UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition report from ___________________ to __________
Commission File Number 0-11889
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1471963
_____________________________ ___________________
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1305 Main Street
Stevens Point, Wisconsin 54481
_________________________________________
(Address of principal executive office)
Registrant's telephone number, including area code (715) 341-0400
Securities registered pursuant to Section 12(b) of the Act Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
________________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based upon the closing price of the registrant's common stock as of
March 24, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant is: $397,515,101.
As of March 24, 1995, 29,224,165 shares of the registrant's common
stock were outstanding.
Documents Incorporated by Reference.
Part II:
Portions of First Financial Corporation's 1994 Annual Report to
Shareholders.
Part III:
Portions of definitive proxy statement for the 1995 Annual Meeting of
Shareholders.
PART I
ITEM 1. BUSINESS
FIRST FINANCIAL CORPORATION
First Financial Corporation ("FFC"), which was formed in 1984, conducts
business as a unitary savings and loan holding company. As a Wisconsin
corporation, FFC is authorized to engage in any activity permitted by the
Wisconsin Business Corporation Law.
The principal asset of FFC is all of the outstanding stock of First
Financial Bank, FSB, ("FF Bank" or the "Bank"). The business of FFC is the
business of the Bank. Other activities of FFC could be funded by dividends paid
by the Bank, borrowings or the issuance of additional shares of capital stock.
FFC is headquartered at 1305 Main Street, Stevens Point, Wisconsin, 54481,
telephone number is (715) 341-0400.
FIRST FINANCIAL BANK, F.S.B.
FF Bank is a federally-chartered, stock savings institution whose
deposits are insured by the Savings Association Insurance Fund ("SAIF"), as
administered by the Federal Deposit Insurance Corporation ("FDIC"). As of
February 28, 1995 business is conducted in both Wisconsin and Illinois through
130 full-service branch offices and one limited loan origination office. Based
on total assets of $5.1 billion at December 31, 1994, FF Bank is the largest
thrift institution headquartered in Wisconsin. The principal mortgage lending
area of FF Bank is Wisconsin and Illinois. In addition to real estate loans, FF
Bank originates a significant volume of consumer loans, credit card loans and
student loans. FF Bank has a limited volume of commercial business lending
arising from a 1994 business combination. Consumer, home equity and student
lending activities are principally conducted in Wisconsin and Illinois, while
the credit card base and resulting loans are principally centered in the
Midwest. Nearly all long-term fixed-rate real estate mortgage loans generated
are sold in the secondary market and to other financial institutions with FF
Bank retaining the servicing of those loans. FF Bank offers brokerage services
and also operates a full-line independent insurance agency and a real estate
appraisal company.
FF Bank has grown significantly through mergers and acquisitions since
its stock conversion in 1980, when FF Bank had total assets of $244 million and
14 branch offices in central Wisconsin. In 1984, FF Bank and First State Savings
of Wisconsin ("First State"), concurrently with First State's stock conversion,
combined to form FFC, which operated as a multiple savings and loan holding
company from 1984 until late 1985 when FFC acquired First Savings Association of
Wisconsin ("First Savings"). At that time, all three institutions were merged
together. In 1988, FF Bank acquired National Savings and Loan Association
("National") of Milwaukee, Wisconsin through a merger conversion. By the end of
1988, FF Bank's total assets had grown to $2.3 billion and FF Bank operated 63
full-service banking offices throughout Wisconsin.
Beginning in 1990, FF Bank expanded into the southern Illinois
(suburban St. Louis) and Peoria, Illinois markets by acquiring Illini Federal
Savings and Loan Association of Fairview Heights ("Illini") in a voluntary
supervisory merger conversion and by purchasing the deposits and nine branch
banking offices of two former Peoria thrifts from the Resolution Trust
Corporation ("RTC"). Also during 1990, FF Bank acquired two western-Wisconsin
area branch banking offices from the RTC. During 1992, FF Bank acquired ten
additional branch banking offices in the Peoria market, including eight from
LaSalle Talman Bank, FSB ("Talman"), and two from the RTC. In 1993, FF Bank
acquired Westinghouse Federal Bank, FSB d/b/a United Federal Bank ("United") of
Galesburg, Illinois and also purchased the deposits and the four Quincy,
Illinois-area branch banking offices of Citizens Federal Bank, a FSB
("Citizens").
In 1994, FFC and FF Bank acquired NorthLand Bank of Wisconsin, SSB
("NorthLand") of Ashland, Wisconsin through an exchange of stock. Also, in 1994
FFC merged First Financial - Port Savings Bank, FSB ("Port") of Port Washington,
Wisconsin, which had been acquired by FFC in 1989 and had operated under a
separate charter since that time, into FF Bank.
While pursuing its strategy of expansion by acquisition in Wisconsin
and Illinois, management of FF Bank has also curtailed certain lending
activities outside of the Midwest in recent years. In 1988, FF Bank liquidated
the West Coast mortgage banking operation which FF Bank had acquired as part of
the acquisition of First Savings. This operation had incurred continuing
operating losses. Also in 1988, FF Bank sold a portion of its credit card loan
portfolio, consisting of loans concentrated in California, Texas, and the
Northeastern states. FF Bank's credit card lending activities are now focused
primarily on Wisconsin, Illinois and other Midwestern states. During 1989, FF
Bank also curtailed manufactured housing lending outside of the Midwest. In
1994, FF Bank exited the manufactured housing lending business altogether due to
competitive practices in the marketplace.
FF Bank is a member of the Federal Home Loan ("FHL") Bank System. FF
Bank is subject to comprehensive examination, supervision and regulation by the
Office of Thrift Supervision (the "OTS") and the FDIC, and is also regulated by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") as to reserves required to be maintained against deposits and certain
other matters. See "Regulation".
RECENT DEVELOPMENT
On February 28, 1995, FFC acquired FirstRock Bancorp, Inc.
("FirstRock") of Rockford, Illinois through a merger of FirstRock and a
subsidiary of FFC formed to facilitate the acquisition. Approximately 4,366,000
shares of FFC common stock were issued for FirstRock shareholders based upon an
exchange ratio of 1.7893 shares of FFC common stock for each outstanding share
of FirstRock common stock. Upon closing, FirstRock's only subsidiary, First
Federal Savings Bank, FSB ("First Federal") was merged into FF Bank with First
Federal's six offices now operating as branch banking offices of FF Bank. The
transaction has been accounted for as a pooling-of-interests. As of December 31,
1994, FirstRock had total assets and shareholders' equity of $398.1 million and
$49.4 million, respectively.
FINANCIAL RATIOS
Year Ended December 31,
-----------------------------
1994 1993 1992*
---- ---- -----
Return on average assets .97% .98% .79%
Return on average equity 18.59 21.23 15.78
Average equity to average assets 5.22 4.62 4.99
Dividend payout ratio 20.94 18.62 17.93
Net interest margin:
During the period 3.43 3.41 3.35
At end of period 3.34 3.36 3.32
* Ratios for 1992 are based upon net income from continuing operations.
MARKET AREA AND COMPETITION
At December 31, 1994, FF Bank conducted business from 124 full-service
branch banking offices located in 59 Wisconsin and 35 Illinois communities. The
offices are located throughout most of Wisconsin and much of downstate Illinois,
including the Peoria and suburban St. Louis areas. These offices include 27
locations in the Milwaukee Metropolitan Statistical Area ("MSA"), the largest in
Wisconsin, and 29 locations in the Peoria and St. Louis MSAs, Illinois' largest
outside of Chicago.
The counties in Wisconsin and Illinois in which FF Bank has offices had
a total population of 5.0 million in 1990. Between 1980 and 1990, the population
of this area increased 1.4%, compared to 1.2% for the two-state area. The median
household income in these counties was $30,449 according to the 1990 Census,
compared to $31,402 for the two- state area. It increased 63.2% between 1980 and
1990. This area, in both states, contains a diversity of major urban and
suburban areas, smaller less-urbanized communities and predominantly rural
areas. Some of the larger companies headquartered in FF Bank's market include
Briggs & Stratton, A.O. Smith, General Electric Medical Systems, Allen Bradley,
Miller Brewing, Johnson Controls and Caterpillar.
FF Bank also does business outside of Wisconsin and Illinois. At
December 31, 1994, outstanding credit card accounts of FF Bank were distributed
approximately 46% to Wisconsin residents, 12% to Illinois, 4% to Texas, 3% to
California, 3% to Michigan, 2% to New York, 2% to Ohio and 28% to other states.
Consumer and student loans are made principally to Wisconsin, Illinois and other
Midwestern residents.
FF Bank is subject to competition from other savings institutions as
well as commercial banks and credit unions in both attracting and retaining
deposits and in real estate and other lending activities. Competition for
deposits also comes from money market funds, bond funds, corporate debt and
government securities. Competition for the origination of real estate loans
comes principally from other savings institutions, commercial banks and mortgage
banking companies. Consumer loan competition comes principally from other
savings institutions, commercial banks, automobile manufacturers and their
financing subsidiaries, consumer finance companies and credit unions.
The principal methods used by competing financial institutions to
attract deposit accounts include rates of return, types of accounts, convenience
of office locations, and other services. The primary factors in competing for
loans are interest rates, loan fee charges, and timing and quality of service to
the borrower.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present selected historical consolidated financial
information of FFC.
December 31,
1994 (e) 1993(f)(i) 1992(g) 1991 1990 (h)
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
Financial Condition and Other Data
Total assets........................................... $5,103,706 $4,773,783 $3,908,286 $3,220,002 $3,142,293
Investments (a)........................................ 160,089 275,696 163,800 104,022 186,139
Loans receivable and mortgage-related securities....... 4,674,586 4,247,447 3,457,466 2,847,175 2,685,162
Loans held for sale-net................................ 6,078 73,919 54,840 38,061 53,103
Intangible assets...................................... 26,726 31,392 23,278 20,388 23,178
Deposits............................................... 4,064,166 4,050,520 3,206,112 2,935,645 2,883,214
Borrowings............................................. 682,063 438,598 461,948 77,243 60,351
Shareholders' equity (substantially restricted)(b)..... 277,955 233,835 194,095 164,535 149,576
Number of full-service offices......................... 124 117 94 86 86
Year Ended December 31,
1994 (e) 1993 (f) 1992 (g) 1991 1990 (h)
---------- ---------- ---------- --------- ---------
(In thousands except per share amounts)
Operating Data
Interest income........................................ $ 356,143 $ 340,123 $ 296,871 $ 300,081 $ 292,141
Interest expense....................................... (192,530) 189,734 181,896 203,749 204,748
--------- -------- -------- -------- --------
Net interest income.................................... 163,613 150,389 114,975 96,332 87,393
Provision for losses on loans.......................... (6,540) (10,219) (13,851) (18,333) (16,044)
Unrealized loss on impairment of mortgage-related
securities............................................ (9,000) -- -- -- --
Loan fees and servicing income......................... 14,111 14,112 12,961 15,143 15,884
Gain on sale of loans and securities................... 3,226 7,575 4,900 5,560 1,503
Other non-interest income.............................. 17,464 16,034 14,348 13,628 13,996
Non-interest expense................................... (106,740) (105,804) (88,711) (81,395) (76,840)
--------- -------- -------- -------- --------
Income before income taxes and the cumulative effect
of a change in accounting principle................... 76,134 72,087 44,622 30,935 25,892
Income taxes........................................... 27,809 26,872 16,190 12,409 9,870
--------- -------- -------- -------- --------
Income before the cumulative effect of a change in
accounting principle.................................. 48,325 45,215 28,432 18,526 16,022
Cumulative effect of a change in accounting
principle (c)....................................... -- -- 5,600 -- --
--------- -------- -------- -------- --------
Net income............................................. $ 48,325 $ 45,215 $ 34,032 $ 18,526 $ 16,022
========= ======== ======== ======== ========
Earnings per share (c):
Primary:
Income before the cumulative effect of a change in
accounting principle (d) ........................ $ 1.91 $ 1.88 $ 1.21 $ .80 $ .70
Net income......................................... 1.91 1.88 1.45 .80 .70
Fully diluted:
Income before extraordinary items and the
cumulative effect of a change in accounting
principle (d).................................... $ 1.91 $ 1.86 $ 1.19 $ .79 $ .70
Net income......................................... 1.91 1.86 1.43 .79 .70
Cash dividends declared and paid per share (c)......... $ .40 $ .35 $ .22 $ .16 $ .16
(a) Consists of federal funds sold, interest-earning deposits, and
investment securities.
(b) See Note L to FFC's consolidated financial statements.
(c) Per share data have been adjusted to reflect A) a two-for-one stock
split distributed in March 1993 and B) a two-for-one stock split
distributed in April 1992. See Note A to FFC's consolidated financial
statements.
(d) A $5.6 million credit was realized in 1992 from the cumulative effect
of the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". See Note A to FFC's consolidated
financial statements.
(e) In 1994, FFC completed the acquisition of NorthLand. The acquisition
of NorthLand has been accounted for as a pooling-of-interests. Since
NorthLand was not material to the balance sheet or operating results
of FFC, balances for prior years have not been restated. However, 1994
amounts have been adjusted to reflect the acquisition as if it had
occurred on January 1, 1994.
(f) In 1993, FF Bank acquired United and also purchased the deposits and
the four Quincy, Illinois-area branch banking offices of Citizens.
Each transaction has been accounted for as a purchase and the related
results of operations have been included in FFC's consolidated
financial statements since the respective dates of acquisition. See
Note B to FFC's consolidated financial statements.
(g) During the first quarter of 1992, FF Bank completed the assumption of
deposits and the purchase of branch facilities of ten Peoria,
Illinois-area branches including eight from Talman and two from the
RTC. Each of these transactions was accounted for as a purchase. See
Note B to FFC's consolidated financial statements.
(h) FFC completed the acquisition of Illini on January 19, 1990 and, at
various dates during 1990, the assumption of the deposits and purchase
of certain assets of three former thrift institutions from the RTC.
Each of these transactions has been accounted for as a purchase and
the related results of operations have been included in FFC's
consolidated financial statements since the respective dates of
acquisition.
(i) 1993 data has been restated to reflect the transfer of certain
securities to the available-for-sale portfolio as of the end of 1993.
See Note D to FFC's consolidated financial statements.
Lending Activities, Including Mortgage-Related Securities
General. FF Bank has traditionally concentrated on origination of
conventional mortgage loans secured by first liens on one- to four-family
residences. FF Bank also makes loans which are insured by the Federal Housing
Authority ("FHA"), Farmers Home Administration ("FmHA"), and the Rural Economic
Development Community ("REDC"), or partially guaranteed by the Veterans
Administration ("VA") as well as home loans on behalf of or for immediate sale
to the Wisconsin Department of Veterans Affairs ("WDVA"), the Wisconsin Housing
and Economic Development Authority ("WHEDA") and the Illinois Housing and
Development Authority ("IHDA"). At December 31, 1994, FFC's total loan
portfolio, including mortgage-related securities, amounted to $4.74 billion,
including mortgage loans totaling $2.22 billion of which $1.91 billion, or 40.3%
of the total loan portfolio, before net items, were loans secured by one- to
four-family residences. In addition, FF Bank makes long-term, first mortgage
real estate loans on multiple dwelling units and commercial properties, second
mortgages and short-term construction loans. As a means of better matching
maturities of its asset and liability products, FF Bank has also originated
other types of high-yielding loan products which have either a short term to
maturity or contain adjustable-rate features. These products include education
loans, credit card loans, home equity loans and consumer loans. At December 31,
1994, these loans amounted to $1.06 billion, or 22.3%, before net items, of the
total loan portfolio. Fixed-rate mortgage loans with terms up to 15 years and
loans with adjustable interest rates are originated for FF Bank' own portfolio,
while longer-term fixed-rate mortgage loans are originated for sale in the
secondary market. The Federal Reserve Board is authorized to promulgate
regulations limiting the maximum interest rate that may apply during the term of
adjustable-rate mortgage loans originated by savings institutions such as FF
Bank. Under the regulation adopted by the Federal Reserve Board, no specific
interest rate limit is set, but lenders are required to impose interest rate
caps on all adjustable-rate mortgage loans and all dwelling-secured consumer
loans, including home equity loans, which provide for interest rate adjustments.
The regulation is applicable to loans made after December 8, 1987.
FF Bank also periodically purchases mortgage-related securities as a lending
alternative when excess liquidity is available. At December 31, 1994, these
securities amounted to $1.46 billion, or 30.7% of the total loan portfolio,
before net items. For further discussion of the mortgage-related securities
portfolio, see "Mortgage-Related Securities" below as well as Notes A and D to
FFC's consolidated financial statements, filed as an exhibit hereto.
Loan Portfolio Composition. The following table sets forth information
concerning the composition of FFC's total loan portfolio including loans held
for sale and mortgage-related securities, on a consolidated basis, before net
items, by type of loan. Total loans receivable, including net items but
excluding loans held for sale and mortgage-related securities are set forth in
Note E to FFC's consolidated financial statements. The data presented in this
table include the accounts of FFC and FF Bank for all periods, and the balances
of interest-sensitive assets and liabilities arising from the 1990, 1992, 1993
and 1994 acquisitions are included from the respective dates of the related
transactions.
December 31,
1994 1993 1992
--------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
--------- -------- --------- ------- ---------- --------
(Dollars in thousands)
Real estate mortgage loans:
Conventional loans:
One- to four-family................. $1,878,202 39.7% $1,766,519 41.1% $1,230,914 34.5%
Multi-family........................ 191,807 4.0 183,619 4.3 155,798 4.4
FHA and VA.......................... 32,300 .7 36,410 .8 43,708 1.2
Commercial and other real estate...... 122,089 2.6 94,789 2.2 101,865 2.9
---------- ----- ---------- ----- ---------- -----
Total real estate mortgage loans....... 2,224,398 47.0 2,081,337 48.4 1,532,285 43.0
---------- ----- ---------- ----- ---------- -----
Other loans:
Credit card loans..................... 200,747 4.2 209,414 4.9 178,436 5.0
Home equity loans..................... 234,354 5.0 193,291 4.5 162,283 4.6
Education loans....................... 190,457 4.0 167,385 3.9 163,261 4.6
Manufactured housing loans............ 152,674 3.2 165,017 3.8 133,195 3.7
Consumer loans........................ 259,885 5.5 153,574 3.6 89,028 2.5
Other loans........................... 19,023 .4 111 -- 3,298 .1
---------- ----- ---------- ----- ---------- -----
Total other loans...................... 1,057,140 22.3 888,792 20.7 729,501 20.5
---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items........................... 3,281,538 69.3 2,970,129 69.1 2,261,786 63.5
Mortgage-related securities............ 1,455,301 30.7 1,324,943 30.9 1,301,589 36.5
---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities.................... $4,736,839 100.0% $4,295,072 100.0% $3,563,375 100.0%
========== ===== ========== ===== ========== =====
================================================================================
TABLE CONTINUED FROM THE PREVIOUS PAGE
December 31,
1991 1990
---------------------- ----------------------
Amount Percent Amount Percent
------- -------- ------- ---------
(Dollars in thousands)
Real estate mortgage loans:
Conventional loans:
One- to four-family................. $1,084,541 37.0% $1,245,965 44.7%
Multi-family........................ 133,965 4.6 133,485 4.8
FHA and VA.......................... 53,299 1.8 59,286 2.1
Commercial and other real estate...... 100,915 3.4 111,569 4.0
--------- ----- ---------- -----
Total real estate mortgage loans....... 1,372,720 46.8 1,550,305 55.6
---------- ----- ---------- -----
Other loans:
Credit card loans..................... 160,712 5.5 152,320 5.5
Home equity loans..................... 141,285 4.8 113,426 4.0
Education loans....................... 158,664 5.4 144,054 5.2
Manufactured housing loans............ 140,384 4.8 155,466 5.6
Consumer loans........................ 64,578 2.2 99,514 3.6
Other loans........................... 4,831 .1 5,166 .1
---------- ----- ---------- -----
Total other loans...................... 670,454 22.8 669,946 24.0
---------- ----- ---------- -----
Total loans receivable before
net items........................... 2,043,174 69.6 2,220,251 79.6
Mortgage-related securities............ 893,733 30.4 569,085 20.4
---------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities.................... $2,936,907 100.0% $2,789,336 100.0%
========== ===== ========== =====
A summary of FFC's loan portfolio, before net items, including loans held
for sale and mortgage-related securities is set forth below by adjustable-rate
loans, short-term loans and fixed-rate loans.
December 31, 1994 December 31, 1993 December 31, 1992
--------------------- --------------------- -------------------
Percent Percent Percent
Balance Of Total Balance Of Total Balance Of Total
--------- ---------- --------- -------- --------- ---------
(Dollars in thousands)
Adjustable-rate:
Mortgage-related securities............. $ 1,339,382 $1,150,050 $1,140,581
Mortgage................................ 786,702 515,755 498,118
Home equity............................. 234,354 193,291 162,283
Education............................... 190,457 167,385 163,261
Consumer................................ 14,346 5,816 1,741
Other................................... 13,947 -- --
Manufactured housing.................... 4,125 5,857 7,111
----------- ---------- ----------
Total adjustable-rate............... 2,583,313 54.5% 2,038,154 47.5% 1,973,095 55.4%
Short-term*:
Credit card............................. 200,747 209,414 178,436
Consumer................................ 70,084 55,414 32,608
Mortgage................................ 34,168 230,054 158,351
Mortgage-related securities............. 29,640 -- --
Deposit account......................... 4,502 4,158 3,889
Other................................... 3,014 -- --
Manufactured housing.................... 2,869 1,443 5,761
---------- ---------- ----------
Total short-term.................... 345,024 7.3 500,483 11.6 379,045 10.6
---------- ----- ---------- ----- ---------- -----
Total adjustable-rate and
short-term........................ 2,928,337 61.8 2,538,637 59.1 2,352,140 66.0
Maturities greater than three years:
Conventional mortgage................... 1,371,205 1,299,057 831,993
Consumer................................ 170,953 88,187 50,790
Mortgage-related securities............. 86,279 174,893 161,008
FHA/VA manufactured housing............. 85,384 85,552 39,170
Manufactured housing.................... 60,296 72,165 81,153
FHA/VA mortgage......................... 32,323 36,470 43,823
Other................................... 2,062 111 3,298
---------- ---------- ----------
Total fixed-rate.................... 1,808,502 38.2 1,756,435 40.9 1,211,235 34.0
---------- ----- ---------- ----- ---------- -----
Total loan portfolio................ $4,736,839 100.0% $4,295,072 100.0% $3,563,375 100.0%
========== ===== ========== ===== ========== =====
<FN>
* Credit card and fixed-rate loans with remaining contractual life of three
years or less.
As of December 31, 1994, the total amount of loans held by FF Bank
repricing or maturing after December 31, 1995 was $2.44 billion. Of these loans,
$1.81 billion have fixed rates of interest and $624.9 million have terms of
three years or less or adjustable interest rates.
The following table sets forth, at December 31, 1994, the dollar amount
of loans maturing in FF Bank's loan portfolios before net items, plus loans held
for sale and mortgage-related securities, based on either their contractual
terms to maturity or the remaining time before the loans can be repriced during
the periods indicated.
1996 - 1998 - 2000 - 2005 - After
1995 1997 1999 2004 2014 2014 Total
------ ------- -------- ------- ------- ------- -------
(In thousands)
Real estate mortgage loans.................... $ 306,653 $283,629 $146,417 $458,493 $864,255 $ 98,043 $2,157,490
Construction mortgage loans................... 7,868 39,273 13,992 2,357 3,418 66,908
Mortgage-related securities................... 1,339,365 29,640 1,711 26,989 38,932 18,664 1,455,301
Credit card and home equity
loans...................................... 412,499 22,602 435,101
Other loans*.................................. 230,867 69,234 83,736 175,671 57,300 5,231 622,039
---------- -------- -------- -------- -------- -------- ----------
Total.................................. $2,297,252 $444,378 $245,856 $663,510 $963,905 $121,938 $4,736,839
========== ======== ======== ======== ======== ======== ==========
<FN>
* Includes consumer, manufactured housing, student loans and small business
loans.
One- to Four-Family First Mortgage Loans. The primary mortgage loan
product of FF Bank is the single family home loan with some additional volume
being secured by two- to four-family residential units. In addition to a
conventional mortgage loan program, FF Bank has available various other programs
including FHA-insured, VA-guaranteed, FmHA- guaranteed, and RECD-guaranteed,
Wisconsin and Illinois state agency and veterans programs and jumbo mortgage
loans in excess of a specified balance. These mortgage loan products are
originated using either a fixed rate, or an adjustable rate of interest indexed
primarily to one-year U.S. Treasury securities yields, three-year Treasury
securities yields or the national cost of funds index as published by the FHL
Banks. Original terms to maturity vary from 15 years to 30 years. FF Bank
currently holds in its portfolio loans for terms up to 15 years and generally
sells fixed-rate mortgage loans having maturities greater than 15 years in the
secondary mortgage market.
Income-Producing Real Estate Property Loans. FF Bank, through its
commercial mortgage real estate division, has sought to diversify its loan
portfolio through the origination of loans on selected income-producing real
estate properties which meet strict internal underwriting guidelines. FF Bank
also periodically seeks to limit its overall exposure relative to such loans
through the sale of participation interests and whole loans to other financial
institutions. FF Bank provides servicing of these loans for participants (see
"Loan Servicing").
Among the projects financed by FF Bank are apartments, office buildings,
retail centers, medical clinics, industrial buildings, elderly housing and other
commercial real estate located primarily in Wisconsin, Illinois and other
Midwestern states. FF Bank's commercial real estate division has emphasized
multi-family mortgage loans in recent years. Multi-family and commercial real
estate lending involves greater risks than does one- to four-family residential
lending. The repayment of loans collateralized by income-producing real estate
is dependent upon the successful operation of the related real estate property
and also on the credit and net worth of the borrower and thus is subject to
conditions in the real estate market, interest-rate levels and overall economic
conditions. The underwriting process for such loans is structured to ascertain
that each property has sufficient value and market appeal to provide adequate
security for the loan and that the property will produce sufficient income to
meet minimum debt service coverage ratios established by FF Bank, which vary
depending upon the property type. All properties are also inspected,
independently appraised in accordance with applicable regulatory standards, and
reviewed by a qualified engineer. Loans on such properties are generally not
permitted to exceed a loan-to-value ratio of 75%. Also, each borrower is
reviewed as to management talent, integrity, experience and available financial
resources. FF Bank generally requires the personal guarantee of the debt by all
parties holding a major equity interest in the secured property when the
owner/borrower is a business entity.
Additionally, the portfolio of income-producing properties is reviewed on
a continuing basis to identify any potential risk that exists for FF Bank
through undue concentration of the portfolio in any one borrower, property type
or geographic location. These and other underwriting standards are documented in
written policy statements, which are periodically updated, and approved by FF
Bank's Board of Directors.
Lending terms for FF Bank's income-producing real estate property loans
generally call for a maturity of three to fifteen years based upon an
amortization schedule of fifteen to thirty years and an interest rate
periodically adjustable based upon a cost of funds index.
Borrowers may experience a cash flow from the property which is
inadequate to service the debt. This cash flow shortage may result in the
failure to make loan payments. Additionally, the repayment of loans secured by
income-producing properties is dependent on the successful operation of the
related real estate project and the financial strength of the borrower and thus
is subject to adverse conditions in the real estate market or the economy in
general.
Construction Loans. Loans made by FF Bank to provide interim financing
during the construction period for i) builder-owned residential properties and
ii) commercial properties are typically originated for periods of six to
eighteen months. These loans are generally limited to 75% of the value of the
property upon completion. Construction loans for properties intended to be
owner-occupied are typically structured as adjustable-rate permanent loans and
can be granted up to 95% of the value of the property upon completion.
Construction loan funds are periodically disbursed as construction progresses.
At any stage of construction, remaining undisbursed funds are in amounts
estimated to be adequate for completion or sale of the property.
Construction lending is generally considered to involve a higher level of
risk than lending secured by existing properties because properties securing
these loans are generally more speculative and more difficult to evaluate and
monitor. FF Bank's risk of loss on construction or development loans is
dependent upon the accuracy of the initial estimate of the property's value at
completion of the project and the estimated cost of the project. If the estimate
of construction or development costs proves to be inaccurate, FF Bank may be
required to advance funds beyond the amount originally committed to permit
completion of the project. If the estimate of the value proves to be inaccurate,
the lender may be confronted with a property having a value which is
insufficient to assure full repayment of the construction loan upon securing a
permanent mortgage loan. FF Bank had construction loans outstanding of $66.9
million at December 31, 1994, of which $55.6 million was collateralized by
residential real estate.
Manufactured Housing Loans. Through a series of dealer relationships in
Wisconsin and other Midwestern states, FF Bank had indirectly originated
manufactured housing loans until late 1994. The dealers closed the loans at
their locations after forwarding all necessary documentation to FF Bank for
underwriting, processing, and credit checks in order to receive approval to
originate the loans for purchase by FF Bank. The loans were either conventional
or originated under the FHA-insured or VA-guaranteed programs throughout the
various states. The term of such loans was usually up to 15 years at fixed
interest rates. During 1994, FF Bank ceased originating such loans due to
adverse competitive practices in this market.
Consumer and Other Loans. FF Bank offers a variety of lending products to
meet the specific needs of consumers. These products include secured and
unsecured installment loans with fixed repayments, student loans, credit card
programs and home equity loans. Consumer loans are made directly to the customer
and are secured by automobiles, recreational vehicles, first or second mortgages
on real estate or deposit accounts. FF Bank provides financing on both new and
used automobiles and recreational vehicles using different rates and terms to
maturity to compensate for the difference in collateral value and credit risk.
In addition to secured consumer loans, FF Bank extends unsecured loans to
qualified borrowers based upon their financial statements and creditworthiness.
The vast majority of the consumer loan originations are made within Wisconsin
and Illinois through the extensive branch network of FF Bank.
Several student loan programs are offered by FF Bank through three
guarantor programs, with the majority being originated within Wisconsin. The
various student lending programs meet a variety of borrower financial
qualifications with varying rate structures. Additionally, FF Bank offers a
consolidation loan plan whereby various student loans can be combined for the
convenience and benefit of the borrower.
FF Bank offers credit card programs to the general public and has also
placed additional emphasis on issuing cards through organizations whose
membership substantially meets qualifying criteria ("affinity programs").
Certain additional benefits can be linked to card usage under the affinity
programs. These affinity programs are based on the Visa/Mastercard credit card
programs which operate on a nationwide basis. In addition to the regular credit
card products, FF Bank also operates the BasiCard program which offers the
consumer a lower cost, no-frills charge card bearing an interest rate of 14.9%
applied to all balances and advances.
During the last decade FF Bank placed additional emphasis on its home
equity loan program. The new emphasis was tied to federal income tax law changes
which were brought about during 1986, causing consumers to look for a new
vehicle through which to finance future needs on a tax-deductible basis. As a
result of federal tax legislation adopted in 1987, however, interest on a home
equity line of credit is deductible only up to $100,000 of principal. The
primary home equity loan product calls for a floating interest rate which is
linked to the prime interest rate and is secured by a mortgage, either a primary
or a junior lien, on the borrower's residence. A fixed-rate home-equity product
is also offered. As an additional convenience to consumers, the home equity
lines are generally tied to a Gold or a standard Mastercard credit card account
whereby consumers can conveniently draw against their approved line through the
use of their credit card. Fixed-rate non-revolving second mortgage loans are
also offered.
Business Loans. With the acquisition of NorthLand, FFC acquired a
business loan portfolio of approximately $23 million. FF Bank, however, is
primarily a retail lender and its strategy has been to consider business loans
only to those customers who maintain acceptable deposit balances with FF Bank.
As such, FF Bank does not aggressively market business loans and year-end loans
outstanding approximated $19.0 million.
Mortgage Related Securities. FF Bank purchases mortgage-related
securities as a lending alternative when excess liquidity is available.
Mortgage-related securities include government agency mortgage-backed
securities, privately issued adjustable rate mortgage-backed securities and
shorter-term or adjustable-rate government agency collateralized mortgage
obligations. FF Bank reviews the geographic distribution of collateral when
purchasing private issue mortgage-related securities and limits the portfolio
concentration of underlying collateral located in certain states or metropolitan
areas; however, FF Bank has not purchased any private issue mortgage-backed
securities since 1992. With the exception of three non-agency securities, all
securities in the non-agency mortgage-backed securities portfolio are, at a
minimum, of investment grade quality. The three securities rated below
investment grade, one of which continues to be performing, are discussed as part
of "Non- Performing Assets" in Management's Discussion and Analysis, filed as an
exhibit hereto. For a related discussion of the accounting for debt securities,
including mortgage-related securities, see "Investment Securities". For further
discussion of the mortgage-related securities portfolio, see i)
"Mortgage-Related Securities" in Management's Discussion and Analysis and ii)
Notes A and D to FFC's consolidated financial statements, each of which is filed
as an exhibit hereto.
Loan Originations, Purchases and Sales. FF Bank's loan originations come
from a number of sources. Residential mortgage loan originations are
attributable primarily to depositors, walk-in customers, referrals from real
estate brokers and builders, out-of-state originators and direct solicitations.
In addition, FF Bank also acquires refinanced residential mortgage loans which
were previously originated by FF Bank, but sold to and serviced for other
investors. Prior to acquisition, these loans are refinanced to a lower rate, as
per the borrower's request. Commercial mortgage loan originations are obtained
by direct solicitation and referrals. Prior to late 1994, VA-guaranteed,
FHA-insured and conventional manufactured housing loans were obtained from
approved dealers. Consumer loans are originated from walk-in customers, existing
depositors and mortgagors and direct solicitations. Student loans are originated
from solicitation of eligible students and from walk-in customers. FF Bank also
periodically purchases student loan portfolios from other lenders.
Real estate loans are originated by loan officers in FF Bank's offices.
Relative to FF Bank's real estate loans, loans up to the FHLMC/FNMA upper limit
authority (currently $203,150 for single-family mortgage loans) for one- to
four-family residences are approved by an underwriter who is employed by FF
Bank. Loans in excess of this amount up to $400,000 are approved by designated
officers. Individual loans in excess of $400,000 up to $1,500,000, as well as
loans to one borrower in excess of three loans or in the amount of $500,000, or
greater, are approved by an officer loan committee. Loans in excess of
$1,500,000 require approval of the Executive Committee of the Board of Directors
of FF Bank, and loans in excess of $5,000,000 require approval of FF Bank's full
Board of Directors. The majority of conventional home mortgage loans are written
to comply with underwriting standards of FHLMC and/or FNMA to ensure that
national standards are being met and that FF Bank's loans meet or exceed
national secondary market requirements. All loans are centrally reviewed by an
underwriting staff prior to final approval to ensure compliance with loan
underwriting policies. With respect to the appraisal of properties, borrowers
may use the appraisal subsidiary of FF Bank or outside appraisers preapproved by
FF Bank's Board of Directors.
In general, FF Bank may lend up to 100% of the appraised value of real
property for residential purposes provided loans in excess of 80% have private
mortgage insurance, a government guarantee, additional collateral or a
combination thereof. In practice, most of FF Bank's mortgage loans are written
in the range of 75% to 95% loan-to-value ratio.
Real estate loans are secured by a first mortgage, subject primarily to
title insurance or an attorney's title opinion in certain areas and are covered
by fire and casualty insurance. When appropriate, flood insurance is also
required. Related costs, together with private mortgage insurance as required,
are paid by the borrower.
FF Bank encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on secured properties.
Certain states may also impose liens with higher priorities than first mortgages
on properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like FF
Bank, since environmental contamination may render the secured property
unsuitable for residential use. In addition, the value of residential properties
may become substantially diminished by contamination of nearby properties. In
accordance with the guidelines of FNMA and FHLMC, appraisals for single-family
homes on which FF Bank lends include comments on environmental influences and
conditions. FF Bank attempts to control its exposure to environmental risks with
respect to loans secured by larger properties by monitoring available
information on hazardous waste disposal sites and requiring environmental
inspections of such properties prior to closing the loan. No assurance can be
given, however, that the value of properties securing loans in FF Bank's
portfolio will not be adversely affected by the presence of hazardous materials
or that future changes in federal or state laws will not increase FF Bank's
exposure to liability for environmental cleanup.
The following table shows loan and mortgage-related securities
originations, purchases, sales and repayment activities of FF Bank on a
consolidated basis for 1994, 1993 and 1992.
Year Ended December 31,
----------------------------------------------
1994 1993 1992
---------- ---------- --------
(In thousands)
Loans originated:
Mortgage loans:
One- to four-family......................................... $ 593,229 $1,045,795 $ 598,477
Multi-family................................................ 50,917 85,719 54,643
Commercial real estate...................................... 53,102 10,712 6,821
Refinanced residential mortgage loans
previously sold and serviced for others.................... 52 187,066 294,477
---------- ---------- ----------
697,300 1,329,292 954,418
Consumer loans................................................. 218,631 136,766 93,967
Education loans................................................ 51,828 31,885 30,115
Home equity loans - net increase............................... 41,064 31,008 19,385
Credit card loans - net increase............................... 5,124 30,978 17,724
Manufactured housing loans..................................... 16,669 23,405 17,292
Other loans.................................................... 5,874 -- --
Refinanced manufactured housing loans pre-
viously sold and serviced for others......................... 475 36,953 --
Decrease (increase) in undisbursed
loan proceeds................................................. (12,538) 8,142 322
---------- ---------- ----------
Total loans originated................................ 1,024,427 1,628,429 1,133,223
Mortgage-related securities purchased............................ 588,352 240,640 696,206
---------- ---------- ----------
Total originations and purchases...................... 1,612,779 1,869,069 1,829,429
---------- ---------- ----------
Add (deduct):
Loans and mortgage-related securities
from acquisitions (before net items).......................... 114,462 540,474 146
Market valuation adjustment:
available-for-sale mortgage-related
securities.................................................... (10,224) 1,669 --
Unrealized loss on impairment of
mortgage-related securities................................... (9,000) -- --
Loan repayments and sales:
Repayments of loans and mortgage-
related securities......................................... (795,706) (949,794) (711,259)
Sales of one- to four-family real
estate loans.................................................. (253,104) (614,664) (481,586)
Sales of multi-family and
commercial real estate loans.................................. (25,741) (25,621) (9,128)
Sales of consumer-related loans................................ (22,712) -- --
Sales of mortgage-related
securities.................................................... (181,561) (81,294) (812)
---------- ---------- ----------
Total repayments and sales............................ (1,278,824) (1,671,373) (1,202,785)
---------- ---------- ----------
Increase in total loans before net items
(excluding change in undisbursed loan
proceeds), including loans held for sale
and mortgage-related securities................................ $ 429,193 $ 739,839 $ 626,790
========== ========== ==========
FF Bank has been actively engaged in secondary mortgage market activities
on a national basis through the sale of whole loans and participations to
pension funds, insurance companies, banks, other savings institutions and
governmental units such as FHLMC, FNMA, GNMA and special Wisconsin programs. On
a limited basis, FF Bank and its predecessors have purchased selected groups of
loans or a portfolio of loans. FF Bank also periodically has used its loans to
securitize mortgage-related securities sold by registered broker-dealers. Sales
of loans are used to provide additional funds for lending, to generate servicing
fee income and to reduce the risk resulting from fluctuating interest rates and
loan concentrations. Under loan sales and participation agreements, FF Bank
sells mortgage loans on a non-recourse basis and pays participants an agreed
upon yield on the participant's portion of the loan out of monthly payments
received from the borrowers. FF Bank, in general, has forward sales commitments
to cover the sale of all fixed-rate mortgage loans having maturities of greater
than 15 years which are closed or approved as well as a majority of accepted
applications for such loans.
Loan Servicing. FF Bank has originated the majority of the loans it
services for others. FF Bank receives fees for those servicing activities, which
include collecting and remitting loan payments, inspecting the properties and
making certain insurance and tax payments on behalf of the borrowers. At
December 31, 1994, FF Bank was servicing $1.36 billion of mortgage and
manufactured housing loans owned by others. Mortgage loans totaling $1.32
billion were being serviced for annual fees ranging from 1/8 to 1/2 of 1% of the
unpaid principal, and $36.6 million of manufactured housing loans were being
serviced for investors. Servicing fees retained on manufactured housing loans
average approximately 2.3% of the unpaid principal, reflecting the higher costs
of servicing these loans. The following table sets forth information as to FF
Bank's loan servicing portfolio, net of loans in process, at the dates shown.
December 31,
1994 1993
-------------------------- ------------------------
Amount % Amount %
---------- ------- ------- --------
(Dollars in thousands)
Loans owned by FF Bank........................... $3,250,000 70.6% $2,951,000 69.4%
Loans serviced for others........................ 1,355,000 29.4 1,302,000 30.6
---------- ----- ---------- -----
Total loans serviced....................... $4,605,000 100.0% $4,253,000 100.0%
========== ===== ========== =====
Information concerning FF Bank's servicing income from loans serviced for
others is summarized in the following table for the periods indicated.
Year Ended December 31,
1994 1993 1992
-------- -------- ------
(Dollars in thousands)
Loan servicing income........................................... $ 5,326 $5,233 $4,395
Servicing spread for the year*.................................. .401% .401% .307%
<FN>
* The servicing spread represents the average fee earned as a percentage of
average balances of loans serviced for others, net of undisbursed proceeds,
as reduced by the periodic amortization of purchased and capitalized excess
mortgage servicing rights.
Net loan servicing income has increased in 1994 and 1993 from the level
experienced in 1992, as a net result of A) an increase in the average servicing
spread on serviced mortgage loans, B) a decline in the size of the manufactured
housing servicing portfolio due to management's decision to restrict
manufactured housing lending to the Midwest, and C) a decrease in the expense
from the amortization of purchased mortgage servicing rights and capitalized
excess servicing rights totaling $500,000, $1.4 million and $3.5 million for
1994, 1993 and 1992, respectively. Purchased mortgage servicing rights, which
are amortized over the expected lives of the related loans using the level yield
method and are adjusted for prepayments, were fully amortized at the end of
1994.
Fee Income From Lending Activities. Loan origination and commitment fees
and certain direct loan origination costs are being deferred and the net amounts
amortized as an adjustment of the related loan's yield. FF Bank is amortizing
these amounts, using the level yield method, over the contractual lives of the
related loans.
FF Bank also receives other fees and charges relating to existing
mortgage loans which include prepayment penalties, late charges and fees
collected in connection with a change in borrower or other loan modifications.
Other types of loans also generate fee income for FF Bank. These include annual
fees assessed on credit card accounts, transactional fees relating to credit
card usage and late charges on consumer loans and manufactured housing loans.
Collateralized Industrial Development Revenue Bonds. Additional income
has been earned by FF Bank by offering loans and securities in its portfolio to
third parties for their use as collateral. FF Bank has previously entered into
agreements under which mortgage loans and investment securities held in
portfolio are pledged as secondary collateral in connection with the issuance of
Industrial Development Revenue Bonds. The bonds were issued by municipalities to
finance multi-family or commercial real estate owned by third parties unrelated
to FF Bank. Under the terms of these agreements, FF Bank i) issues
uncollateralized letters of credit or ii) maintains, with a trustee, mortgage
loans or securities with a fair market value, as defined, aggregating up to 180%
of the outstanding principal balance of the bonds to provide security for the
payment of principal, interest and any mandatory redemption premium owing on the
bonds. FF Bank continues to receive principal and interest payments on the
mortgage loans or securities used as collateral. If any of such bonds were in
default, FF Bank would have the primary obligation to either pay any amount in
default or to acquire the bonds on which the default had occurred. If FF Bank
was required to perform under these agreements, it would foreclose on the
existing mortgage and security interest in the real and personal property
financed with the proceeds of the bonds. FF Bank has discontinued this line of
business and does not currently anticipate entering into any new agreements,
except for the purpose of facilitating the refinancing of existing bond issues.
At December 31, 1994, certain mortgage-related securities and investment
securities with a carrying value of approximately $6.5 million were pledged as
collateral for bonds in the aggregate of $4.0 million. Additional bond issues
totaling $7.2 million are supported by letters of credit issued by FF Bank in
lieu of specific collateral. The bond agreements have expiration dates through
2008.
At December 31, 1994, each of the outstanding agreements was current with
regard to bond debt-service payments. Management has considered these agreements
in its review of the adequacy of allowances for losses relating to contingent
liabilities.
Usury Limitations. Federal law has preempted state usury law
interest-rate limitations on first-lien residential mortgage loans unless the
state legislature acted before a certain date to override the exemption. The
Wisconsin legislature acted to override the preemption and, therefore, loans
made by FF Bank in Wisconsin are subject to Wisconsin usury limitations,
described below.
The Illinois legislature did not override the federal preemption, and at
present Illinois law imposes no ceiling on interest rates for residential real
estate loans, including junior mortgage loans. Additionally, in Illinois,
federally-insured savings institutions can charge the highest rate permitted any
other lender in Illinois. The Illinois State Legislature has allowed state banks
to charge any interest rate on any type of loan, and, thus, there are
effectively no ceilings on the interest rate which a federal savings bank may
charge on a loan in Illinois.
On November 1, 1981, Wisconsin enacted a comprehensive revision of its
usury statutes overriding federal preemption and deregulating interest rates.
After that date, maximum interest rates were eliminated for loans secured by
first lien mortgages on residential real estate. Maximum interest rates have
also been eliminated for most forms of fixed and variable rate consumer loans
made by savings institutions after October 31, 1984. Variable rate revolving
consumer loans which are not secured by real estate remain subject to a maximum
interest rate of 18%, except that the limit does not apply following notice to
the borrower if the auction yield on two-year U.S. Treasury notes exceeds 15%
per year for five consecutive weeks.
With respect to first-lien residential real estate loans, the 1981
Wisconsin usury legislation clarified the Wisconsin law requirement that
unearned interest be refunded. However, certain items are now deemed not to be
interest for purposes of calculating the rebate. These items include charges
paid to third parties, fees and other amounts required to be passed on to
secondary market purchasers of any loans, up to two points to the lender for
"loan administration", commitment fees, loan fees paid by third parties
("seller's points") and a prepayment penalty of not more than 60 days interest
on that amount of the prepayment which exceeds 20% of the original amount of the
loan, provided the prepayment is made within five years of the date of the loan
and the parties have agreed to such a prepayment penalty.
Since November 1, 1981, savings institutions have been permitted to use
two forms of interest-rate adjustment clauses in mortgage loans secured by one-
to four-family homes. Interest rates may either be adjusted based on changes in
an "approved index" ("indexed adjustable rate") or by providing for no more than
a 1% increase in the interest rate not more than once during each six-month
period and by permitting decreases in the interest rate to be made at any time
("non-indexed adjustable rate"). An "approved index" is defined as (i) the
national average mortgage contract rate for major lenders on the purchase of
previously occupied houses, as computed by the FHL Banks; (ii) the monthly
average of weekly auction rates on U.S. Treasury bills with a maturity of three
months or six months made available by the Federal Reserve Board; (iii) the
monthly average yield on U.S. Treasury securities adjusted to a constant
maturity of one, two, three or five years, made available by the Federal Reserve
Board; or (iv) an index approved by the Wisconsin Commissioner of Savings and
Loans. Loans made after November 1, 1981, containing either form of adjustment
mechanism, are not subject to any maximum usury interest rate; however,
increases in the rate based on increases in the index are optional with the
lender. Adjustments under the non-indexed version are solely at the option of
the lender and if no increase is made during any six-month period, the lender
may accumulate such increases and impose them at any time. A notice to the
borrower is required at least 30 days prior to an interest rate adjustment
during which period the loan may be prepaid without penalty. Loans originated by
FF Bank prior to its conversion to a federal savings bank charter may be subject
to the above provisions.
Other states in which FF Bank makes loans have varying laws concerning
usury. Management believes that all loans made by FF Bank in other states are in
compliance with the applicable usury provisions.
Collection Procedures - Residential and Commercial Mortgage Loans. Under
Wisconsin and Illinois law, a mortgage loan borrower is afforded a period of
time, subsequent to the entry of judgment and prior to sale of the mortgaged
property, within which to redeem the foreclosure judgment ("equity of
redemption"). During this period, the loan is generally a non-earning asset. The
length of the equity of redemption available in any case is dependent upon the
form of legal proceeding selected by the lender at the time the suit is
initiated and can vary between two months and one year. Further delays can be
incurred if bankruptcy proceedings intervene. A judgment of foreclosure for
residential mortgage loans will normally provide for the recovery of all sums
advanced by the mortgagor including, but not limited to, insurance, repairs,
taxes, appraisals, post-judgment interest, attorneys' fees, costs and
disbursements. The majority of foreclosure actions by FF Bank follow a form
which provides for a six-month equity of redemption. Unless the equity of
redemption is exercised, FF Bank generally acquires title to the property
pursuant to public bidding at a sheriff's sale. Thereafter, FF Bank attempts to
sell the property.
Collection Procedures - Non-Mortgage Loans. Collection procedures for
manufactured housing loans, credit card loans, consumer loans and student loans
are done in accordance with state and federal Fair Debt Collection Practices
Acts and, where applicable, governmental agencies procedures. The intent of the
collection procedures is either to assist the borrower in performing in
accordance with contract terms or to work out the problem loan in a timely
manner so as to minimize FF Bank's loss. Generally, collection efforts are
started 10 to 15 days after the payment on account was due.
Procedures for Nonaccrual Loans, Delinquencies and Foreclosures.
Delinquent and problem loans are a normal part of any lending business. When a
borrower fails to make a required payment within 15 days following the date on
which the payment is due, the loan is considered delinquent and internal
collection procedures generally are instituted. The borrower is contacted by a
Bank representative who seeks to determine the reason for the delinquency, and
attempts are made to effect a cure. In most cases deficiencies are cured
promptly. The loan status is reviewed and, where appropriate, the condition of
the property and the financial circumstances of the borrower are evaluated.
Based upon the results of any such investigation, (i) a repayment program of the
arrearage from the borrower may be accepted; (ii) evidence may be sought (in the
form of a listing contract) of efforts by the borrower to sell the property if
the borrower has stated that he is seeking to sell; (iii) a deed in lieu of
foreclosure or voluntary surrender of the property may be effected in compliance
with applicable laws; or (iv) foreclosure, replevin or collection proceedings
may be initiated.
A decision as to whether and when to initiate legal proceedings is based
upon such factors as the amount of the outstanding loan in relation to the
original indebtedness, the extent of delinquency and the borrower's ability and
willingness to cooperate in curing deficiencies. At a foreclosure sale,
representatives of FF Bank will generally bid an amount reasonably equivalent to
the lower of the fair value of the foreclosed property or the amount of judgment
due to FF Bank.
If the sum of the outstanding loan principal balance and costs of
foreclosure that have been capitalized exceed the fair market value of the
property, in the judgment of management, an allowance for loss in an amount
equal to such excess is established. In such circumstances, a deficiency
judgment may be sought against the borrower.
When FF Bank acquires real estate through foreclosure or deed in lieu of
foreclosure, such real estate is placed on its books at the lower of the
carrying value of the loan or the fair market value of the real estate based
upon a current appraisal. Any reduction from the value previously recorded on
the books is charged against the appropriate allowance for loan losses.
Loan Delinquencies. FF Bank monitors the delinquency status of its loan
portfolio on a regular basis and initiates borrower contact and additional
collection procedures as necessary at an early date. Delinquencies and past due
loans are, however, a normal part of the lending function. When the delinquency
reaches the status of greater than 90 days, the loan is placed on a non-accrual
basis until such time as the delinquency is reduced again to 90 days or less.
Non-accrual loans at December 31, 1994 have been presented separately as a part
of the discussion of Non-Performing Assets in Management's Discussion and
Analysis, filed as an exhibit hereto. Delinquencies of 30 to 90 days are
summarized as follows:
Balance At December 31,
1994 1993
------ -----
(In thousands)
30 - 59 Days Delinquent
Residential real estate loans $ 5,444 $ 5,844
Manufactured housing loans 2,886 2,999
Credit card loans 1,964 1,988
Commercial real estate loans 121 3,798
Consumer, student and other loans 6,997 4,493
------- --------
$17,412 $ 19,122
======= ========
60 - 90 Days Delinquent
Residential real estate loans $ 1,341 $ 1,111
Manufactured housing loans 974 1,035
Credit card loans 883 904
Commercial real estate loans 1,696 707
Consumer, student and other loans 5,816 4,287
------- --------
$10,710 $ 8,044
======= ========
Total 30 - 90 Day Delinquent Loans
Residential real estate loans $ 6,785 $ 6,955
Manufactured housing loans 3,860 4,034
Credit card loans 2,847 2,892
Commercial real estate loans 1,817 4,505
Consumer, student and other loans 12,813 8,780
------- --------
$28,122 $ 27,166
======= ========
At December 31, 1994, the 30-90 day delinquencies increased
approximately $900,000 to $28.1 million from $27.2 million at year-end 1993. As
a percent of total loans receivable, loan delinquencies decreased from 0.93% at
the end of 1993 to 0.87% at December 31, 1994 due to the greater size of the
loan portfolio at the later date resulting from the NorthLand acquisition. The
$900,000 increase, at December 31, 1994, relates to i) an increase of $3.3
million in delinquent student loans (which are government guaranteed) delinquent
30-90 days, ii) an increase of $500,000 of delinquent commercial business loans
acquired in the NorthLand acquisition, iii) the $2.7 million net reduction in
the 30-90 day delinquency categories for commercial real estate loans returning
to satisfactory contractual performance during 1994, and iv) a decrease of
$200,000 in other categories of loans delinquent 30-90 days.
All of these delinquent loans have been considered by management in its
evaluation of the adequacy of the allowances for loan losses.
Foreclosed Properties and Real Estate Investments Held For Sale.
Non-performing assets of $29.7 million and $15.1 million at December 31, 1994
and 1993, respectively, are discussed as a part of Management's Discussion and
Analysis, filed as an exhibit hereto. In that discussion, it is noted that a
portion of the balances of foreclosed properties and real estate investments
held for sale included in the non-performing assets at December 31, 1994 and
1993 are comprised of large (having a carrying value in excess of $1.0 million)
commercial real estate properties. A list of the properties referred to in that
discussion is presented below.
Carrying Value At December 31,
Property Type Location 1994 1993
- ------------- -------- ------ -----
(In thousands)
Retail Milwaukee, Wisconsin $ 1,089 $1,089
Office Madison, Wisconsin -- 1,500
The office building in Madison, Wisconsin was sold in a cash
transaction during 1994.
The retail property in Milwaukee, Wisconsin had previously been developed
and owned by a wholly-owned subsidiary of FF Bank. The subsidiary carried the
property as real estate held for investment prior to foreclosure in 1994 by FF
Bank. At December 31, 1994 the property was transferred to FFC and is now
classified as a real estate investment held for sale. The 84% occupancy level at
December 31, 1994 is a slight improvement over the previous year and efforts to
lease additional space will continue to be management's primary focus in 1995
for this property. At December 31, 1994, the estimated fair value of this
property was $1.1 million. Fair value calculations use a market rate of interest
to discount estimated cash flows compared to net realizable value calculations
in which an internal cost of funds rate was used.
Foreclosed properties are valued at the lower of cost or fair value.
The above listed foreclosed properties, as well as all other
non-performing assets, have been considered in the evaluation of the adequacy of
allowances for losses. See the Management Discussion and Analysis referred to
above for management's review of adequacy of allowances for losses relative to
these properties.
Classified Assets:
For regulatory purposes, FF Bank utilizes a comprehensive classification
system for thrift institution problem assets. This classification system
requires that problem assets be classified as "substandard", "doubtful" or
"loss", depending upon certain characteristics of the particular asset or group
of assets as defined by supervisory regulators.
An asset is classified "substandard" if it contains defined
characteristics relating to borrower net worth, paying capacity or value of
collateral which indicate that some loss is distinctly possible if noted
deficiencies are not corrected. "Doubtful" assets have the same characteristics
present in substandard assets but to a more serious degree so that it is
improbable that the asset could be collected or liquidated in full. "Loss"
assets are deemed to be uncollectible or of such minimal value that their
continuance as assets without being specifically reserved is not warranted.
Substandard and doubtful classifications require the establishment of prudent
general allowances for loss amounts while loss assets require a 100% specific
allowance or that the asset be charged off.
In general, classified assets include non-performing assets plus other
loans and assets, including contingent liabilities, meeting the criteria for
classification. Non-performing assets include loans or assets which were
previously loans i) which are not performing to a serious degree under the
contractual terms of the original notes or ii) for which known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with current contractual terms.
This non-performance characteristic impacts directly upon the interest income
normally expected from such assets. Specifically included are the loans held on
a non-accrual basis, real estate judgments subject to redemption, and foreclosed
properties for which FF Bank has obtained title.
Classified assets, including non-performing assets, for FF Bank and FFC,
are set forth in the following table, as of December 31, 1994 and 1993,
respectively.
December 31,
1994 1993
-------- ------
(In thousands)
Classified assets:
Non-performing assets:
Non-accrual loans $ 9,121 $ 8,240
Non-accrual MBSs 15,455 --
Real estate held for sale by FFC 1,089 --
Foreclosed properties and other
repossessed assets 4,056 6,817
-------- --------
Total Non-Performing Assets 29,721 15,057
Add back valuation allowances netted against
foreclosed properties above 1,146 1,386
Adjustment for non-performing residential loans
not classified due to low loan-to-
appraisal value (414) (707)
Adjustment for real estate held for sale
not included in FFB classified assets (1,089) --
Additional classified performing loans:
Residential real estate 1,858 1,919
Commercial real estate 8,057 9,747
Consumer (including manufactured housing
and credit cards) 451 241
Commercial business 219 --
Other assets 135 757
-------- --------
Total Classified Assets $ 40,084 $ 28,400
======== ========
During the year ended December 31, 1994, classified assets increased
$11.7 million to $40.1 million from the December 31, 1993 total of $28.4 million
as a result of the net effect of various 1994 events. As a percentage of total
assets, classified assets increased from 0.59% at December 31, 1993 to 0.79% at
December 31, 1994.
The non-performing asset segment of classified assets similarly
increased $13.5 million during 1994. For further discussions of such
non-performing assets, see Management's Discussion and Analysis, filed as an
exhibit hereto, as well as the "Foreclosed Properties" review immediately
preceding this discussion of classified assets. Offsetting changes in the
remaining classified asset categories are discussed below.
Performing commercial real estate loans which had been adversely
classified due to the possible adverse effects of identifiable future events
decreased $1.7 million in 1994. This decrease is due to the net effect of i) the
removal from classified asset status of four contractually performing loans
totaling $2.2 million which had previously been classified due to cash flow
problems which have been resolved, ii) principal payments received on performing
loans and offset by iii) the inclusion in this category of a $500,000 loan,
which financed the 1994 sale of an office building foreclosure property, pending
future contractual performance by the borrower and improved property operations.
At December 31, 1994, exclusive of non-performing assets, the major
concentration of classified assets consists of the approximately $8.1 million of
currently performing commercial real estate loans that have been classified due
to prior delinquency and/or the potential adverse effects of possible
identifiable future events or other factors. Loans in excess of $1.0 million
included in this category are noted below (in thousands):
Loan Amount Classified
Property Type Of Property December 31, December 31,
Loan Collateral Location 1994 1993
- ---------------- ---------------- ------------ --------
Office/Land Sheboygan, Wisconsin $ 3,633 $ 3,670
Motels Various-Tennessee 2,553 (a) 2,600(a)
Office Independence, Missouri -- (b) 1,091(b)
<FN>
(a) Represents a 20% participating interest in a $13.2 million loan at
December 31, 1994 for which FF Bank is the lead lender. The loan has
been classified pending receipt of contractual principal payments in
early 1995.
(b) Represents loan to finance the 1993 sale of a former foreclosed real
estate property. The loan is no longer classified due to performance by
the borrower.
All adversely classified assets at December 31, 1994 have been considered
by management in its evaluation of the adequacy of allowances for losses.
Investment Activities
In addition to lending activities, FF Bank conducts other investment
activities on an ongoing basis in order to diversify assets, obtain maximum
yield and meet levels of liquid assets required by regulatory authorities.
Investment decisions are made by authorized officers in accordance with policies
established by the Board of Directors. In addition to satisfying regulatory
liquidity requirements, investments are used as part of FF Bank's asset and
liability program to minimize FF Bank's vulnerability to changing interest
rates. At December 31, 1994, 63.9% of FF Bank's investments mature or reprice
within one year or less.
Certain of FF Bank's investment policies relate to the term of the
investment. For example, FF Bank invests in U.S. government, agency and
instrumentality obligations maturing in three years or less; obligations of
state and other political subdivisions maturing in two years or less;
certificates of deposits of insured institutions which will mature in nine
months or less; negotiable federal funds which will mature in nine months or
less; nonnegotiable federal funds which will mature in 30 days or less;
corporate debt obligations maturing in three years or less; and commercial paper
maturing in 270 days or less. Additionally, corporate debt obligations must be
rated in one of the four highest categories by a nationally recognized
investment rating service, and commercial paper must be rated in one of the two
highest categories by two nationally recognized rating services.
Other investment policies relate to the aggregate amount of certain
investments. For example, state and municipal general obligations and revenue
bonds are limited to 1% of assets; industrial revenue bonds to 2% of assets in
the aggregate and 1% of assets for any single issue; repurchase agreements to
10% of stockholders' equity plus an additional 10% if secured by readily
marketable collateral; banker's acceptances to no more than 1/4 of 1% of such
institution's total deposits; and all other obligations, except those of the
U.S. or guaranteed thereby, to the lesser of 10% of stockholders' equity or 1%
of total assets.
Management determines the appropriate classification of debt securities
(including mortgage-related securities) at the time of purchase in accordance
with its investment policy. Debt securities are classified as held to maturity
when FFC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held to maturity are classified as
available for sale. Available-for-sale securities are stated at fair value with
the unrealized gains and losses (net of income tax effect), which are believed
to be temporary, reported as a separate component of stockholders' equity. See
"Mortgage-Related Securities" in Management's Discussion and Analysis,
incorporated herein by reference, for a discussion of the correction of an error
in the classification of certain MBSs, reclassifying the securities from held to
maturity status to available for sale at the end of 1993.
The cost of debt securities classified as held to maturity or available
for sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or, in the case of mortgage-related securities, over the estimated
life of the security. Such amortization is included in interest income from the
related security. Interest and dividends are included in interest income from
the related securities. Realized gains and losses, and declines in value judged
to be other than temporary are included in net securities gains (losses). The
costs of securities sold is based on the specific identification method.
For a breakdown of investment securities held by FF Bank at certain
dates, see Note C to FFC's consolidated financial statements, filed as an
exhibit hereto.
The following table sets forth the maturity/repricing characteristics of
FF Bank's investment securities at December 31, 1994 and the weighted average
yields of such securities.
After One, But After Five, But
Within One Year Within Five Years Within 10 Years After 10 Years
----------------- ------------------ ----------------- ---------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
U.S. Government and agency
obligations.................. $ 41,448 4.62% $50,532 4.59% $ 243 7.02% $ -- --%
Interest-earning deposits
in banks..................... 837 5.24 -- -- -- -- -- --
Federal funds sold............... 23,890 5.90 -- -- -- -- -- --
Corporate and bank notes
receivable................... 32,222 5.30 5,980 5.80 -- -- -- --
State and municipal
obligations.................. 3,385 3.41 654 5.66 394 8.00 -- --
Certificate of deposit........... 504 8.87 -- -- -- -- -- --
-------- ------- ------ ------
Total........................ $102,286 5.12% $57,166 4.73% $ 637 7.63% $ -- --%
======== ======= ====== ======
At December 31, 1994, FF Bank had no investments in any issuer in excess
of 10% of net worth.
The following table sets forth the aggregate amortized cost and estimated
fair value of investment securities at the dates indicated.
December 31,
1994 1993 1992
-------- -------- ------
(In thousands)
U.S. Government and agency obligations.......................... $ 92,268 $138,400 $ 40,828
Adjustable-rate mortgage mutual fund............................ -- 34,585 --
Interest-earning deposits....................................... 837 25,768 31,067
Federal funds sold.............................................. 23,890 21,873 29,100
Corporate and bank notes
(investment grade).......................................... 38,202 49,053 52,020
State and municipal obligations................................. 4,433 4,453 598
Certificates of deposit......................................... 504 -- 198
Commercial paper................................................ -- -- 9,989
-------- -------- --------
Total amortized cost........................................ $160,134 $274,132 $163,800
======== ======== ========
Total estimated fair value.................................. $155,222 $275,576 $165,116
======== ======== ========
Sources of Funds
General. Deposit accounts, sales of loans in the secondary market and
loan repayments are the primary sources of funds for use in lending and for
other general business purposes. In addition, FF Bank derives funds from
maturity of investments, advances from the FHL Bank and other borrowings.
Repayments of loans and mortgage-related securities are a relatively stable
source of funds, while deposit inflows and outflows are significantly influenced
by general interest rates and money market and economic conditions. Borrowings
may be used on a short-term basis to compensate for reduction in normal sources
of funds such, as deposit inflows, at less than projected levels. They may also
be used on a longer-term basis to support expanded lending and investment
activities. FF Bank has not generally solicited deposits outside the market area
served by its offices or used brokers to obtain deposits and has no brokered
deposits at December 31, 1994.
Deposit Activities. FF Bank offers a variety of deposits having a wide
range of interest rates and terms.
The following table presents, by various interest-rate intervals, FF
Bank's long-term (one year and over) certificates as of the date indicated.
December 31,
Interest Rate 1994 1993 1992
------------- -------- -------- ------
(In thousands)
3.50 - 4.00%....................... $ 149,146 $ 209,813
4.01 - 6.00%....................... 1,869,378 1,434,598 $ 788,460
6.01 - 8.00%............. ......... 175,143 273,664 425,662
8.01 - 10.00%....................... 124,828 242,502 394,585
---------- ---------- ----------
$2,318,495 $2,160,577 $1,608,707
========== ========== ==========
The following table presents, by various similar interest-rate intervals,
the amounts of long-term (one year and over) time deposits at December 31, 1994
maturing during the period indicated.
Interest Rates
---------------------------------------------------------------------------
3.50-4.00% 4.01-6.00% 6.01-8.00% 8.01-10.00% Total
---------- ---------- ---------- ----------- -----
(In thousands)
Certificate accounts
maturing in the 12
months ending:
December 31, 1995................. $149,146 $ 956,999 $ 21,784 $118,852 $1,246,781
December 31, 1996................. -- 529,656 70,324 1,666 601,646
December 31, 1997................. -- 205,061 38,048 159 243,268
After December 31, 1997 -- 177,662 44,987 4,151 226,800
-------- ---------- -------- -------- ----------
$149,146 $1,869,378 $175,143 $124,828 $2,318,495
======== ========== ======== ======== ==========
The following table presents the maturities of FF Bank's certificates in
amounts of $100,000 or more at December 31, 1994 by time remaining to maturity.
December 31,
Maturities 1994
- ---------- -------------
(In thousands)
January 1, 1995 through March 31, 1995........................... $ 31,356
April 1, 1995 through June 30, 1995.............................. 29,286
July 1, 1995 through December 31, 1995........................... 46,807
January 1, 1996 and after........................................ 58,653
--------
$166,102
========
FF Bank's deposit base at December 31, 1994 included $2.642 billion of
certificates of deposit with a weighted average rate of 5.10%. Of these
certificates of deposit, $1.570 billion with a weighted average rate of 4.85%
will mature during the 12 months ending December 31, 1995. FF Bank will seek to
retain these deposits to the extent consistent with its long-term objective of
maintaining positive interest rate spreads. Depending upon interest rates
existing at the time such certificates mature, FF Bank's cost of funds may be
significantly affected by the rollover of these funds.
Other Sources of Funds. The following table sets forth certain
information as to FFC's advances and other borrowings at the dates and for the
periods indicated. See Note J to FFC's consolidated financial statements,
incorporated herein by reference.
December 31,
1994 1993 1992
-------- -------- ------
(In thousands)
FHL Bank advances.......................... $617,752 $371,974 $397,193
Subordinated notes......................... 54,977 54,997 55,000
Industrial development revenue bonds....... 6,315 6,410 9,755
Collateralized mortgage obligations........ 3,019 5,217 --
-------- -------- --------
Total borrowings.................... $682,063 $438,598 $461,948
======== ======== ========
Weighted average interest cost of total
borrowings during the year............. 5.35% 5.29% 4.98%
Average month-end balance of short-term
borrowings............................. $ 11,509 $ -- $ 10,792
Weighted average interest rate of
short-term borrowings during year...... 5.21% --% 7.71%
Weighted average interest rate of
short-term borrowings at end of year... --% --% --%
Service Corporations and Operating/Finance Subsidiaries
FF Bank has i) five active, wholly-owned service corporations, ii) an
operating subsidiary, and iii) a limited-purpose finance subsidiary. The net
book value of FF Bank's aggregate investment in active service corporations at
December 31, 1994 was as follows (in thousands):
Wisconsin Insurance Management, Inc........................ $1,138
Appraisal Services, Inc.................................... 150
First Service Corporation of Wisconsin..................... 13
Illini Service Corporation................................. --
Mortgage Finance Corporation............................... --
------
Total.................................................. $1,301
======
Wisconsin Insurance Management, Inc. ("WIM") is a full-service,
independent insurance agency. This subsidiary offers a broad range of insurance
products, including hazard, mortgage, life and disability policies, to FF Bank's
customers, as well as a full line of commercial and personal coverages to the
general public. Brokerage services are also provided through this subsidiary.
WIM had net income of $1.6 million, $1.3 million and $1.3 million for 1994, 1993
and 1992, respectively.
Appraisal Services, Inc. performs real estate appraisals for FF Bank's
loan customers, governmental agencies and the general public. Insurance
valuations and ad valorem tax services for outside sources are also performed.
Appraisal Services, Inc. had net income of $69,000, $111,000 and $124,000 for
1994, 1993 and 1992, respectively.
First Service Corporation of Wisconsin ("FSC") previously engaged in the
management and sale of commercial real estate and apartments for FF Bank and
others, as well as acting as general partner for several real estate
partnerships. In 1993, FSC's activities were sharply cut back and its principal
assets were transferred to FF Bank. This subsidiary had a net loss of $207,000
and $435,000 for 1993 and 1992, respectively. FSC's remaining function is to
serve as general partner for two real estate partnerships in each of which FSC
has a minor investment.
Illini Service Corporation ("ISC") was acquired in conjunction with the
Illini transaction and acts as nominal trustee on deeds of trust in Missouri.
ISC's sole corporate function is to provide the trustee's signature capability.
Mortgage Finance Corporation ("MFC") was a subsidiary of a former
mortgage banking affiliate of FF Bank and acts as a nominal trustee on deeds of
trust in California and other states. MFC's sole corporate function is to
provide the trustee's signature capability on such deeds of trust acquired by FF
Bank from the former affiliate.
First Financial Investments, Inc. ("FFII") is an operating subsidiary of
FF Bank and was incorporated in 1991. FFII, which is located in the State of
Nevada, was formed for the purpose of managing a portion of FF Bank's investment
portfolio (primarily mortgage-related securities purchased subsequent to the
recent Illinois-area acquisitions) having long-term maturities. As an operating
subsidiary, FFII's results of operations are combined with FF Bank's for
financial and regulatory reporting purposes.
UFS Capital Corporation ("UFSCC"), which was acquired in conjunction with
the United acquisition, is a limited-purpose finance subsidiary of FF Bank and
functions as an issuer of certain collateralized mortgage obligation bonds. As a
finance subsidiary, UFSCC's results of operations are combined with FF Bank's
for financial and regulatory reporting purposes.
Employees of FFC
At December 31, 1994, FFC and its subsidiaries employed 1,283 full-time
employees and 332 part-time employees. FFC promotes equal employment opportunity
and considers its employee relations to be good. FFC's employees are not
represented by any collective bargaining group.
FFC sponsors retirement plans covering all full-time employees with one
or more years of service who are at least 21 years old. Additionally, FFC
maintains an employee benefit program providing, among other items,
hospitalization and major medical insurance, limited dental and life insurance,
and educational assistance. Such employee benefits are considered by management
to be competitive with employee benefits provided by other financial
institutions and major employers in the counties in which FF Bank has offices.
Executive Officers
The following table sets forth information regarding each of the
executive officers of FFC and FF Bank:
Age At
Executive December 31, Business Experience
Officer 1994 During Past Five Years
- ---------- ------------ -----------------------
John C. Seramur 52 Mr. Seramur joined FF Bank in 1966 and serves
as Director, President, Chief Executive Officer
and Chief Operating Officer of FFC and FF
Bank.
Robert M. Salinger 44 Mr. Salinger joined FFC as Corporate Secretary
and General Counsel in 1985. He also serves as
an Executive Vice President of FF Bank. In
1984, he had served as General Counsel and
Corporate Secretary for an institution acquired by
FFC. Prior to 1984, he was a partner in the law
firm of Petrie & Stocking, S.C., and associated
with the law firm of Whyte, Hirschboeck &
Dudek, S.C.
Thomas H. Neuschaefer 48 Mr. Neuschaefer joined FF Bank in 1988 and
serves as Vice President, Treasurer and Chief
Financial Officer of FFC. He also serves as
Executive Vice President-Finance of FF Bank.
From 1978 to 1988, he served as Chief Financial
Officer of National. Prior to 1978, he was
associated with the national accounting firm of
Ernst & Young LLP.
Donald E. Peters 45 Mr. Peters joined FF Bank in 1982 and serves as
Executive Vice President - Retail Banking of FF
Bank. Prior to 1982, he was an officer of
another thrift institution.
Harry K. Hammerling 44 Mr. Hammerling joined FF Bank in 1984 and
serves as Executive Vice President -
Administration and Servicing for FF Bank.
From 1972 to 1984, he served as an officer of
First State.
Kenneth F. Csinicsek 55 Mr. Csinicsek joined FF Bank in 1987 and serves
as Senior Vice President of Marketing and
Investor Relations. Prior to joining FF Bank, he
served as president of another thrift institution for
two years and operated two financial institution
consulting firms over a thirteen year period.
REGULATION
FFC, as a savings and loan holding company, and FF Bank, as a federally
chartered savings bank, are subject to regulation, supervision and examination
by the OTS as their primary federal regulator. The Bank also is subject to
regulation, supervision and examination by the FDIC, and as to certain matters
by the Federal Reserve Board.
Federal deposit insurance is required for all federally chartered savings
institutions such as FF Bank. FF Bank's deposits are insured to applicable
limits by the Savings Association Insurance Fund ("SAIF"), as administered by
the FDIC. National and state-chartered banks generally are insured by the Bank
Insurance Fund ("BIF"), also administered by the FDIC. The FDIC sets the annual
rates for insurance premiums, which currently are between 0.23% and 0.31% of
deposits (based on an institution's supervisory evaluations and capital level)
for both the SAIF and the BIF. The FDIC, however, has proposed reducing BIF
premiums to as low as 0.04% of deposits for the healthiest rated banks. Because
SAIF premiums may be unaffected by the FDIC proposal, SAIF insurance
institutions like FF Bank could be at a competitive disadvantage to BIF insured
institutions if the FDIC proposal is promulgated as proposed.
As a FDIC insured institution and a federal savings bank, FF Bank is
required to maintain specified levels of minimum capital, including: (1) "core
capital" in an amount not less than 3% of total assets, (ii) "tangible capital"
in an amount not less than 1.5% of total assets, and (iii) "risk-based" capital
not less than 8.0% of risk-weighted assets. During 1994, the federal bank
regulatory agencies revised the method for calculating risk-based capital such
that FF Bank now must identify the concentration of credit risk and the risks
arising from nontraditional activities, as well as the Bank's ability to manage
such risks. Furthermore, the OTS revised its risk-based capital requirement to
implement a standard of actual performance and expected risk of loss of
multi-family mortgages as well as a calculation for intangible assets including
purchased mortgage servicing rights and purchased credit card relationships.
Management does not anticipate any significant impact on FF Bank as a result of
these changes.
During 1994, the OTS implemented a final rule for calculating an interest
rate risk component of capital. Under the final rule, savings institutions with
"above normal" interest rate risk exposure are subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings institution's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance-sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates (except when the three-month Treasury bond
equivalent yield falls below 4%, then the decrease will be equal to one-half of
that Treasury rate) divided by the estimated economic value of the association's
assets. That dollar amount is deducted from the institution's total capital in
calculating risk-based capital. At December 31, 1994, FF Bank was not required
to deduct any amount from capital as a result of interest rate risk exposure.
The OTS also has proposed to increase the minimum required core capital
ratio from the current 3% level to a range of 4% to 5% for all but the most
highly rated financial institutions. While the OTS has not taken final action on
such proposal, it has adopted a prompt corrective action ("PCA") regulation that
classifies any savings institution with a core capital ratio of less than 4% (3%
for the most highly rated institutions) as "undercapitalized". See Note L to the
Consolidated Financial Statements, at Exhibit 13(a) hereto.
The OTS currently imposes limitations on all capital distributions by
savings institutions, including dividends, stock repurchases and cash-out
mergers. Under the current rule institutions are grouped into three
classifications depending upon their level of regulatory capital both before and
after giving effect to a proposed capital distribution. Under a proposed rule,
the OTS would conform the three classifications to the five capital
classifications set forth under the PCA regulations. Under the OTS proposal, a
savings institution which is a subsidiary of a holding company (such as FF Bank)
could make a capital distribution following notice to the OTS if, after the
capital distribution, the institution would remain at least "adequately
capitalized" under the PCA regulations. In making the proposal, the OTS stated
that it intends to use net income to date during the calendar year plus 50% of
surplus capital above the adequately capitalized level as the general rule of
thumb for determining the permissible amount of a capital distribution. In
recent periods, FF Bank generally has paid dividends of 33.6% of net income to
FFC.
During 1994, certain legislation was enacted that could effect the
operations of FF Bank and FFC. Among other things, the Community Development
Banking and Financial Institutions Act (the "CDB Act") requires the federal
banking agencies to streamline and harmonize regulatory, reporting and
examination requirements, expedite the processing of regulatory applications and
reduce regulatory burdens with respect to the operations of financial
institutions and the protection of the deposit insurance funds. The CDB Act also
requires that regulations which impose additional reporting, disclosure or other
new requirements must become effective only on the first day of a calendar
quarter.
Also enacted during 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "IBBEA") authorized the acquisition of banks in any
state by bank holding companies, subject to compliance with federal and state
antitrust laws, the Community Reinvestment Act ("CRA") and specific deposit
concentration limits. The IBBEA removes most state law barriers to interstate
acquisitions of banks and ultimately will permit multi-state banking operations
to merge into a single bank. Although FF Bank, as a federal savings bank,
already has interstate branching authority, enactment of the IBBEA may result in
increased competition and financial institution acquisition activity from out of
state financial institutions and their holding companies.
During 1994, various regulations were promulgated that could impact the
operations of FF Bank and FFC. Consistent with the requirements of the CDB Act,
the federal bank regulatory agencies have attempted to conform many of their
regulations to eliminate the disparity that has developed among the four
financial institution regulators. For example, the OTS amended its internal
rating system for savings associations by adopting the "CAMEL" (Capital, Assets,
Management, Earnings and Liquidity) system developed by the FDIC, in lieu of the
"MACRO" (Management, Asset Quality, Capital Adequacy, Risk Management and
Operating Results). The Bank's CAMEL rating is used to determine, in part, FDIC
insurance assessments. The OTS also revised its regulations concerning mergers,
transfers of assets, and combinations with other depository institutions to
facilitate the acquisition of savings institutions by other FDIC-insured
institutions, as well as the acquisition of such institutions by savings
associations.
During 1994, the federal bank regulatory agencies also jointly issued
proposed changes to the rules and regulations implementing the CRA that could
impact how FF Bank's CRA performance is measured. Pursuant to the CRA, FF Bank
is required to demonstrate how its deposit facilities serve the convenience and
needs of the communities in which it is chartered to do business, including the
credit needs of low- and moderate-income populations within such communities.
The Bank's CRA rating is a factor reviewed in connection with mergers,
acquisitions, and in connection with other regulatory applications. The proposed
revision would adopt a performance-based evaluation system, measuring FF Bank's
lending, investment and service to its delineated lending community, in lieu of
the current process- based system of evaluation. FF Bank's current CRA rating is
"Outstanding", and the Bank believes that it can continue to receive comparable
CRA ratings if the new evaluation system is adopted as proposed.
Legislation has been introduced in the Congress to merge FF Bank's primary
federal regulator, the OTS, with the Office of the Comptroller of the Currency,
the primary federal regulator of National banks, and to create a new bank
regulatory agency, the Federal Banking Agency. There can be no assurance that
this legislation or similar legislation will be enacted, or the impact on FF
Bank and FFC of such legislation.
TAXATION
Federal
FFC files on behalf of itself, FF Bank, and its subsidiaries a calendar
tax year consolidated federal income tax return. Income and expense are reported
on the accrual method of accounting.
Savings institutions, such as FF Bank, are generally taxed in the same
manner as other corporations. Unlike other corporations, however, qualifying
savings institutions that meet certain definitional tests relating to the nature
of their supervision, income, assets and business operations are allowed to
establish a reserve for bad debts and each tax year are permitted to deduct
additions to that reserve on qualifying real property loans using the more
favorable of the following two alternative methods: (i) a method based on the
institution's actual loss experience (the "experience" method) or (ii) a method
based upon a specified percentage of the institution's taxable income (the
"percentage of taxable income" method). Qualifying real property loans are, in
general, loans secured by interests in improved real property. The addition to
the reserve for nonqualifying loans must be computed under the experience
method. In recent years, FF Bank generally has computed additions to its
reserves for losses on qualifying loans using the experience method. It is
anticipated that FF Bank will continue to use this method in future years.
To the extent that FF Bank makes distributions to its stockholders that
are considered withdrawals from that excess bad debt reserve, the amounts
withdrawn will be included in FF Bank's taxable income. The amount considered to
be withdrawn by such a distribution will be the amount of the distribution, plus
the amount necessary to pay the tax with respect to the withdrawal. Dividends
paid out of FF Bank's current or accumulated earnings and profits as calculated
for federal income tax purposes, however, will not be considered to result in
withdrawals from their bad debt reserves. Distributions in excess of FF Bank's
current and accumulated earnings and profits, distributions in redemptions of
stock, and distributions in partial or complete liquidation of FF Bank will be
considered to result in withdrawals from the Bank's bad debt reserves. At
December 31, 1994, FF Bank had $70.1 million in accumulated federal income tax
bad debt reserves that would not be available for distribution to their
stockholder without the imposition of additional tax.
Depending on the composition of its items of income and expense, a savings
institution may be subject to the alternative minimum tax (AMT) to the extent
the AMT exceeds the regular tax liability. AMT is calculated by multiplying
alternative minimum taxable income (AMTI) by 20%. AMTI equals regular taxable
income increased by certain tax preferences, including depreciation deductions
in excess of that allowable for alternative minimum tax purposes, the amount of
the bad debt reserve deduction claimed in excess of the deduction based on the
experience method, and 75% of the excess of adjusted current earnings (ACE) over
AMTI. ACE is defined as AMTI adjusted for certain items such as accelerated tax
depreciation, tax exempt interest, the dividends received deduction, and other
tax preferences. Only 90% of AMTI may be reduced by net operating loss
carryovers and most alternative minimum tax paid may be used as a credit against
regular tax paid in future years.
State
FFC and FF Bank are headquartered in Wisconsin and have significant
operations in Illinois. The State of Wisconsin imposes a corporate franchise tax
measured by the separate Wisconsin taxable income of each of the members. The
State of Illinois imposes a corporate income tax based on the apportionment of
Illinois taxable income by the entire group to their Illinois activities. The
current corporate tax rates imposed by Wisconsin and Illinois are 7.9% and 7.3%
respectively. FF Bank also has an operating subsidiary (FFII) located in Nevada
which manages a portion of FF Bank's investment portfolio. The income of FFII is
only subject to taxation in Nevada which currently does not impose a corporate
income or franchise tax other than a nominal registration fee.
Examinations
The Internal Revenue Service (IRS) has examined the consolidated federal income
tax returns of FFC and FF Bank through 1988. The IRS is currently examining the
consolidated returns of FFC and FF Bank for 1989, 1990 and 1991. The separate
Wisconsin state income tax returns of the members of the group through 1986 are
closed to examination by the Wisconsin Department of Revenue (WDR) due to the
expiration of the statute of limitations. However, the WDR is currently
examining earlier returns of a previously acquired institution due to the
utilization by FF Bank of Wisconsin net operating losses carried forward from
that institution.
ITEM 2. PROPERTIES
At December 31, 1994, FF Bank operated through 124 full-service savings
bank branch offices, one loan origination limited office and one insurance
agency office, located in Wisconsin and Illinois. The aggregate net book value
at December 31, 1994 of the properties owned or leased, including headquarters,
properties and leasehold improvements at the leased offices, was $40.1 million.
The leases expire between 1995 and 2021. See Note H to FFC's consolidated
financial statements, filed as an exhibit hereto, for information regarding FF
Bank's premises and equipment. Management believes that all of these properties
are in good condition. The following tables set forth the location of FFC's
banking and other offices.
Wisconsin
Address City
- ----------------------- -----------------------
609 East Spruce Street Abbotsford, Wisconsin
103 West Cleveland Arcadia, Wisconsin
926 West College Avenue Appleton, Wisconsin
221 Fourth Avenue West Ashland Wisconsin
117 South Broad Street Bayfield, Wisconsin
201 Park Avenue Beaver Dam, Wisconsin
203 Main Street Black River Falls, Wisconsin
1 North Moorland Road Brookfield, Wisconsin (a)
197 West Chestnut Street Burlington, Wisconsin
709 East Geneva Street Delavan, Wisconsin
308 Third Avenue West Durand, Wisconsin
3292 Main Street East Troy, Wisconsin (a)
130 South Barstow Commons Eau Claire, Wisconsin
806 South Hastings Way Eau Claire, Wisconsin
23 South Washington Elkhorn, Wisconsin
One North Madison Street Evansville, Wisconsin
211 North Highland Drive Fredonia, Wisconsin
1930 Wisconsin Avenue Grafton, Wisconsin (a)
1482 West Mason Street Green Bay, Wisconsin
2235 Main Street Green Bay, Wisconsin
5651 Broad Street Greendale, Wisconsin
4981 South 76th Street Greenfield, Wisconsin
10 Main Street Hayward, Wisconsin
Holmen Square Holmen, Wisconsin
117 Second Avenue North Hurley, Wisconsin
420 South Main Street Iron River, Wisconsin
2525 Milton Avenue Janesville, Wisconsin (a)
620 Main Street LaCrosse, Wisconsin
300 East Lake Street Lake Mills, Wisconsin
205 North Eighth Street Manitowoc, Wisconsin
630 South Central Avenue Marshfield, Wisconsin (a)
705 North Center Avenue Merrill, Wisconsin
200 East Wisconsin Avenue Milwaukee, Wisconsin (a)
829 West Mitchell Street Milwaukee, Wisconsin
3027 West Lincoln Avenue Milwaukee, Wisconsin
3432 South 27th Street Milwaukee, Wisconsin (a)
5350 West Fond du Lac Avenue Milwaukee, Wisconsin
5900 West North Avenue Milwaukee, Wisconsin
<FN>
_________________
(a) Leased
Wisconsin (Continued)
Address City
- ----------------------- -----------------------
7900 West Brown Deer Road Milwaukee, Wisconsin
Highways 51 & 70 West Minocqua, Wisconsin (a)
600 East Main Street Mondovi, Wisconsin
306 North Rochester Street Mukwonago, Wisconsin
600 Hewett Street Neillsville, Wisconsin
15665 West National Avenue New Berlin, Wisconsin
1093 Summit Avenue Oconomowoc, Wisconsin (a)
1101 Main Street Onalaska, Wisconsin
429 North Sawyer Street Oshkosh, Wisconsin
1414 South Fourth Avenue Park Falls, Wisconsin
Post Road & South Drive Plover, Wisconsin
222 North Wisconsin Street Port Washington, Wisconsin
1733 Douglas Avenue Racine, Wisconsin
140 South Brown Rhinelander, Wisconsin
135 South Mill Street Saukville, Wisconsin
1230 North Taylor Drive Sheboygan, Wisconsin
2815 South Chicago Avenue South Milwaukee, Wisconsin (a)
1325 Church Street Stevens Point, Wisconsin
108 West Prospect Thorp, Wisconsin (a)
213 North Lake Avenue Twin Lakes, Wisconsin
104 South Washington Avenue Washburn, Wisconsin
600 Main Street Watertown, Wisconsin
633 South Church Street Watertown, Wisconsin (a)
100 East Sunset Drive Waukesha, Wisconsin (a)
300 Wisconsin Avenue* Waukesha, Wisconsin
704 North Grand Avenue Waukesha, Wisconsin
1200 Delafield Street Waukesha, Wisconsin (a)
2306 West St. Paul Avenue Waukesha, Wisconsin (a)
2831 North Grandview Boulevard Waukesha, Wisconsin (a)
330 Third Street Wausau, Wisconsin (a)
2711 West Stewart Avenue Wausau, Wisconsin
2645 North Mayfair Road Wauwatosa, Wisconsin
2825 South 108th Street West Allis, Wisconsin (a)
7101 West Greenfield Avenue West Allis, Wisconsin (a)
430 East Silver Spring Drive Whitefish Bay, Wisconsin
1714 Scranton Street Whitehall, Wisconsin
219 Center Street Whitewater, Wisconsin
711 West Grand Avenue Wisconsin Rapids, Wisconsin (a)
<FN>
_______________
(a) Leased
* Insurance Agency Office
Illinois
Address City
- ----------------------- -----------------------
104 Southeast 3rd Avenue Aledo, Illinois
104 Homer Adams Parkway Alton, Illinois
101 East Broadway Astoria, Illinois
301 West Galena Boulevard Aurora, Illinois
100 East Washington Belleville, Illinois
6902 West Main Belleville, Illinois (a)
1007 North Fourth Street Chillicothe, Illinois
238 North Main Columbia, Illinois
305 East Locust DeKalb, Illinois (a)
1325 Sycamore Road DeKalb, Illinois (a)
12200 North Route 88 Dunlap, Illinois (a)
300 East Washington Street East Peoria, Illinois
326 Missouri Avenue East St. Louis, Illinois
101 East Evergreen Elmwood, Illinois
6550 North Illinois Fairview Heights, Illinois
10280 Lincoln Trail Fairview Heights, Illinois
16 East Fort Street Farmington, Illinois (a)
50 East Main Street Galesburg, Illinois
1865 North Henderson Galesburg, Illinois
#1 Junction Drive West Glen Carbon, Illinois
318 West College Greenville, Illinois
1035 Broadway Hamilton, Illinois
333 West Main Havana, Illinois
313 Fifth Street Lacon, Illinois
143 South Main Street Lewistown, Illinois
217 West Washington Millstadt, Illinois
119 West 5th Street Minonk, Illinois
122 West Boston Avenue Monmouth, Illinois
21 Boulder Hill Pass Montgomery, Illinois (a)
1645 State Highway 121 Mount Zion, Illinois
300 South 4th Street Pekin, Illinois
3500 Court Street Pekin, Illinois (a)
103 West Forrest Hill Peoria, Illinois
111 North Jefferson Avenue Peoria, Illinois
201B Northwoods Mall Peoria, Illinois (a)
700 Main Street Peoria, Illinois
2515 West Lake Avenue Peoria, Illinois
3222 West Harmon Highway Peoria, Illinois
4125 North Sheridan Road Peoria, Illinois (a)
4600 Brandywine Drive Peoria, Illinois
7620 North University Peoria, Illinois (a)
525 West Washington Street Pittsfield, Illinois
<FN>
__________________
(a) Leased
Illinois (Continued)
Address City
- ----------------------- -----------------------
116 East Main Street Princeville, Illinois
706 Maine Street Quincy, Illinois (a)
24th and Broadway Quincy, Illinois
416 West Front Street Roanoke, Illinois
116 South Congress Rushville, Illinois
2659 Farragut Drive** Springfield, Illinois (a)
1881 Washington Road Washington, Illinois
200 South Market Waterloo, Illinois
<FN>
___________________
(a) Leased
** Loan Origination Office
ITEM 3. LEGAL PROCEEDINGS
FFC and FF Bank are involved as plaintiff or defendant in various legal
actions incidental to their business, all of which in the aggregate are believed
by management of FFC not to represent an adverse risk of loss which would be
material to the financial condition or operations of FFC. See Note Q to FFC's
consolidated financial statements, filed at Exhibit 13(a) hereto, for further
discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference
from Management's Discussion and Analysis filed at Exhibit 13(b) hereto. FFC's
Board of Directors has discretion to declare and pay dividends on FFC's common
stock from time to time under Wisconsin law, unless such payment would render
FFC insolvent. Also, see Exhibit 10(l), "Form of Indenture", for further
limitations on payment of dividends on FFC's common stock.
Also, relative to OTS restrictions on the payment of dividends by FF Bank
to FFC, see Note L to FFC's consolidated financial statements filed at Exhibit
13(a) hereto. Also, see Item 1, "Business - Regulation".
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this item is incorporated herein
by reference from "Management's Discussion and Analysis" filed at Exhibit 13(b)
hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" is filed at Exhibit 13(b) hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FFC's consolidated financial statements are filed at Exhibit 13(a)
hereto. Quarterly financial information is included as a part of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" filed
at Exhibit 13(b) hereto. Schedule II includes the required schedule for
"Guarantees of Securities of Other Issuers".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item regarding directors is incorporated by
reference from pages 5 to 9 and 16 of the proxy statement for FFC's 1995 annual
meeting of shareholders, filed with the Securities and Exchange Commission on
March 24, 1995. Information acquired by this item regarding executive officers
is included herein at page 29 and regarding directors at pages 5 - 7 of the
proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation required by this item is
incorporated herein by reference from pages 9 - 15 of the proxy statement for
FFC's 1995 annual meeting of shareholders, filed with the Securities and
Exchange Commission on March 24, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by reference
from pages 3 - 4 of the proxy statement for FFC's 1995 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 24,
1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from page 17 of the proxy statement for FFC's 1995 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 24,
1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The following consolidated financial statements of the Registrant
and its subsidiaries for the year ended December 31, 1994, including the related
notes and the report of the independent auditors are incorporated herein by
reference from Exhibit 13a of this Report.
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Income - Years ended December 31, 1994, 1993
and 1992.
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - Years Ended December 31, 1994,
1993 and 1992.
Notes to Consolidated Financial Statements.
(a)(2) The following consolidated financial statement schedule of the
Registrant is filed at Exhibit 13(a) to this Report in response to the
requirement of Items 8 and 14(d) of this Report and should be read in
conjunction with the consolidated financial statements incorporated herein by
reference to Item 8 of this Report:
Schedule II - Guarantees of Securities of Other Issuers
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore, have
been omitted.
(a)(3) The following exhibits are either filed as part of this Report on
Form 10-K or are incorporated herein by reference.
3(a) Articles of Incorporation of Registrant dated February 21, 1984,
as amended, and restated on January 18, 1995. (Incorporated
herein by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on January 26, 1995).
3(b) Bylaws of the Registrant, as amended (incorporated herein by
reference to the Registrant's Annual Report on Form 10-K filed
on March 25, 1985).
4(b) Form of Certificate of Common Stock (incorporated herein by
reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
December 7, 1983).
10(a) Employment Contract of Registrant with John C. Seramur dated
January 1, 1989, (incorporated by reference from Annual Report
on Form 10-K for 1989 filed on March 29, 1990).
10(b) Employment Agreement between Registrant and Robert M. Salinger
dated August 16, 1989, (incorporated by reference from Annual
Report on Form 10-K for 1989 filed on March 29, 1990).
10(c) Deferred Compensation Agreement between First State Savings of
Wisconsin and Paul C. Kehrer (incorporated herein by reference
to Exhibit 10.8 to Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
February 14, 1984).
10(d) Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 2 to Registrant's
Registration Statement on Form S-1 [Registration No. 2-88289]
filed on February 14, 1984).
10(e) Supplemental Executive Profit Sharing Plan dated December 21,
1987 (incorporated herein by reference to Exhibit 10(q) to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 33- 16948] filed on
February 29, 1988).
10(f) Form of Executive Supplemental Life Insurance Plan dated April
10, 1989 (incorporated herein by reference from Annual Report on
Form 10-K for 1989 filed on March 26, 1990).
10(g) First Financial Corporation Stock Option Plan III dated April
24, 1991 (incorporated herein by reference from Annual Report on
Form 10-K for 1991 filed on March 27, 1992).
10(h) Form of Supplemental Executive Retirement Plan dated August 1,
1989, and amended on November 1, 1991 (incorporated herein by
reference from Annual Report on Form 10-K for 1991 filed on
March 27, 1992).
10(i) Employment Agreement between Registrant and Donald E. Peters
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(j) Employment Agreement between Registrant and Harry K. Hammerling
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(k) Acquisition Agreement among Westinghouse Financial Services,
Inc., Westinghouse Savings Corporation and FF Bank, FSB dated
September 14, 1992 (incorporated herein by reference to the
Current Report filed by the Registrant on Form 8-K on September
29, 1992).
10(l) Form of Indenture between the Registrant and Norwest Bank
Wisconsin, N.A. as trustee relative to issuance of 8.0%
Subordinated Notes due November 1, 1999 (incorporated herein by
reference to Exhibit 4.2 to Amendment No. 1 to Registrant's
Registration Statement on Form S-3 [Registration No. 33-52638]
on October 9, 1992).
10(m) Directors' Retirement Plan dated November 18, 1992.
(Incorporated herein by reference from Annual Report on Form
10-K for 1992 filed on March 26, 1993.)
10(n) Consulting Agreement between Registrant and Robert S.
Gaiswinkler dated January 1, 1993. (Incorporated herein by
reference from Annual Report on Form 10-K for 1992 filed on
March 26, 1993.)
10(o) Agreement and Plan of Merger by and among NorthLand Bank of
Wisconsin, SSB, First Financial Corporation and FF Bank, FSB
dated October 13, 1993 (incorporated herein by reference to
Exhibit 2 to the Registrant's Registration Statement on Form S-4
[Registration No. 33-51487] filed on December 16, 1993.)
10(p) Deferred Compensation Plan and Trust, dated January 1, 1988 and
amended January 1, 1993. (Incorporated herein by reference from
Annual Report on Form 10-K for 1993 filed on March 29, 1994.)
10(q) Promissory Note relating to Registrant's commercial bank
line-of-credit agreement dated April 30, 1994.
10(r) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994.
10(s) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994.
10(t) Agreement and Plan of Reorganization among First Financial
Corporation, First Financial Acquisition Company, and FirstRock
Bancorp, Inc. dated October 26, 1994 and amended December 5,
1994 (incorporated herein by reference to Exhibits 2.1 and 2.2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on December 12, 1994).
13(a) Consolidated Financial Statements
13(b) Management Discussion and Analysis of Financial Condition and
Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young LLP for Registration Statement No.
2-90005 as filed with the Securities and Exchange Commission
("SEC") on March 16, 1984, for Registration Statement No.
33-17304 as filed with the SEC on September 17, 1987,
Post-Effective Amendment No. 5 to Form S-1 on Form S-8
[Registration No. 33-16948], as filed with the SEC on May 12,
1988 for Registration Statement No. 33-36295 as filed with the
SEC on August 9, 1990, Registration Statement No. 33-69856 as
filed with the SEC on October 1, 1993, Registration Statement
No. 33-51487 filed with the SEC on January 13, 1994 and
Registration Statement No. 33-56823 filed with the SEC on
January 27, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On November 3, 1994, the Registrant filed a Current Report on
Form 8-K with the SEC announcing that FFC entered into a
definitive agreement, on October 26, 1994, to acquire FirstRock
Bancorp, Inc. (FirstRock) of Rockford, Illinois.
On December 7, 1994, the Registrant filed a Current Report on
Form 8-K with the SEC reporting an amendment to the above noted
definitive agreement to acquire FirstRock.
(c) Exhibits to this Report on Form 10-K required by Item 601 of
Regulation S-K are attached or incorporated herein by reference
as stated in the Index to Exhibits.
(d) The report of independent auditors and the financial statement
schedules listed in subsections (a)(1) and (2) above are filed
at Exhibits 13(a) to this Report on Form 10-K in response to the
requirements of Items 8 and 14(d) of this Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL CORPORATION
By: /s/ John C. Seramur
------------------------
John C. Seramur
President
Chief Executive Officer
Date: March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ John C. Seramur By: /s/ Thomas H. Neuschaefer
------------------------------------ ----------------------------
John C. Seramur Thomas H. Neuschaefer
President Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
Director Date: March 27, 1995
Date: March 27, 1995
By: /s/ Robert S. Gaiswinkler
-------------------------------
Robert S. Gaiswinkler
Chairman of the Board
Director
Date: March 27, 1995
By: /s/ Gordon M. Haferbecker By: /s/ James O. Heinecke
----------------------------------- ------------------------
Gordon M. Haferbecker James O. Heinecke
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Robert T. Kehr By:
----------------------------------- --------------------------
Robert T. Kehr Paul C. Kehrer
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Robert P. Konopacky By: /s/ Dr. George R. Leach
----------------------------------- --------------------------
Robert P. Konopacky Dr. George R. Leach
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Ignatius H. Robers By: /s/ John H. Sproule
------------------------------------ ----------------------
Ignatius H. Robers John H. Sproule
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Ralph R. Staven By: /s/ Norman L. Wanta
------------------------------------ ---------------------
Ralph R. Staven Norman L. Wanta
Director Director
Date: March 27, 1995 Date: March 27, 1995
By: /s/ Arlyn G. West
------------------------------------
Arlyn G. West
Director
Date: March 27, 1995
EXHIBIT INDEX
Schedule II Guarantees of Securities of Other Issuers
3(a) Articles of Incorporation of Registrant dated February 21, 1984,
as amended, and restated on January 18, 1995. (Incorporated
herein by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on January 26, 1995).
3(b) Bylaws of the Registrant, as amended (incorporated herein by
reference to the Registrant's Annual Report on Form 10-K filed
on March 25, 1985).
4(b) Form of Certificate of Common Stock (incorporated herein by
reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
December 7, 1983).
10(a) Employment Contract of Registrant with John C. Seramur dated
January 1, 1989, (incorporated by reference from Annual Report
on Form 10-K for 1989 filed on March 29, 1990).
10(b) Employment Agreement between Registrant and Robert M. Salinger
dated August 16, 1989, (incorporated by reference from Annual
Report on Form 10-K for 1989 filed on March 29, 1990).
10(c) Deferred Compensation Agreement between First State Savings of
Wisconsin and Paul C. Kehrer (incorporated herein by reference
to Exhibit 10.8 to Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
February 14, 1984).
10(d) Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 2 to Registrant's
Registration Statement on Form S-1 [Registration No. 2-88289]
filed on February 14, 1984).
10(e) Supplemental Executive Profit Sharing Plan dated December 21,
1987 (incorporated herein by reference to Exhibit 10(q) to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 33- 16948] filed on
February 29, 1988).
10(f) Form of Executive Supplemental Life Insurance Plan dated April
10, 1989 (incorporated herein by reference from Annual Report on
Form 10-K for 1989 filed on March 26, 1990).
10(g) First Financial Corporation Stock Option Plan III dated April
24, 1991 (incorporated herein by reference from Annual Report on
Form 10-K for 1991 filed on March 27, 1992).
10(h) Form of Supplemental Executive Retirement Plan dated August 1,
1989, and amended on November 1, 1991 (incorporated herein by
reference from Annual Report on Form 10-K for 1991 filed on
March 27, 1992).
10(i) Employment Agreement between Registrant and Donald E. Peters
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(j) Employment Agreement between Registrant and Harry K. Hammerling
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(k) Acquisition Agreement among Westinghouse Financial Services,
Inc., Westinghouse Savings Corporation and FF Bank, FSB dated
September 14, 1992 (incorporated herein by reference to the
Current Report filed by the Registrant on Form 8-K on September
29, 1992).
10(l) Form of Indenture between the Registrant and Norwest Bank
Wisconsin, N.A. as trustee relative to issuance of 8.0%
Subordinated Notes due November 1, 1999 (incorporated herein by
reference to Exhibit 4.2 to Amendment No. 1 to Registrant's
Registration Statement on Form S-3 [Registration No. 33-52638]
on October 9, 1992).
10(m) Directors' Retirement Plan dated November 18, 1992.
(Incorporated herein by reference from Annual Report on Form
10-K for 1992 filed on March 26, 1993.)
10(n) Consulting Agreement between Registrant and Robert S.
Gaiswinkler dated January 1, 1993. (Incorporated herein by
reference from Annual Report on Form 10-K for 1992 filed on
March 26, 1993.)
10(o) Agreement and Plan of Merger by and among NorthLand Bank of
Wisconsin, SSB, First Financial Corporation and FF Bank, FSB
dated October 13, 1993 (incorporated herein by reference to
Exhibit 2 to the Registrant's Registration Statement on Form S-4
[Registration No. 33-51487] filed on December 16, 1993.)
10(p) Deferred Compensation Plan and Trust, dated January 1, 1988 and
amended January 1, 1993. (Incorporated herein by reference from
Annual Report on Form 10-K for 1993 filed on March 29, 1994.)
10(q) Promissory Note relating to Registrant's commercial bank
line-of-credit agreement dated April 30, 1994.
10(r) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994.
10(s) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994.
10(t) Agreement and Plan of Reorganization among First Financial
Corporation, First Financial Acquisition Company, and FirstRock
Bancorp, Inc. dated October 26, 1994 and amended December 5,
1994 (incorporated herein by reference to Exhibits 2.1 and 2.2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on December 12, 1994).
13(a) Consolidated Financial Statements
13(b) Management Discussion and Analysis of Financial Condition and
Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young LLP for Registration Statement No.
2-90005 as filed with the SEC on March 16, 1984, for
Registration Statement No. 33-17304 as filed with the SEC on
September 17, 1987, Post-Effective Amendment No. 5 to Form S-1
on Form S-8 [Registration No. 33-16948], as filed with the SEC
on May 12, 1988 for Registration Statement No. 33-36295 as filed
with the SEC on August 9, 1990, Registration Statement No.
33-69856 as filed with the SEC on October 1, 1993, Registration
Statement No. 33-51487 filed with the SEC on January 13, 1994
and Registration Statement No. 33-56823 filed with the SEC on
January 27, 1995.
27 Financial Data Schedule
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
FIRST FINANCIAL CORPORATION
DECEMBER 31, 1994
Column A Column B Column C Column D Column E Column F Column G
Amount Default By Issuer
Owned By Of Securities
Person Amount In Guaranteed
Total Or Treasury In Principal,
Name Of Amount Persons Of Interest, Sinking
Issuer of Securities Title Of Issue Guaranteed For Which Issuer Of Fund or Redemption
Guaranteed By Person For Of Each Class Of And Statement Securities Nature Of Provisions, or
Which Statement Is Filed Securities Guaranteed Outstanding Is Filed Guaranteed Guarantee Payment Of
- ------------------------ --------------------- ----------- --------- ---------- ---------- -------------------
Industrial Development
Revenue Bonds:
City of Greenfield, WI $3,185,000 Industrial
Edgewood Plaza Joint Development Revenue
Venture Refunding Bonds,
Series 1992 $ 2,685,000 None None P&I None
City of Maplewood, MN $4,525,000 Variable
Angeles Partners 16, A Rate Demand Multi-
California Limited family Housing Revenue
Partnership Refunding Bonds,
Series 1993 4,525,000 None None P&I None
City of Maple Grove, MN
Maple Investments, a $2,300,000 Industrial
Minnesota General Part- Revenue Bonds, Series
nership 1986 2,055,000 None None P&I None
Housing Authority For $7,000,000 Convertible
The City of Waukesha, Variable Rate Demand
WI, Caroline Apart- Multifamily Housing
ments Limited Part- Revenue Bonds,
nership Series A $ 1,950,000 None None P&I None
TOTAL $11,215,000
P&I = Principal and Interest Payments on Securities Guaranteed.