 789 $ 916,166
Collateralized mortgage
obligations 12,609 33 172 12,470
Non-agency:
Mortgage-backed
securities 121,932 572 3,055 119,449
---------- ------- ------- ----------
$1,046,612 $ 5,489 $ 4,016 $1,048,085
========== ======= ======= ==========
Held-to-maturity:
U.S. Government agencies:
Mortgage-backed
securities $ 177,347 $ 3,746 $ 154 $ 180,939
Collateralized mortgage
obligations 270,424 1,630 11,355 260,699
Non-agency:
Mortgage-backed
securities 154,146 1,137 259 155,024
Collateralized mortgage
obligations 435 9 444
---------- ------- ------- ----------
$ 602,352 $ 6,522 $11,768 $ 597,106
========== ======= ======= ==========
December 31, 1995:
Available-for-sale:
U.S. Government agencies:
Mortgage-backed
securities $ 132,770 $ 2,216 $ 178 $ 134,808
Collateralized mortgage
obligations 66,513 866 197 67,182
Non-agency:
Mortgage-backed
securities 381,419 2,334 14,450 369,303
---------- ------- ------- ----------
$ 580,702 $ 5,416 $14,825 $ 571,293
========== ======= ======= ==========
Held-to-maturity:
U.S. Government agencies:
Mortgage-backed
securities $ 214,407 $ 4,642 $ 145 $ 218,904
Collateralized mortgage
obligations 275,008 666 11,092 264,582
Non-agency:
Mortgage-backed
securities 209,442 166 2,671 206,937
Collateralized mortgage
obligations 611 26 637
---------- ------- ------- ----------
$ 699,468 $ 5,500 $13,908 $ 691,060
========== ======= ======= ==========
</TABLE>
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE D--MORTGAGE-RELATED SECURITIES--Continued
During the years ended December 31, 1996 and 1994, mortgage-related securities
available for sale with a fair value at the date of sale of $395,281,000 and
$182,563,000, respectively, were sold, while no mortgage-related securities were
sold during the year ended December 31, 1995. The gross realized gains on such
sales totaled $4,469,000 and $461,000 in 1996 and 1994, respectively. The gross
realized losses on such sales totaled $17,521,000 and $132,000 in 1996 and 1994,
respectively. Also, in 1994, FFC recorded a $9,000,000 permanent impairment loss
on two non-agency securities which were sold in 1996 at a further loss of
$12,800,000, which loss is included in the gross realized losses for 1996 as
noted above.
Accrued interest receivable on mortgage-related securities was $9,091,000 and
$8,475,000 at December 31, 1996 and 1995, respectively.
NOTE E--LOANS RECEIVABLE
Loans receivable held for investment consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- -------
(Dollars in thousands)
<S> <C> <C>
Real estate mortgage loans:
Residential (including multi-family) $2,035,010 $2,176,659
Commercial and other 151,875 136,714
Construction - residential (including
multi-family) 71,596 56,314
Construction - commercial 22,095 15,710
---------- ----------
Total real estate mortgage loans 2,280,576 2,385,397
Consumer and other loans:
Consumer 415,155 362,659
Home equity 296,749 284,700
Education 269,633 240,650
Credit card 179,352 214,107
Manufactured housing 104,783 139,385
Business 11,728 17,198
---------- ----------
Total consumer and other loans 1,277,400 1,258,699
---------- ----------
Total loans before net items 3,557,976 3,644,096
Less:
Allowances for losses 23,228 25,235
Undisbursed loan proceeds 42,709 28,992
Deferred net loan origination costs (1,810) (977)
Unearned discounts 149 697
---------- ----------
64,276 53,947
---------- ----------
$3,493,700 $3,590,149
========== ==========
</TABLE>
Accrued interest on loans receivable was $24,901,000 and $25,777,000 at December
31, 1996 and 1995, respectively.
The following table sets forth the composition of the non-residential real
estate loan portfolio, including both permanent
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE E--LOANS RECEIVABLE--Continued
and construction loans, by geographic location of the related
collateral properties.
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------------- --------------------------
Percent Percent
Of Of
Property Location Amount Total Amount Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
Wisconsin $114,751 66.0% $ 96,196 63.1%
Illinois 27,253 15.7 30,734 20.2
Iowa 12,441 7.1 2,547 1.7
Minnesota 6,090 3.5 7,343 4.8
Georgia 3,911 2.2 4,021 2.6
Texas 2,670 1.5 2,127 1.4
Tennessee 2,370 1.4 2,399 1.6
Other 4,484 2.6 7,057 4.6
-------- ----- -------- -----
$173,970 100.0% $152,424 100.0%
======== ===== ======== =====
</TABLE>
NOTE E--LOANS RECEIVABLE--Continued
Loans serviced for investors amounted to $2,372,000,000, $2,326,000,000 and
$2,424,000,000 at December 31, 1996, 1995 and 1994, 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.
NOTE F--FORECLOSED PROPERTIES AND REPOSSESSED ASSETS
Foreclosed properties and repossessed assets are summarized as follows:
December 31,
1996 1995
------- ------
(Dollars in thousands)
Real estate owned $ 763 $ 2,531
Real estate judgments subject to redemption 3,074 1,436
Manufactured housing owned 182 303
Repossessed collateral assets 157 102
------- -------
4,176 4,372
Less allowance for losses 179 993
------- -------
$ 3,997 $ 3,379
======= =======
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE G--ALLOWANCES FOR LOSSES
A summary of the activity in the allowances for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $25,235 $25,180 $25,905
Acquired bank's allowance 816
Provisions 9,030 9,738 6,824
Charge-offs (12,145) (11,087) (9,872)
Recoveries 1,108 1,404 1,507
------- ------- -------
BALANCE AT END OF YEAR $23,228 $25,235 $25,180
======= ======= =======
</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 (income from) operations of
foreclosed properties."
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 993 $1,146 $3,561
Provisions (467) 60 1,000
Charge-offs (347) (213) (3,415)
------ ------ ------
BALANCE AT END OF YEAR $ 179 $ 993 $1,146
====== ====== ======
</TABLE>
NOTE H--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- ------
(Dollars in thousands)
<S> <C> <C>
Land and parking lot improvements $12,551 $12,160
Office buildings and improvements 53,556 52,083
Furniture and equipment 34,876 36,814
Leasehold improvements 2,899 2,850
------- -------
103,882 103,907
Less allowances for depreciation and
amortization 53,454 52,783
------- -------
$50,428 $51,124
======= =======
</TABLE>
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE I--DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Checking accounts:
Interest-bearing $ 306,967 1.16% $ 321,929 1.17%
Non-interest-bearing 148,176 151,274
---------- ----------
Total checking
accounts 455,143 0.78 473,203 0.78
Passbook accounts 649,841 2.71 687,960 2.67
Variable-rate insured
money market accounts 377,466 3.53 310,545 3.45
Certificate accounts 2,955,355 5.74 2,944,600 5.72
---------- ----------
4,437,805 4.60% 4,416,308 4.56%
==== ====
Accrued interest 7,127 8,217
---------- ----------
$4,444,932 $4,424,525
========== ==========
</TABLE>
Aggregate annual maturities of certificate accounts at December 31, 1996 are as
follows:
Matures During
Year Ending
December 31,
(Dollars in thousands)
1997 $1,966,010
1998 729,014
1999 143,100
2000 90,695
2001 23,412
Thereafter 3,124
----------
$2,955,355
Certificate accounts with balances of $100,000 or more totaled $233,704,000 and
$214,943,000 at December 31, 1996 and 1995, respectively. The following table
presents the maturities of certificate accounts in amounts of $100,000 or more
at December 31, 1996 by time remaining to maturity.
Maturities
(Dollars in thousands)
January 1, 1997 through March 31, 1997 $ 72,321
April 1, 1997 through June 30, 1997 43,395
July 1, 1997 through December 31, 1997 58,965
January 1, 1998 and after 59,023
---------
$ 233,704
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS
Federal Home Loan Bank ("FHL Bank") advances and other borrowings are comprised
of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------ -----------------------
Weighted Weighted
Average Average
Maturity Amount Rate Amount Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank: On Demand $303,100 5.60% $154,401 5.95%
1996 320,367 5.81
1997 400,031 5.41 31 7.00
2000 162 7.00 162 7.00
2001 100 5.50 100 5.50
2003 307 2.50 307 2.50
Subordinated notes 1999 54,925 8.51
Reverse repurchase
agreements: 1996 25,972 5.89
1997 54,090 5.42
Collateralized mortgage
obligations Various 5,616 16.67 8,024 18.65
Industrial development
revenue bonds Various 6,120 7.12 6,219 7.10
-------- --------
$769,526 5.58% $570,508 6.31%
======== ===== ======== =====
</TABLE>
At December 31, 1996, 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, 1997, 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, 1996. In addition, FFC would
pledge its stock in FF Bank as collateral should the line-of-credit be drawn
upon.
Aggregate maturities on borrowings at December 31, 1996 are as follows. Payments
on collateralized mortgage obligations are included based upon estimated
prepayments on the underlying mortgage portfolios.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS--Continued
Matures During
Year Ending
December 31,
(Dollars in thousands)
1997 $757,959
1998 2,707
1999 1,914
2000 884
2001 235
Thereafter through 2021 5,827
--------
$769,526
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 $35,419,000 at December 31, 1996, which is included in "Other
assets" in the consolidated balance sheets.
In January, 1996, FFC redeemed all of its outstanding 8% Subordinated Notes due
November, 1999, which aggregated $54,925,000 at the date of redemption. The net
after-tax cost of $686,000 associated with the redemption has been reported as
an extraordinary charge in 1996.
Reverse repurchase agreements outstanding at the end of 1996 had maturity dates
within ninety days. 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. The agreements were collateralized by
mortgage-related securities having a fair value of $54,895,000 and $27,786,000
at December 31, 1996 and 1995, respectively. Based upon month-end balances,
securities sold under agreements to repurchase averaged $92,984,000 and
$59,092,000 during 1996 and 1995, respectively. The maximum amount outstanding
at any month-end was $173,789,000 and $100,454,000 during 1996 and 1995,
respectively.
UFS Capital Corporation and FFS Funding Corporation, FF Bank's wholly-owned
finance subsidiaries, have 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 $9,015,000 and a fair value of $9,152,000 at December 31, 1996.
Industrial development revenue bonds are payable in seven annual installments
ranging from $105,000 to $150,000 with additional payments of $1,910,000 and
$3,320,000 due October 1, 2012 and
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS--Continued
2021, respectively. Interest is payable semi-annually. The bonds were issued to
refinance an apartment project which was previously sold. The bonds are
collateralized by mortgage-backed securities with a carrying value and a fair
value of $9,212,000 and $9,431,000, respectively, at December 31, 1996. FF Bank
has a loan receivable from the buyer of $5,746,000 at December 31, 1996, which
is secured by a first mortgage on the apartment project.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C>
Current:
Federal $25,472 $31,849 $30,743
State 460 3,794 1,903
------- ------- -------
25,932 35,643 32,646
Deferred (credit):
Federal 667 (2,080)
State (1,141) (1,206) 150
------- ------- -------
(489) (539) (1,930)
------- ------- -------
25,443 35,104 30,716
Extraordinary item (370)
------- ------- -------
$25,073 $35,104 $30,716
======= ======= =======
</TABLE>
The provision for income taxes relative to continuing operations differs from
that computed at the federal statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C>
Income before income taxes $75,215 $99,088 $83,745
======= ======= =======
Tax at federal statutory rate (35%) $26,325 $34,681 $29,311
Add (deduct) effect of:
State income taxes (net of
federal income taxes) (442) 1,682 2,019
Change in valuation allowance
for deferred tax assets 148 (898) (864)
Other (588) (361) 250
------- ------- -------
INCOME TAX PROVISION $25,443 $35,104 $30,716
======= ======= =======
</TABLE>
The significant components of the net deferred tax asset (liability) are as
follows:
Deferred Tax
Asset (Liability)
At December 31,
1996 1995
------- ------
(Dollars in thousands)
Deferred loan fees and other
loan yield adjustments $ (961) $ 156
Depreciation (2,386) (2,399)
Loan loss allowances 8,108 11,715
Deferred compensation 2,239 2,185
Deposit base
intangible amortization 2,896 2,636
FHL Bank stock dividend (1,084) (1,084)
Market valuation adjustments (759) 3,148
Capital loss carryforward 3,395
State tax net operating loss
carryforwards 2,641 1,753
Other 96 (677)
-------- --------
14,185 17,433
Valuation allowance for
deferred tax assets (3,047) (2,899)
-------- --------
$ 11,138 $ 14,534
======== ========
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES--Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
For financial reporting purposes, a valuation allowance has been recognized to
offset deferred tax assets related to state net operating loss carryforwards of
subsidiary, deposit base intangibles and other temporary differences. When
realized, the tax benefit for these items will be used to reduce current tax
expense for that period.
FF Bank qualified under provisions of the Internal Revenue Code that permitted
it to deduct from taxable income an allowance for bad debts that differed from
the provision for such losses charged to income for financial reporting
purposes. Accordingly, no provision for income taxes has been made for
$79,243,000 of retained income at December 31, 1996. If, in the future, FF Bank
no longer qualifies as a bank for tax purposes, income taxes may be imposed at
the then-applicable rates. If income taxes had been provided, the deferred tax
liability would have been approximately $31,804,000.
NOTE L--STOCKHOLDERS' EQUITY
On October 16, 1996, FFC began its first share repurchase program for its common
stock. Under this program, up to 1,875,000 shares can be purchased over a
six-month time frame. During 1996, FFC purchased 648,395 shares at an average
per share cost of $22.28 and an aggregate cost of $14,447,000. The repurchased
shares became treasury shares and can be used for general corporate purposes.
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
of the Office of Thrift Supervision ("OTS") as
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
formulated under the Federal Deposit Insurance Corporation Improvement Act
("FDICIA").
The FDICIA contains provisions for regulatory capital standards that require a
minimum 1.5% tangible capital ratio, a minimum 3.0% core leverage capital to
adjusted tangible assets capital ratio and a minimum 8.0% qualifying total
capital to risk- weighted assets capital ratio. At December 31, 1996 FF Bank's
regulatory capital significantly exceeded all minimum standards required under
the FDICIA.
As of December 31, 1996 and 1995, FF Bank was "well capitalized" as defined by
the regulatory capital standards. To be categorized as well capitalized, a
financial institution must maintain a minimum core leverage ratio of 5.0%, core
risk-based ratio of 6.0%, and a total risk-based ratio of 10.0%.
The following table summarizes FF Bank's capital amounts and capital ratios, and
the capital amounts and ratios required by its regulators:
<TABLE>
<CAPTION>
Minimum Required
Minimum Required To Be Well
For Capital Capitalized Under
Actual Adequacy Purposes OTS Requirements
--------------------- ------------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Tangible capital
(to tangible assets) $352,763 6.20% $ 85,376 1.50%
Core leverage capital
(to adjusted tangible
assets) 364,146 6.39% 171,093 3.00% $285,155 5.00%
Risk-based capital
(to risk-based assets) 346,133 13.91% 199,134 8.00% 248,918 10.00%
Core leverage capital
(to risk-based assets) 364,146 14.63% 149,351 6.00%
As of December 31, 1995:
Tangible capital
(to tangible assets) $400,199 7.30% $ 82,251 1.50%
Core leverage capital
(to adjusted tangible
assets) 417,516 7.59% 165,021 3.00% $275,036 5.00%
Risk-based capital
(to risk-based assets) 442,544 15.82% 223,850 8.00% 279,813 10.00%
Core leverage capital
(to risk-based assets) 417,516 14.92% 167,888 6.00%
</TABLE>
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
Under the terms of the FDICIA, FF Bank is further subject to the prompt
corrective action ("PCA") provisions of the FDICIA. Under the 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.
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 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 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
capital requirement before or after a proposed dividend. In addition, as a
result of the PCA provisions of the 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 the FDICIA.
NOTE M--EMPLOYEE BENEFIT PLANS
FFC sponsors a defined-contribution profit sharing plan which covers all full
time 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 1996, 1995 and 1994 was $2,122,000, $ -0- and $3,353,000,
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, 1996, the projected future obligation
under this plan amounted to $1,838,000, 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
$272,000, $215,000 and $227,000 for 1996, 1995 and 1994, respectively.
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
FFC sponsors an unfunded defined-benefit retirement plan for all outside
directors. At December 31, 1996, the projected future obligation under this plan
totaled $1,464,000, 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 $208,000,
$126,000 and $183,000 in 1996, 1995 and 1994, respectively.
During 1995, as part of the acquisition of FirstRock, FF Bank acquired the
existing Employee Stock Ownership Plan ("ESOP"), originally established in 1992.
The plan covers substantially all employees with more than one year of service
who have attained the age of twenty-one. During 1996, the ESOP was utilized in
conjunction with FFC's profit sharing plan, resulting in the distribution of
69,312 shares held in the plan to employees. During 1995, the ESOP was utilized
in lieu of FFC's profit sharing plan, resulting in the distribution of
approximately 201,250 FFC shares. The ESOP shares, which were purchased in 1992,
are grandfathered from Statement of Position ("SOP") No. 93-6 issued by the
American Institute of Certified Public Accountants. As such, expense for ESOP
shares allocated to FFC employees was recorded at cost as opposed to market
value as required by SOP No. 93-6 for shares acquired by the ESOP after 1992.
The expense related to ESOP distributions for 1996, 1995 and 1994 was $271,000,
$828,000 and $231,000, respectively. At December 31, 1996, all ESOP shares have
been allocated to employees and the plan will be merged into the profit sharing
plan in 1997.
FFC also sponsors a defined-benefit pension plan covering substantially all of
its Illinois-based employees (the "Retirement Plan"). Benefits are based upon a
formula using years of service and the participant's compensation during the
term of employment.
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
The following tables set forth the Retirement Plan's funded status and amounts
recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- ------
(Dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,936,000--1996 and
$2,971,000--1995 $ 3,427 $ 3,126
========= =========
Plan assets at fair value, primarily fixed
income securities $ 4,080 $ 4,143
Projected benefit obligation 3,530 3,238
--------- ---------
Plan assets in excess of projected
benefit obligation 550 905
Unrecognized prior service cost 190 201
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 480 500
Unrecognized net transition asset (1,047) (1,175)
--------- ---------
Prepaid pension cost included in other assets $ 173 $ 431
========= =========
</TABLE>
Net periodic expense for the Retirement Plan, as determined by actuarial
consultants, was $160,000, $238,000 and $504,000 in 1996, 1995 and 1994,
respectively.
The principal actuarial assumptions used to develop the pension benefit
obligation for the Retirement Plan were as follows:
Year Ended December 31,
1996 1995 1994
-------- -------- ------
Weighted average discount rate 7.50% 7.25% 8.25%
Rate of increase in future compensation 5.00 5.00 5.00
Expected long-term rate of return on plan
assets 8.50 8.50 8.50
FFC does not, as a policy, offer post-retirement benefits other than profit
sharing, ESOP, pensions and certain supplemental retirement benefits noted
above.
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
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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,
1996 1995
-------- ------
(Dollars in thousands)
Commitments to extend credit:
Fixed rate (6.55% to 8.85% at
December 31, 1996) $ 13,566 $ 19,398
Adjustable rate 16,605 20,778
Unused lines of credit:
Credit cards 718,268 837,341
Home equity 426,408 360,189
Business lines 873 1,158
Other 8,800 8,800
Loans sold with recourse 27,000 37,000
Financial guarantees written 7,000 10,995
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.
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 $19,119,000 at December 31, 1996. This exposure,
however, is partially mitigated by firm commitments to sell certain of these
loans. Commitments outstanding to sell mortgage loans at December 31, 1996
amount to $20,709,000.
All loans currently sold to others are sold on a non-recourse basis with the
servicing of these loans being retained by FF Bank. At December 31, 1996, 1995
and 1994, $27,000,000, $37,000,000 and $44,000,000, respectively, of the
serviced loans were previously sold with recourse. Of these recourse loans,
approximately $19,000,000, $27,000,000 and $36,000,000 were federally-insured or
federally-guaranteed at December 31, 1996, 1995 and 1994, respectively. In
addition, management has considered the remaining uninsured or non-guaranteed
balance in the determination of the adequacy of the allowance for losses.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK-- Continued
Financial guarantees represent agreements whereby, for an annual fee, letters of
credit were issued by FF Bank to provide credit enhancement in connection with
the issuance of industrial development revenue bonds 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, 1996, bonds
in the aggregate principal amount of $7,000,000 are supported by letters of
credit issued by FF Bank. 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.
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value follows.
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.
Certain financial instruments and all nonfinancial instruments are excluded from
these disclosures.
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.
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
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 fixed-rate
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 interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
MORTGAGE SERVICING RIGHTS: Mortgage loan servicing rights, consist of
FFC's contractual right to service loans for others. These rights are
valued at estimated fair values using a discounted cash flow model.
The value of those rights originated prior to January 1, 1995 is not
included.
FHL BANK AND FEDERAL RESERVE BANK STOCK: The 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. Short term borrowing fair values approximate the
carrying value due to the nature of the borrowing.
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, 1996 and 1995.
-32-
<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,
1996 1995
---------------------- ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash equivalents $ 20,556 $ 20,556 $ 48,730 $ 48,730
Investment securities 194,911 194,473 200,425 200,062
FHL Bank and Federal Reserve
Bank stock 36,229 36,229 35,456 35,456
Mortgage-related securities 1,650,437 1,645,191 1,270,761 1,262,353
Loans receivable 3,512,819 3,521,154 3,616,800 3,647,193
Mortgage servicing rights 9,243 11,792 8,395 10,993
Accrued interest receivable 36,224 36,224 37,722 37,722
Deposits 4,437,805 4,431,876 4,416,308 4,423,272
Federal Home Loan Bank
and other borrowings 769,526 770,505 570,508 574,082
Accrued interest payable 10,051 10,051 10,585 10,585
</TABLE>
NOTE P--MORTGAGE SERVICING RIGHTS
An analysis of activity in FFC's combined excess mortgage servicing rights,
purchased mortgage servicing rights and originated mortgage servicing rights
(originated after January 1, 1995) is as follows:
Year Ended December 31,
1996 1995 1994
------- ------- ------
(Dollars in thousands)
Balance at beginning
of year $ 8,395 $ 7,880 $ 4,441
Additions 2,723 1,773 4,508
Amortization (1,875) (1,258) (1,069)
------- ------- -------
BALANCE AT END OF YEAR $ 9,243 $ 8,395 $ 7,880
======= ======= =======
NOTE Q--STOCK-BASED COMPENSATION
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 date on which the options are first exercisable,
generally two or more years from the grant date, is determined by the Stock Plan
Committee of the Board of Directors. The options expire no later than ten years
from the grant date.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE Q--STOCK-BASED COMPENSATION--Continued
FFC has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of FFC's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, which also requires that the information be determined as if
FFC has accounted for its employee stock options granted subsequent to December
31, 1994 under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996 and 1995,
respectively: risk-free interest rates of 5.9% and 6.6%; a dividend yield of
2.5%; volatility factors of the expected market price of FFC's common stock of
.25 and .27; and weighted-average expected lives of the options of 4.5 and 4.4
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
FFC's employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. FFC's pro forma
information follows (in thousands except for earnings per share information):
1996 1995
-------- ------
Pro forma net income $ 49,736 $ 63,959
Pro forma earnings per share:
Primary $ 1.31 $ 1.70
Fully diluted $ 1.30 $ 1.69
Because Statement No. 123 is applicable only to options granted
subsequent to December 31, 1994, its pro forma effect will not be
fully reflected until 1997.
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE Q--STOCK-BASED COMPENSATION--Continued
A summary of the status of FFC's stock option plan as of December 31, 1996, 1995
and 1994 and changes during the years ended on those dates follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
(Number of options in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at begin-
ning of year 1,779 $ 7.35 2,459 $ 6.58 2,691 $ 5.82
Granted 18 17.91 35 13.73 219 12.21
Exercised (373) 5.50 (708) 4.95 (416) 4.56
Forfeited (9) 14.81 (7) 12.58 (35) 7.45
----- ----- -----
OUTSTANDING AT END OF
YEAR 1,415 7.92 1,779 7.35 2,459 6.58
===== ===== =====
Options exercisable at
year-end 1,147 1,295 1,589
Weighted-average fair
value of options grant-
ed during the year $4.37 $3.53
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- ---------------- ----------- -------------- ------------ ------------- ------------
(Number of options in thousands)
<S> <C> <C> <C> <C> <C>
$ 2.48 to $ 6.40 244 4.3 years $ 3.89 244 $ 3.89
$ 7.55 896 5.9 years 7.55 719 7.55
$10.90 to $13.40 252 7.5 years 12.25 182 12.27
$16.60 to $19.65 23 9.2 years 17.59 2 17.10
---------- ----------
$ 2.48 to $19.65 1,415 6.0 years 7.92 1,147 7.54
========== ==========
</TABLE>
At December 31, 1996, options for 755,000 shares were available for future
grant.
NOTE R--LITIGATION
FFC 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.
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
1996 1995
-------- ------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 35,603 $ 13,613
Investment securities available for sale 4,687 4,668
Investment in subsidiary 368,017 417,830
Prepaid expenses and other assets 3,743 5,068
-------- --------
$412,050 $441,179
======== ========
LIABILITIES
Subordinated notes $ 54,925
Other liabilities $ 1,539 1,066
-------- --------
TOTAL LIABILITIES 1,539 55,991
STOCKHOLDERS' EQUITY
Common stock 37,451 37,095
Additional paid-in capital 43,668 42,337
Retained earnings 342,539 311,777
Net unrealized gain (loss) on
securities available for sale 1,300 (6,021)
Treasury stock, at cost (14,447)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 410,511 385,188
-------- --------
$412,050 $441,179
======== ========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income $ 795 $ 920 $ 644
Interest expense on borrowings 182 4,675 4,686
------- ------- -------
NET INTEREST INCOME (EXPENSE) 613 (3,755) (4,042)
Equity in net income of subsidiary 51,428 68,028 56,903
------- ------- -------
52,041 64,273 52,861
Management fees paid to subsidiary 700 660 628
Other expenses 1,401 1,807 1,080
------- ------- -------
INCOME BEFORE INCOME TAX CREDITS
AND EXTRAORDINARY ITEM 49,940 61,806 51,153
Income tax credits (518) (2,178) (1,876)
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 50,458 63,984 53,029
Extraordinary item (686)
------- ------- -------
NET INCOME $49,772 $63,984 $53,029
======= ======= =======
</TABLE>
-36-
<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,
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 49,772 $ 63,984 $ 53,029
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Equity in net income of subsidiary (51,428) (68,028) (56,903)
Other 2,326 1,649 218
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 670 (2,395) (3,656)
INVESTING ACTIVITIES
Cash dividends from subsidiary 113,000 16,945 16,200
Investment in subsidiary (5,000)
-------- -------- --------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 108,000 16,945 16,200
FINANCING ACTIVITIES
Redemption of subordinated debt (54,925)
Purchase of treasury stock (14,447)
Exercise of stock options 1,702 3,024 1,595
Cash dividends paid (19,010) (14,156) (9,950)
-------- -------- --------
NET CASH USED IN
FINANCING ACTIVITIES (86,680) (11,132) (8,355)
-------- -------- --------
Increase in cash and cash equivalents 21,990 3,418 4,189
Cash and cash equivalents at beginning
of year 13,613 10,195 6,006
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,603 $ 13,613 $ 10,195
======== ======== ========
</TABLE>
-37-
EXHIBIT 13(b)
MANAGEMENT DISCUSSION & ANALYSIS
<PAGE>
FIVE-YEAR SUMMARY (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995(b) 1994(b)(c) 1993(b)(d) 1992(b)(e)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item or the
cumulative effect of an accounting change $ 50,458 $ 63,984 $ 53,029 $ 49,751 $ 30,376
Net income 49,772 63,984 53,029 49,751 36,976
Earnings per share (a):
Primary:
Income before extraordinary item or the
cumulative effect of an accounting change $ 1.33 $ 1.70 $ 1.42 $ 1.38 $ 0.92
Net income 1.31 1.70 1.42 1.38 1.14
Fully diluted:
Income before extraordinary item or the
cumulative effect of an accounting change $ 1.32 $ 1.69 $ 1.42 $ 1.37 $ 0.91
Net income 1.30 1.69 1.42 1.37 1.12
Interest income $ 419,050 $ 417,308 $ 381,864 $ 366,711 $ 325,057
Interest expense 231,741 234,171 204,222 202,493 198,058
Net interest income 187,309 183,137 177,642 164,218 126,999
Net gain (loss) on sales of loans and securities 3,490 3,885 (5,164) 7,939 4,606
Provisions for losses on loans 9,030 9,738 6,824 10,570 15,779
Other non-interest income 42,904 40,406 38,458 36,819 33,417
Non-interest expense 148,772 118,602 120,367 118,964 101,540
Total assets $5,700,431 $5,471,108 $5,501,824 $5,181,772 $4,309,067
Loans receivable and mortgage-related securities 5,163,256 4,887,561 4,972,938 4,532,456 3,795,083
Intangible assets 12,739 21,481 26,726 31,392 23,278
Deposits 4,444,932 4,424,525 4,381,455 4,388,122 3,531,062
Borrowings 769,526 570,508 708,446 455,797 487,237
Stockholders' equity 410,511 384,917 327,308 280,643 239,979
Shares outstanding (a) 36,802,484 37,095,456 36,407,323 34,822,610 34,998,891
Stockholders' equity per share (a) $ 11.15 $ 10.38 $ 8.99 $ 8.06 $ 6.86
Dividends paid per share (a) .510 .384 .320 .280 .176
Dividend payout ratio 39% 23% 23% 20% 16%
Return on average assets (f) 0.91% 1.17% .99% .99% .92%
Return on average equity (f) 12.48% 18.03% 17.21% 19.15% 17.57%
Average equity to average assets 7.32% 6.50% 5.72% 5.17% 5.25%
</TABLE>
(a) As adjusted for a 5-for-4 stock split on December 30, 1996 and a 2-for-1
stock split on March 5, 1993.
(b) In February 1995, the company acquired FirstRock Bancorp, Inc. of Rockford,
Illinois in a stock-for-stock merger transaction. This transaction was
accounted for as a pooling-of-interests and, accordingly, results for all
periods presented have been restated to include the results of FirstRock,
except the earnings per share information for 1992 is based only on the
historical net income and weighted average shares of common stock and
common stock equivalents of the company prior to the October 2, 1992
conversion of FirstRock.
(c) In February 1994, the company acquired NorthLand Savings Bank of Wisconsin,
SSB of Ashland, Wisconsin in a stock-for-stock merger transaction. This
transaction was accounted for as a pooling-of-interests. Since the
NorthLand acquisition was immaterial in relation to the company, prior
years' results have not been restated.
(d) In January 1993, the company's major subsidiary, First Financial Bank,
acquired Westinghouse Federal Bank, FSB d/b/a United Federal Bank of
Galesburg, Illinois for cash. In addition, in August 1993, the company
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.
(e) In separate transactions during 1992, the company 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. Each acquisition has been accounted for as a purchase.
(f) Ratio is based upon income prior to the extraordinary item or the
cumulative effect of an accounting change.
-1-
<PAGE>
QUARTERLY DATA
The following table sets forth the company's unaudited quarterly income and
expense data for 1996 and 1995.
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1996 1996 1996 1996 1995 1995 1995 1995
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands, except per share amounts)
Interest income:
Loans and mortgage-related
securities $101,743 $102,397 $ 95,438 $ 99,367 $100,880 $101,258 $101,011 $ 99,362
Investments 4,689 4,660 6,501 4,255 3,739 3,895 3,723 3,440
-------- -------- -------- -------- -------- -------- -------- --------
Interest income 106,432 107,057 101,939 103,622 104,619 105,153 104,734 102,802
Interest expense:
Deposits 50,103 49,302 49,678 50,367 50,768 50,939 49,949 45,167
Borrowings 9,028 9,443 6,534 7,286 8,108 8,525 9,278 11,437
-------- -------- -------- -------- -------- -------- -------- --------
Interest expense 59,131 58,745 56,212 57,653 58,876 59,464 59,227 56,604
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 47,301 48,312 45,727 45,969 45,743 45,689 45,507 46,198
Provisions for losses on loans (2,100) (2,850) (2,180) (1,900) (2,673) (2,873) (2,073) (2,119)
Gain on sales of assets (a) 952 1,384 837 274 1,045 2,542 286 38
Non-interest income 11,437 10,986 10,541 9,983 9,862 10,220 10,083 10,215
-------- -------- -------- -------- -------- -------- -------- --------
57,590 57,832 54,925 54,326 53,977 55,578 53,803 54,332
Federal deposit insurance premiums (b) 1,997 31,339 2,542 2,561 2,594 2,517 2,529 2,529
Amortization of intangible assets (c) 902 5,524 1,265 1,264 1,311 1,312 1,311 1,311
Acquisition expense (d) -- -- -- -- -- -- -- 6,458
Other non-interest expense 25,114 26,208 24,486 25,570 21,426 23,941 24,663 26,700
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item 29,577 (5,239) 26,632 24,931 28,646 27,808 25,300 17,334
Income taxes (benefit) 10,337 (1,542) 9,051 7,597 9,587 10,015 8,995 6,507
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item 19,240 (3,697) 17,581 17,334 19,059 17,793 16,305 10,827
Extraordinary item -- -- -- (686) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 19,240 $ (3,697) $ 17,581 $ 16,648 $ 19,059 $ 17,793 $ 16,305 $ 10,827
======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share:
Primary $ .51 $ (.10) $ .46 $ .44 $ .50 $ .47 $ .43 $ .29
Fully diluted .51 (.10) .46 .44 $ .50 $ .47 .43 .29
Cash dividends per share $ .150 $ .120 $ .120 $ .120 $ .096 $ .096 $ .096 $ .096
</TABLE>
(a) Includes net gains and losses on the disposition of loans held for sale,
available for sale securities and other assets.
(b) On September 30, 1996 the Omnibus Appropriations Act of 1997 was signed
into law which provided for the recapitalization of the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation and
resulted in a one-time charge to SAIF-insured institutions. The effect of
the charge on the company's third quarter 1996 results was $28.8 million
before taxes and $18.4 million net of taxes, or $0.48 per share.
(c) During the third quarter of 1996, the company changed its accounting for
certain goodwill and core deposit intangibles, relating primarily to
acquisitions in the early 1980's, to conform to the company's current
15-year maximum amortization term for such assets. The total charges during
the third quarter 1996 for goodwill and intangibles were $4.2 million
before taxes and $3.6 million net of taxes, or $0.10 per share.
(d) In February 1995, the company acquired FirstRock Bancorp, Inc. of Rockford,
Illinois through an exchange of stock. This transaction was accounted for
as a pooling-of-interests. In the first quarter of 1995, the company
incurred acquisition charges of $6.5 million before taxes and $4.0 million
net of taxes, or $0.10 per share.
-2-
<PAGE>
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This report contains certain "forward-looking statements." First Financial
Corporation ("FFC") desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and is including this
statement for the express purpose of availing itself of the protections of the
safe harbor with respect to all of such forward-looking statements. These
forward-looking statements, which are included in Management's Discussion and
Analysis and in the President's letter, describe future plans or strategies and
include FFC's expectations of future financial results. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. FFC's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could affect
actual results include but are not limited to i) general market rates, ii)
general economic conditions, iii) legislative/regulatory changes, iv) monetary
and fiscal policies of the U.S. Treasury and the Federal Reserve, v) changes in
the quality or composition of FFC's loan and investment portfolios, vi) demand
for loan products, vii) deposit flows, viii) competition, ix) demand for
financial services in FFC's markets, and x) changes in accounting principles,
policies or guidelines. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
-3-
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
General. FFC reported net income of $49.8 million for 1996 as compared to $64.0
million for 1995. Net income for 1996 includes i) a one-time after-tax charge of
$18.4 million or $0.48 per share, associated with the recapitalization of the
Savings Association Insurance Fund ("SAIF") (see "Recent Legislative
Developments" for further information), ii) a one-time after-tax charge of $3.6
million or $0.10 per share relating to a change in accounting for the
amortization of goodwill and other intangible assets and iii) an extraordinary
after-tax charge of $686,000 or $0.02 per share, resulting from costs associated
with the early redemption of subordinated notes. Net income for 1995 includes a
one-time charge relating to the acquisition of FirstRock Bancorp, Inc.
("FirstRock") of Rockford, Illinois during the first quarter of 1995. The
acquisition charge aggregated $4.0 million or $0.10 per share on an after-tax
basis.
The returns on average assets and average equity, excluding the one-time charges
and extraordinary item, were 1.31% and 17.91%, respectively, for 1996 as
compared to 1.25% and 19.16%, respectively, for 1995.
Fully diluted earnings per share decreased to $1.30 in 1996 from $1.69 in 1995.
Excluding the impact of the factors noted above for both 1996 and 1995, fully
diluted earnings per share would have been $1.90 in 1996, up from $1.79 in 1995.
Net Interest Income. Net interest income increased $4.2 million during 1996
primarily due to an increase in average balances of interest-earning assets and
a decrease in interest-bearing liabilities from $5.21 billion and $5.02 billion,
respectively, in 1995 to $5.27 billion and $5.01 billion, respectively, in 1996.
The net interest margin of 3.56% for 1996 was up from the 3.51% reported for
1995. The increase in average interest-earning assets in 1996 was augmented by
an improvement in the earning-asset ratio from 103.78% in 1995 to 105.10% in
1996. The average yield on interest-earning assets (8.00% in 1995 versus 7.95%
in 1996) decreased by 5 basis points, which was similar to the 4 basis point
decrease in the average cost of interest-bearing liabilities (4.66% in 1995
versus 4.62% in 1996). At the end of 1996, FFC's net interest margin was 3.35%
as compared to 3.46% at year end 1995. The margin at the end of 1996 was
negatively impacted by the credit card and mortgage-related securities ("MBS")
sales during 1996, as discussed in "Loans Receivable" as well as "Non-
Performing MBSs". This factor, however, is offset by a higher level of
interest-earning assets and a greater earning asset ratio at the end of 1996.
Also, FFC's net interest margin is historically at its lowest point at year end
due to seasonal factors including, but not limited to, i) the disbursement of
borrowers' mortgage loan escrow accounts for real estate taxes, ii) high levels
of credit card activity during the fourth quarter, and iii) a slowdown in
residential purchase and construction mortgage loan activity in the fourth
quarter.
Provisions for Losses On Loans. The provisions for loan losses decreased
$700,000 to $9.0 million for 1996 compared to $9.7 million for the same period
in 1995. Charge-offs for 1996 exceeded provisions due to i) charge-offs relating
to the manufactured housing portfolio which were provided for in earlier
periods, ii) lower provisions were added for residential mortgage loans based on
current evaluations of the portfolio, and iii) the $47.9 million portion of the
credit card portfolio sold in 1996 had a greater level of charge-offs
-4-
<PAGE>
than the retained portfolio. For further discussion of the allowances for losses
on loans and related loan portfolio information, see "Allowances for Losses on
Loans and Foreclosed Properties" and "Loans Receivable."
Non-Interest Income. Non-interest income increased $2.1 million to $46.4 million
for 1996 from $44.3 million in 1995. Deposit fee income increased $1.8 million
in 1996, primarily due to overdraft fees relating to the growth of the
"Absolutely Free Checking" product in 1996. Service fees on loans sold decreased
$900,000 in 1996 as the average servicing margin decreased due to competitive
conditions in the secondary mortgage market into which mortgage loans are sold.
Insurance and brokerage commissions increased $500,000 in 1996 as FFC's
insurance agency subsidiary realized continued growth. The net gain on
disposition of loans, MBSs, and investment securities decreased $400,000 in 1996
from 1995 levels due to the net effect of i) a net realized loss of $13.1
million on the sale of available-for-sale MBSs during 1996 (see "Non-Performing
MBSs"), ii) a $1.5 million gain on sale of available-for-sale investment
securities in 1996 as opposed to a $1.2 million gain in 1995, iii) an $11.2
million net gain realized on the previously mentioned sale of a credit card
affinity portfolio with outstanding balances of $47.9 million and iv) an
increase of $1.1 million on gains achieved upon the sale of loans in the
secondary mortgage market and the realization of related originated mortgage
servicing rights ("OMSRs"). Gains realized from the sale of loans, and the
recognition of related OMSRs, increased in 1996 due to the lower interest-rate
environment prevailing during the first half of 1996 as compared to 1995, as
borrowers shifted to longer-term fixed-rate financing. FFC sells long-term,
fixed-rate mortgage loans in the normal course of interest-rate risk management.
Gains or losses realized from the sale of loans held for sale and the
recognition of related OMSRs can fluctuate significantly from period to period
depending upon 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 credit card sale noted above, it is anticipated that FFC's
future earnings from its credit card portfolio will be lower until the size of
that portfolio increases through new account openings. During 1996, First
Financial Bank ("FF Bank") received regulatory approvals to charter a
limited-purpose national credit card bank ("CEBA-Bank") which now operates FFC's
credit card programs. The CEBA-Bank, an operating subsidiary of FF Bank, became
operational in late 1996 and has the authority to export Wisconsin rates and
fees nationwide to all FFC credit card customers under the National Bank Act. It
is expected that uniform application of law will i) reduce compliance costs, ii)
reduce the risk of violation of diverse and varied local laws and iii) allow FFC
to enhance its credit card rate and fee structure, thereby potentially
increasing FFC's profitability depending upon customer behavior and other
factors. However, it is not management's intention to expand the scope of FFC's
credit card operations beyond its Midwest regional markets as a result of the
formation of the CEBA-Bank.
Non-Interest Expense. Non-interest expense increased $30.2 million for 1996
primarily due to the one-time $28.8 million SAIF assessment charge and the $4.2
million goodwill accounting change. For further information on the charge
related to the recapitalization of the SAIF, see "Recent Legislative
Developments." On an ongoing basis, FFC's annual Federal Deposit Insurance
Corporation ("FDIC") assessment will decrease to 6.4 cents per $100 of
assessable deposits from the rate of 23 cents per $100 which was in effect prior
to the September 30, 1996 assessment. Based upon current levels of assessable
deposits, FFC's annual deposit insurance premium is expected to decline by
approximately $7.2 million, or $0.12 per share on an after-tax basis (excluding
funding costs related to the one-time
-5-
<PAGE>
assessment). The $4.2 million increase in the amortization of goodwill and core
deposit intangibles relates primarily to FFC's re-evaluation of these
intangibles in accordance with Statement of Financial Accounting Standards
("Statement") No. 72 ("Accounting for Certain Acquisitions of Banking and Thrift
Institutions") with regard to early 1980's acquisitions. Excluding these items
and the $6.5 million acquisition-related charge in 1995, non-interest expenses
increased $3.6 million over 1995 levels. This increase consists primarily of
compensation and benefits expense due to i) normal employee merit increases in
1996 and ii) a lesser benefit ($1.5 million in 1996 versus $3.0 million in 1995)
realized from the utilization of an Employee Stock Ownership Plan ("ESOP"),
acquired in the FirstRock transaction, in place of FFC's normal profit sharing
contribution. The ESOP was used entirely in place of profit sharing in 1995,
while both the ESOP and profit sharing were used in 1996. The ESOP shares, which
were purchased in 1992, are grandfathered from Statement of Position ("SOP") No.
93-6 issued by the American Institute of Certified Public Accountants. Expense
for ESOP shares allocated to FFC employees was recorded at cost as opposed to
market value as required by SOP No. 93-6 for shares acquired after 1992. As of
year end 1996, all ESOP shares have been fully allocated to FFC employees and no
future grandfathered benefit will be available.
Income Taxes. Income tax expense decreased $9.7 million for 1996 as compared to
1995. This decrease is related to i) the decrease in pre-tax income in 1996 as a
result of the noted one-time items and ii) the realization during 1996 of $3.4
million in credits upon the completion of a federal tax audit for the taxable
years 1989 through 1991 as well as the resolution of other tax matters. These
factors resulted in either refunds of taxes previously paid or a reduction in
deferred tax asset allowances which had been previously provided. As a result of
the above factors, FFC's effective tax rate declined from 35.4% in 1995 to 33.5%
in 1996.
Extraordinary Item. In January 1996, FFC redeemed all of its outstanding 8%
Subordinated Notes due November 1999, which aggregated $54.9 million at the date
of redemption. The net after-tax cost associated with this redemption, $686,000
or $0.02 per share, has been reported as an extraordinary charge in 1996.
Current and Pending Accounting Developments. The Financial Accounting Standards
Board ("FASB") issued Statement No. 123 ("Accounting for Stock Based
Compensation") which FFC adopted in 1996. The Statement requires that a fair
value based method be used to value employee compensation plans that include
stock based awards. The Statement permits a company to either recognize
compensation expense under Statement No. 123 or continue to use prior accounting
rules which do not consider the market value of stock in certain award plans. If
adoption of the Statement's fair value procedures are not used in the
computation of compensation expense in the income statement, the company must
disclose in a note to the financial statements the pro forma impact of adoption.
FFC has elected not to recognize additional compensation expense under Statement
No. 123, but has provided necessary disclosures in Note Q to the consolidated
financial statements. As such, there is no effect of FFC's adoption of Statement
No. 123 on its results of operations.
The FASB has also issued Statement No. 125, ("Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities") which is
effective for transfers occurring after December 31, 1996. This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on a consistent
application of a financial-components approach that focuses on control.
-6-
<PAGE>
The FASB subsequently issued Statement No. 127, in December, 1996, which
provided for the deferral of the effective date of certain provisions of
Statement No. 125 to years ending after December 31, 1997. Management believes
that the effect of adopting these Statements will not be material to FFC's
financial condition or the results of its operations.
-7-
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
General. FFC reported net income of $64.0 million for the year ended December
31, 1995, which represents an increase of $11.0 million from the $53.0 million
reported for 1994. Net income for 1995 included $4.0 million, or $0.10 per
share, of acquisition-related expenses incurred relative to the acquisition of
FirstRock during 1995. Earnings for 1994 were affected by an after-tax charge of
$5.9 million, or $0.16 per share, relating to allowances established to cover
possible losses on a portion of FFC's MBS portfolio. The FirstRock acquisition
was accounted for as a pooling-of-interests, and accordingly, financial
statements for all periods presented have been restated to include FirstRock's
operations. The annualized returns on average assets and average equity for
1995, excluding the acquisition charge, were 1.25% and 19.16%, respectively, as
compared to 0.99% and 17.21%, respectively, for 1994. Fully diluted earnings per
share increased to $1.69 per share for 1995 as compared to $1.42 per share
reported for 1994. Excluding the acquisition charge, fully diluted earnings
would have been $1.79 per share for 1995.
Net Interest Income. Net interest income increased $5.5 million to $183.1
million during 1995 from $177.6 million for 1994. The net interest margin, which
is net interest income as a percentage of average interest-earning assets,
increased to 3.51% for 1995 from 3.46% reported for 1994. Interest income and
interest expense increased $35.4 million and $30.0 million, respectively, for
1995 as compared to 1994. The average balances of interest-earning assets
increased from $5.14 billion in 1994 to $5.21 billion in 1995, while average
balances of interest-bearing liabilities increased to $5.02 billion in 1995 from
$4.98 billion in 1994. The increase in average interest-earning assets was
complemented by i) a slightly lower increase in the average cost on
interest-bearing liabilities (4.10% in 1994 versus 4.66% in 1995) than in the
average yield of interest-earning assets (7.43% in 1994 versus 8.00% in 1995)
and ii) an improvement in the ratio of earning assets to interest-bearing
liabilities to 103.78% in 1995 from 103.21% in 1994.
Provisions for Losses On Loans. Provisions for losses on loans increased to $9.7
million for 1995 compared to $6.8 million for 1994. The increased provisions for
losses on loans reflects i) growth in the overall loan portfolio during 1995 and
ii) increased net credit card charge-offs in 1995 as that portfolio continues to
increase in size. The increase in credit card charge-offs reflected a
traditionally higher experience for that portfolio, although FFC's experience is
well below national credit card averages.
Non-Interest Income. Non-interest income increased $11.0 million during 1995 as
compared to 1994 due to the net effect of several factors, the most significant
of which related to a 1994 pre-tax $9.0 million MBS impairment loss (see
"Non-Performing MBSs"). Deposit account service fees increased $1.5 million in
1995 as a result of i) increased overdraft fees relating to the growth of the
"Absolutely Free Checking" product during 1995 and ii) introduction of automated
teller machine charges in certain markets during 1995. Loan fees and service
charges increased $1.3 million in 1995 as a result of i) increased credit card
fees as that portfolio continued to grow and ii) increased interchange fees
resulting from a successful debit card program. Service fees on loans sold
decreased in 1995 as i) the loan servicing portfolio decreased from $2.42
billion at the end of 1994 to $2.33 billion at year end 1995 and ii) the average
servicing margin decreased in 1995 due to the continuing impact of competitive
conditions in the secondary market into which mortgage loans are sold.
-8-
<PAGE>
Excluding the effect of i) a 1994 gain of $1.3 million on the sale of credit
card loans and ii) a $400,000 gain realized in 1994 upon the sale of the finance
company receivables of a savings bank which FFC acquired in 1994, gains on sales
of loans increased $1.7 million in 1995. This increase was due to a $1.7 million
gain realized in 1995 as a result of the capitalization of originated mortgage
servicing rights upon FFC's adoption of Statement No.
122 ("Accounting for Mortgage Servicing Rights").
Non-Interest Expense. Non-interest expenses decreased approximately $1.8 million
in 1995 as compared to 1994, primarily due to the net effect of i) acquisition
costs and charges totaling $6.5 million incurred relative to the FirstRock
acquisition and ii) the cost savings resulting from the consolidation of
operations following that acquisition. The acquisition costs included i)
transaction-related costs, including investment banker fees, attorney fees and
accounting fees, ii) payments relating to employment/change-in-control
agreements upon termination of certain FirstRock senior officers, iii) retention
bonuses and severance payments made to other FirstRock employees, iv) writedowns
of assets not needed by FFC in the conduct of FirstRock's business following the
acquisition and v) other writeoffs/accruals relating to those contracts and
business practices of FirstRock not having future value to FFC.
The 1995 decreases in non-interest expense resulting from the consolidation of
FirstRock operations are most noticeably apparent in the compensation and
benefits expense category, which declined $6.2 million in 1995 including $3.0
million resulting from the utilization of the former FirstRock's ESOP in place
of FFC's normal profit sharing contribution for 1995.
Non-interest expenses decreased as a percentage of average assets to 2.05% for
1995 as compared to 2.24% in 1994. The improvement in this ratio reflects i) the
aforementioned expense reductions resulting from the FirstRock acquisition, ii)
cost savings of $1.0 million realized after the 1994 consolidation of FFC's then
existing banking subsidiaries, iii) decreases in writedowns on foreclosed
commercial real estate and iv) ongoing expense control measures.
The ratio of controllable non-interest expenses to average total assets
decreased to 1.96% for 1995 as compared to 2.12% for 1994. In addition, FFC's
efficiency ratio improved to 47.89% for 1995 as compared to 52.58% for 1994.
Income Taxes. Income tax expense increased $4.4 million for 1995 over 1994. The
effective income tax rate, as a percent of pre-tax income, decreased to 35.4% in
1995 from 36.7% in 1994. The decrease in the effective tax rate for 1995 relates
to i) implementation of tax planning strategies and ii) the change in the
valuation allowance of certain deferred tax assets established in prior years.
Accounting Changes. Effective January 1, 1995, FFC adopted Statement No. 122,
which requires that a mortgage banking enterprise recognize as a separate asset
the rights to service mortgage loans for others, whether those rights are
purchased or originated. In accordance with the Statement, an enterprise
acquiring mortgage servicing rights through either the origination or purchase
of mortgage loans and the subsequent sale or securitization of those loans with
servicing rights retained, should allocate the total cost of the mortgage loans
to the servicing rights and to the loans (without the mortgage servicing rights)
based on their relative fair values. As a result of the adoption of Statement
No. 122 in 1995, FFC realized
-9-
<PAGE>
pre-tax income of $1.7 million ($1.1 million after tax, or $0.03 per share) upon
the capitalization of originated mortgage servicing rights.
Effective January 1, 1995, FFC adopted Statement No. 114 ("Accounting by
Creditors for Impairment of a Loan"). Statement No. 114, which was amended by
Statement No. 118, 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. The adoption of
Statements No. 114 and 118 had no significant effect on FFC's financial
condition or results of operations.
-10-
<PAGE>
AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-BEARING 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 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---------------------------------- ----------------------------------
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) $2,281,284 $175,508 7.69% $2,384,057 $183,434 7.69%
Mortgage-related secur-
ities (1) 1,357,520 97,251 7.16 1,388,338 98,821 7.12
Other loans (1) 1,281,412 126,186 9.85 1,182,380 120,256 10.17
U.S. Government and agency
securities 173,351 10,285 5.93 127,598 6,709 5.26
Other securities 51,571 3,123 6.06 68,254 4,091 5.99
Cash equivalents 90,154 4,460 4.95 28,371 1,651 5.82
FHL Bank stock 33,101 2,237 6.76 35,323 2,346 6.64
---------- -------- ------ ---------- -------- ------
5,268,393 419,050 7.95 5,214,321 417,308 8.00
Interest-bearing liabilities:
Passbook 668,563 18,309 2.74 730,363 21,017 2.88
Checking 459,543 4,298 0.94 433,904 4,202 0.97
Money market accounts 343,759 11,215 3.26 311,479 10,450 3.36
Certificates 2,973,467 165,628 5.57 2,969,537 161,154 5.43
FHL Bank advances 448,842 24,900 5.55 444,110 26,742 6.02
Other borrowings 118,770 7,391 6.22 134,801 10,606 7.87
---------- -------- ------ ---------- -------- ------
5,012,944 231,741 4.62 5,024,194 234,171 4.66
---------- -------- ------ ---------- -------- ------
Net earning assets and
interest rate spread $ 255,449 3.33% $ 190,127 3.34%
========== ====== ========== ======
Earning asset ratio 105.10% 103.78%
========== ==========
Average interest-earning
assets, net interest income,
and net interest margin on
average interest-earning
assets $5,268,393 $187,309 3.56% $5,214,321 $183,137 3.51%
========== ======== ====== ========== ======== ======
</TABLE>
<PAGE>
1994
------------------------------------
Average Average
Balance Interest Rate
---------- -------- -----
Interest-earning assets:
Mortgage loans (1)(2) $2,304,429 $176,914 7.68%
Mortgage-related secur-
ities (1) 1,507,334 89,379 5.93
Other loans (1) 1,027,942 100,755 9.80
U.S. Government and agency
securities 121,521 6,331 5.21
Other securities 106,378 4,912 4.62
Cash equivalents 38,371 1,522 3.97
FHL Bank stock 34,416 2,051 5.96
---------- -------- ------
5,140,391 381,864 7.43
Interest-bearing liabilities:
Passbook 833,291 25,159 3.02
Checking 473,850 6,426 1.36
Money market accounts 297,604 8,943 3.00
Certificates 2,848,596 134,291 4.71
FHL Bank advances 436,019 21,335 4.89
Other borrowings 91,151 8,068 8.85
---------- -------- ------
4,980,511 204,222 4.10
---------- -------- ------
Net earning assets and
interest rate spread $ 159,880 3.33%
========== ======
Earning asset ratio 103.21%
==========
Average interest-earning
assets, net interest income,
and net interest margin on
average interest-earning
assets $5,140,391 $177,642 3.46%
========== ======== ======
(1) Includes non-accruing loans and/or MBSs.
(2) Includes loans held for sale.
-11-
<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-bearing liabilities. The volume of earning
dollars in loans and investments, compared to the volume of interest-bearing
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, 1996 Year Ended December 31, 1995
Compared to Year Ended Compared to Year Ended
December 31, 1995 December 31, 1994
--------------------------------------- -------------------------------------
Rate Volume Total Rate Volume Total
-------- -------- --------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)(2) $ (19) $ (7,907) $ (7,926) $ 394 $ 6,126 $ 6,520
Mortgage-related securities (1) 635 (2,205) (1,570) 16,898 (7,456) 9,442
Other loans (1) (3,910) 9,840 5,930 3,908 15,593 19,501
U.S. Government and agency securities 943 2,633 3,576 59 319 378
Other securities 42 (1,010) (968) 1,226 (2,047) (821)
Cash equivalents (282) 3,091 2,809 592 (463) 129
FHL Bank stock 41 (150) (109) 240 55 295
-------- -------- -------- -------- -------- --------
Total $ (2,550) $ 4,292 1,742 $ 23,317 $ 12,127 35,444
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Passbook $ (984) $ (1,724) (2,708) $ (1,140) $ (3,002) (4,142)
Checking (147) 243 96 (1,718) (506) (2,224)
Money market accounts (294) 1,059 765 1,077 430 1,507
Certificates 4,260 214 4,474 20,973 5,890 26,863
FHL Bank advances (2,124) 282 (1,842) 5,004 403 5,407
Other borrowings (2,049) (1,166) (3,215) (977) 3,515 2,538
-------- -------- -------- -------- -------- --------
Total $ (1,338) $ (1,092) (2,430) $ 23,219 $ 6,730 29,949
======== ======== ======== ======== ======== --------
Increase in net interest income $ 4,172 $ 5,495
======== ========
</TABLE>
(1) Includes non-accruing loans and/or MBSs.
(2) Includes loans held for sale.
-12-
<PAGE>
NET INTEREST MARGIN AT YEAR END
The following table sets forth the weighted average yields on FFC's loan, MBS,
and investment security portfolios, the weighted average cost of deposits and
borrowings, the interest rate spread between the yields and costs at each year
end as well as the resulting net interest margin at the indicated dates.
December 31,
1996 1995 1994
---- ---- ----
Weighted average yield:
Mortgage loans 7.69% 7.74% 7.65%
Mortgage-related securities 7.13 7.15 6.42
Other loans 9.57 9.99 9.81
Investments 6.21 5.64 5.40
----- ----- -----
Combined weighted average yield on
loans and investments 7.89 8.03 7.64
Weighted average cost:
Deposits and advance payments from
borrowers for taxes and insurance 4.59 4.55 4.14
Borrowings 5.58 6.31 6.07
----- ----- -----
Combined weighted average cost
of deposits and borrowings 4.73 4.75 4.41
----- ----- -----
Interest rate spread 3.16% 3.28% 3.23%
===== ===== =====
Net interest margin 3.35% 3.46% 3.37%
===== ===== =====
-13-
<PAGE>
FINANCIAL CONDITION
GENERAL
Total assets of FFC were $5.70 billion at the end of 1996 compared to $5.47
billion at year-end 1995. Stockholders' equity increased to $410.5 million, or
7.20% of total assets, at December 31, 1996 from $384.9 million and 7.04%,
respectively, at the end of 1995.
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, FFC had cash of $35.6 million. During 1996, FFC
redeemed its subordinated debt of $54.9 million at par plus accrued interest
with the proceeds of a $50.0 million cash dividend received from FF Bank.
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 also could 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 1997. The line-of-credit agreement contains
various covenants relative to the operations of FFC and FF Bank. All of such
covenants were met during 1996. See Note J to the consolidated financial
statements for further discussion.
FF Bank is required to maintain minimum levels of liquid assets as defined by
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 and MBS 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, decreased $23.5 million during 1996. Total
consolidated liquidity, as a percent of total assets, decreased from 6.81% at
the end of 1995 to 6.12% at the end of 1996, 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 $148.7 million. Operating
cash flows for 1996 included earnings of $49.8 million and $320.1 million
realized from the sale of mortgage loans held for sale, less $225.2 million
disbursed for loans originated for sale.
Investing activities in 1996 resulted in a net cash outflow of $355.9 million.
Major investing activities resulting in cash outflows were $916.0 million for
the purchase of investment and mortgage-related securities and $825.9 million
for the origination of loans for portfolio. The
-14-
<PAGE>
most significant cash inflows from investing activities were principal payments
of $669.6 million and $195.2 million received on loans receivable and MBSs,
respectively, as well as $97.3 million from the proceeds of maturities of
investment securities. In addition, $419.6 million was received upon the sale of
securities available for sale.
Financing activities for 1996 resulted in a net cash inflow of $189.2 million
represented by a net increase in deposits of $21.5 million and a net increase in
borrowings of $199.0 million, offset by cash outflows of $19.0 million in cash
dividends paid to FFC stockholders and $14.4 million for the purchase of
treasury stock.
At December 31, 1996, FFC had outstanding commitments to originate mortgage
loans totaling $30.2 million and no commitments outstanding to purchase loans.
At that date, FFC also had commitments outstanding to sell $20.7 million of
mortgage loans that were held for sale or for which FFC was committed to
originate. Loans held for sale totaled $19.1 million at the end of 1996. FFC had
commitments of $150.0 million to purchase U.S. Government agency-backed MBSs at
year-end 1996. 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.
-15-
<PAGE>
LOANS RECEIVABLE
Total loans receivable, including loans held for sale, decreased to $3.51
billion at the end of 1996 from $3.62 billion at the end of 1995. The components
of this decrease are summarized, by type of loan collateral, as follows:
<TABLE>
<CAPTION>
December 31, Increase
1996 1995 (Decrease)
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $1,884,018 $2,038,103 $ (154,085)
Multi-family 238,766 220,772 17,994
Commercial and other 176,911 153,173 23,738
---------- ---------- ----------
Total real estate mortgage loans 2,299,695 2,412,048 (112,353)
Other loans:
Consumer 415,155 362,659 52,496
Home equity 296,749 284,700 12,049
Education 269,633 240,650 28,983
Credit cards 179,352 214,107 (34,755)
Manufactured housing 104,783 139,385 (34,602)
Business 11,728 17,198 (5,470)
Less: net items to loans receivable (64,276) (53,947) (10,329)
---------- ---------- ----------
Total loans receivable (including
loans held for sale) $3,512,819 $3,616,800 $ (103,981)
========== ========== ==========
</TABLE>
The major components of the decrease of $104.0 million in total loans receivable
during 1996 were a $112.4 million decrease in real estate mortgage loans, a
$34.8 million decrease in credit card loans, and a $34.6 million decrease in
manufactured housing loans, offset by a $52.5 million increase in consumer loans
and a $29.0 million increase in education loans.
The aggregate real estate mortgage loans decreased $112.4 million during 1996
primarily due to the net effect of i) originations of $711.3 million offset by
ii) repayments of $417.8 million, iii) loan sales of $259.8 million, and iv) the
securitization of $161.1 million of seasoned fixed-term fixed-rate mortgage
loans transferred to the mortgage-related securities portfolio.
Credit card loan balances decreased $34.8 million in 1996 as the result of the
sale of a $47.9 million affinity group portfolio. Manufactured housing loan
balances decreased $34.6 million as FFC had previously ceased originating
manufactured housing loans and the portfolio continues to make scheduled
repayments.
Consumer loan balances increased $52.5 million and education loans increased
$29.0 million as originations outpaced repayments for these product lines.
Consumer loan balances were positively impacted by the continued success of a
shorter-term fixed-rate mortgage loan product.
MORTGAGE-RELATED SECURITIES
The total carrying value of the MBS portfolio increased $379.7 million to $1.65
billion at December 31, 1996 from $1.27 billion at the end of 1995. This
increase was primarily the net result of i) purchases of $803.3 million and ii)
the securitization of $161.1 million of
-16-
<PAGE>
mortgage loans transferred to the mortgage-related securities portfolio, offset
by iii) sales of $395.3 million and iv) repayments of $195.2 million. At the end
of 1996, FFC had commitments of $150.0 million to purchase U.S. Government
agency-backed MBSs.
The following table sets 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>
December 31, 1996 December 31, 1995
---------------------------------- -------------------------------------
Amortized Fair Carrying Amortized Fair Carrying
Issuer/Security Type Cost Value Value Cost Value Value
- -------------------- ---------- --------- -------- ---------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agencies:
Mortgage-backed certi-
ficates $1,089,418 $1,097,105 $1,093,513 $ 347,177 $ 353,712 $ 349,215
Collateralized mortgage
obligations 283,033 273,169 282,894 341,521 331,764 342,190
---------- ---------- ---------- ---------- ---------- ----------
Total agencies 1,372,451 1,370,274 1,376,407 688,698 685,476 691,405
---------- ---------- ---------- ---------- ---------- ----------
Non-agency:
Mortgage-backed certi-
ficates:
Senior position 276,078 274,473 273,595 485,327 478,484 480,840
Subordinate position -- -- -- 105,534 97,756 97,905
Collateralized mort-
gage obligations 435 444 435 611 637 611
---------- ---------- ---------- ---------- ---------- ----------
Total non-agencies 276,513 274,917 274,030 591,472 576,877 579,356
---------- ---------- ---------- ---------- ---------- ----------
Totals $1,648,964 $1,645,191 $1,650,437 $1,280,170 $1,262,353 $1,270,761
========== ========== ========== ========== ========== ==========
Total carrying value per consolidated
financial statements, by classification:
Available-for-sale portfolio $1,048,085 $ 571,293
Held-to-maturity portfolio 602,352 699,468
---------- ----------
Total carrying value $1,650,437 $1,270,761
========== ==========
</TABLE>
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.
As noted in the above table, included in FFC's MBS portfolio are non-agency MBSs
having a carrying value of $274.0 million at December 31, 1996. Unlike U.S.
Government agency MBSs which include a guarantee of principal and interest
payments on the underlying collateral, non-agency securities are generally
structured with a senior ownership position and subordinate ownership
position(s) providing credit support for the senior position. The
-17-
<PAGE>
structure of non-agency MBSs may expose FFC to credit risk in addition to
interest-rate risk and prepayment risk as discussed above. In this regard,
management has instituted a monitoring system for tracking the major factors
affecting the performance of a non-agency MBS including i) delinquencies,
foreclosures, repossessions and recoveries relative to the underlying mortgage
loans collateralizing each security, ii) the level of available subordination or
other credit enhancements, iii) the competence 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
non-agency MBSs continue to be performing. Although management believes that
this portfolio of securities will continue to contractually perform based on its
review, there can be no assurance that such performance will continue in the
future should economic conditions, market conditions, or other factors change
significantly.
FFC's portfolio of MBSs totaled approximately $1.65 billion at the end of 1996
and consisted of either i) U.S. Government agency-backed or ii) rated investment
grade quality by at least one nationally recognized independent rating agency,
except as noted below:
<TABLE>
<CAPTION>
Amortized Fair Carrying
Issuer Cost Value Value
- ----------------------------- ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. Government agencies $ 1,372,451 $ 1,370,274 $ 1,376,407
Non-agency:
Securities rated AA or
above 247,887 249,174 248,281
Securities rated below
AA, but of investment
grade 11,192 10,568 10,574
Securities rated below
investment grade 17,434 15,175 15,175
------------ ------------ ------------
$ 1,648,964 $ 1,645,191 $ 1,650,437
============ ============ ============
</TABLE>
The non-agency securities rated below investment grade include four securities,
each security having been issued by an unrelated company, with an aggregate
carrying value of $15.2 million. Based upon i) the results of management's most
current review of the performance characteristics of the underlying mortgage
loans collateralizing these below-investment-grade securities and ii) the fact
that these securities continue to perform, management believes that these MBSs
have a net realizable value in excess of their indicated fair value and/or
amortized cost and that any indicated impairment in fair value is not permanent.
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.
NON-PERFORMING ASSETS
Non-performing assets (consisting of impaired and non-accrual loans,
non-performing MBSs, foreclosed properties, and other repossessed collateral
assets) decreased to $16.0 million at December 31, 1996 from $29.8 million at
December 31, 1995. The 1996 decrease in non-performing assets relates primarily
to the sale of two non-agency MBSs during 1996 (see "Non-Performing MBSs" below)
and the sale of $1.3 million of real estate held for sale in 1996. Other loan
and asset category fluctuations substantially offset. As a percentage of total
assets, non-performing assets decreased from 0.54% at December 31, 1995 to 0.28%
at December 31, 1996. During the five years ended December 31, 1996, FFC has not
had any troubled debt restructurings. Non-performing assets are summarized as
follows for the dates indicated:
-18-
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family
residential $ 6,325 $ 6,449 $ 5,706 $ 6,361 $ 7,320
Multi-family residential 1,607 873 585 374 314
Commercial real estate 98 162 271 340 6,496
Manufactured housing 1,164 926 1,034 1,063 1,295
Consumer and other 2,794 3,836 2,968 2,117 1,961
------- ------- ------- ------- -------
Total non-accrual loans 11,988 12,246 10,564 10,255 17,386
Non-performing MBSs -- 12,858 15,455 -- --
Real estate judgments 3,074 1,436 2,503 2,236 2,761
Real estate foreclosed
properties 584 1,538 2,446 6,126 17,262
Real estate held for sale -- 1,309 1,089 -- --
Repossessed collateral assets 339 405 267 163 462
------- ------- ------- ------- -------
Total non-performing
assets $15,985 $29,792 $32,324 $18,780 $37,871
======= ======= ======= ======= =======
Non-accrual loans as a
percentage of net loans .34% .34% .30% .33% .71%
Non-performing assets as a
percentage of total assets .28% .54% .59% .36% .88%
</TABLE>
Non-Accrual and Impaired 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.
Non-accrual loans have remained steady as a percentage of net loans at .34% at
December 31, 1996 and 1995. Total non-accrual loans decreased by $200,000 from
year end 1995 to December 31, 1996. The major factors of this net decrease were
the $700,000 increase in multi-family residential non-accrual loans offset by a
$1.0 million decrease in consumer and other non-accrual loans during 1996. The
$1.0 million decrease was split between credit card non-accrual loans of
$600,000 and small commercial business non-accrual loans of $400,000.
Non-accrual loans, in the aggregate, resulted in the nonrecognition of $900,000,
$900,000 and $700,000 of interest which would have been reflected in 1996, 1995
and 1994 income, respectively, if the loans had been contractually current.
The increase in non-accrual multi-family residential mortgage loans related to a
group of such loans to one borrower. Management is closely monitoring this
situation to correct the delinquent status.
Non-accrual credit card loans increased throughout most of 1996, similar to the
national trend for credit card accounts, but dropped to the year-end 1996 levels
as a result of the sale of an affinity credit card portfolio which was
experiencing higher than average delinquencies and charge-offs. FFC's overall
delinquency ratios for credit card accounts at year end 1996 remain
approximately 25% below national averages despite trending upward during 1995
and 1996.
For purposes of measuring impaired loans as defined in Statement No. 114,
"Impairment of Loans", FFC considers all categories of loans, except
multi-family, commercial and other, and business loans as homogeneous categories
and therefore not subject to impairment
-19-
<PAGE>
measurement of individual loans. Impaired loans as determined in accordance with
Statement No. 114 are not significant.
Non-Performing MBSs. During 1996, FFC sold two non-agency MBSs which had been
non-performing at the end of 1995 and had an amortized cost of $12.9 million.
Each of these MBSs was structured as a mezzanine security, which is subordinate
to the senior position of that issue but is structured to be superior to other
subordinate positions designed to absorb first losses. FFC had not received full
monthly payments on these securities since 1993. The payments had been
interrupted due to delinquencies and foreclosures in the underlying mortgage
portfolio and all of the cash flows were directed to owners of the senior
position. The underlying loans comprising these securities had been serviced by
a California institution under the control of the Resolution Trust Corporation
("RTC"). During 1994 and 1995, servicing was transferred from the RTC to the
trustee and subsequently to a third-party servicer. In 1994, independent
national rating agencies downgraded these mezzanine securities to below
investment grade. At that time, a writedown of $9.0 million was recorded
reflecting permanent impairment of these securities. Subsequently, the positions
subordinate to FFC were eliminated and management determined that the value of
the collateral properties was deteriorating more rapidly than anticipated. Based
on this deterioration and the low probability for future improvement in the
condition of these securities, FFC sold these securities at nominal value and
realized a further loss of $12.8 million in 1996.
Also during 1996, FFC sold the remainder of its mezzanine/subordinated MBS
portfolio, having an aggregate remaining amortized cost of $90.2 million, at a
loss of $4.2 million.
To minimize the risk to FFC from holding such non-agency securities, FFC will
not purchase any mezzanine or subordinated position MBSs and has further
strengthened the criteria for other potential non-agency MBS purchases. FFC has
not purchased any non- agency MBSs since 1992. See "Mortgage-Related Securities"
for further information relative to non-agency MBSs.
Other Non-Performing Assets. Real estate judgments and foreclosed properties
increased $700,000 from year-end 1995 to December 31, 1996, primarily consisting
of one- to four-family or small multi-family properties located in the Midwest.
FFC has no non-performing real estate held for sale at December 31, 1996.
Summary. Levels of non-performing and impaired (as defined) assets have declined
significantly during the five-year period ended December 31, 1996 due to i) the
disposition of the remaining low quality assets received in the acquisition of a
troubled thrift institution in 1985, ii) improved collection and liquidation
efforts and iii) management's decision to restrict lending primarily to
Wisconsin, Illinois and other selected Midwestern states, offset by
non-performing MBSs as discussed above.
All non-performing and impaired assets have been considered by management in its
review of the adequacy of allowances for losses or the carrying value of the
asset.
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 necessity for
establishing additional
-20-
<PAGE>
allowances for losses. These evaluations consider several factors including, but
not limited to, general economic conditions, collateral value, loan portfolio
composition, prior loss experience and management's estimate of future potential
losses. This evaluation also includes a review of both known loan problems as
well as potential problems based upon historical trends and ratios. The
allowances for losses on foreclosed properties are maintained at levels deemed
adequate to absorb potential future declines in the estimated fair value of the
properties.
A summary of activity in the allowances for losses on loans follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $25,235 $25,180 $25,905 $19,540 $17,493
Charge-offs:
Residential real estate (1,046) (1,111) (864) (839) (1,691)
Commercial real estate (52) (3) (288) (501) (1,044)
Manufactured housing (1,210) (1,397) (1,477) (2,731) (4,212)
Credit card (8,906) (7,912) (6,658) (5,890) (6,142)
Consumer-related (659) (383) (371) (525) (524)
Commercial (272) (281) (214) -- (1,367)
------- ------- ------- ------- -------
Total charge-offs (12,145) (11,087) (9,872) (10,486) (14,980)
------- ------- ------- ------- -------
Recoveries:
Residential real estate 137 147 604 138 242
Commercial real estate -- 80 -- -- 3
Manufactured housing 158 204 181 179 288
Credit card 757 878 593 653 584
Consumer-related 56 86 127 426 131
Commercial -- 9 2 -- --
------- ------- ------- ------- -------
Total recoveries 1,108 1,404 1,507 1,396 1,248
------- ------- ------- ------- -------
Net charge-offs (11,037) (9,683) (8,365) (9,090) (13,732)
Provisions for losses 9,030 9,738 6,824 10,570 15,779
Acquired banks' allowances -- -- 816 4,885 --
------- ------- ------- ------- -------
Balance at end of year $23,228 $25,235 $25,180 $25,905 $19,540
======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding .31% .27% .25% .31% .59%
Ratio of allowances for losses
on loans to average loans
outstanding .65% .71% .76% .87% .84%
Ratio of allowances for losses
on loans to non-accrual
loans 194% 206% 238% 253% 112%
</TABLE>
-21-
<PAGE>
A summary of the activity in the allowance for losses on foreclosed properties
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 993 $1,146 $3,561 $3,377 $2,569
Charge-offs (347) (213) (3,415) (3,335) (5,016)
Provision (467) 60 1,000 3,519 5,824
------ ------ ------ ------ ------
Balance at end of year $ 179 $ 993 $1,146 $3,561 $3,377
====== ====== ====== ====== ======
</TABLE>
The provisions for losses on foreclosed properties are included in the
consolidated statements of income in "Net cost of (income from) operations of
foreclosed properties."
FFC's allowances for losses on loans decreased $2.0 million to $23.2 million at
December 31, 1996 from $25.2 million at December 31, 1995. The ratio of
allowances for losses on loans to average loans also decreased from year-end
1995 to year-end 1996, from .71% to .65%, respectively. Management believes the
reduced allowances were warranted based on the detailed analysis of the
allowance levels appropriate for the various loan categories based on historical
data and current trends.
While the aggregate allowances decreased from year-end 1995 to year-end 1996,
some decreases in allowances for certain loan products were offset by increases
for others. The major decreases in allowances were a $1.2 million reduction in
the allowance for the manufactured housing loan portfolio which continues to
shrink since FFC exited that market, and a $1.1 million reduction in the
residential mortgage loan allowance based on management's analysis of recent
loss experience and the resolution of certain past problem borrower multiple
loan groupings. The residential mortgage portfolio consists of large numbers of
relatively homogeneous loans.
The credit card loan allowance for loss was increased by $400,000 and the
consumer loan allowance was increased by $500,000, from year-end 1995 to
year-end 1996. The credit card allowance increase reflects management's desire
to maintain a higher ratio of allowances to loans, namely 3.78% at December 31,
1996 versus 3.00% a year earlier, based on recent experience. While FFC
continues to experience loss levels lower than industry norms, they are still
higher than FFC's historical levels. Consumer loan loss allowances were
increased due primarily to the growth of the product during 1996. Loss
experience for consumer loans in 1996 has also increased nominally to .10% of
the consumer loan base from .05% the prior year.
The 1996 provisions for losses on loans and foreclosed properties totaled $9.0
million and $(467,000), respectively, compared to the $9.7 million and $60,000
during 1995. The $1.9 million reduction in the residential mortgage provision
for losses in 1996 was substantially offset by the $1.8 million increase in the
provision for credit card losses. The remaining provisions for loan losses for
other loan products decreased by a total of $600,000. The provisions for losses
for the years 1994 to 1996 remain at significantly lower levels compared to 1992
when FFC's charge-off experience reflected certain portfolios received from an
earlier acquisition which required larger allowances for losses. Also, see "Non-
Performing Assets" for further discussion of this trend.
FFC also, in the past, has undertaken off-balance sheet financial guarantees,
totaling $7.3 million at December 31, 1996, whereby letters of credit have been
issued for industrial
-22-
<PAGE>
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 the allowance for
losses. See Note N to the consolidated financial statements for further
discussion of off-balance sheet financial guarantees.
Management believes that the December 31, 1996, loss allowances for loans and
foreclosed properties are adequate based upon its current evaluation of loan
delinquencies, non-performing and impaired assets, charge-off trends, economic
conditions and other factors. Management also continues to pursue all practical
and legal methods of collection, repossession and disposal, and adheres to high
underwriting standards in the origination process, in order to minimize the
necessity for such provisions in the future.
-23-
<PAGE>
A detailed analysis of FFC's allowances for losses on loans and related
charge-off information follows for the dates and years indicated:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------- --------------------
Net Charge-offs Net Charge-offs
Allowance As A Percent Allowance As A Percent
As A Percent Of Average As A Percent Of Average
Of Outstanding Related Loans Of Outstanding Related Loans
Allowance Loans In For The Year Allowance Loans In For The Year
Type of Loan Amount Category Ended 12/31/96 Amount Category Ended 12/31/95
- ------------ --------- ---------- -------------- --------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 6,610 .31% .04% $ 7,726 .34% .04%
Commercial real estate 3,621 2.00 .03 3,823 2.50 (.05)
Manufactured housing 1,814 1.73 .86 3,034 2.18 .83
Credit cards 6,783 3.78 4.04 6,425 3.00 3.51
Consumer 3,462 .83 .10 3,029 .84 .05
Education 23 .01 .01 51 .02 --
Home equity 572 .19 .07 562 .20 .04
Commercial 343 2.92 1.96 585 3.40 1.59
------- -------
$23,228 .66% .31% $25,235 .70% .27%
======= ===== ===== ======= ===== =====
</TABLE>
At December 31, 1994
------------------------
Net Charge-offs
Allowance As A Percent
As A Percent Of Average
Of Outstanding Related Loans
Allowance Loans In For The Year
Type of Loan Amount Category Ended 12/31/94
- ------------ --------- ---------- --------------
Residential real estate $ 6,990 .31% .01%
Commercial real estate 3,632 2.53 .22
Manufactured housing 4,267 2.79 .81
Credit cards 6,737 3.36 3.09
Consumer 2,444 .80 .08
Education 46 .02 --
Home equity 487 .20 .02
Commercial 577 3.03 1.02
-------
$25,180 .73% .25%
======= ===== ======
FFC's allowances for losses on loans were allocated to various loan categories
as follows for the dates indicated:
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
------------------------ ---------------------- -----------------------
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
- ------------ ------ ------------- ------ ------------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 6,610 59.2% $ 7,726 61.5% $ 6,990 64.5%
Commercial real estate 3,621 5.1 3,823 4.2 3,632 4.1
Manufactured housing 1,814 2.9 3,034 3.8 4,267 4.3
Credit cards 6,783 5.0 6,425 5.8 6,737 5.7
Consumer and other 4,057 27.5 3,642 24.2 2,977 20.9
Commercial 343 .3 585 .5 577 .5
------- ----- ------- ----- ------- -----
$23,228 100.0% $25,235 100.0% $25,180 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
At December 31,
1993 1992
----------------------- -------------------------
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 $ 6,792 67.6% $ 4,140 64.5%
Commercial real estate 5,353 3.6 5,281 4.9
Manufactured housing 4,668 5.1 4,325 5.3
Credit cards 6,502 6.5 4,034 7.2
Consumer and other 2,590 17.2 1,760 18.1
Commercial -- -- -- --
------- ----- ------- -----
$25,905 100.0% $19,540 100.0%
======= ===== ======= =====
-24-
<PAGE>
DEPOSITS
Deposits increased $20.4 million during 1996 including interest credits of
$166.7 million offset by net cash outflows of $146.3 million. The weighted
average cost of deposits of 4.60% at the end of 1996 was slightly higher than
the 4.56% reported at the end of 1995.
BORROWINGS
At December 31, 1996, FFC's consolidated borrowings increased to $769.5 million
from $570.5 million at the end of 1995. In January 1996, FFC redeemed all of its
outstanding 8% Subordinated Notes due November, 1999, which aggregated $54.9
million at the date of redemption. This redemption was offset by a $248.7
million increase in shorter-term FHL Bank advances used to fund the purchase of
primarily adjustable rate U.S. Government agency MBSs. The weighted average cost
of borrowings decreased to 5.58% at the end of 1996 as compared to 6.31% at
year-end 1995.
STOCKHOLDERS' EQUITY
Stockholders' equity at December 31, 1996 was $410.5 million or 7.20% of total
assets, compared to $384.9 million or 7.04% of total assets at December 31,
1995. The dollar increase in stockholders' equity resulted from the net effect
of i) net income of $49.8 million, ii) cash dividend payments to stockholders of
$19.0 million, iii) the purchase of treasury stock shares at a cost of $14.4
million (see "Stock Repurchase Program") and iv) an improvement of $7.3 million
in the net unrealized holding gain on available-for-sale securities.
Stockholders' equity per share, as adjusted for the five-for-four stock split on
December 30, 1996, increased from $10.38 per share at year-end 1995 to $11.15
per share at year-end 1996.
STOCK REPURCHASE PROGRAM
During the fourth quarter of 1996, FFC announced a six-month 5% stock repurchase
program whereby up to 1,875,000 shares would be repurchased. As of year end, the
company had repurchased 648,395 shares at an average cost of $22.28 per share.
REGULATORY CAPITAL
FF Bank is subject to various OTS capital measurements, as formulated under the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), and had
regulatory capital well in excess of all such requirements at December 31, 1996
as summarized below:
OTS Capital Ratios
Actual Required
Ratio Ratio Excess
----- ----- ------
Tangible capital 6.20% 1.50% 4.70%
Core capital 6.39 3.00 3.39
Risk-based capital 13.91 8.00 5.91
The OTS has adopted a final rule, effective March 4, 1994, disallowing any new
core deposit intangibles, acquired after the rule's effective date, from
counting as regulatory capital. Core deposit intangibles acquired prior to the
effective date have been grandfathered for
-25-
<PAGE>
purposes of this rule. At December 31, 1996, FFC had core deposit intangibles of
$11.4 million, all of which have been grandfathered from this OTS rule. 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. Final implementation of these rules was pending at the end of 1996.
Management of 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.
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 year end 1996 and 1995.
Ratio of Cumulative
Negative Gap To Total Assets
One Year Three Years Five Years
-------- ----------- ----------
December 31, 1996 (1.80)% (5.00)% (2.56)%
December 31, 1995 (3.65) (4.01) (3.15)
FFC's consolidated one-year negative gap decreased to $102.6 million, or 1.80%
of total assets, at the end of 1996 from $199.8 million, or 3.65% of total
assets, at the end of 1995. FFC's consolidated one-year negative gap position of
1.80% at December 31, 1996 falls within management's currently acceptable range
of 10% positive to 10% negative. Traditionally, management of FFC has not
utilized off-balance sheet derivative financial instruments as part of its
efforts to control interest-rate risk and no such instruments were utilized
during 1996. In view of the current 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
-26-
<PAGE>
been able to achieve a consistent net interest margin while still meeting
asset/liability management objectives.
In this regard, FF Bank also measures and evaluates interest-rate risk via a
separate methodology pursuant to OTS regulations. 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
1996 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 proposed 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 its OTS risk-based capital
requirement. The final implementation of this rule was pending at the end of
1996 as the OTS has delayed the effective date of the regulation pending its
adoption of a process by which an institution may appeal an OTS interest-rate
risk capital deduction determination. At December 31, 1996, FF Bank would not
have been required to deduct an interest-rate risk component under this
regulation.
Asset/Liability Repricing Schedule. The table below sets forth the combined
estimated maturity/repricing structure of FFC's interest-earning assets
(including net items) and interest-costing liabilities at December 31, 1996.
Assumptions regarding prepayment and withdrawal rates are based upon FFC's
historical experience, and management believes such assumptions are reasonable.
The table does not necessarily indicate the impact of general interest-rate
movements on FFC's net interest income because repricing of certain categories
of assets and liabilities through, for example, prepayments of loans and
withdrawals of deposits, is beyond FFC's control. As a result, certain assets
and liabilities indicated as repricing within a stated period may in fact
reprice at different times and at different rate levels. 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.
-27-
<PAGE>
FIRST FINANCIAL CORPORATION CONSOLIDATED GAP ANALYSIS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Three Four Greater Greater Greater Greater
Months Months Than One Than Three Than Five Than Ten
And Through Through Through Through Through
Under One Year Three Years Five Years Ten Years 20 Years
--------- -------- ----------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Investments and interest-
earning deposits, including
federal funds (a)(b) $ 80,404 $ 8,179 $ 44,806 $ 40,236 $ 402 $ 36,229
Mortgage-related securities (b) 569,592 799,540 99,017 63,711 78,390 39,867
Mortgage loans:
Fixed-rate (c)(d) 57,803 140,067 302,409 203,495 241,228 147,922
Adjustable-rate (c) 192,552 671,286 284,050 -- -- --
Other loans 708,093 179,611 203,455 81,079 72,940 24,449
----------- ----------- ----------- ----------- ----------- -----------
1,608,444 1,798,683 933,737 388,521 392,960 248,467
Rate-sensitive liabilities:
Deposits (e)(f):
Checking 123,018 26,010 64,951 50,731 79,414 71,768
Money market accounts 88,496 73,045 122,100 45,036 38,055 9,661
Passbook 266,302 195,488 52,655 37,911 54,592 34,744
Certificates of deposit 603,778 1,375,615 872,114 114,108 3,265 --
Borrowings 757,191 769 4,621 1,119 597 1,910
----------- ----------- ----------- ----------- ----------- -----------
1,838,785 1,670,927 1,116,441 248,905 175,923 118,083
----------- ----------- ----------- ----------- ----------- -----------
GAP (repricing difference) $ (230,341) $ 127,756 $ (182,704) $ 139,616 $ 217,037 $ 130,384
=========== =========== =========== =========== =========== ===========
Cumulative GAP $ (230,341) $ (102,585) $ (285,289) $ (145,673) $ 71,364 $ 201,748
=========== =========== =========== =========== =========== ===========
Cumulative GAP/Total Assets (4.04)% (1.80)% (5.00)% (2.56)% 1.25% 3.54%
=========== =========== =========== =========== =========== ===========
</TABLE>
FIRST FINANCIAL CORPORATION CONSOLIDATED GAP ANALYSIS AT DECEMBER 31, 1996
Greater
Than
20 Years Total
---------- --------
Rate-sensitive assets:
Investments and interest-
earning deposits, including
federal funds (a)(b) $ 41,440 $ 251,696
Mortgage-related securities (b) 320 1,650,437
Mortgage loans:
Fixed-rate (c)(d) 2,380 1,095,304
Adjustable-rate (c) -- 1,147,888
Other loans -- 1,269,627
----------- -----------
44,140 5,414,952
Rate-sensitive liabilities:
Deposits (e)(f):
Checking 39,105 454,997
Money market accounts 1,073 377,466
Passbook 8,153 649,845
Certificates of deposit -- 2,968,880
Borrowings 3,319 769,526
----------- -----------
51,650 5,220,714
----------- -----------
GAP (repricing difference) $ (7,510) $ 194,238
========== ===========
Cumulative GAP $ 194,238
===========
Cumulative GAP/Total Assets 3.41%
===========
(a) Investments are adjusted to include FHL Bank stock totaling $36.2 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 $13.4 million of advance payments by borrowers for tax and
insurance and exclude accrued interest of $7.1 million.
(f) FFC has assumed that its passbook savings, checking accounts and money
market accounts would have projected annual withdrawal rates, based upon
FFC's historical experience, of 26%, 34% and 42%, respectively.
-28-
<PAGE>
RECENT LEGISLATIVE DEVELOPMENTS
The deposits of savings institutions such as FF Bank are insured up to
applicable limits under the SAIF of the FDIC. Deposits of commercial banks are
insured under the Bank Insurance Fund ("BIF") of the FDIC. Insured institutions
pay assessments to the applicable fund based on assessment rate schedules
determined by the law and FDIC regulation. Premium levels for the BIF and the
SAIF are set in order to permit the funds to be capitalized at a level equal to
1.25% of total deposits insured by the fund. As the funds reach their designated
ratios, the FDIC has authority to lower fund premium assessments to rates
sufficient to maintain the designated reserve ratio.
Historically, BIF and SAIF assessment schedules had been identical. In May 1995,
the BIF achieved its designated ratio and the FDIC lowered BIF premium rates for
most BIF-insured institutions. Based on various assessment rate modifications,
the majority of BIF members currently pay only a $2,000 minimum annual premium.
The SAIF had not achieved its designated reserve ratio and was not anticipated
to do so prior to the year 2001. Premium rates for SAIF-insured members were
being assessed at an average of 23.4 cents per $100 of deposits. As a result of
the modified assessment rate provisions, SAIF member institutions such as FF
Bank were placed at a competitive disadvantage based on higher deposit insurance
premium obligations.
Congress passed legislation to address this premium disparity. The "Deposit
Insurance Funds Act of 1996" ("DIFA") was included as part of an Omnibus
Appropriations Act of 1997 that was signed into law on September 30, 1996.
Pursuant to the terms of the DIFA, the FDIC was directed to impose a special
assessment on SAIF-assessable deposits at a rate that would cause the SAIF to
achieve its designated reserve ratio of 1.25% of SAIF-insured deposits as of
October 1, 1996. Pursuant to the final rule issued by the FDIC on October 16,
1996, the special assessment rate was determined to be 65.7 basis points. This
special assessment resulted in a one-time pre-tax charge to FF Bank of
approximately $28.8 million. With this recapitalization, future BIF and SAIF
premiums will be more comparable and FDIC deposit insurance expense for FF Bank
is anticipated to be significantly lower in future periods.
The DIFA also provides for the merger of BIF and SAIF into a single Deposit
Insurance Fund. This provision is projected to be effective January 1, 1999,
assuming that no insured depository institution is a thrift on that date. This
legislation contemplates that the thrift charter will be phased out over that
period of time. The DIFA also calls for the Secretary of the Treasury to
undertake a study concerning the development of a common charter for all insured
depository institutions and the abolition of separate and distinct charters for
banks and thrifts.
-29-
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
FFC's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock
MarketSM ("NASDAQ") under the symbol of FFHC. At December 31, 1996, FFC had
36,802,484 outstanding shares and 4,262 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. All per share
data have been adjusted to reflect a 5-for-4 stock split distributed in
December, 1996.
Market Price Cash
High Low Dividend
---- --- --------
Quarter Ended:
December 31, 1996 $24.750 $18.800 $ .150
September 30, 1996 19.300 17.200 .120
June 30, 1996 19.300 16.600 .120
March 31, 1996 18.400 15.600 .120
December 31, 1995 $19.000 $16.200 $ .096
September 30, 1995 17.300 13.600 .096
June 30, 1995 14.400 12.200 .096
March 31, 1995 13.000 10.800 .096
-30-
EXHIBIT 23
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 14, 1997, included in
the 1996 Annual Report to Shareholders of First Financial Corporation.
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 filed with the Securities and Exchange
Commission on January 13, 1994 and Registration Statement No. 33-55823 filed
with the Securities and Exchange Commission on January 27, 1995, with respect to
the consolidated financial statements of First Financial Corporation
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 133,529
<INT-BEARING-DEPOSITS> 18,043
<FED-FUNDS-SOLD> 2,513
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,184,562
<INVESTMENTS-CARRYING> 660,786
<INVESTMENTS-MARKET> 655,102
<LOANS> 3,512,819
<ALLOWANCE> 23,228
<TOTAL-ASSETS> 5,700,431
<DEPOSITS> 4,444,932
<SHORT-TERM> 0
<LIABILITIES-OTHER> 75,462
<LONG-TERM> 769,526
0
0
<COMMON> 37,451
<OTHER-SE> 373,060
<TOTAL-LIABILITIES-AND-EQUITY> 5,700,431
<INTEREST-LOAN> 301,694
<INTEREST-INVEST> 117,356
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 419,050
<INTEREST-DEPOSIT> 199,450
<INTEREST-EXPENSE> 32,291
<INTEREST-INCOME-NET> 187,309
<LOAN-LOSSES> 9,030
<SECURITIES-GAINS> (11,592)
<EXPENSE-OTHER> 148,772
<INCOME-PRETAX> 75,901
<INCOME-PRE-EXTRAORDINARY> 50,458
<EXTRAORDINARY> (686)
<CHANGES> 0
<NET-INCOME> 49,772
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 3.33
<LOANS-NON> 11,988
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,230
<ALLOWANCE-OPEN> 25,235
<CHARGE-OFFS> 12,145
<RECOVERIES> 1,108
<ALLOWANCE-CLOSE> 23,228
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,228
</TABLE>
