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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIESEXCHANGE ACT OF 1934 For the transition period
to
COMMISSION FILE NUMBER: 0-5519
ASSOCIATED BANC-CORP
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1098068
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
112 NORTH ADAMS STREET, 54301
GREEN BAY, WISCONSIN (Zip code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (920) 433-3166
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK, PAR VALUE--$0.01 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
of Regulation S-K ((S)229.405 of this chapter) 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]
As of March 2, 1998, 50,685,915 shares of Common Stock were outstanding and
the aggregate market value of the voting stock held by nonaffiliates of the
Registrant was $2,469,894,362. Excludes $124,717,627 of market value
representing the outstanding shares of the Registrant owned by all directors
and officers who individually, in certain cases, or collectively, may be
deemed affiliates. Includes $221,183,339 of market value representing 8.52% of
the outstanding shares of the Registrant held in a fiduciary capacity by the
trust departments of four wholly-owned subsidiaries of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Portions of Documents are Incorporated
Proxy Statement for Annual Meeting of Part III
Shareholders on April 22, 1998
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ASSOCIATED BANC-CORP
1997 FORM 10-K TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 69
PART III
Item 10. Directors and Executive Officers of the Registrant 69
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners and
Management 69
Item 13. Certain Relationships and Related Transactions 69
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K 70
Signatures 72
</TABLE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements have been made in this document, and in documents
that are incorporated by reference, that are subject to risks and
uncertainties. These forward-looking statements, which are included in
Management's Discussion and Analysis and in the Chairman's letter, describe
future plans or strategies and include the Corporation's expectations of
future results of operations. The words "believes," "expects," "anticipates"
or similar expressions identify forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents that are incorporated by
reference, could affect the future financial results of the Corporation and
could cause those results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document. These factors include the following:
. operating, legal and regulatory risks;
. economic, political and competitive forces affecting the Corporation's
banking, securities, asset management and credit services businesses; and
. the risk that the Corporation's analyses of these risks and forces could
be incorrect and/or that the strategies developed to address them could
be unsuccessful.
These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such statements.
PART I
ITEM 1 BUSINESS
GENERAL
Associated Banc-Corp (the "Corporation") is a bank holding company registered
pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"). It
was incorporated in Wisconsin in 1964 and was inactive until 1969 when
permission was received from the Board of Governors of the Federal Reserve
System to acquire three banks. The Corporation currently owns twelve
commercial banks and a federally chartered thrift located in Wisconsin and
Illinois (the "affiliates") serving their local communities and, measured by
total assets held at December 31, 1997, was the third largest commercial bank
holding company headquartered in Wisconsin. As of December 31, 1997, the
Corporation owned 34 nonbanking subsidiaries located in Arizona, California,
Delaware, Illinois, Missouri, Nevada, and Wisconsin.
The Corporation acquired Centra Financial, Inc., and its wholly owned
subsidiary, Central Bank of West Allis, and its wholly owned subsidiary,
Central Investments, Inc., on February 21, 1997. Further, the Corporation,
through a subsidiary, Badger Merger Corp., merged with First Financial
Corporation ("FFC") and its wholly owned subsidiary, First Financial Bank
("FFB"), and its wholly owned subsidiaries, Appraisal Services, Inc., First
Financial Card Services Bank, National Association, Wisconsin Insurance
Management, Inc., FFS Funding Corp., UFS Capital Corp., Illini Service
Corporation, Mortgage Finance Corporation, and First Financial Investments,
Inc. on October 29, 1997.
SERVICES
The Corporation provides advice and specialized services to its affiliates in
banking policy and operations, including auditing, data processing,
marketing/advertising, investing, legal/compliance, personnel services, trust
services, risk management, and other financial services functionally related
to banking.
Responsibility for the management of the affiliates remains with their
respective Boards of Directors and officers. Services rendered to the
affiliates by the Corporation are intended to assist the local management of
these affiliates to expand the scope of services offered by them. Bank and
thrift affiliates of the Corporation at December 31, 1997, provided services
through 226 locations in 150 communities.
The Corporation, through its affiliates, provides a complete range of banking
services to individuals and businesses. These services include checking,
savings, NOW, Super NOW, and money market deposit
3
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accounts, business, personal, educational, residential, and commercial
mortgage loans, MasterCard, VISA and other consumer-oriented financial
services, including IRA and Keogh accounts, safe deposit and night depository
facilities. Automated Teller Machines (ATMs), which provide 24-hour banking
services to customers of the affiliates, are installed in many locations in
the affiliates' service areas. The affiliates are members of an interstate
shared ATM network, which allows their customers to perform banking
transactions from their checking, savings or credit card accounts at ATMs in a
multi-state environment. Among the services designed specifically to meet the
needs of businesses are various types of specialized financing, cash
management services and transfer/collection facilities.
The affiliates provide lending, depository, and related financial services to
commercial, industrial, financial, and governmental customers. Term loans,
revolving credit arrangements, letters of credit, inventory and accounts
receivable financing, real estate construction lending, and international
banking services are available.
Additional emphasis is given to noncredit services for commercial customers,
such as advice and assistance in the placement of securities, corporate cash
management, and financial planning. The affiliates make available check
clearing, safekeeping, loan participations, lines of credit, portfolio
analyses, data processing, and other services to approximately 150
correspondent financial institutions.
Four of the affiliates and a trust company subsidiary offer a wide variety of
fiduciary, investment management, advisory, and corporate agency services to
individuals, corporations, charitable trusts, foundations, and institutional
investors. They also administer (as trustee and in other fiduciary and
representative capacities) pension, profit sharing and other employee benefit
plans, and personal trusts and estates.
Investment subsidiaries provide discount and full-service brokerage services,
including the sale of fixed and variable annuities, mutual funds, and
securities, to the affiliates' customers and the general public. Insurance
brokerage subsidiaries provide commercial and individual insurance services,
including various life, property, casualty, credit, and mortgage products to
the affiliates' customers and the general public. Several investment
subsidiaries located in Nevada hold, manage, and trade cash, stocks, and
securities transferred from the affiliates and reinvest investment income. A
leasing subsidiary provides lease financing for a variety of capital equipment
for commerce and industry. An appraisal subsidiary provides real estate
appraisals for customers, government agencies, and the general public.
The mortgage banking subsidiaries are involved in the origination, servicing
and warehousing of mortgage loans, and the sale of such loans to investors.
The primary focus is on one- to four-family residential and multi-family
properties, all of which are generally salable into the secondary mortgage
market.
The Corporation and affiliates are not dependent upon a single or a few
customers, the loss of which would have a material adverse effect on the
Corporation. No material portion of the Corporation's or the affiliates'
business is seasonal.
FOREIGN OPERATIONS
The Corporation and its affiliates do not engage in any operations in foreign
countries.
EMPLOYEES
At December 31, 1997, the Corporation, its affiliates, and its subsidiaries,
as a group, had 3,679 full-time equivalent employees.
COMPETITION
Competition exists in all of the Corporation's principal markets. Competition
involves efforts to obtain new deposits, the scope and type of services
offered, interest rates paid on deposits and charged on loans, as well as
other aspects of banking. Substantial competition exists from other financial
institutions engaged in the business of making loans, accepting deposits, and
issuing credit cards. All of the affiliates also face direct competition from
members of bank holding company systems that have greater assets and resources
than those of the Corporation.
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SUPERVISION AND REGULATION
Financial institutions are highly regulated both at the federal and state
level. Numerous statutes and regulations affect the business of the
Corporation and its affiliates.
The activities of the Corporation are regulated by the Act. The Act requires
prior approval of the Federal Reserve Board (the "Board") before acquiring
direct or indirect ownership or control of more than five percent of the
voting shares of any bank or bank holding company. The Riegel-Neal Interstate
Banking and Branching Efficiency Act of 1994 contains provisions which amended
the Act to allow an adequately-capitalized and adequately-managed bank holding
company to acquire a bank located in another state as of September 29, 1995.
Effective June 1, 1997, interstate branching was permitted. The Riegel-Neal
Amendments Act of 1997 clarifies the applicability of host state laws to any
branch in such state of an out-of-state bank.
The Act also prohibits, with certain exceptions, acquisitions of more than
five percent of the voting shares of any publicly traded company which is not
a bank and the conduct by a holding company (directly or through its
subsidiaries) of any business other than banking or performing services for
its subsidiaries without prior approval of the Board.
All of the affiliates are insured by the Federal Deposit Insurance Corporation
and are subject to the provisions of the Federal Deposit Insurance Act. Areas
subject to regulation by federal and state authorities include capital
adequacy, reserves, investments, loans, mergers, issuance of securities,
payments of dividends by the banking affiliates, establishment of branches,
and other aspects of banking operations.
The FDIC Board of Directors voted December 11, 1996 to finalize a rule
lowering the rates on assessments paid to the Savings Association Insurance
Fund ("SAIF"), effective as of October 1, 1996. As a result of the special
assessment required by the Deposit Insurance Funds Act of 1996 ("Funds Act"),
the SAIF was capitalized at the target Designated Reserve Ratio ("DRR") of
1.25% of estimated insured deposits on October 1, 1996. The Funds Act required
the FDIC to set assessments in order to maintain the target DRR. The Board
has, therefore, lowered the rates on assessments paid to the SAIF, while
simultaneously widening the spread between the lowest and highest rates to
improve the effectiveness of the FDIC's risk-based premium system. The Board
has also established a process, similar to that which was applied to the Bank
Insurance Fund ("BIF"), for adjusting the rate schedules for both the SAIF and
the BIF within a limited range, without notice and comment to maintain each of
the fund balances at the target DRR.
The Funds Act also separated, effective January 1, 1997, the Financing
Corporation ("FICO") assessment to service the interest on its bond
obligations from the SAIF assessment. The amount assessed on individual
institutions by the FICO will be in addition to the amount paid for deposit
insurance according to the FDIC's risk-related assessment rate schedules.
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the banking industry and the banking affiliates of
the Corporation are affected by the credit policies of monetary authorities,
including the Federal Reserve System. An important function of the Federal
Reserve System is to regulate the national supply of bank credit in order to
combat recession and curb inflationary pressures. Among the instruments of
monetary policy used by the Federal Reserve to implement these objectives are
open market operations in U.S. government securities, changes in reserve
requirements against member bank deposits and changes in the Federal Reserve
discount rate. These means are used in varying combinations to influence
overall growth of bank loans, investments and deposits, and may also affect
interest rates charged on loans or paid for deposits. The monetary policies of
the Federal Reserve authorities have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to have
such an effect in the future.
In view of changing conditions in the national economy and in the money
markets, as well as the effect of credit policies by monetary and fiscal
authorities, including the Federal Reserve System, no prediction can be made
as to possible future changes in interest rates, deposit levels and loan
demand, or their effect on the business and earnings of the Corporation and
its affiliates.
5
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ITEM 2 PROPERTIES
The Corporation's headquarters are located in the City of Green Bay,
Wisconsin, in a leased facility with approximately 8,500 square feet of office
space owned by an affiliated company. The space is currently leased on a
month-to-month basis. The Corporation, as of December 31, 1997, was engaged in
negotiations to lease approximately 30,000 square feet of office space in
buildings yet to be constructed in the Village of Ashwaubenon to accommodate
the corporate staff and support functions. The Corporation expects to occupy
substantially all of the office space under construction in July 1998.
The affiliates, as of December 31, 1997, occupied 226 offices in 150 different
communities within Wisconsin and Illinois. All key facilities, except
Associated Bank Milwaukee and Associated Bank Chicago, are owned by the
affiliates. Except for the affiliate offices in downtown Milwaukee and
Chicago, which are located in the lobbies of multi-story office buildings, all
of the banking facilities are free-standing buildings that provide adequate
customer parking facilities, including drive-in facilities of various numbers
and types for customer convenience. Some banks also have offices in various
supermarket locations as well as offices located within retirement community
facilities. In addition, the Corporation owns other real property that, when
considered in the aggregate, is not material to its financial position.
ITEM 3 LEGAL PROCEEDINGS
There are legal proceedings pending against certain subsidiaries of the
Corporation in the ordinary course of their business. Although litigation is
subject to many uncertainties and the ultimate exposure with respect to these
matters cannot be ascertained, management believes, based upon discussions
with counsel, that the Corporation has meritorious defenses, and any ultimate
liability would not have a material adverse affect on the consolidated
financial position of the Corporation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, shareholders of Associated were asked to
consider an amendment to Associateds Articles of Incorporation to increase the
number of authorized shares of Associated common stock to 100,000,000 shares
and to issue up to 28,627,148 shares of common stock of Associated pursuant to
an Agreement and Plan of Merger, dated as of May 14, 1997, among Associated,
Badger Merger Corp., and FFC. At a Special Meeting of Shareholders held on
October 27, 1997, Associated shareholders approved the above matters.
EXECUTIVE OFFICERS OF THE CORPORATION
Pursuant to General Instruction G of Form 10-K, the following list is included
as an unnumbered item in Part I of this report in lieu of being included in
the Proxy Statement for the Annual Meeting of Stockholders to be held April
22, 1998.
6
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The following is a list of names and ages of executive officers of the
Corporation and affiliates indicating all positions and offices held by each
such person and each such person's principal occupation(s) or employment
during the past five years. The Date of Election refers to the date the person
was first elected an officer of the Corporation or its affiliates. Officers
are appointed annually by the Board of Directors at the meeting of directors
immediately following the Annual Meeting of Shareholders. There are no family
relationships among these officers nor any arrangement or understanding
between any officer and any other person pursuant to which the officer was
selected. No person other than those listed below has been chosen to become an
Executive Officer of the Corporation.
<TABLE>
<CAPTION>
NAME OFFICES AND POSITIONS HELD DATE OF ELECTION
<C> <S> <C>
Harry B. Conlon Chairman, President, Chief Executive March 1, 1975
Age: 62 Officer and Director of Associated
Banc-Corp
Robert C. Gallagher Vice Chairman of Associated Banc-Corp; April 28, 1982
Age: 59 Chairman and Chief Executive Officer
of Associated Bank Green Bay
(affiliate)
Prior to April 1996, Executive Vice
President and Director of Associated
Banc-Corp; Chairman, President and
Chief Executive Officer of Associated
Bank Green Bay (affiliate)
John C. Seramur Vice Chairman of Associated Banc-Corp; October 27, 1997
Age: 55 President and Chief Executive Officer
of First Financial Bank (affiliate)
Prior to October 1997, President and
Chief Executive Officer of First
Financial Corporation and President
and Chief Executive Officer of First
Financial Bank
Brian R. Bodager Chief Administrative Officer, General July 22, 1992
Age: 42 Counsel and Corporate Secretary of
Associated Banc-Corp
Joseph B. Selner Senior Vice President and Chief January 25, 1978
Age: 51 Financial Officer of Associated Banc-
Corp
Arthur E. Olsen, III Vice President-General Auditor of July 28, 1993
Age: 46 Associated Banc-Corp
Prior to July 1993, Senior manager of
a national public accounting firm
Mary Ann Bamber Senior Vice President-Director of January 22, 1997
Age: 47 Retail Banking of Associated Banc-Corp
From January 1996 to January 1997,
Independent consultant
From January 1996 to January 1997,
Senior Officer of an Iowa-based bank
Prior to January 1996, Senior Officer
of a Minnesota-based holding company
Robert J. Johnson Vice President-Director of Human January 22, 1997
Age: 52 Resources of Associated Banc-Corp
Prior to January 1997, Officer of a
Wisconsin manufacturing company
Donald E. Peters Director of Systems and Operations of October 27, 1997
Age: 48 Associated Banc-Corp; Executive Vice
President of First Financial Bank
(affiliate)
Prior to October 1997, Executive Vice
President of First Financial Bank
(affiliate)
John P. Evans Chief Executive Officer and Director August 16, 1993
Age: 48 of Associated Bank North (affiliate)
Prior to July 1993, Officer of a
Wisconsin bank
David J. Handy President, Chief Executive Officer and May 31, 1991
Age: 58 Director of Associated Bank, National
Association (affiliate)
</TABLE>
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<TABLE>
<CAPTION>
NAME OFFICES AND POSITIONS HELD DATE OF ELECTION
<C> <S> <C>
Michael B. Mahlik Executive Vice President, Managing January 1, 1991
Age: 45 Trust Officer, and Director of
Associated Bank, National Association
(affiliate);
President, Chief Executive Officer,
and Director of Associated Trust
Company (subsidiary)
George J. McCarthy President, Chief Executive Officer, November 11, 1983
Age: 47 and Director of Associated Bank
Chicago (affiliate)
Mark J. McMullen Executive Vice President and Director June 2, 1981
Age: 49 of Associated Bank Green Bay
(affiliate)
Randall J. Peterson President and Director of Associated August 2, 1982
Age: 52 Bank Green Bay (affiliate)
Prior to July 1996, Executive Vice
President and Director of Associated
Bank Green Bay (affiliate)
Gary L. Schaefer President and Director of Associated March 1, 1995
Age: 48 Bank Madison (affiliate)
Prior to March 1995, Senior Officer of
a Wisconsin bank
Thomas R. Walsh President, Chief Executive Officer, January 1, 1994
Age: 40 and Director of Associated Bank
Lakeshore (affiliate)
From September 1992 to January 1994,
Senior Officer of Associated Bank
Lakeshore (affiliate)
Gordon J. Weber President, Chief Executive Officer and December 15, 1993
Age: 50 Director of Associated Bank Milwaukee
(affiliate); Director of Associated
Bank Madison (affiliate)
Prior to December 15, 1993, President,
Chief Executive Officer and Director
of Associated Bank Lakeshore
(affiliate)
</TABLE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information in response to this item is incorporated by reference to the table
"Market Information" on Page 64 and the discussion of dividend restrictions in
Note 11 "Stockholders' Equity" of the Notes to Consolidated Financial
Statements included under Item 8 of this document. The Corporation's common
stock is currently being traded on The Nasdaq Stock Market under the symbol
ASBC.
The approximate number of equity security holders of record of common stock,
$.01 par value, as of March 1, 1998, was 10,480. Certain of the Corporation's
shares are held in "nominee" or "street" name and, accordingly, the number of
beneficial owners of such shares is not known nor included in the foregoing
number.
Payment of future dividends is within the discretion of the Corporation's
Board of Directors and will depend, among other factors, on earnings, capital
requirements, and the operating and financial condition of the Corporation. At
the present time, the Corporation expects that dividends will continue to be
paid in the future.
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ITEM 6 SELECTED FINANCIAL DATA
TABLE 1: EARNINGS SUMMARY AND SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
%
CHANGE 5-YEAR
1996 COMPOUND
TO GROWTH
YEARS ENDED DECEMBER 31, 1997 1997 1996 1995 1994 1993 1992 RATE
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Interest income $ 787,244 7.7 $ 731,197 $ 696,858 $ 613,725 $ 586,567 $ 562,885 6.9%
Interest expense 411,637 9.5 375,923 360,499 292,735 287,587 306,535 6.1
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Net interest income 375,607 5.7 355,274 336,359 320,990 298,980 256,350 7.9
Less: Provision for
possible loan losses 31,668 131.2 13,695 14,029 9,035 16,441 26,486 3.6
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Net interest income
after provision for
possible loan losses 343,939 .7 341,579 322,330 311,955 282,539 229,864 8.4
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Plus: Noninterest income 95,976 (17.9) 116,845 104,989 84,155 95,713 87,096 2.0
Less: Noninterest
expense 323,647 10.4 293,235 252,927 245,310 240,318 222,453 7.8
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Net noninterest expense 227,671 29.1 176,390 147,938 161,155 144,605 135,357 11.0
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Income before income
taxes and extraordinary
item/cumulative effect
of an accounting change 116,268 (29.6) 165,189 174,392 150,800 137,934 94,507 4.2
Income tax expense 63,909 11.2 57,487 62,381 54,203 49,311 32,019 14.8
Extraordinary item -- N/M (686) -- -- -- 1,006 N/M
Cumulative effect of an
accounting change -- N/M -- -- -- -- 6,600 N/M
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NET INCOME $ 52,359 (51.1) $ 107,016 $ 112,011 $ 96,597 $ 88,623 $ 70,094 (5.7)
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Basic earnings per
share(2)
Income before
extraordinary
item/cumulative effect
of an accounting change $ 1.04 (51.1) $ 2.13 $ 2.28 $ 1.99 $ 1.88 $ 1.45 (6.4)%
Net income $ 1.04 (50.8) $ 2.12 $ 2.28 $ 1.99 $ 1.88 $ 1.62 (8.5)
Diluted earnings per
share(2)
Income before
extraordinary
item/cumulative effect
of an accounting change $ 1.02 (51.0) $ 2.09 $ 2.24 $ 1.94 $ 1.80 $ 1.43 (6.4)
Net income $ 1.02 (50.7) $ 2.08 $ 2.24 $ 1.94 $ 1.80 $ 1.60 (8.6)
Cash dividends per
share(2) $ 1.11 16.8 $ .95 $ .81 $ .71 $ .62 $ .51 16.8
Weighted average shares
outstanding
Basic 50,307 (.5) 50,564 49,109 48,598 47,204 43,173 3.1
Diluted 51,148 (.7) 51,504 49,978 49,715 49,214 43,762 3.2
SELECTED FINANCIAL DATA
Year-End Balance:
Loans (including loans
held for sale) $7,190,577 7.3 $ 6,700,847 $6,418,683 $5,995,964 $5,380,082 $4,576,015 9.5%
Allowance for possible
loan losses 92,731 29.2 71,767 68,560 65,774 63,415 54,797 11.1
Investment securities 2,940,218 6.8 2,753,938 2,266,895 2,499,380 2,433,963 2,217,845 5.8
Assets 10,691,439 5.6 10,123,383 9,393,609 9,130,522 8,448,468 7,486,104 7.4
Deposits 8,364,137 5.1 7,959,298 7,570,201 7,334,240 7,063,481 6,239,654 6.0
Long-term borrowings 15,270 (54.2) 33,329 36,907 94,537 250,402 184,494 (39.2)
Stockholders' equity 813,693 1.3 803,562 725,211 626,591 560,722 475,546 11.3
Stockholders' equity per
share(2) 16.15 .9 16.01 14.69 12.84 11.89 10.21 9.6
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Average for the Year:
Loans (including loans
held for sale) $ 6,962,820 5.7 $ 6,586,639 $6,157,655 $5,636,601 $5,136,319 $4,307,117 10.1%
Investment securities 2,905,948 15.1 2,523,757 2,421,379 2,536,133 2,444,255 2,009,672 7.7
Assets 10,395,615 7.8 9,643,657 9,123,981 8,737,231 8,228,145 7,159,118 7.7
Deposits 8,122,011 4.4 7,778,257 7,409,409 7,191,053 6,927,867 6,173,058 5.6
Stockholders' equity 839,859 8.3 775,180 674,368 596,365 511,737 431,204 14.3
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Financial Ratios:
Return on average
equity(3) 16.93% 16.64% 17.21% 16.20% 17.32% 16.26%
Return on average
assets(3) 1.37 1.34 1.27 1.11 1.08 0.98
Net interest margin
(tax-equivalent) 3.85 3.95 3.95 3.93 3.91 3.91
Average equity to
average assets 8.08 8.04 7.39 6.83 6.22 6.02
Dividend payout
ratio(3)(4) 39.27 37.24 34.28 35.72 33.02 31.41
=======================================================================================
</TABLE>
(1) All financial data adjusted retroactively for certain acquisitions
accounted for using the pooling-of-interests method.
(2) Per share data adjusted retroactively for stock splits and stock dividends.
(3) Ratio is based upon income prior to merger integration and other one-time
charges, extraordinary items or cumulative effects of an accounting change.
(4) Ratio is based upon basic earnings per share.
N/M = not meaningful
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is management's analysis of the consolidated
financial condition and results of operations of the Corporation, which may
not otherwise be apparent from the consolidated financial statements included
in this report. Reference should be made to the consolidated financial
statements and the selected financial data presented elsewhere in this report
for an understanding of the following discussion and analysis.
PERFORMANCE SUMMARY
The following management's discussion and analysis will focus upon "operating
earnings" of the Corporation for the past three years. To arrive at operating
earnings, reported results for these periods were adjusted by the following:
. 1997 operating earnings exclude the merger, integration and other one-
time charges recorded by the Corporation in conjunction with the merger
of FFC of $103.7 million, or $89.8 million after-tax. This pre-tax charge
includes a $35.3 million adjustment to securities for other than
temporary impairment of value, $16.8 million of conforming provision for
loan losses, and $51.6 million of merger, integration and other one-time
charges. The $51.6 million of merger, integration and other one-time
charges includes $12.6 million for employee and director severance and
contract costs, $20.2 million for costs associated with elimination of
duplicative facilities, computer systems, software and integration, and
$11.2 million for investment banking, legal and accounting fees and $7.7
million for other one-time charges. These charges reduced basic earnings
per share by $1.79 and diluted earnings per share by $1.76.
. 1996 operating earnings exclude a one-time pre-tax charge of $28.8
million associated with the recapitalization of the Savings Association
Insurance Fund and a one-time pre-tax charge of $4.2 million relating to
a change in accounting for the amortization of goodwill and other
intangible assets and an extraordinary after-tax charge of $686,000
resulting from the costs associated with the early redemption of
subordinated notes (all recorded at FFC). These charges, $22.7 million
after-tax, reduced basic earnings per share by $0.44 and diluted earnings
per share by $0.42.
. 1995 operating earnings exclude a one-time pre-tax charge of $6.5 million
relating to acquisition-related expenses incurred relative to the
acquisition of FirstRock Bancorp, Inc. by FFC. The $6.5 million of
merger, integration and other one-time charges include $3.8 million for
employee and director severance and contract costs, $740,000 for costs
associated with duplicative facilities, computer systems, software and
integration, $1.0 million for investment banking, legal and accounting
fees and $870,000 for other charges. These charges, $4.0 million after-
tax, reduced basic earnings per share by $0.08 and diluted earnings per
share by $0.08.
Performance ratios for these periods are also calculated excluding these
items.
The Corporation achieved record operating earnings in 1997. Operating net
income grew to $142.2 million, a 9.6% increase over the $129.7 million earned
in 1996. This follows an 11.7% increase over operating net income of $116.0
million in 1995.
Basic operating earnings per share increased to $2.83 per share in 1997
compared to $2.56 and $2.36 per share in 1996 and 1995, respectively. The
10.5% increase over 1996 basic operating earnings per share followed an 8.5%
increase in 1996 over 1995. On a diluted operating earnings per share basis,
the Corporation recorded $2.78 per share in 1997, compared to $2.52 and $2.32
per share in 1996 and 1995, respectively.
The presentation of basic and diluted earnings per share on the consolidated
statements of income is in accordance with the Corporation's adoption of
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share." Under the provisions of SFAS No. 128, primary and fully diluted
earnings per share reporting were replaced with basic and diluted earnings per
share.
10
<PAGE>
The improvement in the Corporation's 1997 operating net income was led by a
$20.6 million increase in fully-taxable equivalent ("FTE") net interest
income. Growth in earning assets of $762 million more than offset a 10 basis
point decline in the net interest margin. FTE interest income increased $56.3
million while interest expense increased $35.7 million.
Provision for loan losses (excluding the merger-related charges) increased to
$14.9 million compared to $13.7 million in 1996. The higher provision was in
response to higher volumes of loans in 1997. Net charge-offs decreased to
$11.4 million in 1997 compared to $14.0 million in 1996 as the Corporation
recorded lower levels of commercial and installment loans to individuals
charge-offs.
Noninterest income (excluding securities gains and losses) increased to $128.8
million in 1997 over the $127.5 million recorded in 1996. 1996 noninterest
income includes a $11.2 million gain on the sale of credit card loans recorded
by FFC. The Corporation recorded increases in trust service fees, service
charges on deposit accounts, mortgage banking income, loan fees and retail
commission income.
Noninterest expense (excluding merger, integration and other one-time charges)
increased 4.5%, or $11.8 million to $272.0 million in 1997. Increases in
salaries and employee benefits, business development and advertising, data
processing, and other expenses were offset by a decrease in FDIC premiums.
Return on average assets increased in 1997 to 1.37% compared to 1.34% in 1996.
Return on average equity increased to 16.93% in 1997 compared to 16.64% in
1996. The Corporation's efficiency ratio remained stable, increasing to 53.33%
in 1997 compared to 53.31% in 1996.
Cash dividends paid in 1997 increased by 16.8% to $1.11 per share over the
$.95 per share paid in 1996. This followed a 17.3% increase in 1996 dividends
per share over the $.81 per share paid in 1995.
All per share information has been restated to reflect the 6-for-5 stock split
declared January 22, 1997, effected in the form of a 20% stock dividend, paid
on March 17, 1997 to shareholders of record March 5, 1997.
BUSINESS COMBINATIONS
On October 29, 1997 the Corporation merged with FFC, parent company of the
$6.0 billion FFB. FFB has 128 locations throughout Wisconsin and Illinois. In
conjunction with this acquisition, the Corporation issued 27.8 million shares
of common stock. This transaction was accounted for as a pooling of interests.
All consolidated financial information was restated as if the transaction had
been effected as of the beginning of the earliest reporting period. FFC's
product mix is primarily retail, with a concentration of real-estate mortgage
products (both traditional mortgage products and home equity loans), credit
card and student loans funded primarily with retail interest-bearing deposits.
Throughout the management's discussion and analysis, the impact of combining
FFC's balance sheet with the more traditional commercial banking balance sheet
of the Corporation is presented and discussed.
On February 21, 1997, the Corporation completed its merger with Centra
Financial, Inc., whose principal subsidiary is the $76 million asset Central
Bank of West Allis. The number of shares issued totaled 414,365. The
transaction was accounted for as a pooling of interests. However, the
transaction was not material to prior years' reported operating results and,
accordingly, previously reported results were not restated. The bank was
subsequently renamed Associated Bank West Allis.
In April 1996, the Corporation completed the acquisition of Greater Columbia
Bancshares, Inc., parent company of the $211 million asset The First National
Bank of Portage. This acquisition was accounted for using the pooling-of-
interests method. All consolidated financial information was restated as if
the transaction had been effected as of the beginning of the earliest
reporting period. The bank was subsequently renamed Associated Bank Portage,
National Association.
The Corporation also completed two other acquisitions in 1996 that were
accounted for using the pooling-of-interests method. However, neither
transaction was material to prior years' reported operating results and,
accordingly, previously reported prior years' results were not restated. In
March 1996, the Corporation completed the acquisition of SBL Capital
Bancshares, Inc., parent company of the $68 million asset The
11
<PAGE>
State Bank of Lodi. In July 1996, the Corporation completed the acquisition of
the $139 million asset F&M Bankshares of Reedsburg, Inc., parent company of
Farmers & Merchants Bank. The banks were renamed Associated Bank Lodi and
Associated Bank Reedsburg, respectively.
In August 1995, the Corporation acquired GN Bancorp, Inc., parent company of
the $130 million asset Gladstone-Norwood Trust & Savings Bank in northwest
Chicago in a stock for stock merger transaction. The GN Bancorp acquisition
was accounted for as a pooling of interests. All consolidated financial
information was restated as if the transaction had been effected as of the
beginning of the earliest reporting period. The bank was subsequently renamed
Associated Bank Gladstone-Norwood. Additionally on July 31, 1996, the
Corporation completed the cash acquisition of Mid-America National Bancorp
Inc., parent company of the $39 million Mid-America National Bank of Chicago.
Mid-America National Bank was subsequently merged into Associated Bank
Chicago. This transaction was accounted for as a purchase, and accordingly,
the consolidated financial statements include the results of operations since
the date of acquisition.
In July 1995, the Corporation completed the cash acquisition of Great Northern
Mortgage Company, subsequently renamed Associated Great Northern Mortgage
Company, a privately owned mortgage company in suburban Chicago. The mortgage
company acquisition provided approximately $535 million in mortgage servicing
as well as expanding the Corporation's mortgage loan capabilities in Chicago
and northeast Illinois. The acquisition was accounted for as a purchase, and
accordingly, the consolidated financial statements include the results of
operations since the date of acquisition.
In February 1995, FFC acquired FirstRock Bancorp, Inc. ("FirstRock") of
Rockford, Illinois in a stock-for-stock merger. Upon closing, FirstRock's
subsidiary, First Federal Savings Bank, FSB was merged into FFB with First
Federal's six offices operating as branch banking offices of FFB. FirstRock
was merged into FFC. The transaction was accounted for using the pooling-of-
interests method. All consolidated financial information was restated as if
the transaction had been effected as of the beginning of the earliest
reporting period.
PENDING COMBINATION
On February 17, 1998 the Corporation announced the signing of a definitive
agreement to acquire Citizens Bankshares, Inc. ("Citizens"), parent company of
the $164 million Citizens Bank, N.A., with four banking locations in Northeast
Wisconsin. The stock-for-stock merger transaction is contingent upon approval
of regulatory authorities and the shareholders of Citizens. The transaction,
expected to be completed in the second quarter of 1998, will be accounted for
using the pooling-of-interests method. However, the transaction is not
expected to be material to prior years' reported operating results and,
accordingly, previously reported results will not be restated.
NET INTEREST INCOME
Net interest income continues to be the largest component of the Corporation's
operating income (net interest income plus noninterest income), accounting for
74.1% of 1997 total operating income, compared to 75.3% and 76.2% in 1996 and
1995, respectively. Net interest income represents the difference between
interest earned on loans, securities and other earning assets, and the
interest expense associated with the deposits and borrowings that fund them.
Interest rate fluctuations together with changes in volume and types of
earning assets and interest-bearing liabilities combine to affect total net
interest income. The remainder of this analysis discusses net interest income
on an FTE basis in order to provide comparability among the types of interest
earned.
FTE net interest income reached $381.3 million in 1997, an increase of 5.7%
over the 1996 level of $360.6 million. This increase follows a $19.9 million,
or 5.8% increase in 1996 over the $340.8 million recorded in 1995. The net
interest margin, or FTE net interest income as a percent of total average
earning assets, decreased to 3.85% in 1997, down from 3.95% in 1996 and 1995.
Strong growth in earning assets more than offset the 10 basis point decline in
the net interest margin, creating the increase in net interest income in 1997.
The $19.9 million increase in 1996 over 1995 was a result of earning assets
increasing by $505 million while the net interest margin remained stable.
12
<PAGE>
TABLE 2: AVERAGE BALANCES AND INTEREST RATES (INCOME AND RATES ON A TAX-
EQUIVALENT BASIS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
<CAPTION>
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of unearned
income(1)(2)(3) $6,962,820 $592,984 8.52% $6,586,639 $564,576 8.57% $6,157,655 $535,168 8.69%
Investment securities:
Taxable 2,725,566 184,231 6.76 2,345,489 156,967 6.69 2,272,696 151,983 6.69
Tax exempt(1) 180,382 13,925 7.72 178,268 13,322 7.47 148,683 11,114 7.47
Interest-bearing
deposits in other
financial institutions 14,428 779 5.40 5,188 437 8.42 11,413 596 5.22
Federal funds sold and
securities purchased
under agreements to
resell 16,237 999 6.15 21,750 1,267 5.83 41,660 2,426 5.82
------------------------------------------------------------------------------------
Total earning assets $ 9,899,433 $792,918 8.01% $9,137,334 $736,569 8.06% $8,632,107 $701,287 8.12%
------------------------------------------------------------------------------------
Allowance for possible
loan losses (73,748) (72,168) (68,180)
Cash and due from banks 229,994 246,509 235,445
Other assets 339,936 331,982 324,609
------------------------------------------------------------------------------------
Total Assets $10,395,615 $9,643,657 $9,123,981
====================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings deposits $ 1,073,244 $ 24,396 2.27% $1,121,531 $ 27,501 2.45% $1,146,282 $ 30,723 2.68%
NOW deposits 712,458 11,905 1.67 673,106 11,397 1.69 603,734 10,405 1.72
Money market deposits 902,186 34,054 3.77 799,795 28,229 3.53 697,128 24,624 3.53
Time deposits 4,692,333 267,088 5.69 4,486,355 253,788 5.66 4,296,466 237,331 5.52
Federal funds purchased
and securities sold
under agreements to
repurchase 538,097 29,046 5.40 444,676 22,976 5.17 521,164 29,215 5.61
Other short-term
borrowings 749,803 43,463 5.80 484,266 29,208 6.03 370,331 25,890 6.99
Long-term borrowings 26,929 1,685 6.26 44,799 2,824 6.30 32,445 2,311 7.12
------------------------------------------------------------------------------------
Total interest-bearing
liabilities $ 8,695,050 $411,637 4.73% $8,054,528 $375,923 4.67% $7,667,550 $360,499 4.70%
------------------------------------------------------------------------------------
Demand deposits 741,790 697,470 665,799
Accrued expenses and
other liabilities 118,916 116,479 116,264
Stockholder's equity 839,859 775,180 674,368
------------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $10,395,615 $9,643,657 $9,123,981
====================================================================================
Net interest income and
rate spread(1) $381,281 3.28% $360,646 3.39% $340,788 3.42%
====================================================================================
Net yield on earning
assets(1) 3.85% 3.95% 3.95%
====================================================================================
</TABLE>
(1) The yield on tax exempt loans and securities is computed on a tax-
equivalent basis using a tax rate of 35% for all periods presented and is
net of the effects of certain disallowed interest deductions.
(2) Nonaccrual loans have been included in the average balances.
(3) Interest income includes net loan fees.
13
<PAGE>
Total average loans outstanding grew from $6.6 billion to $7.0 billion in
1997, an increase of 5.7%. This followed the 7.0% growth from 1995 to 1996.
Investment securities increased to $2.9 billion in 1997, up from $2.5 billion
in 1996 and $2.4 billion in 1995. The composition of the Corporation's earning
assets has changed significantly in 1997 in conjunction with the merger with
FFC. A larger portion of earning assets is now comprised of taxable investment
securities. The yield on taxable investment securities in 1997 was 176 basis
points lower than the yield on loans. Historically, the Corporation had
approximately 21.3% of its earning assets in investment securities compared to
29.4% in 1997. The Corporation's funding mix was also significantly impacted
by the merger with FFC. In prior years, the Corporation depended heavily upon
net free funds (difference between earning assets and interest-bearing
liabilities) as a funding source. Historically, the Corporation has funded
approximately 18% of its earning asset base with interest free net free funds.
FFC relied heavily upon certificates of deposit and wholesale funds to fund
its earning asset base. In 1997, 12.2% of the Corporation's earning asset base
was funded by interest free net free funds. The combination of a higher mix of
lower yielding investment securities and lower levels of interest free net
free funds has caused the Corporation's net interest margin, as reported
historically, to decline by approximately 58 basis points.
In 1997 the Corporation's net interest margin decreased to 3.85%, compared to
3.95% in 1996 and 1995. The interest rate spread, or difference between the
yield on earning assets and the rate on interest-bearing liabilities,
decreased 11 basis points in 1997. The yield on earning assets decreased by 5
basis points while the rate on interest-bearing liabilities increased by 6
basis points. The contribution from net free funds increased by 1 basis point.
Combined, these factors decreased the net interest margin by 10 basis points
in 1997.
TABLE 3: RATE/VOLUME ANALYSIS(1)
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------
<CAPTION>
VOLUME RATE NET VOLUME RATE NET
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, net of unearned
income(2) $ 32,058 $ (3,650) $ 28,408 $ 36,855 $ (7,447) $ 29,408
Investment securities:
Taxable 25,676 1,588 27,264 4,871 113 4,984
Tax-exempt(2) 159 444 603 2,211 (3) 2,208
Interest-bearing
deposits in other
financial institutions 547 (205) 342 (419) 260 (159)
Federal funds sold and
securities purchased
under agreements to
resell (337) 69 (268) (1,159) -- (1,159)
----------------------------------------------
Total earning assets(2) $ 58,103 $ (1,754) $ 56,349 $ 42,359 $ (7,077) $ 35,282
----------------------------------------------
Interest expense:
Savings deposits $ (1,152) $ (1,953) $ (3,105) $ (652) $ (2,570) $ (3,222)
NOW deposits 659 (151) 508 1,178 (186) 992
Money market deposits 3,777 2,048 5,825 3,623 (18) 3,605
Time deposits 11,754 1,546 13,300 8,361 8,096 16,457
Federal funds purchased
and securities sold
under agreements to
repurchase 5,005 1,065 6,070 (4,069) (2,170) (6,239)
Other short-term
borrowings 15,433 (1,178) 14,255 7,210 (3,892) 3,318
Long-term borrowings (1,118) (21) (1,139) 802 (289) 513
----------------------------------------------
Total interest-bearing
liabilities $ 34,358 $ 1,356 $ 35,714 $ 16,453 $ (1,029) $ 15,424
----------------------------------------------
Net interest income(2) $ 23,745 $ (3,110) $ 20,635 $ 25,906 $ (6,048) $ 19,858
----------------------------------------------
</TABLE>
(1) The change in interest due to both rate and volume has been allocated in
proportion to the relationship to the dollar amounts of the change in
each.
(2) The yield on tax-exempt loans and securities is computed on an FTE basis
using a tax rate of 35% for all periods presented and is net of the
effects of certain disallowed interest deductions.
14
<PAGE>
The Corporation's reported increase in FTE net interest income in 1997 was
primarily driven by larger volumes of earning assets. Net of related funding
costs, this growth increased FTE net interest income by $23.7 million. This
increase was tempered by a negative impact from interest rates. FTE interest
income from earning assets declined $1.8 million due to the change in rates
while interest expense increased $1.3 million due to the change in rates
combining to decrease net interest income by $3.1 million. This negative
impact from change in interest rates combined with the growth in the balance
sheet caused FTE net interest income to increase by $20.6 million in 1997.
The FTE net interest income reported in 1996 increased by $19.9 million over
1995. This increase was also primarily driven by larger volumes of earning
assets. Higher volumes of earning assets, net of related funding costs
increased FTE net interest income by $25.9 million. This increase was offset
by a negative impact from the change in interest rates of $6.0 million.
The Corporation's total cost of funds increased by 6 basis points in 1997,
after decreasing by 3 basis points in 1996. This increase was attributable to
a higher dependence upon wholesale funding in 1997. Retail interest-bearing
deposits as a percent of total interest-bearing liabilities decreased to 84.9%
in 1997 from 87.9% in 1996 and 1995. The rate on total retail interest-bearing
deposits increased to 4.57% in 1997, up from 4.53% in 1996 and 4.49% in 1995.
The cost of total wholesale funds decreased slightly in 1997 to 5.64%, down
from 5.65% in 1996 and 6.21% in 1995. As funding shifted to a higher reliance
on wholesale funding in 1997, costing 107 basis points more, the Corporation's
total cost of funding increased by 6 basis points.
TABLE 4: INTEREST RATE SPREAD AND INTEREST MARGIN (ON A TAX-EQUIVALENT BASIS)
<TABLE>
<CAPTION>
1997 AVERAGE 1996 AVERAGE 1995 AVERAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
<CAPTION>
% OF % OF % OF
EARNING EARNING EARNING
BALANCE ASSETS RATE BALANCE ASSETS RATE BALANCE ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets $9,899,433 100.0% 8.01% $9,137,334 100.0% 8.06% $8,632,107 100.0% 8.12%
--------------------------------------------------------------------------
Financed by:
Interest-bearing funds $8,695,050 87.8% 4.73% $8,054,528 88.1% 4.67% $7,667,550 88.8% 4.70%
Noninterest-bearing
funds 1,204,383 12.2% 1,082,806 11.9% 964,557 11.2%
--------------------------------------------------------------------------
Total funds sources $9,899,433 100.0% 4.16% $9,137,334 100.0% 4.12% $8,632,107 100.0% 4.17%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Interest rate spread 3.28% 3.39% 3.42%
Contribution from net
free funds .57% .56% .53%
Net interest margin 3.85% 3.95% 3.95%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Average prime rate* 8.44% 8.27% 8.83%
Average fed funds rate* 5.46% 5.30% 5.84%
Average spread 298BP 297BP 299BP
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
*Source: Federal Reserve Statistics
The Corporation continued to experience a narrowing of loan spreads in 1997.
The yield on total loans decreased by 5 basis points, after decreasing 12
basis points in 1996. Total loans represent 70.3% of total earning assets in
1997, down from 72.1% in 1996 and 71.3% in 1995. A change in the total yield
on the loan portfolio will have the largest impact on total net interest
income. A benchmark measurement of loan capacity is the loan to deposits
(including demand) ratio. This ratio increased to 85.7% in 1997, up from 84.7%
in 1996 and 83.1% in 1995. This indicates the capacity of the Corporation to
accelerate loan growth and replace lower yielding investments as they mature
without placing undue pressure upon retail deposit generation. The growth of
net free funds (the difference between earning assets and interest-bearing
liabilities, or the amount of funding that does not have a specific interest
cost associated with them), and the subsequent contribution from these funds,
increased in 1997. Net free funds balances grew at a rate of 11.2%, faster
than the 8.3% growth of earning assets. The higher percentage of funding
provided by net free funds coupled with the higher value placed on them (cost
of total interest-bearing liabilities) helped offset the decline in the
interest rate spread.
15
<PAGE>
TABLE 5: SELECTED AVERAGE BALANCES
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL % OF $
1997 ASSETS 1996 ASSETS CHANGE
<S> <C> <C> <C> <C> <C>
--------------------------------------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income $ 6,962,820 67.0% $6,586,639 68.3% 5.7%
Investment securities
Taxable 2,725,566 26.2 2,345,489 24.3 16.2
Tax-exempt 180,382 1.7 178,268 1.8 1.2
Interest-bearing deposits
in other financial
institutions 14,428 0.1 5,188 0.1 178.1
Federal funds sold and
securities purchased under
agreements to resell 16,237 0.2 21,750 0.2 (25.3)
--------------------------------------------------
Total earning assets 9,899,433 95.2 9,137,334 94.7 8.3
Other assets 496,181 4.8 506,323 5.3 (2.0)
--------------------------------------------------
Total assets $10,395,615 100.0% $9,643,657 100.0% 7.8%
--------------------------------------------------
--------------------------------------------------
LIABILITIES &
STOCKHOLDERS' EQUITY
Interest-bearing deposits $ 7,380,221 71.0% $7,080,787 73.4% 4.2%
Short-term borrowings 1,287,900 12.4 928,942 9.6 38.6
Long-term borrowings 26,929 0.2 44,799 0.5 (39.9)
--------------------------------------------------
Total interest-bearing
liabilities 8,695,050 83.6 8,054,528 83.5 8.0
Demand deposits 741,790 7.1 697,470 7.2 6.4
Accrued expenses and other
liabilities 118,916 1.2 116,479 1.2 2.1
Stockholders' equity 839,859 8.1 775,180 8.1 8.3
--------------------------------------------------
Total liabilities and
stockholders' equity $10,395,615 100.0% $9,643,657 100.0% 7.8%
==================================================
</TABLE>
As the largest component of operating income, improvements in the growth of
net interest income are important to the Corporation's earnings performance.
Growth in the Corporation's net interest income during the past three years
has been a result of the growth in the level of earning asset volumes. The
merger with FFC with its higher reliance on the growth of investment
securities, primarily mortgage-related, has increased the importance of
managing net interest income. The Corporation uses certain modeling and
analysis techniques to manage net interest income and the related interest
rate risk position (See Interest Rate Sensitivity and Market Risk). The
Corporation seeks to meet the needs of its customers, yet provide for
stability in net interest income in the event of significant interest rate
changes.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses in 1997 was $14.9 million, excluding
the $16.8 million additional provision to conform FFC with the policies,
practices and procedures of the Corporation, compared to $13.7 million in 1996
and $14.0 million in 1995. The increase in provision reflects the loan growth
recorded in 1997. Including the additional provision, the ratio of allowance
for possible loan losses to total loans increased to 1.31%, up from 1.08% at
December 31, 1996 and 1.12% at December 31, 1995. (See Allowance for Possible
Loan Losses for additional discussion.)
NONINTEREST INCOME
Total operating noninterest income, excluding gains or losses from security
transactions, increased $1.2 million or 1.0% compared to an increase of $24.0
million, or 23.2% in 1996 over 1995. Excluding an $11.2 million gain on sale
of credit cards recorded in 1996 by FFC, the increase in operating noninterest
income in 1997 would have been $12.4 million, or 10.7% compared to an increase
of $12.8 million, or 12.4% in 1996 over 1995. The addition of FFC has
broadened the Corporation's recurring sources of noninterest income beyond its
traditional trust service fees and service fees on deposit accounts. Mortgage
servicing revenue, fees on loans (primarily credit card fees) and retail
commission income now represent significant sources of revenue. Historically,
as the Corporation had continued to develop additional sources of noninterest
income, trust service fees and service charges on deposits had represented a
slowly declining portion of total noninterest income. As historically
reported, these two components had represented 64.4% of total noninterest
income in 1994 and 58.9% in 1996. With the addition of FFC, this percentage
has now dropped to 44.0%, with mortgage banking income, loan fees and retail
commission income now representing 44.7% in 1997.
16
<PAGE>
Trust service fees increased to $28.8 million in 1997, up from $25.2 million
in 1996 and $22.2 million in 1995. This represents increases of 14.2% and
13.2% in 1997 and 1996, respectively. These large increases represent the
continued improvement in trust business volume and growth in assets under
management. Trust assets under management totaled $4.0 billion at December 31,
1997 compared with $3.5 billion at December 31, 1996.
Income from mortgage banking activity increased 7.7% in 1997, or $1.8 million.
This followed an increase of $5.8 million, or 32.2% in 1996. Mortgage banking
income is comprised mainly of fees related to servicing mortgage loans,
residential loan origination fees, underwriting fees, escrow waiver fees and
the gain or loss on sale of mortgage loans to the secondary market. Servicing
revenues increased by $384,000 in 1997 over 1996 to $13.7 million from $13.4
million. The increase in servicing revenue reflects the Corporation's larger
servicing portfolio, as serviced 1- to 4-family residential loans increased to
$5.0 billion at the end of 1997 compared to $4.8 billion and $4.4 billion at
the end of 1996 and 1995, respectively. Net gains on sales of mortgage loans
accounted for the majority of the remaining increase in 1997.
Loan fees increased $1.9 million, or 13.1% in 1997 after increasing $1.5
million, or 11.4% in 1996. Loan fees include late charges and service charges
on real estate loans held in the Corporation's portfolio, credit card,
consumer late charges, home equity line service charges, and late charges and
commitment fees on commercial loans. The largest component of this category is
credit card fees, accounting for $10.3 million of the total fees in 1997.
Credit card fees increased $1.6 million in 1997 compared to 1996.
Retail commission income increased $2.7 million, or 21.1% when compared to the
full year of 1996. Retail commission income includes commissions from
insurance product sales, equity brokerage product sales and the sale of
annuities.
TABLE 6: NONINTEREST INCOME
<TABLE>
<CAPTION>
% CHANGE
FROM PRIOR
YEARS ENDED DECEMBER 31, YEAR
<S> <C> <C> <C> <C> <C>
-----------------------------------------
<CAPTION>
1997 1996 1995 1997 1996
-------- -------- -------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Trust service fees $ 28,764 $ 25,185 $ 22,243 14.2 13.2
Service charges on deposit
accounts 27,909 26,004 23,861 7.3 9.0
Mortgage banking income 25,709 23,873 18,052 7.7 32.2
Loan fees 16,407 14,505 13,023 13.1 11.4
Retail commission income 15,446 12,757 10,760 21.1 18.6
Asset sale gains, net 852 12,520 428 N/M N/M
Other 13,665 12,679 15,110 7.8 (16.1)
-----------------------------------------
Total, excluding securities gains 128,752 127,523 103,477 1.0 23.2
Investment securities gains
(losses), net (operating) 2,514 (10,678) 1,512 N/M N/M
Merger, integration and other one-
time charges (35,290) -- -- N/M N/M
-----------------------------------------
Total noninterest income $ 95,976 $116,845 $104,989 (17.9) 11.3
=========================================
</TABLE>
N/M -- not meaningful
Net asset sale gains represent the net gain or loss on the sale of assets such
as fixed assets, other real estate owned, leased equipment, real estate held
for investment, and loans not held for sale (credit card or student loans).
Net asset sale gains decreased by $11.7 million in 1997, compared to 1996. The
majority of this decrease is attributable to a gain on sale of credit card
loans of $11.2 million recognized by FFC in 1996.
Other miscellaneous income, from a variety of sources, increased $986,000, or
7.8% in 1997. This increase is primarily attributable to higher levels of
Electronic Funds Transfer (EFT) fees. Net EFT fees increased by $967,000 in
1997.
Investment securities gains of $2.5 million represent an increase of $13.2
million over 1996. This increase is primarily attributable to a $13.1 million
loss recognized by FFC on the sale of mortgage-related securities in 1996.
17
<PAGE>
The merger, integration and other one-time charges consist of writedowns taken
to record other than temporary impairment of value of securities. Concurrent
with the consummation of the merger with FFC, the Corporation transferred all
nonagency mortgage-related securities and an agency security, with a combined
amortized cost of $251.9 million from securities held to maturity to
securities available for sale. These mortgage-related securities were
transferred to maintain the existing interest rate risk position and credit
risk policy of the Corporation.
Concurrent with the transfer, the Corporation recorded a $32.5 million pre-tax
charge to earnings relative to one agency security with an amortized cost of
$130.6 million. Management recorded this other than temporary impairment of
value in the fourth quarter of 1997. This security is highly complex,
comprised of multiple cash flows predominated by an inverse floater tied to
libor, for which stress tests indicate that the cash flows are volatile in
higher interest rate environments. The estimated fair value of this security
at the time of the other than temporary impairment charge was based on quoted
prices of instruments with similar characteristics and cash flow valuation
techniques.
Additionally, the Corporation recorded a $2.8 million pre-tax charge, on other
nonagency mortgage-related securities that were transferred to available for
sale, with an amortized cost of $18.9 million to reflect an other than
temporary impairment of value in the fourth quarter of 1997. These securities
were subsequently sold with no additional loss in January 1998.
NONINTEREST EXPENSE
Total operating noninterest expense, excluding merger, integration and other
one-time charges, increased $11.8 million, or 4.5% in 1997. This follows a
$13.8 million, or 5.6% increase in 1996 over 1995. All categories, with the
exception of FDIC insurance premiums, recorded increases in 1997.
Salaries and employee benefits increased $7.5 million or 5.9% compared to
1996. This followed a $10.3 million, or 8.9% increase in 1996 compared to
1995. This category continues to be the largest component of noninterest
expense, representing 49.1% of operating expenses in 1997 and 48.5% and 47.0%
in 1996 and 1995, respectively. The increase in 1997 was comprised of higher
salary expenses of $6.2 million and higher fringe benefit costs of $1.3
million. The increase in salary expense reflects base merit pay increases and
new positions added. The fringe benefit increase is attributable to FICA
taxes, 401k and profit sharing expenses. These fringe benefit increases were a
result of higher levels of base compensation and changes made to benefit
plans. Full-time equivalent (FTE) employees at December 31, 1997 totaled 3,679
compared to 3,666 at December 31, 1996. As the Corporation continues to expand
to take advantage of business opportunities and the related revenues,
management will continue to review its significant investment in salaries and
employee benefit expenses.
TABLE 7: NONINTEREST EXPENSE
<TABLE>
<CAPTION>
% CHANGE
FROM PRIOR
YEARS ENDED DECEMBER 31, YEAR
<S> <C> <C> <C> <C> <C>
---------------------------------------
<CAPTION>
1997 1996 1995 1997 1996
-------- -------- -------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $133,656 $126,154 $115,837 5.9 8.9
Net occupancy expense 20,297 19,563 19,159 3.8 2.1
Data processing expense 16,900 15,905 15,068 6.3 5.6
Business development and advertising 15,936 14,754 11,120 8.0 32.7
Equipment rentals, depreciation, and
maintenance 12,600 12,033 11,433 4.7 5.2
Stationery and supplies 5,532 5,030 5,325 10.0 (5.5)
FDIC expense 3,284 9,675 13,799 (66.1) (29.9)
Other 63,820 57,116 54,728 11.7 4.4
---------------------------------------
Total noninterest expense (operating) 272,025 260,230 246,469 4.5 5.6
Merger, integration and other one-
time charges 51,622 33,005 6,458 N/M N/M
---------------------------------------
Total noninterest expense $323,647 $293,235 $252,927 10.4 15.9
=======================================
</TABLE>
N/M--not meaningful
18
<PAGE>
Net occupancy, data processing, and equipment rentals, depreciation and
maintenance reflect the continued investment in the systems and operations
center. Increased depreciation, maintenance and utilities directly reflect the
investment made in the systems and operations center in 1996. Higher data
processing fees are due to the processing volumes in excess of the base
contract with the third party processor.
Business development and advertising includes all business development related
costs, which include public relations, travel, meals, club and association
dues, and auto costs, and all advertising and marketing costs, including
market research, direct mail, television, radio, newsprint and all other
promotions increased $1.2 million, or 8.0% in 1997. This followed a $3.6
million, or 32.7%, increase in 1996 over 1995.
FDIC expense represents the regular premiums paid to the FDIC. FFC
historically has paid a higher percentage for insurance premiums. FFC's FDIC
assessment was decreased to 6.4 cents per $100 of assessable deposits from the
rate of 23 cents per $100 which was in effect prior to September 30, 1996. The
Corporation's banking affiliates that existed prior to the FFC acquisition had
their premiums virtually eliminated in 1996, with the assessment rate lowered
to 1.2 cents per $100 of assessable deposits for 1997. Total FDIC premiums
paid decreased to $3.3 million in 1997, down from $9.7 million and $13.8
million in 1996 and 1995, respectively. The one-time charge related to the
recapitalization of the SAIF, paid by FFC in 1996, is not included in this
category. This charge of $28.8 million on a pre-tax basis is included in the
merger, integration and other one-time charges category.
Other noninterest expense increased by $6.7 million, or 11.7%, in 1997
compared to 1996. This increase is attributable to higher levels of mortgage
servicing rights amortization, increased consulting costs, higher
communication and courier costs. This increase follows a $2.4 million, or
4.4%, increase in 1996 over 1995.
Merger, integration and other one-time charges include the following amounts
for each applicable year:
. 1997 charges include $51.6 million of pre-tax charges related to the
merger with FFC. These charges include $12.6 million for employee and
director severance and contract costs, $20.2 million for costs associated
with elimination of duplicative facilities, computer systems, software
and integration, $11.2 million for investment banking, legal and
accounting fees and $7.7 million for other one-time charges.
. 1996 charges include a one-time charge of $28.8 million associated with
the recapitalization of the SAIF and a one-time charge of $4.2 million
relating to a change in accounting for the amortization of goodwill and
other intangible assets recorded at FFC.
. 1995 charges include a one-time charge of $6.5 million relating to
acquisition-related expenses incurred relative to the acquisition of
FirstRock Bancorp, Inc. by FFC. These charges include $3.8 million for
employee and director severance and contract costs, $740,000 for costs
associated with duplicative facilities, computer systems, software and
integration, $1.0 million for investment banking, legal and accounting
fees and $870,000 for other charges.
INCOME TAXES
Income tax expense, excluding the applicable income tax effect on merger,
integration and other one-time charges, increased to $77.8 million in 1997
compared to $68.5 million and $64.9 million in 1996 and 1995, respectively.
The Corporation's effective tax rate (operating income tax expense divided by
operating income before taxes) was 35.4%, 34.6% and 35.9% in 1997, 1996 and
1995, respectively.
BALANCE SHEET ANALYSIS
LOANS
Total loans, including loans held for sale, increased by $489 million, or 7.3%
to $7.2 billion at the end of 1997. This follows a $282 million, or 4.4%
increase in 1996 compared to 1995. In 1997 increases were experienced in
commercial, financial and agricultural, real estate-construction and real
estate-mortgage loans, each up $146 million, $101 million and $260 million,
respectively. Included in the increase in real estate-mortgage loans is an
increase of $72 million in mortgage loans held for sale.
19
<PAGE>
TABLE 8: LOAN COMPOSITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 986,839 14% $ 841,145 13% $ 801,004 13% $ 710,285 12% $ 758,925 14%
Real estate--
construction 335,978 5 235,478 3 217,223 3 199,376 3 168,232 3
Real estate--mortgage 5,060,264 70 4,799,900 72 4,569,362 71 4,278,825 71 3,719,199 69
Installment loans to
individuals 793,424 11 813,875 12 821,351 13 801,302 14 728,582 14
Lease financing 14,072 -- 10,449 -- 9,743 -- 6,176 -- 5,144 --
--------------------------------------------------------------------------------------------
Total loans (including
loans held for sale) $7,190,577 100% $6,700,847 100% $6,418,683 100% $5,995,964 100% $5,380,082 100%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
The acquisition of FFC had a major impact on the loan composition of the
Corporation. As previously reported prior to the 1997 pooling restatements, at
December 31, 1996 the Corporation's loan composition consisted of 57% real
estate-mortgage, 26% commercial, financial and agricultural, 9% installment
loans to individuals, 7% real estate-construction, and 1% leasing. At December
31, 1997 this mix has changed to 70% real estate-mortgage, 14% commercial,
financial and agricultural, 11% installment loans to individuals and 5% real
estate-construction. The mix of loans at December 31, 1997 reflects FFC's mix
of loans, primarily real estate-mortgage and installment loans to individuals,
as the merger brought together FFC's consumer banking franchise with the
Corporation's existing business banking and asset management expertise.
Real estate-mortgage loans totaled $5.1 billion at the end of 1997 and $4.8
billion at the end of 1996. Loans in this classification in 1997 include $3.8
billion of loans secured by 1- to 4-family residential properties. Residential
real estate loans consist of conventional home mortgages, home equity lines,
and second mortgages. Loans of this type are primarily made to borrowers in
Wisconsin and Illinois. Residential real estate loans generally limit the
maximum loan to 75%-80% of collateral value. Also included in the real estate-
mortgage classification are loans secured by nonfarm, nonresidential real
estate properties. Loans in this group totaled $966 million at December 31,
1997.
Real estate loans secured by nonresidential real estate involve borrower
characteristics similar to those discussed for commercial loans and real
estate-construction projects. Loans of this type are mainly for business and
industrial properties, multi-family properties, community purpose properties
and similar properties. Loans are primarily made to borrowers in Wisconsin and
Illinois. Credit risk is managed in a similar manner to commercial loans and
real estate construction by employing sound underwriting guidelines, lending
to borrowers in known markets and businesses, and formally reviewing the
borrower's financial soundness and relationship on an ongoing basis.
Commercial, financial, and agricultural loans totaled $1.0 billion at the end
of 1997, comprising 14% of total loans outstanding, up from 13% at the end of
1996. The commercial, financial and agricultural loan classification primarily
consists of commercial loans to middle market companies and small businesses.
Loans of this type are in a broad range of industries. Borrowers are primarily
concentrated in Wisconsin and Illinois.
The credit risk related to commercial loans is largely influenced by general
economic conditions and the resulting impact on a borrower's operations.
Within commercial, financial and agricultural classification at December 31,
1997, loans to finance agricultural production total $35.4 million or 0.5% of
total loans.
An active credit risk management process is used for commercial loans to
ensure that sound and consistent credit decisions are made. Credit risk is
controlled by detailed underwriting procedures, comprehensive loan
administration, and periodic review of borrower's outstanding loans and
commitments. Borrower relationships are formally reviewed on an ongoing basis.
Further analyses by customer, industry and geographic location are performed
to monitor trends, financial performance and concentrations.
20
<PAGE>
The loan portfolio is widely diversified by types of borrowers, industry
groups and market areas. Significant loan concentrations are considered to
exist for a financial institution when there are amounts loaned to multiple
number of borrowers engaged in similar activities that would cause them to be
similarly impacted by economic or other conditions. At December 31, 1997, no
concentrations existed in the Corporation's portfolio in excess of 10% of
total loans, or $708 million.
Real estate construction loans totaled $336 million, or 5% of the total loan
portfolio at the end of 1997 compared to $235 million, or 3% at the end of
1996. Loans in this classification are primarily short-term interim loans that
provide financing for the acquisition or development of commercial real
estate, such as multi-family or other commercial development projects. These
interim loans are generally made with the intent that the borrower will
refinance the loan with an outside third party or sell the project upon
completion.
Real estate construction loans are made to developers and project managers who
are well known to the Corporation, have prior successful project experience
and are well capitalized. Projects undertaken by these developers are
carefully reviewed by the Corporation to ensure that they are economically
viable. Loans of this type are primarily made in markets in Wisconsin and
Illinois in which the Corporation has a thorough knowledge of the local market
economy.
The credit risk associated with real estate construction loans is generally
confined to specific geographic areas. The Corporation controls the credit
risk on these types of loans by making loans in familiar markets to
developers, underwriting the loans to meet the requirements of institutional
investors in the secondary market, reviewing the merits of individual
projects, controlling loan structure, and monitoring project progress and
construction advances.
TABLE 9: LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY(1)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MATURITY(2)
- ----------------- ---------------------------------------
WITHIN 1-5 AFTER
1 YEAR YEARS 5 YEARS TOTAL
-------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, and
agricultural $670,252 $287,163 $29,424 $ 986,839
Real estate-construction 208,415 119,941 7,622 335,978
--------------------------
Total $878,667 $407,104 $37,046 $1,322,817
--------------------------
--------------------------
Fixed rate $256,654 $359,825 $35,569 $ 652,048
Floating or adjustable rate 622,013 47,279 1,477 670,769
--------------------------
Total $878,667 $407,104 $37,046 $1,322,817
--------------------------
--------------------------
Percent 66% 31% 3% 100%
</TABLE>
(1) Based upon scheduled principal repayments.
(2) Demand loans, past due loans, and overdrafts are reported in the "Within 1
Year" category.
Installment loans to individuals totaled $793 million, down $20 million, or
2.5% compared to 1996. This followed a $7 million, or 0.9% decrease in 1996
from year-end 1995. 1996 was impacted by a sale of a $47.9 million credit card
affinity group portfolio. Installment loans include short-term installment
loans, direct and indirect automobile loans, recreational vehicle loans,
credit card loans, student loans and other personal loans. Individual
borrowers may be required to provide related collateral or a satisfactory
endorsement or guaranty from another person, depending on the specific type of
loan and the creditworthiness of the borrower. Loans are made to individual
borrowers located primarily in Wisconsin and Illinois. Credit risk for these
types of loans is generally greatly influenced by general economic conditions,
the characteristics of individual borrowers and the nature of the loan
collateral. Credit risk is primarily controlled by reviewing the
creditworthiness of the borrowers as well as taking appropriate collateral and
guaranty positions on such loans.
Factors that are critical to managing overall credit quality are sound loan
underwriting and administration, systematic monitoring of existing loans and
commitments, effective loan review on an ongoing basis, an adequate allowance
for possible loan losses, and sound nonaccrual and charge-off policies.
21
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
As of December 31, 1997, the allowance for possible loan losses of $92.7
million represented 1.31% of total loans outstanding, compared to $71.8
million, or 1.08% at December 31, 1996. The majority of this increase is
attributable to a one-time charge of $16.8 million related to the acquisition
of FFC to conform its allowance for possible loan losses to the policies,
practices and procedures of the Corporation.
TABLE 10: LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans
outstanding $6,962,820 $6,586,639 $6,157,655 $5,636,601 $5,136,319
Balance of allowance for
possible loan losses at
beginning of period $ 71,767 $ 68,560 $ 65,774 $ 63,415 $ 56,011
==========================================================
Loans charged-off:
Commercial, financial,
and agricultural 1,327 2,916 3,356 2,593 4,520
Real estate--
construction 600 193 191 89 131
Real estate--mortgage 3,222 2,813 3,099 4,224 6,070
Installment loans to
individuals 9,900 11,693 9,221 9,038 7,950
Lease financing -- 1 5 18 50
----------------------------------------------------------
Total loans charged-off 15,049 17,616 15,872 15,962 18,721
Recoveries of loans
previously charged-off:
Commercial, financial,
and agricultural 513 1,255 1,856 3,086 2,193
Real estate--
construction -- 3 70 -- 173
Real estate--mortgage 1,312 837 931 1,151 695
Installment loans to
individuals 1,792 1,514 1,764 1,676 1,718
Lease financing -- 8 8 7 20
----------------------------------------------------------
Total recoveries 3,617 3,617 4,629 5,920 4,799
----------------------------------------------------------
Net loans charged-off 11,432 13,999 11,243 10,042 13,922
Balance related to
acquisitions 728 3,511 -- 3,366 4,885
Additions to the
allowance charged to
operating expense 31,668 13,695 14,029 9,035 16,441
----------------------------------------------------------
Balance at end of period $ 92,731 $ 71,767 $ 68,560 $ 65,774 $ 63,415
==========================================================
Ratio of net charge-offs
to average loans
outstanding .16% .21% .18% .18% .27%
Ratio of allowance for
possible loan losses to
total loans at end of
period 1.31% 1.08% 1.12% 1.16% 1.20%
==========================================================
</TABLE>
The provision for possible loan losses, excluding the one-time charge of $16.8
million, increased to $14.9 million, up from $13.7 million in 1996 and $14.0
million in 1995. Total net charge-offs in 1997 were $11.4 million, compared to
$14.0 million in 1996 and $11.2 million in 1995. Net charge-offs to average
loans was .16% in 1997, .21% in 1996 and .18% in 1995. Reflecting the changes
in the Corporation's loan portfolio mix, described earlier, the Corporation's
updated five-year goals include maintaining net charge-offs to average loans
below .30%. Each of the last five years' results have been within this revised
future goal.
Loans charged-off are subject to continuous review and specific efforts are
taken to achieve maximum recovery of principal, accrued interest, and related
expenses.
22
<PAGE>
Management regularly reviews the adequacy of the allowance for possible loan
losses to ensure that the allowance is sufficient to absorb potential losses
arising from the credit granting process. Factors considered include the
levels of nonperforming loans, other real estate, past due trends, growth in
the loan portfolio, changes in the composition of the loan portfolio,
historical net charge-offs, the present and potential financial condition of
borrowers, general economic conditions, specific industry conditions and other
regulatory or legal issues that could affect the Corporation's loss potential.
The Corporation believes that the allowance for possible loan losses at
December 31, 1997, is adequate to absorb potential loan losses as evidenced by
its charge-off experience and allowance coverage of nonperforming loans
(discussed below). Active asset quality administration ensures appropriate
management of credit risk and minimization of loan losses.
TABLE 11: ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $33,682 $27,943 $22,753 $21,279 $19,194
Real estate--construction 2,016 1,047 929 1,133 1,440
Real estate--mortgage 30,360 19,116 22,331 23,254 25,304
Installment loans to individuals 16,870 16,239 14,848 14,896 14,142
Lease financing 493 530 460 331 136
Unallocated 9,310 6,892 7,239 4,881 3,199
---------------------------------------
Total $92,731 $71,767 $68,560 $65,774 $63,415
=======================================
</TABLE>
The allocation of the Corporation's allowance for possible loan losses for the
last five years is shown in Table 11. Management has developed methodologies
designed to assess the adequacy of the allowance for possible loan losses. The
allocation methodology applied by the Corporation focuses on changes in the
size and character of the loan portfolio, changes in levels of impaired and
other nonperforming and past due loans, the risk inherent in specific loans,
concentrations of loans to specific borrowers or industries, existing and
prospective economic conditions and historical losses on each portfolio
category. The indirect risk in the form of off-balance sheet unfunded
commitments is also taken into consideration. Management continues to target
and maintain the allowance for possible loan losses equal to the allocated
requirement plus an unallocated portion, as deemed necessary. Management
believes this is appropriate in light of current and expected economic
conditions and trends, the geographic and industry mix of the loan portfolio
and other risk related matters.
NONPERFORMING LOANS, POTENTIAL PROBLEM LOANS, AND OTHER REAL ESTATE
Management is committed to an aggressive nonaccrual and problem loan
identification philosophy. This philosophy is embodied through the monitoring
and reviewing of credit policies and procedures to ensure that all problem
loans are identified quickly and the risk of loss is minimized.
Nonperforming loans are considered a leading indicator of future loan losses.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more
past due but still accruing, and restructured loans. The Corporation
specifically excludes student loan balances that are 90 days or more past due
and still accruing and that have contractual government guarantees as to
collection of principal and interest, from its definition of nonperforming
loans.
Loans are normally placed on nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact
on the collectibility of principal or interest on loans, it is management's
practice to place such loans on nonaccrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously
accrued and uncollected interest on such loans is reversed, amortization of
related loan fees is suspended, and income is recorded only to the extent that
interest payments are subsequently received in cash and a determination has
been made that the principal
23
<PAGE>
balance of the loan is collectible. If collectibility of the principal is in
doubt, payments received are applied to loan principal.
Loans past due 90 days or more but still accruing interest, with the exception
of approximately $8 million of guaranteed student loans at December 31, 1997,
are also included in nonperforming loans. Loans past due 90 days or more but
still accruing are classified as such where the underlying loans are both well
secured (the collateral value is sufficient to cover principal and accrued
interest) and in the process of collection. Also included in nonperforming
loans are "restructured" loans. Restructured loans involve the granting of
some concession to the borrower involving the modification of terms of the
loan, such as changes in payment schedule or interest rate.
TABLE 12: NONPERFORMING LOANS AND OTHER REAL ESTATE OWNED
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $32,415 $32,287 $28,787 $28,025 $34,580
Accruing loans past due 90 days
or more 1,324 1,801 1,320 1,484 2,469
Restructured loans 558 534 1,704 1,888 1,992
-------------------------------------------
Total nonperforming loans $34,297 $34,622 $31,811 $31,397 $39,041
===========================================
Ratio of nonperforming loans to
total loans at period end .48% .52% .50% .53% .73%
Ratio of the allowance for
possible loans losses to
nonperforming loans at period end 270.38% 207.29% 215.52% 209.49% 162.43%
-------------------------------------------
Other real estate owned $ 2,067 $ 1,939 $ 4,852 $ 6,172 $10,262
===========================================
</TABLE>
Nonperforming loans at December 31, 1997 were $34.3 million, a decrease of
$325,000 from December 31, 1996. The ratio of nonperforming loans to total
loans at the end of 1997 was .48%, an improvement from .52% at December 31,
1996 and .50% at December 31, 1995. The Corporation's allowance for possible
loan losses to nonperforming loans was 270% at year-end 1997. This increased
from 207% and 216% at year-end's 1996 and 1995, respectively. The increase in
coverage of nonperforming loans is attributable to the $16.8 million one-time
charge related to the merger with FFC to conform the level of the allowance
for possible loan losses to the policies, practices and procedures of the
Corporation.
The following table shows, for those loans accounted for on a nonaccrual basis
and restructured loans for the years ended as indicated, the gross interest
that would have been recorded if the loans had been current in accordance with
their original terms and the amount of interest income that was included in
interest income for the period.
TABLE 13: FOREGONE LOAN INTEREST
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income in
accordance with original
terms $ 2,332 $ 2,764 $ 2,905
Interest income
recognized (1,215) (1,086) (1,110)
----------------------------
Reduction in interest
income $ 1,117 $ 1,678 $ 1,795
============================
</TABLE>
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of
management to place loans in this category does not necessarily indicate that
the Corporation expects losses to occur, but that management recognizes that a
higher degree of risk is associated with these performing loans.
24
<PAGE>
At December 31, 1997, potential problem loans totaled $74.0 million. The loans
that have been reported as potential problem loans are not concentrated in a
particular industry, but rather cover a diverse range of businesses, e.g.
communications, wholesale trade, manufacturing, finance/insurance/real estate,
and services. Management does not presently expect significant losses from
credits in the potential problem loan category.
Other real estate owned was $2.1 million at December 31, 1997 compared to $1.9
million at the end of 1996. Management actively seeks to ensure properties
held are administered to minimize the Corporation's risk of loss.
INVESTMENT SECURITIES PORTFOLIO
The investment securities portfolio is intended to provide the Corporation
with adequate liquidity, flexibility in asset/liability management and a
source of stable income. Investment securities, at amortized cost, including
those held to maturity and available for sale, totaled $2.9 billion at
December 31, 1997 compared to $2.8 billion at the end of 1996.
TABLE 14: INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment Securities Held to Maturity:
U.S. Treasury securities $ 498 $ 4,204 $ 10,036
Federal agency securities 146,259 143,927 184,158
Mortgage-related securities 361,298 673,990 791,341
Obligations of states and political
subdivisions 183,286 195,860 170,971
Other securities (debt) 81,183 61,768 60,621
--------------------------------
Total Amortized Cost $ 772,524 $1,079,749 $1,217,127
================================
Total Fair Market Value $ 782,240 $1,074,412 $1,209,820
================================
Investment Securities Available for Sale:
U.S. Treasury securities $ 109,200 $ 149,314 $ 174,360
Federal agency securities 324,708 326,049 220,801
Mortgage-related securities 1,536,134 1,057,992 585,300
Obligations of state and political
subdivisions 14,312 -- --
Other securities (debt and equity) 142,081 127,787 68,679
--------------------------------
Total Amortized Cost $2,126,435 $1,661,142 $1,049,140
================================
Total Fair Market Value $2,167,694 $1,674,189 $1,049,768
================================
</TABLE>
The merger with FFC had a major impact on the Corporation's total investment
portfolio. The relationship of investments to total earning assets was altered
as a result of the acquisition. As reported historically, at the end of 1996,
the Corporation's average investment portfolio comprised 21.3% of total
average earning assets. Subsequent to the merger with FFC, average investments
to total average earning assets equaled 29.4% in 1997. The composition of the
investment portfolio was altered as well. As previously reported, at the end
of 1996 Treasury and Federal Agency securities totaled 55.9%, mortgage-related
securities totaled 9.9%, municipal securities totaled 23.1%, and other debt
and equity securities totaled 11.1% of the total investment portfolio, at
amortized cost. At December 31, 1997, the mix changed to 65.5% mortgage-
related securities, 20.0% treasury and federal agency securities, 6.8%
municipal securities and 7.7% other debt and equity securities.
Mortgage-related securities 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 mortgage-related
securities portfolio would be subject to 1) prepayments as borrowers typically
would seek to obtain financing at lower rates, 2) a decline in interest income
received on adjustable-rate issuances, and 3) an increase in the fair value of
25
<PAGE>
fixed rate issuances. Conversely, should general interest rate levels
increase, the mortgage-related securities portfolio would be subject to 1) a
longer term to maturity as borrowers would be less likely to prepay their
loans, 2) an increase in interest income received on adjustable rate
issuances, 3) a decline in the fair value of fixed rate issuances, and 4) a
decline in fair value of adjustable rate issuances 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.
The mortgage-related security portfolio includes both U.S. Government agency
issuances and nonagency issuances. Unlike U.S. Government agency issued
mortgage-related securities which include a guarantee of principal and
interest payments on the underlying collateral, nonagency securities are
generally structured with a senior ownership position and subordinate
ownership position(s) providing credit support for the senior position. The
structure of nonagency mortgage-related securities may expose the Corporation
to credit risk in addition to interest rate risk and prepayment risk as
discussed above. Management monitors the major factors affecting the
performance of nonagency mortgage-related securities including, 1)
delinquencies, foreclosures, repossessions and recoveries relative to the
underlying mortgage loans collateralizing each security, 2) the level of
available subordination or other credit enhancements, 3) the competence of the
servicer of the underlying mortgage portfolio, and 4) the rating assigned to
each security by independent national rating agencies.
Concurrent with the consummation of the merger with FFC, the Corporation
transferred all nonagency mortgage-related securities and an agency security,
with a combined amortized cost of $251.9 million from securities held to
maturity to securities available for sale. These mortgage-related securities
were transferred to maintain the existing interest rate risk position and
credit risk policy of the Corporation.
Concurrent with the transfer, the Corporation recorded a $32.5 million pre-tax
charge to earnings relative to one agency security with an amortized cost of
$130.6 million. Management recorded this other than temporary impairment of
value in the fourth quarter of 1997. This security is highly complex,
comprised of multiple cash flows predominated by an inverse floater tied to
LIBOR, for which stress tests indicate that the cash flows are volatile in
higher interest rate environments. The estimated fair value of this security
at the time of the other than temporary impairment charge was based on quoted
prices of instruments with similar characteristics and cash flow valuation
techniques.
Additionally, the Corporation recorded a $2.8 million pre-tax charge on other
nonagency mortgage-related securities that were transferred to available for
sale, with an amortized cost of $18.9 million, to reflect an other than
temporary impairment of value in the fourth quarter of 1997. These securities
were subsequently sold with no additional loss in January 1998.
In November 1997, the Corporation hedged certain agency issued zero-coupon
bonds held by FFC, with a carrying value of $37.2 million and a market value
of $41.6 million, by executing various interest rate futures contracts. These
contracts had a notional value of $70.5 million and a maturity date of March
1998. Subsequently, in January 1998, the futures contracts were closed and the
zero-coupon bonds were sold. A net gain of $5.1 million will be recognized, in
investment securities gains, in the first quarter of 1998 from these
transactions.
Taxable securities were 93.2% of total securities at the end of 1997 compared
to 92.9% at the end of 1996. The aggregate market value of the securities
portfolio was approximately $2.95 billion compared to an amortized cost of
$2.90 billion at December 31, 1997.
At December 31, 1997, the Corporations securities portfolio did not contain
securities, other than U.S. Treasury and federal agencies, of any single
issuer that were payable from and secured by the same source of revenue or
taxing authority where the aggregate book value of such securities exceeded
10% of stockholders' equity or $81.4 million.
26
<PAGE>
TABLE 15: INVESTMENT SECURITIES PORTFOLIO MATURITY DISTRIBUTION(1)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT SECURITIES HELD TO MATURITY--MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
-------------------------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE MORTGAGE-
WITHIN BUT WITHIN BUT WITHIN AFTER RELATED
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS SECURITIES TOTAL TOTAL
-------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD FAIR VALUE
-------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities $ 498 6.10% $ -- -- $ -- -- $ -- -- $ -- -- $ 498 6.10% $ 500
Federal agency
securities 55,502 5.39% 77,258 6.25% 13,499 6.97% -- -- -- -- 146,259 5.99% 146,818
Obligations of
states and
political
subdivisions 24,110 7.40% 92,965 7.51% 65,700 7.19% 511 7.35% -- -- 183,286 7.38% 186,300
Mortgage-related
securities -- -- -- -- -- -- -- -- 361,298 7.21% 361,298 7.21% 365,952
Other securities
(debt) 9,852 6.20% 56,708 6.89% 14,623 6.76% -- -- -- -- 81,183 6.78% 82,670
-------------------------------------------------------------------------------------------------------------
Total Amortized
Cost $ 89,962 6.02% $226,931 6.93% $93,822 7.09% $ 511 7.35% $ 361,298 7.21% $ 772,524 6.97% $ 782,240
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Total Fair Value $ 89,990 $230,130 $95,636 $ 532 $ 365,952 $ 782,240
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
<CAPTION>
INVESTMENT SECURITIES AVAILABLE FOR SALE--MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
-------------------------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE MORTGAGE-
WITHIN BUT WITHIN BUT WITHIN AFTER RELATED
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS SECURITIES TOTAL TOTAL
-------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD FAIR VALUE
-------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities $ 41,019 5.95% $ 68,181 6.14% $ -- -- $ -- -- $ -- -- $ 109,200 6.07% $ 109,841
Federal agency
securities 70,197 5.85% 213,669 6.19% 8,188 6.75% 32,654 7.20% -- -- 324,708 6.23% 330,542
Obligations of
states and
political
subdivisions 200 8.63% 2,179 8.25% 11,564 6.94% 369 9.28% -- -- 14,312 7.22% 14,136
Mortgage-related
securities -- -- -- -- -- -- -- -- 1,536,134 6.55% 1,536,134 6.55% 1,557,603
Other securities
(debt and
equity) 137,712 5.58% 3,894 6.72% 475 6.82% -- -- -- -- 142,081 5.61% 155,572
-------------------------------------------------------------------------------------------------------------
Total Amortized
Cost $249,128 6.34% $287,923 6.48% $20,227 6.97% $33,023 6.19% $1,536,134 6.55% $2,126,435 6.42% $2,167,694
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Total Fair Value $262,597 $289,219 $20,169 $38,106 $1,557,603 $2,167,694
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expected maturities will differ from contractual maturities, as borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
(2) Yields on tax-exempt securities are computed on a tax-equivalent basis
using a tax rate of 35% and have not been adjusted for certain disallowed
interest deductions.
27
<PAGE>
DEPOSITS
Average total deposits in 1997 were $8.1 billion, an increase of 4.4% or $344
million over 1996. Included in this growth is $59.7 million of increase in the
balance of purchased brokered CDs. For the full year of 1997, the average
balance of brokered CDs in total deposits was $139.7 million, which is
included in time deposits in the table shown below. Adjusted for brokered CDs,
internal deposit growth in 1997 was 3.7%.
TABLE 16: AVERAGE DEPOSITS DISTRIBUTION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Noninterest-bearing demand deposits $ 741,790 $ 697,470 $ 665,799
Interest-bearing demand deposits 712,458 673,106 603,734
Savings deposits 1,073,244 1,121,531 1,146,282
Money market deposits 902,186 799,795 697,128
Time deposits 4,692,333 4,486,355 4,296,466
--------------------------------
Total deposits $8,122,011 $7,778,257 $7,409,409
================================
</TABLE>
Year-end 1997 noninterest-bearing deposits were $905 million compared to $804
million at the end of 1996. These amounts are substantially above the
respective yearly average balance amounts. Demand deposits normally show a
sizable increase as businesses, public entities and correspondent banks adjust
their cash positions at year-end. Average noninterest-bearing demand deposits
as a percentage of total average deposits increased to 9.1% in 1997 compared
to 9.0% for both 1996 and 1995.
TABLE 17: AVERAGE RATES PAID ON DEPOSITS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest-bearing demand deposits 1.67% 1.69% 1.72%
Savings deposits 2.27 2.45 2.68
Money market deposits 3.77 3.53 3.53
Time deposits 5.69 5.66 5.52
-------- -------- --------
Total interest-bearing deposits 4.57% 4.53% 4.49%
======== ======== ========
</TABLE>
The total average interest-bearing demand, savings, and money market deposits
increased to $2.69 billion for 1997 from $2.59 billion in 1996. These deposits
as a percentage of total average deposits have remained relatively stable over
the past three years at 33.1% in 1997, 33.4% in 1996 and 33.0% in 1995.
TABLE 18: MATURITY DISTRIBUTION--CERTIFICATES OF DEPOSIT AND OTHER TIME
DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
CERTIFICATES OTHER
OF DEPOSIT TIME DEPOSITS
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Three months or less $326,911 $56,858
Over three months through six months 146,204 13,695
Over six months through twelve months 133,903 --
Over twelve months 102,283 --
--------------------
Total $709,301 $70,553
====================
</TABLE>
The Corporation continues to experience strong competition for deposits in its
markets. This is true for both the business and retail segments of the market.
During 1997, the Corporation's affiliates offered a number of different
products with specific features and competitive pricing. The deposit products
are designed to retain core deposit accounts, attract new customers, and
create opportunities for providing other bank services or relationships.
28
<PAGE>
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased, securities sold
under repurchase agreements, Federal Home Loan Bank notes, notes payable to
banks, commercial paper, treasury tax and loan notes, collateralized mortgage
obligations and industrial revenue bonds. Average total short-term borrowings
were $1.29 billion compared with $929 million in 1996.
TABLE 19: SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase $ 712,250 $ 666,030 $ 451,197
Federal Home Loan Bank 525,317 451,380 335,644
Notes payable to banks 87,139 68,937 66,647
Subordinated notes -- -- 54,925
Commercial paper 1,250 2,172 2,326
Current maturities of long-term borrowings -- 3,067 800
Other borrowed funds 11,052 9,807 7,852
-------------------------------
Total $1,337,008 $1,201,393 $ 919,391
-------------------------------
-------------------------------
Average amounts outstanding during year $1,287,900 $ 928,942 $ 891,495
Average interest rates on amounts
outstanding during year 5.63% 5.62% 6.18%
Maximum month-end amounts outstanding $1,405,233 $1,201,393 $1,071,284
Average interest rates on amounts
outstanding at end of year 5.75% 5.82% 5.89%
</TABLE>
The change in short-term borrowings outstanding is attributable to larger
amounts of overnight federal funds purchased and Federal Home Loan Bank notes
with a remaining maturity less than 1 year as subsidiary banks continue to
supplement the funding of asset growth with wholesale funds. The notes payable
to banks and commercial paper are primarily used to fund residential,
commercial, and leasing lending activities at the Corporation's residential
mortgage, commercial mortgage, and leasing subsidiaries.
LIQUIDITY
Liquidity refers to the ability of the Corporation to generate adequate
amounts of cash to meet the Corporation's needs for cash. The affiliates and
the parent company of the Corporation have different liquidity considerations.
Affiliates meet their cash flow requirements by having funds available to
satisfy customer credit needs as well as having available funds to satisfy
deposit withdrawal requests. Liquidity at banking subsidiaries is derived from
deposit growth, money market investments, maturing loans, the maturity of
investment securities held to maturity, the maturity or sale of investment
securities available for sale, access to other funding sources and markets,
and a strong capital position.
Deposit growth is the primary source of liquidity at the banking subsidiaries.
Total period-end deposits increased $405 million from 1996 to 1997. The
Corporation's overall deposit base grew an average of $344 million, or 4.4%
during 1997. Deposit growth, especially in the core deposit base, is the most
stable source of liquidity of a bank.
Another substantial source of liquidity is the Corporation's maturing
investment securities portfolio, particularly securities maturing within one
year. At December 31, 1997, excluding mortgage-related securities, the
amortized cost of securities, both securities held to maturity and securities
available for sale, maturing within one year amounted to $339 million. At the
end of 1997, the securities portfolio contained $434 million at amortized cost
of U.S. Treasury and federal agency securities available for sale. These
government securities are highly marketable and had a market value of $440
million or 101.5% of amortized cost at year-end.
29
<PAGE>
The loan portfolio is also a source of additional liquidity. The Corporation
has $906 million of commercial loans and real estate-construction loans
maturing within one year and a steady flow of repayments in the mortgage and
installment loan portfolios. Additionally, the Corporation has $3.8 billion of
loans secured 1- to 4-family residential property that could possibly be
securitized.
Within the classification of short-term borrowings at year-end 1997, federal
funds purchased and securities sold under agreements to repurchase totaled
$712 million compared to $666 million at the end of 1996. Federal funds are
purchased from a sizable network of correspondent banks while securities sold
under agreements to repurchase are obtained from a base of individual,
business and public entity customers.
The aggregate subsidiary liquidity resources were sufficient in 1997 to fund
the growth in loans and the investment securities portfolio, and to meet other
needs for cash when necessary. As of December 31, 1997, there were no material
commitments for capital expenditures, i.e. to purchase fixed assets.
Deposit growth will continue to be the primary source of bank subsidiary
liquidity on a long-term basis, along with stable earnings, the resulting cash
generated by operating activities and strong capital positions. Shorter-term
liquidity needs will mainly be derived from growth in short-term borrowings,
maturing money market investments and investment portfolio securities, loan
maturities and access to other funding sources.
Liquidity is also necessary at the parent company level. The parent company's
primary sources of funds are dividends and service fees from subsidiaries,
borrowings and proceeds from issuance of equity. The parent company manages
its liquidity position to provide the funds necessary to pay dividends to
stockholders, service debt, invest in subsidiaries and satisfy other operating
requirements. Dividends received from subsidiaries totaled $63.4 million in
1997 and will continue to be the parent's main source of long-term liquidity.
The dividends from subsidiaries, along with a $17.3 million increase in net
short-term borrowed funds, were sufficient to pay cash dividends to the
Corporation's common stockholders of $49.3 million in 1997 and fund increased
lending activities of nonbanking subsidiaries of $16.3 million.
At December 31, 1997, $131.0 million in dividends could be paid to the parent
by affiliates without obtaining prior regulatory approval, subject to the
capital needs of the banks. Additionally, the parent company had $120 million
of established lines of credit with nonaffiliated banks, of which $87.1
million was in use. Of the amount in use, the parent company downstreamed the
majority to the Corporation's residential and commercial mortgage banking
subsidiaries and leasing company for their use in funding loans and leases.
The parent company also has access to funds from the issuance of the
Corporation's commercial paper, although such funds are also downstreamed to
the nonbanking subsidiaries. Commercial paper outstanding at December 31,
1997, totaled $1.3 million.
The Corporation's long-term debt-to-equity ratio at December 31, 1997 was 1.9%
compared to 4.1% at December 31, 1996. The decrease is attributable to the
change in current maturities of long-term borrowings between years.
Management believes that, in the current economic environment, the
Corporation's subsidiary and parent company liquidity positions are adequate.
There are no known trends nor any known demands, commitments, events or
uncertainties that will result or are reasonably likely to result in a
material increase or decrease in the Corporation's liquidity.
INTEREST RATE SENSITIVITY AND MARKET RISK
Interest rate risk is the exposure to a bank's earnings and capital arising
from changes in future interest rates. All banks assume interest rate risk as
an integral part of normal banking operations. The management of interest rate
risk includes four components: policy statements, risk limits, risk
measurement and reporting procedures.
An important responsibility of the Asset/Liability Committee (ALCO) of each
subsidiary bank is the management of risks associated with changing interest
rates, changing asset and liability mixes, and their impact on earnings. These
ALCO's, in turn, operate under the advisory policy guidelines on interest rate
sensitivity set by the Corporation's ALCO. The sensitivity of net interest
income to market rate changes is evaluated regularly by the Corporation to
determine the effectiveness of interest rate risk management.
30
<PAGE>
Table 20 reflects the Corporations expected cash flows and applicable yields
on earning assets and interest-bearing liabilities and the resulting current
fair market value after discounting expected cash flows at existing market
rates.
TABLE 20: MARKET RISK ANALYSIS INTEREST RATE RISK
<TABLE>
<CAPTION>
EXPECTED PERIOD OF MATURITY
-----------------------------------------------------------------------------
WITHIN 1-2 2-3 3-4 4-5 GREATER THAN
1 YEAR YEARS YEARS YEARS YEARS 5 YEARS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
FAIR
YIELD/ YIELD/ YIELD/ YIELD/ YIELD/ YIELD/ YIELD/ MARKET
BAL RATE BAL RATE BAL RATE BAL RATE BAL RATE BAL RATE BAL RATE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term
investments (V) $ 16 5.36% $ -- -- $ -- -- $ -- -- $ -- -- $ -- -- $ 16 5.36% $ 16
Loans held for
sale (V) 114 7.44% -- -- -- -- -- -- -- -- -- -- 114 7.44% 114
Treasury,
Agency, Other
Securities (F) 284 5.70% 113 6.20% 80 6.36% 103 6.35% 102 6.65% 73 6.95% 755 6.18% 778
Treasury,
Agency, Other
Securities (V) 13 4.38% -- -- 3 5.11% 1 7.75% 31 5.51% 1 7.58% 49 5.26% 49
Mortgage-related
securities (F) 2 6.16% 3 6.78% 2 6.10% 60 6.93% 42 6.77% 356 7.13% 465 7.06% 471
Mortgage-related
securities (V) -- -- -- -- -- -- -- -- -- -- 1,433 6.59% 1,433 6.59% 1,452
Municipal
securities (F) 23 7.21% 24 7.61% 18 7.75% 26 7.61% 26 7.20% 81 7.23% 198 7.37% 200
Residential real
estate
loans (F) 491 8.03% 341 8.07% 264 8.08% 156 7.95% 115 7.89% 234 7.98% 1,601 8.02% 1,614
Residential real
estate
loans (V) 745 8.56% 283 7.40% 240 7.55% 127 7.51% 102 7.53% 275 7.53% 1,772 7.94% 1,791
Commercial loans
(F) 594 8.86% 266 8.57% 248 8.44% 90 8.31% 68 8.34% 133 8.28% 1,399 8.61% 1,399
Commercial loans
(V) 883 8.82% 32 8.47% 30 8.46% 28 8.45% 27 8.45% 82 8.44% 1,082 8.75% 1,082
Consumer loans
(F) 252 8.92% 157 8.82% 110 8.72% 64 8.50% 39 8.31% 69 8.08% 691 8.71% 693
Consumer loans
(V) 515 10.04% 16 13.38% -- -- -- -- -- -- -- -- 531 10.14% 530
----------------------------------------------------------------------------------------------------
Total interest
earning assets $3,932 8.53% $1,235 8.01% $995 7.97% $655 7.63% $552 7.45% $2,737 7.08% $10,106 7.90% $10,189
----------------------------------------------------------------------------------------------------
Interest-bearing
deposits (F) $3,221 5.69% $1,038 5.97% $181 6.11% $ 39 5.72% $ 25 5.84% $ 2 6.34% $ 4,506 5.78% $ 4,520
Interest-bearing
deposits (V) 2,949 2.82% 4 5.55% -- -- -- -- -- -- -- -- 2,953 2.83% 2,953
Short-term
borrowings (V) 1,337 5.67% -- -- -- -- -- -- -- -- -- -- 1,337 5.67% 1,337
Long-term
borrowings (F) -- -- 4 14.27% 1 6.42% 1 7.17% 1 6.80% 8 6.62% 15 8.94% 15
----------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities $7,507 4.56% $1,046 6.01% $182 6.11% $ 40 5.75% $ 26 5.85% $ 10 6.56% $ 8,811 4.78% $ 8,825
----------------------------------------------------------------------------------------------------
</TABLE>
(V) Variable repricing terms
(F) Fixed repricing terms
In November 1997, the Corporation hedged certain agency issued zero-coupon
bonds held by FFC, with a carrying value of $37.2 million and a market value
of $41.6 million, by executing various interest rate futures contracts. These
contracts had a notional value of $70.5 million and a maturity date of March
1998. Subsequently, in January 1998, the futures contracts were closed and the
zero-coupon bonds were sold. A net gain of $5.1 million will be recognized, in
investment securities gains, in the first quarter of 1998 from these
transactions.
31
<PAGE>
Interest rate sensitivity analysis can be performed in several different ways.
The traditional method of measuring interest sensitivity is called "gap"
analysis. Gap analysis is used to identify mismatches in the repricing of
assets and liabilities within specified periods of time or interest
sensitivity gaps.
For all assets and liabilities repriced within one year, the ratio of rate
sensitive assets to rate sensitive liabilities was 80.2% at December 31, 1997.
As presented, this traditional gap analysis does not accurately reflect the
Corporation's true rate sensitivity position. The categories of savings, NOW,
and money market accounts have been included in the 0-90 days category for
this gap analysis. While these accounts are contractually short-term in
nature, it is management's experience that repricing occurs over a longer
period of time. Gap analysis also does not reflect the modification of the
receipt of cash flows from principal repayments on mortgage related products,
both loan and investments, due to changes in interest rate environments.
Rising rates would extend the receipt of principal repayments closer to
contractual maturity, while declining rates would accelerate the receipt of
principal repayments.
TABLE 21: INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
--------------------------------------------------------------------------
TOTAL
0-90 181-365 WITHIN OVER 1
DAYS 91-180 DAYS DAYS 1 YEAR YEAR TOTAL
----------- ----------- ----------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, held for sale $ 114,001 $ -- $ -- $ 114,001 $ -- $ 114,001
Investment
securities(1) 746,661 375,446 754,847 1,876,954 1,022,004 2,898,959
Loans, net of unearned
income 2,449,779 524,329 1,032,766 4,006,874 3,069,702 7,076,576
Other earning assets 15,665 -- -- 15,665 -- 15,665
--------------------------------------------------------------------------
Total $ 3,326,106 $ 899,775 $ 1,787,613 $ 6,013,494 $4,091,706 $10,105,201
==========================================================================
Interest-bearing
liabilities:
Interest-bearing
deposits(2) $ 3,981,761 $ 894,645 $ 1,284,355 $ 6,160,761 $1,298,666 $ 7,459,427
Other interest-bearing
liabilities 860,135 417,984 58,889 1,337,007 15,271 1,352,278
--------------------------------------------------------------------------
Total interest-bearing
liabilities $ 4,841,896 $ 1,312,629 $ 1,343,244 $ 7,497,768 $1,313,937 $ 8,811,705
==========================================================================
Interest sensitivity
gap $(1,515,790) $ (412,854) $ 444,370 $(1,484,274) $2,777,770 $ 1,293,496
--------------------------------------------------------------------------
Cumulative interest
sensitivity gap $(1,515,790) $(1,928,644) $(1,484,274)
Cumulative ratio of
rate sensitive assets
to rate sensitive
liabilities at December
31, 1997 68.7% 68.7% 80.2%
==========================================================================
</TABLE>
(1) Securities balances exclude $41.3 million of unrealized gains relating to
available for sale securities.
(2) Savings, NOW, and money market account balances totaling $2.76 billion are
included in the 0-90 days category. While these accounts are contractually
short-term in nature, it is management's experience that repricing occurs
over a longer period of time.
The Corporation uses simulation modeling results that incorporate the dynamics
of balance sheet and interest rate changes and reflect the related impact on
net interest income over a specified time horizon. The Corporation is
continually reviewing its interest rate risk position and modifying its
strategies based upon simulation projections under various interest rate
levels. Additionally, the Corporation may enter into interest rate swap
agreements to assist in managing interest rate risk. Management's philosophy
is to maintain an appropriate rate sensitive asset and liability position to
provide for stability in earnings in the event of significant interest rate
changes. The Corporation believes that it has an effective process for
managing interest rate risk.
CAPITAL
Stockholders' equity at December 31, 1997, increased to $813.7 million or
$16.15 per share compared with $803.6 million or $16.01 per share at the end
of 1996. The growth in stockholders' equity in 1997 was diminished by the
$89.8 million after-tax charge for merger, integration and other one-time
charges related to the merger with FFC. Year-end capital includes a $26.1
million equity component compared to $8.3
32
<PAGE>
million at December 31, 1996, related to unrealized gains on securities
available for sale, net of tax effect. Period-end stockholders' equity to
assets in 1997 was 7.61% compared to 7.94% at the end of 1996.
Cash dividends paid in 1997 were $1.11 per share compared with $0.95 per share
in 1996, an increase of 17.0%. Cash dividends have increased at a 16.8%
compounded rate during the past five years.
The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic condition in
markets served and strength of management.
As of December 31, 1997 and 1996, the Corporation's Tier 1 risk-based capital
ratios, total risk-based capital (Tier 1 and Tier 2) ratios and Tier 1
leverage ratios were well in excess of regulatory requirements. Management of
the Corporation expects to continue to exceed the minimum standards in the
future. Capital ratios are included in Note 19, Regulatory Matters, of the
notes to consolidated financial statements.
In 1997, the Corporation's Board of Directors authorized management to
repurchase up to 100,000 shares of the Corporation's common stock each
calendar quarter in the market. The shares repurchased would be available in
connection with the Corporation's employee incentive plans and for other
corporate purposes. Shares repurchased are held as treasury stock and,
accordingly, are accounted for as a reduction of stockholders' equity. The
Corporation purchased 81,736 of its common shares in 1997 and 92,684 in 1996.
Management believes that a strong capital position is necessary to take
advantage of opportunities for profitable geographic and product expansion,
and to provide depositor and investor confidence. The Corporation's capital
level remains strong, but must also be maintained at an appropriate level that
provides the opportunity for a superior return on capital employed. Management
actively reviews capital strategies for the Corporation and each of its
subsidiaries to ensure that capital levels are appropriate based on the
perceived business risks, future growth opportunities, industry standards, and
regulatory requirements.
YEAR 2000
The Corporation has completed its initial assessment of the Year 2000 issue.
The Year 2000 issue relates to systems designed to use two digits rather than
four to define the applicable year. This assessment was performed by an
independent third party. Management believes that all operating systems
critical to its delivery of customer service will be Year 2000 compliant prior
to December 31, 1998. The cost of implementing the recommendations of the
initial assessment are not deemed to be material, and thus, will not have a
significant impact on the Corporation's results of operations, liquidity or
capital resources.
ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income". SFAS 130 is effective for both interim
and annual periods beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. It does not specify
when to recognize or how to measure items that make up comprehensive income.
SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements and requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. SFAS 130 requires classification of "other comprehensive income"
items by their nature in the financial statement and display of the balance of
other comprehensive income separately in the equity section of the statement
of financial position. It does not require per share amounts of comprehensive
income to be disclosed. Management of the Corporation does not expect that
adoption of SFAS 130 will have a material effect on the consolidated financial
statements of the Corporation.
33
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. SFAS 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS 131 replaces the "industry segment" concept of SFAS 14 with a
"management approach" concept as the basis for identifying reportable
segments. The management approach is based on the way that management
organizes the segments within the enterprise for making operating decisions
and assessing performance. Consequently, the segments are evident from the
structure of the enterprise's internal organization. It focuses on financial
information that an enterprise's decisionmakers use to make decisions about
the enterprise's operating matters. The Corporation will be adopting SFAS 131
in 1998.
34
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and due from banks $ 288,021 $ 369,842
Interest-bearing deposits in other financial
institutions 4,154 3,183
Federal funds sold and securities purchased under
agreements to resell 11,511 27,977
Investment securities:
Held to maturity--at amortized cost
(Fair value of approximately $782,240 and $1,074,412
at
December 31, 1997 and 1996, respectively) 772,524 1,079,749
Available for sale--at fair value 2,167,694 1,674,189
Loans held for sale 114,001 42,490
Loans 7,076,576 6,658,357
Allowance for possible loan losses (92,731) (71,767)
- -------------------------------------------------------------------------------
Loans, net 6,983,845 6,586,590
Premises and equipment 127,823 127,708
Other assets 221,866 211,655
- -------------------------------------------------------------------------------
Total assets $10,691,439 $10,123,383
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 904,710 $ 804,020
Interest-bearing deposits 7,459,427 7,155,278
- -------------------------------------------------------------------------------
Total deposits 8,364,137 7,959,298
Short-term borrowings 1,337,008 1,201,393
Long-term borrowings 15,270 33,329
Accrued expenses and other liabilities 161,331 125,801
- -------------------------------------------------------------------------------
Total liabilities 9,877,746 9,319,821
- -------------------------------------------------------------------------------
Commitments and contingent liabilities -- --
- -------------------------------------------------------------------------------
Stockholders' equity
Preferred stock (Par value $1.00 per share,
authorized 750,000 shares, no shares issued) -- --
Common stock (Par value $0.01 per share, authorized
100,000,000 shares, issued 50,394,647 and 50,211,171
shares at December 31, 1997 and 1996, respectively) 504 465
Surplus 218,072 230,810
Retained earnings 569,996 564,924
Net unrealized gain on securities available for
sale, net of taxes 26,144 8,281
Less: Treasury stock at cost (18,894 shares in 1997
and 26,226 shares in 1996) (1,023) (918)
- -------------------------------------------------------------------------------
Total stockholders' equity 813,693 803,562
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,691,439 $10,123,383
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
35
<PAGE>
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $592,071 $563,699 $534,269
Interest and dividends on investment
securities:
Taxable 184,231 156,967 151,575
Tax-exempt 9,164 8,827 7,584
Interest on deposits in other financial
institutions 779 437 596
Interest on federal funds sold and securities
purchased under agreements to resell 999 1,267 2,426
Interest on trading account securities -- -- 408
- ----------------------------------------------------------------------------
Total interest income 787,244 731,197 696,858
- ----------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 337,443 320,915 303,083
Interest on short-term borrowings 72,509 52,184 55,105
Interest on long-term borrowings 1,685 2,824 2,311
- ----------------------------------------------------------------------------
Total interest expense 411,637 375,923 360,499
- ----------------------------------------------------------------------------
NET INTEREST INCOME 375,607 355,274 336,359
Provision for possible loan losses 31,668 13,695 14,029
- ----------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 343,939 341,579 322,330
- ----------------------------------------------------------------------------
NONINTEREST INCOME
Trust service fees 28,764 25,185 22,243
Service charges on deposit accounts 27,909 26,004 23,861
Mortgage banking income 25,709 23,873 18,052
Loan fees 16,407 14,505 13,023
Retail commission income 15,446 12,757 10,760
Asset sale gains, net 852 12,520 428
Investment securities gains (losses), net (32,776) (10,678) 1,512
Other 13,665 12,679 15,110
- ----------------------------------------------------------------------------
Total noninterest income 95,976 116,845 104,989
- ----------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 133,656 126,154 115,837
Net occupancy expense 20,297 19,563 19,159
Data processing expense 16,900 15,905 15,068
Business development and advertising 15,936 14,754 11,120
Equipment rentals, depreciation and
maintenance 12,600 12,033 11,433
Stationery and supplies 5,532 5,030 5,325
FDIC expense 3,284 9,675 13,799
Merger, integration and other one-time charges 51,622 33,005 6,458
Other 63,820 57,116 54,728
- ----------------------------------------------------------------------------
Total noninterest expense 323,647 293,235 252,927
- ----------------------------------------------------------------------------
Income before income taxes and extraordinary
item 116,268 165,189 174,392
Income tax expense 63,909 57,487 62,381
- ----------------------------------------------------------------------------
Income before extraordinary item 52,359 107,702 112,011
Extraordinary item, net of income taxes of
$370 -- (686) --
- ----------------------------------------------------------------------------
Net income $ 52,359 $107,016 $112,011
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Earnings per share:
Basic:
Income before extraordinary item $ 1.04 $ 2.13 $ 2.28
Extraordinary item -- (.01) --
Net income $ 1.04 $ 2.12 $ 2.28
Diluted:
Income before extraordinary item $ 1.02 $ 2.09 $ 2.24
Extraordinary item -- (.01) --
Net Income $ 1.02 $ 2.08 $ 2.24
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
36
<PAGE>
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS) ON COMMON
COMMON STOCK SECURITIES STOCK
-------------- RETAINED AVAILABLE TREASURY PURCHASED
SHARES AMOUNT SURPLUS EARNINGS FOR SALE STOCK BY ESOP TOTAL
------ ------ -------- -------- ---------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994, as previously
reported 14,531 $145 $159,086 $148,081 $(3,986) $(4,043) $ -- $299,283
Adjustment to
retroactively restate
1997 business
combinations accounted
for as pooling of
interests 27,850 278 75,214 261,949 ( 8,619) -- (1,608) 327,214
- -----------------------------------------------------------------------------------------------------
Balance December 31,
1994, as restated 42,381 423 234,300 410,030 (12,605) (4,043) (1,608) 626,497
- -----------------------------------------------------------------------------------------------------
Net income -- -- -- 112,011 -- -- -- 112,011
Cash dividends, $0.81
per share -- -- -- (16,924) -- -- -- (16,924)
Cash dividends of pooled
affiliates -- -- -- (14,156) -- -- -- (14,156)
5-for-4 stock split
effected in the form of
a stock dividend 3,153 32 -- (32) -- -- -- --
Exercise of incentive
stock options 509 5 2,610 -- -- 1,863 -- 4,478
Payment on ESOP loan -- -- -- -- -- -- 790 790
Tax benefits of
restricted shares and
options -- -- 443 -- -- -- -- 443
Change in unrealized
gain (loss) on
securities available for
sale, net of related
income taxes -- -- -- -- 12,693 -- -- 12,693
Reissuance of treasury
stock in a business
combination (15) -- (478) -- -- 478 -- --
Purchase of treasury
stock -- -- -- -- -- (2,085) -- (2,085)
Pre-merger transactions
of pooled company 44 -- 822 -- -- -- 547 1,369
- -----------------------------------------------------------------------------------------------------
Balance, December 31,
1995 46,072 460 237,697 490,929 88 (3,787) (271) 725,116
- -----------------------------------------------------------------------------------------------------
Net income -- -- -- 107,016 -- -- -- 107,016
Cash dividends, $0.95
per share -- -- -- (20,278) -- -- -- (20,278)
Cash dividends of pooled
affiliates -- -- -- (19,309) -- -- -- (19,309)
Issuance of stock in
connection with business
combinations 868 9 9,800 6,566 8 -- -- 16,383
Exercise of incentive
stock options 303 3 966 -- -- 2,208 -- 3,177
Tax benefits of
restricted shares and
options -- -- 564 -- -- -- -- 564
Retirement of stock
previously issued in
connection with a
business combination (212) (2) (3,760) -- -- 3,762 -- --
Payment on ESOP loan -- -- -- -- -- -- 271 271
Change in unrealized
gain (loss) on
securities available for
sale, net of related
income taxes -- -- -- -- 8,185 -- -- 8,185
Purchase of treasury
stock -- -- -- -- -- (3,101) (3,101)
Pre-merger transactions
of pooled company (496) (5) (14,457) -- -- -- -- (14,462)
- -----------------------------------------------------------------------------------------------------
Balance, December 31,
1996 46,535 465 230,810 564,924 8,281 (918) -- 803,562
- -----------------------------------------------------------------------------------------------------
Net income -- -- -- 52,359 -- -- -- 52,359
Cash dividends, $1.11
per share -- -- -- (16,983) -- -- -- (16,983)
Cash dividends of pooled
affiliates -- -- -- (32,345) -- -- -- (32,345)
6-for-5 stock split
effected in the form of
a stock dividend 3,746 37 (37) -- -- -- -- --
Issuance of stock in
connection with business
combinations 345 4 3,778 4,218 64 -- -- 8,064
Exercise of incentive
stock options 382 4 3,847 (2,177) -- 3,494 -- 5,168
Tax benefits of
restricted shares and
options -- -- 716 -- -- -- -- 716
Change in unrealized
gain (loss) on
securities available for
sale, net of related
income taxes -- -- -- -- 17,799 -- -- 17,799
Purchase of treasury
stock -- -- -- -- -- (3,599) -- (3,599)
Pre-merger transactions
of pooled company (613) (6) (21,042) -- -- -- -- (21,048)
- -----------------------------------------------------------------------------------------------------
Balance, December 31,
1997 50,395 $504 $218,072 $569,996 $26,144 $(1,023) -- $813,693
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
37
<PAGE>
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
---------------------------------
1997 1996 1995
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 52,359 $ 107,016 $ 112,011
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 31,668 13,695 14,029
Provision for losses on other real estate
owned -- (467) 502
Depreciation and amortization 14,418 14,415 13,075
Amortization of mortgage servicing rights 6,472 4,237 2,537
Amortization of intangibles 6,217 11,983 8,306
Deferred income taxes (20,953) (4,342) (6,174)
Net amortization (accretion) of premiums
and discounts (1,499) (9,116) 1,091
(Gain) loss on sales of securities, net 32,776 10,678 (1,512)
Decrease (increase) in interest receivable
and other assets (1,663) 8,369 (9,548)
Increase in interest payable and other
liabilities 33,597 7,842 16,389
Amortization (accretion) of loan fees and
costs (522) 151 (224)
Purchase of trading account securities -- (5) (1,294)
Proceeds from sales of trading account
securities -- 37 1,332
Net (increase) decrease in loans held for
sale 5,810 29,586 (17,112)
Gain on sales of loans held for sale, net (8,981) (6,976) (3,390)
Gain on other asset sales, net (852) (12,520) (428)
Other, net -- (417) 165
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 148,847 $ 174,166 $ 129,755
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in federal funds sold and
securities purchased under agreements to
resell $ 20,891 $ 31,698 $ 12,535
Net decrease (increase) in interest-bearing
deposits in other financial institutions (971) 32,398 (11,391)
Purchases of held to maturity securities (203,759) (192,744) (205,029)
Purchases of available for sale securities (316,112) (1,156,929) (132,740)
Proceeds from sales of available for sale
securities 71,178 434,145 20,946
Maturities of held to maturity securities 258,034 351,966 408,376
Maturities of available for sale securities 29,260 362,536 149,199
Net increase in loans (466,093) (418,676) (427,980)
Proceeds from sales of other real estate
owned 7,177 9,262 9,440
Purchases of premises and equipment, net of
disposals (11,805) (27,528) (7,737)
Mortgage servicing rights additions (9,801) (8,867) (8,341)
Net cash received (paid) in acquisition of
subsidiary 5,051 461 (480)
Proceeds from sale of other assets 343 62,573 182
- -------------------------------------------------------------------------------
Net cash used by investing activities $(616,607) $ (519,705) $ (193,020)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits $ 337,191 $ 163,736 $ 229,058
Net increase (decrease) in short-term
borrowings 117,555 264,186 (40,723)
Cash dividends (49,328) (39,587) (31,080)
Repayment of long-term borrowings -- (2,644) (80,081)
Proceeds from issuance of long-term
borrowings -- 6,000 15,000
Proceeds from exercise of stock options 5,168 3,177 4,478
Proceeds from vesting of employee benefit
plans -- 271 1,929
Stock purchases by pooled company (21,048) (14,447) --
Purchase of treasury stock (3,599) (3,101) (2,085)
- -------------------------------------------------------------------------------
Net cash provided by financing activities $ 385,939 $ 377,591 $ 96,496
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (81,821) 32,052 33,231
Cash and due from banks at beginning of
year 369,842 337,790 304,559
- -------------------------------------------------------------------------------
Cash and due from banks at end of year $ 288,021 $ 369,842 $ 337,790
- -------------------------------------------------------------------------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 409,797 $ 375,318 $ 349,899
Income taxes 79,440 59,661 67,741
Supplemental schedule of noncash investing
activities:
Loans transferred to other real estate 5,263 9,135 7,409
Loans made in connection with the
disposition of other real estate 240 223 177
Mortgage loans securitized and transferred
to securities available for sale -- 161,087 --
Securities transferred from held to
maturity to available for sale 251,946 -- 412,771
Mortgage loans transferred to loans held
for sale 68,340 27,068 15,467
Acquisitions:
Fair value of assets acquired, including
cash and cash equivalents -- 40,715 3,670
Value ascribed to intangibles -- 1,900 1,462
Liabilities assumed -- 34,772 5,132
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
38
<PAGE>
ASSOCIATED BANC-CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Associated Banc-Corp and its
subsidiaries (Corporation) conform to generally accepted accounting principles
and to general practice within the banking and mortgage banking industries.
The following is a description of the more significant of those policies.
Throughout the notes to Consolidated Financial Statements, references are made
to FFC (First Financial Corporation) and its wholly owned subsidiary FFB
(First Financial Bank).
BUSINESS
The Corporation provides a full range of banking and related financial
services to individual and corporate customers through its network of bank and
nonbank affiliates in Wisconsin, Illinois, Nevada, Arizona, California and
Missouri. The Corporation is subject to competition from other financial
institutions and is regulated by federal and state banking agencies and
undergoes periodic examinations by those agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Consolidated Financial Statements include the accounts of the Corporation
and subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in consolidation. Results of
operations of companies purchased are included from the date of acquisition.
The Consolidated Financial Statements have been restated to include companies
acquired under pooling of interests when material. Certain amounts in the 1995
and 1996 consolidated financial statements have been reclassified to conform
with the 1997 presentation.
In preparing the Consolidated Financial Statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for possible loan losses and the valuation of
investments and mortgage servicing rights.
INVESTMENT SECURITIES
Securities are classified as held to maturity, available for sale, or trading.
Investment securities classified as held to maturity, which management has the
intent and ability to hold to maturity, are reported at amortized cost,
adjusted for amortization of premiums and accretion of discounts using a
method that approximates level yield. 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 earlier of call date or
maturity, or in the case of mortgage-related securities, over the estimated
life of the security. Such amortization and accretion is included in interest
income from the related security. Available for sale and trading securities
are reported at fair value with unrealized gains and losses, net of related
deferred income taxes, included in stockholders' equity or income,
respectively. Realized securities gains or losses and declines in value judged
to be other than temporary are included in investment securities gains
(losses), net in the consolidated statements of income. The cost of securities
sold is based on the specific identification method. Any security for which
there has been other than temporary impairment of value is written down to its
estimated market value.
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.
39
<PAGE>
LOANS
Loans and leases are carried at the principal amount outstanding, net of any
unearned income. Unearned income, primarily from direct leases, is recognized
on a basis that generally approximates a level yield on the outstanding
balances receivable. Interest on all other loans is based upon the principal
amount outstanding.
Loans are normally placed on nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact
on the collectibility of principal or interest on loans, it is management's
practice to place such loans on nonaccrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously
accrued and uncollected interest on such loans is reversed, amortization of
related loan fees is suspended, and income is recorded only to the extent that
interest payments are subsequently received in cash and a determination has
been made that the principal balance of the loan is collectable. If
collectibility of the principal is in doubt, payments received are applied to
loan principal.
Loan origination fees and certain direct loan origination costs on real estate
and commercial loans are deferred and recognized as an adjustment of yield
using the interest method. Nonrefundable fees and direct origination costs
associated with installment loans are insignificant and are not accounted for
as an adjustment of yield of the related loan categories. Loan origination
fees and direct origination costs on residential real estate loans held for
sale are also not accounted for as an adjustment of yield. All other loan fees
are included in other income.
LOANS HELD FOR SALE
Loans held for sale are recorded at the lower of cost or market as determined
on an aggregate basis and generally consist of current production of certain
fixed-rate first mortgage loans. Holding costs are treated as period costs.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is a reserve for estimated credit
losses. Credit losses arise primarily from the loan portfolio. Actual credit
losses, net of recoveries, are deducted from the allowance for possible loan
losses. A provision for possible loan losses, which is a charge against
earnings, is added to bring the allowance to a level that, in management's
judgment, is adequate to absorb losses inherent in the loan portfolio.
Management performs an ongoing assessment of the loan portfolio to determine
the appropriate level of the allowance. The factors considered in the
evaluation include, but are not necessarily limited to, estimated losses from
loans, general economic conditions, deterioration in credit concentration or
pledged collateral, historical loss experience, and trends in portfolio
volume, maturity, composition, delinquencies and nonaccruals. Estimated credit
losses related to off balance sheet arrangements, if any, are included in
accrued expenses and other liabilities.
Management, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the note agreement, including
principal and interest. Management has determined that commercial loans and
commercial real estate loans that have a nonaccrual status or have had their
terms restructured meet this definition. Large groups of homogeneous loans,
such as mortgage and installment loans and leases, are collectively evaluated
for impairment. The amount of impairment is measured based on the fair value
of the collateral, if the loan is collateral dependent, or alternatively, at
the present value of expected future cash flows discounted at the loan's
effective interest rate. Interest income on impaired loans is recorded when
cash is received and only if principal is considered to be fully collectable.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Corporation's
allowance for possible loan losses. Such
40
<PAGE>
agencies may require the Corporation to recognize additions to the allowance
based on their judgments about information available to them at the time of
their examinations.
REAL ESTATE ACQUIRED IN FORECLOSURE
Real estate acquired in foreclosure includes properties acquired in partial or
total satisfaction of loans and is included in other assets in the
accompanying consolidated statements of financial condition. Properties are
recorded at the lower of recorded investment in the loans at the time of
acquisition or the fair value of the properties, less estimated selling costs.
Any write-down in the carrying value of a property at the time of acquisition
is charged to the allowance for possible loan losses. Any subsequent write-
downs to reflect current fair market value, as well as gains and losses on
disposition and revenues and expenses incurred in maintaining such properties,
are expensed.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the related assets or the lease
term. Maintenance and repairs are charged to expense as incurred while
additions or major improvements are capitalized and depreciated over their
estimated useful lives. Estimated useful lives for premises include periods up
to 50 years and for equipment include periods up to 10 years.
INTANGIBLES
The excess of the purchase price over the fair value of net assets of
subsidiaries acquired consists primarily of goodwill and core deposit
intangibles that are being amortized on straight-line and accelerated methods.
Goodwill is amortized to operating expense over periods of 10 to 40 years.
Core deposit intangibles are amortized to expense over periods of 7 to 10
years. Other intangibles are amortized on an accelerated basis over shorter
periods. The Corporation reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
During 1997 and 1996, the Corporation recorded additional goodwill and deposit
base intangible amortization of $1.6 million and $4.2 million, respectively.
Goodwill outstanding, net of accumulated amortization, at December 31, 1997
and 1996 was $22.7 million and $26.7 million, respectively. Deposit base
intangibles outstanding, net of accumulated amortization, at December 31, 1997
and 1996 was $11.7 million and $15.6 million, respectively.
MORTGAGE SERVICING RIGHTS
The Corporation recognizes as separate assets the rights to service mortgage
loans for others, however those rights are acquired. Capitalized mortgage
servicing rights are assessed for impairment based on the fair value of those
rights.
The fair value of mortgage servicing rights is determined based on quoted
market prices for comparable transactions or a present value model of expected
future cash flows. Mortgage servicing rights are amortized proportionately in
relation to the associated servicing revenues over the estimated lives of the
serviced loans. The Corporation evaluates and measures impairment of its
servicing rights using stratifications based on the risk characteristics of
the underlying loans. Management has determined those risk characteristics to
include method of acquisition (bulk versus loan-by-loan). Bulk acquisitions
are further stratified by loan type, while loan-by-loan acquisitions are
further stratified by loan type and interest rate. Impairment is recognized
through a valuation allowance.
Deferred servicing rights are recorded when mortgage loans are sold with
servicing retained and the actual service fee rate is in excess of the normal
service fee rate. The present value of the deferred servicing rights is
amortized on an accelerated basis over the estimated life of the remaining
loan portfolio. The effects of prepayments are recognized based upon both
historical and current prepayment conditions.
41
<PAGE>
Effective January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 requires
that after a transfer of financial assets, the Corporation must recognize the
financial and servicing assets controlled and liabilities incurred, and
derecognize financial assets and liabilities in which control is surrendered
or debt is extinguished. In such cases, servicing assets are determined based
on estimated future revenues from contractually specified servicing fees and
other ancillary revenues that are expected to compensate the Corporation for
performing the servicing. The adoption of SFAS No. 125 has not had a material
effect on the Corporation's consolidated financial statements.
INCOME TAXES
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts
currently payable under tax laws. Deferred income taxes, which arise
principally from temporary differences between the period in which certain
income and expenses are recognized for financial accounting purposes and the
period in which they affect taxable income, are included in the amounts
provided for income taxes.
The Corporation files a consolidated federal income tax return and individual
subsidiary state income tax returns. Accordingly, amounts equal to tax
benefits of those subsidiaries having taxable federal losses or credits are
reimbursed by other subsidiaries that incur federal tax liabilities.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation enters into interest rate swap agreements to manage interest
rate exposure in its loan portfolio from changes in market interest rates.
These agreements involve the receipt of fixed or floating rate amounts in
exchange for floating or fixed rate interest payments over the life of the
agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued monthly and recognized as an
adjustment to interest income or expense. The related amount payable to or
receivable from counterparties is included in other liabilities or assets. The
fair values of the swap agreements are not recognized in the consolidated
financial statements. Gains or losses from terminated agreements are deferred
and accreted or amortized to interest income over the remaining life of the
asset related to the terminated agreement.
Interest rate futures contracts are commitments to either purchase or sell a
financial instrument at a specified price on an agreed-upon future date. These
contracts may be settled either in cash or by delivery of the underlying
financial instruments. Positions which are designated and effectively hedge
specific securities are correlated based on certain duration and convexity
parameters. Realized gains and losses on positions used in the management of
specific asset positions are deferred and amortized over the terms of the item
hedged as adjustments to interest income. Gains or losses from terminated
contracts are recognized as an adjustment to the hedged asset's recognized
gain or loss, included in investment security sales gains or losses in
noninterest income.
STOCK OPTION PLAN
The Corporation accounts for its stock option and equity awards in accordance
with Accounting Principles and Board Opinion No. 25 (APB Opinion No. 25) and
related interpretations. The Corporation adopted SFAS No. 123, "Accounting for
Stock-Based Compensation in 1996." The Corporation has included in Note 11 the
impact of the fair value of employee stock-based compensation plans on net
income and earnings per share on a pro forma basis for awards granted since
January 1, 1995, pursuant to SFAS No. 123.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents are considered to include cash and due from banks.
PER SHARE COMPUTATIONS
The Corporation adopted SFAS No. 128, "Earnings Per Share," which became
effective at year end 1997 for all periods presented. Under the provisions of
SFAS No. 128, primary and fully diluted earnings per
42
<PAGE>
share were replaced with basic and diluted earnings per share. Basic earnings
per share is calculated by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is calculated by dividing net income by the
weighted average number of shares adjusted for the dilutive effect of
outstanding stock options.
All per share financial information except for the share information in the
consolidated statements of changes in stockholders' equity, has been adjusted
to reflect the 5-for-4 stock split, effected as a 25% stock dividend, paid to
shareholders on June 15, 1995, and the 6-for-5 stock split, effected as a 20%
stock dividend, paid to shareholders on March 17, 1997. The Corporation issued
500,995 shares of common stock to a wholly owned subsidiary as part of the
1996 acquisition of F&M Bankshares of Reedsburg, Inc. These shares are not
reflected on the consolidated statements of financial condition as issued or
outstanding nor were they adjusted for the 6-for-5 stock split.
NOTE 2 BUSINESS COMBINATIONS:
The following table summarizes completed transactions during the three years
ended December 31, 1997:
<TABLE>
<CAPTION>
CONSIDERATION PAID
------------------------
SHARES OF
DATE METHOD OF CASH COMMON TOTAL ASSETS INTANGIBLES
NAME OF ACQUIRED COMPANY ACQUIRED ACCOUNTING (IN MILLIONS) STOCK(A) (IN MILLIONS) (IN MILLIONS)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FirstRock Bancorp, Inc. (C)(F) 2/95 Pooling of $-- 4,175,381 $ 377 $ --
Rockford, Illinois interests
Great Northern Mortgage 7/95 Purchase 1.2 -- (B) 1.5
Company
Rolling Meadows, Illinois
GN Bancorp, Inc. (C) Chicago, 8/95 Pooling of -- 897,151 130 --
Illinois interests
SBL Capital Bank Shares, 3/96 Pooling of -- 399,548 68 --
Inc. (D) interests
Lodi, Wisconsin
Greater Columbia Bank Shares, 4/96 Pooling of -- 1,161,161 211 --
Inc. (C) interests
Portage, Wisconsin
F&M Bankshares of Reedsburg, 7/96 Pooling of -- 641,988 139 --
Inc. interests
Reedsburg, Wisconsin (D)(E)
Mid-America National Bancorp, 7/96 Purchase 7.8 -- 39 1.9
Inc.
Chicago, Illinois
Centra Financial, Inc. (D) 2/97 Pooling of -- 414,365 76 --
West Allis, Wisconsin interests
First Financial 10/97 Pooling of 0.1 27,835,929 6,005 --
Corporation (C) interests
Stevens Point, Wisconsin
</TABLE>
(A) Share amounts have been restated to reflect the 6-for-5 stock split to be
effected as a 20% stock dividend payable on March 17, 1997, to
shareholders of record at the close of business on March 5, 1997.
(B)The Corporation acquired approximately $535 million in mortgage servicing
as part of this acquisition.
(C) All consolidated financial information has been restated as if the
transaction had been effected as of the beginning of the earliest period
presented.
(D) The transaction was not material to prior years' reported operating
results and, accordingly, previously reported results were not restated.
(E)See "Per Share Computations" in Note 1.
(F)Acquired by FFC prior to its merger with the Corporation.
43
<PAGE>
NOTE 3 MERGER, INTEGRATION AND OTHER ONE-TIME CHARGES:
The Corporation recorded merger, integration and other one-time charges of
$51.6 million, $33.0 million and $6.5 million in 1997, 1996 and 1995,
respectively. Merger, integration and other one-time charges of $51.6 million
recorded in 1997 were associated with the acquisition of FFC. One-time charges
in 1996 consist of $28.8 million associated with the recapitalization of the
Savings Association Insurance Fund (SAIF) and $4.2 million relating to a
change in accounting for the amortization of goodwill and other intangible
assets. Merger and integration charges recorded in 1995 relate to the
acquisition of FirstRock Bancorp, Inc. by FFC. The components of the charges
are shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Employee/director severance and contract costs $12,598 $ -- $3,813
SAIF recapitalization charge -- 28,767 --
Costs associated with duplicative facilities, computer
systems, software and integration 20,181 -- 740
Investment banking, legal and accounting fees 11,151 -- 1,035
Change in accounting for the amortization of goodwill
and other intangible assets -- 4,238 --
Other 7,692 -- 870
-----------------------
Total merger, integration and other one-time charges $51,622 $33,005 $6,458
-----------------------
-----------------------
</TABLE>
The pretax impact of merger, integration and other one-time charges on basic
earnings per share was $1.03, $0.65 and $0.13 in 1997, 1996 and 1995
respectively. The pretax effect of these charges on diluted earnings per share
was $1.01 in 1997, $0.64 in 1996, and $0.13 in 1995.
The 1997 merger, integration and other one-time charges of $51.6 million
consisted of $22.5 million in cash expenditures made in 1997, $4.5 million in
noncash asset write-downs and $24.6 million in anticipated cash expenditures
which the Corporation expects will be paid in 1998.
In addition, as a result of the merger with FFC, the Corporation also recorded
an additional provision for possible loan losses of $16.8 million in order to
conform with the policies, practices and procedures of the Corporation, and as
discussed in Note 5, Investment Securities, a $35.3 million pre-tax charge for
other than temporary impairment of value in the fourth quarter of 1997.
NOTE 4 RESTRICTIONS ON CASH AND DUE FROM BANKS:
The Corporation's bank subsidiaries are required to maintain certain vault
cash and reserve balances with the Federal Reserve Bank to meet specific
reserve requirements. These requirements approximated $57.4 million at
December 31, 1997.
44
<PAGE>
NOTE 5 INVESTMENT SECURITIES:
The amortized cost and fair values of securities held to maturity at December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 498 $ 2 $ -- $ 500
Federal agency securities 146,259 896 (337) 146,818
Mortgage-related securities 361,298 6,540 (1,886) 365,952
Obligations of state and political
subdivisions 183,286 3,038 (24) 186,300
Other securities (debt) 81,183 1,491 (4) 82,670
-------------------------------------------
Total $ 772,524 $11,967 $ (2,251) $ 782,240
===========================================
<CAPTION>
1996
-----------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 4,204 $ 9 $ (10) $ 4,203
Federal agency securities 143,927 922 (928) 143,921
Mortgage-related securities 673,990 6,676 (12,298) 668,368
Obligations of state and political
subdivisions 195,860 1,326 (1,621) 195,565
Other securities (debt) 61,768 674 (87) 62,355
-------------------------------------------
Total $1,079,749 $ 9,607 $(14,944) $1,074,412
===========================================
</TABLE>
The amortized cost and fair values of securities available for sale at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 109,200 $ 737 $ (96) $ 109,841
Federal agency securities 324,708 7,558 (1,724) 330,542
Mortgage-related securities 1,536,134 21,848 (379) 1,557,603
Obligations of state and political
subdivisions 14,312 229 (405) 14,136
Other securities (debt and equity) 142,081 14,178 (687) 155,572
-------------------------------------------
Total $2,126,435 $44,550 $(3,291) $2,167,694
===========================================
<CAPTION>
1996
-----------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 149,314 $ 655 $ (233) $ 149,736
Federal agency securities 326,049 2,156 (828) 327,377
Mortgage-related securities 1,057,992 5,667 (4,058) 1,059,601
Other securities (debt and equity) 127,787 10,446 (758) 137,475
-------------------------------------------
Total $1,661,142 $18,924 $(5,877) $1,674,189
===========================================
</TABLE>
45
<PAGE>
The amortized cost and fair values of securities held to maturity and
securities available for sale at December 31, 1997, by contractual maturity
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or repay obligations with or
without call or prepayment penalties.
DECEMBER 31, 1997
INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 89,962 $ 89,990
Due after one year through five years 226,931 230,130
Due after five years through ten years 93,822 95,636
Due after ten years 511 532
---------- ----------
Total (excluding mortgage-related securities) 411,226 416,288
---------- ----------
Mortgage-related securities 361,298 365,952
---------- ----------
Total Investment Securities Held to Maturity $ 772,524 $ 782,240
========== ==========
INVESTMENT SECURITIES AVAILABLE FOR SALE
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 249,128 $ 262,597
Due after one year through five years 287,923 289,219
Due after five years through ten years 20,227 20,169
Due after ten years 33,023 38,106
---------- ----------
Total (excluding mortgage-related securities) 590,301 610,091
---------- ----------
Mortgage-related securities 1,536,134 1,557,603
---------- ----------
Total Investment Securities Available for Sale $2,126,435 $2,167,694
========== ==========
</TABLE>
Total proceeds and gross realized gains and losses from sale of securities
available for sale for each of the three years ended December 31 were:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds $71,178 $434,145 $20,946
Gross gains 2,462 6,875 1,311
Gross losses -- 17,588 5
</TABLE>
Concurrent with the consummation of the merger with FFC, the Corporation
transferred all nonagency mortgage-related securities and an agency security,
with a combined amortized cost of $251.9 million from securities held to
maturity to securities available for sale. These mortgage-related securities
were transferred to maintain the existing interest rate risk position and
credit risk policy of the Corporation.
Concurrent with the transfer, the Corporation recorded a $32.5 million pre-tax
charge to earnings relative to one agency security with an amortized cost of
$130.6 million. Management recorded this other than temporary impairment of
value in the fourth quarter of 1997. This security is highly complex,
comprised of multiple cash flows predominated by an inverse floater tied to
libor for which stress tests indicate that the cash flows are volatile in
higher interest rate environments. The estimated fair value of this security
at the time of the other than temporary impairment charge was based on quoted
prices of instruments with similar characteristics and cash flow valuation
techniques.
Additionally, the Corporation recorded a $2.8 million pre-tax charge, on other
nonagency mortgage-related securities that were transferred to available for
sale, with an amortized cost of $18.9 million to reflect an other than
temporary impairment of value in the fourth quarter of 1997. These securities
were subsequently sold with no additional loss in January 1998.
46
<PAGE>
The net unrealized gain on the nonagency mortgage-related securities
transferred to available for sale from held to maturity in 1997 that were not
deemed to have an other than temporary impairment of value was $588,000, which
was credited to stockholders' equity, net of income tax of $206,000.
On November 25, 1996, the Corporation sold securities classified as held to
maturity prior to their maturity dates. These securities were sold for $1.3
million which approximated amortized cost. These sales were made due to a
significant deterioration in the issuer's creditworthiness and, therefore,
were not considered to be inconsistent with their original classification.
Securities with an amortized cost of approximately $836 million at December
31, 1997 and $668 million at December 31, 1996 were pledged to secure certain
deposits, Federal Home Loan Bank advances, or for other purposes as required
or permitted by law.
NOTE 6 LOANS:
Loans at December 31 are summarized below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial and financial $ 951,396 $ 807,503
Agricultural 35,443 33,642
Real estate--construction 335,978 235,478
Real estate--mortgage 4,946,263 4,757,410
Installment loans to individuals 793,424 813,875
Lease financing 14,072 10,449
Total $7,076,576 $6,658,357
</TABLE>
A summary of the changes in the allowance for possible loan losses for the
years indicated is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 71,767 $ 68,560 $ 65,774
Balance related to acquisitions 728 3,511 --
Charge-offs (15,049) (17,616) (15,872)
Recoveries 3,617 3,617 4,629
----------
Net charge-offs (11,432) (13,999) (11,243)
Provision charged to expense 31,668 13,695 14,029
----------
Balance at end of year $ 92,731 $ 71,767 $ 68,560
----------
----------
</TABLE>
Nonaccrual loans totaled $32.4 million and $32.3 million at December 31, 1997
and 1996, respectively.
Management has determined that commercial loans and commercial real estate
loans that have a nonaccrual status or have had their terms restructured are
defined as impaired loans. The following table presents data on impaired loans
at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Impaired loans for which an allowance has been provided $ 2,252 $ 1,920
Impaired loans for which no allowance has been provided 10,652 10,558
--------
Total loans determined to be impaired $12,904 $12,478
--------
--------
Required allowance $ 1,206 $ 1,001
--------
--------
</TABLE>
For the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Average recorded investment in impaired loans $13,103 $12,280 $10,668
----------------------
----------------------
Cash basis interest income recognized from impaired
loans $ 650 $ 594 $ 695
----------------------
----------------------
</TABLE>
47
<PAGE>
A summary of loans made by the Corporation's subsidiaries to or for the
benefit of directors and executive officers or their affiliated companies of
the Corporation or its subsidiaries during 1997 is as follows:
<TABLE>
<CAPTION>
1997
--------------
(IN THOUSANDS)
<S> <C>
Balance at beginning of year $ 73,945
New loans 31,779
Repayments (31,234)
Other changes (1,629)
--------
Balance at end of year $ 72,861
========
</TABLE>
The other changes primarily consisted of: loans to companies where an
individual director had a related interest, but as of December 31, 1997, that
individual was no longer a director; loans to directors, or their affiliated
companies, newly elected in 1997; the beginning-of-year balance of loans to
directors, or their affiliated companies, from an acquisition accounted for as
pooling of interests, but not restated.
These loans were made on substantially the same terms, including rates and
collateral, if any, as those prevailing at the time for comparable
transactions with other customers, and did not involve more than a normal risk
of collectibility or present other unfavorable features.
The Corporation serves the credit needs of its customers by offering a wide
variety of loan programs to customers, primarily in Wisconsin and Illinois.
The loan portfolio is widely diversified by types of borrowers, industry
groups and market areas. Significant loan concentrations are considered to
exist for a financial institution when there are amounts loaned to a multiple
number of borrowers engaged in similar activities that would cause them to be
similarly impacted by economic or other conditions. At December 31, 1997, no
concentrations existed in the Corporation's loan portfolio in excess of 10% of
total loans, or $708 million.
Other real estate owned, which is included in other assets, totaled $2.1
million and $1.9 million at December 31, 1997 and 1996, respectively.
NOTE 7 LOAN SERVICING RIGHTS:
A summary of changes in the balance of mortgage servicing rights is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $20,238 $15,634 $ 9,891
Additions 9,801 8,867 8,341
Amortization (6,472) (4,237) (2,598)
Sales of servicing rights -- -- --
Valuation allowance (1,032) (26) --
------- ------- -------
Balance at end of year $22,535 $20,238 $15,634
======= ======= =======
</TABLE>
At December 31, 1997, the Corporation was servicing 1- to 4-family residential
mortgage loans owned by other investors with balances totaling $4.97 billion
compared with $4.80 billion and $4.37 billion at December 31, 1996 and 1995,
respectively.
NOTE 8 PREMISES AND EQUIPMENT:
A summary of premises and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Premises $ 120,570 $ 114,210
Land and land improvements 26,180 25,358
Furniture and equipment 102,193 99,022
Leasehold improvements 11,476 11,717
Less: Accumulated depreciation and amortization (132,596) (122,599)
--------- ---------
Total $ 127,823 $ 127,708
========= =========
</TABLE>
48
<PAGE>
Depreciation and amortization of premises and equipment totaled $14.2 million
in 1997, $13.2 million in 1996, and $12.8 million in 1995.
Third parties provide data processing and management information system
services to the Corporation pursuant to agreements for information technology
services. As of December 31, 1997, the Corporation was engaged in the
renegotiations of agreements with its current primary providers. The current
agreements are in effect through August 1, 2001 and February 28, 1999. The
agreements provide for the delivery of certain information technology services
over the life of the agreements. The agreements call for monthly fixed and
variable fees covering the cost of systems operations and the migration to new
systems. System migration fees are amortized over the life of agreements,
while operational costs are expenses as incurred. Operational costs are
subject to annual adjustment, indexed to changes in the Consumer Price Index
(CPI). The facilities housing the data processing operations are owned by the
Corporation, although remote processing locations are provided by vendors.
Certain data processing and other related equipment is leased on a month-to-
month basis. The costs associated with these contracts are included in the
minimum annual rental and commitment table shown below.
The Corporation and certain subsidiaries are obligated under a number of
noncancelable operating leases for other facilities, equipment, and services,
certain of which provide for increased rentals based upon increases in volume,
cost of living adjustments, and other operating costs.
The approximate minimum annual rentals and commitments under these
noncancelable agreements and leases with remaining terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998 $12,856
1999 9,030
2000 8,685
2001 5,826
2002 2,229
Thereafter 17,650
-------
Total $56,276
=======
</TABLE>
Total rental and service expense under leases and other agreements, net of
sublease income, totaled $21.6 million in 1997, $21.1 million in 1996, and
$20.1 million in 1995.
NOTE 9 DEPOSITS:
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Noninterest-bearing demand deposits $ 904,710 $ 804,020
Interest-bearing demand deposits 736,540 719,682
Savings deposits 1,012,050 1,046,604
Money market deposits 1,014,365 834,202
Time deposits 4,696,472 4,554,790
---------- ----------
Total deposits $8,364,137 $7,959,298
========== ==========
</TABLE>
49
<PAGE>
Time deposits of $100,000 or more were $779.9 million and $765.2 million at
December 31, 1997 and 1996, respectively. Aggregate annual maturities of
certificate accounts at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
MATURES
DURING
YEAR END
DECEMBER
31, (IN THOUSANDS)
- -------- -------------
<S> <C>
1998 $3,392,741
1999 1,050,804
2000 184,385
2001 39,921
2002 25,837
Thereafter 2,784
----------
Total $4,696,472
==========
</TABLE>
NOTE 10 SHORT-TERM BORROWINGS:
Short-term borrowings at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased and securities sold under
agreements to repurchase $ 712,250 $ 666,030
Federal Home Loan Bank advances 525,317 451,380
Notes payable to banks 87,139 68,937
Commercial paper 1,250 2,172
Current maturities of long-term borrowings -- 3,067
Other borrowed funds 11,052 9,807
---------- ----------
Total $1,337,008 $1,201,393
========== ==========
</TABLE>
Commercial paper is issued in maturities not to exceed nine months at the
prevailing market rate at date of issuance. Notes payable to banks are
unsecured borrowings under existing lines of credit. At December 31, 1997, the
Corporation's parent company had $120 million of established lines of credit
with various nonaffiliated banks, of which $87.1 million was outstanding.
Borrowings under these lines accrue interest at short-term market rates and
are payable upon demand or in maturities up to 90 days.
Subsidiary banks have collateral pledge agreements whereby they have agreed to
keep on hand at all times, free of all other pledges, liens, and encumbrances,
whole first mortgages on improved residential property with unpaid principal
balances aggregating no less than 167% of all outstanding borrowings from the
Federal Home Loan Bank. Loans totaling approximately $1.1 billion and $1.30
billion were maintained as collateral to secure Federal Home Loan Bank
advances at December 31, 1997, and December 31, 1996, respectively. In
addition, at December 31, 1997, an affiliate bank maintained as collateral to
secure Federal Home Loan Bank advances, $12 million of mortgage-related
securities.
Included in short-term Federal Home Loan Bank advances are callable notes that
have original maturities exceeding one year. However, these notes have one-
year call premiums, which the Corporation expects to be called.
50
<PAGE>
NOTE 11 LONG-TERM BORROWINGS:
Long-term borrowings at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Parent company:
8.6% senior unsecured notes $ -- $ 400
9.35% subordinated capital note -- 2,667
------- -------
Subsidiaries:
Federal Home Loan Bank, 4.84% to 7.63% maturing in 1999
through 2004 5,882 21,698
Industrial development revenue bonds, 6.40% to 7.25% 5,900 6,015
Collateralized mortgage obligations 3,488 5,616
Less: Current maturities of long-term borrowings -- (3,067)
------- -------
Total $15,270 $33,329
======= =======
</TABLE>
The table below summarizes the maturities of the Corporation's long-term
borrowings:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
- ---- -------------
<S> <C>
1998 $ --
1999 4,010
2000 2,090
2001 735
2002 140
Thereafter 8,295
-------
Total 15,270
Current maturities of long-term borrowings --
-------
Total long-term borrowings $15,270
=======
</TABLE>
The industrial revenue bonds are payable in seven annual installments ranging
from $120,000 to $150,000 with additional payments of $1,910,000 and
$3,320,000 due October 1, 2012 and 2021, respectively. Interest is payable
semi-annually. The bonds were used to refinance an apartment project which was
previously sold. The bonds are collateralized by mortgage-backed securities
with a carrying value and fair value of $8,093,000 and $8,302,000,
respectively, at December 31, 1997. FFB has a loan receivable from the buyer
of $5,669,000 at December 31, 1997, which is secured by a first mortgage on
the apartment project.
UFS Capital Corporation and FFS Funding Corporation, wholly-owned finance
subsidiaries of FFB, have issued the collateralized mortgage obligations.
Principal repayments are scheduled in varying amounts through January, 2003.
The obligations are collateralized by mortgage-backed securities held by UFS
Capital Corporation with a carrying value of $6,847,000, and a fair value of
$7,088,000 at December 31, 1997.
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
after-tax cost of $686,000 associated with the redemption has been reported as
an extraordinary charge in 1996.
NOTE 12 STOCKHOLDERS' EQUITY:
On March 17, 1997, the Corporation distributed 3.7 million shares of common
stock in connection with a 6-for-5 stock split effected in the form of a 20%
stock dividend. Additionally, on October 29, 1997, the Corporation issued 27.8
million shares in connection with the merger with FFC.
The Corporation's Articles of Incorporation authorize the issuance of 750,000
shares of preferred stock at a par value of $1.00 per share. No shares have
been issued.
At December 31, 1997, subsidiary net assets equaled $746.1 million, of which
approximately $131.0 million could be transferred to the Corporation in the
form of cash dividends without prior regulatory approval, subject to the
capital needs of each subsidiary.
51
<PAGE>
The Corporation has an Incentive Stock Option Plan that provides for the
granting of options to key employees to purchase common stock at a price at
least equal to the fair market value of the stock on the date of grant. The
options granted are for a ten-year term and may be exercised at any time
during this period. As of December 31, 1997, 11,107 shares remain available
for granting. No options have been granted from this plan since 1985.
In January 1997, the Board of Directors, with subsequent approval of the
Corporation's shareholders approved an amendment, increasing the number of
shares available to be issued by an additional 720,000 shares, to the Restated
Long-Term Incentive Stock Plan ("Stock Plan"). The Stock Plan was adopted by
the Board of Directors and originally approved by shareholders in 1987 and
amended in 1994. Options are generally exercisable up to 10 years from the
date of grant and vest over two to three years. As of December 31, 1997,
865,278 shares remain available for grants.
The stock incentive plans of acquired companies were terminated at each
respective merger date. Option holders under such plans received the
Corporation's common stock, or options to buy the Corporation's common stock,
based on the conversion terms of the various merger agreements. The historical
option information presented below has been restated to reflect the options
originally granted under the acquired companies' plans.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE EXERCISABLE
-------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 2,530,054 $ 3.24-$21.83 1,265,756
Granted 327,893 16.47- 24.17 124,675
Exercised (639,933) 4.04- 24.17 --
Forfeited (18,942) 19.28- 24.17 --
<CAPTION>
-------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1995 2,199,072 $ 3.24-$24.17 1,390,431
<CAPTION>
-------------------------------------
<S> <C> <C> <C>
Granted 363,864 21.70- 30.73 66,843
Exercised (383,575) 3.24- 24.17 --
Forfeited (23,090) 10.45- 30.73 --
<CAPTION>
-------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1996 2,156,271 $ 3.24-$30.73 1,457,274
<CAPTION>
-------------------------------------
<S> <C> <C> <C>
Granted 253,770 35.21- 40.72 --
Exercised (486,702) 3.39- 30.73 --
Forfeited (6,444) 15.42- 35.21 --
<CAPTION>
-------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1997 1,916,895 $ 3.24-$40.72 1,457,274
<CAPTION>
=====================================
</TABLE>
Share and price information has been adjusted to reflect the March 17, 1997,
6-for-5 stock split effected as a 20% stock dividend.
The following table summarizes information about the Corporation's stock
option's outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS AVERAGE REMAINING GRANTS AVERAGE
OUTSTANDING EXERCISE PRICE LIFE (YEARS) EXERCISABLE EXERCISE PRICE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Range of Exercise Price:
$ 3.24-$ 4.38 65,277 $ 3.51 2.51 65,277 $ 3.51
$ 5.12-$ 6.67 53,563 6.42 4.15 53,563 6.42
$ 8.37-$10.45 637,938 9.99 4.34 637,938 9.99
$14.25-$21.36 368,664 19.94 5.66 363,406 19.98
$21.70-$30.73 539,484 25.87 7.25 337,090 24.38
Greater than $35.21 251,969 35.31 9.09 -- --
<CAPTION>
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL 1,916,895 $19.38 5.97 1,457,274 $15.39
<CAPTION>
==================================================================
</TABLE>
52
<PAGE>
The Corporation applies APB Opinion No. 25 in accounting for the Stock Plan
and, accordingly, compensation cost based on fair value at grant date has not
been recognized for its stock options in the consolidated financial statements
during the three years ended December 31, 1997. Had the Corporation determined
the compensation cost based on the fair value at grant date for its stock
options under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Corporation's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------------
1997 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Income As Reported $52,359 $107,016 $112,011
Pro Forma $51,179 $106,293 $111,551
Basic Earnings Per Share As Reported $ 1.04 $ 2.12 $ 2.28
Pro Forma $ 1.02 $ 2.10 $ 2.27
Diluted Earnings Per Share As Reported $ 1.02 $ 2.08 $ 2.24
Pro Forma $ 1.00 $ 2.06 $ 2.23
</TABLE>
Pro Forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
graded vesting period and compensation cost for options granted prior to
January 1, 1995, is not considered. However, the annual expense allocation
methodology prescribed by SFAS No. 123 attributes a higher percentage of the
reported expense to earlier years than to later years, resulting in an
accelerated expense recognition.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes option-pricing model. The following assumptions were used in
estimating the fair value for options granted in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Dividend yield 2.10% 3.00% 2.70%
Risk free interest rate 6.47% 5.46% 7.65%
Weighted average expected life 7 yrs. 7 yrs. 7 yrs.
Expected volatility 19.64% 20.49% 21.54%
</TABLE>
The weighted average per share fair values of options granted in 1997, 1996
and 1995 were $10.01, $6.92 and $6.99, respectively.
53
<PAGE>
NOTE 13 RETIREMENT PLAN:
The Corporation has a noncontributory defined benefit retirement plan covering
substantially all full-time employees. The benefits are based primarily on
years of service and the employee's compensation paid while a participant in
the plan. The Corporation's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets are actively managed
by investment professionals.
The following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested $(23,940) $(20,103) $(19,471)
Nonvested (1,983) (1,829) (1,888)
-----------------------
Total $(25,923) $(21,932) $(21,359)
-----------------------
Projected benefit obligation $(27,058) $(22,823) $(22,362)
Plan assets at fair value, primarily marketable
securities 30,085 24,783 21,778
-----------------------
Plan assets in excess of (less than) projected
benefit obligation 3,027 1,960 (584)
Unrecognized net asset (1,759) (1,955) (2,150)
Unrecognized prior service cost 483 314 334
Unrecognized gain (5,700) (3,615) (1,639)
-----------------------
Accrued pension liability $ (3,949) $ (3,296) $ (4,039)
-----------------------
-----------------------
Net periodic pension costs include the following
components:
Service cost-benefits earned during the period $ 1,582 $ 1,465 $ 1,308
Interest cost on projected benefit obligation 1,729 1,593 1,622
Actual return on assets (6,131) (2,824) (4,515)
Net amortization and deferral 4,144 1,048 2,856
-----------------------
Net periodic pension expense $ 1,324 $ 1,282 $ 1,271
-----------------------
-----------------------
Assumptions used in expense calculations were:
Discount rates 7.50% 7.00% 8.00%
Rates of increase in compensation levels 5.00% 5.00% 5.00%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
-----------------------
</TABLE>
Assumptions used for the December 31, 1997 liability included a discount rate
of 7.00% and a 5.00% increase in compensation levels.
The Corporation and its subsidiaries, excluding FFC, also have a Profit
Sharing/Retirement Savings Plan. Total expense related to contributions to the
plan was $4.5 million, $4.4 million, and $3.7 million in 1997, 1996, and 1995,
respectively.
The profit sharing contribution is determined annually by the Administrative
Committee of the Board of Directors. The formula is based on the return on
average equity of each affiliate and the Corporation.
FFC has a noncontributory defined benefit retirement plan covering
substantially all Illinois-based employees. The benefits are based primarily
on years of service and the employee's compensation paid while a participant
in the plan. The Corporation's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets are actively managed
by investment professionals. This plan was merged into the Corporation's plan
on January 1, 1998.
54
<PAGE>
The following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested $(3,281) $(2,936) $(2,971)
Nonvested (698) (491) (155)
-------------------------
Total $(3,979) $(3,427) $(3,126)
=========================
Projected benefit obligation $(4,086) $(3,530) $(3,238)
Plan assets at fair value, primarily marketable
securities 4,145 4,080 4,143
-------------------------
Plan assets in excess of (less than) projected
benefit obligation 59 550 905
Unrecognized net asset (919) (1,047) (1,175)
Unrecognized prior service cost 180 190 201
Unrecognized loss 646 480 500
-------------------------
Accrued pension liability (receivable) $ (34) $ 173 $ 431
=========================
Net periodic pension costs include the
following components:
Service cost-benefits earned during the period $ 374 $ 363 $ 291
Interest cost on projected benefit obligation 286 256 240
Actual return on assets (554) (319) (765)
Net amortization and deferral 101 (140) 357
-------------------------
Net periodic pension expense $ 207 $ 160 $ 123
=========================
Assumptions used in expense calculations were:
Discount rates 7.50% 7.25% 8.25%
Rates of increase in compensation levels 5.00% 5.00% 5.00%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
------------------------------
</TABLE>
Assumptions used for the December 31, 1997 liability included a discount rate
of 7.00% and a 5.00% increase in compensation levels.
FFC also has a defined-contribution profit sharing plan covering all full-time
employees who have completed one year of service and are at least twenty-one
years old. Corporate contributions are discretionary. Total expense related to
contributions to the plan was $3.5 million, $2.1 million, and $0 in 1997,
1996, and 1995, respectively. This plan was merged into the Corporation's plan
on January 1, 1998.
FFC sponsored a supplemental executive retirement plan for certain executive
officers, which is partially funded through life insurance and provides
additional benefit at retirement, and an unfunded defined benefit retirement
plan for all outside directors. FFC also entered into employment agreements
with certain executive officers. As a result of the merger with the
Corporation, FFC recorded a charge of $11.7 million for the year ended
December 31, 1997 to terminate the plans and employment agreements. This
charge is included in the Corporation's merger, integration and other one-time
charges as described in Note 3. Expense for the supplemental retirement plan
and defined-benefit retirement plan for outside directors was $480,000 and
$341,000 for the years ended December 31, 1996 and 1995, respectively.
55
<PAGE>
NOTE 14 INCOME TAX EXPENSE:
The current and deferred amounts of income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 75,238 $55,660 $59,350
State 9,624 6,169 9,205
--------------------------
Total current 84,862 61,829 68,555
--------------------------
Deferred:
Federal (17,860) (2,875) (4,218)
State (3,093) (1,467) (1,956)
--------------------------
Total deferred (20,953) (4,342) (6,174)
--------------------------
Total income tax expense 63,909 57,487 62,381
--------------------------
Extraordinary item -- (370) --
--------------------------
Total after extraordinary item $ 63,909 $57,117 $62,381
==========================
</TABLE>
Temporary differences between the amounts reported in the financial statements
and the tax bases of assets and liabilities resulted in deferred taxes.
Deferred tax assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Allowance for possible loan losses $ 36,463 $27,891
Accrued liabilities 13,025 2,044
Accrued pension expense 1,325 1,325
Deferred compensation 6,554 4,988
Securities valuation adjustment 17,532 3,511
Deposit base intangible amortization 3,409 4,053
Benefit of tax loss carryforwards 14,420 9,225
Other 4,065 3,008
-----------------
Total gross deferred tax assets 96,793 56,045
Valuation adjustment for deferred tax assets (22,276) (4,024)
-----------------
74,517 52,021
Gross deferred tax liabilities:
Premises and equipment 3,723 4,005
Deferred loan fee income and other loan yield adjustment 2,527 1,487
FHLB bank stock dividend 1,059 1,059
State income taxes 1,740 1,633
Other 2,594 1,916
-----------------
Total gross deferred tax liabilities 11,643 10,100
-----------------
Net deferred tax assets 62,874 41,921
-----------------
Tax effect of unrealized gain related to available for
sale securities (14,938) (4,884)
-----------------
Net deferred tax assets including unrealized gain related
to available for sale securities $ 47,936 $37,037
=================
</TABLE>
Components of the 1996 deferred tax assets have been adjusted to reflect the
filing of corporate income tax returns.
56
<PAGE>
For financial reporting purposes, a valuation allowance has been recognized to
offset deferred tax assets related to state net operating loss carryforwards
of a subsidiary and other temporary differences. When realized, the tax
benefit for these items will be used to reduce current tax expense for that
period.
The effective income tax rate differs from the statutory federal tax rate. The
major reasons for this difference are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate at statutory rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from:
Tax-exempt interest and dividends (2.9) (2.0) (1.5)
State income taxes (net of federal income taxes) 3.3 1.8 2.7
Merger, integration and other one-time charges 3.4 -- --
Change in valuation allowance for deferred tax assets 15.7 -- --
Other 0.5 0.1 (0.4)
------
Effective income tax rate 55.0% 34.9% 35.8%
------
------
</TABLE>
As of December 31, 1997, the Corporation had approximately $4.2 million of
purchased net operating loss carryforwards available to reduce federal tax
liability through the year 2009. Utilization of the net operating loss
carryforwards is reflected as a charge in lieu of current tax expense and
recorded in the consolidated statements of financial condition as a reduction
to goodwill. In addition, the Corporation has net operating loss carryforwards
for state income tax purposes of $97.0 million, which are available to offset
future state taxable income, if any, through 2012.
FFB 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, 1997. If income taxes had been
provided, the deferred tax liability would have been approximately
$31,804,000.
NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES:
COMMITMENTS AND LETTERS OF CREDIT
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to interest rate risk. These
financial instruments include commitments to extend credit, commercial letters
of credit, standby letters of credit and financial guarantees, and interest
rate swaps.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit,
commercial letters of credit, and standby letters of credit and financial
guarantees written is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The following is a summary of financial instruments with off-balance sheet
risk at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit $2,459,154 $2,265,225
Commercial letters of credit 3,981 3,489
Standby letters of credit and financial guarantees
written 95,410 52,287
Financial instruments whose notional or contract amount
exceeds the amount of credit risk:
Interest rate swap agreements 3,300 3,400
Futures 70,500 --
Loans sold with recourse 12,000 27,000
</TABLE>
57
<PAGE>
Commitments to extend credit are agreements to lend funds 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. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held
varies but may include accounts receivable, inventory, property, plant,
equipment, securities, certificates of deposit and income producing commercial
properties.
A letter of credit is a document issued by the Corporation on behalf of its
customer (the account party) authorizing a third party (the beneficiary), or
in special cases the account party, to draw drafts on the Corporation up to a
stipulated amount and with specified terms and conditions. The letter of
credit is a conditional commitment (except when prepaid by the account party)
on the part of the Corporation to provide payment on drafts drawn in
accordance with the terms of the document.
A commercial letter of credit is issued specifically to facilitate trade or
commerce. Under the terms of a commercial letter of credit, as a general rule,
drafts will be drawn when the underlying transaction is consummated as
intended.
A standby letter of credit is a letter of credit or similar arrangement that
represents an obligation on the part of the Corporation to a designated third
party (the beneficiary) contingent upon the failure of the Corporation's
customer (the account party) to perform under the terms of the underlying
contract with the beneficiary, or obligates the Corporation to guarantee or
stand as surety for the benefit of a third party to the extent permitted by
law or regulation.
The underlying contract may entail either financial or nonfinancial
undertakings of the account party with the beneficiary. The underlying
contract may involve such things as the customer's payment of commercial
paper, delivery of merchandise, completion of a construction contract or
repayment of the account party's obligations to the beneficiary. Under the
terms of a standby letter, as a general rule, drafts will be drawn only when
the underlying event fails to occur as intended.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loans to customers.
The Corporation enters into various interest rate swaps in managing its
interest rate risk. In these swaps, the Corporation agrees to exchange, at
specified intervals, the difference between fixed- and floating-interest
amounts calculated on an agreed-upon notional principal amount. At December
31, 1997 and 1996, $3.3 million and $3.4 million, respectively of "pay-fixed"
swaps were in effect converting a fixed rate commercial loan to a variable
rate.
The Corporation's current credit exposure on swaps is limited to the value of
interest rate swaps that have become favorable to the Corporation. At December
31, 1997, the market value of interest rate swaps was a positive $14,000.
If an interest rate swap that is used to manage interest rate risk is
terminated early, any resulting gain or loss is deferred and accreted or
amortized to noninterest income or expense over the remaining life of the
asset related to the terminated agreement.
Deferred gains totaling $107,000 at December 31, 1997, resulting from interest
rate swaps terminated during 1994 with notional amounts of $19.8 million, are
included in other liabilities and will be recognized as part of interest
income in the following periods: $97,000 in 1998, and $10,000 in 1999.
The Corporation enters into various interest rate futures contracts to hedge
specific investment securities. These contracts are commitments to either
purchase or sell a financial instrument at a specified price on an agreed-upon
future date. In November 1997, the Corporation hedged certain agency issued
zero-coupon bonds held by FFC, with a carrying value of $37.2 million and a
market value of $41.6 million, by executing various interest rate futures
contracts. These contracts had a notional value of $70.5 million and a
maturity date of March 1998. Initial margin requirements on the futures
contracts are provided by
58
<PAGE>
investment securities provided as collateral. Unrealized losses, net of tax,
of $924,000 on the futures contracts outstanding have been recorded as a
component of the net unrealized gain on securities available for sale at
December 31, 1997. Subsequently, in January 1998, the futures contracts were
closed and the zero-coupon bonds were sold. A net gain of $5.1 million will be
recognized, in investment securities gains, in the first quarter of 1998 from
these transactions.
All loans currently sold to others are sold on a nonrecourse basis with the
servicing rights of these loans retained by the Corporation. At December 31,
1997 and 1996, $12 million and $27 million, respectively, of the serviced
loans were previously sold with recourse, the majority of which is either
federally-insured or federally-guaranteed.
LEGAL
There are legal proceedings pending against certain subsidiaries of the
Corporation in the ordinary course of their business. Although litigation is
subject to many uncertainties and the ultimate exposure with respect to these
matters cannot be ascertained, management believes, based upon discussions
with counsel, that the Corporation has meritorious defenses, and any ultimate
liability would not have a material adverse affect on the consolidated
financial position of the Corporation.
59
<PAGE>
NOTE 16 PARENT COMPANY FINANCIAL INFORMATION:
Presented below are condensed statements of financial condition, income and
cash flows for the Parent Company:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5 $ 309
Notes receivable from subsidiaries 138,897 110,992
Investment in subsidiaries 746,081 752,387
Other assets 41,939 26,904
Total assets $926,922 $890,592
LIABILITY AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 88,389 $ 74,176
Accrued expenses and other liabilities 24,840 12,854
Total liabilities 113,229 87,030
Stockholders' equity 813,693 803,562
Total liabilities and stockholders' equity $926,922 $890,592
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1997 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $63,355 $ 51,283 $ 30,467
Management and service fees from subsidiaries 4,685 4,267 3,963
Interest income on notes receivable 7,615 6,088 4,562
Other income 514 234 267
--------------------------
Total income 76,169 61,872 39,259
--------------------------
EXPENSE
Interest expense on borrowed funds 4,634 4,449 3,593
Salaries and employee benefits 3,871 3,287 3,331
Merger, integration and other one-time charges 20,837 -- --
Other expense 5,203 5,030 4,931
--------------------------
Total expense 34,545 12,766 11,855
--------------------------
Income before income tax benefit and equity in
undistributed income 41,624 49,106 27,404
Income tax benefit (6,155) (547) (663)
--------------------------
Income before equity in undistributed net income
of subsidiaries 47,779 49,653 28,067
Equity in undistributed net income of
subsidiaries 4,580 57,363 83,944
--------------------------
Net income $52,359 $107,016 $112,011
--------------------------
--------------------------
</TABLE>
60
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INCOME
Net income $ 52,359 $107,016 $112,011
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of
subsidiaries (4,580) (57,363) (83,944)
Depreciation and other amortization 161 135 199
Amortization of intangibles 446 805 871
Loss (gain) on sales of assets, net (356) -- 2
(Increase) decrease in interest receivable and
other assets (10,714) 599 (7,488)
Increase (decrease) in interest payable and
other liabilities 12,080 (252) 1,290
Other, net -- (154) (30)
----------------------------
Net cash provided by operating activities 49,396 50,786 22,911
----------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities 357 -- --
Purchases of investment securities -- -- (780)
Net increase in notes receivable (16,335) (12,374) (32,547)
Purchase of premises and equipment, net of
disposals (176) (82) (81)
Capital contribution to subsidiaries -- (9,200) (500)
----------------------------
Net cash used by investing activities (16,154) (21,656) (33,908)
----------------------------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 14,213 (8,546) 30,165
Cash dividends (49,328) (20,278) (16,924)
Proceeds from exercise of stock options 5,168 1,476 1,454
Purchase of treasury stock (3,599) (3,101) (2,085)
----------------------------
Net cash provided (used) by financing activities (33,546) (30,449) 12,610
----------------------------
Net increase (decrease) in cash and cash
equivalents (304) (1,319) 1,613
Cash and due from banks at beginning of year 309 1,628 15
----------------------------
Cash and due from banks at end of year $ 5 $ 309 $ 1,628
============================
</TABLE>
61
<PAGE>
NOTE 17 FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Corporation disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth
below for the Corporation's financial instruments.
The estimated fair values of the Corporation's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------
CONTRACT OR CONTRACT OR
NOTIONAL CARRYING NOTIONAL CARRYING
AMOUNT AMOUNT FAIR VALUE AMOUNT AMOUNT FAIR VALUE
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 288,021 $ 288,021 $ 369,842 $ 369,842
Interest-bearing
deposits in other
financial institutions 4,154 4,154 3,183 3,183
Federal funds sold and
securities purchase
under agreements to
resell 11,511 11,511 27,977 27,977
Investment securities:
Held to maturity 772,524 782,240 1,079,749 1,074,412
Available for sale 2,167,694 2,167,694 1,674,189 1,674,189
Loans held for sale 114,001 114,001 42,490 42,490
Loans 7,076,576 7,109,315 6,658,357 6,652,466
Financial liabilities:
Deposits 8,364,137 8,378,493 7,959,298 7,940,967
Short-term borrowings 1,337,008 1,337,008 1,201,393 1,201,393
Long-term borrowings 15,270 15,387 33,329 34,011
Off balance sheet:
Interest swap
agreements $ 3,300 2 14 $3,400 2 36
Futures contracts 70,500 (1,421) (1,421) -- -- --
---------------------------------------------------------------------
</TABLE>
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS, AND FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS
TO RESELL
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES HELD TO MATURITY, INVESTMENT SECURITIES AVAILABLE FOR
SALE, AND TRADING ACCOUNT SECURITIES
The fair value of investment securities held to maturity, investment
securities available for sale, and trading account securities, except certain
state and municipal securities, is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers. The
fair value of certain state and municipal securities is not readily available
through market sources other than dealer quotations, so fair value estimates
are based on quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued.
LOANS HELD FOR SALE
Fair value is estimated using the prices of the Corporation's existing
commitments to sell such loans and/or the quoted market prices for commitments
to sell similar loans.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, credit card and other consumer.
62
<PAGE>
The fair value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for similar maturities. Future cash
flows are also adjusted for estimated reductions or delays due to
delinquencies, nonaccruals or potential charge-offs.
DEPOSITS
Under SFAS No. 107, the fair value of deposits with no stated maturity such as
noninterest-bearing demand deposits, savings, NOW accounts and money market
accounts, is equal to the amount payable on demand as of December 31. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
LONG-TERM BORROWINGS
Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing borrowings.
COMMITMENTS TO EXTEND CREDIT, COMMERCIAL LETTERS OF CREDIT, STANDBY LETTERS OF
CREDIT AND FINANCIAL GUARANTEES WRITTEN
Fair values for commitments to extend credit, commercial letters of credit,
standby letters of credit and financial guarantees written 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, 1997 and 1996.
INTEREST RATE SWAP AGREEMENTS AND FUTURES CONTRACTS
The fair value of interest rate swap agreements and futures contracts are
obtained from dealer quotes. These values represent the estimated amount the
Corporation would receive or pay to terminate the contracts or agreements,
taking into account current interest rates and, when appropriate, the current
creditworthiness of the counter-parties.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Corporation's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
63
<PAGE>
NOTE 18 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is selected financial data summarizing the results of operations
for each quarter in the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $189,742 $195,056 $200,648 $201,798
Interest expense 97,943 101,419 105,857 106,418
Provision for possible loan
losses 3,373 3,186 3,738 21,371
Investment securities gains
(losses), net 1,195 188 852 (35,011)
Income (loss) before income tax
expense 52,200 54,771 56,859 (47,562)
Net income (loss) 33,860 35,480 36,821 (53,802)
Basic earnings (loss) per share $ 0.67 $ 0.71 $ 0.73 $ (1.07)
Diluted earnings (loss) per share $ 0.66 $ 0.70 $ 0.72 $ (1.06)
Basic weighted average shares 50,546 50,157 50,191 50,340
Diluted weighted average shares 51,536 50,847 51,216 50,996
<CAPTION>
1996 QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $179,631 $178,898 $185,842 $186,826
Interest expense 92,880 91,933 95,261 95,849
Provision for possible loan
losses 3,072 3,052 3,861 3,710
Investment securities gains
(losses), net (614) (321) (10,370) 627
Income before income tax expense 45,659 48,493 17,563 53,474
Net income before extraordinary
item 30,727 31,710 10,962 34,303
Extraordinary item (686) -- -- --
Net income 30,041 31,710 10,962 34,303
Basic earnings per share $ 0.59 $ 0.63 $ 0.22 $ 0.68
Diluted earnings per share $ 0.59 $ 0.62 $ 0.21 $ 0.66
Basic weighted average shares 50,528 50,632 50,631 50,464
Diluted weighted average shares 51,443 51,519 51,498 51,724
</TABLE>
Net income in the fourth quarter of 1997 includes $89.8 million of merger,
integration and other one-time charges and the third quarter of 1996 includes
$22.7 million of merger, integration and other one-time charges.
NOTE 19 REGULATORY MATTERS:
The Corporation and the subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation must meet specific capital guidelines that involve
quantitative measures of the Corporation's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Corporation's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
that the Corporation and the subsidiary banks meet all capital adequacy
requirements to which they are subject.
64
<PAGE>
As of December 31, 1997 and 1996, the most recent notification from the Office
of the Comptroller of the Currency and the Federal Deposit Insurance
Corporation categorized the Corporation and its two largest subsidiary banks,
FFB and Associated Bank Green Bay as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Corporation must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The actual capital amounts and ratios of the Corporation, FFB and Associated
Bank Green Bay are also presented in the table. No deductions from capital
were made for interest rate risk in 1997.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS:
--------------- --------------- ----------------
AMOUNT RATIO* AMOUNT RATIO* AMOUNT RATIO*
-------- ------ -------- ------ -------- -------
($ IN THOUSANDS)
AS OF DECEMBER
31, 1997:
- --------------
ASSOCIATED
BANC-CORP
- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $841,883 11.86% $567,666 ^8.00% $709,852 ^10.00%
Tier I Capital $753,135 10.61% $283,833 ^4.00% $425,749 ^ 6.00%
Leverage $753,135 7.10% $424,482 ^4.00% $530,603 ^ 5.00%
<CAPTION>
FIRST
FINANCIAL BANK
- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $396,629 13.63% $232,784 ^8.00% $290,980 ^10.00%
Tier I Capital $360,219 12.38% $116,387 ^4.00% $174,588 ^ 6.00%
Leverage $360,219 6.11% $235,823 ^4.00% $294,591 ^ 5.00%
<CAPTION>
ASSOCIATED
BANK GREEN BAY
- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $108,061 10.39% $ 83,227 ^8.00% $104,033 ^10.00%
Tier I Capital $ 83,035 7.98% $ 41,613 ^4.00% $ 62,420 ^ 6.00%
Leverage $ 83,035 6.47% $ 51,318 ^4.00% $ 64,147 ^ 5.00%
<CAPTION>
AS OF DECEMBER
31, 1996:
- --------------
ASSOCIATED
BANC-CORP
- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $786,821 13.53% $465,391 ^8.00% $581,739 ^10.00%
Tier I Capital $763,230 13.12% $232,696 ^4.00% $349,043 ^ 6.00%
Leverage $763,230 7.68% $397,625 ^4.00% $497,032 ^ 5.00%
<CAPTION>
FIRST
FINANCIAL BANK
- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $346,133 13.91% $199,134 ^8.00% $248,918 ^10.00%
Tier I Capital $364,146 14.63% $ 99,561 ^4.00% $149,351 ^ 6.00%
Leverage $364,146 6.39% $227,947 ^4.00% $285,155 ^ 5.00%
<CAPTION>
ASSOCIATED
BANK GREEN BAY
- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $100,777 10.52% $ 76,651 ^8.00% $ 95,814 ^10.00%
Tier I Capital $ 76,782 8.01% $ 38,326 ^4.00% $ 57,488 ^ 6.00%
Leverage $ 76,782 6.46% $ 47,536 ^4.00% $ 59,420 ^ 5.00%
</TABLE>
*Total Capital ratio is defined as Tier 1 Capital plus Tier 2 Capital divided
by total risk-weighted assets. The Tier 1 Capital ratio is defined as Tier
1 capital divided by total risk-weighted assets. The leverage ratio is
defined as Tier 1 capital divided by the most recent quarter's average
total assets.
65
<PAGE>
NOTE 20 EARNINGS PER SHARE:
Presented below are the calculations for basic and diluted earnings per share:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Basic:
Income before extraordinary item $52,359 $107,702 $112,011
Extraordinary item -- (686) --
--------------------------
Net income available to common stockholders $52,359 $107,016 $112,011
Weighted average shares outstanding 50,307 50,564 49,109
Basic earnings per common share before
extraordinary item $ 1.04 $ 2.13 $ 2.28
Basic earnings per common share $ 1.04 $ 2.12 $ 2.28
Diluted:
Income before extraordinary item $52,359 $107,702 $112,011
Extraordinary item -- (686) --
--------------------------
Net income available to common stockholders $52,359 $107,016 $112,011
Weighted average shares outstanding 50,307 50,564 49,109
Effect of dilutive stock options outstanding 840 940 869
--------------------------
Diluted weighted average shares outstanding 51,147 51,504 49,978
Diluted earnings per common share before
extraordinary item $ 1.02 $ 2.09 $ 2.24
Diluted earnings per common share $ 1.02 $ 2.08 $ 2.24
</TABLE>
66
<PAGE>
INDEPENDENT AUDITORS' REPORT
ASSOCIATED BANC-CORP
The Board of Directors
Associated Banc-Corp:
We have audited the accompanying consolidated statements of financial
condition of Associated Banc-Corp and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are
the responsibility of Associated Banc-Corp's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits. We did not audit the consolidated financial statements of First
Financial Corporation and subsidiaries, a wholly-owned subsidiary of
Associated Banc-Corp, which statements reflect total assets constituting 55.2%
and 56.3% as of December 31, 1997 and 1996, respectively and total revenues
constituting 52.6%, 55.5% and 58.2% for the years ended December 31, 1997,
1996 and 1995, respectively, of the related consolidated totals. Those
financial statements were audited by Ernst & Young LLP whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for First Financial Corporation and subsidiaries, is based solely on
the report of Ernst & Young LLP.
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 and the report of Ernst &
Young LLP provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of Ernst & Young LLP, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Associated Banc-Corp and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
LOGO
KPMG Peat Marwick LLP
Chicago, Illinois
January 22, 1998
67
<PAGE>
INDEPENDENT AUDITORS' REPORT
FIRST FINANCIAL CORPORATION
The Board of Directors
First Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of First Financial Corporation and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997 (not presented separately herein). These
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Financial Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
LOGO
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 22, 1998
68
<PAGE>
MARKET INFORMATION
<TABLE>
<CAPTION>
MARKET PRICE
RANGE
SALES PRICES
-------------- ---------- -------------
DIVIDENDS PAID BOOK VALUE HIGH LOW
-------------- ---------- ------ ------
<S> <C> <C> <C> <C>
1997
4th Quarter $.2900 $16.15 $58.75 $46.25
3rd Quarter $.2900 $17.39 $48.94 $39.00
2nd Quarter $.2900 $16.80 $39.50 $35.75
1st Quarter $.2417 $16.17 $40.50 $34.58
1996
4th Quarter $.2417 $16.01 $36.46 $32.92
3rd Quarter $.2417 $15.45 $33.65 $31.88
2nd Quarter $.2417 $15.39 $32.92 $31.25
1st Quarter $.2250 $15.04 $32.92 $29.38
</TABLE>
Annual dividend rate: $1.16
Market information has been restated for the 6-for-5 stock split declared
January 22, 1997, effected in the form of a 20% stock dividend, paid on March
17, 1997, to shareholders of record March 5, 1997.
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
The information in the Corporation's definitive Proxy Statement, prepared for
the 1998 Annual Meeting of Shareholders, which contains information concerning
directors of the Corporation, under the caption "Election of Directors," is
incorporated herein by reference. The information concerning "Executive
Officers of the Registrant," as a separate item, appears in Part I of this
document.
ITEM 11 EXECUTIVE COMPENSATION
The information in the Corporation's definitive Proxy Statement, prepared for
the 1998 Annual Meeting of Shareholders, which contains information concerning
this item, under the caption "Executive Compensation," is incorporated herein
by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the Corporation's definitive Proxy Statement, prepared for
the 1998 Annual Meeting of Shareholders, which contains information concerning
this item, under the captions "Principal Holders of Common Stock" and
"Security Ownership of Management," is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the Corporation's definitive Proxy Statement, prepared for
the 1998 Annual Meeting of Shareholders, which contains information concerning
this item under the caption "Certain Transactions," is incorporated herein by
reference.
69
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedules
are included under a separate caption "Financial Statements and
Supplementary Data" in Part II, Item 8 hereof and are incorporated
herein by reference.
Consolidated Statements of Financial Condition--December 31, 1997
and 1996
Consolidated Statements of Income--For the Years Ended December 31,
1997, 1996, and 1995
Consolidated Statements of Changes in Stockholders' Equity--For the
Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows--For the Years Ended December
31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Reports
(a) 3Exhibits Required by Item 601 of Regulation S-K
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION REFERENCE TO
- -------------------------------------------------------------------------------
<C> <S> <C>
(3)(a) Articles of Incorporation Filed herewith
(3)(b) Bylaws Filed herewith
(4) Instrument Defining the
Rights of Security Holders,
Including Indentures
The Registrant, by signing
this report, agrees to
furnish the Securities and
Exchange Commission, upon
its request, a copy of any
instrument that defines the
rights of holders of long-
term debt of the Registrant
and all of its subsidiaries
for which consolidated or
unconsolidated financial
statements are required to
be filed and that
authorizes a total amount
of securities not in excess
of 10% of the total assets
of the Registrant and its
subsidiaries on a
consolidated basis
*(10)(a) The 1982 Incentive Stock Exhibit (10) to Report on Form 10-K for
Option Plan of the fiscal year ended December 31, 1987
Registrant
*(10)(b) The Restated Long-Term Exhibits filed with Associated's
Incentive registration statement (333-46467) on
Stock Plan of the Form S-8 filed under the Securities Act
Registrant of 1933
*(10)(c) Change of Control Plan of Exhibit (10)(d) to Report on Form 10-K
the for fiscal year ended December 31, 1994
Registrant effective April
25, 1994
*(10)(d) Deferred Compensation Plan Exhibit (10)(e) to Report on Form 10-K
and for fiscal year ended December 31, 1994
Deferred Compensation Trust
effective
as of December 16, 1993,
and Deferred
Compensation Agreement of
the
Registrant dated December
31, 1994
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ------------------------------------------------------------------------------
<C> <S> <C>
(11) Statement Re Computation of Per See footnote (20) in Part II Item 8
Share
Earnings
(21) Subsidiaries of the Corporation Filed herewith
(23) Consent of Independent Auditors Filed herewith
(24) Power of Attorney Filed herewith
</TABLE>
- ---------------------
* Management contracts and arrangements.
Schedules and exhibits other than those listed are omitted for the reasons
that they are not required, are not applicable or that equivalent
information has been included in the financial statements, and notes
thereto, or elsewhere herein.
(b) Reports on Form 8-K
The Corporation filed a report on Form 8-K on September 15, 1997, which
included a press release dated September 15, 1997, announcing the receipt
of all required regulatory approvals in connection with the proposed merger
of Associated Banc-Corp and First Financial Corporation.
The Corporation filed a report on Form 8-K on October 30, 1997, which
included a press release dated October 29, 1997, announcing the
consummation of the merger between Associated Banc-Corp and First Financial
Corporation. Announcements of new officers and directors were also made.
71
<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.
/s/ H. B. Conlon
ASSOCIATED BANC-CORP
H. B. Conlon
Date: March 20, 1998 By: _________________________________
Chairman, President & Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ H. B. Conlon
By: ________________________________ *
By: ________________________________
H. B. Conlon William R. Hutchinson
Chairman, President, Chief Director
Executive Officer and Director
/s/ Joseph B. Selner
By: ________________________________ *
By: ________________________________
Joseph B. Selner Robert P. Konopacky
Senior Vice President-CFO Director
Principal Financial Officer and
Principal Accounting Officer
/s/ Robert C. Gallagher
By: ________________________________ *
By: ________________________________
Robert C. Gallagher Dr.George R. Leach
Vice Chairman and Director
Director
*
By: ________________________________ *
By: ________________________________
John C. Seramur John C. Meng
Vice Chairman and Director
Director
*
By: ________________________________ *
By: ________________________________
Robert S. Gaiswinkler J. Douglas Quick
Director
Director
/s/ *
By: ________________________________ *
By: ________________________________
Ronald R. Harder John H. Sproule
Director
Director
/s/ *
By: ________________________________ *
By: ________________________________
John S. Holbrook, Jr. Ralph R. Staven
Director
Director
/s/ Brian R. Bodager
By: ________________________________ *
By: ________________________________
Brian R. Bodager Norman L. Wanta
Attorney-in-Fact Director
Date: March 20, 1998
72
<PAGE>
EXHIBIT 3(a)
Form 4
Secretary of State
WISCONSIN
2/92
ARTICLES OF AMENDMENT
Stock (for profit)
A. Name of Corporation: Associated Banc-Corp
------------------------------------------------------
(prior to any change effected by this amendment)
Text of Amendment (Refer to the existing Articles of incorporation and
instruction A. Determine those items to be changed and set forth below the
number identifying the paragraph being changed and how the amended
paragraph is to read.)
RESOLVED, THAT, the Articles of Incorporation of Associated Banc-Corp
be amended to increase the number of authorized shares of Associated common
stock to 100,000,000 shares of $0.01 par value common stock.
B. Amendment(s) to the articles of incorporation adopted on October 27, 1997
------------------
(date)
Indicate the method of adoption by checking the appropriate choice below:
( ) In accordance with sec. 180.1002, Wis. Stats. (By the Board of
Directors)
OR
( X ) In accordance with sec. 180.1003, Wis. Stats. (By the Board of
Directors and Shareholders)
OR
( ) In accordance with sec. 180.1005, Wis. Stats. (By Incorporators or
Board of Directors, before issuance of shares)
C. Executed on behalf of the corporation on October 28, 1997
-----------------------------------
(date)
/s/ BRIAN R. BODAGER
-----------------------------------
(signature)
Brian R. Bodager
-----------------------------------
(printed name)
Corporate Secretary
-----------------------------------
(officer's title)
D. This document was drafted by Lori A. Flanagan, Paralegal
-----------------------------------------------
(name of individual required by law)
SEE REVERSE for Instructions, Suggestions, Filing Fees and Procedures
Printed on Recycled Paper
<PAGE>
ARTICLES OF AMENDMENT Stock (for profit)
\
Lori A. Flanagan ----- Please indicate where you would like the
Associated Banc-Corp / acknowledgement copy of the filed document
112 North Adams Street sent. Please include complete name and
P. O. Box 13307 mailing address.
Green Bay, WI 54307-3307
Your phone number during the day: (920) 433-3071
------------------
INSTRUCTIONS (Ref. Sec. 180.1006 Wis. Stats. for document content)
Submit one original and one exact copy to Secretary of State, P.O. Box 7846,
Madison, Wisconsin, 53707-7846. The original must include an original, manual
signature (sec. 180.0120(e)(c), Wis. Stats.)
A. State the name of the corporation (before any changes effected by this
amendment) and the text of the amendment(s). The text should recite the
resolution adopted (e.g., "RESOLVED, THAT, Article 1 of the Articles of
Incorporation is hereby amended to read as follows. . . . etc.")
If an amendment provides for an exchange, reclassification or cancellation
if issued shares, state the provisions for implementing the amendment if not
contained in the amendment itself.
B. Enter the date of adoption of the amendment(s). If there is more than one
amendment, identify the date of adoption of each. Mark one of the three choices
to indicate the method of adoption of the amendment(s).
By Board of Directors - Refer to sec. 180.1002 Wis. Stats. for specific
information on the character of amendments that may be adopted by the Board of
Directors without shareholder action.
By Board of Directors and Shareholders - Amendments proposed by the Board
of Directors and adopted by shareholder approval. Voting requirements differ
with circumstances and provisions in the articles of incorporation. See sec.
180.1003 Wis. Stats. for specific information.
By Incorporators or Board of Directors - Before issuance of shares - See
sec. 180.1005 Wis. Stats. for conditions attached to the adoption of an
amendment approved by a vote or consent of less than 2/3rds of the shares
subscribed for.
C. Enter the date of execution and the name and title of the person signing the
document. The document must be signed by one of the following: An officer (or
incorporator if directors have not yet been elected) of the corporation or the
fiduciary if the corporation is in the hands of a receiver, trustee, or other
court-appointed fiduciary. At least one copy must bear an original manual
signature.
D. If the document is executed in Wisconsin, sec. 14.38(14) Wis. Stats.
provides that it shall not be filed unless the name of the drafter (either an
individual or a governmental agency) is printed in a legible manner.
FILING FEES
Submit the document with a minimum filing fee of $40.00, payable to SECRETARY OF
STATE. If the amendment causes an increase in the number of authorized shares,
provide an additional fee of 1 cent for each new authorized share. When the
document has been filed, an acknowledgment copy stamped "FILED" will be sent to
the address indicated above.
<PAGE>
EXHIBIT 3(b)
AMENDED BYLAWS
--------------
ARTICLE I
The principal office of Associated Banc-Corp (the "Corporation") in the State of
Wisconsin shall be located in the City of Green Bay, County of Brown. The
Corporation may have such other offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
The registered office of the Corporation required by the Wisconsin Business
Corporation Law to be maintained in the State of Wisconsin may be, but need not
be, identical with the principal office in the State of Wisconsin, and the
address of the registered office may be changed from time to time by the Board
of Directors.
ARTICLE II
SHAREHOLDERS
Section 1 - Annual Meeting
The Annual Meeting of Shareholders shall be held on the fourth (4th) Wednesday
in the month of April of each year at 10:00 AM, or at such other time and date
as shall be fixed by the Board of Directors, for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting subject to Sections 5 and 6 below. Every election of Directors shall be
managed by three (3) judges, who shall be appointed from among the shareholders
by the Chairman of the meeting. The judges of election shall hold and conduct
the election and shall, after the election has been held, notify under their
hands the Secretary of the Corporation of the results thereof and the names of
the Directors-Elect. If the day fixed for the Annual Meeting shall be a legal
holiday in the State of Wisconsin, such meeting shall be held on the next
succeeding business day. If the election of Directors shall not be held at the
Annual Meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a Special Meeting of the
shareholders as soon thereafter as convenient. Failure to hold an Annual
Meeting in one (1) or more years does not affect the validity of any corporate
action.
Section 2 - Special Meetings
Special Meetings of the shareholders, for any purpose or purposes, may be called
by the President or the Board of Directors, and shall be called by the President
at the request of the holders of not less than one-tenth (1/10) of all the
outstanding shares of the Corporation entitled to vote at the meeting.
<PAGE>
Section 3 - Place of Meeting
The Board of Directors may designate any place, within or without the State of
Wisconsin, as the place of meeting for any Annual Meeting or for any Special
Meeting called by the Board of Directors. If no designation is made, or if a
Special Meeting be otherwise called, the place of meeting shall be the
registered office of the Corporation in the State of Wisconsin, but any meeting
may be adjourned to reconvene at any place designated by vote of a majority of
the shares represented thereat.
Section 4 - Notice of Meeting
Notice stating the place, day, and hour of the meeting, and in the case of a
Special Meeting, the purpose or purposes for which the meeting is called, shall
be delivered to each shareholder of record entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the meeting,
such notice to be delivered in accordance with the provisions of Article XIII
below.
Section 5 - Advance Notice of Shareholder Proposed Business at Annual Meeting
At any Annual Meeting of Shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an Annual Meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board;
(b) otherwise properly brought before the meeting by or at the direction of the
Board; or (c) otherwise properly brought before the meeting by a shareholder.
In addition to any other applicable requirements for business to be properly
brought before an Annual Meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than sixty (60)
days prior to the meeting nor more than seventy-five (75) days prior to the
meeting; provided, however, that in the event that less than seventy (70) days'
notice or prior public disclosure of the date of the Annual Meeting is given or
made to shareholders, to be timely, notice by the shareholder must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice or such public disclosure was made.
The Secretary of the Corporation shall determine whether a notice delivered
pursuant to this section complies with the requirements of this section so as to
be considered properly delivered to the Corporation. If the Secretary shall
determine that such notice has not been properly delivered to the Corporation,
the Secretary shall notify the shareholder in writing within five (5) days from
the date such notice was received by the Corporation of such determination and
the basis therefor and whether such shareholder will be entitled to provide a
revised notice in accordance with the following sentence. A revised notice may
be submitted by such shareholder to the Corporation within three (3) days after
receipt of such notice from the Secretary if the initial notice delivered by
such shareholder to the Secretary of the Corporation is determined by the
Secretary to have been a good faith attempt to comply with the requirements of
this section. The Secretary shall review any revised notice submitted and
determine whether such revised notice complies with the requirements of this
Section so as to be considered properly delivered to the Corporation. If the
Secretary shall determine that the
<PAGE>
revised notice was not properly delivered to the Corporation, the Secretary
shall notify the shareholder in writing within three (3) business days from the
date the revised notice was received by the Corporation of such determination
and the basis therefor.
A shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the Annual Meeting (a) a brief description
of the business desired to be brought before the Annual Meeting and the reasons
for conducting such business at the Annual Meeting; (b) the name and address of
the shareholder proposing such business; (c) the class and number of shares of
the Corporation which are beneficially owned by the shareholder; and (d) any
material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at the Annual Meeting except in accordance with the procedures set
forth in this Section 5; provided, however, that nothing in this Section 5 shall
be deemed to preclude discussion by any shareholder of any business properly
brought before the Annual Meeting in accordance with said procedures.
The Chairman of an Annual Meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 5, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 6 - Nomination of Directors
Only persons nominated in accordance with the following procedures shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at any meeting of shareholders
by or at the direction of the Board of Directors or by any shareholder entitled
to vote for the election of directors who complies with the procedures set forth
in this section. Nominations by shareholders shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, such notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not less than sixty (60) days nor more than seventy-five (75)
days prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, to be timely, notice by the shareholder must
be so received not later than the close of business on the tenth (10th) day
following the day on which such notice or such public disclosure was made.
The Secretary of the Corporation shall determine whether a notice delivered
pursuant to this section complies with the requirements of this Section so as to
be considered properly delivered to the Corporation. If the Secretary shall
determine that such notice has not been properly delivered to the Corporation,
the Secretary shall notify the shareholder in writing within five (5) days from
the date such notice was received by the Corporation of such determination and
the basis therefor and whether such shareholder will be entitled to provide a
revised notice in accordance with the following sentence. A revised notice may
be submitted by such shareholder to the Corporation within three (3) days after
receipt of such notice from the Secretary if the initial notice delivered by
such shareholder to the Secretary of the Corporation is determined by the
Secretary to have been a good faith attempt to comply with
<PAGE>
the requirements of this section. The Secretary shall review any revised notice
submitted to the Corporation in accordance with this section, and determine
whether such revised notice complies with the requirements of this section so as
to be considered properly delivered to the Corporation. If the Secretary shall
determine that the revised notice was not properly delivered to the Corporation,
the Secretary shall notify the shareholder in writing within three (3) business
days from the date the revised notice was received by the Corporation of such
determination and the basis therefor.
A shareholder's notice to the Secretary shall set forth (a) as to each person
proposed to be nominated (i) the name, age, address (business and residence),
principal occupation or employment of such person (present and for the past five
(5) years), (ii) the number of shares of the Corporation such person
beneficially owns (as such term is defined by Section 13(d) of the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]) and (iii) any other
information relating to such person that would be required to be disclosed in a
definitive proxy statement to shareholders prepared in connection with an
election of directors pursuant to Section 14(a) of the Exchange Act; and (b) as
to the shareholder giving the notice (i) the name and address (business and
residential) of the shareholder, and (ii) the number of shares of the
Corporation the shareholder beneficially owns (as such term is defined by
Section 13(d) of the Exchange Act). The Corporation may require any proposed
nominee to furnish additional information as may be reasonably required to
determine the qualifications of such person to serve as a director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 6.
Section 7 - Record Date for Notice, Voting and Distributions
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, to demand a Special
Meeting or to take any other action, the record date shall be thirty (30) days
before such meeting or action is scheduled or at such other date fixed in
advance by the Board of Directors which in no event shall be set more than
seventy (70) days before the meeting or action requiring a determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall be applied to any adjournment thereof unless the Board of
Directors fixes a new record date, which it shall do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting. The record date for determining shareholders entitled to a
distribution, other than a distribution involving a purchase, redemption, or
other acquisition of the Corporation's shares, is the date on which the Board of
Directors authorizes the distribution, unless the Board of Directors fixes a
different record date in advance.
Section 8 - Shareholders' List for Meeting
Once a record date has been fixed for a meeting, the Corporation shall prepare a
list of the names of all its shareholders who are entitled to notice of a
shareholders' meeting. Such list shall be arranged by class or series of shares
and show the address of and number of shares held by each shareholder. The
shareholders' list will be available for inspection by any shareholder or his
agent or attorney beginning two (2) business days after notice of the meeting is
given for which the list was prepared and continuing up to and through the time
for the
<PAGE>
meeting or any adjournment thereof at the Corporation's principal offices, or at
a place identified in the meeting notice in the city where the meeting will be
held. A shareholder or his agent or attorney may, on written demand, subject to
applicable Wisconsin statutes, copy the list, during regular business hours and
at his expense, during the period that it is available for inspection under this
Section. Refusal or failure to prepare or make available the shareholders' list
does not affect the validity of action taken at the meeting.
Section 9 - Quorum and Voting Requirements for Voting Groups
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares, represented in person or by
proxy, exists with respect to that matter. Unless the Articles of Incorporation
or applicable statutes provide otherwise, a majority of the votes entitled to be
cast on the matter by the voting group constitutes a quorum of that voting group
for action on that matter. Once a share is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists, for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or must be set for
that adjourned meeting. If a quorum exists, action on a matter, other than the
election of directors, by a voting group is approved if a majority of the votes
cast favors the action, unless the Articles of Incorporation or applicable
statutes require a greater number of affirmative votes.
Section 10 - Proxies
At all meetings of shareholders, a shareholder entitled to vote may vote in
person or by proxy appointed, in writing, by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
Section 11 - Voting of Shares
Each outstanding shareholder entitled to vote shall be entitled to one (1) vote
upon each matter submitted to a vote at a meeting of shareholders.
Section 12 - Voting Company's Shares
Shares of the Corporation belonging to it shall not be voted directly or
indirectly at any meeting and shall not be counted in determining the total
number of outstanding shares at any given time, but shares held by the
Corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
Redeemable shares are not entitled to vote after written notice, properly given,
is mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank named by the Board of Directors of the Corporation under
an irrevocable obligation to pay the holders the redemption price on surrender
of the shares.
<PAGE>
Section 13 - Shares in Name of Another Corporation or Trustee
Shares outstanding in the name of another corporation may be voted by the
president of such corporation, or any other officer or proxy appointed by such
president in the absence of express notice of the designation of some other
person by the Board of Directors or bylaws of such other corporation. Shares in
the name of a trustee shall be voted in the manner designated by a majority of
the trustees or their proxy unless a greater concurrence of trustees is required
by the trust, of which the Corporation shall have actual notice.
Section 14 - Adjournment
An Annual or Special Meeting of shareholders may be adjourned by a majority of
shares represented, even if less than a quorum. Upon being reconvened, the
adjourned meeting shall be deemed to be a continuation of the initial meeting; a
quorum will be deemed present if a quorum of shares was represented at the
initial meeting, and any business that could be conducted at the initial meeting
may be considered at the adjourned meeting. If a quorum was not present at the
initial meeting but is present at the adjourned meeting, then any business may
be transacted at the adjourned meeting. A meeting may be adjourned at any time,
including after action on one (1) or more matters, and for any purpose
including, but not limited to, allowing additional time to solicit votes on one
(1) or more matters, to disseminate additional information to shareholders, or
to count votes. No new notice need be given for an adjourned meeting if the
time and place of the adjournment are announced at the initial meeting and no
new record date for the adjourned meeting is required unless otherwise required
by law.
Section 15 - Waiver of Notice
A shareholder may waive any notice required by these Bylaws, the Articles of
Incorporation or under the provisions of any applicable statute, before or after
the date and time stated in the notice, provided such waiver is in writing and
signed by the shareholder entitled to the notice, contains the same information
that would have been required in the notice under any applicable provisions
under any statute, except that the time and place of the meeting need not be
stated. Such waiver must be delivered to the Corporation for inclusion in the
corporate records.
A shareholder's attendance at a meeting, in person or by proxy, waives objection
to (a) lack of notice or defective notice of the meeting, unless the shareholder
at the beginning of the meeting or promptly upon arrival objects to holding the
meeting or transacting business at the meeting; and (b) consideration of a
particular matter at the meeting that is not within the purpose described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented.
ARTICLE III
BOARD OF DIRECTORS
Section 1 - General Powers
The business and affairs of the Corporation shall be managed by its Board of
Directors.
<PAGE>
Section 2 - Retirement and Nomination of Corporate and Affiliate Directors
(a) Retirement of Corporate Directors - Directors shall retire as a
Director of the Corporation at the Annual Meeting following their
attainment of age 65.
Directors may be extended beyond their normal retirement age for
additional one (1) year terms in circumstances that will be of
significant benefit to the Corporation by a two-thirds (2/3) vote of
the Board.
(b) Retirement of Affiliate Directors - All affiliate Directors will
retire, as a Director of an affiliate corporation, at the Annual
Meeting following their attainment of age 65. The Chief Executive
Officer of the Corporation may nominate an affiliate Director for an
additional term but only for unusual circumstances which will result
in a significant benefit to the Corporation.
(c) Nomination of Directors to the Corporate Board of Directors - The
Corporate Board of Directors shall annually appoint a Nomination
Committee to review candidates for membership on the Corporate Board
of Directors and recommend individuals for nomination to the Board.
This Committee shall also prepare and periodically review with the
entire Board of Directors a list of general criteria for Board
nominees.
In order to be considered for renomination to an additional term on
the Corporate Board of Directors, the individual should continue to
meet the criteria established for nominees to the Board of Directors.
In connection with the merger (the "Merger") between First Financial
Corporation, a Wisconsin corporation ("First Financial") and a wholly
owned subsidiary of the Corporation, approved by the Board of
Directors of the Corporation on May 14, 1997, and approved by the
shareholders of the Corporation on October 27, 1997, each individual
who previously served as a Director of First Financial who, in
accordance with the Agreement and Plan of Merger dated as of May 14,
1997, among the Corporation, Badger Merger Corp., and First Financial
is to be appointed Director of the Corporation upon consummation of
the Merger may be so appointed regardless of that individual's age at
the time of such appointment. If the individual is at the time of such
appointment beyond the normal retirement age as set forth in Paragraph
(a), above, that individual's service as a Director of the Corporation
shall be deemed at the time of such appointment to have been extended
until the next Annual Meeting in accordance with the second paragraph
of Paragraph (a).
(d) Nomination of Directors to Affiliated Corporation Boards - Each
affiliate Board should establish a list of general criteria for
evaluating nominees and provide a process for reviewing nominees for
the Board of Directors and making recommendations to the entire
affiliate Board.
Prior to the submission of any nomination to the affiliate
corporation's Board of
<PAGE>
Directors, the affiliate will submit, in writing, a request for
approval of that nomination from the Chief Executive Officer of the
Corporation.
In order to be considered for renomination to an additional term on an
affiliated Board of Directors, the individuals should continue to meet
the criteria established for nominees to the Board of Directors.
Section 3 - Organization Meeting
The Secretary, upon receiving the certificate of the judges of the result of any
election, shall notify the Directors-Elect of their election and of the time at
which they are required to meet at the main office of the Corporation for the
purpose of organizing the new Board and electing and appointing officers of the
Corporation for the succeeding year. Such meeting shall be held on the day of
the election or as soon thereafter as practicable, and, in any event, within
thirty (30) days thereof. If, at the time fixed for such meeting, there shall
not be a quorum present, the Directors present may adjourn the meeting from time
to time, until the quorum is obtained.
Section 4 - Regular Meetings
The regular meetings of the Board of Directors shall be held on the fourth (4th)
Wednesday of each month of January, April, July, and October at 10:00 AM or at
such other date and time as is determined by the Chairman of the Board, at the
main office of the Corporation or at such other place as is designated by the
Chief Executive Officer of the Corporation.
Section 5 - Special Meeting
Special meetings of the Board of Directors may be called by or at the request of
the Chairman of the Board, President, Secretary, or by a majority of the
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place for holding any special meeting of the
Board of Directors called by them.
Section 6 - Notice
Notice of any special meeting shall be given at least forty-eight (48) hours
previously thereto, except in the case of an emergency meeting as provided under
the Wisconsin Business Corporation Law by written or oral notice as provided for
and in accordance with Article XIII below. Whenever any notice is required to
be given to any Director of the Corporation under the provisions of these Bylaws
or under the provisions of the Articles of Incorporation or under the provisions
of any statute, a waiver thereof in writing, signed at any time, whether before
or after the time of meeting, by the Director entitled to such notice, shall be
deemed equivalent to the giving of such notice. The attendance of a Director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting and objects thereat to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
<PAGE>
Section 7 - Quorum
A majority of the number of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but though
less than such quorum is present at a meeting, a majority of the Directors may
adjourn the meeting from time to time without further notice.
Section 8 - Vacancies
When any vacancy occurs among the Directors, including a vacancy created by an
increase in the numbers of directors, the remaining members of the Board, in
accordance with the Wisconsin Business Corporation Law, may appoint a Director
to fill such vacancy for the unexpired portion of the term at any regular
meeting of the Board or at a special meeting called for that purpose.
Section 9 - Compensation
The Board of Directors, by affirmative vote of a majority of the Directors then
in office, and irrespective of any personal interest of any of its members, may
establish reasonable compensation of all directors for services to the
Corporation as Directors, officers, or otherwise, or may delegate such authority
to an appropriate committee.
Section 10 - Presumption of Assent
A Director of the Corporation who is present at a meeting of the Board of
Directors or a committee thereof at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless he objects
at the beginning of the meeting or promptly upon his arrival to holding the
meeting or transacting business at the meeting or unless he shall file his
written dissent to such action with the person acting as Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 11 - Other Committees
A majority of the Board of Directors may appoint, from time to time, from its
own members, two (2) or more persons to such committees that it deems necessary
for such purposes and with such powers as the Board may determine.
ARTICLE IV
OFFICERS
Section 1 - Number
The principal officers of the Corporation shall be a Chairman of the Board,
President, one (1) or more Executive Vice Presidents/Senior Vice Presidents or
Vice Presidents, Secretary, and
<PAGE>
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. Any two (2) or more offices may be held by
the same person.
Section 2 - Election and Term of Office
The officers of the Corporation to be elected by the Board of Directors shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each Annual Meeting of shareholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Each officer shall hold his office until his
successor shall have been duly elected and shall have qualified or until his
death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 3 - Removal
Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment shall not of itself create contract rights.
Section 4 - Vacancies
A vacancy in any principal office because of death, resignation, removal,
disqualification, or otherwise, shall be filled by the Board of Directors for
the unexpired portion of the term.
Section 5 - Chairman of the Board
The Board of Directors may appoint one (1) of its members to be Chairman of the
Board to serve at the pleasure of the Board. He shall preside at all meetings
of the shareholders and of the Board of Directors. The Chairman of the Board
may be appointed as Chief Executive Officer. If no President is appointed or in
the absence of the President or in the event of his death, inability, or refusal
to act, the Chairman of the Board shall perform the duties of the President, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the President. He shall also have and may exercise such
further powers and duties as from time to time may be conferred upon or assigned
to him by the Board of Directors.
Section 6 - President
The Board of Directors may also appoint the Chairman of the Board as President.
If a President is appointed, he may be also designated the Chief Executive
Officer of the Corporation and, subject to the control of the Board of
Directors, shall, in general, supervise and control all of the business and
affairs of the Corporation. He shall, in the absence of the Chairman of the
Board, preside at all meetings of the shareholders and of the Board of
Directors. He may sign, with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed except in
cases where the signing and execution thereof shall be
<PAGE>
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and, in general, shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 7 - Executive Vice President/Senior Vice President
The Board of Directors may appoint one (1) or more Executive Vice
Presidents/Senior Vice Presidents who will report to the Chief Executive Officer
of the Corporation or such other individual as designated by the Board of
Directors.
Section 8 - Vice President
The Board of Directors may appoint one (1) or more Vice Presidents. Any Vice
President may sign with the Secretary or an Assistant Secretary, certificates
for shares of the Corporation, and shall perform such other duties as from time
to time may be assigned to him by the President or by the Board of Directors.
Section 9 - Secretary
The Secretary shall (a) keep the Minutes of the shareholders' and of the Board
of Directors' meetings in one (1) or more books provided for that purpose; (b)
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation and see that the seal of the Corporation is affixed
to all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice President, certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the Corporation; and (g) in general, perform all duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
Section 10 - Treasurer
If required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the Board of Directors shall determine. He shall (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; receive and
give receipts for monies due and payable to the Corporation from any source
whatsoever; and deposit all such monies in the name of the Corporation in such
banks, trust companies, or other depositories as shall be selected in accordance
with the provisions of Article V of these Bylaws; and (b) in general, perform
all of the duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the Chairman of the Board, the
President, or the Board of Directors.
<PAGE>
Section 11 - Assistant Secretaries and Assistant Treasurers
The Assistant Secretaries, when authorized by the Board of Directors, may sign
with the President or a Vice President certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers, respectively, if required by
the Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
Section 12 - Officer Inability to Act
In the case of absence or inability to act of any officer of the Corporation and
of any person herein authorized to act in his place, the Board of Directors may
from time to time delegate the power or duties of such officer to any other
officer or any Director or any other person whom it may elect.
Section 13 - Salaries
The salaries of the officers shall be fixed from time to time by the Board of
Directors and no officer shall be prevented from receiving such salary by reason
of the fact he is also a Director of the Corporation.
Section 14 - Retirement of Corporate Officers
All Corporate officers shall retire at the end of the month in which the officer
reaches the age of 65.
Section 15 - Retirement of Executive Officers of Subsidiary Corporations
An executive officer of a subsidiary corporation is defined as a Chairman of the
Board of Directors, Vice Chairman of the Board of Directors, Chairman of the
Executive Committee, President, Executive Vice President, or any other person
who participates in major policy-making functions of the organization.
All executive officers of subsidiary corporations shall retire at the end of the
month in which that officer reaches the age of 65.
Section 16 - Appointment and Review of Subsidiary Chief Executive Officers
The Corporation, through its Chief Executive Officer, shall have final approval
of the appointment of all Chief Executive Officers of affiliated corporations as
well as individuals designated to succeed to that position. The decision of the
Corporate Chief Executive Officer may be appealed to the Board of Directors of
the Corporation.
The Chief Executive Officer of the Corporation shall at least semi-annually
review the performance of the Chief Executive Officer of each affiliated
corporation with that same officer. Annually, he shall provide the affiliate
Board of Directors or designated committee a
<PAGE>
written review of the Chief Executive Officer's performance. This review shall
contain recommendations concerning that individual's future compensation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1 - Contracts
The Board of Directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authorization may be general or
confined to specific instances.
Section 2 - Loans
The Board of Directors, without the approval of shareholders, and in accordance
with existing applicable laws and regulations, may authorize and issue debt
obligations whether or not subordinated. However, no loans shall be contracted
on behalf of the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
Section 3 - Checks, Drafts, Etc.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation, shall be signed
by such officer or officers, agent or agents, of the Corporation and in such
manner as shall from time to time be determined by or under the authority of
resolution of the Board of Directors.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1 - Certificates for Shares
Certificates representing shares of the Corporation shall be in such form as
shall be determined by the Board of Directors. Such certificates shall be
signed by the President or a Vice President and by the Secretary or an Assistant
Secretary. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer records of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificates shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, destroyed, or mutilated certificate, a new one may be issued
therefore upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
<PAGE>
Section 2 - Transfer of Shares
Transfer of shares of the Corporation shall be made only on the stock transfer
books of the Corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to transfer or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the Corporation shall be deemed by the Corporation to be the owner thereof
for all purposes.
Section 3 - Stock Regulations
The Board of Directors shall have the power and authority to make all such
further rules and regulations not inconsistent with the statutes of the State of
Wisconsin as they may deem expedient concerning the issue, transfer, and
registration of certificates representing shares of the Corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin the first (1st) day of January
and end on the thirty-first (31st) day of December in each year.
ARTICLE VIII
DIVIDENDS AND FINANCES
The Board of Directors may from time to time declare, and the Corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and its Articles of Incorporation.
Before making any distribution of profits, there may be set aside out of the net
profits of the Corporation such sum or sums as the Directors may from time to
time, in their absolute discretion, deem expedient as a reserve fund to meet
contingencies or for equalizing dividends, or for maintaining any property of
the Corporation, or for any other purpose, and profits of any year not
distributed as dividends shall be deemed to have been thus set apart until
otherwise disposed of by the Board of Directors.
ARTICLE IX
BOOKS AND RECORDS
No shareholder shall have any right to inspect any account or document of the
Corporation,
<PAGE>
except as conferred by law or by resolution of the shareholders or Directors;
provided, that the provisions of this paragraph shall not be construed as
changing in any way the duty of the Treasurer to make proper reports to the
shareholders at the Annual Meeting.
ARTICLE X
VOTING OF SHARES OWNED BY CORPORATION
Unless otherwise directed by the Board of Directors, the President shall have
full power and authority on behalf of the Corporation to attend and to act and
to vote at any meeting of the shareholders of any corporation in which this
Corporation may hold stock, and at any such meeting shall possess and may
exercise all of the rights and power incident to the ownership of such stock,
and which, as the owner thereof, the Corporation might have possessed and
exercised if present.
Votes may be cast by proxy on behalf of the Corporation; however, each such
proxy must be executed by the President and attested by the Secretary without
further authority of the Board of Directors.
The Board of Directors may confer similar power to other corporate officers from
time to time.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1 - Definitions to Indemnification and Insurance Provisions
(a) "Director, Officer, Employee or Agent" means any of the following:
(i) a natural person who, is or was a director, officer, employee or
agent of the corporation;
(ii) a natural person who, while a director, officer, employee or
agent of the Corporation, is or was serving either pursuant to
the Corporation's specific request or as a result of the nature
of such person's duties to the Corporation as a director,
officer, partner, trustee, member of any governing or decision
making committee, employee or agent of another corporation or
foreign corporation, partnership, joint venture, trust or other
enterprise;
(iii) a natural person who, while a director, officer, employee or
agent of the Corporation, is or was serving an employee benefit
plan because his or her duties to the Corporation also impose
duties on, or otherwise involve services by, the person to the
plan or to participants in or beneficiaries of the plan; or (iv)
unless the context requires otherwise, the estate or personal
representative
<PAGE>
of a director, officer, employee or agent.
(b) "Liability" means the obligation to pay a judgment, penalty,
assessment, forfeiture or fine, including an excise tax assessed with
respect to an employee benefit plan, the agreement to pay any amount
in settlement of a proceeding (whether or not approved by a court
order), and reasonable expenses and interest related to the foregoing.
(c) "Party" means a natural person who is or was threatened to be made, a
named defendant or respondent in a proceeding.
(d) "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, or investigative action, suit, arbitration, or other
proceeding, whether formal or informal (including but not limited to
any act or failure to act alleged or determined to have been
negligent; to have violated the Employee Retirement Income Security
Act of 1974; or to have violated Sections 180.0833, 180.1202 and
180.0832 of the Wisconsin Statutes, or any successor thereto,
regarding improper dividends, distributions of assets, or loans to
directors), which involves foreign, federal, state or local law and
which is brought by or in the right of the Corporation or by any other
person or entity, to which the director, officer, employee or agent
was a party because he or she is a director, officer, employee or
agent.
(e) "Expenses" mean all reasonable fees, costs, charges, disbursements,
attorneys' fees and any other expenses incurred in connection with the
proceeding.
Section 2 - Indemnification of Officers, Directors, Employees and Agents
(a) The Corporation shall indemnify a director, officer, employee or agent
to the extent he or she has been successful on the merits or otherwise
in the defense of any proceeding, for all reasonable expenses.
(b) In cases not included under Subsection (a), the Corporation shall
indemnify a director, officer, employee, or agent against liability
and expenses incurred by such person in a proceeding unless it shall
have been proven by final judicial adjudication that such person
breached or failed to perform a duty owed to the Corporation which
constituted:
(i) A willful failure to deal fairly with the Corporation or its
shareholders in connection with a matter in which the director,
officer, employee or agent has a material conflict of interest;
(ii) A violation of criminal law, unless the director, officer,
employee or agent had reasonable cause to believe his or her
conduct was lawful or no reasonable cause to believe his or her
conduct was unlawful;
(iii) A transaction from which the director, officer, employee or
agent derived an improper personal profit; or
<PAGE>
(iv) Willful misconduct.
(c) The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of no contest or its equivalent shall not,
of itself, create a presumption that the director, officer, employee,
or agent did not act in good faith and in a manner in which he
reasonably believed to be in or not opposed to the best interests of
the Corporation, and with respect to any criminal proceeding, have
reasonable cause to believe that his conduct was unlawful.
Section 3 - Determination that Indemnification is Proper
(a) Unless provided otherwise by a written agreement between the director,
officer, employee or agent and the Corporation, determination of
whether indemnification is required under Section 2 shall be made by
any method set forth in Section 180.0855 of the Wisconsin Statutes, or
any successor thereto.
(b) A director, officer, employee or agent who seeks indemnification under
this Section shall make a written request to the Corporation. As a
further precondition to any right to receive indemnification, the
writing shall contain a declaration that the Corporation shall have
the right to exercise all rights and remedies available to such
director, officer, employee or agent against any other person,
corporation, foreign corporation, partnership, joint venture, trust,
or other enterprise, arising out of, or related to, the proceeding
which resulted in the liability and the expense for which such
director, officer, employee, or agent is seeking indemnification, and
that the director, officer, employee, or agent is hereby deemed to
have assigned to the Corporation all such rights and remedies.
(c) Indemnification under Subsection 2(a) shall be made within ten (10)
days of receipt of a written demand for indemnification.
Indemnification required under Subsection 2(b) shall be made within
thirty (30) days of receipt of a written demand for indemnification.
(d) Indemnification under this Section is not required to the extent the
director, officer, employee or agent has previously received
indemnification or allowance of expenses from any person or entity,
including the Corporation, in connection with the same proceeding.
Section 4 - Allowance of Expenses as Incurred
Upon written request by a director, officer, employee or agent who is a party to
a proceeding, the Corporation shall pay or reimburse his or her reasonable
expenses as incurred if the director, officer, employee or agent provides the
Corporation with all of the following:
(a) A written affirmation of his or her good faith belief that he or she
is entitled to indemnification under this Article XI; and
<PAGE>
(b) A written undertaking, executed personally or on his or her behalf, to
repay all amounts advanced without interest to the extent that it is
ultimately determined that indemnification under Section 2(b) of this
Article XI is prohibited.
The undertaking under this subsection shall be accepted without
reference to the director's, officer's, employee's or agent's ability
to repay the allowance. The undertaking shall be unsecured.
Section 5 - Controlled Subsidiaries
All officers, directors, agents and employees of controlled subsidiaries of the
Corporation shall be deemed for purposes of this Article XI to be serving as
officers, directors, agents and employees at the request of the Corporation.
The right to indemnification granted to such officers, directors, agents and
employees by this Article XI shall not be subject to any limitation or
restriction imposed by any provisions of the Articles of Incorporation or Bylaws
of a controlled subsidiary; provided, however, that any right to indemnification
so granted shall be subject to and limited by the laws and regulations of any
applicable regulatory authority to which any controlled subsidiary is subject.
For purposes hereto, a "controlled subsidiary" means any corporation at least
eighty percent (80%) of the outstanding voting stock of which is owned by the
Corporation or another controlled subsidiary of the Corporation.
Section 6 - Insurance
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is a director, officer, employee, or agent against any
liability asserted against or incurred by the individual in any such capacity or
arising out of his status as such, regardless of whether the Corporation is
required or authorized to indemnify or allow expenses to the individual under
this Section.
Section 7 - Severability
The provisions of this Article XI shall not apply in any circumstance where a
court of competent jurisdiction determines that indemnification would be invalid
as against public policy.
Section 8 - Amending the Right to Indemnification
The right to indemnification under this Article XI may be amended only by the
shareholders by an affirmative vote of not less than a majority of the shares
present or represented at any annual or special meeting of the shareholders at
which a quorum is in attendance. Any reduction in the right to indemnification
may only be prospective from the date of such vote.
<PAGE>
ARTICLE XII
AMENDMENTS
Alteration, amendment, or repeal of the Bylaws may be made by a majority vote of
the Board of Directors at any regular or special meeting, provided notice of
such alteration, amendment, or repeal has been given to each Director at least
three (3) days prior to the meeting, and provided the shareholders have not in
any particular instance otherwise provided. Such alteration, amendment, or
repeal may also be made by receiving an affirmative vote of not less than a
majority of the shares present or represented at any annual or special meeting
of the shareholders at which a quorum is in attendance.
ARTICLE XIII
NOTICE
Unless otherwise required by these Bylaws, the Corporation's Articles of
Incorporation or any applicable statute, notice required to be given under these
Bylaws for any purpose may be given by written or oral notice or by notice
communicated in person, by telephone, telegraph, teletype, facsimile, or other
form of wire or wireless communication, or by mail or private carrier, and if
these forms of personal notice are impracticable, notice may be communicated by
a newspaper of general circulation in the area where published, or by radio,
television, or other form of public broadcast communication. Such notice shall
be effective when mailed if notice is written, or when communicated if notice is
oral or by telephone, or when transmitted if notice is by any other personal
means described in this Section.
ARTICLE XIV
EMERGENCY PREPAREDNESS
Section 1 - Emergencies
In the event of an emergency declared by the President of the United States, or
the person performing his functions, or an emergency that is potentially
dangerous to corporate personnel, the officers and employees of Corporation will
continue to conduct the affairs of the Corporation under such guidance from the
Directors as may be available, except as to matters that by statute require
specific approval of the Board of Directors, and subject to conformance with any
governmental directives during the emergency.
Section 2 - Officers Pro Tempore and Disaster
The Board of Directors shall have the power, in the absence or disability of any
officer, or upon the refusal of any officer to act, to delegate and prescribe
such officer's powers and duties to any other officer, or to any director, for
the time being. In the event of a state of disaster of sufficient severity to
prevent the conduct and management of the affairs and
<PAGE>
business of Corporation by its directors and officers, as contemplated by these
Bylaws, any two (2) or more available members of the then incumbent Executive
Committee shall constitute a quorum of that committee for the full conduct and
management of the affairs and business of the Corporation.
In the event of the unavailability, at such time, of a minimum of two (2)
members of the then incumbent Executive Committee, any three (3) available
directors shall constitute the Executive Committee for the full conduct and
management of the affairs and business of the Corporation in accordance with the
foregoing provisions of this Section. This Bylaw shall be subject to
implementation by resolution of the Board of Directors passed from time to time
for that purpose, and any provisions of these Bylaws (other than this Section),
and any resolutions that are contrary to the provisions of this Section or to
the provisions of any such implementary resolutions, shall be suspended until it
shall be determined by an interim Executive Committee acting under this Section
that it shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all of the other provisions of
these Bylaws.
Section 3 - Officer Succession
If, because of a disaster or emergency situation, the Chief Executive Officer of
the Corporation cannot be located by the then acting Head Office or is unable to
assume or to continue normal executive duties, then the authority and duties of
the Chief Executive Officer shall, without further action of the Board of
Directors, be automatically assumed by one of the following persons, in the
order designated: the next most senior corporate officer. If more than one
person shares the rank of most senior officer in any corporate officer grade,
then time of service with the corporation will determine succession.
Any one of the above-named persons, who in accordance with this resolution
assumes the authority and duties of the Chief Executive Officer, shall continue
to serve until he resigns, or until five-sixths (5/6) of the other officers who
are attached to the then acting Head Office decide in writing he/she is unable
to perform said duties, or until the elected Chief Executive Officer of this
Corporation, or a person higher on the above list, shall become available to
perform the duties of the Chief Executive Officer (see Note 1).
Anyone dealing with the Corporation may accept a certification by any three (3)
officers that a specified individual is acting as Chief Executive Officer in
accordance with this resolution and that anyone accepting such certification may
continue to consider it in force until notified in writing of a change, said
notice of change to carry the signature of three (3) officers of the
Corporation.
Section 4 - Alternate Locations
The offices of the Corporation at which its business shall be conducted shall be
the main office thereof located at 112 North Adams Street, Green Bay, Wisconsin,
and any other legally authorized location that may be leased or acquired by this
Corporation to carry on its business. During an emergency resulting in any
authorized place of business of this Corporation being unable to function, the
business ordinarily conducted at such location shall be relocated
<PAGE>
elsewhere in suitable quarters, in addition to or in lieu of the locations
heretofore mentioned, as may be designated by the Board of Directors or by the
Executive Committee or by such persons as are then, in accordance with
resolutions adopted from time to time by the Board of Directors dealing with the
exercise of authority in the time of such emergency, conducting the affairs of
this Corporation. Any temporarily relocated place of business of this
Corporation shall be returned to its legally authorized location as soon as
practicable, and such temporary place of business shall then be discontinued.
NOTE 1: The provision for replacing the acting Chief Executive Officer is
suggested because of the possibility that an individual might be so
seriously impaired by physical or mental shock as to be incapable of
fulfilling the duties required by the Chief Executive Officer.
Presumably, the only group that could sense this situation and would
be available would be the other officers who are on duty at the acting
Head Office. The fraction five-sixths (5/6) has been used so that such
removal could not be made lightly.
At a meeting of the Board of Directors of Associated Banc-Corp held on October
27, 1993, the preceding provisions, constituting the Bylaws of Associated Banc-
Corp, were amended and approved by an affirmative vote of two-thirds (2/3) or
more of the directors present.
IN TESTIMONY WHEREOF, I, the Chairman, President, and Chief Executive
Officer of Associated Banc-Corp, was present at said meeting, have hereunto
subscribed my name and affixed the Official Seal of the Corporation.
(SEAL) __________________________________________
H. B. Conlon, Chairman, President & CEO
<PAGE>
EXHIBIT 21
Subsidiaries of the Corporation
The following bank subsidiaries are national banks and are organized under the
laws of the United States:
Associated Bank, National Association
Associated Bank Green Bay, National Association
Associated Bank Lakeshore, National Association
Associated Bank Portage, National Association
The following bank subsidiaries are state banks and are organized under the laws
of the State of Wisconsin:
Associated Bank Lodi Associated Bank North
Associated Bank Madison Associated Bank Reedsburg
Associated Bank Milwaukee Associated Bank West Allis
The following bank subsidiaries are state banks and are organized under the laws
of the State of Illinois:
Associated Bank Chicago
Associated Bank Gladstone-Norwood
The following non-bank subsidiary is a thrift organized under the laws of the
United States:
First Financial Bank
The following non-bank subsidiaries are organized under the laws of the State of
Wisconsin:
Associated Banc-Corp Services, Inc. Associated Leasing, Inc.
Associated Banc-Shares, Inc. Associated Mortgage, Inc.
Associated Commercial Finance, Inc. Associated Card Services Bank,
Associated Commercial Mortgage, Inc. National Association
Associated Financial Center, Ltd. Associated Trust Company, National
Associated Investment Services, Inc. Association
First Financial Corporation Appraisal Services, Inc.
FFS Funding Corp., Inc.
The following non-bank subsidiaries are organized under the laws of the State of
Illinois:
Associated Illinois Banc-Corp
Associated Great Northern Mortgage Company
The Mortgage Man Company
The following non-bank subsidiary is organized under the laws of the State of
Arizona:
Banc Life Insurance Corporation
The following non-bank subsidiary is organized under the laws of the State of
California:
Mortgage Finance Corporation
The following non-bank subsidiary is organized under the laws of the State of
Delaware:
UFS Capital Corporation
The following non-bank subsidiary is organized under the laws of the State of
Missouri:
Illini Service Corporation
The following non-bank subsidiaries are organized under the laws of the State of
Nevada:
ASBC Investment Corp - Green Bay ASBC Investment Corp - Neenah
ASBC Investment Corp - Lakeshore ASBC Investment Corp - North
ASBC Investment Corp - Lodi ASBC Investment Corp - Portage
ASBC Investment Corp - Madison ASBC Investment Corp - Reedsburg
ASBC Investment Corp - Milwaukee ASBC Investment Corp - West Allis
First Financial Investments, Inc.
<PAGE>
EXHIBIT 23
Consent of Independent Public Accountants
-----------------------------------------
The Board of Directors
Associated Banc-Corp:
Re: Registration Statement on Form S-8
. #2-99096 . #33-16952
. #33-24822 . #33-35560
. #33-67436 . #33-86790
. #33-63545 . #33-54658
. #2-77435 . #333-46467
Re: Registration Statement on Form S-3
. #2-98922 . #33-67434
. #33-28081 . #33-63557
We consent to incorporation by reference in the subject Registration Statements
on Form S-8 and S-3 of Associated Banc-Corp of our report dated January 22,
1998, relating to the consolidated statements of financial condition of
Associated Banc-Corp and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of Associated Banc-Corp.
Chicago, Illinois /s/ KPMG Peat Marwick LLP
March 19, 1998
<PAGE>
EXHIBIT 24
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ Robert S. Gaiswinkler
----------------------------------------
Robert S. Gaiswinkler
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ Robert C. Gallagher
----------------------------------------
Robert C. Gallagher
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ Ronald R. Harder
----------------------------------------
Ronald R. Harder
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ John S. Holbrook Jr.
----------------------------------------
John S. Holbrook Jr.
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ William R. Hutchinson
----------------------------------------
William R. Hutchinson
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ Robert P. Konopacky
----------------------------------------
Robert P. Konopacky
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ George R. Leach
----------------------------------------
George R. Leach
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ John C. Meng
----------------------------------------
John C. Meng
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ J. Douglas Quick
----------------------------------------
J. Douglas Quick
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ John C. Seramur
----------------------------------------
John C. Seramur
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ John H. Sproule
----------------------------------------
John H. Sproule
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ Ralph R. Staven
----------------------------------------
Ralph R. Staven
Director
<PAGE>
DIRECTOR'S POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated
Banc-Corp, a Wisconsin corporation (the "Corporation"), which is planning to
file with the Securities and Exchange Commission (the "SEC"), Washington, D.C.,
under the provisions of the Securities Act of 1934 (the "Act"), a Form 10-K, the
form which must be used for annual reports pursuant to Section 13 or 15(d) of
the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A
under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the
reporting period ending December 31, 1997, hereby constitutes and appoints Brian
R. Bodager his true and lawful attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and in
his name, place, and stead in any and all capacities, to sign such Form 10-K and
Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the 28th day of January, 1998.
/s/ Norman L. Wanta
----------------------------------------
Norman L. Wanta
Director
<TABLE> <S> <C>
<PAGE>
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