UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------------------------------
F O R M 1 0 - Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
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 (I.R.S. Employer Identification No.)
incorporation or organization)
201 NORTH MONROE AVENUE
P.O. BOX 23100
GREEN BAY, WISCONSIN 54305-3100
(414) 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 (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.
(1) Yes X No
(2) Yes X No
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK, $1.00 PAR VALUE
PER SHARE WAS 4,381,725 AT JULY 26, 1996.
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial
Condition as of June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Income
for the Three Months Ended
June 30, 1996 and June 30, 1995 . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Income
for the Six Months Ended
June 30, 1996 and June 30, 1995 . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1996 and June 30, 1995 . . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . . . 7 -9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 10 - 21
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 22
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 DECEMBER 31, 1995
(In Thousands)
--------------------------------
ASSETS
Cash $ 7,107 $ 1,192
Interest-earning deposits 231 82
---------- ----------
CASH AND CASH EQUIVALENTS 7,338 1,274
Securities available-for-sale, at fair value
Investment securities 4,951 2,978
Mortgage-related securities 1,996 2,013
Securities held-to-maturity
Investment securities
(estimated fair value of $17,196 - 1996;
$19,531 - 1995) 17,252 19,364
Mortgage-related securities
(estimated fair value of $9,216 - 1996;
$4,020 - 1995) 9,477 4,024
Loans held for sale 162 2,989
Loans receivable 517,803 500,535
Accrued interest receivable on loans 2,661 2,702
Other accrued interest 482 372
Foreclosed properties and repossessed assets 151 136
Office properties and equipment 8,267 8,417
Federal Home Loan Bank stock 3,773 3,768
Prepaid expenses and other assets 5,815 4,895
-------- --------
$580,128 $553,467
======== ========
LIABILITIES
Deposits $455,387 $449,954
Securities sold under
agreements to repurchase 1,000 1,000
Borrowings 42,630 20,000
Advance payments by borrowers
for taxes and insurance 6,953 6,550
Other liabilities 3,404 3,384
-------- --------
TOTAL LIABILITIES 509,374 480,888
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:4,572,125 - 1996;
4,555,187 - 1995 shares outstanding:
4,394,725 - 1996; 4,555,187 - 1995 4,572 4,555
Additional paid-in capital 14,685 14,590
Unrealized gains on securities
available-for-sale, net of taxes 275 315
Treasury stock at cost
(177,400 shares at June 30, 1996) (2,817)
Retained earnings 54,039 53,119
-------- --------
TOTAL STOCKHOLDERS'EQUITY 70,754 72,579
-------- --------
$580,128 $553,467
======== ========
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30
1996 1995
-------- --------
(In Thousands,
Except Per Share Amounts)
INTEREST INCOME:
Mortgage loans $ 7,049 $ 6,715
Consumer loans 2,527 2,526
Investment securities 386 410
Interest-earning deposits 25 12
Mortgage-related securities 173 95
------- ------
TOTAL INTEREST INCOME 10,160 9,758
INTEREST EXPENSE:
Deposits 5,039 4,878
Borrowings 522 718
Advance payments by borrowers
for taxes and insurance 30 37
------- ------
TOTAL INTEREST EXPENSE 5,591 5,633
------- ------
NET INTEREST INCOME 4,569 4,125
Provision for loan losses 60 60
------- ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,509 4,065
NON-INTEREST INCOME:
Fees on serviced loans 87 90
Loan fees and service charges 59 54
Deposit account service charges 212 207
Insurance commissions 97 55
Gains on sales of loans 62 508
Gains on sale of securities 318
Gain on sale of asset 19 12
Other 131 99
------- ------
TOTAL NON-INTEREST INCOME 667 1,343
NON-INTEREST EXPENSE:
Compensation, payroll taxes
and other employee benefits 1,686 1,536
Federal insurance premiums 259 245
Occupancy 213 218
Data processing 224 229
Furniture and equipment 187 176
Telephone and postage 108 106
Marketing 90 61
Other 530 480
------- ------
TOTAL NON-INTEREST EXPENSE 3,297 3,051
------- ------
INCOME BEFORE INCOME TAXES 1,879 2,357
Income taxes 698 886
------- ------
NET INCOME $ 1,181 $ 1,471
======= =======
PRIMARY NET INCOME PER SHARE $0.26 $0.32
===== =====
FULLY DILUTED NET INCOME PER SHARE $0.26 $0.32
===== =====
CASH DIVIDENDS PAID PER SHARE $0.15 $0.14
===== =====
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30
1996 1995
-------- --------
(In Thousands,
Except Per Share Amounts)
INTEREST INCOME:
Mortgage loans $14,047 $13,278
Consumer loans 5,035 4,885
Investment securities 772 790
Interest-earning deposits 45 36
Mortgage-related securities 307 190
------- -------
TOTAL INTEREST INCOME 20,206 19,179
INTEREST EXPENSE:
Deposits 10,137 9,310
Borrowings 1,025 1,507
Advance payments by
borrowers for taxes and insurance 45 59
------- -------
TOTAL INTEREST EXPENSE 11,207 10,876
------- -------
NET INTEREST INCOME 8,999 8,303
Provision for loan losses 120 120
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,879 8,183
NON-INTEREST INCOME:
Fees on serviced loans 179 182
Loan fees and service charges 105 94
Deposit account service charges 414 388
Insurance commissions 158 155
Gains on sales of loans 154 509
Gains on sale of securities 318
Gain on sale of asset 19 161
Other 234 174
------- -------
TOTAL NON-INTEREST INCOME 1,263 1,981
NON-INTEREST EXPENSE:
Compensation, payroll taxes and
other employee benefits 3,368 3,181
Federal insurance premiums 520 489
Occupancy 446 437
Data processing 468 448
Furniture and equipment 382 370
Telephone and postage 234 223
Marketing 156 150
Other 1,033 1,001
------- -------
TOTAL NON-INTEREST EXPENSE 6,607 6,299
------- -------
INCOME BEFORE INCOME TAXES 3,535 3,865
Income taxes 1,265 1,410
------- -------
NET INCOME $ 2,270 $ 2,455
======= =======
PRIMARY NET INCOME PER SHARE $0.49 $0.53
===== =====
FULLY DILUTED NET INCOME PER SHARE $0.49 $0.53
===== =====
CASH DIVIDENDS PAID PER SHARE $0.30 $0.28
===== =====
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
1996 1995
-------- --------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 2,270 $ 2,455
Adjustments to reconcile net income
to cash provided by operating activities:
Provision for losses on loans and real estate 120 120
Provision for depreciation and amortization 376 361
Gains on sales of loans (154) (509)
Gain on sale of securities (318)
Loans originated for sale (6,491) (2,742)
Proceeds from loan sales 9,318 12,902
Decrease in interest receivable (69) (48)
Increase in interest payable 215 692
Other (687) 769
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,898 13,682
------- -------
INVESTING ACTIVITIES
Proceeds from maturities of investment
securities and interest-earning deposits 7,750 3,200
Proceeds from sale of securities 29
Purchases of investment securities (7,561) (4,000)
Principal repayments of mortgage-related securities 241 144
Purchase of mortgage-related securities (5,697)
Loan originations and purchases (79,344) (64,102)
Loan principal repayments 61,811 50,720
Purchases of office properties and equipment (225) (433)
Purchase of Federal Home Loan Bank stock (5) (278)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (23,030) (14,720)
------- -------
FINANCING ACTIVITIES
Net increase in deposits 5,218 21,436
Net increase (decrease) in short-term borrowings 8,130 (33,820)
Proceeds from long term borrowings 24,500 30,000
Repayments of long term borrowings (10,000) (10,000)
Cash dividends (1,349) (1,261)
Purchase of treasury stock (2,868)
Proceeds from exercise of stock options 162 48
Net increase in advance payments by
borrowers for taxes and insurance 403 1,494
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,196 7,897
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 6,064 6,859
Cash and cash equivalents at beginning of period 1,274 2,644
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,338 $ 9,503
======= =======
SUPPLEMENTAL INFORMATION TO THE STATEMENT OF CASH FLOWS:
Interest credited and paid on deposits $9,922 $8,678
Interest paid on borrowings 923 1,449
Payments for federal and state income taxes 1,445 1,261
Loans transferred to foreclosed properties
and repossessed assets 189 238
Loans held for investment transferred
to held-for-sale 11,152
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
(1) On December 20, 1995, First Northern Savings Bank, S.A., a Wisconsin
chartered capital stock association, reorganized into a unitary savings
and loan holding company structure (the "Reorganization") becoming a
wholly-owned subsidiary of First Northern Capital Corp. (the "Company"
or "First Northern"). At that date, each outstanding share of First
Northern Savings Bank's common stock was converted into one share of the
Company's common stock. Consequently, the former holders of all the
outstanding stock of the Savings Bank acquired the same proportionate
ownership interest in First Northern as they had held in First Northern
Savings Bank. The consolidated capitalization, assets, liabilities,
income and other financial data of First Northern immediately following
the Reorganization were substantially the same as those of First Northern
Savings Bank immediately prior to consummation of the Reorganization.
The consolidated financial statements include the accounts of First
Northern 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. All data
presented in this report for dates and periods prior to December 20, 1995
relates to the Savings Bank. All references herein to First Northern for
any date or period prior to consummation of the Reorganization shall be
deemed to refer to the Savings Bank.
(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 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 Subsidiary at June 30, 1996 and
December 31, 1995, the results of their operations for the three and six
months ended June 30, 1996 and 1995 and their cash flows for the six
months ended June 30, 1996. The accompanying Unaudited Consolidated
Financial Statements and related notes should be read in conjunction
with First Northern's 1995 Annual Report to Stockholders.
(3) Effective January 1, 1996, First Northern adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 requires recognition of a separate asset for
servicing rights, relative to loans sold with servicing rights retained,
which increased the gain on the sale of loans $32,624 in the second
quarter of 1996 and $62,194 in the first six months of 1996. Previously,
costs were fully allocated to the loan and servicing income was recognized
as it was received over the life of the loan. Based upon current fair
values, capitalized mortgage servicing rights are reviewed periodically
for impairment, which is recognized in the Statement of Income during the
period in which impairment occurs by establishing a corresponding
valuation allowance. No valuation allowances for originated mortgage
servicing rights were established as of or during the six months period
ending June 30, 1996.
(4) Seurities Available-for-Sale
The amortized cost and estimated fair values of securities
available-for-sale are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----- ---------- ----------
(In Thousands)
At June 30, 1996:
Asset Management Funds $ 462 $ 6 $ 456
Federal Home Loan Mortgage
Corporation stock 33 $480 513
U.S. government and
agency securities 4,005 12 35 3,982
------- ---- ---- ------
4,500 492 41 4,951
Mortgage-related securities 1,991 5 1,996
------- ---- ---- ------
$6,491 $497 $41 $6,947
====== ==== ==== ======
At December 31, 1995:
Asset Management Funds $ 449 $ 6 $ 455
Federal Home Loan Mortgage
Corporation stock 33 468 501
U.S. government and
agency securities 2,002 20 2,022
------- ---- -------
2,484 494 2,978
Mortgage-related securities 1,987 26 2,013
------- ---- -------
$4,471 $520 $4,991
====== ==== =======
(5) Investment Securities Held-to-Maturity
The amortized cost and estimated fair values of investment securities
held-to-maturity, which consist of U.S. government and agency
securities, are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----- ---------- ----------
(In Thousands)
At June 30, 1996 $17,252 $67 $123 $17,196
======= === ==== =======
At December 31, 1995 $19,364 $190 $23 $19,531
======= ==== === =======
At June 30, 1996, these investment securities have the following
maturities:
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ------------
(In Thousands)
Due in one year or less $ 5,188 $ 5,186
Due after one year through 5 years 12,064 12,010
-------- --------
$17,252 $17,196
======= =======
(6) Mortgage-Related Securities Held-to-Maturity
The amortized cost and estimated fair values of mortgage-related securities
held-to-maturity are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----- ---------- -----------
(In Thousands)
At June 30, 1996:
Federal Home Loan
Mortgage Corporation $5,750 $36 $188 $5,598
Federal National
Mortgage Association 3,727 109 3,618
------ --- ---- ------
$9,477 $36 $297 $9,216
====== === ==== ======
At December 31, 1995:
Federal Home Loan
Mortgage Corporation $3,019 $53 $25 $3,047
Federal National
Mortgage Association 998 32 966
Other 7 7
------ --- --- ------
$4,024 $53 $57 $4,020
====== === === ======
(7) Loans Receivable
Loans receivable consist of the following:
JUNE 30 DECEMBER 31
1996 1995
------- -----------
(In Thousands)
First mortgage loans:
One to four family residential $360,238 $352,449
Five or more family residential 18,709 17,591
Commercial real estate 10,290 10,028
Construction-residential 19,586 10,782
Construction-commercial 1,165 1,225
Other 1,963 1,788
-------- --------
411,951 393,863
Consumer loans:
Consumer 19,683 20,307
Second mortgage 52,503 46,528
Automobile 49,629 49,504
-------- --------
121,815 116,339
-------- --------
533,766 510,202
Less:
Undisbursed loan proceeds 12,228 6,071
Allowance for losses 2,698 2,608
Unearned loan fees 1,037 988
-------- --------
15,963 9,667
-------- --------
$517,803 $500,535
======== ========
(8) The weighted average number of shares outstanding, including common stock
equivalents, for the three months ended June 30, 1996 and 1995 were
4,569,597 and 4,615,941, respectively and for the six months ended
June 30, 1996 and 1995 were 4,632,175 and 4,611,909, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
BALANCE SHEET
CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $6.1 million greater
at June 30, 1996 as compared to December 31, 1995, primarily as the result of
customer deposits made to demand deposit accounts. Historically, when the
end of a month falls at the end of a week or on a weekend, large deposits are
made to checking accounts during that weekend, a majority of which cannot be
invested until the following Monday. In addition, any cash that is not
immediately needed to fund loans or operations is invested in overnight
interest-earning deposits.
SECURITIES AVAILABLE-FOR-SALE. Securities available-for-sale increased
approximately $2.0 million as of June 30, 1996 as compared to December 31,
1995, primarily as the result of purchases of U.S. Government and agency
securities.
SECURITIES HELD-TO-MATURITY. Investment securities held-to-maturity decreased
$2.1 million primarily as a result of investment maturities and the
reinvestment of those maturing investments in mortgage-related securities
held-to-maturity.
Mortgage-related securities held-to-maturity increased $5.5 million as a
result of the reinvestment of maturing investment securities and the
investment of borrowed money into mortgage-related securities. If the
interest rate paid on a borrowing is less than an interest rate received on an
investment, First Northern will borrow and reinvest those dollars in an
investment, thereby incrementally adding to the overall profitability of the
Company.
LOANS HELD FOR SALE. First Northern, at June 30, 1996, had $0.2 million of
fixed interest rate mortgage and education loans classified as loans held for
sale. At December 31, 1995, First Northern had $2.4 million of education
loans and $0.6 million of fixed interest rate mortgage loans classified as
loans held for sale.
LOANS RECEIVABLE. Loans receivable increased $17.3 million as a result of
increased one-to four-family and five or more residential originations. Loan
originations are as follows.
LOAN ORIGINATIONS AND PURCHASES
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
-------- -------- -------- --------
(In Thousands) (In Thousands)
Mortgage loans originated
and purchased:
Construction $ 9,576 $ 3,811 $ 15,279 $ 5,766
Loans on existing property 13,842 11,743 21,939 20,503
Refinancing 8,366 2,076 22,570 3,653
Other loans 673 1,213 673 1,352
-------- -------- -------- --------
Total mortgage loans originated
and purchased 32,457 18,843 60,462 31,273
-------- -------- -------- --------
Consumer loans originated
and purchased:
Consumer 3,098 3,423 4,687 5,306
Second mortgage 9,567 9,112 15,889 14,787
Automobile 10,474 8,337 16,711 15,951
Education 106 129 748 1,070
-------- -------- -------- --------
Total consumer loans originated
and purchased 23,245 21,001 38,035 37,114
-------- -------- -------- --------
Total loans originated and purchased $55,702 $39,844 $98,497 $68,387
======= ======= ======= =======
Mortgage loan originations for the second quarter of 1996 and the six months
ended June 30, 1996, increased as compared to the same periods in 1995
primarily as the result of increased mortgage loan refinancing (internal and
external loans) and construction loan originations. Market interest rates
declined slightly in early 1996, prompting an increase in mortgage
originations, in particular, refinancing of mortgage loans. Construction
lending was also positively impacted by the decline in market interest rates
and the favorable economy in First Northern's market areas.
First Northern sold $3.3 million of fixed interest rate mortgage loans in the
second quarter of 1996 and $6.3 million in the first half of 1996 as compared
to $2.5 million and $2.6 million for the same periods in 1995, respectively.
First Northern retains all interest rate adjustable mortgage loan originations
in its portfolio; whereas, most fixed interest rate mortgage loan originations
are sold in the secondary market. In addition, $1.2 million of education loans
were sold in the three months ended June 30, 1996. In 1995, First Northern's
management, after reviewing the existing and expected regulatory environment
and the involvement of the U.S. Government in the direct funding of education
loans, contractually committed to sell its existing education loan portfolio
and to sell its ongoing education loan originations.
Consumer loan originations and purchases increased in the second quarter of
1996 as compared to the second quarter of 1995 primarily as a result of an
increase in automobile loan originations in the Savings Bank's jointly owned
subsidiary, SFC. SFC automobile loan originations increased as a result
of developing new business relationships with automobile dealers throughout
the state of Wisconsin. SFC has and is actively seeking new opportunities
in Northeastern Wisconsin to increase its loan production. Consumer loan
originations and purchases increased for the six months ended June 30, 1996 as
compared to the same period in 1995 as a result of increased SFC loan
originations and second mortgage loan originations. First Northern has
increased its direct mail and newspaper advertising for second mortgage loans.
DEPOSITS. Deposits increased $5.4 million for the first six months of 1996 as
a result of offering competitive interest rates. Deposits were acquired to
fund the loan originations and overall operations.
BORROWINGS. Federal Home Loan Bank ("FHLB") borrowings increased $22.6
million in the first six months of 1996, primarily to fund the loan
originations and to purchase investment securities. First Northern will borrow
monies if the borrowing interest rate is a less costly form of funding for
loans and investments than acquiring deposits. At June 30, 1996, $34.5 million
are fixed interest rate borrowings and $8.1 million are overnight borrowings.
First Northern anticipates that it will continue to utilize borrowings
throughout 1996 if it incrementally adds to the overall profitability of the
Company.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. Advance payments by
borrowers for taxes and insurance ("escrow") increased $0.4 million at
June 30, 1996 as compared to December 31, 1995. The increase in escrow
dollars was the result of mortgage customers accumulating escrow dollars for
the payment of their real estate taxes. The increase is less than previous
years increases as a result of the new Housing and Urban Development ("HUD")
ruling that escrowed monies must be aggregated when analyzing the proper
dollar amount of escrow dollars required. This new HUD ruling effectively
reduced the escrow dollars needed by mortgage customers.
STOCKHOLDERS' EQUITY. First Northern paid a cash dividend of $0.15 per share
on May 15, 1996 to stockholders of record on May 6, 1996. This increase of
$0.01 per share represents a 7.1% increase over the second quarter of 1995
cash dividend of $0.14 per share.
On March 20, 1996, First Northern approved a stock repurchase program to
repurchase 228,467 shares (5% of total shares outstanding) through the open
market. These repurchased shares will be used to satisfy exercises of
stock options. At June 30, 1996, 180,600 shares had been purchased at an
average price of $15.89 per share or a total of $2.9 million and 3,200 of such
shares have been issued for exercised stock options.
ASSET QUALITY
First Northern currently classifies any loan on which a payment is 90 days or
more past due as non-performing. The following table summarizes non-performing
loans and assets:
NON-PERFORMING LOANS AND ASSETS
AT JUNE 30 AT DECEMBER 31
1996 1995
---------- --------------
(Dollars in Thousands)
Non-accrual mortgage loans $ 723 $266
Non-accrual consumer loans 131 152
------ ----
Total non-performing loans 854 418
Properties subject to foreclosure 116 113
Foreclosed properties and
repossessed assets 35 23
------ ----
Total non-performing assets $1,005 $554
====== ====
Non-performing loans as a percent
of total loans .16% .08%
=== ===
Non-performing assets as a percent
of total assets .17% .10%
=== ===
Total non-performing loans increased as of June 30, 1996 as compared to
December 31, 1995. Management believes non-performing loans and assets,
expressed as a percentage of total loans and assets, remain far below state
and national averages.
In addition, management believes that the allowances for losses on loans 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 their judgments of information available to them at
the time of their examination.
Summary of the allowance for losses is shown below.
LOAN LOSS ALLOWANCES
AT AND FOR THE AT AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 December 31, 1995
---------------- -----------------
(Dollars in Thousands)
Mortgage Loans:
Balance at the beginning of the period $1,578 $1,499
Provisions for the period 10 79
Transfer of loss reserve (136)
------ ------
Balance at the end of the period 1,452 1,578
Consumer Loans:
Balance at the beginning of the period 1,030 901
Provisions for the period 110 161
Transfer of loss reserve 136
Charge-offs
Consumer (9) (30)
Automobile (30) (41)
Recoveries
Consumer 5 21
Automobile 5 18
------ ------
Balance at the end of the period 1,247 1,030
------ ------
Total loan loss allowances at the
end of the period $2,698 $2,608
====== ======
Allowance as a percent of total loans .52% .52%
=== ===
Allowance as a percent of
non-performing loans 315.93% 623.92%
====== ======
Allowance as a percent of total assets .47% .47%
=== ===
Allowance as a percent of
non-performing assets 268.46% 470.76%
====== ======
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.
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 six months
ended June 30, 1996 and 1995 have been annualized.
SIX MONTHS ENDED JUNE 30
1996 1995
-----------------------------------------------
INTEREST INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
(Dollars In Thousands)
Interest-earning assets (1):
Mortgage loans $392,763 $14,047 7.15% $385,277 $13,278 6.89%
Consumer loans 118,592 5,035 8.49 118,327 4,885 8.26
Investment securities 24,677 772 6.26 24,608 790 6.42
Interest-earning deposits 1,689 45 5.33 1,231 36 5.85
Mortgage-related securities 9,376 307 6.55 5,372 190 7.07
-------- ------- ---- -------- ------- ----
TOTAL 547,097 20,206 7.39 534,815 19,179 7.17
Interest-bearing liabilities:
Passbook accounts 58,033 652 2.25 61,617 780 2.53
NOW and variable rate
insured money market
accounts 99,976 1,155 2.31 79,318 822 2.07
Time deposits 293,351 8,330 5.68 289,334 7,708 5.33
Advance payments by
borrowers for taxes
and insurance 4,064 45 2.21 5,401 59 2.18
Borrowings 35,206 1,025 5.82 44,013 1,507 6.85
--------- ------- ---- -------- ------- ----
TOTAL 490,630 11,207 4.57 479,683 10,876 4.53
--------- ------- ---- -------- ------- ----
Net interest-earning assets
balance and interest
rate spread $ 56,467 2.82% $ 55,132 2.64%
========= ==== ======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $547,097 $ 8,999 3.29% $534,815 $ 8,303 3.10%
======== ======= ==== ======== ======= ====
Average interest-earning
assets to interest-bearing
liabilities 111.5% 111.5%
===== =====
(1) For the purpose of these computations, non-accruing loans are included
in the average loan amounts outstanding.
YEAR ENDED DECEMBER 31
1995
--------------------------
INTEREST
AVERAGE EARNED/ YIELD/
BALANCE PAID RATE
(Dollars In Thousands)
Interest-earning assets (1):
Mortgage loans $386,128 $26,982 6.99%
Consumer loans 117,899 9,948 8.44
Investment securities 24,865 1,612 6.48
Interest-earning deposits 1,601 100 6.25
Mortgage-related securities 5,428 383 7.06
-------- ------- ----
TOTAL 535,921 39,025 7.28
Interest-bearing liabilities:
Passbook accounts 60,367 1,498 2.48
NOW and variable rate insured
money market accounts 85,234 1,884 2.21
Time deposits 292,248 16,190 5.54
Advance payments by borrowers
for taxes and insurance 8,528 178 2.09
Borrowings 33,681 2,286 6.79
-------- ------- ----
TOTAL 480,058 22,036 4.59
-------- ------- ----
Net interest-earning assets
balance and interest
rate spread $ 55,863 2.69%
======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $535,921 $16,989 3.17%
======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 111.60%
======
(1) For the purpose of these computations, non-accruing loans are included
in the average loan amounts outstanding.
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 have 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.
SIX MONTHS ENDED JUNE 30
1996 VS 1995
INCREASE(DECREASE) DUE TO:
-------------------------------------
(In Thousands)
RATE/
RATE VOLUME VOLUME TOTAL
------ -------- -------- -------
Interest-earning assets:
Mortgage loans $ 501 $ 258 $ 10 $ 769
Consumer loans 139 11 150
Investment securities (20) 2 (18)
Interest-earning deposits (3) 13 (1) 9
Mortgage-related securities (14) 141 (10) 117
------ ----- ---- ------
TOTAL $ 603 $ 425 $ (1) 1,027
====== ===== ==== ------
Interest-bearing liabilities:
Passbook accounts $ (88) $ (45) $ 5 (128)
NOW and variable rate
insured money market accounts 95 213 25 333
Time deposits 508 107 7 622
Advance payments by borrowers
for taxes and insurance 1 (15) (14)
Borrowings (227) (300) 45 (482)
------- ----- --- ------
TOTAL $ 289 $ (40) $82 331
======= ===== === ------
Net change in net interest
income $ 696
=====
YEAR ENDED DECEMBER 31
1995 VS 1994
INCREASE(DECREASE) DUE TO:
---------------------------------------
(In Thousands)
RATE/
RATE VOLUME VOLUME TOTAL
------ -------- -------- -------
Interest-earning assets:
Mortgage loans $ 293 $ 1,379 $ 16 $ 1,688
Consumer loans 518 1,301 84 1,903
Investment securities 21 96 1 118
Interest-earning deposits 64 (80) (34) (50)
Mortgage-related securities 9 (51) (1) (43)
----- ------- ----- -------
TOTAL $ 905 $ 2,645 $ 66 3,616
====== ======= ===== -------
Interest-bearing liabilities:
Passbook accounts $ (21) $ (218) $ 3 (236)
NOW and variable rate
insured money market accounts 371 96 26 493
Time deposits 2,353 998 186 3,537
Advance payments by borrowers
for taxes and insurance (15) 7 (1) (9)
Borrowings 286 841 270 1,397
------- ------- ----- -------
TOTAL $2,974 $1,724 $ 484 5,182
====== ====== ===== -------
Net change in net interest
income $ (1,566)
========
STATEMENTS OF INCOME
GENERAL. Net income for the three months ended June 30, 1996 decreased
$105,000 primarily as the result of non-recurring non-interest income items
in 1995. Core net income for the second quarter of 1996 was $1,181,000 as
compared to $978,000 for the same period in 1995. For the six months ended
June 30, 1996, core net income was $2,270,000 as compared to the six months
ended June 30, 1995 of $1,867,000. The increases in core net income for
both periods were primarily the result of the increased dollar amount of
interest earning assets and increased interest rates spread. (See Results of
Operations--Average Balance Sheet and Yield/Rate Analysis)
INTEREST INCOME. Interest income on mortgage loans increased $334,000 in the
second quarter of 1996 and $769,000 in the first six months of this year as
compared to the same periods in 1995 as a result of the increased dollar
amount of mortgage loans outstanding and the increased yield on the mortgage
loan portfolio.
Interest income on consumer loans for the three months ended June 30, 1996
almost equaled the three months ended June 30, 1995 and increased $150,000 for
the six months ended June 30, 1996, as compared to the first six months of
1995. The second quarter amounts were almost identical as the result of
dollars outstanding and interest rate earned being almost equal. The
increase from the six month comparisons was the result of an increase in the
overall average interest rate earned. (See Balance Sheet - Loans Receivable)
Interest income on investment securities decreased in the second quarter of
1996 and for the first half of 1996 as compared to same periods in 1995 as a
result of a decrease in the yield earned on investments. As investment
securities matured they were reinvested in investment securities at reduced
interest rates.
Interest income on mortgage-related securities increased $78,000 in the second
quarter and $117,000 for the six months ended June 30, 1996, as compared to the
same periods in 1995, primarily as a result of the increased dollar amount
outstanding. Historically, mortgage-related securities have higher rates of
return than like term U.S. Government and Agency securities.
INTEREST EXPENSE. Deposit interest expense increased $161,000 in the second
quarter of 1996 and $827,000 for the six months ended June 30, 1996 as
compared to the same periods in 1995 as a result of an increased dollar
amount of deposits outstanding and the increased cost of deposits. To capture
new deposits and aid in controlling the increases in the cost of deposits,
First Northern continued to utilize non-traditional terms on certificates of
deposits (i.e. 10 month, 14 month) and the Daily Advantage account. The
Daily Advantage account's interest rate is determined weekly and consumers
are allowed to make daily deposits and withdrawals.
Interest expense on borrowings decreased substantially in the three and six
months ended June 30, 1996 as compared to the same periods in 1995 as a
result of decreased average borrowings outstanding and the decreased interest
rates paid on average borrowings. However, borrowings outstanding at
June 30, 1996, had increased by approximately $7.4 million in comparison to
the average borrowings outstanding for the six months ended June 30, 1996.
This increase is a result of funding loan originations and moderate deposit
growth. Its anticipated that borrowings will continue to be utilized in 1996
to fund the anticipated loan demand.
PROVISION FOR LOAN LOSSES. First Northern continued to provide for loan
losses in the second quarter of 1996 and the first half of the 1996 primarily
as a result of the growth in the loan portfolio. The loan loss allowance
as of June 30, 1996 was $2,698,000 or .52% of total loans and 268.46% 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
experience changes, the size and composition of the loan portfolio changes,
changes occur in the general economy and as may otherwise be deemed necessary.
NON-INTEREST INCOME. Deposit account service charges increased $5,000 in the
second quarter of 1996 and $26,000 for the six months ended June 30, 1996 as
compared to the same periods in 1995 as a result of increased NOW (checking)
accounts outstanding and their related fees. The Company continues to
aggressively market and price checking accounts as it believes it is the
product to further develop banking relationships with customers.
Insurance commissions increased $42,000 in the second quarter of 1996 and
$3,000 for the six months ended June 30, 1996 primarily as a result of a
$34,000 insurance bonus paid to First Northern in the second quarter of
1996. First Northern received the insurance bonus as a result of exceeding
pre-determined sales goals and the low dollar amount of claims.
During the second quarter of 1996 and the six months ended June 30, 1996,
gains on the sale of loans were positively impacted by the adoption of SFAS
No. 122 "Accounting for Mortgage Servicing Rights" which contributed $33,000
and $62,000, respectively, to the gains on the sale of loans. (See Notes to
Unaudited Financial Statements). First Northern sold $3.3 million and
$6.3 million of mortgage loans in the second quarter of 1996 and the first
half of 1996, respectively.
In 1995, the gain on the sale of loans was primarily the result of $10.5
million of student loans sold which produced a gain of $459,000.
(See Balance Sheet--Loans Receivable)
In the second quarter of 1995, First Northern sold 5,296 shares of Federal
Home Loan Mortgage Corporation ("Freddie Mac") stock resulting in a gain on
the sale of securities of $318,000.
First Northern sold a branch office building in the first quarter of 1995,
whose operations were combined with another First Northern branch office in
1994, for a gain on the office building sale of $149,000. The offices were
combined in 1994 as a result of the Prime Federal acquisition.
Other non-interest income increased $32,000 in the three months ended June 30,
1996 and $60,000 for the six months ended June 30, 1996, as compared to the
same periods in 1995 primarily as a result of brokerage income from GNFSC and
interest income on life insurance policies owned by First Northern.
NON-INTEREST EXPENSE. Compensation expense increased $150,000 and $187,000
for the second quarter of 1996 and the first half of 1996 as compared to the
second quarter of 1995 and the six months ended June 30, 1995, primarily as a
result of annual salary increases, increased employees and accruals associated
with a management incentive plan. At June 30, 1996, First Northern had 211
full-time equivalent employees as compared to 205 full-time equivalent
employees at June 30, 1995. The management incentive plan accruals are
dependent upon annual pre-determined core earnings goals.
Federal insurance premiums on deposits increased for the three and six months
ended June 30, 1996 as compared to the same periods in 1995 as a result of
increased deposits. (See Pending Federal Legislation)
Data processing expense increased for the three and six months ended June 30,
1996 as compared to the same periods in 1995 primarily as a result of the
additional cost of expansion and operation of the Wide Area Network ("WAN") to
accommodate a new personal computer ("PC") based teller system. First
Northern anticipates that new PC based teller system will be purchased in the
fourth quarter of 1996.
Furniture and equipment expense increased $11,000 and $12,000 for the three
and six months ended June 30, 1996, respectively, as a result of the purchase
of additional PC's, WAN equipment and other office equipment.
Other expenses increased for three and six months ended June 30, 1996 as
compared to the same periods in 1995 primarily as a result of costs associated
with NOW accounts, loan promotions and electronic fund transfer usage.
INCOME TAXES. The effective income tax rate for the first six months of 1996
was 35.8% as compared to 36.5% for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Federal regulations historically have required First Northern to maintain
minimum levels of liquid assets. The required percentage has varied from
time to time based upon economic conditions and savings flows, and is
currently 5% of net withdrawable deposits and borrowings payable on demand or
in one year or less during the preceding calendar month. Liquid assets for
purposes of this ratio include cash, certain time deposits, U.S. Government
and agency securities and other obligations generally having remaining
maturities of less than five years. First Northern has historically maintained
its liquidity ratio at a level in excess of that required by the OTS.
First Northern's monthly average short-term liquidity and total liquidity
ratio at June 30, 1996 was 2.69% and 6.21%, respectively, as compared to
4.62% and 6.90%, respectively, at December 31, 1995. The June 30, 1996
liquidity ratios decreased as compared to the ratios at December 31, 1995
as a result of the purchase of mortgage-related securities, which are not a
part of the liquidity percentage calculation. First Northern believes
that its maintenance of excess liquidity, above the 5% federally required
total liquidity ratio, is an appropriate strategy to aid in proper asset and
liability management.
Liquidity management is both a daily and long-term responsibility of
management. First Northern adjusts its investments in liquid assets based
upon managements' assessment of: (i)expected loan demand; (ii) expected
deposit flows; (iii) yields available on interest-earning deposits; and (iv)
the objectives of its asset and liability management program. Excess
liquidity is invested generally in interest-earning overnight deposits and
other short-term government and agency obligations. When First Northern
requires funds beyond its ability to generate them internally, it can borrow
funds from the FHLB of Chicago or other sources.
CAPITAL RESOURCES AND REGULATORY INFORMATION
First Northern's net worth to total assets ratio at June 30, 1996 for State of
Wisconsin regulatory requirements was 12.20% or over two times the Wisconsin
minimum legal requirement of 6.00% of total assets established by the Office
of the Wisconsin Commissioner of Savings and Loan, which regulates First
Northern. The OTS adopted capital regulations for savings institutions
effective December 7, 1989. The capital rules require savings associations
to meet three separate capital standards: (i)Tangible capital equal to 1.5%
of adjusted total assets; (ii) Core capital equal to 3% of adjusted total
assets; and (iii) Risk-based capital equal to 8.0% of the value of risk
weighted assets.
The following table illustrates the federal and state requirements and the
excess regulatory capital that the Savings Bank and First Northern
(as to Wisconsin capital) has over regulatory requirements.
TABLE OF CAPITAL (NET WORTH) REQUIREMENTS
(DOLLARS IN THOUSANDS)
AT JUNE 30, 1996
TANGIBLE CORE RISK-BASED WISCONSIN
CAPITAL CAPITAL CAPITAL CAPITAL
--------- --------- --------- ---------
Savings Bank's regulatory capital $68,514 $68,514 $71,199 $73,452
Required regulatory capital 8,680 17,359 28,023 34,808
------- ------- ------- -------
Excess capital $59,834 $51,155 $43,176 $38,644
======= ======= ======= =======
Savings Bank's regulatory ratios 11.84% 11.84% 20.33% 12.66%
Required regulatory ratios 1.50 3.00 8.00 6.00
----- ----- ----- -----
Excess capital ratios 10.34% 8.84% 12.33% 6.66%
===== ===== ===== ====
PENDING FEDERAL LEGISLATION
Both the United States Senate and House of Representatives have proposed bills
which could substantially change the federal regulation of thrift institutions
and their holding companies in the near future. One of the primary purposes
of the bills is to recapitalize the Savings Association Insurance Fund (the
"SAIF") of the Federal Deposit Insurance Corporation (the "FDIC"), under which
thrifts, such as the Savings Bank, are insured. Currently, well-capitalized
banks pay insurance premiums of approximately $2,000 per year into the Bank
Insurance Fund (the "BIF") of the FDIC as compared to the SAIF premiums of
well-capitalized thrifts, like the Savings Bank, of 23 cents for every $100
of assessable deposits (First Northern's 1996 SAIF premium will be
approximately $1.0 million.) due to the relative capitalizations of the BIF
and the SAIF. This premium differential potentially places thrifts at a
competitive disadvantage to banks. One or more of such proposed bills would,
among other things, impose a one-time assessment on thrift institutions to
recapitalize the SAIF, reduce the SAIF premiums for well-capitalized thrifts
to the BIF premiums for well-capitalized banks, merge the SAIF and the BIF,
require the conversion of federal savings association charters into state or
national bank charters or state thrift charters, treat state savings
associations as banks under federal law, convert savings and loan holding
companies into bank holding companies and abolish the OTS. Such legislation,
if adopted, could substantially reduce the earnings of First Northern for the
year in which any special assessment was imposed. For example, one proposed
bill would impose a special assessment of 85 cents for every $100 of
assessable deposits, resulting in approximately $2.3 million after-tax one-time
charge to First Northern's earnings, based on First Northern's SAIF
assessment base at December 31, 1995. By comparison, First Northern's net
income for the year ended December 31, 1995 was $4.6 million. Furthermore,
such legislation would significantly limit First Northern's flexibility and
reduce the diversification opportunities that would otherwise be available to
it as a unitary savings and loan holding company to the extent that it was
not grandfathered under such legislation. No assurance can be given as to
the final form of any such legislation, the date of its effectiveness, the
extent of its applicability to First Northern and its effect on the financial
position and result of operations.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At First Northern's Annual Meeting of Stockholders held on April 24,
1996, all of the Board of Directors' nominees named in the tabulation of
votes below were elected as directors, by the votes cast for and
withheld with respect to each nominee indicated, to serve for a three
year term for the class of directors whose terms expire in 1999. There
was no solicitation in opposition to the nominees proposed in the
Proxy Statement and there were no abstentions or broker non-votes with
respect to the election of directors.
NAME OF NOMINEE FOR WITHHELD
---------------------------------------------------------------
Directors with terms expiring in 1999
Howard M. Frankenthal 3,762,605 98,259
Robert J. Mettner 3,761,419 99,445
Richard C. Smits 3,761,953 98,911
Messrs. Thomas J. Lopina, Sr., Ralph N. Marten (see Item 5 below) and
Richard D. Pahlow terms as directors continue until 1997. Messrs.
K. David Feldhausen, Michael D. Meeuwsen and J. Gus Swoboda terms as
directors continue until 1998.
ITEM 5. OTHER INFORMATION
Mr. Ralph N. Marten, Executive Vice President and Director of First
Northern Savings Bank and Director of First Northern Capital Corp.
retired from both entities effective June 30, 1996. As a result
of Mr. Marten's retirement, such entities reduced the size of their
respective Boards of Directors from nine (9) to eight (8) members.
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:
No Form 8-K was filed during the quarter for which this report
is filed.
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: July 30, 1996 /s/ Rick B. Colberg
-----------------------------------
Rick B. Colberg
Vice President, Treasurer
and Chief Financial Officer
(Mr. Colberg is also duly authorized
to sign on behalf of registrant)
FIRST NORTHERN CAPITAL CORP.
* * * * *
EXHIBIT INDEX
TO
SECOND QUARTER 1996 REPORT ON FORM 10-Q
EXHIBIT FILED SEQUENTIAL
NUMBER DESCRIPTION HEREWITH PAGE NUMBER
- - - -----------------------------------------------------------------------------
11.1 Statement regarding computation
of per share earnings X