SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q/A
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-27982
FIRST NORTHERN CAPITAL CORP.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1830142
(State or other jurisdiction of (IRS Employer Identification No.
incorporation or organization)
201 North Monroe Avenue
P.O. Box 23100
Green Bay, WI 54305-3100
(920) 437-7101
------------------------------------------
(Address, including Zip Code, and telephone number
including area code, of registrant's principal executive offices)
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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ NO ____
The number of shares outstanding of the issuer's common
stock $1.00 par value per share, was 8,567,808
shares, at April 28, 2000.
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Unaudited Consolidated Statements of Financial
Condition as of March 31, 2000
and December 31, 1999 3
Unaudited Consolidated Statements of Income
for the Three Months Ended
March 31, 2000 and March 31, 1999 4
Unaudited Consolidated Statements of
Stockholders' Equity
for the Three Months Ended
March 31, 2000 and March 31, 1999 5
Unaudited Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 2000 and March 31, 1999 6
Notes to Unaudited Consolidated
Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 29
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2000 December 31, 1999
-------------- -----------------
(In Thousands)
Assets
Cash $ 4,340 $ 8,043
Interest-earning deposits 372 4,329
-------- ---------
CASH AND CASH EQUIVALENTS 4,712 12,372
Securities available-for-sale, at fair value
Investment securities 9,018 8,444
Mortgage-related securities 5,375 5,554
Securities held-to-maturity
Investment securities
(estimated fair value of $25,747 - 2000;
$25,644 - 1999) 26,231 26,215
Mortgage-related securities
(estimated fair value of $10,234 - 2000;
$9,976 - 1999) 10,310 10,048
Loans held for sale 2,347 1,085
Loans receivable 766,554 736,880
Accrued interest receivable 4,518 4,229
Foreclosed properties and repossessed assets 432 382
Office properties and equipment 7,752 7,463
Federal Home Loan Bank stock 10,750 9,250
Life insurance policies 13,831 13,548
Prepaid expense and other assets 4,238 4,153
-------- --------
$866,068 $839,623
======== ========
Liabilities
Deposits $567,693 $566,908
Borrowings 211,484 185,899
Advance payments by borrowers for taxes
and insurance 3,472 3,887
Other liabilities 5,991 6,134
-------- --------
TOTAL LIABILITIES 788,640 762,828
Stockholders' Equity
Cumulative preferred stock, $1 par value;
10,000,000 shares authorized; none
outstanding Common stock, $1 par value;
30,000,000 shares authorized;
shares issued: 9,134,735 - 2000 and 1999
shares outstanding: 8,572,808 - 2000;
8,548,658 - 1999 9,135 9,135
Additional paid-in capital 8,528 8,780
Retained earnings 65,180 64,468
Accumulated other comprehensive income 415 479
Treasury stock at cost (561,927 shares - 2000;
586,077 shares - 1999) (5,830) (6,067)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 77,428 76,795
-------- --------
$866,068 $839,623
======== ========
See Notes to Unaudited Consolidated Financial Statements.
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
2000 1999
(In Thousands,
Except Per Share Amounts)
Interest and dividend income:
Loans $13,645 $11,734
Investment securities 678 545
Interest-earning deposits 19 18
Mortgage-related securities 254 185
------- -------
TOTAL INTEREST AND DIVIDEND INCOME 14,596 12,482
Interest expense:
Deposits 6,159 5,730
Borrowings 2,981 1,398
Advance payments by borrowers for
taxes and insurance 12 12
------- -------
TOTAL INTEREST EXPENSE 9,152 7,140
------- -------
NET INTEREST INCOME 5,444 5,342
Provision for loan losses 165 60
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,279 5,282
Non-interest income:
Fees on serviced loans 55 36
Loan fees and service charges 58 53
Deposit account service charges 390 316
Insurance commissions 111 60
Gains on sales of loans 11 168
Other 383 287
------- -------
TOTAL NON-INTEREST INCOME 1,008 920
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 2,113 1,854
Federal insurance premiums 30 81
Occupancy 300 241
Data processing 403 391
Furniture and equipment 112 103
Telephone and postage 118 121
Marketing 105 115
Other 655 582
------- -------
TOTAL NON-INTEREST EXPENSE 3,836 3,488
INCOME BEFORE INCOME TAXES 2,451 2,714
Income taxes 795 923
------- -------
NET INCOME $ 1,656 $ 1,791
======= =======
BASIC NET INCOME PER SHARE $0.19 $0.20
===== =====
DILUTED NET INCOME PER SHARE $0.19 $0.20
===== =====
CASH DIVIDENDS PAID PER SHARE $0.11 $0.10
===== =====
See Notes to Unaudited Consolidated Financial Statements.
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other-
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income Total
------ ------- -------- -------- ------------- -----
(In Thousands)
For the Three Months
Ended March 31, 2000
Balance at January 1, 2000 $9,135 $8,780 $64,468 $(6,067) $479 $76,795
Comprehensive income:
Net income 1,656 1,656
Other comprehensive losses (64) (64)
-------
Total comprehensive income 1,592
Cash dividends ($.11 per share) (944) (944)
Purchase of treasury stock (168) (168)
Exercise of stock options - (252) - 405 - 153
------ ------ ------- ------- ---- -------
Balance at March 31, 2000 $9,135 $8,528 $65,180 $(5,830) $415 $77,428
====== ====== ======= ======= ==== =======
For the Three Months
Ended March 31, 1999
Balance at January 1, 1999 $9,135 $9,126 $60,582 $(3,710) $960 $76,093
Comprehensive income:
Net income 1,791 1,791
Other comprehensive losses (141) (141)
-------
Total comprehensive income 1,650
Cash dividends ($.10 per share) (880) (880)
Purchase of treasury stock (632) (632)
Exercise of stock options - (291) - 495 - 204
------ ------- ------- ------- ---- -------
Balance at March 31, 1999 $9,135 $ 8,835 $61,493 $(3,847) $819 $76,435
====== ======= ======= ======= ==== =======
See Notes to Unaudited Consolidated Financial Statements.
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
2000 1999
---- ----
(In Thousands)
Cash flows from operating activities:
Net income $ 1,656 $ 1,791
Adjustments to reconcile net
income to cash provided
by operating activities:
Provision for losses on loans 165 60
Provision for depreciation and amortization 212 214
Gains on sales of loans (11) (168)
Loans originated for sale (1,731) (10,795)
Proceeds from loan sales 480 9,808
Increase in interest receivable (289) (118)
Increase (decrease) in interest payable 5 (3)
Increase in other assets (275) (659)
Decrease in other liabilities (182) (367)
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 30 (237)
Cash flows from investing activities:
Proceeds from maturities of available-
for-sale investment securities 500 1,000
Proceeds from maturities of held-
to-maturity investment securities 1,472 3,000
Purchases of available-for-sale
investment securities (1,163) (495)
Purchases of held-to-maturity investment securities (1,477) (4,788)
Principal repayments on available-for-sale
mortgage-related securities 77 4
Principal repayments on held-to-maturity
mortgage-related securities 830 559
Purchases of held-to-maturity
mortgage-related securities (991) -
Net increase in loans receivable (29,903) (5,716)
Purchases of office properties and equipment (501) (101)
Purchase of Federal Home Loan Bank stock (1,500) (500)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (32,656) (7,037)
Cash flows from financing activities:
Net increase in deposits 780 3,753
Net increase in short-term borrowings 1,686 7,135
Proceeds from long-term borrowings 39,965 2,025
Repayments of long-term borrowings (16,066) (5,000)
Cash dividend paid (944) (880)
Purchase of treasury stock (168) (632)
Proceeds from exercise of stock options 128 150
Net decrease in advance payments by
borrowers for taxes and insurance (415) (375)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,966 6,176
DECREASE IN CASH AND CASH EQUIVALENTS (7,660) (1,098)
Cash and cash equivalents at beginning of period 12,372 7,211
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,712 $ 6,113
======= =======
Supplemental Information to the Statement of Cash Flows:
Interest on deposits $6,153 $5,733
Interest on borrowings 2,729 1,361
Income taxes - 165
Loans transferred to foreclosed properties
and repossessed assets 84 82
See Notes to Unaudited Consolidated Financial Statements.
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
1. The consolidated financial statements include the accounts
of First Northern Capital Corp. ("First Northern" or
the "Company") and its wholly-owned subsidiary First
Northern Savings Bank, S.A. and its subsidiaries (collectively,
the "Savings Bank"): Great Northern Financial Services
Corporation ("GNFSC"), First Northern Investments Incorporated
("FNII"), Keystone Financial Services, Incorporated
("Keystone") and First Northern Financial Services,
Incorporated. All significant intercompany balances
and transactions have been eliminated according to
generally accepted accounting principles. The Savings
Bank's ownership of Savings Financial Corporation ("SFC"),
a 50% owned subsidiary, is accounted for by the equity
method.
2. The accompanying unaudited financial statements have
been prepared in accordance with generally accepted
accounting principles for interim financial information,
Rule 10-01 of Regulation S-X and the instructions to
Form 10-Q. The financial statements do not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
information. In the opinion of First Northern, the
accompanying Unaudited Consolidated Statements of Financial
Condition, Unaudited Consolidated Statements of Income,
Unaudited Consolidated Statement of Stockholders' Equity
and Unaudited Consolidated Statements of Cash Flows contain
all adjustments, which are of a normal recurring nature,
necessary to present fairly the consolidated financial position
of the Company and subsidiaries at March 31, 2000 and
December 31, 1999, the results of their income for the
three months ended March 31, 2000 and 1999, the changes
in stockholders' equity for the three months ended
March 31, 2000 and 1999, and their cash flows for the three
months ended March 31, 2000 and 1999. The accompanying
Unaudited Consolidated Financial Statements and related notes
should be read in conjunction with First Northern's 1999
Annual Report on Form 10-K. Operating results for the three
months ended March 31, 2000, are not necessarily indicative of
the results that may be expected for the year
ending December 31, 2000.
3. Securities Available-for-Sale
The amortized cost and estimated fair values of
securities available-for-sale are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In Thousands)
At March 31, 2000:
U.S. government and
agency securities $ 7,401 $ 1 $(118) $ 7,284
Asset Management Funds 571 (19) 552
Federal Home Loan Mortgage
Corporation stock 33 1,028 1,061
Northwest Equities
Corporation stock 111 10 - 121
-------- ------ ----- -------
8,116 1,039 (137) 9,018
Mortgage-related securities
Federal Home Loan
Mortgage Corporation 1,879 97 1,782
Federal National
Mortgage Association 1,766 1,766
Government National
Mortgage Association 1,938 111 1,827
------- ------ ----- -------
5,583 - 208 5,375
------- ------ ----- -------
$13,699 $1,039 $(345) $14,393
======= ====== ===== =======
At December 31, 1999:
U.S. government and
agency securities $ 6,737 $ 6 $ (86) $ 6,657
Asset Management Funds 563 (17) 546
Federal Home Loan Mortgage
Corporation stock 33 1,097 1,130
Northwest Equities
Corporation stock 111 - - 111
------- ------ ----- -------
7,444 1,103 (103) 8,444
------- ------ ----- -------
Mortgage-related securities
Federal Home Loan
Mortgage Corporation 1,938 (92) 1,846
Federal National
Mortgage Association 1,862 1,862
Government National
Mortgage Association 1,955 - (109) 1,846
------- ------ ----- -------
5,755 - (201) 5,554
------- ------ ----- -------
$13,199 $1,103 $(304) 13,998
======= ====== ===== =======
At March 31, 2000, the U.S. government and agency securities
available-for-sale have the following maturities:
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
Due in one year or less $2,249 $2,249
Due after one year through 5 years 5,152 5,035
------ ------
$7,401 $7,284
====== ======
Expected maturities from mortgage-related securities will
differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without
prepayment penalties
4. Securities Held-to-Maturity
The amortized cost and estimated fair values of
mortgage-related securities held-to-maturity
are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In Thousands)
At March 31, 2000:
Investment Securities:
U.S. government and
agency securities $25,231 $(484) $24,747
Corporate Bonds 1,000 - - 1,000
------- ---- ----- -------
Total investment securities 26,231 - (484) 25,747
------- ---- ----- -------
Mortgage-related securities:
Federal Home Loan
Mortgage Corporation 6,782 $12 (64) 6,730
Federal National
Mortgage Association 3,528 - (24) 3,504
------- --- ----- -------
Total mortgage-related
securities 10,310 12 (88) 10,234
------- --- ----- -------
Total investment securities and
mortgage-related securities $36,541 $12 $(572) $35,981
At December 31, 1999:
Investment Securities:
U.S. government and
agency securities $25,216 $(571) $24,645
Corporate bond 999 - - 999
------- --- ----- -------
Total investment securities 26,215 - (571) 25,644
------- --- ----- -------
Mortgage-related securities
Federal Home Loan
Mortgage Corporation 6,192 $15 (60) 6,147
Federal National
Mortgage Association 3,856 1 (28) 3,829
------- --- ----- -------
Total mortgage-related
securities 10,048 16 (88) 9,976
------- --- ----- -------
Total investment securities and
mortgage-related securities $36,263 $16 $(659) $35,620
======= === ===== =======
At March 31, 2000, the investment securities have the
following maturities:
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
Due in one year or less $ 5,245 $ 5,222
Due after one year through 5 years 18,392 17,986
Due after 5 years through 10 years 2,594 2,539
------- -------
$26,231 $25,747
======= =======
5. Loans Receivable
The composition of loans follows:
March 31 December 31
2000 1999
-------- -----------
(In Thousands)
First mortgage loans:
One to four family residential $478,359 $465,737
Five or more family residential 37,361 35,815
Commercial real estate 19,717 17,699
Construction-residential 30,454 29,758
Construction-commercial 6,473 6,910
Other 4,169 3,769
-------- --------
576,533 559,688
Consumer loans:
Consumer 20,693 20,153
Second mortgage 82,132 78,223
Automobile 98,973 96,356
-------- --------
201,798 194,732
Commercial loans 9,724 4,771
-------- --------
788,055 759,191
Less:
Undisbursed loan proceeds 16,961 17,852
Allowance for losses 4,062 3,910
Unearned loan fees 478 549
-------- --------
21,501 22,311
-------- --------
$766,554 $736,880
======== ========
6. The weighted average number of shares outstanding,
including common stock equivalents, for the three months
ended March 31, 2000 and 1999 were 8,714,677 and 8,986,029,
respectively.
7. Certain amounts in the 1999 financial statements have
been reclassified to conform to the 2000 presentations.
8. On February 21, 2000, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Mutual Savings
Bank ("Mutual"), a Wisconsin-chartered mutual savings bank and
OV Corp. (the "Merger Corp."), a wholly owned subsidiary of
Mutual organized for the purpose of effecting the transactions
contemplated by the Merger Agreement. The Merger Corp. will
be the surviving corporation. The Merger Agreement provides
for the acquisition of the Company by Mutual through a merger
of the Company with and into the Merger Corp.
Subject to the terms and conditions of the Merger Agreement,
at the time of the merger, each outstanding share of the
Company's common stock will be converted into the right to
receive cash in the amount of $15.00 or 1.5 shares of common
stock of the Merger Corp. or a combination of cash and shares
of the Merger Corp.
In connection with the Merger, the Company and Mutual will
engage in a restructuring. As part of the restructuring,
Mutual will form a mutual holding company. The mutual holding
company will own a majority of the Merger Corp.'s common stock.
The balance of the shares of the Merger Corp. will be offered
for sale to Mutual's depositors and issued to First Northern
stockholders in the Merger. As a result of the restructuring,
the Savings Bank and Mutual will become wholly owned
subsidiaries of the Merger Corp.
The Merger and subsequent restructuring are subject to approval
by the stockholders of the Company, depositors of Mutual, and
various regulatory agencies.
Concurrent with the execution of the Merger Agreement, the
parties entered into a Stock Option Agreement by which the
Company granted Mutual an irrevocable option to purchase up
to 1,708,675 share of the Company's stock equal to 19.9% of
the number of shares of the Company's stock outstanding on
February 21, 2000, at an exercise price of $9.0375 per share.
The option would become exercisable under certain circumstances
if the Company becomes the subject of a third party proposal
for a competing transaction.
Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations.
CAUTIONARY FACTORS
This 10-Q contains various forward-looking statements
concerning the Company's prospects that are based on the
current expectations and beliefs of management. Forward-
looking statements may also be made by the Company from time
to time in other reports and documents as well as oral
presentations. When used in written documents or oral
statements, the words "anticipate," "believe," "estimate,"
"expect," "objective" and similar expressions are intended
to identify forward-looking statements. The statements
contained herein and such future statements involve or may
involve certain assumptions, risks and uncertainties, many
of which are beyond the Company's control, that could cause
the Company's actual results and performance to differ
materially from what is expected. In addition to the
assumptions and other factors referenced specifically in
connection with such statements, the following factors
could impact the business and financial prospects of the
Company: general economic conditions; legislative and
regulatory initiatives; monetary and fiscal policies of
the federal government; deposit flows; disintermediation;
the cost of funds; general market rates of interest;
interest rates or investment returns on competing investments;
demand for loan products; demand for financial services;
changes in accounting policies or guidelines; changes in
the quality or composition of the Savings Bank's and FNII's l
oan and investment portfolios; the status of our proposed
merger with Mutual Savings Bank; and other factors referred
to in the reports filed with the Securities and
Exchange Commission.
RECENT DEVELOPMENTS
Merger Agreement with Mutual Savings Bank. On February 22, 2000,
First Northern, and Mutual Savings Bank, a Wisconsin-chartered
mutual savings bank ("Mutual"), announced that they had entered
into an Agreement and Plan of Merger, dated as of February 21, 2000
( the "Merger Agreement"), by and among Mutual, First Northern
and OV Corp., a Wisconsin corporation organized as a wholly
owned subsidiary of Mutual for the purpose of effecting the
transactions contemplated by the Merger Agreement
("Merger Corp."). The Merger Agreement provides for
the acquisition of First Northern by Mutual through a merger
of First Northern with and into Merger Corp. (the "Merger"),
which will be the surviving corporation ("Survivor").
The Merger Agreement has been approved by the boards of directors
of Mutual and First Northern.
Subject to the terms and conditions of the Merger Agreement,
at the time of the Merger, each outstanding share of First
Northern common stock, par value $1.00 per share ("First
Northern Common Stock"), will be converted into the right
to receive cash in the amount of $15.00, or 1.5 shares of
common stock, par value $.01 per share, of Survivor ("Survivor
Common Stock"), or a combination of cash and shares of
Survivor Common Stock (the "Merger Consideration"). Prior
to the closing date, Mutual will select the percentage of
the total Merger Consideration to be paid in the Survivor
Common Stock, which may not be less than 40% or more than 70%;
the balance will be paid in cash. Each First Northern
stockholder will be entitled to elect to receive (a) cash,
(b) Survivor Common Stock or (c) as to First Northern
stockholders holding not less than 170 shares of First
Northern Common Stock, a combination of cash and Survivor
Common Stock, with the percentage of such shares of their
First Northern Common Stock equal to the lesser of the Stock
Percentage and 50% converted into Survivor Common Stock and
the balance converted into cash. Elections will be subject
to proration if the cash or stock elections exceed the
maximum amounts permitted under the Merger Agreement.
Cash will be paid in lieu of any fractional shares of
the Survivor Common Stock which holders of First
Northern Common Stock would otherwise receive.
In connection with the Merger, Mutual and First Northern
will engage in a restructuring involving a number of
steps (the "Restructuring"). As a part of the Restructuring,
Mutual will form a mutual holding company in which
Mutual's depositors will hold all the voting rights.
The mutual holding company will own a majority of the
Survivor Common Stock; the balance of the shares of
Survivor Common Stock will be offered for sale to
Mutual's depositors and issued to First Northern stockholders
in the Merger. As a result of the Restructuring,
Mutual Savings Bank and the Savings Bank will become
wholly owned subsidiaries of Survivor. Thus, Survivor
will be a subsidiary mid-tier stock holding company.
Consummation of the Merger is subject to the satisfaction
of certain closing conditions set forth in the Merger
Agreement, including approval by the stockholders of First
Northern and approval by the OTS, the FDIC and the
WDFI--Administrator. The depositors of Mutual must also
approve Mutual's plan for the Restructuring. The Merger
is also subject to receipt of an opinion of counsel to
the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code and the receipt of an opinion of counsel or
a private letter ruling from the Internal Revenue Service
as to the federal income tax treatment of certain transactions
contemplated by the Merger Agreement. In addition, the
Merger is conditioned upon the approval for listing on the
NASDAQ National Market of the shares of Survivor Common
Stock to be issued in the Merger, which shares will be
registered under the Securities Act of 1933 by a registration
statement to be filed by Survivor with the Securities
and Exchange Commission.
Concurrently with the execution of the Merger Agreement,
in order to induce Mutual to enter into the Merger
Agreement, the parties entered into a Stock Option
Agreement by which First Northern granted to Mutual an
irrevocable option to purchase up to 1,708,675 shares of
First Northern Common Stock, which equals 19.9% of the
number of shares of First Northern Common Stock outstanding
at February 21, 2000, at an exercise price of $9.0375 per
share. The option would become exercisable under certain
circumstances if First Northern becomes the subject of a
third-party proposal for a competing transaction.
FINANCIAL CONDITION
BALANCE SHEET
Cash and Cash Equivalents. Cash and cash equivalents
decreased $7.7 million at March 31, 2000, as compared
to December 31, 1999, primarily because the Savings
Bank maintained additional cash at December 31, 1999,
as a precaution against possible events associated with
Year 2000 concerns. Shortly after December 31, 1999, the
cash was redeployed by paying down short-term borrowings.
Securities Available-for-Sale. Investment securities
available-for-sale increased $0.6 million as of March 31, 2000,
as compared to December 31, 1999, primarily as a result of
the reinvestment of maturing securities and the interest
earnings on securities being reinvested, partially offset
by decreased market value. (See Notes to Unaudited
Consolidated Financial Statements--3. Securities Available-for-Sale)
Mortgage-related securities available-for-sale decreased
$0.2 million at March 31, 2000, as compared to
December 31, 1999, as a result of prepayments and
repayments of the underlying security.
Securities Held-to-Maturity. Investment securities
held-to-maturity were almost unchanged from March 31, 2000
as compared to December 31, 1999.
Mortgage-related securities held-to-maturity increased
$0.3 million as a result of the purchase of additional
mortgage-related securities.
Loans Held for Sale. At March 31, 2000, First Northern had
$2.3 million of fixed interest rate mortgage and education
loans classified as held for sale as compared to $1.1 million
at December 31, 1999. The increase in loans held for sale
is primarily the result of education loans originated
during the first quarter of 2000, all of which are
contractually assigned to be sold.
Loans Receivable. Loans receivable increased $29.7 million
at March 31, 2000, as compared to December 31, 1999, as a
result of: (i) mortgage loan originations and purchases;
(ii) reduced prepayments or refinancing of mortgage loans;
(iii) increased automobile and second mortgage loan
originations; and (iv) the initiation of a commercial
lending program in the second quarter of 1999. Loan
originations and purchases are as follows:
LOAN ORIGINATIONS AND PURCHASES
Three Months Ended
March 31
2000 1999
---- ----
(In Thousands)
Mortgage loans originated and purchased:
Construction $15,313 $ 8,821
Loans on existing property 17,247 8,707
Refinancing 5,186 29,202
Other loans 573 241
------- -------
Total mortgage loans originated
and purchased 38,319 46,971
Consumer loans originated and purchased:
Consumer 2,411 1,753
Second mortgage 10,986 9,129
Automobile 15,274 11,857
Education 1,178 950
------- -------
Total consumer loans originated
and purchased 29,849 23,689
Commercial loans 5,308 -
------- -------
Total loans originated and purchased $73,476 $70,660
======= =======
Mortgage loan originations and purchases decreased $7.7 million
for the first quarter of 2000, as compared to the same
period in 1999, primarily as the result of decreased
refinancing of existing First Northern mortgage loans.
Construction and purchase mortgage loan originations
increased in the first quarter of 2000 primarily as a
result of increased construction and purchase activity
within First Northern's market. Although total mortgage
loan originations decreased for the first quarter of 2000,
the mortgage loan portfolio outstanding increased $16.8 million
(before deductions for undisbursed loan proceeds, allowance
for loan losses and unearned loan fees) for the first
quarter of 2000. The increased mortgage loan portfolio was
primarily the result of: (i) increased adjustable interest
rate mortgage loan originations; (ii) reduced prepayments
of principal on outstanding loans; and (iii) reduced
refinancing of existing mortgage loans, all of which, we
believe, is attributable to the increase in interest rates
on fixed interest rate mortgage loans.
First Northern added commercial banking services to its
existing product lines in the second quarter of 1999. To
manage the commercial banking department, First Northern
hired a commercial loan manager with 20 years of commercial
banking experience. At March 31, 2000, First Northern's
commercial loan portfolio outstanding was at $9.7 million
and management anticipates that this segment of its loan
portfolio will continue to increase. Management believes
commercial banking will enable First Northern to enhance
its interest earning assets and its interest rate
spread management.
Consumer loan originations and purchases increased $6.2 million
in the first quarter of 2000 as compared to the same period
in 1999, primarily as the result of the increase in second
mortgage loan originations and indirect automobile
originations from SFC. Second mortgage originations have
increased as a result of: (i) management's emphasis;
(ii) increased marketing; and (iii) the use of an introductory
interest rate for a line-of-credit product secured by a
second mortgage. SFC increased its automobile originations
by continued personalized service and competitive interest rates.
LOAN SALES
Three Months Ended
March 31
2000 1999
------ ------
(In Thousands)
Mortgage Loans $303 $9,639
Education Loans 166 1
---- ------
Total Loans Sold $469 $9,640
==== ======
Loans sold in the first quarter of 2000, as compared to
the first quarter of 1999, decreased as a result of the
reduction in 30 year fixed interest rate mortgage loan
originations. First Northern retains all adjustable interest
rate mortgage loan originations in its portfolio; retains the
majority of 15 and 20 year fixed interest rate mortgage loans;
and sells most 30 year fixed interest rate mortgage loans in
the secondary market. First Northern is contractually
committed to sell its current education loan portfolio as
well as, future originations.
Office Properties and Equipment. First Northern entered into
an operating lease for approximately 14,000 square feet of
office space in the third quarter of 1999. This office space
centralized the loan servicing, origination processing,
information systems, marketing and customer support services
departments of the Savings Bank. The additional leased
space is needed to accommodate growth in these areas.
Total annual cost of this office space and its associated
equipment is approximately $152,000 (after-tax).
Federal Home Loan Bank Stock. Stock in the Federal Home
Loan Bank ("FHLB") increased $1.5 million to $10.8 million
at March 31, 2000, as compared to $9.3 million at
December 31, 1999. This increase in FHLB stock is the
result of increased borrowings outstanding from the FHLB of
Chicago. The FHLB requires member institutions to purchase
one share of FHLB stock for every $20,000 of FHLB borrowings.
The FHLB borrowings are secured by First Northern's
1-4 family residential mortgage loans.
Life Insurance Policies. Life insurance policies or bank
owned life insurance ("BOLI") increased $0.3 million in
the first three months of 2000 as a result of the increased
value of the policies. BOLI is long-term life insurance on
the lives of certain current and past Savings Bank employees
where the insurance policy benefits and ownership are
retained by the Savings Bank. The cash value accumulation
on BOLI is permanently tax deferred if the policy is held
to the participant's death. Management believes this an
effective method to help offset a portion of future employee
benefit costs.
Deposits. Deposits increased $0.8 million for the first
three months of 2000 as a result of offering competitive
interest rates and the acquisition of "jumbo" (certificates
of deposit in excess of $100,000) deposits. Jumbo deposits
consist of wholesale, negotiated retail and municipal
deposits which at times, are a cheaper source of funds than
retail deposits or borrowing. First Northern's total jumbo
deposits were $55.5 million at March 31, 2000.
Borrowings. FHLB borrowings increased $25.6 million in the
first three months of 2000, primarily to fund purchases of
investment securities and the growth of the loan portfolio.
First Northern will borrow monies if borrowing is a less
costly form of funding for loans and investments than the
cost of acquiring deposits. First Northern anticipates
that it will continue to utilize borrowings in 2000 if
borrowings incrementally add to the overall profitability
of the Company.
Advance Payments by Borrowers for Taxes and Insurance.
Advance payments by borrowers for taxes and insurance
("escrow") decreased $0.4 million at March 31, 2000, as
compared to December 31, 1999. The decrease in escrow
dollars was the result of year-end disbursement of real
estate taxes from escrow accounts.
Stockholders' Equity. First Northern paid a cash dividend
of $0.11 per share on February 9, 2000, to stockholders of
record on January 31, 2000. The increase of $0.01 per share
represents an 10.0% increase over the fourth quarter of 1999
cash dividend of $0.10 per share.
On March 20, 2000, First Northern approved a fourth stock
repurchase program to repurchase up to 429,315 shares
(5% of total shares then outstanding) in the open market.
At March 31, 2000, 18,500 shares had been purchased or
committed to be purchased at an average price of
$12.4375 per share.
ASSET QUALITY
First Northern currently classifies any loan on which a
payment is greater than 90 days past due as non-performing.
The following table summarizes non-performing loans and assets:
NON-PERFORMING LOANS AND ASSETS
At March 31 At December 31
2000 1999
----------- --------------
(Dollars in Thousands)
Non-accrual mortgage loans $186 $243
Non-accrual consumer loans 47 40
---- ----
Total non-performing loans 233 283
Properties subject to foreclosure 339 318
Foreclosed properties and
repossessed assets 93 63
---- ----
Total non-performing assets $665 $664
==== ====
Non-performing loans as a percent
of total loans 0.03% 0.04%
==== ====
Non-performing assets as a percent
of total assets 0.08% 0.08%
==== ====
Total non-performing loans decreased as of March 31, 2000,
as compared to December 31, 1999, primarily as a result of
a decrease in non-performing mortgage loans. Management
believes non-performing loans and assets, expressed as a
percentage of total loans and assets, are far below state
and national averages for financial institutions. There
are no material accruing loans which, at March 31, 2000,
management has reason to believe will become non-performing
or result in potential losses.
In addition, management believes that First Northern's allowance
for loan losses are adequate. While management uses available
information to recognize losses on loans and real estate owned,
future additions to the allowances may be necessary based on
changes in economic conditions. Furthermore, various regulatory
agencies, as an integral part of their examination process,
periodically review First Northern's allowances for losses on
loans and real estate owned. Such agencies may require First
Northern to recognize additions to the allowances based on the
agencies' judgement of information available to them at the
time of their examination.
All of First Northern's loans are domestic, meaning the
loans are secured by real estate or other collateral located
in the continental United States.
A summary of the allowance for losses is shown below.
LOAN LOSS ALLOWANCE
At and for the At and for the
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
------------------ -----------------
(Dollars in Thousands)
Mortgage Loans:
Balance at the beginning of the period $2,108 $1,813
Provisions for the period 150 295
Charge-offs:
One-to-four family residential - -
Recoveries:
One to four family residential 3 -
------ ------
Net recoveries 3 -
------ ------
Balance at the end of the period 2,261 2,108
Consumer Loans:
Balance at the beginning of the period 1,678 1,718
Provisions for the period 15 53
Charge-offs:
Consumer (14) (79)
Automobile (7) (43)
------ ------
Total charge-offs (21) (122)
Recoveries:
Consumer 3 9
Automobile 2 20
------ ------
Total recoveries 5 29
------ ------
Net charge-offs (16) (93)
------ ------
Balance at the end of the period 1,677 1,678
Commercial Loans
Balance at the beginning of the period 124
Provisions for the period - 124
------ ------
Balance at the end of the period 124 124
------ ------
Total loan loss allowances at the end
of the period $4,062 $3,910
====== ======
Allowance as a percent of total loans 0.53% 0.53%
==== ====
Allowance as a percent of
non-performing loans 1,743.35% 1,381.63%
======== ========
Allowance as a percent of total assets 0.47% 0.47%
==== ====
Allowance as a percent of
non-performing assets 610.83% 588.86%
====== ======
RESULTS OF OPERATIONS
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS
The following table presents, for the periods indicated,
the total dollar amount of interest income from average
interest-earning assets, the resultant yields, and the
interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent
adjustments were made since First Northern's investment
portfolio does not contain tax-exempt securities. Average
balances are derived from average daily balances. The yields
and rates are established by dividing income or expense
dollars by the average balance of the asset or liability.
The yields and rates for the three months ended March 31, 2000
and 1999, have been annualized.
Three Months Ended March 31
2000 1999
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- -------- ------ ------- -------- ------
(Dollars in Thousands)
Interest-earning assets (1):
Mortgage loans $547,607 $ 9,652 7.05% $482,918 $8,557 7.09%
Consumer loans 199,453 3,859 7.74% 159,373 3,177 7.97%
Commercial loans 6,198 134 8.65% - - -
Investment securities (2) 43,607 678 6.22% 36,828 545 5.92%
Interest-earning deposits 1,755 19 4.33% 1,677 18 4.29%
Mortgage-related securities (2) 16,113 254 6.31% 12,287 185 6.02%
-------- ------- ---- -------- ------ ----
TOTAL 814,733 14,596 7.17% 693,083 12,482 7.20%
Interest-bearing liabilities:
Passbook accounts 69,448 331 1.91% 66,110 327 1.98%
NOW and variable rate insured
money market accounts 134,440 859 2.56% 127,945 739 2.31%
Time deposits 355,446 4,969 5.59% 342,364 4,664 5.45%
Advance payments by borrowers
for taxes and insurance 2,208 12 2.17% 1,862 12 2.58%
Borrowings 202,680 2,981 5.88% 101,626 1,398 5.50%
-------- ------- ---- -------- ------ ----
TOTAL 764,222 9,152 4.79% 639,907 7,140 4.46%
======== ======= ==== ======== ====== ====
Net interest-earning assets balance
and interest rate spread $ 50,511 2.38% $ 53,176 2.74%
======== ==== ======== ====
Average interest-earning assets,
net interest income and net
yield on average interest-
earning assets $814,733 $ 5,444 2.67% $693,083 $ 5,342 3.08%
======== ======= ==== ======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 106.6% 108.3%
===== =====
- ----------------------------
(1) For the purpose of these computations, non-accruing
loans are included in the average loan amounts outstanding.
(2) For the purpose of these computations, the available-
for-sale investment securities and mortgage-related
securities are presented and yields calculated based upon
the historical cost basis.
Year Ended December 31
1999
Interest
Average Earned/ Yield/
Balance Paid Rate
------- ------ ------
(Dollars in Thousands)
Interest-earning assets (1):
Mortgage loans $500,111 $35,164 7.03%
Consumer loans 175,577 13,816 7.87%
Commercial loans 5,454 468 8.58%
Investment securities (2) 38,789 2,336 6.02%
Interest-earning deposits 1,702 82 4.82%
Mortgage-related securities (2) 14,765 904 6.12%
-------- ------- ----
TOTAL 736,398 52,770 7.17%
Interest-bearing liabilities:
Passbook accounts 70,425 1,385 1.97%
NOW and variable rate insured
money market accounts 132,629 3,085 2.33%
Time deposits 350,423 19,090 5.45%
Advance payments by borrowers
for taxes and insurance 7,002 162 2.31%
Borrowings 124,186 6,964 5.61%
-------- ------- ----
TOTAL 684,665 30,686 4.48%
-------- ------- ----
Net interest-earning assets balance
and interest rate spread $ 51,733 2.69%
======== ====
Average interest-earning assets, net
interest income and net yield on
average interest-earning assets $736,398 $22,084 3.00%
======== ======= ====
Average interest-earning assets to
interest-bearing liabilities 107.6%
=====
- ----------------------------
(1) For the purpose of these computations, non-accruing
loans are included in the average loan amounts outstanding.
(2) For the purpose of these computations, the available-
for-sale investment securities and mortgage-related
securities are presented and yields calculated
based upon the historical cost basis.
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
The interaction of changes in volume and rates earned
or paid with regard to interest-earning assets and
interest-bearing liabilities has a significant impact on
net income between periods. The volume of interest-earning
dollars in loans and investments compared to the volume
of interest-bearing dollars in deposits and borrowings
combined with the interest rate spread produces the changes
in net interest income between periods.
The following table sets forth the relative contribution of
changes in volume and effective interest rates on changes
in net interest income for the periods indicated.
Three Month Ended March 31
2000 vs 1999
Increase(decrease) due to:
Rate/
Rate Volume Volume Total
(In Thousands)
Interest-earning assets:
Mortgage loans $ (48) $1,149 $ (6) $1,095
Consumer loans (92) 797 (23) 682
Commercial loans - - 134 134
Investments securities 28 100 5 133
Interest-earning deposits - 1 - 1
Mortgage-related securities 9 57 3 69
----- ------ ---- ------
TOTAL $(103) $2,104 $113 2,114
===== ====== ==== ------
Interest-bearing liabilities:
Passbook accounts $ (12) $ 17 $ (1) 4
NOW and variable rate
insured money market accounts 80 36 4 120
Time deposits 120 180 5 305
Advance payments by borrowers
for taxes and insurance (2) 2 - -
Borrowings 98 1,389 96 1,583
----- ------ ---- ------
TOTAL $ 284 $1,624 $104 2,012
===== ====== ==== ------
Net change in net interest income $ 102
======
Year Ended December 31
1999 vs 1998
Increase(decrease) due to:
Rate/
Rate Volume Volume Total
------ -------- -------- -------
(In Thousands)
Interest-earning assets:
Mortgage loans $(1,371) $3,154 $(129) $1,654
Consumer loans (627) 1,228 (58) 543
Commercial loans - - 468 468
Investments securities (42) 245 (5) 198
Interest-earning deposits (20) (52) 7 (65)
Mortgage-related securities (10) 297 (5) 282
------- ------ ----- ------
TOTAL $(2,070) $4,872 $ 278 3,080
======= ====== ===== ------
Interest-bearing liabilities:
Passbook accounts $ (108) $ 141 $ (12) 21
NOW and variable rate
insured money market accounts (177) 357 (22) 158
Time deposits (1,114) 1,302 (77) 111
Advance payments by borrowers
for taxes and insurance (1) 8 - 7
Borrowings (201) 1,646 (59) 1,386
------- ------ ----- ------
TOTAL $(1,601) $3,454 $(170) 1,683
======= ====== ===== ------
Net change in net interest income $1,397
======
STATEMENTS OF INCOME
General. Net income decreased 7.5% for the first quarter
of 2000 as compared to the first quarter of 1999. This
decrease was primarily the result of a reduction of the
net interest margin and increased operating expenses.
Interest and Dividend Income. Interest income on loans
increased $1,911,000 in the first quarter of 2000 as a result
of the increased dollar amount of mortgage, consumer and
commercial loans outstanding. The average mortgage loans
outstanding increased $64.7 million or 13.4% in the first
quarter of 2000 as compared to the same period in 1999 and
average consumer loans outstanding increased $40.1 million.
Commercial loans, which were introduced to First Northern
customers in the second quarter of 1999, had a balance outstanding
at March 31, 2000 of $9.7 million. The yield on the mortgage
loan portfolio decreased in the first quarter of 2000 as
compared to the first quarter of 1999 as a result of interest
rates on mortgage loan originations during the first nine
months of 1999 being less than the yield on the existing
portfolio. Since September of 1999, the interest rates on
mortgage loan originations have exceeded the yield on the
existing mortgage portfolio. See Financial Condition - Balance
Sheet - Loans Receivable. Consumer loan yields also decreased
during the first quarter of 2000 as compared to the same
period in 1999 as a result of interest rates on originations
and purchases being below the portfolio average yield.
Interest income on investment securities increased $133,000 for
the three months ended March 31, 2000, as a result of an
increase in the dollar amount of investment securities outstanding
and an increase in the yield earned on investment securities.
Interest income on interest-earning deposits increased
slightly primarily as a result of additional interest-
earning deposits outstanding.
Interest income on mortgage-related securities increased
$69,000 as a result of the increased average mortgage-related
securities outstanding and the increase in the average
interest rate earned.
Interest Expense. Interest expense on deposits increased
$429,000 primarily as the result of increased cost of
deposits and increased deposits outstanding. The average
cost of deposits increased as a result of rising general
market interests and competition's deposit interest rates
offered. Since June 1999, the Federal Open Market
Committee ("FOMC") has increased interest rates five times
for a total of 1.25%. The rise in FOMC interest rates
raises the interest rate expectations of consumers and
hence the need to increase interest rates on new or
renewing deposits.
First Northern has utilized various time deposit terms and
"special" interest rates on various time deposit terms to
attract new deposits. In addition, the Savings Bank has
acquired jumbo deposits to aid in its deposit growth.
See Financial Condition - Balance Sheet - Deposits.
Interest expense on borrowings increased $1,583,000 in the
first quarter of 2000 as compared to the first quarter of
1999 as a result of increased dollars outstanding and
increased average interest paid on those borrowings. First
Northern's growth in interest earning assets outpaced the
growth in deposits thereby necessitating an increase in
borrowings. First Northern anticipates it will continue to
emphasize growth in interest earning assets and will fund a
portion of that growth with borrowings. First Northern
primarily borrows from the Federal Home Loan Bank of Chicago
and staggers the borrowing maturities from overnight to 9
years in term.
Provision for Loan Losses. First Northern increased its
general loan loss allowance in the first quarter of 2000
as a result of the growth in the loan portfolio and the
type of loans originated. The loan loss allowance as of
March 31, 2000, was $4,062,000 or .53% of total loans and
610.8% of non-performing assets.
Management believes that the current loan loss allowance
is adequate; however, the adequacy of the loan loss
allowance is reviewed as historical loan loss changes,
changes in the size and composition of the loan portfolio,
changes in the general economy and as may otherwise be
deemed necessary.
Non-Interest Income. Fees on serviced loans increased
$19,000 in the first quarter of 2000 as a result of
decreased repayments or prepayments on loans sold (with
servicing retained). As the principal of a mortgage loan
which was sold, repays or prepays, the mortgage servicing
asset is reduced and netted from fees on serviced loans,
thereby reducing the income on the serviced loans.
When the repayments or prepayments decrease, such as in
the first quarter of 2000, the amortization from the
mortgage servicing assets also decreases and hence, the
income on serviced loans increases. First Northern's
mortgage loan servicing asset at March 31, 2000 was $562,700.
Loan fees and service charges increased slightly primarily
as the result of late charges collected on loans and
fees collected from the Savings Bank's line-of-credit
home equity loans.
Income from deposit account service charges increased
$74,000 as a result of debit card fee income and fees
from customers who overdraw their checking account.
Each time First Northern's debit card is used, a fee which
varies with each merchant, is paid to the Savings Bank
by the debit card company. The Savings Bank promotes the
use of its debit card by direct mail.
Insurance commissions increased $51,000 as a result of First
Northern receiving an insurance bonus. If First Northern
obtains a predetermined threshold of insurance sales and
insurance losses are below another threshold, insurance
bonuses are earned. First Northern received $49,000 in
insurance bonuses in the first quarter of 2000.
Gains on the sale of loans decreased $157,000 as a result
of decreased loan sales. First Northern sold $469,000 of
loans in the first quarter of 2000 as compared to $9,640,000
in the first quarter of 1999. Loan sales decreased substantially
in the first quarter of 2000 as a result of decreased thirty
year fixed interest rate mortgage loan originations, which are
sold to the secondary market.
Other income increased $96,000 for the three months ended
March 31, 2000, as compared to the same period last year as
a result of: (i) ATM surcharges; (ii) interest income on
Bank Owned Life Insurance; and (iii) interest from
officers' life insurance.
Non-Interest Expense. Compensation expense increased
$259,000 as a result of increased: (i) number of employees;
(ii) compensation to existing employees; (iii) education
and training costs; (iv) reduced expense deferrals associated
with loan originations; and (v) 2000 being a leap year which
added one additional day of compensation for hourly paid employees.
Federal insurance premiums decreased $51,000 as a result
of a decrease in federal deposit premiums charged First
Northern and other Savings Association Insurance Fund ("SAIF")
insured institutions. Beginning in the year 2000, the
Financing Income Corporation Obligations ("FICO") bonds interest
cost was spread out to all insured financial institutions
rather than just the SAIF insured institutions.
Occupancy expense increased 24.5% in the first quarter of
2000 as a result of the Savings Bank's rental of
approximately 14,000 square feet of office space in
downtown Green Bay. This rental space consolidated various
operational departments in one location that were in
three separate Savings Bank offices.
Data processing expense increased $12,000 in the three months
ended March 31, 2000, as a result of an increase in service
bureau expense and service contracts on data processing
equipment. Service bureau expense increased as a result
of increased contract cost, additional transactions processed
and additional products offered.
Furniture and equipment expense increased $9,000 in the first
quarter of 2000 as a result of increased cost of service
contracts on equipment and increased depreciation on furniture
and equipment at the remodeled Kiel Office.
Marketing expense decreased $10,000 in the first quarter of
2000 primarily as a result of timing of the marketing expense.
It is anticipated marketing expenses will increase in the
second quarter of 2000 as compared to the first quarter of 2000.
Other expenses increased $73,000 in the three months ended
March 31, 2000, as a result of: (i) debit card expenses;
(ii) costs associated with the operation of SFC and
(iii) employees expense.
Income Taxes. The effective income tax rate for the first
quarter of 2000 was 32.4% as compared to 34.0% for the first
quarter of 1999. The decrease in the effective income tax
rate was the result of the purchase of BOLI and an increase
in the earnings of FNII, which is not subject to state income
taxes. Since First Northern intends to hold the life
insurance policies until the participants' death, BOLI
interest income is not taxable. In addition, First Northern
moved its indirect automobile loan portfolio to FNII at the
beginning of the second quarter of 1999, which has reduced
state income taxes. In March 1999, First Northern moved
approximately $56.3 million in mortgage loan participations to
FNII and further reduced its state income tax.
Legislation. The Gramm-Leach-Bliley Act ("Act") passed by
Congress could significantly alter the environment in which
First Northern and the Savings Bank operate. This Act tore
down the former artificial statutory barriers between
financial institutions, insurance companies, and investment
firms and may lead to increased competition among such
entities. In addition, the Act will prevent the sale of
unitary thrift holding companies, such as First Northern,
to commercial companies. Finally, the Act placed
additional obligations on First Northern and the Savings
Bank in the areas of customer privacy, CRA-related
agreements, and the operation of ATMs.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Historically, federal regulations have required the Savings
Bank to maintain a minimum percentage of liquid assets
to net withdrawable accounts plus short-term borrowings.
The required percentage (liquidity ratio) has varied from
time to time based upon economic conditions and deposit flows.
The liquidity ratio is set by the Office of Thrift
Supervision ("OTS") and it is currently 4% of average of
net withdrawable accounts plus short-term borrowings payable
on demand or in one year or less during the current calendar
quarter. In general, liquid assets, for the purposes of
calculating the liquidity ratio, include cash, certain time
deposits, and U.S. government and agency obligations.
The Savings Bank has historically maintained a liquidity
ratio that exceeds the OTS requirement. The Savings Bank's
quarterly average liquidity ratio at March 31, 2000, was 5.20%.
At December 31, 1999, its monthly average liquidity ratio
was 5.45%. The slight decrease in the liquidity ratio at
March 31, 2000, is mainly attributable to the growth in
the loan portfolio. The Savings Bank believes that its
maintenance of excess liquidity, above the 4% federally
required liquidity ratio, is an appropriate strategy to
aid in proper asset/liability management.
Liquidity management is both a daily and long-term
responsibility of management. The Savings Bank adjusts
its investments in liquid assets based upon management's
assessment of: (i) expected loan demand; (ii) expected
deposit flows; (iii) yields available on interest-earning
deposits; and (iv) the objectives of its asset/liability
management program. Excess liquidity is invested
generally in interest-earning overnight deposits and
other short-term government and agency obligations. When
the Savings Bank requires funds beyond its ability to
generate them internally, it can borrow funds from the FHLB
of Chicago or other sources. The FHLB of Chicago limits
advances to member institutions to an aggregate amount not
to exceed 35% of the member institution's total assets.
Wisconsin law permits First Northern, without the prior written
approval of the Wisconsin Department of Financial
Institutions --- Division of Savings Institutions, to borrow
an aggregate amount not to exceed 50% of its total assets.
CAPITAL RESOURCES AND REGULATORY INFORMATION
First Northern's net worth to total assets ratio at
March 31, 2000, for State of Wisconsin regulatory
requirements was 8.6%, or 2.6% over the Wisconsin
minimum legal requirement of 6.00% of total assets
established by the Division of Savings Institutions
of the Department of Financial Institutions, which
regulates First Northern.
As of March 31, 2000, the most recent notification from
the OTS categorized the Savings Bank as well capitalized
under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the
Savings Bank must maintain minimum tangible, core and
risk based ratios as set forth in the following table.
As a state-chartered savings institution, the Savings
Bank is also subject to a minimum capital requirement of
the State of Wisconsin. Management believes that, at
March 31, 2000, the Savings Bank exceeded all capital
adequacy requirements to which it is subject. There are no
conditions or events since that notification that management
believes have changed the Savings Bank's categorization
as well capitalized.
The Savings Bank's required and actual capital amounts and
ratios are presented in the following table.
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
As of March 31, 2000:
Risk-based capital $73,904 12.90% >=$45,746 >=8.00% >=$57,183 >=10.00%
(to risk-weighted assets)
Tier 1 (core) capital $69,842 12.20% >=$22,873 >=4.00% >=$34,310 >=6.00%
(to risk-weighted assets)
Tier 1 (core) capital $69,842 8.10% >=$34,599 >=4.00% >=$43,248 >=5.00%
(to adjusted assets)
Tangible equity $69,842 8.10% >=$34,599 >=4.00% >=$43,248 >=5.00%
(to tangible assets)
State of Wisconsin capital $74,792 8.60% >=$51,976 >=6.00% N/A N/A
(to total assets)
As of December 31, 1999:
Risk-based capital $76,326 14.00% >=$43,770 >=8.00% >=$54,713 >=10.00%
(to risk-weighted assets)
Tier 1 (core) capital $72,416 13.20% >=$21,885 >=4.00% >=$32,828 >=6.00%
(to risk-weighted assets)
Tier 1 (core) capital $72,416 8.60% >=$33,546 >=4.00% >=$41,783 >=5.00%
(to adjusted assets)
Tangible equity $72,416 8.60% >=$33,546 >=4.00% >=$41,783 >=5.00%
(to tangible assets)
State of Wisconsin capital $77,197 9.20% >=$50,377 >=6.00% N/A N/A
(to total assets)
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See item 7A. Quantitative and Qualitative Disclosures
about Market Risk in 1999 Form 10-K.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
See Exhibit Index following the signature page of this
report, which is incorporated herein by reference.
b) Reports on Form 8-K:
A Form 8-K dated February 21, 2000, was filed on
February 23, 2000, to report the merger agreement with
Mutual Savings Bank.
SIGNATURE
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 thereunto duly authorized.
FIRST NORTHERN CAPITAL CORP.
(Registrant)
Date: May 11, 2000 /s/Rick B. Colberg
------------------ --------------------------
Rick B. Colberg
Vice President and Chief Financial Officer
(Mr. Colberg is also duly authorized to
sign on behalf of registrant)
FIRST NORTHERN CAPITAL CORP
(the "Registrant")
Commission File No. 0-27982
* * * *
EXHIBIT INDEX
TO
FIRST QUARTER 2000 REPORT ON FORM 10-Q
Exhibit Incorporated Herein Filed or Submitted
Number Description By Reference To Herewith
2.1 Agreement and Plan of Merger, Exhibit 2.1 to Registrant's
dated as of February 21, 2000, Current Report on Form 8-K dated
by and among Mutual Savings Bank, as of February 21, 2000 (the
OV Corp. and First Northern "2/21/00 8-K")
Capital Corp.
2.2 Stock Option Agreement, dated as of Exhibit 2.2 to the 2-21-00 8-K
February 21, 2000, by and between
Mutual Savings Bank and
First Northern Capital Corp.
11.1 Statement regarding computation
of per share earnings X
27.1 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission
for information only and not filed X
Exhibit 11.1
First Northern Capital Corp.
Computation of Net Income Per Common Share
Three Months Ended
March 31
2000 1999
------ ------
BASIC:
Weighted average common shares
outstanding during each period 8,579,335 8,791,342
========= =========
DILUTED:
Weighted average common shares
outstanding during each period 8,579,335 8,791,342
Incremental shares relating to:
dilutive stock options outstanding
at end of each period (1) 135,342 194,687
--------- ---------
8,714,677 8,986,029
========= =========
NET INCOME FOR EACH PERIOD $1,656,303 $1,791,340
========== ==========
PER COMMON SHARE AMOUNTS:
Basic net income $0.19 $0.20
===== =====
Diluted net income $0.19 $0.20
===== =====
- ---------------
Notes:
(1) Based on treasury stock method using average market price.