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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
/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, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period
to
COMMISSION FILE NUMBER: 0-5519
ASSOCIATED BANC-CORP
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1098068
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
112 NORTH ADAMS STREET,
GREEN BAY, WISCONSIN 54301
(Address of principal executive) (Zip code)
Registrant's telephone number, including area code: (414) 433-3166
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK, PAR VALUE - $0.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /
As of March 1, 1996, 16,851,608 shares of Common Stock were outstanding and the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was $588,566,880. Excludes $25,516,812 of market value representing
the outstanding shares of the Registrant owned by all directors and officers who
individually, in certain cases, or collectively, may be deemed affiliates.
Includes $72,163,676 of market value representing 11.7% of the outstanding
shares of the Registrant held in a fiduciary capacity by the trust departments
of four wholly-owned subsidiaries of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Portions of Documents are
Document Incorporated
Proxy Statement for Annual
Meeting of
Shareholders on April 24, 1996 Part III
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ASSOCIATED BANC-CORP
1995 FORM 10-K TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market For the Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 57
PART III
Item 10. Directors and Executive Officers of the Registrant 57
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners and Management 57
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 58
Signatures 60
2
PART I
ITEM 1 BUSINESS
GENERAL
Associated Banc-Corp (the "Corporation") is a bank holding company registered
pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"). It was
incorporated in Wisconsin in 1964 and was inactive until 1969 when permission
was received from the Board of Governors of the Federal Reserve System to
acquire three banks. The Corporation currently owns eight commercial banks
located in Wisconsin and Illinois (the "affiliates") serving their local
communities and, measured by total assets held at December 31, 1995, was the
third largest commercial bank holding company headquartered in Wisconsin. As of
December 31, 1995, the Corporation owned 25 non-banking subsidiaries located in
Arizona, Georgia, Illinois, Nevada, and Wisconsin. There was no material change
in the nature of the business done by the Corporation or its affiliates and
subsidiaries during 1995.
On July 5, 1995, the Corporation, through an affiliate, Associated Illinois Banc
Corp, acquired Great Northern Mortgage Company and its wholly owned
subsidiaries, Independent Mortgage Associates, Inc. and The Mortgage Man
Company. In addition, on August 3, 1995, the Corporation, through Associated
Illinois Banc Corp, acquired Gladstone-Norwood Trust and Savings Bank and its
wholly owned subsidiary, GN Realty, Inc. The Corporation dissolved Associated
Brokerage, Inc., a subsidiary of Associated Bank Green Bay, National
Association, on April 1, 1995, following the sale of its assets to another
wholly owned subsidiary, Associated Investment Services, Inc.
SERVICES
The Corporation provides advice and specialized services to the affiliates in
various areas of banking policy and operations, including auditing, data
processing, marketing/advertising, investments, legal/compliance, personnel
services, trust services, risk management, and other financial services
functionally related to banking.
Responsibility for the management of the affiliates remains with their
respective Boards of Directors and officers. Services rendered to the affiliates
by the Corporation are intended to assist the local management of these banks to
expand the scope of the banking services offered by them. At December 31, 1995,
the affiliated banks operated a total of 86 banking locations in 55 communities.
The Corporation, through its affiliates, provides a complete range of retail
banking services to individuals and small- to medium-size businesses. These
services include checking, savings, NOW, Super NOW, and money market deposit
accounts, business, personal, educational, residential, and commercial mortgage
loans, MasterCard, VISA and other consumer-oriented financial services,
including IRA and Keogh accounts, safe deposit and night depository facilities.
Automated Teller Machines (ATMs), which provide 24-hour banking services to
customers of the affiliates, are installed in many locations in the affiliates'
service areas. The affiliates are members of an interstate shared ATM network,
which allows their customers to perform banking transactions from their
checking, savings or credit card accounts at ATMs in a multi-state environment.
Among the services designed specifically to meet the needs of small- and
medium-size businesses are various types of specialized financing, cash
management services and transfer/collection facilities.
The affiliates provide lending, depository, and related financial services to
commercial, industrial, financial, and governmental customers. In the lending
area these include term loans, revolving credit arrangements, letters of credit,
inventory and accounts receivable financing, and real estate construction
lending.
Additional emphasis is given to non-credit services for commercial customers,
such as advice and assistance in the placement of securities, corporate cash
management, and financial planning. The affiliates make available check
clearing, safekeeping, loan participations, lines of credit, portfolio analyses,
data processing, and other services to approximately 150 correspondent financial
institutions.
Four of the affiliates and a trust company subsidiary offer a wide variety of
fiduciary, investment management, advisory, and corporate agency services to
individuals, corporations, charitable trusts, foundations, and institutional
investors. They also administer (as trustee and in other fiduciary and
representative capacities) pension, profit sharing and other employee benefit
plans, and personal trusts and estates.
3
The mortgage banking subsidiaries are involved in the origination and
warehousing of mortgage loans and the sale of such loans to investors. The
primary focus is on one- to four-family residential and multi-family properties,
all of which are generally saleable into the secondary mortgage market.
Investment subsidiaries provide discount and full-service brokerage services,
including the sale of fixed and variable annuities, mutual funds, and
securities, to the affiliates' customers and the general public. Several
investment subsidiaries located in Nevada hold, manage, and trade cash, stocks,
and securities transferred from the affiliates and reinvest investment income.
Insurance subsidiaries provide insurance products, including credit life and
disability insurance, to the affiliates' customers. A leasing subsidiary
provides lease financing for a variety of capital equipment for commerce and
industry.
The Corporation and affiliates are not dependent upon a single or a few
customers, the loss of which would have a material adverse effect on the
Corporation. No material portion of the Corporation's or the affiliates'
business is seasonal.
FOREIGN OPERATIONS
The Corporation and its affiliates do not engage in any operations in foreign
countries.
EMPLOYEES
At December 31, 1995, the Corporation and its affiliates, as a group, had 1,763
full-time equivalent employees.
COMPETITION
Competition exists in all of the Corporation's principal markets. Competition
involves efforts to obtain new deposits, the scope and type of services offered,
interest rates paid on deposits and charged on loans, as well as other aspects
of banking. Substantial competition exists from other financial institutions
engaged in the business of making loans and accepting deposits. All of the
affiliates also face direct competition from members of bank holding company
systems that have greater assets and resources than those of the Corporation.
SUPERVISION AND REGULATIONS
Financial institutions are highly regulated both at the federal and state level.
Numerous statutes and regulations affect the business of the Corporation and the
affiliates.
The activities of the Corporation are regulated by the Act. The Act requires
prior approval of the Federal Reserve Board (the "Board") before acquiring
direct or indirect ownership or control of more than five percent of the voting
shares of any bank or bank holding company.
The Act also prohibits, with certain exceptions, acquisitions of more than five
percent of the voting shares of any company which is not a bank and the conduct
by a holding company (directly or through its subsidiaries) of any business
other than banking or performing services for its subsidiaries without prior
approval of the Board.
All of the affiliate banks are insured by the Federal Deposit Insurance
Corporation and are subject to the provisions of the Federal Deposit Insurance
Act. Areas subject to regulation by federal and state authorities include
capital adequacy, reserves, investments, loans, mergers, issuance of securities,
payments of dividends by the banking affiliates, establishment of branches, and
other aspects of banking operations.
Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), which substantially changed the federal deposit insurance
system and the regulatory environment in which depository institutions, most
significantly savings institutions, operate. FIRREA strengthens the regulations
applicable to savings institutions, enhances the enforcement powers of the
federal regulatory agencies over insured depository institutions, mandates an
increase in the assessments for federal deposit insurance and provides that all
commonly controlled FDIC insured depository institutions may be held liable for
any loss incurred by the FDIC resulting from a failure of, or any assistance
given by the FDIC, to any of such commonly controlled institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC
Improvement Act"), became law on December 19, 1991. The regulatory framework of
the FDIC Improvement Act represents a comprehensive and fundamentally changed
approach to banking supervision. The new approach imposes relatively detailed
standards and mandates the development of additional regulations governing
nearly every aspect of the operations and management of banks, in addition to
many aspects of bank holding companies. Some of the provisions contained in the
FDIC Improvement Act include
4
providing for recapitalization of the bank insurance fund ("BIF"),
implementation of a risk related assessment system for FDIC insurance premiums,
revisions in the process of supervision and examination for depository
institutions, and federal deposit insurance reforms.
The FDIC Improvement Act also contains regulations requiring insured financial
institutions with total assets of $500 million or more to file annual audit
reports, including audited financial statements and other specific information,
and to establish independent audit committees, in addition to other control and
compliance reporting issues.
The FDIC Improvement Act is expected to have a broad and significant impact on
the structure and condition of the banking industry in the future.
The Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Act") contains provisions which amended the Bank Holding Company Act to allow
an adequately-capitalized and adequately-managed bank holding company to acquire
a bank located in another state as of September 29, 1995. Effective June 1,
1997, the Act will also allow interstate branching.
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the banking industry and the banking affiliates of
the Corporation are affected by the credit policies of monetary authorities,
including the Federal Reserve System. An important function of the Federal
Reserve System is to regulate the national supply of bank credit in order to
combat recession and curb inflationary pressures. Among the instruments of
monetary policy used by the Federal Reserve to implement these objectives are
open market operations in U.S. government securities, changes in reserve
requirements against member bank deposits and changes in the Federal Reserve
discount rate. These means are used in varying combinations to influence overall
growth of bank loans, investments and deposits, and may also affect interest
rates charged on loans or paid for deposits. The monetary policies of the
Federal Reserve authorities have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to have
such an effect in the future.
In view of changing conditions in the national economy and in the money markets,
as well as the effect of credit policies by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made as to possible
future changes in interest rates, deposit levels and loan demand, or their
effect on the business and earnings of the Corporation and its affiliates.
ITEM 2 PROPERTIES
The Corporation's corporate headquarters are located in the City of Green Bay,
Wisconsin, in a leased facility with approximately 6,500 square feet of office
space owned by an affiliated company. The space is currently leased on a
month-to-month basis.
The affiliates, as of December 31, 1995, occupied 86 offices in 55 different
communities within Wisconsin and northern Illinois. All key facilities, except
Associated Bank Milwaukee and Associated Bank Chicago, are owned by the
affiliates. Except for the affiliate offices in downtown Milwaukee and Chicago,
which are located in the lobbies of multi-story office buildings, all of the
banking facilities are free-standing buildings that provide adequate customer
parking facilities, including drive-in facilities of various numbers and types
for customer convenience. Some banks also have offices in various supermarket
locations as well as offices located within retirement community facilities. In
addition, the Corporation owns other real property that, when considered in the
aggregate, is not material to its operations.
ITEM 3 LEGAL PROCEEDINGS
Information in response to this item is incorporated by reference to Note 13
"Commitments and Contingent Liabilities - Legal" of the Notes to Consolidated
Financial Statements included under Item 8 of this document.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
5
EXECUTIVE OFFICERS OF THE CORPORATION
Pursuant to General Instruction G of Form 10-K, the following list is included
as an unnumbered item in Part I of this report in lieu of being included in the
Proxy Statement for the Annual Meeting of Stockholders to be held April 24,
1996.
The following is a list of names and ages of executive officers of the
Corporation and affiliates indicating all positions and offices held by each
such person and each such person's principal occupation(s) or employment during
the past five years. Officers are appointed annually by the Board of Directors
at the meeting of directors immediately following the Annual Meeting of
Shareholders. There are no family relationships among these officers nor any
arrangement or understanding between any officer and any other person pursuant
to which the officer was selected. No person other than those listed below has
been chosen to become an Executive Officer of the Corporation.
NAME OFFICES AND POSITIONS HELD DATE OF ELECTION
Harry B. Conlon Chairman, President, Chief Executive Officer and Director March 1, 1975
Age: 60 of Associated Banc-Corp
Robert C. Gallagher Executive Vice President and Director of Associated Banc- April 28, 1982
Age: 57 Corp; President, Chief Executive Officer & Director of
Associated Bank Green Bay (affiliate)
Brian R. Bodager General Counsel and Corporate Secretary of Associated July 22, 1992
Age: 40 Banc-Corp
From November 1990 to June 1992, Senior Officer of an
Ohio-based bank holding company
Joseph B. Selner Senior Vice President and Chief Financial Officer of January 25, 1978
Age: 49 Associated Banc-Corp
John P. Evans President and Director of Associated Bank North (affiliate) August 16, 1993
Age: 46 Prior to July 1993, Senior Officer of a Wisconsin bank
David J. Handy President, Chief Executive Officer and Director of May 31, 1991
Age: 56 Associated Bank, National Association (affiliate)
From July 1990 to May 31, 1991, President and Chief
Operating Officer of Associated Bank, National Association
(affiliate)
Michael B. Mahlik Executive Vice President, Managing Trust Officer, and January 1, 1991
Age: 43 Director of Associated Bank, National Association
(affiliate); President, Chief Executive Officer, and
Director of Associated Trust Company (subsidiary)
George J. McCarthy President and Chief Executive Officer of Associated Bank, November 11, 1983
Age: 45 Chicago (affiliate)
Mark J. McMullen Executive Vice President and Director of Associated Bank June 2, 1981
Age: 47 Green Bay (affiliate)
Randall J. Peterson Executive Vice President and Director of Associated Bank August 2, 1982
Age: 50 Green Bay (affiliate)
Thomas R. Walsh President and Chief Executive Officer of Associated Bank January 1, 1994
Age: 38 Lakeshore (affiliate)
From September 1992 to January 1994, Senior Officer of
Associated Bank Lakeshore (affiliate)
Prior to September 1992, Senior Officer of an Illinois bank
Gordon J. Weber President, Chief Executive Officer and Director of December 15, 1993
Age: 48 Associated Bank Milwaukee (affiliate); Director of
Associated Bank Madison (affiliate)
Prior to December 15, 1993, President, Chief Executive
Officer and Director of Associated Bank Lakeshore
(affiliate)
6
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information in response to this item is incorporated by reference to the table
"Market Information" on Page 57 and the discussion of dividend restrictions in
Note 10 "Stockholders' Equity" of the Notes to Consolidated Financial Statements
included under Item 8 of this document. The Corporation's common stock is
currently being traded on the National Association of Securities Dealers
Automated Quotation/National Market System (NASDAQ/NMS) over-the-counter market
under the symbol ASBC.
The approximate number of equity security holders of common stock, $.01 par
value, as of March 1, 1996, was 5,000.
Certain of the Corporation's shares are held in "nominee" or "street" name and,
accordingly, the number of beneficial owners of such shares are not known or
included in the foregoing number. Such shares are not separated to count actual
beneficial owners.
Payment of future dividends is within the discretion of the Corporation's Board
of Directors and will depend, among other factors, on earnings, capital
requirements, and the operating and financial condition of the Corporation. At
the present time, the Corporation expects that dividends will continue to be
paid in the future.
7
ITEM 6 SELECTED FINANCIAL DATA
TABLE 1: EARNINGS SUMMARY AND SELECTED FINANCIAL DATA
% CHANGE
1994 TO
YEARS ENDED DECEMBER 31, 1995 1995 1994 1993 1992 1991 1990
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(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
Interest income $ 264,380 20.5 $ 219,351 $ 209,446 $ 226,817 $ 247,671 $ 250,031
Interest expense 117,814 42.3 82,801 80,272 102,969 136,124 148,614
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Net interest income 146,566 7.3 136,550 129,174 123,848 111,547 101,417
Less: Provision for possible loan
losses 3,156 42.7 2,211 5,700 10,581 21,768 7,202
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Net interest income after
provision for possible loan
losses 143,410 6.8 134,339 123,474 113,267 89,779 94,215
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Plus: Noninterest income 53,042 8.0 49,103 49,980 48,449 41,849 35,506
Less: Noninterest expense 123,079 3.4 119,079 117,022 117,043 110,706 96,912
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Net noninterest expense 70,037 .1 69,976 67,042 68,594 68,857 61,406
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Income before income taxes and
extraordinary item 73,373 14.0 64,363 56,432 44,673 20,922 32,809
Income tax expense 26,721 17.7 22,701 19,034 14,057 8,004 9,049
Extraordinary item -- -- -- -- 1,006 -- --
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NET INCOME $ 46,652 12.0 $ 41,662 $ 37,398 $ 31,622 $ 12,918 $ 23,760
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Earnings per share(1)
Income before extraordinary item $ 2.83 11.9 $ 2.53 $ 2.30 $ 1.92 $ .83 $ 1.52
Net income $ 2.83 11.9 $ 2.53 $ 2.30 $ 1.99 $ .83 $ 1.52
Cash dividends per share(1) $ .97 14.1 $ .85 $ .74 $ .61 $ .57 $ .50
Weighted average shares outstanding 16,505 16,481 16,270 15,907 15,590 15,603
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SELECTED FINANCIAL DATA
Year-End Balance:
Loans, net of unearned income $2,611,227 11.9 $2,334,086 $2,100,039 $2,044,059 $1,993,979 $1,861,849
Allowance for possible loan losses 39,067 2.9 37,963 35,547 34,542 31,247 21,915
Investment securities 740,628 1.4 730,258 685,228 654,195 609,928 584,725
Assets 3,697,842 8.2 3,418,330 3,114,310 3,100,879 3,066,403 2,854,323
Deposits 2,973,108 6.9 2,780,026 2,548,942 2,577,487 2,518,047 2,322,748
Long-term borrowings 18,067 367.2 3,867 5,347 17,925 39,841 45,687
Stockholders' equity 325,596 14.0 285,646 266,337 228,874 202,625 192,605
Stockholders' equity per share (1) 19.71 13.8 17.32 16.23 14.29 12.80 12.39
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Average for the Year:
Loans, net of unearned income $2,456,137 12.0 $2,192,960 $2,081,767 $2,030,854 $1,912,017 $1,758,155
Investment securities 725,767 5.0 691,112 669,163 613,102 591,480 574,397
Assets 3,448,261 9.3 3,155,233 3,059,003 3,014,730 2,842,761 2,678,959
Deposits 2,791,833 8.6 2,570,848 2,512,826 2,479,247 2,329,591 2,178,581
Long-term borrowings 11,239 157.3 4,368 13,711 26,119 39,882 49,621
Stockholders' equity 304,955 10.9 275,014 244,419 214,605 202,072 184,297
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Financial Ratios:
Return on average equity 15.30% 15.15% 15.30% 14.75% 6.39% 12.89%
Return on average assets 1.35 1.32 1.22 1.05 .45 .89
Net interest margin (tax-equivalent) 4.67 4.78 4.71 4.62 4.48 4.37
Average equity to average assets 8.84 8.72 7.99 7.12 7.11 6.88
Dividend payout ratio 34.28 33.60 32.17 30.65 68.67 32.89
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(1) Per share data adjusted retroactively for stock dividends and acquisitions accounted for using the
pooling-of-interests method.
5-YEAR
COMPOUND
YEARS ENDED DECEMBER 31, GROWTH RATE
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Interest income 1.1%
Interest expense (4.5)
Net interest income 7.6
Less: Provision for possible loan
losses (15.2)
Net interest income after
provision for possible loan
losses 8.8
Plus: Noninterest income 8.4
Less: Noninterest expense 4.9
Net noninterest expense 2.7
Income before income taxes and
extraordinary item 17.5
Income tax expense 24.2
Extraordinary item --
NET INCOME 14.4
Earnings per share(1)
Income before extraordinary item 13.2
Net income 13.2
Cash dividends per share(1) 14.2
Weighted average shares outstanding
SELECTED FINANCIAL DATA
Year-End Balance:
Loans, net of unearned income 7.0%
Allowance for possible loan losses 12.3
Investment securities 4.9
Assets 5.3
Deposits 5.1
Long-term borrowings (16.9)
Stockholders' equity 11.1
Stockholders' equity per share (1) 9.7
Average for the Year:
Loans, net of unearned income 6.9
Investment securities 4.8
Assets 5.2
Deposits 5.1
Long-term borrowings (25.6)
Stockholders' equity 10.6
Financial Ratios:
Return on average equity
Return on average assets
Net interest margin (tax-equivalent)
Average equity to average assets
Dividend payout ratio
(1) Per share data adjusted retroact
pooling-of-interests method.
8
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is management's analysis of the consolidated financial
condition and results of operations of the Corporation, which may not otherwise
be apparent from the consolidated financial statements included in this report.
Reference should be made to those statements and the selected financial data
presented elsewhere in this report for an understanding of the following
discussion and analysis.
BUSINESS COMBINATIONS AND OFFICE PURCHASES
In August 1995, the Corporation acquired GN Bancorp, parent company of the $130
million Gladstone-Norwood Trust & Savings Bank in northwest Chicago. With the
addition of Gladstone-Norwood's two offices, the Corporation now has five
banking offices in the Chicago region, with over $400 million in assets. The GN
Bancorp acquisition was accounted for as a pooling of interests. All
consolidated financial information has been restated as if the transaction had
been effected as of the beginning of the earliest period presented.
In July 1995, the Corporation completed the cash acquisition of a privately
owned mortgage company in suburban Chicago. The mortgage company acquisition
provided approximately an additional $535 million in mortgage loan servicing, as
well as expanding the Corporation's mortgage loan origination capabilities in
Chicago and northeast Illinois. The acquisition was accounted for as a purchase
and, accordingly, the consolidated financial statements include the results of
operations since the date of acquisition.
In September 1994, the Corporation completed the acquisition of four Madison,
Wisconsin, banking offices with approximately $35 million in deposits. In
October 1994, the Corporation completed the acquisition of $131 million in
deposits through the purchase of banking offices in the Wisconsin communities of
Rhinelander and Oshkosh. These acquisitions also involved the purchase of loans,
real estate, and other assets. In November 1994, the Corporation also completed
the acquisition of approximately $22 million in deposits through the purchase of
banking offices in Oconto and Oconto Falls in northeast Wisconsin.
With the completion of these office purchases, the Corporation acquired
approximately $190 million in deposits and $114 million of loans during 1994.
The acquisitions were all accounted for using the purchase method. Accordingly,
the consolidated financial statements include the results of operations since
the dates of acquisition. There was not a significant effect on 1994 earnings as
a result of the office acquisitions.
All per share information has been adjusted to reflect the 5-for-4 stock split,
effected in the form of a 25% stock dividend, paid to shareholders on June 15,
1995.
PERFORMANCE SUMMARY
The Corporation achieved record earnings in 1995. Net income grew to $46.7
million, a 12.0% increase over the $41.7 million earned in 1994. This followed
an 11.4% improvement in 1994 earnings over 1993.
On a per share basis, net income was $2.83 in 1995 compared with $2.53 in 1994,
an increase of 11.9%. This followed a 10.0% increase in 1994 per share earnings
over 1993.
The improvement in the Corporation's 1995 net income was led by a $10.3 million
or 7.3% increase in fully taxable equivalent net interest income. Changes in the
volumes of earning assets and interest-bearing liabilities were the major
factors for the improvement as average earning assets grew 9.7% combined with
11.3% growth in average interest-bearing liabilities compared with 1994. Fully
taxable equivalent interest income in 1995 rose $45.3 million or 20.3% compared
with 1994, while interest expense increased $35.0 million or 42.3% between the
same periods, resulting in the improvement in 1995 net interest income.
The provision for loan losses was $3.2 million in 1995 compared to $2.2 million
in 1994. The increase in provision was related to slightly higher net
charge-offs in 1995 compared to 1994 and strong loan growth of 11.9%, requiring
a higher provision in 1995 to maintain an adequate allowance for possible loan
losses to loans ratio, which was 1.50% at December 31, 1995.
9
Noninterest income rose 8.0% over 1994 as trust revenues continued to show
strong growth, up 9.7% over 1994, and loan servicing fees up 36.5% over 1994, as
a result of a larger servicing portfolio, partly from the July 1995 mortgage
company acquisition. Retail investment income continued to increase, up 18.5%
over 1994, as new sales offices were added.
Noninterest expense increased 3.4% over 1994, tempered somewhat by the reduction
in FDIC insurance premiums. During 1995, the FDIC reduced its insurance premiums
that are paid on deposits from $.23 to $.04 per $100 of deposits, decreasing
non-interest expense by $2.3 million in 1995. The change in total noninterest
expense included a 5.0% increase in salaries and benefits expense and increased
operating expenses due to the acquisitions in late 1994 and in 1995.
For the year, return on average assets improved to 1.35% compared with 1.32% in
1994. This improvement resulted from an earnings increase of 12.0% that outpaced
average asset growth of 9.3%.
Return on average equity (ROE) in 1995 increased to 15.30% compared to 15.15% in
1994. The 1995 ROE was achieved on a larger capital base as a result of the
Corporation's strong earnings performance.
Cash dividends paid in 1995 increased 14.1% to $.97 per share compared to $.85
per share in 1994. This followed a 12.1% increase in 1994 dividends over the
$.74 per share paid in 1993.
NET INTEREST INCOME
Net interest income is the largest component of the Corporation's operating
income (net interest income plus other noninterest income), accounting for 73.4%
of 1995 total operating income, compared to 73.6% and 72.1% in 1994 and 1993,
respectively. Net interest income represents the difference between interest
earned on loans, securities and other earning assets, and the interest expense
associated with the deposits and borrowings that fund them. Interest rate
fluctuations together with changes in the volume and types of earning assets and
interest-bearing liabilities combine to affect total net interest income. The
remainder of this analysis discusses net interest income on a fully
tax-equivalent ("FTE") basis in order to provide comparability among the types
of interest earned.
Net interest income on a FTE basis reached $150.5 million in 1995, an increase
of 7.3% over the 1994 level of $140.2 million. Net interest margin, or FTE net
interest income as a percent of total average earning assets, decreased slightly
to 4.67% in 1995 from the 4.78% recorded for 1994. The strong growth in earning
assets more than offset the 11 basis point decline in net interest margin,
creating the $10.3 million increase in net interest income. The $6.5 million
increase in 1994 FTE net interest income over 1993 was volume related as average
earning assets grew by 3.3% and average interest-bearing liabilities increased
by 1.5%.
Average loans outstanding grew from $2.19 billion in 1994 to $2.46 billion in
1995, an increase of 12.0%. This followed the 5.3% growth from 1993 to 1994. The
ratio of average loans to average total assets grew from 69.5% in 1994 to 71.2%
in 1995. This followed a similar change from 68.1% in 1993. These changes in
asset mix to greater loan composition have provided a source of higher yielding
assets, which aided in the overall improvement in net interest income in 1994
and 1995.
10
TABLE 2: AVERAGE BALANCES AND INTEREST RATES (INCOME AND RATES ON A
TAX-EQUIVALENT BASIS)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
---------------------------------------------------------------------------------------------
(IN THOUSANDS)
ASSETS
Earning assets:
Loans, net of unearned
income(1)(2)(3) $2,456,137 $ 219,537 8.94% $2,192,960 $ 178,881 8.16% $2,081,767 $ 166,873
Investment securities:
Taxable 606,919 37,198 6.13 587,134 33,968 5.79 549,910 34,247
Tax-exempt(1) 118,848 9,317 7.84 103,978 8,039 7.73 119,253 10,082
Interest-bearing deposits in
other financial
institutions 691 42 6.08 1,051 38 3.62 2,612 82
Federal funds sold and
securities purchased under
agreements to resell 38,334 2,220 5.79 50,385 2,117 4.20 87,296 2,697
---------------------------------------------------------------------------------------------
Total earning assets 3,220,929 $ 268,314 8.33% 2,935,508 $ 223,043 7.60% 2,840,838 $ 213,981
---------------------------------------------------------------------------------------------
Allowance for possible loan
losses (39,199) (36,832) (36,575)
Cash and due from banks 135,582 149,081 145,439
Other assets 130,949 107,476 109,301
---------------------------------------------------------------------------------------------
Total assets $3,448,261 $3,155,233 $3,059,003
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings, NOW and money
market deposits $1,047,453 $ 28,446 2.72% $1,047,366 $ 24,018 2.29% $1,029,897 $ 24,982
Time deposits 1,250,610 71,376 5.71 1,024,104 46,805 4.57 1,009,905 45,737
Federal funds purchased and
securities sold under
agreements to repurchase 247,561 12,965 5.24 226,979 8,682 3.83 176,363 4,531
Other short-term borrowings 60,206 4,227 7.02 48,812 2,899 5.94 87,079 3,703
Long-term borrowings 11,239 800 7.12 4,368 397 9.09 13,711 1,319
---------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 2,617,069 $ 117,814 4.50% 2,351,629 $ 82,801 3.52% 2,316,955 $ 80,272
---------------------------------------------------------------------------------------------
Demand deposits 493,770 499,378 473,024
Accrued expenses and other
liabilities 32,467 29,212 24,605
Stockholders' equity 304,955 275,014 244,419
---------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $3,448,261 $3,155,233 $3,059,003
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net interest income and rate
spread(1) $ 150,500 3.83% $ 140,242 4.08% $ 133,709
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net yield on earning
assets(1) 4.67% 4.78%
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
(1) The yield on tax-exempt loans and securities is computed on a tax-equivalent basis using a tax rate of 35% for all
periods presented and is net of the effects of certain disallowed interest deductions.
(2) Non-accrual loans have been included in the average balances.
(3) Interest income includes net loan fees.
AVERAGE
RATE
ASSETS
Earning assets:
Loans, net of unearned
income(1)(2)(3) 8.02%
Investment securities:
Taxable 6.23
Tax-exempt(1) 8.45
Interest-bearing deposits in
other financial
institutions 3.14
Federal funds sold and
securities purchased under
agreements to resell 3.09
Total earning assets 7.53%
Allowance for possible loan
losses
Cash and due from banks
Other assets
Total assets
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings, NOW and money
market deposits 2.43%
Time deposits 4.53
Federal funds purchased and
securities sold under
agreements to repurchase 2.57%
Other short-term borrowings 4.25%
Long-term borrowings 9.62%
Total interest-bearing
liabilities 3.46%
Demand deposits
Accrued expenses and other
liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
Net interest income and rate
spread(1) 4.07%
Net yield on earning
assets(1) 4.71%
(1) The yield on tax-exempt
periods presented and is ne
(2) Non-accrual loans have b
(3) Interest income includes
11
The net interest margin in 1995 decreased primarily as a result of the cost of
funds increasing faster than the increase in yield on earning assets. The
interest rate spread, or difference between the yield on earning assets and the
rate on interest-bearing liabilities, decreased 25 basis points in 1995. The
rate on interest-bearing liabilities increased 98 basis points while the yield
on earning assets increased only 73 basis points. The improvement in the
Corporation's earning asset yield reflects the higher rate environment in 1995
and the continued shift in earning assets toward higher loan composition. The
larger increase in the cost of funding the balance sheet is attributable to the
continued shift in the mix of deposits to higher cost certificates of deposit
and away from lower cost savings, NOW, and money market accounts.
TABLE 3: RATE/VOLUME ANALYSIS(1)
1995 COMPARED TO 1994 1994 COMPARED TO 1993
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------------------------------------
VOLUME RATE NET VOLUME RATE NET
------------------------------------------------------------------
(IN THOUSANDS)
Interest income:
Loans, net of unearned income(2) $ 22,611 $ 18,045 $ 40,656 $ 9,031 $ 2,977 $ 12,008
Investment securities:
Taxable 1,169 2,061 3,230 2,238 (2,517) (279)
Tax-exempt(2) 1,164 114 1,278 (1,225) (818) (2,043)
Interest-bearing deposits in other financial
institutions (16) 20 4 (55) 11 (44)
Federal funds sold and securities purchased under
agreements to resell (580) 683 103 (1,362) 782 (580)
------------------------------------------------------------------
Total earning assets(2) 24,348 20,923 45,271 8,627 435 9,062
------------------------------------------------------------------
Interest expense:
Savings, NOW and money market deposits $ 2 $ 4,426 $ 4,428 $ 418 $ (1,382) $ (964)
Time deposits 11,564 13,007 24,571 647 421 1,068
Federal funds purchased and securities sold under
agreements to repurchase 845 3,438 4,283 1,536 2,615 4,151
Other short-term borrowings 746 582 1,328 (1,967) 1,163 (804)
Long-term borrowings 505 (102) 403 (853) (69) (922)
------------------------------------------------------------------
Total interest-bearing liabilities 13,662 21,351 35,013 (219) 2,748 2,529
------------------------------------------------------------------
Net interest income(2) $ 10,686 $ (428) $ 10,258 $ 8,846 $ (2,313) $ 6,533
------------------------------------------------------------------
(1) The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar
amounts of the change in each.
(2) The yield on tax-exempt loans and securities is computed on an FTE basis using a tax rate of 35% for all periods
presented and is net of the effects of certain disallowed interest deductions.
Also adding to the increased cost of funds was the Corporation's larger
dependence upon wholesale borrowings to fund the incremental asset growth, as
deposit growth did not keep pace with earning asset growth. The Corporation
continues to be impacted by the stiff competition for deposit instruments.
12
TABLE 4: INTEREST RATE SPREAD AND INTEREST MARGIN (ON A TAX-EQUIVALENT BASIS)
1995 AVERAGE 1994 AVERAGE 1993 AVERAGE
---------------------------------------------------------------------------------------------------
% OF
EARNING % OF EARNING % OF EARNING
BALANCE ASSETS RATE BALANCE ASSETS RATE BALANCE ASSETS
---------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Earning assets $3,220,929 100.0% 8.33% $2,935,508 100.0% 7.60% $2,840,838 100.0%
---------------------------------------------------------------------------------------------------
Financed by:
Interest-bearing funds $2,617,069 81.3% 4.50% $2,351,629 80.1% 3.52% $2,316,955 81.6%
Noninterest-bearing funds 603,860 18.7 583,879 19.9 523,883 18.4
---------------------------------------------------------------------------------------------------
Total funds sources $3,220,929 100.0% 3.66% $2,935,508 100.0% 2.82% $2,840,838 100.0%
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Interest rate spread 3.83% 4.08%
Contribution from net free
funds .84% .70%
Net interest margin 4.67% 4.78%
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Average prime rate* 8.83% 7.14%
Average fed funds rate* 5.84% 4.18%
Average spread 299 bp 296 bp 298 bp
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
*Source: Federal Reserve Statistics
RATE
Earning assets 7.53%
Financed by:
Interest-bearing funds 3.46%
Noninterest-bearing funds
Total funds sources 2.82%
Interest rate spread 4.07%
Contribution from net free
funds .64%
Net interest margin 4.71%
Average prime rate* 6.00%
Average fed funds rate* 3.02%
Average spread
*Source: Federal Reserve St
Mitigating the decline in the interest rate spread was the contribution from net
free funds. Net free funds represent the difference between earning assets and
interest-bearing liabilities, or the amount of funding that does not have a
specific interest cost associated with them. The higher value of net free funds
in 1995 over 1994 helped offset the 25 basis point decline in interest rate
spread. Combined, these factors account for the 11 basis point decrease in net
interest margin, from 4.78% in 1994 to 4.67% in 1995. The net interest margin
for 1993 was 4.71%, slightly lower than the 4.78% recorded in 1994.
TABLE 5: SELECTED AVERAGE BALANCES
% OF TOTAL % OF TOTAL % OF $
1995 ASSETS 1994 ASSETS CHANGE
-----------------------------------------------------------------
(IN THOUSANDS)
ASSETS
Loans, net of unearned income $2,456,137 71.2% $2,192,960 69.5% 12.0%
Investment securities:
Taxable 606,919 17.6 587,134 18.6 3.4
Tax-exempt 118,848 3.5 103,978 3.3 14.3
Interest-bearing deposits in other financial
institutions 691 -- 1,051 -- (34.3)
Federal funds sold and securities purchased under
agreements to resell 38,334 1.1 50,385 1.6 (23.9)
-----------------------------------------------------------------
Total earning assets 3,220,929 93.4 2,935,508 93.0 9.7
Other assets 227,332 6.6 219,725 7.0 3.5
-----------------------------------------------------------------
Total assets $3,448,261 100.0% $3,155,233 100.0% 9.3%
-----------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits $2,298,063 66.7% $2,071,470 65.7% 10.9%
Short-term borrowings 307,767 8.9 275,791 8.8 11.6
Long-term borrowings 11,239 .3 4,368 .1 157.3
-----------------------------------------------------------------
Total interest-bearing liabilities 2,617,069 75.9 2,351,629 74.6 11.3
Demand deposits 493,770 14.3 499,378 15.8 (1.1)
Accrued expenses and other liabilities 32,467 1.0 29,212 .9 11.1
Stockholders' equity 304,955 8.8 275,014 8.7 10.9
-----------------------------------------------------------------
Total liabilities and stockholders' equity $3,448,261 100.0% $3,155,233 100.0% 9.3%
-----------------------------------------------------------------
-----------------------------------------------------------------
The ratio of average earning assets to average total assets measures
management's ability to employ overall assets to produce interest income. This
ratio was 93.4% in 1995 compared with 93.0% in 1994 and 92.9% in 1993,
indicating a consistent ability to effectively use assets in a direct earning
capacity.
As the largest component of operating income, improvements in the growth of net
interest income are important to the Corporation's earnings performance. Growth
in the Corporation's net interest income during the past several years has
13
primarily been a result of growth in the level of earning asset volumes and
changes in asset mix toward higher yielding assets. The Corporation uses certain
modeling and analysis techniques to manage net interest income and the related
interest rate risk position (see Interest Rate Sensitivity). The Corporation
seeks to meet the needs of its customers, yet provide for stability in net
interest income in the event of significant interest rate changes. Downward
pressure on the net interest margin is expected in the future as margins return
to more historical levels due to compression in the interest rate spread and the
potential shifting of interest-bearing deposits to higher cost categories.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $3.2 million in 1995 compared to $2.2
million in 1994 and $5.7 million in 1993. The increase in provision was related
to slightly higher net charge-offs in 1995 compared to 1994 and strong loan
growth of 11.9%, requiring a higher provision in 1995 to maintain an adequate
allowance for possible loan losses to loans ratio of 1.50% at December 31, 1995.
(See Allowance for Possible Loan Losses discussion.)
NONINTEREST INCOME
Total noninterest income, excluding gains from security transactions, increased
$3.8 million or 7.8% in 1995 compared to a decrease of $708,000 or 1.4% in 1994
compared to 1993. Trust service fees and service charges on deposits continued
to be the primary components of noninterest income, comprising 63.4%, 65.3%, and
60.9% of total noninterest income excluding gains on security transactions in
1995, 1994, and 1993, respectively. The Corporation continues to develop
additional sources of noninterest income through enhanced product offerings in
residential mortgage lending and retail investment services.
TABLE 6: NONINTEREST INCOME
% CHANGE FROM PRIOR
YEARS ENDED DECEMBER 31, YEAR
-----------------------------------------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Trust service fees $ 22,243 $ 20,282 $ 18,675 9.7 8.6
Service charges on deposit accounts 11,163 11,665 11,539 (4.3) 1.1
Loan servicing fees 4,690 3,435 2,878 36.5 19.4
Residential real estate loan origination fees 1,100 1,027 3,662 7.1 (72.0)
Retail investment income 2,066 1,743 2,507 18.5 (30.5)
Other 11,461 10,749 10,348 6.6 3.9
-----------------------------------------------------
Total, excluding securities gains $ 52,723 $ 48,901 $ 49,609 7.8 (1.4)
Investment securities gains, net 319 202 371 57.9 (45.6)
-----------------------------------------------------
Total non-interest income $ 53,042 $ 49,103 $ 49,980 8.0 (1.8)
-----------------------------------------------------
-----------------------------------------------------
Trust fees, comprising 42.2% of noninterest income, excluding gains on security
transactions, increased $2.0 million or 9.7% in 1995. This followed a $1.6
million or 8.6% increase in 1994 compared with 1993. The increase was mainly the
result of continued improvement in trust business volume and growth in assets
under management. Trust assets under management totaled $3.1 billion at December
31, 1995, compared with $2.6 billion at the end of 1994.
Service charges on deposit accounts totaled $11.2 million in 1995 compared with
$11.7 million in 1994 and $11.5 million in 1993. The 4.3% decrease in service
charge income lagged the 8.6% growth in average deposits partly due to the
higher earnings credit rate related to business and correspondent deposit
accounts.
Net security gains totaled $319,000, $202,000, and $371,000 in 1995, 1994, and
1993, respectively. During 1995 and 1994, gains of $175,000 and $143,000,
respectively, were recognized on previously written down municipal bonds.
Payments received from the bond trustee allowed the Corporation to recover
previous amounts written down on these bonds. The payments received are included
in securities gains.
Additionally, one of the Corporation's bank subsidiaries engages in trading
account activity. The trading activity is performed within appropriate policy
guidelines, including a stop loss provision, and is reviewed by the bank's Board
of Directors. The objective of the trading activity is to periodically take a
market position in securities to maximize profits without undue risk.
14
During 1995, purchases and sales of trading account securities totaled
approximately $1.3 million. Net gains on trading account activity totaled
$38,000, $46,000, and $23,000, in 1995, 1994, and 1993, respectively, and were
reflected in other income. There were no trading account securities outstanding
at December 31, 1995 or 1994.
Loan servicing fees in 1995 increased 36.5% when compared to 1994 due to growth
in servicing volumes from $1.20 billion at December 31, 1994, to $2.07 billion
at the end of 1995. The large increase in the servicing portfolio is
attributable to the mortgage company acquisition adding $535 million in mortgage
servicing and new mortgage production of $385 million in 1995.
Residential real estate loan origination fees totaled $1.1 million in 1995
compared to $1.0 million in 1994 and $3.7 million in 1993. The 1993 fees
resulted from a sizeable increase in residential loan volumes due to the lower
rate environment which resulted in high levels of refinancing.
Retail investment income relates to commissions and fees associated with
brokerage, insurance, and individual investment activities. Retail investment
income totaled $2.1 million in 1995 compared with $1.7 million and $2.5 million
in 1994 and 1993, respectively. 1995's increase reflects the strong market
conditions experienced throughout the year which increased the volume of
individual brokerage transactions. The increase also reflects the continued
expansion of retail investment services throughout the Corporation's banking
office location. This expansion is expected to continue in 1996.
Other noninterest income increased $712,000 or 6.6% in 1995 from 1994. Major
items that produced the change were increases in credit card fees, commercial
loan fees, and a full year accretion of the deferred gain on terminated interest
rate swaps.
NONINTEREST EXPENSE
Noninterest expense in 1995 increased $4 million or 3.4% compared to 1994. This
followed a $2.1 million or 1.8% rise in 1994. Salaries and employee benefits
expense is the largest component of noninterest expense and totaled $65.0
million in 1995, an increase of 5.0% over 1994. This followed a 1.7% increase in
1994. The increase in 1995 is attributable to the staffing expense of the branch
acquisitions consummated in the second half of 1994, the additional staff of the
acquired mortgage company in 1995, and normal merit increases and incentive
compensations.
Deferred compensation expense decreased $543,000 in 1995, following a decline of
$896,000 in 1994 from 1993. Deferred compensation expenses were higher in 1994
and 1993 due to the full accrual of several deferred compensation agreements in
1993 and 1994 and the accrual for the rise in value of unexercised stock options
containing stock appreciation rights.
TABLE 7: NONINTEREST EXPENSE
% CHANGE FROM PRIOR
YEARS ENDED DECEMBER 31, YEAR
----------------------------------------------------------
1995 1994 1993 1995 1994
---------- ---------- ---------- --------- -----------
(IN THOUSANDS)
Salaries and employee benefits $ 65,020 $ 61,913 $ 60,882 5.0 1.7
Net occupancy expense 9,919 9,097 8,358 9.0 8.8
Equipment rentals, depreciation, and maintenance 6,300 6,276 6,242 .4 .5
Data processing expense 7,525 7,664 7,743 (1.8) (1.0)
Stationery and supplies 3,063 2,920 3,128 4.9 (6.6)
Business development and advertising 3,140 2,818 2,865 11.4 (1.6)
FDIC expense 3,433 5,728 5,716 (40.1) .2
Other 24,679 22,663 22,088 8.9 2.6
----------------------------------------------------------
Total $ 123,079 $ 119,079 $ 117,022 3.4 1.8
----------------------------------------------------------
----------------------------------------------------------
Full-time equivalent (FTE) employees at December 31, 1995, totaled 1,763
compared to 1,784 at the end of 1994. As the Corporation expands to take
advantage of business opportunities and the related revenues, management will
continue its efforts to control salaries and employee benefits expense.
15
Net occupancy expense increased 9.0% in 1995, primarily due to the branch office
acquisitions completed in the second half of 1994.
Stationery and supplies expense increased 4.9% in 1995 following a 1994 decrease
of 6.6% compared to 1993. The 1994 decrease resulted partly from additional
costs in 1993 for new business forms and stationery related to the adoption of a
new "logo" that more appropriately identified the Corporation, implemented late
in the third quarter of 1992 and continued throughout 1993.
Business development and advertising expenses increased to $3.1 million in 1995
compared to $2.8 million in 1994, an 11.4% increase. The additional expense
parallels the efforts made to retain existing, and attract new, deposit and loan
customers in a more competitive environment in 1995.
FDIC expense historically has been a large non-controllable noninterest expense.
FDIC expense decreased in 1995 to $3.4 million, down from $5.7 million in 1994
and 1993. The decrease reflects the rebate received from the FDIC in the second
half of 1995, as well as the reduction of the premium for future periods. The
Corporation's total FDIC expense for 1996 is expected to be significantly less
than 1995, as a full year of reduced deposit insurance premium expense is
recognized.
Other noninterest expense increased $2.0 million or 8.9% in 1995. The increase
in other noninterest expense is attributable to $1.2 million of additional
purchase premium amortization in 1995 relating to the 1994 branch acquisitions,
higher amortization of purchased mortgage servicing premium in 1995 of $1.0
million, increased postage and telephone expense of $600,000, and increased
consulting fees in conjunction with the technology and customer service
enhancements currently in progress. The postage increase resulted from increased
volumes and a postage rate increase. Offsetting these increases were lower
expenses associated with other real estate of $1.1 million in 1995 compared to
1994.
Purchased mortgage servicing premium amortization in 1995 totaled $1.3 million
compared to $344,000 in 1994 and $1.6 million in 1993. The increased
amortization in 1995 reflects the accelerated write-off of mortgage servicing
premiums due to the early payoff of the related underlying serviced mortgages as
rates declined during 1995. The 1993 amortization level was also impacted by
early payoffs as a result of declining interest rates. The declining rates
usually prompt mortgagors to refinance older, higher-rate loans.
Amortization of branch purchase premium totaled $1.4 million in 1995 and
$175,000 in 1994. Aggregate branch purchase premiums, at the time of the branch
acquisitions, totaled $18 million. The core deposit portion will be amortized
over 10 years, while the goodwill portion will be amortized over 15 years. There
were no similar expenses recorded in 1993.
INCOME TAXES
Income tax expense for the year 1995 was $26.7 million compared with $22.7
million in 1994 and $19.0 million in 1993. The Corporation's effective tax rate
(income tax expense divided by income before taxes) was 36.4% in 1995 compared
with 35.3% in 1994 and 33.7% in 1993. The effective tax rate increased each year
from the prior year due to a lower level of tax-exempt income and higher levels
of disallowed deductions.
BALANCE SHEET ANALYSIS
LOANS
Total loans outstanding grew to $2.61 billion at December 31, 1995, an 11.9% or
$277.1 million increase from the end of 1994.
Real estate mortgage loans totaled $1.4 billion at the end of 1995 and 1994.
Loans in this classification increased $167.5 million or 13.5% during 1995, with
loans secured by one- to four-family residential properties totaling $784
million at December 31, 1995. Residential real estate loans consist of
conventional home mortgages, home equity lines, and second mortgages. Loans of
this type are also primarily made to borrowers in Wisconsin and northern
Illinois. Residential real estate loans generally contain a limit for the
maximum loan to collateral value of 75% to 80%.
Also included in the real estate-mortgage classification are loans secured by
non-farm, non-residential real estate properties. Loans in these groups totaled
$546.4 million at December 31, 1995. Real estate loans secured by
non-residential real estate properties involve borrower characteristics similar
to those discussed for commercial loans and real estate construction projects.
Loans of this type are mainly for business and industrial properties,
multi-family properties, community purpose properties and similar properties.
Loans are primarily made to borrowers in Wisconsin and northern Illinois. Credit
risk is
16
managed in a manner similar to commercial loans and real estate construction by
employing sound underwriting guidelines, lending to familiar borrowers in known
markets and businesses, and formally reviewing the borrower's financial
soundness and relationship on an ongoing basis.
Commercial, financial, and agricultural loans totaled $770.8 million at the end
of 1995 and comprised 30% of the loan portfolio, compared with 29% of the
portfolio at the end of 1994. The commercial, financial, and agricultural loan
classification primarily consists of commercial loans to middle market companies
and small businesses. Loans of this type are in a broad range of industries.
Borrowers are primarily concentrated in Wisconsin and northern Illinois. The
credit risk related to commercial loans is largely influenced by general
economic conditions and the resulting impact on a borrower's operations.
Within the commercial, financial, and agricultural classification at December
31, 1995, loans to finance agricultural production totaled $28.8 million or 1.1%
of total loans. This level is essentially unchanged from the $27.6 million
balance at the end of 1994.
An active credit risk management process is used for commercial loans to ensure
that sound and consistent credit decisions are made. Credit risk is controlled
by detailed underwriting procedures, comprehensive loan administration, and
periodic review of borrowers' outstanding loans and commitments. Borrower
relationships are formally reviewed on an ongoing basis. Further analyses by
customer, industry and geographic location are performed to monitor trends,
financial performance and concentrations.
The loan portfolio is widely diversified by types of borrowers, industry groups
and market areas. Significant loan concentrations are considered to exist for a
financial institution when there are amounts loaned to a multiple number of
borrowers engaged in similar activities that would cause them to be similarly
impacted by economic or other conditions. At December 31, 1995, no
concentrations existed in the Corporation's loan portfolio in excess of 10% of
total loans or $261.1 million.
TABLE 8: LOAN COMPOSITION
AS OF DECEMBER 31,
----------------------------------------------------------------------------------------------
1995 1994 1993 1992
---------------------- ---------------------- ---------------------- ----------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
----------------------------------------------------------------------------------------------
(IN THOUSANDS)
Commercial, financial and
agricultural $ 770,781 30% $ 677,938 29% $ 753,940 36% $ 815,365 40%
Real estate - construction 135,329 5 121,224 5 93,513 5 90,151 4
Real estate - mortgage 1,412,053 54 1,244,524 54 993,348 47 893,788 44
Installment loans to individuals 283,321 11 284,224 12 254,094 12 238,341 12
Lease financing 9,743 -- 6,176 -- 5,144 -- 6,414 --
----------------------------------------------------------------------------------------------
Total loans $2,611,227 100% $2,334,086 100% $2,100,039 100% $2,044,059 100%
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
1991
----------------------
AMOUNT % OF TOTAL
Commercial, financial and
agricultural $ 820,746 41%
Real estate - construction 91,476 5
Real estate - mortgage 812,867 41
Installment loans to individuals 260,924 13
Lease financing 7,966 --
Total loans $1,993,979 100%
Real estate construction loans totaled $135.3 million or 5% of the total loan
portfolio at the end of 1995 compared to $121.2 million or 5% at December 31,
1994. Loans in this classification are primarily short-term interim loans that
provide financing for the acquisition or development of commercial real estate,
such as multi-family or other commercial development projects. These interim
loans are generally made with the intent that the borrower will refinance the
loan with an outside third party or sell the project upon completion.
Real estate construction loans are made to developers and project managers who
are well known to the Corporation, have prior successful project experience and
are well capitalized. Projects undertaken by these developers are carefully
reviewed by the Corporation to ensure that they are economically viable. Loans
of this type are primarily made in markets in Wisconsin and northern Illinois in
which the Corporation has a thorough knowledge of the local market economy.
The credit risk associated with real estate construction loans is generally
confined to specific geographic areas. The Corporation controls the credit risk
on these types of loans by making loans in familiar markets to familiar
developers, underwriting the loans to meet the requirements of institutional
investors in the secondary market, reviewing the merits of individual projects,
controlling loan structure, and monitoring project progress and construction
advances.
17
TABLE 9: LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY(1)
MATURITY(2)
---------------------------------------------------
WITHIN AFTER
DECEMBER 31, 1994 1 YEAR 1-5 YEARS 5 YEARS TOTAL
- -----------------------------------------------------------
---------------------------------------------------
(IN THOUSANDS)
Commercial, financial, and agricultural $ 526,598 $ 212,732 $ 31,451 $ 770,781
Real estate-construction 92,120 40,614 2,595 135,329
---------------------------------------------------
Total $ 618,718 $ 253,346 $ 34,046 $ 906,110
---------------------------------------------------
---------------------------------------------------
Fixed rate $ 179,588 $ 186,869 $ 12,488 $ 378,955
Floating or adjustable rate 439,130 66,477 21,548 527,155
---------------------------------------------------
Total $ 618,718 $ 253,346 $ 34,046 $ 906,110
---------------------------------------------------
---------------------------------------------------
Percent 68% 28% 4% 100%
- ------------------------
(1) Based upon scheduled principal repayments.
(2) Demand loans, past due loans, and overdrafts are reported in the "Within 1
Year" category.
Installment loans to individuals totaled $283.3 million or 11% of the total loan
portfolio at the end of 1995 compared to $284.2 million or 12% at December 31,
1994. Installment loans include short-term installment loans, direct and
indirect automobile loans, recreational vehicle loans, credit card loans,
student loans and other personal loans. Individual borrowers may be required to
provide related collateral or a satisfactory endorsement or guaranty from
another person, depending on the specific type of loan and the creditworthiness
of the borrower. Loans are made to individual borrowers located primarily in
Wisconsin and northern Illinois. Credit risk for these types of loans is
generally influenced by general economic conditions, the characteristics of
individual borrowers and the nature of the loan collateral. Credit risk is
primarily controlled by reviewing the creditworthiness of the borrowers as well
as taking appropriate collateral and guaranty positions on such loans.
Factors that are critical to managing overall credit quality are sound loan
underwriting and administration, systematic monitoring of existing loans and
commitments, effective loan review on an ongoing basis, an adequate allowance
for possible loan losses, and sound non-accrual and charge-off policies.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
As of December 31, 1995, the allowance for possible loan losses of $39.1 million
represented 1.50% of total loans, down from 1.63% at December 31, 1994. While
the year-end allowance increased 2.9% from the end of 1994, period-end loans
increased 11.9% over the same period.
18
TABLE 10: LOAN LOSS EXPERIENCE
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
Average loans outstanding $ 2,456,137 $ 2,192,960 $ 2,081,767 $ 2,030,854 $ 1,912,017
Balance of allowance for possible loan
losses at beginning of period $ 37,963 $ 35,547 $ 34,542 $ 31,247 $ 21,915
--------------------------------------------------------------------
--------------------------------------------------------------------
Loans charged-off:
Commercial, financial, and agricultural 3,048 2,130 4,432 7,299 10,278
Real estate - construction 191 89 131 3 --
Real estate - mortgage 588 1,550 1,941 778 2,051
Installment loans to individuals 1,408 1,995 1,525 1,939 1,954
Lease financing 5 18 50 107 87
--------------------------------------------------------------------
Total loans charged-off 5,240 5,782 8,079 10,126 14,370
--------------------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural 1,847 2,999 2,180 2,346 741
Real estate - construction 70 -- 173 -- --
Real estate - mortgage 472 360 376 115 239
Installment loans to individuals 791 946 635 353 306
Lease financing 8 7 20 26 33
--------------------------------------------------------------------
Total recoveries 3,188 4,312 3,384 2,840 1,319
--------------------------------------------------------------------
Net loans charged-off 2,052 1,470 4,695 7,286 13,051
Balance related to acquisitions -- 1,675 -- -- 615
Additions to the allowance charged to
operating expense 3,156 2,211 5,700 10,581 21,768
--------------------------------------------------------------------
Balance at end of period $ 39,067 $ 37,963 $ 35,547 $ 34,542 $ 31,247
--------------------------------------------------------------------
--------------------------------------------------------------------
Ratio of net charge-offs to average loans
outstanding .08% .07% .23% .36% .68%
Ratio of allowance for possible loan losses
to total loans at end of period 1.50% 1.63% 1.69% 1.69% 1.57%
--------------------------------------------------------------------
--------------------------------------------------------------------
The provision for possible loan losses in 1995 was $3.2 million compared with
$2.2 million in 1994 and $5.7 million in 1993.
Total gross charge-offs in 1995 were $5.2 million compared with $5.8 million in
1994 and $8.1 million in 1993. The ratio of 1995 net charge-offs to average
loans was .08%, essentially unchanged from the ratio of .07% in 1994.
Loans charged-off are subject to continuous review and specific efforts are
taken to achieve maximum recovery of principal, accrued interest, and related
expenses.
Management regularly reviews the adequacy of the allowance for possible loan
losses to ensure that the allowance is sufficient to absorb potential losses
arising from the credit granting process. Factors considered include the levels
of non-performing loans, other real estate, past due trends, growth in the loan
portfolio, changes in the composition of the loan portfolio, historical net
charge-offs, the present and potential financial condition of borrowers, general
economic conditions, specific industry conditions and other regulatory or legal
issues that could affect the Corporation's loss potential.
The Corporation believes that the allowance for possible loan losses as of
December 31, 1995, is adequate to absorb potential loan losses as evidenced by
its favorable charge-off experience and allowance coverage of non-performing
loans (discussed below). Active asset quality administration ensures appropriate
management of credit risk and minimization of loan losses.
19
TABLE 11: ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
AS OF DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Commercial, financial and agricultural $ 21,620 $ 20,021 $ 19,194 $ 21,704 $ 18,813
Real estate - construction 929 1,133 1,440 1,195 1,210
Real estate - mortgage 7,338 7,944 8,491 6,687 5,280
Installment loans to individuals 3,058 4,046 3,836 3,675 4,449
Lease financing 460 331 136 155 303
Unallocated 5,662 4,488 2,450 1,126 1,192
-----------------------------------------------------
Total $ 39,067 $ 37,963 $ 35,547 $ 34,542 $ 31,247
-----------------------------------------------------
-----------------------------------------------------
NON-PERFORMING LOANS, POTENTIAL PROBLEM LOANS, AND OTHER REAL ESTATE
Management is committed to an aggressive non-accrual and problem loan
identification philosophy. This philosophy is embodied through the monitoring
and reviewing of credit policies and procedures to ensure that all problem loans
are identified quickly and the risk of loss is minimized.
Non-performing loans are considered a leading indicator of future loan losses.
Non-performing loans are defined as non-accrual loans, loans 90 days or more
past due but still accruing, and restructured loans.
Loans are normally placed on non-accrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact on
the collectibility of principal or interest on loans, it is management's
practice to place such loans on non-accrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously accrued
and uncollected interest on such loans is reversed and income is recorded only
to the extent that interest payments are subsequently received in cash and a
determination has been made that the principal balance of the loan is
collectible. If collectibility of the principal is in doubt, payments received
are applied to loan principal.
Loans past due 90 days or more but still accruing interest are also included in
non-performing loans. Loans past due 90 days or more but still accruing are
classified as such where the underlying loans are both well secured (the
collateral value is sufficient to cover principal and accrued interest) and in
the process of collection. Also included in non-performing loans are
"restructured" loans. Restructured loans involve the granting of some concession
to the borrower involving the modification of terms of the loan, such as changes
in payment schedule or interest rate.
TABLE 12: NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED
DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Non-accrual loans $ 14,431 $ 14,590 $ 21,938 $ 29,486 $ 20,211
Accruing loans past due 90 days or more 1,307 1,275 2,227 1,243 5,118
Restructured loans 1,704 1,888 1,992 1,932 1,498
-----------------------------------------------------
Total non-performing loans $ 17,442 $ 17,753 $ 26,157 $ 32,661 $ 26,827
-----------------------------------------------------
-----------------------------------------------------
Ratio of non-performing loans to total
loans at period end .67% .76% 1.25% 1.60% 1.35%
Ratio of the allowance for possible loans
losses to non-performing loans at period
end 223.98% 213.84% 135.90% 105.76% 116.48%
-----------------------------------------------------
Other real estate owned $ 1,540 $ 2,357 $ 3,824 $ 4,063 $ 4,442
-----------------------------------------------------
-----------------------------------------------------
20
Non-performing loans at December 31, 1995, were $17.4 million, a decline of
$311,000 from the level at December 31, 1994. The ratio of non-performing loans
to total loans at the end of 1995 was .67% compared to .76% at December 31,
1994, and 1.25% at the end of 1993. The Corporation's allowance for possible
loan losses balance was more than twice the amount of total non-performing loans
at December 31, 1995, and at the end of 1994.
The following table shows, for those loans accounted for on a non-accrual basis
and restructured loans for the years ended as indicated, the gross interest that
would have been recorded if the loans had been current in accordance with their
original terms and the amount of interest income that was included in net income
for the period.
TABLE 13: FOREGONE LOAN INTEREST
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
Interest income in accordance with original terms $ 1,997 $ 2,035 $ 2,867
Interest income recognized (934) (1,009) (1,580)
-------------------------------
Reduction in interest income $ 1,063 $ 1,026 $ 1,287
-------------------------------
-------------------------------
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of management
to place loans in this category does not necessarily mean that the Corporation
expects losses to occur, but that management recognizes that a higher degree of
risk is associated with these performing loans.
At December 31, 1995, potential problem loans totaled $34.8 million. The loans
that have been reported as potential problem loans are not concentrated in a
particular industry, but rather cover a diverse range of businesses, e.g.
communications, wholesale trade, manufacturing, finance/insurance/real estate,
and services. Management does not presently expect significant losses from
credits in the potential problem loan category.
Other real estate owned declined to $1.5 million at December 31, 1995, compared
to $2.4 million at the end of 1994. Management actively seeks to ensure
properties held are administered to minimize the Corporation's risk of loss.
INVESTMENT SECURITIES PORTFOLIO
The investment securities portfolio is intended to provide the Corporation with
adequate liquidity, flexibility in asset/liability management and a source of
stable income. Investment securities, both those held to maturity and those
available for sale totaled $740.6 million at December 31, 1995, compared with
$730.3 million one year ago.
At December 31, 1993, the Corporation adopted Financial Accounting Standards
Board's SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." In applying SFAS No. 115, securities not classified as either
securities held to maturity or trading securities are considered as available
for sale and reported in the statement of financial condition at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related tax effects.
21
TABLE 14: INVESTMENT SECURITIES PORTFOLIO
DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Investment Securities Held to Maturity:
U.S. Treasury and federal agency securities $ 172,548 $ 206,072 $ 230,721
Obligations of states and political subdivisions 139,988 121,143 127,137
Other securities 69,109 64,650 59,076
----------------------------------
Total Amortized Cost $ 381,645 $ 391,865 $ 416,934
----------------------------------
----------------------------------
Total Fair Market Value $ 383,129 $ 376,529 $ 423,545
----------------------------------
----------------------------------
Investment Securities Available for Sale:
U.S. Treasury and federal agency securities $ 346,448 $ 341,627 $ 255,273
Obligations of states and political subdivisions -- -- 300
Other securities 2,724 1,969 1,817
----------------------------------
Total Amortized Cost $ 349,172 $ 343,596 $ 257,390
----------------------------------
----------------------------------
Total Fair Market Value $ 358,983 $ 338,393 $ 268,294
----------------------------------
----------------------------------
Total securities averaged $725.8 million in 1995 compared with $691.1 million in
1994. In 1995, average taxable securities were 83.6% of total average securities
compared with 85.0% in 1994.
At December 31, 1995, the securities portfolio had an aggregate fair value of
approximately $742.1 million compared with a total amortized cost of $730.8
million.
At December 31, 1995, the Corporation's securities portfolio did not contain
securities, other than U.S. Treasury and federal agencies, of any single issuer
that were payable from and secured by the same source of revenue or taxing
authority where the aggregate book value of such securities exceeded 10% of
stockholders' equity or $32.6 million.
22
TABLE 15: INVESTMENT SECURITIES PORTFOLIO MATURITY DISTRIBUTION(1)
DECEMBER 31, 1995
INVESTMENT SECURITIES HELD TO MATURITY - MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
-------------------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
TOTAL
-------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
-------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
U.S. Treasury and
federal agency
securities $ 16,882 6.88% $ 76,133 6.02% $ 13,759 5.82% $ 65,774 5.65% $ 172,548
Obligations of states
and political
subdivisions (2) 33,700 7.29 81,152 7.48 21,791 7.58 3,345 7.99 139,988
Other securities (3) 11,933 6.30 38,705 6.59 2,732 6.45 15,739 8.11 69,109
-------------------------------------------------------------------------------------------------------------
Total Amortized Cost $ 62,515 6.99% $ 195,990 6.74% $ 38,282 6.87% $ 84,858 5.84% $ 381,645
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Total Fair Value $ 62,491 $ 197,436 $ 38,761 $ 84,441
--------- --------- ----------- -----------
--------- --------- ----------- -----------
INVESTMENT SECURITIES AVAILABLE FOR SALE - MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
-------------------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
TOTAL
-------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
-------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
U.S. Treasury and
federal agency
securities $ 115,609 6.06% $ 209,457 6.32% $ 19,375 6.30% $ 2,007 6.41% $ 346,448
Other securities (3) -- -- -- -- -- -- 2,724 -- 2,724
-------------------------------------------------------------------------------------------------------------
Total Amortized Cost $ 115,609 6.06% $ 209,457 6.32% $ 19,375 6.30% $ 4,731 6.41% $ 349,172
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Total Fair Value $ 116,292 $ 211,713 $ 19,674 $ 11,304
--------- --------- ----------- -----------
--------- --------- ----------- -----------
TOTAL
FAIR
YIELD VALUE
U.S. Treasury and
federal agency
securities 5.95% $ 172,484
Obligations of states
and political
subdivisions (2) 7.46 140,699
Other securities (3) 6.58 69,946
Total Amortized Cost 6.62% $ 383,129
Total Fair Value $ 383,129
---------
---------
TOTAL
FAIR
YIELD VALUE
U.S. Treasury and
federal agency
securities 6.23% $ 349,704
Other securities (3) -- 9,279
Total Amortized Cost 6.23% $ 358,983
Total Fair Value $ 358,983
---------
---------
(1) Expected maturities will differ from contractual maturities, as borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
(2) Yields on tax-exempt securities are computed on a tax-equivalent basis
using a tax rate of 35% and have not been adjusted for certain disallowed
interest deductions.
(3) Stocks and other securities having no stated maturity have been included in
"After Ten Years" in the above table. The yield on other securities is
calculated excluding equity securities.
DEPOSITS
Average total deposits in 1995 were $2.79 billion, an increase of 8.6% or $221.0
million over 1994. Approximately $62.8 million of the growth in average total
deposits resulted from the purchase of brokered CDs by the Corporation in 1995,
with the remainder primarily as a result of the branch acquisitions in late
1994. At December 31, 1995, the outstanding balance of brokered CDs was $65.9
million.
TABLE 16: AVERAGE DEPOSITS DISTRIBUTION
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(IN THOUSANDS)
Noninterest-bearing demand deposits $ 493,770 $ 499,378 $ 473,024
Interest-bearing demand deposits 293,449 277,013 259,409
Savings deposits 378,733 399,818 375,213
Money market deposits 375,271 370,535 395,275
Time deposits 1,250,610 1,024,104 1,009,905
----------------------------------------
Total deposits $ 2,791,833 $ 2,570,848 $ 2,512,826
----------------------------------------
----------------------------------------
23
Year-end 1995 noninterest-bearing demand deposits were $595.2 million compared
with $612.6 million at the end of 1994. These amounts are substantially above
the respective yearly average balance amounts. Demand deposits normally show a
sizeable increase as businesses, public entities and correspondent banks adjust
their cash positions at year-end. The average balance of noninterest-bearing
demand deposits for 1995 remained essentially unchanged from 1994. However,
average noninterest-bearing demand deposits as a percentage of total average
deposits declined to 17.7% in 1995 from 19.4% in 1994.
TABLE 17: AVERAGE RATES PAID ON DEPOSITS
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Interest-bearing demand deposits 1.94% 1.74% 2.00%
Savings deposits 2.34 2.31 2.50
Money market deposits 3.71 2.69 2.63
Time deposits 5.71 4.57 4.53
Total interest-bearing deposits 4.34 3.42 3.47
The total of average interest-bearing demand, savings, and money market deposits
remained unchanged at $1.05 billion for 1995 and 1994. However, these deposits
as a percentage of total average deposits declined significantly to 37.5% in
1995 from 40.8% in 1994. This change in the mix of the Corporation's retail
deposit base reflects the shift in customers' investment preferences, as they
opted for the higher yields available through certificates of deposit.
TABLE 18: MATURITY DISTRIBUTION-CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS
OF $100,000 OR MORE
DECEMBER 31, 1995
-----------------------------------------
CERTIFICATES OF
DEPOSIT OTHER TIME DEPOSITS
-----------------------------------------
(IN THOUSANDS)
Three months or less $ 201,945 $ 33,736
Over three months through six months 84,071 4,000
Over six months through twelve months 40,367 --
Over twelve months 26,384 --
-----------------------------------------
Total $ 352,767 $ 37,736
-----------------------------------------
-----------------------------------------
The Corporation continues to experience strong competition for deposits in its
markets. This is true for both the business and retail segments of the market.
During 1995, the Corporation's banks offered a number of different products with
specific features and competitive pricing. The deposit products are designed to
retain core deposit accounts, attract new customers, and create opportunities
for providing other bank services or relationships.
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased, commercial paper,
short-term notes payable, current maturities of long-term debt, treasury tax and
loan notes, securities sold under agreements to repurchase, and Federal Home
Loan Bank notes. Average 1995 short-term borrowings were $307.8 million compared
with $275.8 million during 1994.
24
TABLE 19: SHORT-TERM BORROWINGS
DECEMBER 31,
----------------------------------
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Federal funds purchased and securities sold under agreements to
repurchase $ 267,146 $ 272,782 $ 198,724
Notes payable to banks 64,147 28,915 30,942
Commercial paper 2,326 10,603 13,235
Current maturities of long-term borrowings 800 800 11,047
Federal Home Loan Bank (Original maturities less than one year) 5,000 -- --
Other borrowed funds 7,380 8,354 13,720
----------------------------------
Total $ 346,799 $ 321,454 $ 267,668
----------------------------------
----------------------------------
The increase in short-term borrowings is attributable to larger amounts
outstanding under notes payable to other banks. The notes payable to banks and
commercial paper are primarily used to fund residential, commercial, and leasing
lending activities at the Corporation's residential mortgage, commercial
mortgage, and leasing subsidiaries.
TABLE 20: FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Average amounts outstanding during year $ 247,561 $ 226,979 $ 176,363
Average interest rates on amounts outstanding during year 5.24% 3.83% 2.57%
Maximum month-end amounts outstanding $ 318,327 $ 294,220 $ 204,618
Average interest rates on amounts outstanding at end of year 5.15% 5.31% 2.74%
LIQUIDITY
Liquidity refers to the ability of the Corporation to generate adequate amounts
of cash to meet the Corporation's needs for cash. The subsidiary banks and the
parent company of the Corporation have different liquidity considerations.
Banking subsidiaries meet their cash flow requirements by having funds available
to satisfy customer credit needs as well as having available funds to satisfy
deposit withdrawal requests. Liquidity at banking subsidiaries is derived from
deposit growth, money market investments, maturing loans, the maturity of
investment securities held to maturity, the maturity or sale of investment
securities available for sale, access to other funding sources and markets, and
a strong capital position.
Deposit growth is the primary source of liquidity at the banking subsidiaries.
Total period-end deposits increased $193.1 million from 1994 to 1995. The
Corporation's overall deposit base grew an average of $221.0 million or 8.6%
during 1995. Deposit growth, especially in the core deposit base, is the most
stable source of liquidity of a bank.
Another substantial source of liquidity is the Corporation's maturing investment
securities portfolio, particularly those maturing within one year. At December
31, 1995, the amortized cost of securities, both securities held to maturity and
securities available for sale, maturing within one year amounted to $178.1
million or 24.4% of the total securities portfolio. At the end of 1995, the
securities portfolio contained $346.4 million at amortized cost of U.S. Treasury
and federal agency securities available for sale, representing 47.4% of the
total securities portfolio. These government securities are highly marketable
and had a market value of $349.7 million or 100.9% of amortized cost at
year-end.
Money market investments, consisting of federal funds sold, securities purchased
under agreements to resell, and interest-bearing deposits in other financial
institutions, averaged $39.0 million in 1995 compared to $51.4 million in 1994.
The funds provided from the maturity of these assets were used as a funding
source for the growth in loans and securities, which generally have higher
yields. Being short-term and liquid by nature, money market assets generally
provide a lower yield than other earning assets. The Corporation has a strategy
of maintaining a sufficient level of liquidity to accommodate fluctuations in
funding sources and will periodically take advantage of specific opportunities
to temporarily invest excess funds at narrower
25
than normal rate spreads while still generating additional net interest income.
At December 31, 1995, the Corporation had $43.7 million outstanding in
short-term money market investments, serving as an essential source of
liquidity. The year-end 1995 amount represents 1.2% of total assets compared to
1.7% at December 31, 1994.
The loan portfolio is also a source of additional liquidity. The Corporation has
$618.7 million of commercial loans and real estate construction loans maturing
within one year and a steady flow of repayments in the mortgage and installment
loan portfolios. Additionally, the Corporation has $784 million of loans secured
by one- to- four-family residential property that could possibly be securitized.
Within the classification of short-term borrowings at year-end 1995, federal
funds purchased and securities sold under agreements to repurchase totaled
$267.1 million compared with $272.8 million at the end of 1994. Federal funds
are purchased from a sizeable network of correspondent banks while securities
sold under agreements to repurchase are obtained from a base of individual,
business and public entity customers.
The aggregate subsidiary liquidity resources were sufficient in 1995 to fund the
growth in loans and the investment securities portfolio, and to meet other needs
for cash when necessary. As of December 31, 1995, there were no material
commitments for capital expenditures, i.e. to purchase fixed assets. However,
the Corporation is making investments in equipment and facilities to support its
technology upgrades.
Deposit growth will continue to be the primary source of bank subsidiary
liquidity on a long-term basis, along with stable earnings, the resulting cash
generated by operating activities and strong capital positions. Shorter-term
liquidity needs will mainly be derived from growth in short-term borrowings,
maturing money market and investment portfolio securities, loan maturities and
access to other funding sources.
Liquidity is also necessary at the parent company level. The parent company's
primary sources of funds are dividends and service fees from subsidiaries,
borrowings and proceeds from issuance of equity. The parent company manages its
liquidity position to provide the funds necessary to pay dividends to
shareholders, service debt, invest in subsidiaries and satisfy other operating
requirements. Dividends received from subsidiaries totaled $29.2 million in 1995
and will continue to be the parent's main source of long-term liquidity. The
dividends from subsidiaries, along with a $30.9 million increase in net short-
term borrowed funds, were sufficient to pay cash dividends to the Corporation's
shareholders of $15.8 million in 1995, and fund increased lending activities of
nonbanking subsidiaries of $30.2 million.
At December 31, 1995, $43.9 million in dividends could be paid to the parent by
subsidiary banks without obtaining prior regulatory approval, subject to the
capital needs of the banks. Additionally, the parent company had $105 million of
established lines of credit with nonaffiliated banks, of which $64.1 million was
in use. Of the amount in use, the parent company downstreamed the majority to
the Corporation's residential and commercial mortgage banking subsidiaries and
leasing company for their use in funding loans and leases. The parent company
also has access to funds from the issuance of the Corporation's commercial
paper, although such funds are also downstreamed to the non-bank subsidiaries.
Commercial paper outstanding at December 31, 1995, totaled $2.3 million.
The Corporation's long-term debt to equity ratio at December 31, 1995, was 5.5%
compared to 1.4% at December 31, 1994. The increase is attributable to certain
banking subsidiaries funding with the Federal Home Loan Bank at terms to
maturity greater than one year.
Management believes that, in the current economic environment, the Corporation's
subsidiary and parent company liquidity positions are adequate. There are no
known trends nor any known demands, commitments, events or uncertainties that
will result or are reasonably likely to result in a material increase or
decrease in the Corporation's liquidity.
INTEREST RATE SENSITIVITY
Interest rate risk is the exposure to a bank's earnings and capital arising from
changes in future interest rates. All banks assume interest rate risk as an
integral part of normal banking operations. The management of interest rate risk
includes four components: policy statements, risk limits, risk measurement and
reporting procedures.
An important responsibility of the Asset/Liability Committee (ALCO) of each
subsidiary bank is the management of risks associated with changing interest
rates, changing asset and liability mixes, and their impact on earnings. These
ALCOs, in
26
turn, operate under the advisory policy guidelines on interest rate sensitivity
set by the Corporation's ALCO. The sensitivity of net interest income to market
rate changes is evaluated regularly by the Corporation to determine the
effectiveness of interest rate risk management.
Interest rate sensitivity analysis can be performed in several different ways.
The traditional method of measuring interest sensitivity is called "gap"
analysis. Gap analysis is used to identify mismatches in the repricing of assets
and liabilities within specified periods of time or interest sensitivity gaps.
For all assets and liabilities repriced within one year, the ratio of rate
sensitive assets to rate sensitive liabilities was 79.4% at December 31, 1995.
As presented, this traditional gap analysis does not accurately reflect the
Corporation's true rate sensitivity position. The categories of savings, NOW,
and money market accounts have been included in the 0-90 days category for this
gap analysis. While these accounts are contractually short-term in nature, it is
management's experience that repricing occurs over a longer period of time. The
year-end 1995 liability sensitive position would tend to provide favorable
short-term effects on earnings during periods of declining rates while rising
rates would tend to affect net interest income unfavorably over the short run.
The Corporation uses simulation modeling results that incorporate the dynamics
of balance sheet and interest rate changes and reflect the related impact on net
interest income over a specified time horizon. The Corporation is continually
reviewing its interest rate risk position and modifying its strategies based
upon simulation projections under various interest rate levels. Additionally,
the Corporation may enter into interest-rate swap agreements to assist in
managing interest rate risk. Management's philosophy is to maintain an
appropriate rate sensitive asset and liability position to provide for stability
in earnings in the event of significant interest rate changes. The Corporation
believes that it has an effective process for managing interest rate risk.
TABLE 21: INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1995
----------------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
----------------------------------------------------------------------
TOTAL
181-365 WITHIN 1 OVER 1
0-90 DAYS 91-180 DAYS DAYS YEAR YEAR TOTAL
----------------------------------------------------------------------
(IN MILLIONS)
Earning assets:
Investment securities(1) $ 63 $ 66 $ 129 $ 258 $ 473 $ 731
Loans, net of unearned income 1,156 180 279 1,615 996 2,611
Other earning assets 44 -- -- 44 -- 44
----------------------------------------------------------------------
Total $ 1,263 $ 246 $ 408 $ 1,917 $ 1,469 $ 3,386
----------------------------------------------------------------------
----------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits(2) $ 1,592 $ 220 $ 254 $ 2,066 $ 312 $ 2,378
Other interest-bearing liabilities 341 1 5 347 18 365
----------------------------------------------------------------------
Total interest-bearing liabilities $ 1,933 $ 221 $ 259 $ 2,413 $ 330 $ 2,743
----------------------------------------------------------------------
----------------------------------------------------------------------
Interest sensitivity gap $ (670) $ 25 $ 149 $ (496) $ 1,139 $ 643
----------------------------------------------------------------------
Cumulative interest sensitivity gap $ (670) $ (645) $ (496)
Cumulative ratio of rate sensitive assets to rate
sensitive liabilities at December 31, 1995 65.3% 70.1% 79.4%
----------------------------------------------------------------------
----------------------------------------------------------------------
(1) Securities balances exclude $9.8 million of unrealized gains relating to
available for sale securities.
(2) Savings, NOW, and money market account balances totaling $1.05 billion are
included in the 0-90 days category. While these accounts are contractually
short-term in nature, it is management's experience that repricing occurs
over a longer period of time.
27
CAPITAL
Stockholders' equity at December 31, 1995, increased 14.0% to $325.6 million or
$19.71 per share compared with $285.6 million or $17.32 per share in 1994.
Period-end equity has increased at an 11.1% compounded growth rate during the
past five years and represents 8.81% of total assets as of December 31, 1995.
Year-end capital includes a positive $6.1 million equity component compared to a
negative $3.1 million component at December 31, 1994, related to unrealized
gains/losses on securities available for sale, net of tax effect. Without the
equity adjustment, the ratio of December 31, 1995, equity to assets would be
8.65% compared with adjusted equity of 8.44% at year-end 1994.
Cash dividends paid in 1995 were $0.97 per share compared with $0.85 per share
in 1994, an increase of 14.1%. Cash dividends have increased at a 14.2%
compounded rate during the past five years.
The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management.
As of December 31, 1995 and 1994, the Corporation's Tier 1 risk-based capital
ratios, total risk-based capital (Tier 1 and Tier 2) ratios and Tier 1 leverage
ratios were well in excess of regulatory requirements. Management of the
Corporation expects to continue to exceed the minimum standards in the future.
Similar capital guidelines are also required of the individual banking
subsidiaries of the Corporation. At December 31, 1995 and 1994, each banking
subsidiary exceeded the minimum ratios for Tier 1 capital, total capital and the
Tier 1 leverage ratio.
TABLE 22: CAPITAL RATIOS
DECEMBER 31,
----------------------
1995 1994
---------- ----------
Corporation ratios:
Average stockholders' equity to average total assets 8.84% 8.72%
Stockholders' equity to total assets 8.81 8.36
Long-term borrowings to stockholders' equity 5.55 1.35
Tier 1 capital to risk-weighted assets 10.76 10.52
Total tier 1 and tier 2 capital to risk-weighted assets 12.02 11.79
Tier 1 leverage ratio 8.24 7.92
Regulatory requirements:
Tier 1 capital to risk-weighted assets 4.00% 4.00%
Total tier 1 and tier 2 capital to risk-weighted assets 8.00 8.00
Tier 1 leverage ratio 3.00 3.00
In 1991, the Corporation's Board of Directors authorized management to
repurchase up to 400,000 shares of the Corporation's common stock in the market
from time to time. The shares repurchased would be available in connection with
the Corporation's employee incentive plans and for other corporate purposes.
Shares repurchased are held as treasury stock and, accordingly, are accounted
for as a reduction of stockholders' equity. The Corporation purchased 63,500 of
its common shares in 1995 and 10,000 in 1994.
Management believes that a strong capital position is necessary to take
advantage of opportunities for profitable geographic and product expansion, and
to provide depositor and investor confidence. The Corporation's capital level
remains strong, but must also be maintained at an appropriate level that
provides the opportunity for a superior return on the capital employed.
Management actively reviews capital strategies for the Corporation and each of
its subsidiaries to ensure that capital levels are appropriate based on the
perceived business risks, future growth opportunities, industry standards, and
regulatory requirements.
ACCOUNTING DEVELOPMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Statement prescribes the accounting for the
impairment of long-lived assets and goodwill related to those assets. The new
rules specify when assets should be
28
reviewed for impairment, how to determine whether an asset or group of assets is
impaired, how to measure an impairment loss, and what financial statement
disclosures are necessary. Also prescribed is the accounting for long-lived
assets and identifiable intangibles that a company plans to dispose of, other
than those that are a part of a discontinued operation. Any impairment of a
long-lived asset resulting from management's review is to be recognized as a
component of noninterest expense. The Corporation adopted SFAS 121 on January 1,
1996. Management believes that the impact of adoption will not have a material
effect on the consolidated financial statements of the Corporation.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." SFAS 122, an amendment of Statement 65, requires the recognition of
rights to service loans for others as separate assets, however those servicing
rights are acquired. SFAS 122 also requires that a mortgage banking enterprise
assess its capitalized servicing rights for impairment based on the fair value
of those rights, using a disaggregated approach for mortgage servicing rights
capitalized after adoption of the new standard. Mortgage servicing rights are
amortized on an accelerated basis over the estimated period of net servicing
revenue. Adjustments to reduce amortized cost to estimated fair value are
included in noninterest income or noninterest expense, as appropriate. The
Corporation adopted SFAS 122 on January 1, 1996. Management believes that the
impact of adoption will not have a material effect on the consolidated financial
statements of the Corporation.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective in 1996. The statement requires that a fair
value-based method be used to value employee compensation plans that include
stock-based awards. The statement permits a company to recognize compensation
expense under SFAS 123 or continue to use the prior accounting rules which did
not consider the market value of stock in certain award plans. If adoption of
the statement's fair value procedures are not used in the computation of
compensation expense in the income statement, the company must disclose in a
footnote to the financial statements the pro forma impact of adoption. The
Corporation will be adopting the disclosure method of the statement.
29
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS
EXCEPT SHARE DATA)
ASSETS
Cash and due from banks $ 206,469 $ 204,578
Interest-bearing deposits in other financial institutions 652 300
Federal funds sold and securities purchased under agreements to resell 43,000 57,635
Investment securities:
Held to maturity
(Fair value of approximately $383,000 and $377,000 at December 31, 1995 and
1994, respectively) 381,645 391,865
Available for sale-stated at fair value 358,983 338,393
Loans, net of unearned income 2,611,227 2,334,086
Allowance for possible loan losses (39,067) (37,963)
- ------------------------------------------------------------------------------------------------------------
Loans, net 2,572,160 2,296,123
Premises and equipment 54,142 56,648
Other assets 80,791 72,788
- ------------------------------------------------------------------------------------------------------------
Total assets $ 3,697,842 $ 3,418,330
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 595,178 $ 612,587
Interest-bearing deposits 2,377,930 2,167,439
- ------------------------------------------------------------------------------------------------------------
Total deposits 2,973,108 2,780,026
Short-term borrowings 346,799 321,454
Accrued expenses and other liabilities 34,272 27,337
Long-term borrowings 18,067 3,867
- ------------------------------------------------------------------------------------------------------------
Total liabilities 3,372,246 3,132,684
- ------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities -- --
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock (Par value $1.00 per share, authorized 750,000 shares, no
shares issued) -- --
Common stock (Par value $0.01 per share, authorized 48,000,000 shares, issued
16,728,061 and 16,714,820 shares at December 31, 1995 and 1994, respectively) 167 135
Surplus 152,042 152,486
Retained earnings 171,026 140,187
Net unrealized gain (loss) on securities available for sale, net of taxes 6,148 (3,119)
Less: Treasury stock at cost (212,673 shares in 1995 and 220,244 shares in
1994) (3,787) (4,043)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 325,596 285,646
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,697,842 $ 3,418,330
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements
30
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
INTEREST INCOME
Interest and fees on loans $ 218,638 $ 177,769 $ 165,606
Interest and dividends on investment securities:
Taxable 37,198 33,968 34,247
Tax-exempt 6,282 5,459 6,814
Interest on deposits in other financial institutions 42 38 82
Interest on federal funds sold and securities purchased under
agreements to resell 2,220 2,117 2,697
- --------------------------------------------------------------------------------------------------------
Total interest income 264,380 219,351 209,446
- --------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 99,822 70,823 70,719
Interest on short-term borrowings 17,192 11,581 8,234
Interest on long-term borrowings 800 397 1,319
- --------------------------------------------------------------------------------------------------------
Total interest expense 117,814 82,801 80,272
- --------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 146,566 136,550 129,174
Provision for possible loan losses 3,156 2,211 5,700
- --------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 143,410 134,339 123,474
- --------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust service fees 22,243 20,282 18,675
Service charges on deposit accounts 11,163 11,665 11,539
Investment securities gains, net 319 202 371
Loan servicing fees 4,690 3,435 2,878
Residential real estate loan origination fees 1,100 1,027 3,662
Retail investment income 2,066 1,743 2,507
Other 11,461 10,749 10,348
- --------------------------------------------------------------------------------------------------------
Total noninterest income 53,042 49,103 49,980
- --------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 65,020 61,913 60,882
Net occupancy expense 9,919 9,097 8,358
Equipment rentals, depreciation and maintenance 6,300 6,276 6,242
Data processing expense 7,525 7,664 7,743
Stationery and supplies 3,063 2,920 3,128
Business development and advertising 3,140 2,818 2,865
FDIC expense 3,433 5,728 5,716
Other 24,679 22,663 22,088
- --------------------------------------------------------------------------------------------------------
Total noninterest expense 123,079 119,079 117,022
- --------------------------------------------------------------------------------------------------------
Income before income taxes 73,373 64,363 56,432
Income tax expense 26,721 22,701 19,034
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 46,652 $ 41,662 $ 37,398
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Net income per share $ 2.83 $ 2.53 $ 2.30
Weighted average shares outstanding 16,505 16,481 16,270
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
31
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NET UNREALIZED
GAIN (LOSS) ON
COMMON STOCK SECURITIES
------------------------ RETAINED AVAILABLE FOR TREASURY
SHARES AMOUNT SURPLUS EARNINGS SALE STOCK
----------- ----------- --------- ----------- --------------- -----------
(IN THOUSANDS)
Balance, December 31, 1992, as
previously reported 11,609 $ 116 $ 104,222 $ 124,053 $ -- $ (3,762)
Adjustment to retroactively restate
the 1995 business combination
accounted for as a pooling of
interests 346 4 626 3,622 -- --
- -------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992, as
restated 11,955 120 104,848 127,675 -- (3,762)
- -------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 37,398 -- --
Cash dividends, $0.74 per share -- -- -- (11,666) -- --
Cash dividends to minority
shareholders prior to acquisition -- -- -- (3) -- --
Change in acquired minority
interest -- -- 23 (23) -- --
Stock dividends 1,140 11 41,478 (41,489) -- --
Exercise of incentive stock options 52 1 684 -- -- --
Issuance of stock under Dividend
Reinvestment and Employee Stock
Purchase Plans 2 -- 72 -- -- --
Issuance of common stock by
acquiree 329 3 3,918 -- -- --
Tax benefits of restricted shares
and options -- -- 323 -- -- --
Implementation of change in
accounting for marketable debt and
equity securities, net of related
income taxes -- -- -- -- 6,726 --
Amortization of deferred
compensation -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 13,478 135 151,346 111,892 6,726 (3,762)
- -------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 41,662 -- --
Cash dividends, $0.85 per share -- -- -- (13,367) -- --
Exercise of incentive stock options 85 -- 1,038 -- -- 57
Tax benefits of restricted shares
and options -- -- 102 -- -- --
Change in unrealized gain (loss) on
securities available for sale, net
of related income taxes -- -- -- -- (9,845) --
Purchase of treasury stock -- -- -- -- -- (338)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 13,563 135 152,486 140,187 (3,119 ) (4,043)
- -------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 46,652 -- --
Cash dividends, $0.97 per share -- -- -- (15,783 ) -- --
5-for-4 stock split effected in the
form of a stock dividend 3,153 32 -- (30 ) -- --
Exercise of incentive stock options 27 -- (409) -- -- 1,863
Tax benefits of restricted shares
and options -- -- 443 -- -- --
Change in unrealized gain (loss) on
securities available for sale, net
of related income taxes -- -- -- -- 9,267 --
Reissuance of treasury stock in a
business combination (15 ) -- (478) -- -- 478
Purchase of treasury stock -- -- -- -- -- (2,085)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 16,728 $ 167 $ 152,042 $ 171,026 $ 6,148 $ (3,787)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DEFERRED
COMPENSATION TOTAL
----------------- ---------
Balance, December 31, 1992, as
previously reported $ (7) $ 224,622
Adjustment to retroactively restate
the 1995 business combination
accounted for as a pooling of
interests -- 4,252
- -----------------------------------
Balance December 31, 1992, as
restated (7) 228,874
- -----------------------------------
Net income -- 37,398
Cash dividends, $0.74 per share -- (11,666)
Cash dividends to minority
shareholders prior to acquisition -- (3)
Change in acquired minority
interest -- --
Stock dividends -- --
Exercise of incentive stock options -- 685
Issuance of stock under Dividend
Reinvestment and Employee Stock
Purchase Plans -- 72
Issuance of common stock by
acquiree -- 3,921
Tax benefits of restricted shares
and options -- 323
Implementation of change in
accounting for marketable debt and
equity securities, net of related
income taxes -- 6,726
Amortization of deferred
compensation 7 7
- -----------------------------------
Balance, December 31, 1993 -- 266,337
- -----------------------------------
Net income -- 41,662
Cash dividends, $0.85 per share -- (13,367)
Exercise of incentive stock options -- 1,095
Tax benefits of restricted shares
and options -- 102
Change in unrealized gain (loss) on
securities available for sale, net
of related income taxes -- (9,845)
Purchase of treasury stock -- (338)
- -----------------------------------
Balance, December 31, 1994 -- 285,646
- -----------------------------------
Net income -- 46,652
Cash dividends, $0.97 per share -- (15,783)
5-for-4 stock split effected in the
form of a stock dividend -- 2
Exercise of incentive stock options -- 1,454
Tax benefits of restricted shares
and options -- 443
Change in unrealized gain (loss) on
securities available for sale, net
of related income taxes -- 9,267
Reissuance of treasury stock in a
business combination -- --
Purchase of treasury stock -- (2,085)
- -----------------------------------
Balance, December 31, 1995 $ -- $ 325,596
- -----------------------------------
- -----------------------------------
See accompanying notes to Consolidated Financial Statements.
32
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net Income $ 46,652 $ 41,662 $ 37,398
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 3,156 2,211 5,700
Provision for losses on ORE -- 95 75
Depreciation and amortization 6,964 6,711 7,033
Amortization of purchased mortgage servicing rights 1,340 344 1,646
Amortization of goodwill 2,559 1,470 1,219
Deferred income taxes (5,293) (2,538) (183)
Net amortization (accretion) of premiums and discounts 685 1,123 189
Gain on sales of securities, net (319) (202) (371)
(Increase) decrease in interest receivable and other assets (5,149) (4,091) 3,986
Increase (decrease) in interest payable and other liabilities 6,803 10,373 (4,171)
Amortization of loan fees and costs (1,661) (1,657) (1,644)
Purchases of trading account securities (1,294) (1,426) (2,867)
Proceeds from sales of trading account securities 1,332 1,472 2,890
Net (increase) decrease in mortgage loans acquired for resale (18,678) 40,383 (6,755)
(Gain) loss on sales of mortgage loans held for resale, net (687) 96 (2,659)
Other, net (135) 11 (108)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 36,275 $ 96,037 $ 41,378
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in federal funds sold and securities purchased under
agreements to resell 14,635 85,126 28,825
Net decrease (increase) in interest-bearing deposits in other financial
institutions (352) 375 51
Purchases of securities -- -- (449,636)
Purchases of held to maturity securities (133,590) (247,748) --
Purchases of available for sale securities (104,193) (179,386) --
Proceeds from sales of securities -- -- 12,626
Proceeds from sales of available for sale securities 2,187 11,400 --
Proceeds from maturities of securities -- -- 417,135
Maturities of held to maturity securities 138,310 253,880 --
Maturities of available for sale securities 101,564 99,797 --
Payments for ORE additions (11) (26) (50)
Net increase in loans (254,404) (162,681) (53,783)
Proceeds from sales of other real estate 1,315 3,247 3,747
Purchases of premises and equipment, net of disposals (4,008) (6,797) (4,857)
Purchase of mortgage servicing rights (6,570) (1,336) (992)
Net cash received (paid) in purchase of subsidiary (480) 1,858 --
Proceeds from other assets -- 502 660
- ---------------------------------------------------------------------------------------------------------
Net cash used by investing activities $(245,597) $(141,789) $ (46,274)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 193,082 42,129 (28,545)
Net increase (decrease) in short-term borrowings 19,545 53,524 3,271
Cash dividends (15,783) (13,367) (11,666)
Repayment of long-term borrowings -- (1,230) (1,531)
Proceeds from issuance of long-term borrowings 15,000 -- --
Proceeds from exercise of stock options 1,454 1,095 685
Proceeds from employee stock purchase, dividend reinvestment and other
plans -- -- 72
Proceeds from issuance of stock -- -- 3,921
Purchase of treasury stock (2,085) (338) --
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities $ 211,213 $ 81,813 $ (33,793)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ 1,891 $ 36,061 $ (38,689)
Cash and due from banks at beginning of year 204,578 168,517 207,206
- ---------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 206,469 $ 204,578 $ 168,517
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 112,406 $ 79,998 $ 82,283
Income taxes 31,648 22,808 19,061
Supplemental schedule of non-cash investing activities:
Loans transferred to other real estate $ 1,176 $ 2,466 $ 3,786
Loans made in connection with the disposition of other real estate 177 398 1,610
Fair value of assets acquired, including cash and cash equivalents 3,670 170,398 --
Value ascribed to intangibles 1,462 17,950 --
Liabilities assumed 5,132 188,348 --
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
33
ASSOCIATED BANC-CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Associated Banc-Corp and its
subsidiaries (Corporation) conform to generally accepted accounting principles
and to general practice within the banking and mortgage banking industries. The
following is a description of the more significant of those policies.
BUSINESS
The Corporation provides a full range of banking and related financial services
to individual and corporate customers through its network of bank and mortgage
affiliates in Wisconsin, Illinois, and Georgia. The Corporation is subject to
competition from other financial institutions and is regulated by federal and
state banking agencies and undergoes periodic examinations by those agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain amounts
in the 1993 and 1994 consolidated financial statements have been reclassified to
conform with the 1995 presentation.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates. Estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for possible loan losses.
INVESTMENT SECURITIES
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires securities to be
classified as held to maturity, available for sale, or trading. Investment
securities classified as held to maturity, which management has the intent and
ability to hold to maturity, are reported at amortized cost, adjusted for
amortization of premiums and accretion of discounts using a method that
approximates level yield. Available for sale and trading securities are reported
at fair value with unrealized gains and losses, net of related deferred income
taxes, included in stockholders' equity or income, respectively. The Corporation
adopted this Statement effective December 31, 1993. Realized securities gains or
losses are reported in the consolidated statements of income. The cost of
securities sold is based on the specific identification method. Any security
held to maturity for which there has been a permanent impairment of value is
written down to its estimated market value.
LOANS
Loans and leases are carried at the principal amount outstanding, net of any
unearned income. Unearned income, primarily from direct leases, is recognized on
a basis that generally approximates a level yield on the outstanding balances
receivable. Interest on all other loans is based upon the principal amount
outstanding.
Loans are normally placed on non-accrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact on
the collectibility of principal or interest on loans, it is management's
practice to place such loans on non-accrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously accrued
and uncollected interest on such loans is reversed, amortization of related loan
fees is suspended, and income is recorded only to the extent that interest
payments are subsequently received in cash and a determination has been made
that the principal balance of the loan is collectible. If collectibility of the
principal is in doubt, payments received are applied to loan principal.
Loan origination fees and certain direct loan origination costs on real estate
and commercial loans are deferred and recognized as an adjustment of yield using
the interest method. Non-refundable fees and direct origination costs associated
with installment loans are, in the opinion of management, insignificant and are
not accounted for as an adjustment of yield of the related loan categories. Loan
origination fees and direct origination costs on residential real estate loans
held for resale are also not accounted for as an adjustment of yield. All other
loan fees are included in other income.
34
Loans held for resale are recorded at the lower of cost or market as determined
on an aggregate basis. Holding costs are treated as period costs.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is a reserve for estimated credit losses.
Credit losses arise primarily from the loan portfolio, but may also be derived
from other sources, including commitments to extend credit, guarantees and
standby letters of credit. Actual credit losses, net of recoveries, are deducted
from the allowance for possible loan losses. A provision for possible loan
losses, which is a charge against earnings, is added to bring the allowance to a
level that, in management's judgment, is adequate to absorb losses inherent in
the loan portfolio. Management performs an ongoing assessment of the loan
portfolio to determine the appropriate level of the allowance. The factors
considered in the evaluation include, but are not necessarily limited to,
estimated losses from loan and off-balance sheet arrangements; general economic
conditions; deterioration in credit concentration or pledged collateral;
historical loss experience; and trends in portfolio volume, maturity,
composition, delinquencies and non-accruals.
The Corporation adopted the provisions of SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure," on January 1,
1995. Management, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the note agreement, including
principal and interest. Management has determined that nonaccrual loans meet
this definition. The amount of impairment is measured based on the fair value of
the collateral, if the loan is collateral dependent, or alternatively, at the
present value of expected future cash flows discounted at the loan's effective
interest rate. Interest income on impaired loans is recorded when cash is
received and only if principal is considered to be fully collectible.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Corporation's allowance for
possible loan losses. Such agencies may require the Corporation to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examinations.
REAL ESTATE ACQUIRED IN FORECLOSURE
Real estate acquired in foreclosure includes properties acquired in partial or
total satisfaction of loans and is included in other assets in the accompanying
consolidated statements of financial condition. Properties are recorded at the
lower of recorded investment in the loans at the time of acquisition or the fair
value of the properties, less estimated selling costs. Any write-downs in the
carrying value of a property at the time of acquisition are charged to the
allowance for possible loan losses. Any subsequent write-downs to reflect
current fair market value, as well as gains and losses on disposition and
revenues and expenses incurred in maintaining such properties, are included in
current operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the related assets or the lease term.
Maintenance and repairs are charged to expense as incurred while additions or
major improvements are capitalized and depreciated over their estimated useful
lives. Estimated useful lives for premises include periods up to 50 years and
for equipment include periods up to 10 years.
INTANGIBLES
The excess of the purchase price over the fair value of net assets of
subsidiaries acquired consists primarily of goodwill and core deposit
intangibles that are being amortized on a straight-line basis. Goodwill is
amortized to operating expense over periods up to 40 years for acquisitions made
before 1983, for periods up to 25 years for acquisitions made after 1982 but
before 1988 and for periods of 15 years for acquisitions made after 1987. Core
deposit intangibles are amortized to expense over a period of 10 years.
35
Purchased mortgage servicing rights represent the cost of acquiring the right to
service loans owned by others. Purchased mortgage servicing rights are amortized
using an accelerated method that corresponds to the estimated average lives of
the related serviced loans, including estimated prepayment factors under current
conditions. Other intangibles are amortized on an accelerated basis over shorter
periods.
INCOME TAXES
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income taxes, which arise principally from
temporary differences between the period in which certain income and expenses
are recognized for financial accounting purposes and the period in which they
affect taxable income, are included in the amounts provided for income taxes.
The Corporation files a consolidated federal income tax return and individual
subsidiary state income tax returns. Accordingly, amounts equal to tax benefits
of those subsidiaries having taxable federal losses or credits are reimbursed by
other subsidiaries that incur federal tax liabilities.
INTEREST RATE SWAP AGREEMENTS
The Corporation enters into interest rate swap agreements to manage interest
rate exposure in its loan portfolio from changes in market interest rates. These
agreements involve the receipt of fixed or floating rate amounts in exchange for
floating or fixed rate interest payments over the life of the agreement without
an exchange of the underlying principal amount. The differential to be paid or
received is accrued monthly and recognized as an adjustment to interest income
or expense. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. The fair values of the swap agreements
are not recognized in the consolidated financial statements. Gains or losses
from terminated agreements are deferred and accreted or amortized to noninterest
income or expense over the remaining life of the asset related to the terminated
agreement.
PER SHARE COMPUTATIONS
Earnings per share are based upon the weighted average number of common shares
outstanding during each year. All per share financial information, except for
the share information in the consolidated statements of changes in stockholders'
equity, has been adjusted to reflect the 10% stock dividend paid to shareholders
on August 30, 1993, and the 5-for-4 stock split paid to shareholders on June 15,
1995, effected as a 25% stock dividend. The calculation of net income per share
excludes shares issuable upon exercise of stock options because inclusion of
such shares does not result in material dilution of income per share.
36
NOTE 2 BUSINESS COMBINATIONS:
The following table summarizes completed transactions:
CONSIDERATION PAID
------------------------
SHARES OF TOTAL
DATE METHOD OF CASH COMMON ASSETS (IN INTANGIBLES
NAME OF ACQUIRED ACQUIRED ACCOUNTING (IN MILLIONS) STOCK MILLIONS) (IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------
Farmers State Bank, 12/91 Purchase $ 2.2 222,635 $ 65 $ 1.1
Pound, Wisconsin
F&M Financial Services 5/92 Pooling -- 3,318,754 700 --
Corporation of
Menomonee Falls, Wisconsin interests
Northeast Wisconsin Financial 5/92 Pooling -- 274,542 50 --
Services, Inc. of
Sturgeon Bay, Wisconsin interests
6/93 Pooling -- 235,144 80 --
Wausau Financial Corporation of
Wausau, Wisconsin interests
Branch office acquisitions in 9/94 to Purchase (A) -- (A) 18.0
Madison, Rhinelander, 11/94
Oshkosh, Oconto, and Oconto
Falls, Wisconsin
Great Northern Mortgage 7/95 Purchase 1.2 -- (B) 1.5
Company
Rolling Meadows, Illinois
8/95 Pooling -- 747,626 130 --
GN Bancorp, Inc. of
Chicago, Illinois interests
(A) The Corporation acquired approximately $190 million in deposits and $114
million in loans in these branch office acquisitions.
(B) The Corporation acquired approximately $535 million in mortgage servicing as
part of this acquisition.
Previously reported results have been restated for the acquisitions shown above
accounted for as poolings of interests. For the acquisitions accounted for using
the purchase method, the consolidated financial statements include the results
of operations since the dates of acquisition. There was not a significant effect
on 1995 earnings as a result of the acquisition of Great Northern Mortgage
Company.
On March 1, 1996, the Corporation completed its merger with SBL Capital Bank
Shares, Inc. ("SBL"), whose principal subsidiary is the $68 million asset State
Bank of Lodi. The Corporation issued 222.892 shares of its common stock for each
share of SBL common stock. The total number of shares issued was 332,957. The
transaction, to be accounted for using the pooling-of-interests method, was not
material to prior years' reported operating results and, accordingly, previously
reported results will not be restated.
In 1995, the Corporation announced a merger agreement with Greater Columbia
Bancshares, Inc. and its $211 million asset subsidiary, The First National Bank
of Portage. The transaction, which is expected to be completed in the second
quarter of 1996, will be accounted for as a pooling of interests with the
issuance of approximately 968,000 shares of the Corporation's common stock.
In 1995, the Corporation announced a merger agreement with F&M Bankshares of
Reedsburg, Inc. and its $140 million asset subsidiary, Farmers & Merchants Bank.
The transaction, which is expected to be completed in the second quarter of
1996, will be accounted for as a pooling of interests with the issuance of
approximately 535,000 shares of the Corporation's common stock.
37
NOTE 3 RESTRICTIONS ON CASH AND DUE FROM BANKS:
The Corporation's bank subsidiaries are required to maintain certain vault cash
and reserve balances with the Federal Reserve Bank to meet specific reserve
requirements. These requirements approximated $46.4 million at December 31,
1995.
NOTE 4 INVESTMENT SECURITIES:
The amortized cost and fair values of securities held to maturity at December
31, 1995 and 1994 were as follows:
1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
U.S. Treasury and federal agency securities $ 172,548 $ 1,007 $ (1,071) $ 172,484
Obligations of states and political subdivisions 139,988 1,474 (763) 140,699
Other securities 69,109 910 (73) 69,946
----------------------------------------------
Total $ 381,645 $ 3,391 $ (1,907) $ 383,129
----------------------------------------------
----------------------------------------------
1994
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
U.S. Treasury and federal agency securities $ 206,072 $ 639 $ (10,791) $ 195,920
Obligations of states and political subdivisions 121,143 391 (2,647) 118,887
Other securities 64,650 35 (2,963) 61,722
----------------------------------------------
Total $ 391,865 $ 1,065 $ (16,401) $ 376,529
----------------------------------------------
----------------------------------------------
The amortized cost and fair values of securities available for sale at December
31, 1995 and 1994 were as follows:
1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
U.S. Treasury and federal agency securities $ 346,448 $ 3,657 $ (401) $ 349,704
Other securities 2,724 6,610 (55) 9,279
----------------------------------------------
Total $ 349,172 $ 10,267 $ (456) $ 358,983
----------------------------------------------
----------------------------------------------
1994
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
U.S. Treasury and federal agency securities $ 341,627 $ 194 $ (8,870) $ 332,951
Other securities 1,969 3,527 (54) 5,442
----------------------------------------------
Total $ 343,596 $ 3,721 $ (8,924) $ 338,393
----------------------------------------------
----------------------------------------------
The amortized cost and fair values of securities held to maturity and securities
available for sale at December 31, 1995, by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties.
38
SECURITIES HELD TO MATURITY
AMORTIZED FAIR
COST VALUE
--------------------
(IN THOUSANDS)
Due in one year or less $ 62,515 $ 62,491
Due after one year through five years 195,990 197,436
Due after five years through ten years 38,282 38,761
Due after ten years 84,858 84,441
--------------------
Total $ 381,645 $ 383,129
--------------------
--------------------
SECURITIES AVAILABLE FOR SALE
AMORTIZED FAIR
COST VALUE
--------------------
(IN THOUSANDS)
Due in one year or less $ 115,609 $ 116,292
Due after one year through five years 209,457 211,713
Due after five years through ten years 19,375 19,674
Due after ten years 4,731 11,304
--------------------
Total $ 349,172 $ 358,983
--------------------
--------------------
Proceeds from sales of investment securities available for sale during 1995 and
1994, excluding securities that have been called prior to maturity, were $2.2
million and zero, respectively. Total gross realized gains and losses from the
sale of securities available for sale for each of the three years ended December
31 were:
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
Gross gains $ 129 $ -- $ 355
Gross losses 5 -- --
-------------------------------
-------------------------------
On November 15, 1995, the FASB issued a Special Report entitled: "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." As permitted, the Corporation made a one-time
reclassification of securities with an amortized cost of $5.5 million, with no
unrealized gain or loss, from investment securities held to maturity to
investment securities available for sale.
Securities with an amortized cost of approximately $358 million at December 31,
1995, and $305 million at December 31, 1994, were pledged to secure certain
deposits or for other purposes as required or permitted by law.
NOTE 5 LOANS:
Loans at December 31 are summarized below:
1995 1994
------------ ------------
(IN THOUSANDS)
Commercial and financial $ 741,981 $ 650,376
Agricultural 28,800 27,562
Real estate - construction 135,329 121,224
Real estate - mortgage 1,386,669 1,242,268
Residential real estate - mortgage loans held for sale 25,384 2,256
Installment loans to individuals 283,321 284,224
Lease financing 9,743 6,176
--------------------------
Total $ 2,611,227 $ 2,334,086
--------------------------
--------------------------
39
A summary of the changes in the allowance for possible loan losses for the years
indicated is as follows:
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
Balance at beginning of year $ 37,963 $ 35,547 $ 34,542
Balance related to acquisitions -- 1,675 --
Charge-offs (5,240) (5,782) (8,079)
Recoveries 3,188 4,312 3,384
-------------------------------
Net charge-offs (2,052) (1,470) (4,695)
Provision charged to expense 3,156 2,211 5,700
-------------------------------
Balance at end of year $ 39,067 $ 37,963 $ 35,547
-------------------------------
-------------------------------
Non-performing loan components at December 31 are summarized as follows:
1995 1994
--------- ---------
(IN THOUSANDS)
Non-accrual loans $ 14,431 $ 14,590
Accruing loans past due 90 days or more 1,307 1,275
Restructured loans 1,704 1,888
--------------------
Total $ 17,442 $ 17,753
--------------------
--------------------
The Corporation adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS 118 on January 1, 1995. Impaired loans are defined
as those loans where it is probable that all amounts due according to the
contractual terms, including principal and interest, will not be collected. The
Corporation has determined that nonaccrual loans meet the definition. Impaired
loans are measured at the fair value of the collateral, if the loans is
collateral dependent, or alternatively at the present value of the expected
future cash flows. Interest income on impaired loans is recognized only at the
time that cash is recieved, unless applied to reduce principal.
At December 31, 1995, the recorded investment in impaired loans totaled $14.4
million. Included in this amount is $12.4 million of impaired loans that do not
require a related allowance for possible loan losses and $2.0 million of
impaired loans for which the related allowance for possible loan losses totaled
$1.2 million. The average recorded investment in impaired loans during the year
was approximately $13.0 million. Interest income recognized on a cash basis on
impaired loans during the year totaled $783,000.
A summary of loans made by the Corporation's subsidiaries to or for the benefit
of directors and executive officers of the Corporation or its subsidiaries
during 1995 is as follows:
1995
--------------
(IN THOUSANDS)
Balance at beginning of year $ 41,631
New loans 76,067
Repayments (66,674)
Other changes 8,668
--------------
Balance at end of year $ 59,692
--------------
--------------
The other changes primarily consisted of loans to companies where an individual
director had a related interest, but as of December 31, 1995, that individual
was no longer a director.
These loans were made on substantially the same terms, including rates and
collateral, if any, as those prevailing at the time for comparable transactions
with other customers, and did not involve more than a normal risk of
collectibility or present other unfavorable features.
At December 31, 1995, the Corporation was servicing 1- to 4-family residential
mortgage loans owned by other investors with balances totaling $2.07 billion
compared with $1.20 billion and $1.16 billion at December 31, 1994 and 1993,
respectively.
40
The Corporation serves the credit needs of its customers by offering a wide
variety of loan programs to customers in Wisconsin and northern Illinois. The
loan portfolio is widely diversified by types of borrowers, industry groups and
market areas. Significant loan concentrations are considered to exist for a
financial institution when there are amounts loaned to a multiple number of
borrowers engaged in similar activities that would cause them to be similarly
impacted by economic or other conditions. At December 31, 1995, no
concentrations existed in the Corporation's loan portfolio in excess of 10% of
total loans.
The following table shows, for those loans accounted for on a non-accrual basis
and restructured loans for the years ended as indicated, the gross interest that
would have been recorded if the loans had been current in accordance with their
original terms and the amount of interest income that was included in net income
for the period.
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
Interest income in accordance with original terms $ 1,997 $ 2,035 $ 2,867
Interest income recognized (934) (1,009) (1,580)
-------------------------------
Reduction in interest income $ 1,063 $ 1,026 $ 1,287
-------------------------------
-------------------------------
Other real estate owned, which is included in other assets, totaled $1.5 million
and $2.4 million at December 31, 1995 and 1994, respectively.
Loans totaling approximately $127.9 million were pledged to secure Federal Home
Loan Bank advances at December 31, 1995.
NOTE 6 PREMISES AND EQUIPMENT:
A summary of premises and equipment at December 31 is as follows:
1995 1994
--------- ---------
(IN THOUSANDS)
Premises $ 48,340 $ 47,549
Land and land improvements 10,889 11,001
Furniture and equipment 50,384 49,475
Leasehold improvements 5,164 5,326
--------------------
114,777 113,351
Less: Accumulated depreciation and amortization (60,635) (56,703)
--------------------
Total $ 54,142 $ 56,648
--------------------
--------------------
Depreciation and amortization of premises and equipment totaled $6.7 million in
1995, $6.4 million in 1994, and $6.1 million in 1993.
A third party provides data processing and management information system
services to the Corporation pursuant to an agreement for information technology
services dated August 1, 1995. As of December 31, 1995, this agreement is in
effect through August 1, 2001. The Agreement provides for the delivery of
certain information technology services over the life of the Agreement. The
Agreement calls for monthly fixed and variable fees, covering the cost of
systems operations and the migration to new systems. System migration fees are
amortized over the life of the Agreement, while operational costs are expensed
as incurred. Operational costs are subject to annual adjustment, indexed to
changes in the Consumer Price Index (CPI). The facilities housing the data
processing operation are leased until September 15, 1996. Certain data
processing and other related equipment is leased on a month-to-month basis. The
costs associated with this contract are included in the minimum annual rental
and commitment table shown below.
The Corporation and certain subsidiaries are obligated under a number of
non-cancelable operating leases for other facilities, equipment, and services,
certain of which provide for increased rentals based upon increases in volume,
cost of living adjustments, and other operating costs.
41
The approximate minimum annual rentals and commitments under these agreements
are as follows:
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------
1996 $ 7,915
1997 7,081
1998 6,608
1999 6,511
2000 6,464
Thereafter 17,207
- ----------------------------------------------------------------------------------------------
Total $ 51,786
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Consolidated rental and service expense under leases and other agreements, net
of sublease income, totaled $10.9 million in 1995, $10.6 million in 1994, and
$10.5 million in 1993.
NOTE 7 DEPOSITS:
The distribution of deposits at December 31 is as follows:
1995 1994
------------ ------------
(IN THOUSANDS)
Noninterest-bearing demand deposits $ 595,178 $ 612,587
Interest-bearing demand deposits 304,951 296,189
Savings deposits 355,268 385,652
Money market deposits 419,483 377,059
Time deposits 1,298,228 1,108,539
--------------------------
Total deposits $ 2,973,108 $ 2,780,026
--------------------------
--------------------------
Time deposits of $100,000 or more were $390.5 million and $242.8 million at
December 31, 1995 and 1994, respectively. Interest expense on time deposits of
$100,000 or more was $27.4 million, $9.0 million, and $6.8 million for the years
ended December 31, 1995, 1994, and 1993, respectively.
NOTE 8 SHORT-TERM BORROWINGS:
Short-term borrowings at December 31 are as follows:
1995 1994
---------- ----------
(IN THOUSANDS)
Federal funds purchased and securities sold under agreements to repurchase $ 267,146 $ 272,782
Commercial paper 2,326 10,603
Notes payable to banks 64,147 28,915
Current maturities of long-term borrowings 800 800
Federal Home Loan Bank (original maturities less than one year) 5,000 --
Other borrowed funds 7,380 8,354
----------------------
Total $ 346,799 $ 321,454
----------------------
----------------------
Commercial paper is issued in maturities not to exceed nine months at the
prevailing market rate at date of issuance. Notes payable to banks are unsecured
borrowings under existing lines of credit. At December 31, 1995, the
Corporation's parent company had $105 million of established lines of credit
with various non-affiliated banks, of which $64.1 million was outstanding.
Borrowings under these lines accrue interest at short-term market rates and are
payable upon demand or in maturities up to 90 days.
42
NOTE 9 LONG-TERM BORROWINGS:
Long-term borrowings at December 31 are as follows:
1995 1994
--------- ---------
(IN THOUSANDS)
Parent company:
8.6% senior unsecured notes $ 1,200 $ 2,000
9.35% subordinated capital note 2,667 2,667
--------------------
$ 3,867 $ 4,667
Subsidiaries:
Federal Home Loan Bank, 5.97% to 6.39% maturing in 1997 and 1998 $ 15,000 $ --
--------------------
$ 15,000 $ --
Less: Current maturities of long-term borrowings (800) (800)
--------------------
Total $ 18,067 $ 3,867
--------------------
--------------------
The table below summarizes the maturities of the Corporation's long-term
borrowings:
YEAR $ (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------ ----------------
1996 $ 800
1997 13,567
1998 4,500
-------
Total $ 18,867
Current maturities of long-term borrowings (800)
-------
Total long-term borrowings $ 18,067
-------
-------
The 8.6% senior unsecured notes are due April 30, 1997, with semiannual
principal installments that began on April 30, 1991. Principal payments of
$800,000 in 1995 and $750,000 per year in 1993 and 1994 were made. The
Corporation has the option to prepay these senior notes, in whole or in part.
This option began on April 30, 1994, subject to a variable redemption premium
representing the present value of aggregate unpaid scheduled interest payments
discounted at the U.S. Treasury rate at time of prepayment.
The 9.35% $2,667,000 subordinated capital note is due October 31, 1997, and may
be redeemed, in whole or in part, at the option of the Corporation. This option
began on April 30, 1994, on the same basis as the 8.6% senior unsecured notes.
In the various loan agreements, there are covenants in effect as long as the
debt remains unpaid, the most significant of which places limitations on
additional funded indebtedness and the payment of cash dividends. At December
31, 1995, the most restrictive of such covenants limited the maximum amount of
additional funded indebtedness that could be incurred to $329.4 million and the
maximum amount of restricted payments that could be made to $219.2 million. The
Corporation and subsidiaries were in compliance with the existing covenants at
December 31, 1995.
NOTE 10 STOCKHOLDERS' EQUITY:
On August 31, 1993, the Corporation distributed 1.14 million shares of common
stock in connection with a 10% stock dividend. On June 15, 1995, the Corporation
distributed 3.15 million shares of common stock in connection with a 5-for-4
stock split, effected in the form of a 25% stock dividend.
At December 31, 1995, subsidiary net assets equaled $294.0 million, of which
approximately $43.9 million could be transferred to the Corporation in the form
of cash dividends without prior regulatory approval, subject to the capital
needs of the subsidiary banks.
The Corporation's Articles of Incorporation authorize the issuance of 750,000
shares of preferred stock at a par value of $1.00 per share. No shares have been
issued.
43
The Corporation has an Incentive Stock Option Plan. The plan provides for the
granting of options to key employees to purchase common stock at a price at
least equal to the fair market value of the stock on the date of grant. The
options granted are for a ten-year term and may be exercised at any time during
this period. No options have been granted since 1985.
Activity in the Incentive Stock Option Plan is summarized as follows:
INCENTIVE STOCK OPTIONS
---------------------------------------------------------
AVAILABLE GRANTED AND OPTION* PRICE RANGE
FOR GRANT EXERCISABLE
---------------------------------------------------------
Balance, December 31, 1992 11,017 23,367 $ 6.84 - $ 8.74
Adjustment to shares granted and exercisable for 10%
stock dividend -- 1,919 --
Options exercised -- (12,238) 6.84
---------------------------------------------------------
Balance, December 31, 1993 11,017 13,048 $ 6.84 - $ 8.74
Options exercised -- (12,616 ) 6.84 - 8.74
---------------------------------------------------------
Balance, December 31, 1994 11,017 432 $ 8.74
Options exercised -- (432 ) 8.74
---------------------------------------------------------
Balance, December 31, 1995 11,017 -- --
---------------------------------------------------------
---------------------------------------------------------
* Option price ranges have been restated for the 10% stock dividend paid in
August 1993. During 1993 and 1995 the number of shares reserved under the plan
were not increased for the stock dividends paid.
In 1987, the Corporation also adopted a Long-Term Incentive Stock Plan ("Stock
Plan") for certain key employees. The Stock Plan is administered by the
Corporation's Administrative Committee of the Board of Directors ("Committee").
600,000 shares were authorized for grant over the ten-year period of the Stock
Plan. As a result of stock dividends declared and paid by the Corporation, the
number of shares authorized for grant at December 31, 1993, totaled 750,200. As
of December 31, 1993, a total of 733,132 grants for shares had been issued under
the Stock Plan, with 17,068 available to be issued.
In 1994, the Board of Directors, with subsequent approval of the Corporation's
shareholders, adopted amendments to the Stock Plan. The amendments to the Stock
Plan were incorporated in a Restated Long-Term Incentive Stock Option Plan
("Restated Stock Plan"). As part of the amendments, the Board agreed to increase
the number of shares available for issuance under the Restated Stock Plan by an
additional 600,000 shares, bringing the total authorized shares to a total of
1,350,200 shares. The Board also extended the original 10-year termination date
of the Stock Plan from 1996 to the year 2006.
The following is a summary of various additional changes reflected in the
Restated Stock Plan: provides for the grant of incentive stock options, which
were not provided for in the Stock Plan; eliminates a requirement that options
vest not later than five years from the date of grant in order to permit greater
flexibility to the Committee in providing longer term incentives to
participants; amends the provisions for the exercise and vesting of options in
the event of death, permanent disability, or retirement such that the Committee
is authorized to exercise discretion to determine whether unvested options
should vest as though employment had not terminated and to permit vested
unexercised options to be exercised after termination of employment according to
the terms of the original grant.
44
Activity in the Restated Long-Term Incentive Stock Option Plan is summarized as
follows:
GRANTED AND EXERCISABLE OPTIONS
-----------------------------------------------------------------------------------
AVAILABLE RESTRICTED WITHOUT OPTION*
FOR GRANT STOCK AWARDS SARS WITH SARS PRICE RANGE
-----------------------------------------------------------------------------------
Balance, December 31, 1992 231,857 2,200 147,134 140,691 $ 10.91 - $ 12.54
Granted (239,000) -- 239,000 -- 25.64 - 28.80
Adjustment to shares granted for
10% stock dividend 2,837 220 37,198 13,100 --
Exercised -- -- (26,343) (28,128) 10.91 - 12.54
Forfeitures 22,500 -- (22,500) -- --
Restrictions lapse -- (2,420) -- -- --
Performance shares paid (1,126) -- -- -- --
-----------------------------------------------------------------------------------
Balance, December 31, 1993 17,068 -- 374,489 125,663 $ 10.91 - $ 28.80
-----------------------------------------------------------------------------------
Additional authorized plan shares 600,000 -- -- -- $ --
Granted (129,000 ) -- 129,000 -- 26.20
Exercised -- -- (11,377) (5,389 ) 11.24 - 12.54
Forfeitures 4,950 -- (4,950) -- --
-----------------------------------------------------------------------------------
Balance, December 31, 1994 493,018 -- 487,162 120,274 $ 10.91 - $ 28.80
Granted (126,000 ) -- 126,000 -- 28.80 - 29.00
Adjustment to shares for 5-for-4
stock split 94,599 -- 143,368 26,890 --
Exercised -- -- (60,016) (22,131 ) 10.91 - 29.00
Forfeitures 14,221 -- (14,221) -- --
-----------------------------------------------------------------------------------
Balance, December 31, 1995 475,838 -- 682,293 125,033 $ 10.91 - $ 29.00
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
* Option price ranges have been restated for the August 1993 10% stock dividend
and the June 15, 1995, 5-for-4 stock split, effected as a 25% stock dividend.
Total expense related to the above plans was zero, $.1 million, and $1.4 million
in 1995, 1994, and 1993, respectively.
Upon completion of the merger of F&M with and into the Corporation on May 8,
1992, the Corporation assumed the obligations, which were previously those of
F&M under the outstanding options granted under F&M's Non-Qualified Stock Option
Plan. The number of option shares granted was converted to the Corporation's
option shares at a rate of .8 options for each option granted and were all
considered fully exercisable upon completion of the merger for a total of 61,650
shares of the Corporation's stock.
Activity in the F&M Non-Qualified Stock Option Plan assumed by the Corporation,
is summarized as follows:
AVAILABLE FOR GRANTED AND OPTION*
GRANT EXERCISABLE PRICE RANGE
-------------------------------------------------------------
Balance, December 31, 1992 -- 29,250 $ 12.05 - $ 13.55
-------------------------------------------------------------
Adjustment to shares granted for 10% stock dividend -- 2,475 --
Exercised -- (11,925 ) 12.05 - 13.55
-------------------------------------------------------------
Balance, December 31, 1993 -- 19,800 $ 12.05 - $ 13.55
-------------------------------------------------------------
Balance, December 31, 1994 -- 19,800 $ 12.05 - $ 13.55
Adjustment to shares granted for 5-for-4 stock split -- 4,950 --
-------------------------------------------------------------
Balance, December 31, 1995 -- 24,750 $ 12.05 - $ 13.55
-------------------------------------------------------------
-------------------------------------------------------------
* Option price ranges subsequent to assumption of F&M's plan have been restated
for the August 1993 10% stock dividend and the June 15, 1995, 5-for-4 stock
split, effected in the form of a 25% stock dividend.
Upon completion of the merger of GN Bancorp with and into the Corporation on
August 3, 1995, the Corporation assumed the obligations, which were previously
those of GN Bancorp under the outstanding options granted under GN Bancorp's
45
Stock Option Plan. The number of option shares granted was converted to the
Corporation's option shares at a rate of 8.234 options for each option granted
and were all considered fully exercisable upon completion of the merger for a
total of 20,997 shares of the Corporation's stock.
Activity in the GN Bancorp Stock Option Plan assumed by the Corporation, is
summarized as follows:
AVAILABLE GRANTED AND OPTION
FOR GRANT EXERCISABLE PRICE RANGE
---------------------------------------------------------
Balance, December 31, 1992 82,340 -- $ --
Granted (24,702) 24,702 12.14
---------------------------------------------------------
Balance, December 31, 1993 57,638 24,702 $ 12.14
Granted (57,638 ) 57,638 12.14 - 13.36
Exercised -- (61,343 ) 12.14 - 13.36
---------------------------------------------------------
Balance, December 31, 1994 -- 20,997 $ 13.36
Exercised -- (15,908 ) 13.36
---------------------------------------------------------
Balance, December 31, 1995 -- 5,089 $ 13.36
---------------------------------------------------------
---------------------------------------------------------
NOTE 11 RETIREMENT PLAN:
The Corporation has a non-contributory defined benefit retirement plan covering
substantially all full-time employees. The benefits are based primarily on years
of service and the employee's compensation paid while a participant in the plan.
The Corporation's funding policy is consistent with the funding requirements of
federal law and regulations. Plan assets are actively managed by investment
professionals.
The following table sets forth the plan's funded status at December 31:
1995 1994 1993
-------------------------------
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested $ (19,471) $ (18,495) $ (17,335)
Non-vested (1,888) (1,082) (1,014)
-------------------------------
Total $ (21,359) $ (19,577) $ (18,349)
-------------------------------
-------------------------------
Projected benefit obligation $ (22,362) $ (20,005) $ (18,637)
Plan assets at fair value, primarily marketable securities 21,778 17,908 19,253
-------------------------------
Plan assets in excess of (less than) projected benefit
obligation (584) (2,097) 616
Unrecognized net asset (2,150) (2,345) (2,541)
Unrecognized prior service cost 334 77 128
Unrecognized (gain) loss (1,639) 448 (1,021)
-------------------------------
Accrued pension liability $ (4,039) $ (3,917) $ (2,818)
-------------------------------
-------------------------------
Net periodic pension costs include the following components:
Service cost-benefits earned during the period $ 1,308 $ 1,406 $ 1,290
Interest cost on projected benefit obligation 1,622 1,325 1,329
Actual (return) loss on assets (4,515) 215 (1,986)
Net amortization and deferral 2,856 (1,847) 239
-------------------------------
Net periodic pension expense $ 1,271 $ 1,099 $ 872
-------------------------------
-------------------------------
Assumptions used in expense calculations were:
Discount rates 8.0% 7.0% 8.0%
Rates of increase in compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 9.0% 8.0% 9.0%
-------------------------------
Assumptions used for the December 31, 1995, liability included a discount rate
of 7% and a 5% increase in compensation levels.
46
The Corporation and its subsidiaries also have a Profit Sharing/Retirement
Savings Plan. Total expense related to contributions to the plan was $3.7
million, $3.4 million, and $3.0 million in 1995, 1994, and 1993, respectively.
The profit sharing contribution is determined annually by the Administrative
Committee of the Board of Directors. The formula is based on the return on
average equity of each affiliate and the Corporation.
NOTE 12 INCOME TAX EXPENSE:
The current and deferred amounts of income tax expense (benefit) are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
Current:
Federal $ 26,813 $ 21,250 $ 16,085
State 5,201 3,989 3,132
-------------------------------
Total current $ 32,014 $ 25,239 $ 19,217
-------------------------------
Deferred:
Federal (4,543) (2,261) (303)
State (750) (277) 120
-------------------------------
Total deferred (5,293) (2,538) (183)
-------------------------------
Total income tax expense $ 26,721 $ 22,701 $ 19,034
-------------------------------
-------------------------------
Temporary differences between the amounts reported in the financial statements
and the tax bases of assets and liabilities resulted in deferred taxes. Deferred
tax assets and liabilities at December 31 are as follows:
1995 1994
--------- ---------
(IN THOUSANDS)
Gross deferred tax assets:
Allowance for possible loan losses $ 14,520 $ 14,467
Accrued pension expense 1,834 1,736
Deferred compensation 2,228 1,829
Securities valuation adjustment 2,187 1,584
Loan fee income 454 325
Other real estate 410 391
Lease financing 168 --
Other 3,330 1,498
--------------------
Total gross deferred tax assets $ 25,131 $ 21,830
--------------------
Gross deferred tax liabilities:
Premises and equipment $ 1,593 $ 1,490
Lease financing -- 484
Prepaid expenses 267 1,494
Accretion 692 383
State income taxes 787 513
Other 25 992
--------------------
Total gross deferred tax liabilities $ 3,364 $ 5,356
--------------------
Net deferred tax assets 21,767 16,474
Tax effect of adjustment related to available for sale securities (3,663) 2,084
--------------------
Net deferred tax assets including adjustment related to available for sale securities $ 18,104 $ 18,558
--------------------
--------------------
Management believes it is more likely than not that the deferred tax assets will
be fully realized. Therefore, no valuation allowance has been recorded as of
December 31, 1995 or 1994.
47
The effective income tax rate differs from the statutory federal tax rate. The
major reasons for this difference are as follows:
1995 1994 1993
--------- --------- ---------
Federal income tax rate at statutory rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from:
Tax-exempt interest and dividends (3.4) (3.8) (5.4)
State income taxes net of federal income tax benefit 3.9 3.9 3.9
Other .9 .2 .2
-------------------------------
Effective income tax rate 36.4% 35.3% 33.7%
-------------------------------
-------------------------------
NOTE 13 COMMITMENTS AND CONTINGENT LIABILITIES:
COMMITMENTS AND LETTERS OF CREDIT
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to interest rate risk. These financial
instruments include commitments to extend credit, commercial letters of credit,
standby letters of credit and financial guarantees, and interest rate swaps.
The Corporation's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit,
commercial letters of credit, and standby letters of credit and financial
guarantees written is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
The following is a summary of financial instruments with off-balance sheet risk
at December 31:
1995 1994
---------- ----------
(IN THOUSANDS)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 856,179 $ 678,786
Commercial letters of credit 2,517 670
Standby letters of credit and financial guarantees written 63,904 46,456
Financial instruments whose notional or contract amount exceeds the amount of credit risk:
Interest rate swap agreements 3,500 23,600
Commitments to extend credit are agreements to lend funds to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies but may
include accounts receivable, inventory, property, plant, equipment, securities,
certificates of deposit and income producing commercial properties.
A letter of credit is a document issued by the Corporation on behalf of its
customer (the account party) authorizing a third party (the beneficiary), or in
special cases the account party, to draw drafts on the Corporation up to a
stipulated amount and with specified terms and conditions. The letter of credit
is a conditional commitment (except when prepaid by the account party) on the
part of the Corporation to provide payment on drafts drawn in accordance with
the terms of the document.
A commercial letter of credit is issued specifically to facilitate trade or
commerce. Under the terms of a commercial letter of credit, as a general rule,
drafts will be drawn when the underlying transaction is consummated as intended.
A standby letter of credit is a letter of credit or similar arrangement that
represents an obligation on the part of the Corporation to a designated third
party (the beneficiary) contingent upon the failure of the Corporation's
customer (the account party) to perform under the terms of the underlying
contract with the beneficiary, or obligates the Corporation to guarantee or
stand as surety for the benefit of a third party to the extent permitted by law
or regulation.
48
The underlying contract may entail either financial or non-financial
undertakings of the account party with the beneficiary. The underlying contract
may involve such things as the customer's payment of commercial paper, delivery
of merchandise, completion of a construction contract or repayment of the
account party's obligations to the beneficiary. Under the terms of a standby
letter, as a general rule, drafts will be drawn only when the underlying event
fails to occur as intended.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
The Corporation enters into various interest-rate swaps in managing its
interest-rate risk. In these swaps, the Corporation agrees to exchange, at
specified intervals, the difference between fixed- and floating-interest amounts
calculated on an agreed-upon notional principal amount. A portion of the
Corporation's loan portfolio consists of prime-related commercial loans, which
reprice based upon movements in the prime interest rate. Interest rate swaps may
be used to reduce the impact of changes in interest rates on the Corporation's
net interest income. The net amount payable or receivable from interest-rate
swap agreements is accrued as an adjustment to interest income or expense. The
Corporation also has fixed rate commercial loans. At December 31, 1995, $3.5
million of "pay-fixed" swaps were in effect converting a fixed rate commercial
loan to a variable rate.
The Corporation's current credit exposure on swaps is limited to the value of
interest-rate swaps that have become favorable to the Corporation. At December
31, 1995, the market value of interest-rate swaps was a positive $28,000.
If an interest rate swap that is used to manage interest-rate risk is terminated
early, any resulting gain or loss is deferred and accreted or amortized to
noninterest income or expense over the remaining life of the asset related to
the terminated agreement.
Deferred gains totaling $495,000 at December 31, 1995, resulting from interest
rate swaps terminated during 1994 with notional amounts of $19.8 million, are
included in other liabilities and will be recognized as part of noninterest
income in the following periods: $284,000 in 1996, $104,000 in 1997, $97,000 in
1998, and $10,000 in 1999.
LEGAL
There are legal proceedings pending against certain subsidiaries of the
Corporation in the ordinary course of their business. Although litigation is
subject to many uncertainties and the ultimate exposure with respect to these
matters cannot be ascertained, management believes, based upon discussions with
counsel, that the Corporation has meritorious defenses, and any ultimate
liability would not have a material adverse affect on the consolidated financial
position of the Corporation.
49
NOTE 14 PARENT COMPANY FINANCIAL INFORMATION:
Presented below are condensed statements of financial condition, income and cash
flows for the Parent Company:
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
1995 1994
---------- ----------
(IN THOUSANDS)
ASSETS
Cash and due from banks $ 1,628 $ 15
Notes receivable from non-bank subsidiaries 62,428 29,881
Notes receivable from bank subsidiaries 24,600 24,600
Investment in bank subsidiaries 250,140 228,167
Investment in non-bank subsidiaries 51,705 42,594
Other assets 13,756 6,891
----------------------
Total assets $ 404,257 $ 332,148
----------------------
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings 67,273 36,344
Accrued expenses and other liabilities 8,321 6,291
Long-term borrowings 3,067 3,867
----------------------
Total liabilities 78,661 46,502
Stockholders' equity 325,596 285,646
----------------------
Total liabilities and stockholders' equity $ 404,257 $ 332,148
----------------------
----------------------
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
INCOME
Dividends from bank subsidiaries $ 29,240 $ 27,394 $ 37,589
Management and service fees from subsidiaries 3,963 3,651 3,459
Interest income on notes receivable 4,562 2,758 3,383
Other income 267 1,157 433
-------------------------------
Total income 38,032 34,960 44,864
-------------------------------
EXPENSE
Interest expense on borrowed funds 3,593 2,580 4,348
Salaries and employee benefits 3,331 3,668 4,418
Other expense 4,931 4,307 3,486
-------------------------------
Total expense 11,855 10,555 12,252
-------------------------------
Income before income tax benefit and equity in undistributed income 26,177 24,405 32,612
Income tax benefit (663) (1,059) (1,449)
-------------------------------
Income before equity in undistributed net income of subsidiaries 26,840 25,464 34,061
Equity in undistributed net income of subsidiaries 19,812 16,198 3,337
-------------------------------
Net income $ 46,652 $ 41,662 $ 37,398
-------------------------------
-------------------------------
50
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 46,652 $ 41,662 $ 37,398
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed net income of subsidiaries (19,812) (16,198) (3,337)
Depreciation and other amortization 199 159 139
Amortization of goodwill 871 871 854
Loss (gain) on sales of assets, net 2 (14) (320)
Amortization of deferred compensation -- -- 7
(Increase) decrease in interest receivable and other assets (7,488) (3,747) 1,022
Income (decrease) in interest payable and other liabilities 1,290 86 1,476
Other, net 56 (662) 171
----------------------------------
Net cash provided by operating activities $ 21,770 $ 22,157 $ 37,410
----------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities -- -- 320
Purchases of investment securities (780)
--- ---
Net (increase) decrease in notes receivable (32,547) 19,910 (7,435)
Purchase of premises and equipment, net of disposals (81) (176) (148)
Capital contribution to subsidiaries (500) (14,500) (1,025)
----------------------------------
Net cash provided (used) by investing activities $ (33,908) $ 5,234 $ (8,288)
----------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 30,165 (15,036) (18,041)
Cash dividends (15,783) (13,367) (11,666)
Proceeds from exercise of stock options 1,454 1,095 685
Proceeds from employee stock purchase, dividend reinvestment, and other plans -- -- 72
Purchase of treasury stock (2,085) (338) --
----------------------------------
Net cash provided (used) by financing activities $ 13,751 $ (27,646) $ (28,950)
----------------------------------
Net increase (decrease) in cash and cash equivalents $ 1,613 $ (255) $ 172
Cash and due from banks at beginning of year 15 270 98
----------------------------------
Cash and due from banks at end of year $ 1,628 $ 15 $ 270
----------------------------------
----------------------------------
NOTE 15 FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Corporation disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth below
for the Corporation's financial instruments.
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS, AND FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS
TO RESELL:
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES HELD TO MATURITY, INVESTMENT SECURITIES AVAILABLE FOR
SALE, AND TRADING ACCOUNT SECURITIES:
The fair value of investment securities held to maturity, investment securities
available for sale, and trading account securities, except certain state and
municipal securities, is estimated based on bid prices published in financial
newspapers or bid
51
quotations received from securities dealers. The fair value of certain state and
municipal securities is not readily available through market sources other than
dealer quotations, so fair value estimates are based on quoted market prices of
similar instruments, adjusted for differences between the quoted instruments and
the instruments being valued.
LOANS:
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, credit card and other consumer. For
residential mortgage loans for resale, fair value is estimated using the prices
of the Corporation's existing commitments to sell such loans and/or the quoted
market prices for commitments to sell similar loans.
The fair value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for similar maturities. Future cash
flows are also adjusted for estimated reductions or delays due to delinquencies,
non-accruals or potential charge-offs.
EXCESS SERVICING RIGHTS:
The fair value of excess servicing rights is estimated based upon a pricing
model that considers factors such as normal servicing fees, loan prepayment
speeds and an appropriate discount rate.
PURCHASED MORTGAGE SERVICING RIGHTS:
The fair value is estimated by discounting the expected future cash flows
considering estimated service fees, ancillary income, interest on tax and
insurance, and principal and interest float, servicing costs, other costs, and
future prepayment speeds.
DEPOSITS:
Under SFAS No. 107, the fair value of deposits with no stated maturity such as
noninterest-bearing demand deposits, savings, NOW accounts and money market
accounts, is equal to the amount payable on demand as of December 31, 1995. The
fair value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS:
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
LONG-TERM BORROWINGS:
Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing borrowings.
52
The estimated fair values of the Corporation's financial instruments at December
31 are as follows:
1995 1994
------------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------------------------------------------------
(IN THOUSANDS)
Financial assets:
Cash and due from banks $ 206,469 $ 206,469 $ 204,578 $ 204,578
Interest-bearing deposits in other financial
institutions 652 652 300 300
Federal funds sold and securities purchased under
agreements to resell 43,000 43,000 57,635 57,635
Investment securities:
Held to maturity 381,645 383,129 391,865 376,529
Available for sale 358,983 358,983 338,393 338,393
Loans(1) 2,601,484 2,592,086 2,327,910 2,274,861
Excess servicing rights -- -- 15 15
Purchased mortgage servicing rights 7,239 9,348 2,026 3,524
Financial liabilities:
Deposits 2,973,108 2,980,116 2,780,026 2,773,734
Short-term borrowings 346,799 346,799 321,454 321,454
Long-term borrowings 18,067 17,968 3,867 3,896
------------------------------------------------------
(1) Excludes lease financing receivables that are not considered financial
instruments as defined within SFAS No. 107.
COMMITMENTS TO EXTEND CREDIT, COMMERCIAL LETTERS OF CREDIT, STANDBY LETTERS OF
CREDIT AND FINANCIAL GUARANTEES WRITTEN:
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counter-parties. The fair value of financial guarantees written and letters of
credit is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with the
counter-parties.
INTEREST RATE SWAP AGREEMENTS:
The fair value of interest rate swap agreements are obtained from dealer quotes.
These values represent the estimated amount the Corporation would receive or pay
to terminate the contracts or agreements, taking into account current interest
rates and, when appropriate, the current creditworthiness of the
counter-parties.
53
The contract or notional amount, carrying amount and estimated fair value for
commitments to extend credit, commercial letters of credit, standby letters of
credit and financial guarantees written, and interest rate swap agreements at
December 31 is as follows:
1995
---------------------------------------------------------------
CONTRACT OR
NOTIONAL ESTIMATED FAIR
AMOUNT CARRYING AMOUNT(1) VALUE
---------------------------------------------------------------
(IN THOUSANDS)
Commitments to extend credit $ 856,179 $ 381 $ 1,750
Commercial letters of credit 2,517 -- 6
Standby letters of credit and financial guarantees
written 63,904 -- 639
Interest rate swap agreements 3,500 3 28
1994
---------------------------------------------------------------
CONTRACT OR
NOTIONAL ESTIMATED FAIR
AMOUNT CARRYING AMOUNT(1) VALUE
---------------------------------------------------------------
(IN THOUSANDS)
Commitments to extend credit $ 678,786 $ 294 $ 1,147
Commercial letters of credit 670 -- 2
Standby letters of credit and financial guarantees
written 46,456 -- 465
Interest rate swap agreements 23,600 (23) (128)
(1) The amounts shown under "carrying amount" represent accruals or deferred
income arising from these unrecognized financial instruments.
LIMITATIONS:
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Corporation's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Corporation has a substantial trust
department that contributes net fee income annually. The trust department is not
considered a financial instrument and its value has not been incorporated into
the fair value estimates. Other significant assets and liabilities that are not
considered financial assets or liabilities include the mortgage banking
operation, brokerage network, deferred tax liabilities, the benefit of low cost
core deposits, property, equipment, and goodwill. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in many of the estimates.
54
NOTE 16 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is selected financial data summarizing the results of operations
for each quarter in the years ended December 31, 1995 and 1994:
1995 QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Interest income $ 62,582 $ 65,382 $ 67,508 $ 68,908
Interest expense 26,782 29,410 30,575 31,047
Provision for possible loan losses 931 765 672 788
Investment securities gains, net 21 102 92 104
Income before income tax expense 16,754 17,381 19,302 19,936
Net income 10,769 11,145 12,208 12,530
Net income per share $ 0.65 $ 0.68 $ 0.74 $ 0.76
Weighted average shares outstanding 16,500 16,509 16,501 16,511
1994 QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Interest income $ 49,799 $ 52,621 $ 55,918 $ 61,013
Interest expense 18,270 19,419 21,039 24,073
Provision for possible loan losses 275 672 582 682
Investment securities gains, net 39 157 6 --
Income before income tax expense 14,869 15,744 16,647 17,103
Net income 9,958 10,133 10,637 10,934
Net income per share $ 0.61 $ 0.61 $ 0.64 $ 0.66
Weighted average shares outstanding 16,431 16,493 16,501 16,496
55
INDEPENDENT AUDITORS' REPORT
ASSOCIATED BANC-CORP
The Board of Directors
Associated Banc-Corp:
We have audited the accompanying consolidated statements of financial condition
of Associated Banc-Corp and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of
Associated Banc-Corp's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Associated Banc-Corp
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
[SIGNATURE]
KPMG Peat Marwick LLP
Chicago, Illinois
January 17, 1996
56
MARKET INFORMATION
MARKET PRICE RANGE
SALES PRICES
--------------------
DIVIDENDS PAID BOOK VALUE HIGH LOW
----------------- ----------- --------- ---------
1995
4th Quarter $ .27 $ 19.71 $ 40.94 $ 36.25
3rd Quarter .27 19.09 37.25 30.35
2nd Quarter .22 18.66 31.00 28.40
1st Quarter .22 17.94 30.10 27.40
1994
4th Quarter $ .22 $ 17.32 $ 28.40 $ 25.00
3rd Quarter .22 17.05 30.20 23.00
2nd Quarter .22 16.66 30.60 25.00
1st Quarter .20 16.44 28.80 25.00
Indicated Annual Dividend Rate: $1.08
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the Corporation's definitive Proxy Statement, prepared for
the 1996 Annual Meeting of Shareholders, which contains information concerning
directors of the Corporation, under the caption "Election of Directors," is
incorporated herein by reference. The information concerning "Executive Officers
of the Registrant," as a separate item, appears in Part I of this document.
ITEM 11 EXECUTIVE COMPENSATION
The information in the Corporation's definitive Proxy Statement, prepared for
the 1996 Annual Meeting of Shareholders, which contains information concerning
this item, under the caption "Executive Compensation," is incorporated herein by
reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the Corporation's definitive Proxy Statement, prepared for
the 1996 Annual Meeting of Shareholders, which contains information concerning
this item, under the captions "Principal Holders of Common Stock" and "Security
Ownership of Management," is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the Corporation's definitive Proxy Statement, prepared for
the 1996 Annual Meeting of Shareholders, which contains information concerning
this item under the caption "Certain Transactions," is incorporated herein by
reference.
57
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2 Financial Statements and Financial Statement Schedules
The following financial statements and financial statement
schedules are included under a separate caption "Financial
Statements and Supplementary Data" in Part II, Item 8 hereof and
are incorporated herein by reference.
Consolidated Statements of Financial Condition - December 31, 1995
and 1994
Consolidated Statements of Income - For the Years Ended December
31, 1995, 1994, and 1993
Consolidated Statements of Changes in Stockholders' Equity - For
the Years Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 3 Exhibits Required by Item 601 of Regulation S-K
SEQUENTIAL PAGE NUMBER OR
EXHIBIT NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ----------------------------------------------------------------------------------------------------------------
(3)(a) Articles of Incorporation Exhibit (3) to Report on form 10-Q
for the quarter ended June 30, 1993
(3)(b) Bylaws Exhibit (3) to Report on Form 10-Q
for the quarter ended September 30,
1991
(4) Instruments Defining the Rights of
Security Holders, Including
Indentures
The Registrant, by signing this
report, agrees to furnish the
Securities and Exchange Commission,
upon its request, a copy of any
instrument that defines the rights
of holders of long-term debt of the
Registrant and all of its
subsidiaries for which consolidated
or unconsolidated financial
statements are required to be filed
and that authorizes a total amount
of securities not in excess of 10%
of the total assets of the
Registrant and its subsidiaries on a
consolidated basis.
*(10)(a) The 1982 Incentive Stock Option Plan Exhibit (10) to Report on Form 10-K
of the Registrant for fiscal year ended December 31,
1987
*(10)(b) The Restated Long-Term Incentive Exhibits filed with Associated's
Stock Option Plan of the Registrant registration statement (33-86790) on
Form S-8 filed under the Securities
Act of 1933
58
SEQUENTIAL PAGE NUMBER OR
EXHIBIT NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- ----------------------------------------------------------------------------------------------------------------
*(10)(c) Deferred Compensation Agreement Exhibit (10)(c) to Report on Form
dated November 1, 1986 between 10-K for fiscal year ended December
Associated Bank Green Bay, National 31, 1992
Association and Robert C. Gallagher
*(10)(d) Change of Control Plan of the Exhibit (10)(d) to Report on Form
Registrant effective April 25, 1994 10-K for fiscal year ended December
31, 1994
*(10)(e) Deferred Compensation Plan and Exhibit (10(e) to Report on Form
Deferred Compensation Trust 10-K for fiscal year ended December
effective as of December 16, 1993, 31, 1994
and Deferred Compensation Agreement
of the Registrant dated December 31,
1994
(11) Statement Re Computation of Per Filed herewith
Share Earnings
(21) Subsidiaries of the Corporation Filed herewith
(23) Consent of Independent Auditors Filed herewith
(24) Power of Attorney Filed herewith
- ------------------------
* Management contracts and arrangements.
Schedules and exhibits other than those listed are omitted for the reasons
that they are not required, are not applicable or that equivalent
information has been included in the financial statements, and notes
thereto, or elsewhere herein.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of the fiscal year ended December 31,
1995
59
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.
ASSOCIATED BANC-CORP
Date: March 22, 1996 By: /s/_HARRY B. CONLON_____________
Harry B. Conlon
Chairman, President & Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/HARRY B. CONLON By: *
Harry B. Conlon John S. Holbrook, Jr.
Chairman, President, Chief Executive Director
Officer and Director
By: /s/JOSEPH B. SELNER By: *
Joseph B. Selner William R. Hutchinson
Senior Vice President-CFO Director
Principal Financial Officer and
Principal Accounting Officer
By: /s/ROBERT C. GALLAGHER By: *
Robert C. Gallagher James F. Janz
Executive Vice President and Director Director
By: * By: *
Robert Feitler William J. Lawson
Director Director
By: * By: *
Ronald R. Harder John C. Meng
Director Director
*By: /s/BRIAN R. BODAGER By: *
Brian R. Bodager J. Douglas Quick
Attorney-in-Fact Director
Date: March 22, 1996
60