1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
----- For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------
Commission file number 0-5519
--------------------------------------------------
Associated Banc-Corp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1098068
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
112 North Adams Street, Green Bay, Wisconsin 54301
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(Address of principal executive offices) (Zip code)
(414) 433-3166
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(Registrant's telephone number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at March 31, 1997, was 22,439,000 shares.
2
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
March 31, 1997 and December 31, 1996
Consolidated Statements of Income -
Three Months Ended March 31, 1997 and
1996
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. Other Information
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
March 31, December 31,
1997 1996
---- ----
(In Thousands)
ASSETS
Cash and due from banks $ 176,739 $ 236,314
Interest-bearing deposits in other
financial institutions 2,279 670
Federal funds sold and securities purchased
under agreements to resell 22,056 27,977
Investment securities:
Held to maturity (Fair value of approximately
$424,349 and $417,541 at March 31,
1997 and December 31, 1996, respectively) 426,324 417,195
Available for sale-stated at fair value 433,530 437,440
Loans, net of unearned income 3,253,026 3,159,853
Less: Allowance for possible loan losses (49,398) (47,422)
--------- ---------
Loans, net 3,203,628 3,112,431
Premises and equipment 79,748 75,987
Other assets 114,531 111,065
--------- ---------
Total assets $ 4,458,835 $4,419,079
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 580,215 $ 655,358
Interest-bearing deposits 2,910,696 2,852,683
--------- ---------
Total deposits 3,490,911 3,508,041
Short-term borrowings 471,990 444,066
Accrued expenses and other liabilities 56,780 52,697
Long-term borrowings 31,564 21,130
--------- ---------
Total liabilities 4,051,245 4,025,934
Commitments and contingent liabilities --- ---
Stockholders' equity
Preferred stock --- ---
Common stock (par value $0.01 per share,
authorized 48,000,000 shares issued
22,473,556 and 22,059,191 shares, respectively) 225 221
Surplus 168,255 164,514
Retained earnings 235,383 222,348
Net unrealized gains on securities
available for sale 4,962 6,980
Less: Treasury stock (34,556 and 26,226 shares
at cost) (1,235) (918)
--------- --------
Total stockholders' equity 407,590 393,145
--------- ---------
Total liabilities and stockholders' equity $ 4,458,835 $4,419,079
========= =========
(See accompanying notes to Consolidated Financial Statements.)
4
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
(In Thousands)
INTEREST INCOME
Interest and fees on loans $ 68,530 $ 63,312
Interest and dividends on investment securities:
Taxable 10,336 9,810
Tax exempt 2,338 2,308
Interest on deposits in other financial institution 72 9
Interest on federal funds sold and securities
purchased under agreements to resell 295 366
------ ------
Total interest income 81,571 75,805
------ ------
INTEREST EXPENSE
Interest on deposits 31,271 29,963
Interest on short-term borrowings 5,823 4,489
Interest on long-term borrowings 313 516
------ ------
Total interest expense 37,407 34,968
------ ------
NET INTEREST INCOME 44,164 40,837
Provision for possible loan losses 1,123 1,172
------ ------
Net interest income after provision for possible
loan losses 43,041 39,665
------ ------
NONINTEREST INCOME
Trust service fees 6,948 6,160
Service charges on deposit accounts 3,225 2,988
Investment securities gains, net 473 340
Mortgage banking activity 2,798 3,737
Retail investment income 888 632
Other 2,743 2,431
------ ------
Total noninterest income 17,075 16,288
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 20,179 18,696
Net occupancy expense 3,204 2,748
Equipment rentals, depreciation and maintenance 2,184 1,882
Data processing expense 2,291 2,104
Stationery and supplies 906 825
Business development and advertising 828 878
FDIC expense 96 12
Other 7,930 8,080
------ ------
Total noninterest expense 37,618 35,225
------ ------
Income before income taxes 22,498 20,728
Income tax expense 7,749 7,334
------ ------
NET INCOME $ 14,749 $ 13,394
====== ======
Per share
Net income $ .66 $ .61
Dividends $ .24 $ .23
Weighted average shares outstanding 22,240 22,026
(See accompanying notes to consolidated Financial Statements)
5
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
(In Thousands)
OPERATING ACTIVITIES
Net income $ 14,749 $ 13,394
Adjustments to reconcile net income to net cash
used by operating activities:
Provision for possible loan losses 1,123 1,172
Depreciation and amortization 2,458 2,003
Amortization of mortgage servicing rights 682 540
Amortization of intangibles 686 761
Net amortization (accretion) of premiums
and discounts (68) 98
Gain on sales of investment securities, net (473) (340)
Increase in interest receivable and other assets (728) (10,096)
Increase in interest payable and other liabilities 2,150 1,766
Amortization of loan fees and costs (383) (376)
Net increase in mortgage loans acquired for resale 7,100 21,346
Gain on sales of mortgage loans held for resale (594) (1,109)
------ ------
Net cash provided by operating activities $ 26,702 $ 29,159
------ ------
INVESTING ACTIVITIES
Net decrease in federal funds sold and securities
purchased under agreements to resell $ 10,346 $ 32,260
Net increase in interest-bearing deposits in
other financial institutions (1,609) (3)
Purchases of held to maturity securities (35,220) (27,292)
Purchases of available for sale securities (89,624) (61,666)
Proceeds from sales of available for sale securities 1,585 620
Maturities of held to maturity securities 53,966 28,965
Maturities of available for sale securities 89,394 62,655
Net increase in loans (62,969) (57,601)
Proceeds from sales of other real estate 368 614
Purchases of premises and equipment, net of disposals (3,610) (3,379)
Purchase of mortgage servicing rights (1,248) (1,866)
Net cash received in purchase of subsidiary 5,051 5,232
------ ------
Net cash used in investing activities $ (33,570) $ (21,461)
------ ------
FINANCING ACTIVITIES
Net decrease in deposits $ (84,779) $ (54,027)
Net increase (decrease) in short-term borrowings 6,858 (5,251)
Cash dividends (5,325) (4,750)
Proceeds from issuance of long-term borrowings 31,500 3,500
Proceeds from exercise of stock options 384 201
Purchase of treasury stock (1,345) ---
------ ------
Net cash used in financing activities $ (52,707) $ (60,327)
------ ------
Net decrease in cash and cash equivalents $ (59,575) $ (52,629)
Cash and due from banks at beginning of period 236,314 214,411
------- -------
Cash and due from banks at end of period $ 176,739 $ 161,782
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 37,487 $ 34,870
Income taxes 1,802 2,866
Supplemental schedule of noncash investing
activities:
Loans transferred to other real estate $ 437 $ 114
Loans made in connection with the disposition
of other real estate 35 ---
(See accompanying notes to Consolidated Financial Statements.)
6
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
NOTE 1: In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
Associated Banc-Corp's ("Corporation") financial position, results of its
operations and cash flows for the periods presented. All adjustments necessary
to the fair presentation of the financial statements are of a normal recurring
nature. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
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.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. All material intercompany transactions and balances are
eliminated. The Corporation has not changed its accounting and reporting
policies from those stated in the Corporation's 1996 Form 10-K Annual Report.
NOTE 3: Business Combinations
The following table summarizes completed transactions during 1996 and 1997
(through March 31):
Consideration Paid
------------------------------
Total Assets
Date Method of Cash Shares of (In Intangibles
Name of Acquired Acquired Accounting (In Millions) Common Stock [C] Millions) (In Millions)
- --------------------------------------------------------------------------------------------------------------------------------
SBL Capital Bank Shares, Inc. [A] 3/96 Pooling of
Lodi, Wisconsin interests --- 399,548 68 ---
Greater Columbia Bank Shares, Inc. [B] 4/96 Pooling of
Portage, Wisconsin interests --- 1,161,161 211 ---
F&M Bankshares of Reedsburg, Inc. [A] 7/96 Pooling of
Reedsburg, Wisconsin interests --- 641,988 139 ---
Mid-America National Bancorp, Inc. 7/96 Purchase 7.8 --- 39 1.9
Chicago, Illinois
Centra Financial, Inc. [A] 2/97 Pooling of
West Allis, Wisconsin interests --- 414,365 76 ---
[A] The transaction, accounted for using the pooling-of-interests method, was
not material to operating results for years prior to the acquisition and,
accordingly, results for years prior to the acquisition were not restated.
[B] All consolidated financial information has been restated as if the
transaction had been effected as of the beginning of the earliest period
presented.
[C] Share amounts have been restated to reflect the 6-for-5 stock split effected
as a 20% stock dividend paid on March 17, 1997.
7
NOTE 4: Investment Securities
The amortized cost and fair values of investment securities held to maturity and
securities available for sale for the periods indicated were as follows:
Investment Securities Held to Maturity
(In thousands) March 31, 1997
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
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U.S. Treasury and federal agency securities $ 170,390 $ 169,236
Obligations of states and political
subdivision 195,524 194,605
Other securities 60,410 60,508
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Total $ 426,324 $ 424,349
======= =======
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(In thousands) December 31, 1996
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Amortized Cost Fair Value
- --------------------------------------------------------------------------------
U.S. Treasury and federal agency securities $ 161,199 $ 161,255
Obligations of states and political
subdivisions 194,810 194,511
Other securities 61,186 61,775
------- -------
Total $ 417,195 $ 417,541
======= =======
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Investment Securities Available for Sale
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(In thousands) March 31, 1997
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Amortized Cost Fair Value
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U.S. Treasury and federal agency securities $ 391,428 $ 389,532
Obligations of states and political subdivisions 4,944 5,155
Marketable equity securities 29,320 38,843
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Total $ 425,692 $ 433,530
================================================================================
(In thousands) December 31, 1996
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Amortized Cost Fair Value
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U.S. Treasury and federal agency securities $ $393,934 $ 394,492
Obligations of states and political subdivisions --- ---
Marketable equity securities 32,502 42,948
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Total $ 426,436 $ 437,440
================================================================================
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NOTE 5: Allowance for Possible Loan Losses
A summary of the changes in the allowance for possible loan losses for the
periods indicated is as follows:
For the Three For the Year
Months Ended Ended
March 31, December 31,
1997 1996
---- ----
(In Thousands)
- --------------------------------------------------------------------------------
Balance at beginning of period $ 47,422 $ 41,614
Balance related to acquisition 728 3,511
Provisions charged to operating expense 1,123 4,665
Net loan recoveries (losses) 125 (2,368)
------ ------
Balance at end of period $ 49,398 $ 47,422
====== ======
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NOTE 6: Mortgage Servicing Rights
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65." Accordingly, the Corporation recognizes as
separate assets (capitalized) the rights to service mortgage loans for others
whether the servicing rights are acquired through purchases or loan origination.
The fair value of capitalized mortgage servicing rights is based upon the
present value of estimated expected future cash flows. Based upon current fair
values, capitalized mortgage servicing rights are assessed periodically for
impairment, which is recognized in the statement of income during the period in
which impairment occurs by establishing a corresponding valuation allowance. For
purposes of performing its impairment evaluation, the Corporation stratifies its
portfolio of capitalized mortgage servicing rights on the basis of certain risk
characteristics.
A summary of the changes in capitalized mortgage servicing rights for the
periods indicated is as follows:
For the Three For the Year
Months Ended Ended
March 31, December 31,
1997 1996
---- ----
(In Thousands)
- --------------------------------------------------------------------------------
Balance at beginning of period $ 10,995 $ 7,239
Additions 1,248 6,144
Amortization (682) (2,362)
Sales of servicing rights --- ---
Change in valuation allowance 4 (26)
------ ------
Balance at end of period $ 11,565 $ 10,995
====== ======
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NOTE 7: Per Share Computations
Per share computations are computed based on the weighted average number of
common shares outstanding for the three months ended March 31, 1997 and 1996.
The Corporation issued 500,995 shares of common stock to a wholly-owned
subsidiary as part of the acquisition of F&M Bankshares of Reedsburg, Inc. These
shares are not reflected on the Consolidated Statements of Financial Condition
as issued or outstanding.
ITEM 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations
The purpose of this discussion is to focus on information about the
Corporation's financial condition and results of operations that are not
otherwise apparent from the consolidated financial statements included in this
report. Reference should be made to those statements presented elsewhere in this
report for an understanding of the following discussion and analysis.
EARNINGS
On February 21, 1997, Associated completed the acquisition of the $76-million
Centra Financial, Inc. (Centra) headquartered in West Allis, WI. The transaction
was accounted for using the pooling-of-interests method. However, the
transaction was not material to prior years' reported operating results and,
accordingly, previously reported prior years' results have not been restated.
In April 1996, Associated completed the acquisition of the $211-million Greater
Columbia Bancshares, Inc. in Portage, WI. This acquisition was accounted for
using the pooling-of-interests method. All consolidated financial information
has been restated as if the transaction had been effected as of the beginning of
the earliest reporting period.
Associated also completed two other acquisitions in 1996 that were accounted for
using the pooling-of-interests method - the $139-million F&M Bankshares of
Reedsburg in July 1996 and the $68-million SBL Capital Bankshares in Lodi, WI in
March 1996. However, the transactions were not material to operating results for
years prior to the acquisitions and, accordingly, results of operations for
years prior to the acquisitions have not been restated.
On July 31, 1996, Associated completed the acquisition of the $39-million asset
Mid-America National Bancorp Inc. (Mid-America), Chicago. This transaction was
accounted for using the purchase method. Accordingly, the consolidated financial
statements include the results of operations of Mid-America since the date of
acquisition.
All per share financial information has been adjusted to reflect the 6-for-5
stock split effected in the form of a 20 percent stock dividend paid to
shareholders on March 17, 1997.
Net income for the first quarter of 1997 was $14.7 million, up 10.1% over 1996
first quarter net income of $13.4 million. Earnings per share were $0.66 in the
first quarter of 1997, up 8.2% over the $0.61 reported in the first quarter of
1996.
Return on average assets (ROA) for the first quarter of 1997 was 1.36%, up from
1.33% during the same period last year. Return on average equity (ROE) for the
first quarter of 1997 was 14.84%, down slightly from 14.99% during the same
period last year.
The change (increase of $1.4 million, or 10.1%) in first quarter 1997 net
income, when compared to the same period last year, was a result of higher net
interest income (up $3.3 million, or 8.1%), higher
10
noninterest income (up $787,000, or 4.8%), slightly lower provision for loan
losses (down $49,000, or 4.2%), offset by higher noninterest expense (up
$2.4 million, or 6.8%) and higher tax expense (up $415,000, or 5.7%).
Net Income
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Net Income ...... $14,749 $15,062 $14,660 $14,128 $13,394
E.P.S ........... $ 0.66 $ 0.68 $ 0.67 $ 0.64 $ 0.61
Return on Average
Equity - Quarter 14.84% 15.48% 15.56% 15.51% 14.99%
Return on Average
Equity - Year to
Date 14.84% 15.39% 15.36% 15.25% 14.99%
Return on Average
Assets - Quarter 1.36% 1.40% 1.39% 1.38% 1.33%
Return on Average
Assets - Year to
Date 1.36% 1.38% 1.37% 1.36% 1.33%
- --------------------------------------------------------------------------------
NET INTEREST INCOME
Fully taxable equivalent (FTE) net interest income in the first quarter of 1997
was $45.6 million, an increase of $3.4 million over the first quarter of 1996
FTE net interest income of $42.2 million. Adjusting the first quarter of 1997
for the impact of Centra (net interest income of $827,000 in the first quarter
of 1997) and an increase in collected nonaccrual loan interest income (up
$447,000 over the first quarter of 1996) reduces the increase to $2.1 million.
The net interest margin for the first quarter of 1997 was 4.54%, compared with
4.51% in the first quarter of 1996. The largest factor contributing to the
decrease to net interest margin was the lower contribution from net free funds,
down 3 basis points. Interest-bearing liabilities comprised a larger portion of
total funding (82.8% in first quarter of 1997 compared to 82.4% in first quarter
of 1996).
Net Interest Income
Tax Equivalent Basis
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Interest Income $81,571 $80,371 $78,648 $76,908 $75,805
Tax Equivalent Adjustment 1,428 1,239 1,338 1,409 1,352
------ ------ ------ ------ ------
Tax Equivalent Interest $82,999 $81,610 $79,986 $78,317 $77,157
Interest Expense 37,407 36,237 35,963 35,309 34,968
------ ------ ------ ------ ------
Tax Equivalent Net Interest
Income $45,592 $45,373 $44,023 $43,008 $42,189
- --------------------------------------------------------------------------------
Average earning assets grew $316 million from the first quarter of 1996, with
$68 million of this increase attributable to Centra, and approximately $30
million attributable to the Mid-America acquisition in the third quarter of 1996
(primarily investment securities). All subsidiary banks reported growth in
average earning assets when compared to the first quarter of 1996. Total loans
grew $295 million, with $36 million attributable to Centra and $7 million
attributable to Mid-America. Excluding the impact of Centra and Mid-America,
average earning assets and loans grew at an internal rate of 5.8% and 8.7%,
respectively in the first quarter of 1997. The addition of Centra, with a loan
to deposit ratio of 103.6%, combined with loan growth funded only partially by
deposit growth caused the average loans to average deposits ratio to increase to
92.4%, up from 89.4% in the first quarter of 1996.
11
The average loan growth, excluding the impact of Centra, of $259 million, was
funded by increased wholesale borrowings (funds purchased, repurchase
agreements, FHLB borrowings, and long-term borrowings) of $81 million, increased
time deposits (personal CDs and Brokered CDs) of $100 million ($67 million
increase in personal CDs and a $33 million increase in Brokered CDs), higher
balances of Savings, NOW and MMA of $43 million, higher net free funds of $24
million and lower balances of investments and short-term investments of $11
million. Over the past twelve months, loan growth has been funded by
approximately 44% wholesale funds (including brokered CDs) and 46% retail
interest-bearing deposits, with the remainder from net free funds and the change
in the investment portfolios. The average balance of brokered CDs for the first
quarter of 1997 was $97 million with a period end balance of $106 million (up
$16 million from December 31, 1996).
Net Interest Margin
Quarterly Trends
(Quarterly Info Only)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Yield on Earning Assets 8.26% 8.21% 8.19% 8.23% 8.25%
Cost of Interest-Bearing
Liabilities 4.49% 4.45% 4.48% 4.50% 4.54%
---- ---- ---- ---- ----
Interest Rate Spread 3.77% 3.76% 3.71% 3.73% 3.71%
Net Free Funds
Contribution .77% .80% .80% .79% .80%
---- ---- ---- ---- ----
Net Interest Margin 4.54% 4.56% 4.51% 4.52% 4.51%
==== ==== ==== ==== ====
Average Earning Assets
to Average Assets 92.97% 92.60% 92.73% 92.92% 92.99%
Free Funds Ratio
(% of Earning Assets) 17.16% 18.03% 17.79% 17.62% 17.56%
- --------------------------------------------------------------------------------
Earning Asset and Interest-Bearing Liability Volumes
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Average Loans $3,198,576 $3,111,614 $3,049,213 $2,989,910 $2,903,438
Average Earning
Assets 4,076,729 3,955,571 3,885,182 3,825,789 3,760,453
Average Noninterest-
Bearing Deposits 550,230 583,697 564,904 545,992 532,882
Average Interest-
Bearing Deposits 2,910,015 2,835,861 2,792,245 2,731,350 2,714,068
Average Deposits 3,460,245 3,419,558 3,357,149 3,277,342 3,246,950
Average Interest-
Bearing
Liabilities 3,377,230 3,242,422 3,194,137 3,151,693 3,100,249
- --------------------------------------------------------------------------------
LOAN LOSS
The loan loss provision for the first quarter of 1997 was $1.1 million, a
decrease of $49,000 from the same period in 1996.
As of March 31, 1997, the allowance for possible loan losses of $49.4 million
represented 1.52% of total outstanding loans, up slightly from the 1.50%
reported at December 31, 1996, and down from 1.57% reported at March 31, 1996.
The combination of first quarter provision expense, net recoveries of $125,000
and slower loan growth than previous quarters account for the increase in the
allowance for possible loan losses to loans from the fourth quarter of 1996.
12
Provision for Possible Loan Losses
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Provision - Quarter $ 1,123 $ 1,610 $ 1,011 $ 872 $ 1,172
Provision - Year 1,123 4,665 3,055 2,044 1,172
Net Charge-offs
(Recoveries) -
Quarter (125) 948 456 915 49
Net Charge-offs
(Recoveries) -
Year (125) 2,368 1,420 964 49
Allowance at Period End $49,398 $47,422 $46,760 $46,049 $46,092
Allowance to Period End
Loans 1.52% 1.50% 1.51% 1.52% 1.57%
Net Charge-offs
(Recoveries) to
Average Loans
(Annualized) - Quarter (.02)% .12% .06% .12% .01%
Net Charge-offs
(Recoveries) to
Average Loans
(Annualized) - Year (.02)% .08% .06% .07% .01%
- --------------------------------------------------------------------------------
During the first quarter of 1997, net recoveries of $125,000 were recorded. This
net recovery position was the result of three larger recoveries collected in the
first quarter. The first quarter 1997 net recovery position compares favorably
to the $948,000 of net chargeoffs in the fourth quarter of 1996 and $49,000 of
net chargeoffs in the first quarter of 1996.
The first quarter of 1997 net recoveries as a percent of average loans of
(0.02%) compares favorably to net chargeoffs to average loans of 0.12% in the
fourth quarter of 1996 and 0.01% in the first quarter of 1996.
NONPERFORMING LOANS
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.
Nonperforming loans are considered a leading indicator of future loan losses.
Nonperforming loans are defined as non-accrual loans, loans 90 days or more past
due but still accruing and restructured loans.
Loans are normally placed in 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
Nonperforming loans. Loans past due 90 days or more but still accruing are
classified as such where the underlying loans are
13
both well-secured (the collateral value is sufficient to cover principal and
accrued interest) and in the process of collection. Also included in
nonperforming loans are "restructured" loans. Restructured loans involve the
granting of some concession to the borrower involving the modification of terms
of the loan, such as changes in payment schedule or interest rate.
Total nonperforming loans at March 31, 1997, were $19.0 million, a decrease of
$517,000 from December 31, 1996. The ratio of nonperforming loans to total loans
at March 31, 1997, was .59% compared to .62% at December 31, 1996, and March 31,
1996. Other real estate owned increased slightly to $1.3 million at March 31,
1997, up from $1.2 million at December 31, 1996.
Nonperforming Loans and Other Real Estate
(In Thousands)
- --------------------------------------------------------------------------------
3/31/97 12/31/96 9/30/96 6/30/96 3/31/96
------- -------- ------- ------- -------
Nonaccrual Loans $16,492 $17,225 $17,939 $15,156 $14,797
Accruing Loans Past
Due 90 Days or More 2,052 1,801 1,646 3,442 2,172
Restructured Loans 499 534 576 1,325 1,180
------ ------ ------ ------ ------
Total Nonperforming Loans $19,043 $19,560 $20,161 $19,923 $18,149
====== ====== ====== ====== ======
Nonperforming Loans as a
Percent of Loans .59% .62% .65% .66% .62%
Other Real Estate Owned $ 1,272 $ 1,173 $ 1,727 $ 1,833 $ 1,083
- --------------------------------------------------------------------------------
Impaired loans are defined as those loans where it is probable that all amounts
due according to contractual terms, including principal and interest, will not
be collected. The Corporation has determined that commercial loans and
residential real estate loans that have a nonaccrual status or have had their
terms restructured meet the definition. Impaired loans are measured at the fair
value of the collateral, if the loan is collateral dependent, or alternatively
at the present value of expected future cash flows. Interest income on impaired
loans is recognized only at the time that cash is received, unless applied to
reduce principal.
At March 31, 1997, the recorded investment in impaired loans totaled $15.8
million. Included in this amount is $13.3 million of impaired loans that do not
require a related allowance for possible loan losses and $2.5 million of
impaired loans for which the related allowance for possible loan losses totaled
$1.0 million. The average recorded investment in impaired loans during the
twelve months ended March 31, 1997, was approximately $14.7 million. Interest
income recognized on a cash basis on impaired loans during the first three
months of 1997 totaled $113,000.
The following table shows, for those loans accounted for on a non-accrual basis
and restructured loans for the three months ended March 31, 1997, 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.
- --------------------------------------------------------------------------------
For the Three Months
Ended March 31, 1997
(In Thousands)
- --------------------------------------------------------------------------------
Interest income in accordance with original terms $383
Interest income recognized 126
---
Reduction in interest income $257
===
- --------------------------------------------------------------------------------
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
14
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 March 31, 1997, potential problem loans totaled $58.4 million ($55.9 million,
excluding the impact of Centra) compared to $54.0 million at the end of 1996.
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 this category.
LOAN CONCENTRATIONS
Loan concentrations are considered to exist 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. The Corporation's
loans are widely diversified by borrower, industry group and area. At March 31,
1997, no concentrations existed in the Corporation's loan portfolio in excess of
10% of total loans.
Real estate construction loans at March 31, 1997, totaled $241.1 million, or
7.4% of loans while agricultural loans were 1.0% of total loans.
As of March 31, 1997, the Corporation did not have any cross-border outstandings
to borrowers in any foreign country where such outstandings exceeded 1% of total
assets.
NONINTEREST INCOME
Noninterest income increased $787,000, or 4.8% in the first quarter of 1997
compared to the first quarter of 1996. Excluding the impact of Centra, the
increase would have been $692,000 or 4.3%. All categories, with the exception of
mortgage banking activity, increased when compared to the first quarter of 1996.
Noninterest Income
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Trust Servicing Fees $ 6,948 $ 6,651 $ 6,175 $ 6,199 $ 6,160
Service Charges on Deposit
Accounts 3,225 3,384 3,218 3,016 2,988
Mortgage Banking Activity 2,798 2,867 2,913 3,078 3,737
Retail Investment Income 888 796 628 765 632
Other 2,743 3,427 2,605 2,500 2,431
----- ----- ----- ----- -----
Noninterest Income
Excluding Securities Gains 16,602 17,125 15,539 15,558 15,948
Investment Security Gains, Net 473 485 52 36 340
------ ------ ------ ------ ------
Total $17,075 $17,610 $15,591 $15,594 $16,288
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
Trust service fees increased $788,000, or 12.8% compared to the same quarter
last year. The increase was mainly the result of continued improvement in trust
business volume and growth in assets under management.
15
Retail investment income increased $256,000, or 40.5% over the first quarter of
1996. This increase is attributable to higher levels of revenue from offices
opened during 1996.
Service charges on deposit accounts increased $237,000, or 7.9% over the same
period last year. Excluding the impact of Centra, the increase would have been
$173,000, or 5.8%. All banks recorded higher total service charges on deposit
account revenue, with the majority of the increase attributable to higher fees
on business accounts, business overdraft fees and lower waived service charges.
Mortgage banking income decreased $939,000, or 25.1% from the first quarter of
1996. Lower origination fees (down $471,000), underwriting fees (down $195,000),
escrow waiver fees (down $21,000) and lower gain on sale of loans (down
$515,000) were partially offset by higher loan servicing revenues (up $263,000).
The production related revenues (origination, underwriting and escrow waiver
fees) were lower due to lower production volumes in the first quarter of 1997
($108.2 million) compared to the same period last year ($160.0 million). The
decrease in gain on sale of loans is attributable to the variability of market
interest rates experienced in the secondary market during the first quarter of
1997.
Investment security gains of $473,000 increased $133,000 over the same period
last year. Both periods' gains were primarily from the sale of Sallie Mae Stock.
NONINTEREST EXPENSE
Total noninterest expense increased $2.4 million, or 3.8% in the first quarter
of 1997 compared to the same period last year. Excluding the impact of Centra,
the increase would have been $1.9 million, or 5.3%. All categories of
noninterest expense except business development and other increased when
compared to the first quarter of last year.
Noninterest Expense
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Salaries and Employee
Benefits $ 20,179 $ 19,395 $ 18,563 $ 18,713 $ 18,696
Net Occupancy Expense 3,204 2,443 2,796 2,831 2,748
Equipment Rentals,
Depreciation and
Maintenance 2,184 2,005 2,037 1,821 1,882
Data Processing Expense 2,291 2,130 2,076 2,018 2,104
Stationery and Supplies 906 935 755 862 825
Business Development and
Advertising 828 994 876 872 878
FDIC Expense 96 (47) 14 24 12
Other 7,930 8,383 7,345 7,319 8,080
Total $ 37,618 $ 36,238 $ 34,462 $ 34,460 $ 35,225
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------
Salaries and employee benefit expenses increased $1.5 million, or 7.9% when
compared to the fourth quarter of 1996. Excluding the impact of Centra, this
increase was $1.2 million, or 6.3%. The adjusted increase (excluding Centra) was
primarily salary expense. Total salary related expenses increased $966,000, or
6.6%, compared to the first quarter of 1996 while fringe benefit related
expenses increased $223,000, or 5.5%. The 6.6% increase in salary expense is
attributable to base merit increases (approximately 4.5%), transitional
overlapping positions as certain functions are being centralized, and new
positions added. The fringe benefit increase was primarily due to higher pension
expense (up $56,000), 401k expense (up $99,000), and higher social security tax
expense (up $121,000) offset by
16
lower profit sharing expense (down $151,000). The increases are linked to
the higher levels of salary expense incurred (pension, 401k and social
security) and changes to benefit plans or plan assumptions (401k and
pension).
Net occupancy expense increased $456,000, or 16.6% compared to the first quarter
of 1996. Excluding the impact of Centra, this increase was $392,000, or 14.3%.
This increase is primarily due to the Chicago region (incremental cost of
additional and remodeled workspace from Mid-America), and increased occupancy
expenses resulting from technology and customer service enhancements.
Equipment rentals, depreciation and maintenance increased $302,000, or 16.0%
compared to the first quarter of 1996. Excluding the impact of Centra, this
increase was $273,000, or 14.5%. This increase is a result of higher levels of
depreciation on computer equipment (up $239,000) and higher equipment repair
expense (up $48,000). The increase in depreciation and equipment repair expense
are attributable to the expenditures incurred during 1996 as part of the
investment in technology and customer service enhancements.
Data processing increased $187,000, or 8.9%, compared to the first quarter of
1996. This increase is primarily due to higher processing volumes.
The efficiency ratio improved to 60.48% for the first quarter of 1997 compared
to 60.59% for the same period last year.
Expense Control
Quarterly Trends
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Efficiency Ratio - Quarter 60.48% 57.98% 57.86% 58.84% 60.59%
Efficiency Ratio - Year 60.48% 59.80% 59.08% 59.71% 60.59%
Expense Ratio - Quarter 2.05% 1.92% 1.94% 1.99% 2.06%
Expense Ratio - Year 2.05% 1.98% 1.99% 2.02% 2.06%
- --------------------------------------------------------------------------------
The expense ratio improved to 2.05% for the first quarter of 1997 compared to
2.06% for the first quarter of 1996.
INCOME TAXES
Income tax expense increased 5.7% over the first quarter of 1996. The effective
tax rate at 34.44% decreased from 35.38% for the first quarter of 1996.
Income Tax Expense
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Income Before Taxes $22,498 $23,896 $22,803 $21,861 $20,728
State Tax Expense $ 1,227 $ 1,441 $ 1,354 $ 1,289 $ 1,212
Federal Tax Expense 6,522 7,402 6,789 6,444 6,122
----- ----- ----- ----- -----
Total Income Tax Expense $ 7,749 $ 8,834 $ 8,143 $ 7,733 $ 7,334
===== ===== ===== ===== =====
Effective Tax Rate 34.44% 36.97% 35.71% 35.37% 35.38%
- --------------------------------------------------------------------------------
17
BALANCE SHEET
During the past twelve months, total assets increased $375 million, or 9.2%.
Excluding the impact of Centra and Mid-America, total assets would have
increased by $256 million, or 6.3%. Loans increased $316 million, or 10.8% ($280
million, or 9.6%, excluding Centra). The internal loan growth was in commercial
(up $198 million or 12.3%), real estate (up $62 million or 6.5%) and consumer
(up $16 million or 4.2%). The internal loan growth (excluding Centra) was funded
with $108 million of wholesale funding, $142 million of interest-bearing
deposits and $3 million from a reduction of investments and short-term
investments and a $27 million increase in net free funds. The $142 million
increase in interest-bearing deposits reflects a $38 million increase in
outstanding brokered CDs and an increase of $104 million in retail
interest-bearing deposits. Excluding the impact of Centra, 36% of incremental
loan growth was funded by increasing retail deposits.
During the first quarter of 1997, total assets increased $39.8 million, or 0.9%.
Excluding the impact of Centra, total assets would have decreased by $36.4
million, or 0.8%. Loans increased $91.2 million ($57.3 million, or 7.4% on an
annualized basis, excluding Centra). The loan growth was essentially all
commercial related. The internal loan growth (excluding Centra) was funded with
$38 million of wholesale funding, $4 million of interest-bearing deposits and
$33 million from a reduction of investments and short-term investments offset by
an $18 million decrease in net free funds. The $4 million increase in
interest-bearing deposits reflects a $16 million increase in outstanding
brokered CDs and a decrease of $12 million in retail interest-bearing deposits.
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 assets, maturing loans, the maturity of securities,
access to other funding sources and markets, and a strong capital position.
Deposit growth is the primary source of liquidity at the banking subsidiaries.
Interest-bearing deposits increased $58 million, while noninterest-bearing
deposits fell $75 million from the seasonally high year-end balance.
As of March 31, 1997, the securities portfolio contained $391.4 million at
amortized cost of U.S. Treasury and federal agency securities available for
sale, representing 45.5% of the total securities portfolio. These government
securities are highly marketable and had a market value equal to 99.5% of
amortized cost at quarter end.
Money market investments, consisting of federal funds sold, securities purchased
under agreements to resell, and interest-bearing deposits in other financial
institutions, averaged $24.5 million in the first quarter of 1997 compared to
$29.2 million during the same period in 1996. Being short-term and liquid by
nature, money market investments 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 than normal rate spreads while still generating
additional net interest income.
18
At March 31, 1997, the Corporation had $24.3 million outstanding in
short-term money market investments, serving as an essential source of
liquidity. The amount at quarter end represents .5% of total assets compared to
.6% at December 31, 1996.
Short-term borrowings totaled $472.0 million at March 31, 1997, compared with
$444.1 million at the end of 1996. Within the classification of short-term
borrowings are federal funds purchased, securities sold under agreements to
repurchase and FHLB advances with a remaining maturity of less than one year.
Federal funds are purchased from a sizable network of correspondent banks while
securities sold under agreements to repurchase are obtained from a base of
individual, business and public entity customers. FHLB advances with a remaining
maturity of greater than one year are included in long-term borrowings.
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 securities and money market assets, 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 the 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 $8.7 million in the
first three months of 1997 and will continue to be the parent's main source of
long-term liquidity.
At March 31, 1997, the parent company had $115 million of established lines of
credit with non-affiliated banks, of which $64 million was in use for nonbank
affiliates. 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
nonbank subsidiaries. Commercial paper outstanding at March 31, 1997, totaled
$2.1 million.
The Corporation's long-term debt to equity ratio at March 31, 1997, was 7.7%,
compared to 5.4% at December 31, 1996. This increase is primarily attributable
to an increase in outstanding long-term FHLB advances.
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.
CAPITAL
Stockholders' equity at March 31, 1997, increased $14.4 million, or 3.7% since
December 31, 1996. This increase was composed of $8.1 million as a result of the
Centra acquisition, $9.4 million of retained earnings, $0.4 million from option
exercises, reduced by $1.3 million from treasury stock purchases and $2.1
million reduction in the net unrealized gain on available for sale securities.
Equity to assets at March 31, 1997, climbed to 9.14%, with the Tier 1 leverage
ratio climbing to 8.58%.
Cash dividends of $.24 per share were paid in the first quarter of 1997,
representing a payout ratio of 36.36%. Compared to the same period last year, a
cash dividend of $.23 per share was paid, representing a payout ratio of 37.70%.
19
Capital
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1997 1996 1996 1996 1996
- --------------------------------------------------------------------------------
Stockholders' Equity $407,590 $393,145 $381,428 $371,392 $364,046
Average Equity to
Average Assets 9.19% 9.06% 8.94% 8.90% 8.89%
Equity to Assets -
Period End 9.14% 8.90% 8.91% 8.92% 8.84%
Tier 1 Capital to
Risk Weighted Assets -
Period End 11.03% 10.73% 10.75% 10.66% 10.55%
Total Capital to Risk
Weighted Assets -
Period End 12.28% 11.98% 12.00% 11.91% 11.81%
Tier 1 Leverage Ratio -
Period End 8.58% 8.41% 8.28% 8.24% 8.15%
Market Value Per Share -
Period End $ 36.75 $ 35.42 $ 40.38 $ 38.75 $ 37.75
Book Value Per Share -
Period End $ 18.16 $ 17.84 $ 20.77 $ 20.21 $ 19.82
Market Value Per Share to
Book Value Per Share 202.4% 198.5% 194.4% 191.7% 190.5%
Dividends Per Share -
This Quarter $ .24 $ .24 $ .24 $ .24 $ .23
Dividends Per Share -
Year to Date $ .24 $ .95 $ .71 $ .47 $ .23
Earnings Per Share -
This Quarter $ .66 $ .68 $ .67 $ .64 $ .61
Earnings Per Share -
Year to Date $ .66 $ 2.60 $ 1.92 $ 1.25 $ .61
Dividend Payout Ratio -
This Quarter 36.36% 35.29% 35.82% 37.50% 37.70%
Dividend Payout Ratio -
Year to Date 36.36% 36.54% 36.98% 37.60% 37.70%
- --------------------------------------------------------------------------------
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 March 31, 1997, the Corporation's tier 1 risk-based capital ratio, total
risk-based capital (tier 1 and tier 2) ratio and tier 1 leverage ratio were well
in excess of regulatory minimums. 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. As of March 31, 1997, each banking subsidiary
exceeded the minimum ratios for tier 1 capital, total capital and the tier 1
leverage ratio.
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.
RECENT DEVELOPMENTS
On April 23, 1997, the Corporation announced a $.29 (twenty-nine cents) per
share quarterly cash dividend. This will result in a 20% increase in the
quarterly cash dividend paid. The dividends anticipated to be paid in 1997
represent an increase of 16.8% over those paid in 1996.
ACCOUNTING DEVELOPMENTS
In February 1997, Financial Accounting Standards Board (FASB) issued SFAS No.
128, "Earnings per Share," which is effective for financial statements issued
for periods ending after December 15, 1997. This statement simplifies the
standards for computing earnings per share previously found in APB No. 15. It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual
20
presentation of basic and diluted EPS on the face the income statement for all
entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Earlier application of
this statement is not permitted. The Corporation has determined that the
impact of adoption will not have a material effect on the consolidated
statements of the Corporation.
21
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
Page No.
-------
ITEM 5: Other Information
On May 14, 1997, the Corporation entered into an Agreement and Plan
of Merger, dated as of May 14, 1997, by and among the Corporation, Badger Merger
Corp., a Wisconsin corporation and wholly owned subsidiary of the Corporation
(the "Merger Sub") and First Financial Corporation, a Wisconsin corporation
("FFC") (the "Merger Agreement"). The Merger Agreement provides for a
combination of the respective businesses through a stock-for-stock merger of
equals. The resulting institution, which will retain the Associated Banc-Corp
name, will have combined assets of $10.5 billion, equity capital of
approximately $900 million, and a network of over 200 full-service banking
locations throughout Wisconsin and Illinois. Headquarters of the merged company
will be in Green Bay, with significant operations remaining in both Stevens
Point and Green Bay.
The Merger Agreement provides that, at the effective time of the
Merger, each share of common stock, par value $1.00 per share, of FFC (the "FFC
Common Stock"), will be exchanged for .765 shares of common stock, par value
$.01 per share, of the Corporation ("Associated Common Stock"). The Merger is
intended to qualify as a tax-free reorganization for federal income tax purposes
and will be accounted for as a "pooling of interests" for financial reporting
purposes.
Consummation of the transactions contemplated by the Merger
Agreement is subject to certain conditions, including approval by the
shareholders of FFC of the Merger, approval by the shareholders of the
Corporation of the authorization of additional shares of Associated Common Stock
and the issuance of additional shares of Associated Common Stock in connection
with the Merger, receipt of legal opinions to the effect that the Merger
qualifies as a tax-free reorganization for federal income tax purposes,
confirmation from the parties' accountants that the Merger will be accounted for
as a "pooling of interests" for financial reporting purposes, absence of any
injunction or certain other legal matters restraining or prohibiting the
transaction, the truth and accuracy of certain representations and warranties,
compliance with certain covenants contained in the Merger Agreement and other
usual and customary closing conditions.
The Corporation's Chief Executive Officer H.B. Conlon will be
Chairman and CEO of the combined companies. John C. Seramur, FFC's Chief
Executive Officer, will be named Vice Chairman, and will remain President of FFC
during the integration. Robert C. Gallagher will remain as Vice Chairman of
Associated. The board of directors of the combined institutions will consist
of seven of the existing directors from each company.
The foregoing description is qualified in its entirety by reference
to the Merger Agreement, which is attached hereto as Exhibit 2 and is
incorporated herein by reference.
As a condition to the Corporation entering into the Merger
Agreement, FFC and the Corporation entered into a stock option agreement, dated
as of May 14, 1997 (the "FFC Stock Option Agreement"), pursuant to which FFC
granted to the Corporation an irrevocable option to purchase up to 19.9% of the
outstanding shares of FFC Common Stock at an exercise price of $23.25 per share
(the "FFC Stock Option").
As a condition to FFC entering into the Merger Agreement, FFC and
the Corporation entered into a stock option agreement, dated as of May 14, 1997
(the "Associated Stock Option Agreement"), pursuant to which the Corporation
granted to FFC an irrevocable option to purchase up to 19.9% of the outstanding
shares of Associated Common Stock at an exercise price of $32.50 per share (the
"Associated Stock Option").
Each of the FFC Stock Option and the Associated Stock Option will
become exercisable upon certain conditions specified in the FFC Stock Option
Agreement and the Associated Stock Option Agreement, respectively.
The foregoing description is qualified in its entirety by reference
to the Associated Stock Option Agreement and the FFC Stock Option Agreement,
which are attached hereto as Exhibits 10.1 and 10.2, respectively, and each of
which is incorporated herein by reference.
The merger is expected to be earnings accretive during fiscal year
1998, the first full year of consolidation. In connection with the transaction,
the merged company anticipates taking a one-time charge and one-time conforming
accounting adjustments of at least $40 million, net of taxes, the exact amount
of which has not yet been determined. It is further anticipated that
transactional economies will result in pre-tax savings totaling approximately
$10 million in the first full year of consolidation and is expected to increase
in future years.
This Form 10-Q, including this Item 5, contains
forward-looking statements, including estimates of
future operating results and other forward-looking
financial information for the Corporation, FFC, and
the combined company. These estimates constitute
forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995),
which involve significant risks and uncertainties.
Actual results and other financial information may
differ materially from the results and financial
information discussed in the forward-looking statements.
Factors that might cause such a difference include,
but are not limited to: (1) expected cost savings from
the merger cannot be fully realized or realized within
the expected time frame; (2) revenues following the
merger are lower than expected; (3) competitive pressures
among financial institutions increase significantly; (4)
costs or difficulties related to the integration of the
businesses of the Corporation and FFC are greater than
expected; (5) general economic conditions are less
favorable than expected; and (6) legislation or regulatory
changes adversely affect the business in which the
combined company will be engaged.
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
(2) Agreement and Plan of Merger, dated as of May 14, 1997 among
the Corporation, Badger Merger Corp. and First Financial Corporation
(10.1) Stock Option Agreement, dated as of May 14, 1997 between the
Corporation and First Financial Corporation
(10.2) Stock Option Agreement, dated as of May 14, 1997 between
First Financial Corporation and the Corporation
(11) Statements re Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for
the three months ended March 31, 1997.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSOCIATED BANC-CORP
-------------------------------------
(Registrant)
/s/ HARRY B. CONLON
Date: May 15, 1997 ---------------------------------
Harry B. Conlon
Chairman & Chief Executive
Officer
/s/ JOSEPH B. SELNER
Date: May 15, 1997 --------------------------------
Joseph B. Selner
Principal Financial Officer
23
INDEX TO EXHIBITS
Exhibit No. Page No.
- ---------- --------
(2) Agreement and Plan of Merger, dated as of May 14, 1997 among the
Corporation, Badger Merger Corp. and First Financial Corporation
(10.1) Stock Option Agreement, dated as of May 14, 1997 between the
Corporation and First Financial Corporation
(10.2) Stock Option Agreement, dated as of May 14, 1997 between First
Financial Corporation and the Corporation
(11) Computations of Earnings Per Share and Average
Number of Common Shares Outstanding
(27) Financial Data Schedule