UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 1 0 - K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
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 AVE., P.O. BOX 23100, GREEN BAY, WI 54305-3100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(414) 437-7101
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of February 28, 1997, 4,424,335 shares of Common Stock were outstanding,
and the aggregate market value of the Common Stock (based upon the $18.625 last
sale price quotation on the NASDAQ National Market System as reported in the
Wall Street Journal) held by non-affiliates (excludes a total of 542,546 shares
reported as beneficially owned by directors and executive officers or held in
the registrant's 401(k) Savings Plan; does not constitute an admission as to
affiliate status) was approximately $72,298,320.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH
DOCUMENT PORTIONS OF DOCUMENT ARE INCORPORATED
Annual Report to Stockholders for
Fiscal Year Ended December 31, 1996 Parts I and II
Proxy Statement for Annual Meeting of
Stockholders on April 30, 1997 Part III
FIRST NORTHERN CAPITAL CORP.
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-30
2. Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-31
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 31
4. Submission of Matters to a Vote of Security Holders . . . . . . . 31
Executive Officers of the Registrant . . . . . . . . . . . . . . . 31-33
PART II
5. Market for Registrant's Common Equity and
Related Stockholders Matters . . . . . . . . . . . . . . . . . . 33
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 33
7. Management s Discussion and Analysis of Financial
Conndition and Results of Operations . . . . . . . . . . . . . . 33
8. Financial Statements and Supplementary Data . . . . . . . . . . . 33
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . 33
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . . . 33
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 33
12. Security Ownership of Certain Beneficial Owners and Management . . . 33
13. Certain Relationships and Related Transactions . . . . . . . . . . . 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PART I.
ITEM 1. BUSINESS
OVERVIEW. First Northern Capital Corp. (the "Company" or "First
Northern"), a unitary savings and loan holding company, was incorporated in
Wisconsin in 1995 for the purpose of owning all of the outstanding stock of
First Northern Savings Bank, S.A. (the "Savings Bank"), a Wisconsin
chartered capital stock savings and loan association, which reorganized into
the holding company structure effective December 20, 1995 (the
"Reorganization"). At that date, each outstanding share of the 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 the 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 the Savings Bank immediately prior to consummation of the
Reorganization. The Reorganization was effected to provide greater
flexibility in meeting the Company's future financial and competitive needs.
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 or the Company for any date or period prior to consummation of
the Reorganization shall be deemed to refer to the Savings Bank.
The Savings Bank is the only direct subsidiary of the Company and its
operations are the primary contributor to the Company's earnings and
expenses. The Savings Bank's business consists primarily of attracting
deposits from the general public and originating loans throughout its
Northeastern Wisconsin branch network. Great Northern Financial Services
Corporation ("GNFSC") (formally known as Great Northern Development
Corporation), a wholly-owned subsidiary of the Savings Bank, offers full
brokerage services to the public, including the sale of tax deferred
annuities and mutual funds, and sells credit life and disability insurance.
Another wholly-owned subsidiary, First Northern Investments, Inc. ("FNII"),
manages a majority of the Savings Bank's investments. The Savings Bank's
50% owned subsidiary, Savings Financial Corporation ("SFC"), originates,
services and sells automobile loans to its parent corporations.
First Northern is based in Green Bay, Wisconsin and conducts its business
from 20 offices located in a contiguous, eight-county (Brown, Marinette,
Manitowoc, Door, Shawano, Outagamie, Waupaca, and Calumet) area in Northeastern
Wisconsin.
The statistical disclosures and other information in this Item 1
concerning First Northern's operations and financial condition should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations (which includes additional statistical
information) and the Consolidated Financial Statements and Notes thereto
incorporated by reference in Items 7 and 8 hereof, respectively.
On September 18, 1992, First Northern effected a 2-for-1 stock split
in the form of a 100% stock dividend. Unless otherwise indicated, all shares
and per share information reflect the stock split.
CAUTIONARY FACTORS. The Form 10-K and Annual Report 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;
and changes in the quality or composition of the Savings Bank s loan and
investment portfolios and the investment portfolio of FNII.
THE GENERAL THRIFT INDUSTRY. The operations of First Northern and the Savings
Bank, as well as other savings associations and other financial institutions,
are significantly influenced by general economic conditions, by the related
monetary, tax and fiscal policies of the federal government and by the policies
of regulatory authorities, including the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"), the Office of Thrift Supervision
("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and in the case of
First Northern and the Savings Bank, the Wisconsin Department of Financial
Institutions---Division of Savings Institutions ("WDFI-Administrator")
(formerly the "Wisconsin Commissioner of Savings and Loan). First
Northern's results of operations are also affected by accounting principles
and regulations adopted by the Financial Accounting Standards Board ("FASB")
and other organizations. Deposit flows and costs of funds are influenced by
interest rates on competing investments, general market rates of interest,
the level of personal savings and the public perception of the financial
strength of the industry. Lending activities are affected by the demand
for mortgage financing and other types of loans, which in turn is affected
by the interest rates at which such financing may be offered and market forces
acting upon the supply of housing and the availability of funds.
RECAPITALIZATION OF SAIF. As anticipated, the Savings Association Insurance
Fund ( SAIF ) of the FDIC was recapitalized during 1996 by a one-time
special assessment imposed on all SAIF members. The $2,856,000 assessment
paid by First Northern had a significant impact on its 1996 financial
results. However, the effect of the recapitalization is a significant
reduction in federal deposit insurance premiums for SAIF-insured institutions
on an ongoing basis. See Management s Discussion and Analysis of Financial
Condition and Results of Operations incorporated by reference in Item 7
hereof.
ACQUISITIONS. On April 28, 1994, Prime Federal Bank, FSB ("Prime Federal")
merged with and into the Savings Bank. As a part of the business combination,
the Savings Bank exchanged 2.8275 shares of its common stock for each share
of Prime Federal common stock outstanding, resulting in the issuance of
1,243,000 shares of the Savings Bank's common stock. The transaction was
accounted for as a pooling of interests; consequently, financial data for
years prior to 1994 have been restated to include the operating results of
Prime Federal.
On June 12, 1992, the Savings Bank completed its acquisition of
New London Savings and Loan Association ("New London"). As part of the
transaction, New London converted from a Wisconsin chartered mutual savings
and loan association to a Wisconsin chartered stock savings institution and
simultaneously merged with and into the Savings Bank. The Savings Bank issued
679,584 shares of its common stock to certain members of New London, other
eligible subscribers, and the general public for approximately $6.1 million of
additional capital.
MARKET AREA AND COMPETITION. First Northern's primary market area is an
eight county area in Northeastern Wisconsin which surrounds Green Bay, the
third largest city in Wisconsin. First Northern operates 20 offices located
in 15 cities in this area. These counties and cities are serviced by four
Green Bay area television stations and are included in the circulation of a
Green Bay newspaper.
Financial organizations, such as First Northern, experience intense
competition in both attracting and retaining deposits and in making real
estate and consumer loans. First Northern's management believes that its
share of the deposit and mortgage lending markets in its primary market area
is approximately 10% and 10%, respectively. Most direct competition for
deposits has come from savings and loan associations, commercial banks,
credit unions, stock brokerage firms and money market mutual funds. In
addition to offering competitive types of accounts and interest rates, the
principal methods used by First Northern to attract deposits include the
offering of a variety of services, and convenient business hours and branch
locations, with inter-branch deposit and withdrawal privileges at each location.
Competition in originating real estate loans comes primarily from other
savings institutions, commercial banks and mortgage bankers.
The primary factors in competing for loans are interest rates and
interest rate adjustment provisions, loan fees and the quality of service to
borrowers.
The Wisconsin Statutes governing savings associations and their
holding companies provide for regional reciprocal interstate banking which
permits additional competitors to enter First Northern's primary market and
may tend to create further concentration in the financial services industry.
Under Wisconsin law, Wisconsin chartered savings institutions may open
branches in Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri
and Ohio, provided that reciprocal legislation is adopted in such states
(the "Regional States"). Currently, all but Missouri have adopted reciprocal
legislation. A Wisconsin based savings and loan holding company is able
to acquire a savings institution or holding company in any of the Regional
States and such a holding company located in a Regional State is able to make
similar acquisitions in Wisconsin. In addition, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994, which allows bank holding
companies that are adequately capitalized and adequately managed to acquire
banks anywhere in the nation regardless of whether the acquisition is
prohibited under state law, is also expected to create further competition and
concentration in the financial services industry.
LENDING ACTIVITIES. First Northern has traditionally concentrated on
originations of adjustable and fixed interest rate one- to four-family mortgage
loans and consumer loans. First Northern also originates five or more family
residential, commercial real estate and short-term construction mortgage loans.
Adjustable interest rate mortgage loans are originated for First Northern's
portfolio while fixed interest rate mortgage loans, particularly those with
terms greater than 15 years, are primarily originated for sale in the secondary
mortgage market. At December 31, 1996, approximately 90% of First Northern's
mortgage loan portfolio was interest rate adjustable.
To aid in matching maturities of its assets and liabilities, First
Northern originates second mortgage loans, automobile, boat, recreational
vehicle and other types of consumer loans. These loans are generally of
shorter maturities than first mortgage loans and are originated at both
adjustable or fixed interest rates.
First Northern lends primarily in its eight county market area in
Northeastern Wisconsin. At December 31, 1996, approximately 99.0% of the
total dollar amount of First Northern s mortgage loans outstanding were on
properties located in Wisconsin with the other 1.0% representing properties
located primarily in other Midwestern states.
First Northern's loan portfolio of $563.9 million before deductions at
December 31, 1996 was 91.6% by dollar volume of its total assets. As of
that date, approximately 69.6% by dollar volume of the loan portfolio
consisted of conventional first mortgage loans secured by one- to four-family
residences, with an additional 24.4% by dollar volume in consumer loans, 3.6%
by dollar volume in multi-family (more than four) residential properties, 2.1%
by dollar volume in commercial real estate properties and .3% in other
properties.
LOAN INTEREST RATES AND TERMS. Interest rates charged on First Northern's
loans are affected primarily by the demand for such loans and the supply and
cost of money available for lending purposes. These factors are in turn
affected by general economic conditions and such other forces as monetary
policies of the federal government, including the Federal Reserve Board, the
general supply of money, tax policies and governmental budgetary matters.
Certain lending activities of Wisconsin chartered savings associations are
subject to Wisconsin usury laws.
The maturities and average periods that loans actually remain outstanding,
together with the variability of loan interest provisions, in each case as
compared with the corresponding factors for loan funding sources, are the key
determinants of a lender's exposure to interest rate risk. First Northern
estimates that the average range of time mortgage loans are outstanding is
approximately six to ten years. Loan sales may also be used as a means
of reducing interest rate risk. First Northern's general policy, which is
subject to review by management as a result of changing market and economic
conditions, and other factors, is to retain all adjustable interest rate
mortgage loans in its portfolio and to keep up to approximately 20% of the
mortgage portfolio in fixed interest rate mortgage loans. First Northern
estimates that generally not more than 5% of the total mortgage portfolio
will be in 30 year fixed interest rate mortgage loans. This policy is part
of First Northern's asset/liability management strategy. Prior to mid-1993,
it was First Northern's practice when selling its mortgage loans through the
secondary market to retain 5% ownership and the loan servicing. In mid-1993,
First Northern began to sell mortgage loans on a whole loan (100%) basis while
retaining the loan servicing. First Northern adjusted its method of selling
mortgage loans to conform more closely with national standards for loan sales.
Mortgage loans made by First Northern generally are long-term loans,
amortized on a monthly basis with principal and interest due each month.
Borrowers have the option to prepay loans, in whole or in part, subject to a
possible prepayment penalty, which on loans originated prior to November 1,
1981, is 90 days interest on the amount by which aggregate principal
prepayments for a 12-month period exceed 20% of the original amount of the
loan. If the loan was originated after November 1, 1981, and the rate of
interest is not based on fluctuations in an index, the penalty is 60 days
interest on the amount by which aggregate principal prepayments for a
12-month period exceed 20% of the original amount of the loan if the prepayment
occurs within five years of the date of the loan. Adjustable interest rate
loans tied to fluctuations in an index do not include a prepayment penalty.
Market conditions and competition determine when a prepayment penalty is placed
in the mortgage instrument. Since 1988, First Northern has not included a
prepayment penalty on one- to four-family owner-occupied mortgage loans.
Although the original contractual loan payment period for mortgage loans
normally ranges from 15 to 30 years, First Northern's experience has been
that, because of prepayments in connection with refinancing and sales of
property, mortgage loans typically remain outstanding for a substantially
shorter period.
Management of First Northern is committed to matching the maturities of
assets and liabilities. In furtherance of this goal, management's policy is
to emphasize the origination of consumer loans and other loans having short
maturities, such as three to six years, and mortgage loans which are interest
rate adjustable or are eligible for sale in the secondary market. At
December 31, 1996, consumer loans (second mortgage, automobile and other
consumer loans) outstanding totaled $137.7 million. Consumer loan originations
and purchases for the year ended December 31, 1996 were $88.3 million, of which
$25.0 million or 28.3% were interest rate adjustable. In 1995, First Northern
adjusted its consumer loan origination policy (except for second mortgages
which are originated with an adjustable or fixed interest rate) to originate
all consumer loans as fixed interest rate rather than a combination
of fixed and adjustable interest rate consumer loans. This adjustment
in policy was adopted to foster growth in income from consumer loans.
Consumer loan originations and purchases in 1995 were $68.3 million, of
which $30.3 million or 44.3% were interest rate adjustable, and in 1994 were
$79.6 million, of which $24.5 million or 30.8% were interest rate adjustable.
Such loan originations in 1993 were $57.6 million, of which $17.1 million or
29.7% were interest rate adjustable.
First lien residential mortgage loans originated after November 1, 1981
do not have a usury interest rate limitation in Wisconsin. Since February
1985, First Northern has originated mortgage loans using contracts which
contain interest rate adjustment clauses allowing a lifetime interest rate
adjustment of between 5% to 8% over the original contract interest rate on
all residential mortgage loans and subject to annual interest rate adjustment
caps of up to 2%. First Northern's ability to successfully market such loans
depends on, among other things, prevailing interest rates, the volatility of
interest rates and the public's acceptance of adjustable interest rate
mortgage loans. First Northern has generally fixed the interest rate for the
first one, two, three or five years of the loan term. First Northern also
maintains a policy of including a "due on sale" clause in its mortgage loans.
This clause generally gives First Northern the right, subject to certain
restrictions, to declare a loan immediately due and payable in the event,
among other things, that the borrower sells or otherwise disposes of the real
property subject to the mortgage without first either obtaining First
Northern's consent or repaying the loan.
LOAN ORIGINATIONS. First Northern has general authority to lend anywhere in the
United States; however, it has chosen to concentrate its mortgage origination
activities in Northeastern Wisconsin with primary emphasis in the counties
served by its offices. As of December 31, 1996, First Northern had only 110
loans secured by out of state properties, representing $4.0 million or
1.0% of the total dollars in its mortgage loan portfolio. First Northern's
mortgage lending is subject to written, non-discriminatory underwriting
guidelines and to loan origination procedures prescribed annually by First
Northern's Board of Directors. Property appraisals independent appraisers,
in accordance with First Northern's appraisal policy, are required.
Additionally, all appraisals must establish the adequacy of the proposed
security and meet Federal Home Loan Mortgage Corporation and Federal National
Mortgage Association guidelines. Detailed loan applications are obtained to
determine the borrower's ability to repay, and the more significant items on
these applications are verified through the use of credit reports,
financial statements and employment and income confirmations. Loans are
reviewed and approved as directed by the underwriting guidelines established
by the Board of Directors.
At December 31, 1996, First Northern serviced for others $121.0 million
of whole loans and participation interests in mortgage loans. In addition,
as of December 31, 1996, First Northern had approximately $41.6 million of 15
and 30 year fixed interest rate mortgages in its mortgage investment portfolio.
See "Loan Interest Rates and Terms" above. In 1996, 1995 and 1994, First
Northern sold $11.1, $11.6 and $18.2 million, respectively of 15 and 30
year fixed interest rate mortgage loans to the secondary market in accordance
with First Northern's asset and liability management policy. First
Northern also originates mortgage loans for the Wisconsin Department of
Veterans Affairs ("WDVA") and the Wisconsin Housing and Economic Development
Authority ("WHEDA"), which result in additional origination fees and servicing
income. First Northern does not currently originate a significant amount of
Federal Housing Administration ("FHA") insured or Veterans Administration
("VA") partially guaranteed loans.
In addition to traditional mortgage lending activities, First Northern
has participated in various State and local special loan programs. Many of
these programs are designed specifically to make home ownership more available
to qualified low/moderate income families. Through the FHLB of Chicago's
Affordable Housing Program, First Northern has obtained funding for down
payment and closing cost assistance to assist low income first-time home
buyers.
First Northern requires borrowers to obtain title insurance or abstracts
of title, depending on the type of mortgage product, on first mortgage real
estate loans. Home equity loan borrowers are required to obtain a title
search before and after the loan is originated to assure First Northern that
the loan has been properly recorded and secured. Borrowers also must
obtain hazard insurance prior to closing and, when required by the
Department of Housing and Urban Development, flood insurance. Borrowers may
be required to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage escrow account from which First Northern
makes disbursements for items such as real estate taxes and private mortgage
insurance premiums as they become due. First Northern is required by
Wisconsin law to pay interest on mortgage escrow accounts where the loan
was originated after January 31, 1983 and is secured by one- to four-family,
owner-occupied residences. The interest rate is based on the annual average
of passbook interest rates paid by all Wisconsin financial institutions (2.91%
for 1996). Currently, approximately 80% of the escrow dollars are interest
bearing. The interest rate paid on escrow dollars is adjusted annually. The
interest rate to be paid on qualified mortgage escrow dollars in 1997 is 2.83%.
Regulations of the WDFI-Administrator also limit the amount which
First Northern may lend up to specific percentages of the value of the real
property securing the loan (referred to as "loan-to-value" ratios), as
determined by an appraisal at the time the loan is originated. A loan secured
by a first lien mortgage may not exceed 90% of the appraised value of the
real estate security unless, among other things, the portion exceeding that
percentage is insured or guaranteed by a mortgage insurance company against
losses resulting from borrower default or the loan is guaranteed by a federal
or state agency. First Northern's policy is to not make loans in excess of
80% of the lower of the appraised value or the purchase price unless the excess
is insured by private mortgage insurance or the loan is guaranteed by a federal
or state agency. Real estate loans secured by other than a first lien must
also conform generally to First Northern's policy of limiting loans to 80% of
value. All mortgage loan applications are reviewed by First Northern's
corporate underwriting staff to ensure compliance with its uniform loan
underwriting guidelines. The federal agencies regulating First Northern have
also established real estate lending standards, that, among other things,
create loan-to-value ratios for various real estate loan categories. First
Northern's current underwriting standards, as stated above, conform with these
real estate lending standards.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of First Northern's loan portfolio (excluding loans held for sale)
by type of security at the dates indicated. The table does not reflect loans
sold and serviced for others. First Northern continues to service these loans.
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
----------------- ---------------- ---------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
One to four family
residential $376,189 66.72% $352,449 69.08% $350,291 69.54% $304,891 70.14% $306,139 73.84%
Five or more family
residential 20,154 3.57 17,591 3.45 18,478 3.67 20,162 4.64 18,895 4.56
Commercial real estate 9,975 1.77 10,028 1.97 9,501 1.89 10,280 2.37 9,801 2.36
Construction-residential 16,306 2.89 10,782 2.11 6,916 1.38 10,443 2.40 4,125 0.99
Construction-commercial 1,701 0.30 1,225 0.24 1,533 0.30 1,044 0.24 204 0.05
Other 1,900 0.34 1,788 0.35 1,533 0.30 1,044 0.24 1,165 0.28
-------- ------ -------- ------ -------- ----- -------- ------ -------- ------
Total mortgage loans 426,225 75.59 393,863 77.20 388,252 77.08 347,864 80.03 340,329 82.08
Consumer loans:
Consumer 18,179 3.22 20,307 3.98 21,756 4.32 22,241 5.12 21,539 5.20
Second mortgage 59,148 10.49 46,528 9.12 29,454 5.85 22,853 5.26 19,950 4.81
Automobile 60,339 10.70 49,504 9.70 53,527 10.63 33,102 7.62 25,661 6.19
Education - - 10,677 2.12 8,583 1.97 7,127 1.72
--------- ------ --------- ------ -------- ----- -------- ------ -------- ------
Total consumer loans 137,666 24.41 116,339 22.80 115,414 22.92 86,779 19.97 74,277 17.92
--------- ------ --------- ------ -------- ----- -------- ------ -------- ------
Gross total loans 563,891 100.00% 510,202 100.00% 503,666 100.00% 434,643 100.00% 414,606 100.00%
====== ====== ====== ====== ======
Less:
Undisbursed loan proceeds 5,942 6,071 3,146 7,056 6,361
Allowance for losses 2,937 2,608 2,400 2,306 1,856
Unearned loan fees 1,017 988 1,059 1,047 1,217
-------- -------- -------- -------- ---------
Net loans receivable $553,995 $500,535 $497,061 $424,234 $405,172
======== ======== ======== ======== ========
CONTRACTUAL MATURITIES OF LOANS. The following table presents information as
of December 31,1996 regarding loan maturities and contractual principal
repayments by categories of loans during the periods indicated. Loans with
adjustable interest rates are shown as maturing in the year of their
contractual maturity.
PRINCIPAL REPAYMENTS CONTRACTUALLY DUE IN YEAR(S) ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
2000- 2002- 2006- AFTER
1997 1998 1999 2001 2005 2010 2010 TOTAL
--------- -------- -------- -------- -------- -------- -------- --------
(In Thousands)
Loans:
Mortgage $ 2,641 $ 1,693 $ 4,406 $10,944 $44,158 $ 94,341 $250,036 $408,218
Mortgage
construction (1) 2,660 1,051 99 302 903 12,992 18,007
Consumer loans 21,864 20,943 19,280 30,380 37,005 8,104 90 137,666
------- ------- -------- -------- -------- -------- ------- --------
Total $27,165 $23,687 $23,785 $41,324 $81,464 $103,347 $263,118 $563,891
======== ======== ======== ======== ======== ======== ========= =========
- - -------------
(1) First Northern's mortgage construction loans are originated for either the
construction phase or the combined construction and full amortization
term of the loan.
Of the $536.7 million of loans contractually due after December 31,
1997, approximately $105.3 million have fixed interest rates and approximately
$431.4 million have adjustable interest rates.
Contractual maturities of loans do not reflect the actual life of the
loan portfolio. The average life of mortgage loans is substantially less
than their contractual terms because of loan prepayments. The average life
of mortgage loans tends to increase, however, when current mortgage market
interest rates exceed interest rates on existing mortgages and decrease when
mortgage interest rates decline.
MORTGAGE AND CONSUMER LOANS. The following table sets forth activity (for
First Northern's investment and held for sale loan portfolios) for the periods
indicated.
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- ---------
(In Thousands)
Mortgage loans originated
and purchased:
Construction $ 26,596 $ 17,316 $18,706 $ 17,659 $ 16,117
Loans on existing property 49,017 37,491 51,652 39,340 43,834
Refinancing (1) 24,928 10,802 21,703 67,193 63,101
Other 2,668 2,560 1,316 3,574 839
--------- -------- ------- -------- --------
Total mortgage loans originated
and purchased 103,209 68,169 93,377 127,766 123,891
Consumer loans originated
and purchased:
Consumer 15,292 8,773 11,150 9,144 15,231
Second mortgage 24,871 30,474 25,340 22,385 14,830
Automobile 45,722 26,109 39,842 23,713 24,465
Education 2,382 2,895 3,290 2,325 1,710
--------- -------- ------- -------- --------
Total consumer loans originated
and purchased 88,267 68,251 79,622 57,567 56,236
--------- -------- ------- -------- --------
Mortgage loans sold (11,065) (11,583) (18,174) (68,576) (57,621)
Education loans sold (3,187) (10,489)
Loan repayments
and other credits (123,535) (107,812) (85,802) (96,720) (131,648)
--------- -------- ------- -------- --------
Net increase(decrease) $ 53,689 $ 6,536 $69,023 $ 20,037 $ (9,142)
========== ========== ======= ======== =========
- - -----------------------
(1) Refinancing mortgage loans are stated as net new dollars. Net new
dollars are the additional dollars that were disbursed above an
existing loan balance for the same borrower and property. Gross
refinanced dollars for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, were $10.6 million, $15.1 million, $33.1 million,
$127.1 million, and $102.8 million, respectively.
First Northern is permitted to make secured and unsecured
consumer loans including automobile, recreational vehicle, marine and other
consumer loans, home equity, property improvement, manufactured housing,
education and deposit account loans. At December 31, 1996, consumer loans
represented 24.4% of total loans.
LOAN FEE INCOME. A borrower on a one- to four-family owner-occupied residence
may be charged a loan origination fee of up to 1 1/2% of the loan amount, with
the actual amount being dependent upon, among other things, market conditions
at the time of origination. These fees are in addition to appraisal and other
fees paid by the borrower to First Northern at the time of application. Loan
origination and commitment fees and certain direct loan origination costs
are being deferred and the net amounts amortized as an adjustment to the
related loan's yield. First Northern is amortizing these amounts using the
level-yield method, adjusted for prepayments, over the contractual life of the
related loans.
USURY LIMITATION AND INTEREST RATE ADJUSTMENT PROVISIONS. On November 1, 1981,
Wisconsin enacted a comprehensive revision to its usury statutes. This
legislation deregulated interest rates on mortgage loans. With respect to
any loan secured by a real estate mortgage and made, refinanced, renewed,
extended or modified after that date, maximum interest rates were eliminated.
Consumer loans of $25,000 or less are generally subject to the Wisconsin
Consumer Act which establishes disclosure requirements for interest rates and
finance charges and, for transactions entered into before November 1, 1984,
limits the maximum finance charges are limited to a maximum annual percentage
rate of the greater of 18% per annum or 6% over the average monthly auction
rate for 6 month Treasury bills.
Mortgage lenders have historically had authority under Wisconsin law to
include interest adjustment clauses in loan contracts. Before June 12, 1976,
the only limit on interest adjustment increases was the general usury ceiling.
However, as of that date, Wisconsin law began to distinguish between two kinds
of interest adjustment clauses in connection with loans on owner-occupied
one- to four- family residential property: (1) those that tie interest
adjustments to fluctuations in an approved index ("indexed" interest adjustment
provisions); and (2) those that do not ("unindexed" interest adjustment
provisions). Subject to certain statutory restrictions, interest adjustments
under an unindexed interest adjustment provision are solely at the option of
the lender.
Under Wisconsin law, unindexed adjustable rate provisions contained in
first lien mortgage loans made on one- to four-family owner occupied
dwellings may: (1) permit rate increases to be made as often as once every 6
months, upon 30 days' written notice, and in increments of up to 1% each; and
(2) enable a lender that has waived a permitted interest rate increase to
subsequently increase the interest rate to the level that would have been in
effect had the opportunity for an increase not been waived.
Mortgages that are subject to indexed interest adjustment provisions are
treated in substantially the same way under Wisconsin law. However, instead
of increases or decreases occurring solely at the discretion of the lender,
rates may be increased, and must be decreased, in accordance with changes
in the approved index. Unlike its unindexed adjustable rate counterpart,
adjustments made under an indexed adjustable rate provision governed by the
1981 law may be made at intervals more frequent than 6 months.
Borrowers may prepay their loan without penalty during the 30 days
following notice of a rate increase, or at any time after 5 years from the
date of the loan.
First Northern has used both an unindexed and an indexed adjustable
interest rate mortgage. With both types of adjustable rate forms, First
Northern has generally fixed the interest rate for the first one, two, three
or five years of the loan term. The unindexed adjustable interest rate loans
also provide for a maximum interest rate adjustment of 1% during each 12 month
period thereafter. The indexed adjustable rate loan provides for a
maximum interest rate adjustment of the lesser of the index or 1% to 2%
depending on origination date of the loan, during each 12 month period. Since
February 1985, First Northern has originated mortgage loans using contracts
which contain interest rate adjustment clauses allowing a lifetime interest
rate adjustment of between 5% and 8% over the original contract interest
rate on all residential mortgage loans.
Loans made for a business purpose, when secured by commercial real
estate, or made to a corporate borrower and originated, renewed or refinanced
on or after November 1, 1981, are not subject to any interest rate or
contract provision limitations. The terms of such loans are dependent on
market conditions and negotiation between lenders and borrowers.
First Northern has been able to exercise its escalation rights under
the interest rate escalation clauses on its mortgage loan portfolio. The
use of the escalation clause gives First Northern greater control over its
income due to its ability to increase interest yields on its mortgage
portfolio. See "Loan Interest Rates and Terms" above.
CLASSIFIED ASSETS AND DELINQUENCIES. When a mortgage borrower fails to
make a required payment on a loan, First Northern attempts to have the
deficiency cured by contacting the borrower. Contacts are made after a
payment is more than 30 days past due and, in most cases,
deficiencies are cured promptly. If the delinquency exceeds 90 days and
is not cured through First Northern's normal collection procedures, First
Northern will institute measures to remedy the default, including
commencing a foreclosure action or accepting a voluntary deed of the
secured property in lieu of foreclosure from the mortgagor. If a
foreclosure action is instituted and the loan is not reinstated, paid in
full, or refinanced, the property is sold at a judicial sale at which,
in most instances, First Northern is the buyer. First Northern is
permitted to finance sales of foreclosed properties by "loans to facilitate,"
which may involve terms more favorable than generally would be granted under
First Northern's underwriting guidelines. As of December 31, 1996, 1995, 1994,
1993 and 1992 these loans amounted to $442,465, $546,071, $591,000, $655,000
and $743,000, respectively.
Under Wisconsin law, a mortgagor is afforded a period of time, subsequent
to the entry of judgment and prior to judicial sale, within which to redeem
the equity in the property ("equity right of redemption"). The length of the
equity right of redemption varies depending on the form of foreclosure
proceedings selected by the lender, the type and condition of the real estate
security and other factors. The majority of First Northern's residential
foreclosures follow a form which provides a 6 month equity right of redemption
and a waiver of any deficiency judgment against the borrower. Use of this
process takes approximately 8-12 months from commencement of the action to
judicial confirmation of the sale.
The OTS has established a required classification system for all assets.
Under the regulation, all assets are classified as "standard," "substandard,"
"doubtful," or "loss." Assets classified as loss are required to be
charged-off. Assets classified as doubtful or substandard do not require a
write-off of the amounts so classified but may necessitate additions to the
general allowances for losses. An institution's determination as to the
classification of its assets and the amount of valuation allowances are
subject to review by the District Director of the OTS or the FDIC, who could
order the establishment of additional loan loss allowances.
The following table identifies the dollar amount of loans that are
classified as substandard, doubtful or loss as of the dates indicated.
AS OF DECEMBER 31
------------------------------------------
1996 1995 1994
------ ------ -------
(In Thousands)
Substandard $905 $518 $624
Doubtful 21 13 37
Loss 9 6
----- ----- -----
Total Classified Assets $935 $531 $667
===== ===== =====
9
The increase in the amount of substandard assets in 1996 was the result of
an increase in overall delinquencies. The 1995 level of Total Classified Assets
was at an historically low level.
ALLOWANCES FOR LOSSES. Allowances for losses on loans, real estate, and
repossessed assets are based on Management's evaluation of various factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loss experience, estimated sales price, regulatory
environment and holding and selling costs.
While First Northern has a low level of non-performing assets and low
historical charge-off experience, the inherent credit risk within the
portfolio (primarily relating to the automobile loan portfolio) has increased.
It is this increase which primarily resulted in the increase in the loan loss
allowance.
At December 31, 1992, First Northern's automobile loan portfolio was
$25.7 million as compared to $60.3 million at December 31, 1996. This
increase of $34.6 million represents a 134.6% growth in the automobile loan
portfolio while the allowance for all losses increased from $1.9 million to
$2.9 million or an increase of 52.6%.
Management believes that the allowances for losses on loans, real estate,
and repossessed assets 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 or regulatory requirements.
All of First Northern's loans are domestic. A summary of the allowance
for losses is shown below.
FOR THE YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Mortgage loans:
Balance, beginning of year $1,578 $1,499 $1,426 $1,151 $1,130
Provisions, charged to provision
for loan losses 10 79 292 197
Charge-offs:
1 to 4 family residential (20) (44) (176)
Recoveries:
1 to 4 family residential 24 7
Commercial real estate 1 20
Transfer of loss reserve (136)
Adjustment to conform pooled
companies' fiscal year ends 69
------ ------- ------ ------
Balance, end of year $1,453 $1,578 $1,499 $1,426 $1,151
====== ======= ====== ======= =======
Consumer loans:
Balance, beginning of year $1,030 $ 901 $ 880 $ 705 $ 407
Provisions, charged to provision
for loan losses 360 161 145 247 341
Charge-offs:
Consumer (23) (30) (59) (46) (52)
Automobile (43) (41) (68) (35) (2)
Recoveries:
Consumer 11 21 5 6 11
Automobile 13 18 16 3
Transfer of loss reserve 136
Adjustment to conform pooled
companies' fiscal year ends (18)
------- ------- ------ ------ ------
Balance, end of year $1,484 $1,030 $ 901 $ 880 $ 705
====== ======= ====== ======= =======
Foreclosed properties &
repossessed assets:
Balance, beginning of year $ 1 $ 1 $ 1 $ 67 $ 54
Provisions, charged to
non-interest expense 13 13 32
Charge-offs:
1 to 4 family residential (14) (79) (19)
------ ------- ------ ------- -------
Balance, end of year $ - $ 1 $ 1 $ 1 $ 67
====== ======= ====== ======= =======
Total charge-offs
to average loans outstanding 0.01% 0.01% 0.02% 0.04% 0.06%
==== ==== ==== ==== ====
Net charge-offs to average
loans outstanding 0.01% 0.01% 0.02% 0.02% 0.05%
==== ==== ==== ==== ====
Interest income on loans is accrued and credited to operations based on
the principal amount outstanding. The accrual of interest income is generally
discontinued when a loan becomes 90 days past due as to principal or interest
and/or when, in the opinion of management, full collection is unlikely. When
interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged
to the allowance for loan losses. Management may elect to continue the accrual
of interest when the loan is in the process of collection and the value of
collateral is sufficient to cover the principal balance and accrued interest.
Interest received on non-accrual loans generally is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal. Generally, loans are restored to accrual
status when the obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
The following tables show the Company's total allowance for loan losses
and the allocation to the various categories of loans held for investment at
the dates indicated.
AT DECEMBER 31, 1996
--------------------------------------
% OF
LOANS IN
ALLOWANCE CATEGORY
AS A % OF TO TOTAL
LOANS IN OUTSTANDING
AMOUNT CATEGORY(1) LOANS(1)
-------- ------------- -------------
(DOLLARS IN THOUSANDS)
Breakdown of allowance
Mortgage loans:
One- to four-family residential $1,180 0.31% 66.72%
Five or more family residential 121 0.60 3.57
Commercial real estate 114 1.14 1.77
Construction 3.19
Other 18 0.95 0.34
Classified mortgage loans 20 3.00
------ ------ ------
Total mortgage loans 1,453 0.34 75.59
Consumer loans:
Consumer 83 0.46 3.22
Second mortgage 211 0.36 10.49
Automobile 1,172 1.94 10.70
Education
Classified consumer loans 18 2.00
------ ------ ------
Total consumer loans 1,484 1.08 24.41
------ ------ ------
Total allowance for loans $2,937 0.52% 100.00%
====== ==== ======
- - ------------------------
(1) Percentages are calculated on gross loan balances.
AT DECEMBER 31, 1995
-------------------------------------
% OF
LOANS IN
ALLOWANCE CATEGORY
AS A % OF TO TOTAL
LOANS IN OUTSTANDING
AMOUNT CATEGORY(1) LOANS(1)
-------- ------------ -------------
(DOLLARS IN THOUSANDS)
Breakdown of allowance
Mortgage loans:
One- to four-family residential $1,359 0.39% 69.08%
Five or more family residential 98 0.56 3.45
Commercial real estate 97 0.97 1.97
Construction 2.35
Other 16 0.89 0.35
Classified mortgage loans 8 2.05
------ ----- -------
Total mortgage loans 1,578 0.40 77.20
Consumer loans:
Consumer 79 0.39 3.98
Second mortgage 137 0.29 9.12
Automobile 811 1.64 9.70
Education
Classified consumer loans 3 2.00
------ ----- -------
Total consumer loans 1,030 0.89 22.80
------ ----- -------
Total allowance for loans $2,608 0.51% 100.00%
====== ==== =======
- - -----------------------
(1) Percentages are calculated on gross loan balances.
At December 31, 1994
-------------------------------------
% of
Loans in
Allowance Category
as a % of to Total
Loans in Outstanding
Amount Category(1) Loans(1)
-------- ------------ -------------
(Dollars in Thousands)
Breakdown of allowance
Mortgage loans:
One- to four-family residential $1,295 0.37% 69.54%
Five or more family residential 85 0.46 3.67
Commercial real estate 92 0.97 1.89
Construction 1.68
Other 13 0.85 0.30
Classified mortgage loans 14 2.05
------ ------ ------
Total mortgage loans 1,499 0.39 77.08
Consumer loans:
Consumer 84 0.39 4.32
Second mortgage 93 0.32 5.85
Automobile 720 1.34 10.63
Education 2.12
Classified consumer loans 4 2.00
------ ------ ------
Total consumer loans 901 0.78 22.92
------ ------ ------
Total allowance for loans $2,400 0.48% 100.00%
====== ===== =======
- - -----------------------
(1) Percentages are calculated on gross loan balances.
At December 31, 1993
------------------------------------
% of
Loans in
Allowance Category
as a % of to Total
Loans in Outstanding
Amount Category(1) Loans(1)
-------- ------------ ------------
(Dollars in Thousands)
Breakdown of allowance
Mortgage loans:
One- to four-family residential $1,242 0.41% 70.14%
Five or more family residential 74 0.37 4.64
Commercial real estate 82 0.80 2.37
Construction 2.64
Other 11 1.05 0.24
Classified mortgage loans 17 2.05
------ ------ ------
Total mortgage loans 1,426 0.41 80.03
Consumer loans:
Consumer 172 0.77 5.12
Second mortgage 154 0.67 5.26
Automobile 550 1.66 7.62
Education 1.97
Classified consumer loans 4 2.00
------ ------ ------
Total consumer loans 880 1.01 19.97
------ ------ ------
Total allowance for loans $2,306 0.53% 100.00%
====== ===== ======
- - ------------------------
(1) Percentages are calculated on gross loan balances.
AT DECEMBER 31, 1992
----------------------------------
% OF
LOANS IN
ALLOWANCE CATEGORY
AS A % OF TO TOTAL
LOANS IN OUTSTANDING
AMOUNT CATEGORY(1) LOANS(1)
-------- ----------- -----------
(Dollars in Thousands)
Breakdown of allowance
Mortgage loans:
One- to four-family residential $960 0.31% 73.84%
Five or more family residential 79 0.42 4.56
Commercial real estate 74 0.76 2.36
Construction 1.04
Other 12 1.03 0.28
Other 26 2.00
------ ------ ------
Total mortgage loans 1,151 0.34 82.08
Consumer loans:
Consumer 183 0.85 5.20
Second mortgage 145 0.73 4.81
Automobile 372 1.45 6.19
Education 1.72
Classified consumer loans 5 2.00
------ ------ ------
Total consumer loans 705 0.95 17.92
------ ------ ------
Total allowance for loans $1,856 0.45% 100.00%
====== ===== =======
- - -----------------------
(1) Percentages are calculated on gross loan balances.
All of First Northern's loans are domestic. The following table is a
summary of non-performing loans and assets.
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
Non-accrual mortgage loans
(90 days or more past due) $509 $266 $407 $668 $ 597
Non-accrual consumer loans 235 152 139 140 121
---- ---- ---- ---- ------
Total non-performing loans 744 418 546 808 718
Foreclosed properties, properties
subject to foreclosure and
repossessed assets 189 136 120 44 473
---- ---- ---- ---- ------
Total non-performing assets $933 $544 $666 $852 $1,191
==== ==== ==== ==== ======
Non-performing loans as a
percentage of total loans .13% .08% .11% .19% .18%
=== === === === ===
Non-performing assets as a
percentage of total assets .15% .10% .12% .17% .24%
=== === === === ===
Loan loss allowances as
a percentage of non-
performing loans 394.76% 623.92% 439.56% 285.40% 267.83%
====== ====== ====== ====== ======
Loan loss allowances as
a percentage of non-
performing assets 314.79% 470.76% 360.36% 270.77% 161.46%
====== ====== ====== ====== ======
Interest income that would
be recognized if non-accrual
loans had been current (1) $25 $12 $19 $36 $31
=== === === === ===
- - ------------------
(1) No accrued interest income was included in net income in 1996, 1995,
1994, 1993 and 1992 from loans classified as non-accrual.
INVESTMENT AND MORTGAGE-RELATED ACTIVITIES. First Northern is authorized to
invest in obligations issued or fully guaranteed by the United States,
certain federal agency obligations, certain time deposits, negotiable
certificates of deposit issued by commercial banks, mortgage-backed
and mortgage-related securities, collateralized mortgage obligations,
investment grade corporate notes and other specified investments.
The following table sets forth the composition of First Northern's
investment and mortgage-related securities portfolio at December 31, 1996,
1995 and 1994.
INVESTMENT AND MORTGAGE-RELATED SECURITIES PORTFOLIO COMPOSITION
AT DECEMBER 31
---------------------------------------------------------------------
1996 1995 1994
---------------------- ----------------------- -------------------
PERCENT PERCENT PERCENT
CARRYING OF CARRYING OF CARRYING OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
---------- ---------- ----------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
Interest-earning deposits $ 1,598 4.57% $ 82 .28% $652 2.33%
Other interest-earning deposits 200 0.72
Securities available-for-sale:
U. S. government securities 2,517 7.20 1,018 3.58 1,986 7.11
Federal agency obligations 1,985 5.67 1,004 3.53
Mortgage-related securities 1,837 5.25 2,013 7.07 1,898 6.80
Asset Management Fund 471 1.35 455 1.60 408 1.46
FHLMC stock 662 1.89 501 1.76 569 2.04
------- ------ ------- ------ ------ ------
Total securities available-for-sale 7,472 21.36 4,991 17.54 4,861 17.41
Securities held-to-maturity:
U.S. Government securities 3,004 8.59 10,073 35.39 9,934 35.58
Federal agency obligations 13,579 38.82 9,291 32.65 8,762 31.38
Mortgage-related securities 9,325 26.66 4,024 14.14 3,514 12.58
------- ------ ------- ------ ------ ------
Total securities held-to-maturity 25,908 74.07 23,388 82.18 22,210 79.54
------- ------ ------- ------ ------ ------
Total $34,978 100.00% $28,461 100.00% $27,293 100.00%
======= ====== ======= ======= ======= =======
Average remaining life or term
to repricing for interest-earning
deposits, other interest-earning
deposits, securities
available-for-sale and
investment securities (1) 12 months 14 months 15 months
- - ---------------------------
(1) For purposes of calculating the remaining life or term, securities
available-for-sale are assumed to have a zero term.
See Notes B and C of the Notes to Consolidated Financial Statements
incorporated by reference in Item 8 hereof.
The following table sets forth the maturity ranges for investment
and mortgage-related securities, with their respective weighted average
yields and the total market value.
DECEMBER 31, 1996
-----------------------------------------------------------------------------------------------------------
INVESTMENT AND
OVER ONE OVER FIVE MORTGAGE-RELATED
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS OVER TEN YEARS SECURITIES TOTAL
------------------- ------------------ ------------------ ------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED APPROX. WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED MARKET AVERAGE
COST YIELD COST YIELD COST YIELD COST YIELD COST VALUE YIELD
---------- -------- -------- -------- --------- ------- --------- --------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
Available-for-Sale:
Investment and
Mortgage-related
Securities
U.S. government
obligations $1,000 6.90% $1,495 6.48% $2,495 $2,517 6.65%
Federal agency
obligations 2,000 5.83 2,000 1,985 5.83
Mortgage-related
securities $1,828 7.18% 1,828 1,837 7.18
Asset Management
Fund 476 5.87 476 471 5.87
FHLMC stock 33 25.54 33 662 25.54
------ ------ ------ ----- ------- ------- ------- ----- ------ ------ -----
Total investment
and mortgage-
related
securities $1,033 7.50% $3,971 6.08% $ - - $1,828 7.18% $6,832 $7,472 6.59%
====== ==== ====== ==== ======== ======= ======= ====== ====== ====== =====
Held-to-Maturity:
Investment and
Mortgage-related
Securities
U.S. government
obligations $2,006 5.90% $ 998 7.48% $3,004 $3,028 6.42%
Federal agency
obligations 2,793 5.84 10,786 6.03 13,579 13,606 5.99
Mortgage-related
securities $3,878 5.73% $5,447 6.70% 9,325 9,246 6.30
------ ------ ------ ----- -------- ------- ------ ---- ------ ------ -----
Total investment
and mortgage-
related
securities $4,799 5.86% $11,784 6.16% $3,878 5.73% $5,447 6.70% $25,908 $25,880 6.15%
====== ===== ======= ==== ====== ==== ====== ==== ======= ======= =====
The following table sets forth the composition of First Northern's
mortgage-related securities portfolio at December 31, 1996, 1995 and 1994.
MORTGAGE-RELATED PORTFOLIO COMPOSITION
AT DECEMBER 31
----------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
Federal Home Loan Mortgage Corporation $5,595 $3,019 $2,343
Government National Mortgage Association 25
Federal National Mortgage Association 3,730 998 998
Other 7 148
------- ------ ------
Total mortgage-related securities $9,325 $4,024 $3,514
======= ====== ======
Average remaining contractual life or term to
repricing for mortgage-related securities 157 months 203 months 228 months
DEPOSIT ACTIVITIES. First Northern has a number of different programs designed
to attract both short-term and long-term deposits from the general public.
These programs include regular passbook accounts, NOW checking accounts, money
market deposit accounts, fixed rate and variable rate certificate accounts and
negotiated rate certificates, as well as certain other accounts. Included
among those programs are individual retirement accounts ("IRAs") and
self-employed pension plan ("SEPP") accounts.
The specific programs offered by First Northern have changed over time
as new types of accounts and minimum denomination requirements have been
authorized. Currently there are no statutory or regulatory required minimum
denominations or interest rate ceilings on any deposit accounts. First
Northern presently offers deposit accounts with minimum balance requirements
and interest rates as follows:
MINIMUM INTEREST
TYPE OR TERM BALANCE RATE
NOW Checking Accounts(1) Varies Rate Set Weekly
Regular Deposit Accounts(2) $100 Rate Set Weekly
Money Market Accounts $2,500 Rate Set Weekly
Jumbo Certificates $100,000 Rate Set Weekly
91 day Certificates $500 Rate Set Weekly
6 Month Certificates $500 Rate Set Weekly
8 Month Certificates $500 Rate Set Weekly
9 Month Certificates $500 Rate Set Weekly
10 Month Certificates $500 Rate Set Weekly
12 Month Certificates $500 Rate Set Weekly
14 Month Certificates $500 Rate Set Weekly
15 Month Certificates $500 Rate Set Weekly
16 Month Certificates $500 Rate Set Weekly
24 Month Certificates $500 Rate Set Weekly
26 Month Certificates $500 Rate Set Weekly
30 Month Certificates $500 Rate Set Weekly
36 Month Certificates $500 Rate Set Weekly
48 Month Certificates $500 Rate Set Weekly
60 Month Certificates $500 Rate Set Weekly
18 month IRA and SEPP Variable Certificates $100 Rate Set Monthly
- - ------------------
(1) Some of the NOW Checking Accounts offered by First Northern do not bear
interest.
(2) As a practical matter, although subject to First Northern's right to
impose a prior notice requirement, deposits may be invested in and
withdrawn from passbook accounts without restriction. Interest is
computed daily from the date of deposit to the date of withdrawal
and credited quarterly at a rate established by the Investment Committee
of management within regulatory limits.
The following tables set forth the distribution of the Company's
deposit accounts at the dates indicated and the weighted average effective
interest rates on each category of deposits presented.
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
WEIGHTED
PERCENT AVERAGE
AVERAGE OF TOTAL EFFECTIVE
BALANCE DEPOSITS RATE
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
CORE DEPOSITS:
Non-interest bearing $ 16,646 3.67%
Interest bearing 36,655 8.08 1.03%
Money market 49,037 10.81 2.24
Passbook 58,744 12.96 2.24
--------- ------- -----
Total core deposits 161,082 35.52 2.30
Certificate of deposit accounts 292,477 64.48 5.66
--------- ------- -----
Total deposits $453,559 100.00% 4.46%
========= ======= =====
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
WEIGHTED
PERCENT AVERAGE
AVERAGE OF TOTAL EFFECTIVE
BALANCE DEPOSITS RATE
--------- ------------- -----------
(DOLLARS IN THOUSANDS)
CORE DEPOSIT:
Non-interest bearing $ 13,765 3.14%
Interest bearing 36,049 8.23 1.40%
Money market 35,420 8.09 3.89
Passbook 60,367 13.79 2.48
-------- ------- ----
Total core deposits 145,601 33.25 2.32
Certificate of deposit accounts 292,248 66.75 5.54
-------- ------- ----
Total deposits $437,849 100.00% 4.47%
========= ======= ====
FOR THE YEAR ENDED DECEMBER 31, 1994
-------------------------------------------
WEIGHTED
PERCENT AVERAGE
AVERAGE OF TOTAL EFFECTIVE
BALANCE DEPOSITS RATE
--------- ---------- -----------
(DOLLARS IN THOUSANDS)
CORE DEPOSITS:
Non-interest bearing $ 11,995 2.86%
Interest bearing 38,457 9.16 1.65%
Money market 29,284 6.98 2.58
Passbook 69,070 16.46 2.51
-------- ------ -----
Total core deposits 148,806 35.46 2.10
Certificate of deposit accounts 270,880 64.54 4.67
-------- ------ -----
Total deposits $419,686 100.00% 3.76%
======== ====== =====
See Note F of the Notes to Consolidated Financial Statements of
First Northern, incorporated by reference in Item 8 hereof, for the
amount by interest rate categories, at December 31, 1996 and 1995, and for
the scheduled maturity dates of certificate accounts.
BORROWED FUNDS. First Northern has a line of credit with the FHLB of Chicago
and has borrowed from the FHLB on an overnight and fixed interest rate basis
to assist with funding loan originations.
From time to time, First Northern borrows funds under repurchase
agreements. First Northern accepts funds from municipalities and school
districts. When the amounts of such funds are in excess of FDIC insurance
limits, First Northern collateralizes its obligation to repay such parties
through repurchase agreements. Repurchase agreements are used to lock-in a
profit spread to First Northern. Furthermore, because the repurchase
agreements from municipalities and school districts are not considered
deposits, First Northern does not pay premiums to the FDIC on such amounts.
At December 31, 1996, First Northern had $1.5 million of borrowings under
repurchase agreements. The weighted average rate of the repurchase
agreements as of December 31, 1996 and 1995 was 5.59% and 5.65%, respectively.
See Note G of the Notes to Consolidated Financial Statements incorporated by
reference in Item 8 hereof.
The following table sets forth certain information regarding short-term
borrowings by First Northern at the end of and during the periods indicated:
YEAR ENDED DECEMBER 31
------------------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
Balance outstanding at end of year:
Securities sold under agreement
to repurchase $1,500 $ 1,000 $ 2,900
Fixed interest rate notes
payable to FHLB 58,150 20,000 2,000
Overnight borrowings from FHLB 17,255 38,000
Other borrowings 367
Weighted average interest rate at
end of year:
Securities sold under agreements
to repurchase 5.59% 5.65% 6.66%
Fixed interest rate notes
payable to FHLB 5.73% 6.03% 4.80%
Overnight borrowings from FHLB 5.66% 6.35%
Other borrowings 5.21%
Maximum amount outstanding
during the year:
Securities sold under agreements
to repurchase $1,500 $ 2,900 $ 2,900
Fixed interest rate notes
payable to FHLB 58,150 25,000 2,000
Overnight borrowings from FHLB 29,360 42,050 39,725
Other borrowings 1,044 181
Average amount outstanding during
the year:
Securities sold under agreements
to repurchase $1,030 $ 2,543 $ 1,158
Fixed interest rate notes
payable to FHLB 35,957 18,957 2,000
Overnight borrowings from FHLB 11,264 12,181 14,014
Other borrowings 142 171
Weighted average interest rate
during the year:
Securities sold under agreements
to repurchase 5.69% 6.62% 3.85%
Fixed interest rate notes
payable to FHLB 5.82% 7.19% 4.52%
Overnight borrowings from FHLB 5.68% 6.19% 5.30%
Other borrowings 5.18% 7.09%
Borrowings increased to $77.3 million at December 31, 1996, as compared
to $21.0 million at December 31, 1995, primarily as a result of the growth in
interest-earning asset. See Management s Discussion and Analysis of Financial
Condition and Results of Operations, incorporated by reference in Item 7 hereof.
YIELDS EARNED AND RATES PAID. First Northern's net earnings depend primarily
upon the spread between the income it receives from its loan and investment
portfolios and its cost of money, consisting of interest paid on deposit
accounts and borrowings.
The following table sets forth First Northern's weighted average
yields earned on mortgage loans, consumer loans, and investment and
mortgage-related securities; the weighted average interest rates paid on
deposits and borrowings; and the spread between yields earned and rates paid
at the dates indicated. Since the majority of First Northern's deposit
accounts are market rate accounts, the cost of deposits will likely continue
to be subject to interest rate fluctuations.
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Weighted average rate of return
at end of year:
Mortgage loans 7.22% 7.06% 6.69% 6.99% 8.35%
Consumer loans 8.56 8.66 8.18 8.36 9.13
Mortgage and consumer loans 7.55 7.44 7.03 7.26 8.49
Investment securities 6.14 6.33 6.44 5.16 5.18
Mortgage-related securities 6.44 7.02 7.12 8.21 8.71
Total loan portfolio,
investment securities, and
mortgage-related securities 7.46 7.39 7.01 7.10 8.13
Weighted average rate paid at
the end of year:
Deposits 4.42 4.56 4.03 3.78 4.55
Federal Home Loan Bank and
other borrowings 5.71 6.02 6.24 3.98 4.71
Total deposits and Federal
Home Loan Bank and other
borrowings 4.60 4.63 4.23 3.78 4.55
Spread at the end of the year 2.86 2.76 2.78 3.32 3.58
The following table shows average yields and rates of return (month-end
averages) during the periods indicated.
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Average yield earned during
the year:
Mortgage loans 7.18% 6.99% 6.91% 7.90% 9.16%
Consumer loans 8.50 8.44 7.93 8.82 9.76
Investment securities 6.23 6.47 6.13 5.21 5.69
Mortgage-related securities 6.50 7.06 6.91 8.09 8.66
All interest-earning assets 7.42 7.28 7.08 7.78 8.86
Average rate paid during
the year:
Deposits 4.43 4.42 3.73 4.14 5.28
Borrowings 5.78 6.79 5.14 4.16 5.62
All interest-bearing liabilities 4.56 4.59 3.79 4.14 5.29
Average interest rate
spread (1) 2.86 2.69 3.29 3.64 3.57
Net yield on average interest-
earning assets (2) 3.31 3.17 3.71 4.09 4.06
Net yield on total interest-
earning assets (3) 3.14 3.17 3.51 4.06 4.08
- - -----------------
(1) Average yield on all interest-earning assets during the period less
average rate paid on all interest-bearing liabilities.
(2) Net interest earned divided by average interest-earning assets.
(3) Net interest earned divided by total interest-earning assets.
AVERAGE BALANCE SHEET AND RATE/YIELD ANALYSIS. See Management's
Discussion and Analysis of Financial Condition and Results of Operations
incorporated by reference in Item 7 hereof.
AVERAGE EQUITY TO AVERAGE ASSETS. The ratio of average equity to average
assets measures a Financial institution's financial strength. At December
31, 1996, savings and loan associations in Wisconsin were required to
maintain an average equity to average assets ratio of at least 6.00%.
At December 31, 1996, 1995, 1994, 1993 and 1992 First Northern's average
equity to average assets ratio was 12.14%, 12.99%, 13.25%, 12.86% and 11.21%,
respectively.
CASH DIVIDENDS. The following schedule sets forth the cash dividends paid
per year:
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Cash Dividends Paid Per Share(1) $0.60 $0.56 $0.52 $0.48 $0.40
===== ===== ===== ===== =====
Cash Dividends Payout Ratio 83.3%(2) 56.6% 57.1% 36.1%(3) 32.0%
(dividends declared per share ==== ==== ==== ==== ====
divided by net income
per share - primary)
- - -------------------------
(1) Not restated to reflect the acquisition of Prime Federal.
(2) Cash Dividends Payout Ratio was significantly increased in 1996 as a
result of the SAIF special assessment which significantly reduced net
income per share. Without the SAIF special assessment, the Cash Dividend
Payout Ratio would have been 55.0%.
(3) Net income per share - primary before change in accounting for income
taxes.
SUBSIDIARIES. GNFSC, a wholly-owned subsidiary of the Savings Bank, engages
in the sale of credit life and disability insurance, and offers brokerage
services to the public, including the sale of tax deferred annuities and mutual
funds. First Northern's book value investment in GNFSC as of December 31, 1996
was $473,506.
FNII, a wholly-owned Savings Bank subsidiary, was established September
2, 1994 for the purpose of managing a majority of First Northern's investment
portfolio. FNII managed approximately $24.6 million of investments for First
Northern at December 31, 1996. First Northern's book value investment in FNII
as of December 31, 1996 was $24,744,057.
In March 1992, First Northern acquired a 50% stock interest in SFC from
another financial institution. SFC originates, sells, and services
automobile loans. As a result of this acquisition, SFC will on a regular
basis, sell such loans to First Northern but retain the servicing of the loans.
First Northern purchased $38.0 million of such loans in 1996, $18.7 million
in 1995 and $32.6 million in 1994. First Northern's book value investment in
SFC as of December 31, 1996 was $27,720.
Keystone Financial Services, Inc. ("Keystone"), a wholly-owned subsidiary
of the Savings Bank, also engaged in the sale of credit life and disability
insurance and tax deferred annuities and offered discount brokerage services
for Prime Federal prior to the merger with and into First Northern. After the
merger, First Northern transferred such business to GNFSC. Keystone is
inactive, but will continue to be a wholly-owned subsidiary of the Savings
Bank for possible future use in a related or other area. First Northern's
book value investment in Keystone as of December 31, 1996 was $100.
Another wholly-owned subsidiary of the Savings Bank, First Northern
Financial Services, Inc., operated as a consumer lending subsidiary
through 1981. As a result of legislative changes, First Northern now
directly engages in consumer lending activities. First Northern Financial
Services, Inc. is inactive, but it continues in existence for possible
future use in a related or other area. First Northern's book value
investment in First Northern Financial Services, Inc. as of December 31, 1996
was $100.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposes restrictions on savings associations' powers. It
essentially creates parallel regulation for state and federally chartered
savings associations and prevents state associations, such as the Savings
Bank, from exercising powers not authorized to federal associations or which
the FDIC deems to constitute a serious risk to the safety, soundness or
stability of an insured institution and or the SAIF or to be inconsistent
with sound banking principles. The FDIC has informed First Northern
that the certain activities that GNFSC is performing are permissible for a
federal association but not a national bank. Therefore, First Northern is
required to deduct its investment and loans to GNFSC when calculating its
core, tangible and risked-based capital ratios.
EMPLOYEES. At December 31, 1996, First Northern employed 190 full-time and
48 part-time employees. Management considers its relations with its
employees to be excellent.
REGULATION
GENERAL. The operations of First Northern and the Savings Bank are highly
regulated, both at the federal and state level. First Northern is a
registered non-diversified unitary savings and loan holding company within
the meaning of the Home Owners' Loan Act 1933, as amended. As such,
First Northern is subject to OTS examination and supervision as well as to
certain reporting requirements. Since First Northern controls the Savings
Bank, which is a state chartered institution, it is also subject to
examination, supervision and regulation by the WDFI-Administrator. As a
subsidiary of a savings and loan holding company, the Savings Bank is
subject to certain restrictions in its dealings with First Northern and
with other companies affiliated with First Northern, and is otherwise
subject to extensive supervision and regulation by the OTS (its primary
federal regulator), the WDFI-Administrator (its primary state regulator),
the FDIC (as administrator of the SAIF) and the Federal Reserve Board.
The following summary does not purport to be a complete description of the
applicable laws and regulations which govern First Northern and the Savings
Bank and is qualified in its entirety by reference thereto.
FEDERAL REGULATION OF HOLDING COMPANIES
ACTIVITIES RESTRICTIONS. There generally are no restrictions on the
activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, the OTS
may impose such restrictions as deemed necessary to address such risk
including limiting: (i) payment of dividends by the savings association;
(ii) transactions between the savings association and its affiliates;
and (iii) any activities of the savings association that might create a
serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association.
If First Northern were to acquire control of another savings association
in addition to the Savings Bank, First Northern would thereupon become a
multiple savings and loan holding company. Except where such acquisition is
pursuant to the OTS' authority to approve emergency thrift acquisitions
and where each subsidiary savings association meets the qualified thrift
lender ("QTL") test, the activities of First Northern and any of its
subsidiaries (other than Savings Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. Among other things,
no multiple savings and loan holding company or subsidiary thereof which
is not a savings association may commence or continue beyond a limited period
of time after becoming a multiple savings and loan holding company or
subsidiary thereof, any business activity, upon prior notice to, and no
objection by, the OTS, other than: (i) furnishing or performing management
services for a subsidiary savings association; (ii) conducting an insurance
agency or escrow business; (iii) holding, managing, or liquidating assets
owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary savings institution;
(v) acting as trustee under deeds of trust; (vi) those activities authorized
by regulation as of March 5, 1987 to be engaged in by multiple holding
companies; or (vii) those activities authorized by the Federal Reserve Board
as permissible for bank holding companies, unless the OTS by regulation
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above must also be approved by the OTS
prior to being engaged in by a multiple holding company.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the QTL test, then such
unitary holding company will become subject to the activities restrictions
applicable to multiple holding companies and, unless the savings
association requalifies as a QTL within one year thereafter, shall
register as, and become subject to the restrictions applicable to, a bank
holding company. Generally, the QTL test requires a savings association to
maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" (primarily residential mortgages and related investments,
including mortgage-backed and similar securities) on a monthly basis in nine
out of every 12 months. The Savings Bank has met the QTL test since it first
became applicable in 1987.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior
approval of the OTS: (i) control of any other savings association or
savings and loan holding company or substantially all the assets thereof; or
(ii) more than 5% of the voting shares of a savings association or holding
company thereof which is not a subsidiary. Except with the prior approval
of the OTS, no director or officer of a savings and loan holding company or
person owning or controlling by proxy or otherwise more than 25% of such
company's stock, may also acquire control of any savings association,
other than a subsidiary savings association, or of any other savings and loan
holding company.
The OTS may only approve acquisitions resulting in the formation
of a multiple savings and loan holding company which controls savings
associations in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a
home or branch office in the state of the association to be acquired
as of March 5, 1987; (ii) the acquiror is authorized to acquire control of
the savings association pursuant to the emergency acquisition provisions of
the Federal Deposit Insurance Act; or (iii) the statutes of the state
in which the association to be acquired is located specifically permit
institutions to be acquired by state-chartered associations or savings and
loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institution). Under current Wisconsin law, Wisconsin chartered savings
associations and their holding companies may acquire savings
associations and holding companies whose principal place of business is
located in Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri
or Ohio, provided that reciprocal legislation is adopted in such
states. All but Missouri have adopted reciprocal legislation.
Consequently, savings associations or their holding companies in such
states that have adopted reciprocal legislation may acquire a savings
association or holding company based in Wisconsin.
TRANSACTIONS WITH AFFILIATES. Transactions between savings associations
and any affiliate are governed by Sections 23A and 23B of the Federal
Reserve Act. An affiliate of a savings association is any company or entity
which controls, is controlled by or is under common control with the savings
association. In a holding company context, the parent holding company of
a savings association (such as First Northern) and any companies which are
controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B: (i) limit the extent to which
the savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such savings
association's capital stock and surplus, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus; and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transactions" includes the making of loans, purchase of assets, issuance of
a guarantee and other similar types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings association may:
(i) loan or otherwise extend credit to an affiliate, except for any affiliate
which engages only in activities which are permissible for bank holding
companies; or (ii) purchase or invest in any stocks, bonds, debentures, notes
or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings association.
The restrictions contained in Section 22(h) of the Federal Reserve
Act apply to loans by savings associations to executive officers, directors
and principal stockholders (such as First Northern). Section 22(h) requires
that loans to directors, executive officers and greater than 10% stockholders
("Insiders") be made on terms substantially the same as offered in
comparable transactions to other persons. Loans to Insiders may only be
made on more favorable terms pursuant to a benefit or compensation program
which is widely available to association employees and which does not
give preference to any Insiders over other employees. Under Section 22(h),
loans to an executive officer and to a greater than 10% stockholder of a
savings association, and certain affiliated entities of either, may not
exceed, together with all other outstanding loans to such persons and
affiliated entities, the association's loan-to-one-borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus and an
additional 10% of such capital and surplus for loans fully secured by certain
readily marketable collateral). Section 22(h) also prohibits loans, above
amounts prescribed by the appropriate federal banking agency, to directors,
executive officers and greater than 10% stockholders of a savings association,
and their respective affiliates, unless such loan is approved in advance by a
majority of the board of directors of the association with any "interested"
director not participating in the voting. The Federal Reserve Board has
prescribed the loan amount (which includes all other outstanding loans to
such person), as to which such prior board of director approval is required,
to be the greater of $25,000 or 5% of capital and surplus (up to $500,000).
FIRREA AND FDICIA. The FIRREA, adopted on August 9, 1989, has significantly
changed the federal regulatory framework for savings associations. FIRREA
redefined applicable capital standards for savings associations and
significantly increased the minimum levels of capital required to be
maintained by savings associations, with the levels being raised in steps
until fully phased-in on January 1, 1993. Regulations adopted by the OTS
since the enactment of FIRREA have established new minimum leverage capital
requirements for savings associations. The Savings Bank is in compliance
with the minimum capital requirements applicable to it.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. FDICIA provides for, among
other things, establishment by the federal banking agencies of revised
risk-based capital requirements designed to account for interest rate risk,
concentration of credit risk and the risks of nontraditional activities;
enhanced federal supervision of depository institutions, including greater
authority for the appointment of a conservator or receiver for undercapitalized
institutions; the establishment of risk-based deposit insurance premiums;
limitation of equity investments and other activities permissible to state
savings associations to those permissible for federal savings associations;
liberalization of the QTL; greater restrictions on transactions with
affiliates; and mandated consumer protection disclosures with respect to
deposit accounts. Certain provisions of FDICIA which are potentially
applicable to the Savings Bank are discussed below.
FDICIA requires the federal banking regulators to define five levels of
regulatory capital (i.e., well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and mandates specific enforcement actions that the federal
banking agencies must take with respect to depository institutions whose
capital level is significantly below the required minimums. Depending
upon the capital level which the institution fails to meet, such institution
may be prohibited from increasing its assets, acquiring another institution,
establishing a branch, engaging in any new activities, or making capital
distributions. Other actions which federal banking agencies may take with
respect to such institution include requiring the issuance of additional
voting securities; placing limitations on asset growth; mandating asset
reduction; mandating changes in senior management; requiring the divestiture,
merger or acquisition of the institution; placing restrictions on executive
compensation; and any other action that the agency deems appropriate. If
the depository institution's capital levels fall below certain thresholds,
FDICIA requires that the appropriate federal banking agency be appointed as
a receiver or conservator of the institution.
During 1992, the federal banking regulators began the task of proposing
and adopting regulations required to implement the provisions of FDICIA.
The OTS, along with the other federal banking agencies, adopted uniform
regulations establishing criteria to define the five levels of regulatory
capital specified under FDICIA. Under those regulations, the Savings Bank
falls into the category of well capitalized, and the provisions of FDICIA
described in the preceding paragraph are therefore not expected to have any
material adverse effect on the Savings Bank.
The FDIC also adopted a final rule establishing a risk-based insurance
premium assessment system which took effect on January 1, 1993. Under this
regulation, insurance premiums of SAIF insured institutions may vary, depending
on the regulatory capital level and supervisory rating of the institution.
This risk-based premium assessment system is not expected to result in any
material increase in insurance premium assessments applicable to the Savings
Bank because of its relatively high level of regulatory capital and favorable
supervisory ratings. However, the FDIC has indicated it will review the
adequacy of the premium assessment levels and will make further changes
in premium rates as necessary to assure sufficient reserves are maintained
in the insurance fund.
As anticipated, the Savings Association Insurance Fund ( SAIF ) of the
FDIC was recapitalized during 1996 by a one-time special assessment
imposed on all SAIF members. The $2,856,000 assessment paid by First Northern
had a significant impact on its 1996 financial results. However, the effect
of the recapitalization is a significant reduction in federal deposit
insurance premiums for SAIF-insured institutions on an ongoing basis. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in Item 7 hereof.
Other examples of regulations adopted and other significant regulatory
developments under FDICIA are summarized below. Although applicable to
the Savings Bank, none of these regulations are expected to have any material
adverse effect on First Northern's financial condition or future operations.
The FDIC has adopted regulations requiring all insured depository institutions
with $150 million or more in assets to have annual audits by an independent
public accountant and an independent audit committee made up of outside
directors, and requiring annual reports by management on its
responsibility for preparing financial statements and establishing and
maintaining an internal control structure for financial reporting and compli-
ance. The FDIC adopted a rule prohibiting insured depository institutions
from soliciting deposits by offering rates significantly higher than
community rates or the national rates paid on deposits of comparable maturity.
The federal regulatory agencies have established uniform rules and
guidelines for real estate lending, but these rules do not preclude
individual institutions from establishing their own specific standards. The
Federal Reserve Board adopted a rule under the Truth in Savings Act
imposing certain disclosure in advertising requirements for interest-bearing
transaction and savings accounts, and requiring that an individual and other
non-business accounts offered by depository institutions be accompanied by
disclosures of the terms, conditions, fees and yields applicable to the
account. This rule also establishes standardized terms that must be used
in connection with interest-bearing deposits. Finally, the OTS adopted
a new rule effective January 1, 1994 requiring savings institutions to
reflect interest-rate risk in their
capital requirements. For institutions in excess of $300 million in assets,
like the Savings Bank, institutions will be required to hold capital against
interest rate risk only when the risk exceeds a decline in net portfolio value
of more than 2% of an institution s assets. Net portfolio value is the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts.
STATE REGULATION
Under Wisconsin law, a savings and loan holding company which controls a
Wisconsin chartered savings and loan (such as First Northern) is subject
to the supervision and control of the WDFI-Administrator. A savings and loan
holding company will be required to file reports of its financial condition
when requested by the WDFI-Administrator. The WDFI-Administrator may examine
the savings and loan holding company at any time it deems necessary. If in
the opinion of the WDFI-Administrator, the condition or operations of the
savings and loan holding company would endanger the safety of the capital
of the Savings Bank, the WDFI-Administrator may: (i) order the savings and loan
holding company to correct any such deficiency; (ii) fully direct the
operation of such savings and loan association or savings and loan holding
company until the order is complied with; and/or (iii) withhold all dividends
from the institution whose operation he directs.
While specific Wisconsin provisions governing savings associations
may vary from the federal regulations described above, in most regards the
state regulations parallel federal regulations. Regulations of the
WDFI-Administrator limit the loan-to-value ratios with respect to residential
and commercial property loans, establish liquidity and loan reserve
requirements, regulate the sale of loans and participation interest therein,
and limit service corporation activities. The approval of the
WDFI-Administrator is required to open, sell, purchase or relocate a branch
office and to effect mergers involving Wisconsin chartered savings institutions.
The WDFI-Administrator established a net worth (computed in accordance
with generally accepted accounting principles) to total assets ("net worth
ratio") requirements in 1987. Those requirements were implemented in stages
until the currently required 6% net worth ratio was achieved, which is the net
worth requirement for 1996. The WDFI-Administrator may, however, require a
state-chartered savings institution to maintain a higher net worth level if the
WDFI-Administrator determines that the institution's operations otherwise
entail a greater risk requiring a higher level of net worth to assure stability.
PAYMENT OF DIVIDENDS
The ability of the Savings Bank to pay dividends on its stock is restricted
by regulations of the OTS and WDFI-Administrator and by tax considerations
related to savings associations. While First Northern will not be subject
directly to these restrictions on its ability to pay dividends, and will be
only directly governed by certain restrictions imposed by the Wisconsin
Business Corporation Law (the "WBCL") on Wisconsin corporations generally,
because First Northern's ability to pay dividends will depend primarily upon
the ability of the Savings Bank to pay dividends or otherwise transfer funds to
it, First Northern will be indirectly affected by these restrictions.
Under OTS regulations, a savings association that, immediately prior
to, and on a pro forma basis after giving effect to, a proposed capital
distribution (including cash dividends, stock repurchases and cash mergers),
has total capital (as defined by OTS regulation) that is equal to or greater
than the amount of its fully phased-in capital requirements (a "Tier 1
Association") is generally permitted, after notice, to make capital
distributions during a calendar year in the amount equal to the greater
of: (a) 75% of its net income for the previous four quarters; or (b) up to
100% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in capital requirement to its assets at
the beginning of the calendar year. The Savings Bank currently qualifies
as a Tier 1 Association. Furthermore, the OTS may prohibit a proposed
capital distribution which would otherwise be permitted by the regulations
if the OTS determines that such distribution would constitute an unsafe or
unsound practice.
As discussed above, the WDFI-Administrator has promulgated regulations
which establish certain net worth to total assets requirements. The net
worth requirement is 6.00% for 1996 and thereafter. Unless a Wisconsin
savings association receives the WDFI-Administrator's prior written approval,
it may not pay a dividend or otherwise distribute any profits when its net
worth ratio is, or upon such payment or distribution would be, below
the WDFI-Administrator's net worth requirements. At December 31, 1996, First
Northern's net worth ratio for Wisconsin regulatory purposes was 11.2%.
In addition to the foregoing, earnings of the Savings Bank appropriated to
bad debt reserves for losses and deducted for federal income tax purposes
are not available to pay cash dividends or other distributions without
payment of federal income taxes at the then current income tax rates on the
amounts deemed paid therefrom. Also, the Savings Bank is not permitted to
pay dividends on its capital stock if its regulatory capital would thereby
be reduced below the remaining balance of any liquidation accounts which were
established for the benefit of certain depositors of the Savings Bank (and
savings associations merged into the Savings Bank) in connection with the
conversion from the mutual to stock form of ownership.
While the ability of First Northern to pay dividends will not be
directly subject to the above restrictions, it will be limited by
restrictions imposed by the WBCL. The WBCL prohibits a Wisconsin
corporation from making a distribution (including a cash dividend,
stock repurchase or a distribution of evidences of indebtedness) if, after
giving effect, such corporation would be unable to pay its debts as they come
due in the usual course of business or if such corporation's total assets
would be less than the sum of its liabilities and the amount that would be
needed, if such corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of any
stockholders whose preferential rights are superior to those receiving the
distribution.
The payment of future cash dividends by First Northern will depend
primarily upon the Savings Bank's earnings, financial condition and
capital requirements, as well as the tax and regulatory considerations
discussed herein. The Savings Bank Board of Director considers many
factors in the payment of dividends, including the Savings Bank's
profitability, maintenance of adequate capital, the Savings Bank's current
and anticipated future income, outstanding loan commitments, adequacy
of loan loss reserves, cash flow requirements and economic conditions.
Federal regulations require the Savings Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to First Northern.
The dividend restrictions referred to above are not currently expected
to impair the ability of First Northern to make dividend payments consistent
with past practice.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. First Northern and its subsidiaries file a calendar year
consolidated federal income tax return, reporting income and expenses using
the accrual method of accounting.
BAD DEBT RESERVES. On August 20, 1996, the President of the United States
signed the Small Business Job Protection Act of 1996 (the"Act"). The Act
repealed the reserve method of accounting for bad debts by most thrift
institutions effective for taxable years beginning after 1995. Larger thrift
institutions such as First Northern are now required to use the "specific
charge-off method." The Act also grants partial relief from reserve capture
provisions which are triggered by the change in method. This legislation
is not expected to have a material impact on First Northern s financial
condition or results of operations. See Note H of the Notes to First
Northern's Consolidate Financial Statement, incorporated by reference in Item 8
hereof.
The federal income tax returns for First Northern have been examined
and audited or closed without audit by the IRS for tax years through 1989.
Depending on the composition of its items of income and expense, a
savings institution may be subject to alternative minimum tax ("AMT") to the
extent AMT exceeds the regular tax liability. AMT is calculated at 20% of
alternative minimum taxable income ("AMTI"). AMTI equals regular taxable
income increased by certain tax preferences, including depreciation
deductions in excess of allowable AMT amounts, certain tax-exempt interest
income, the excess of bad debt deduction over the experience calculation
and 75% of the excess of adjusted current earnings ("ACE") over AMTI.
ACE equals AMTI adjusted for certain items, primarily accelerated
depreciation and tax-exempt interest. The payment of AMT will create a tax
credit which can be carried forward indefinitely to reduce the regular tax
liability in future years.
STATE TAXATION. The state of Wisconsin imposes a corporate franchise tax
at 7.9% on the separate taxable incomes of the members of First Northern's
consolidated federal income tax group except FNII, which is located in Nevada
and manages a portion of the Savings Bank's investment portfolio. The income
of FNII is only subject to taxation in Nevada which currently does not impose
a corporate income or franchise tax.
INCOME TAX ACCOUNTING STANDARD. In February, 1992, SFAS No. 109,
"Accounting for Income Taxes" was issued. SFAS No. 109 requires that deferred
tax assets be recognized and measured on the likelihood of realization of a
tax benefit in future years. Deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carry forwards.
SFAS No. 109 is effective for years beginning after December 15, 1992. First
Northern established a deferred tax asset of $470,000 in the first quarter of
1993.
ITEM 2. PROPERTIES.
First Northern's corporate/downtown office is located at 201 North
Monroe Avenue, Green Bay, Wisconsin. The Savings Bank conducts its business
from the corporate/downtown office and 19 additional branch offices at
locations described below in Brown, Manitowoc, Door, Shawano, Calumet,
Outagamie, Waupaca and Marinette counties. First Northern has under
continuing review the possibility of applying for additional branch locations,
depending on management's assessment of market and economic conditions, the
availability of locations and the proximity of branches of competing
institutions.
The following table lists each of First Northern's offices.
DOWNTOWN GREEN BAY KIEL
201 N. Monroe Avenue 622 Fremont Street
Green Bay, WI 54301-4995 Kiel, WI 53042-1321
Brown County Manitowoc County
PESHTIGO STURGEON BAY
616 French Street 1227 Egg Harbor Road
Peshtigo, WI 54157-0193 Sturgeon Bay WI 54235-0068
Marinette County Door County
PINE TREE MALL SHAWANO
2314 Roosevelt Road 835 E. Green Bay Avenue
Marinette, WI 54143-0345 Shawano, WI 54166-0396
Marinette County Shawano County
ASHWAUBENON BRILLION
2357 S. Oneida Street 314 N. Main Street
Green Bay, WI 54304-5286 Brillion, WI 54110-1198
Brown County Calumet County
HOWARD EAST MASON
2603 Glendale Avenue 2370 East Mason Street
Green Bay, WI 54313-6823 Green Bay, WI 54302-3347
Brown County Brown County
EAST WEST DE PERE
2255 University Avenue 749 Main Avenue
Green Bay, WI 54308-8046 De Pere, WI 54115-5190
Brown County Brown County
CRIVITZ EAST DE PERE
315 Highway 141 330 North Broadway
Crivitz, WI 54114-0340 De Pere, WI 54115-5250
Marinette County Brown County
NEW HOLSTEIN WEST
2205 Wisconsin Avenue 2424 West Mason Street
New Holstein, WI 53061-1291 Green Bay, WI 54303-4711
Calumet County Brown County
NEW LONDON HORTONVILLE
101 Park Street 209 South Nash Street
New London, WI 54961-1246 Hortonville, WI 54944-9454
Waupaca County Outagamie County
MARINETTE SEYMOUR
830 Pierce Avenue 689 Woodland Plaza
Marinette, WI 54143-0138 Seymour, WI 54165-1659
Marinette County Outagamie County
With the exception of the Pine Tree Mall location, which is leased, First
Northern owns the remainder of its locations. The nineteen owned locations
are all free-standing buildings which contain between 1,800 and 3,600 square
feet, with the exception of the corporate/downtown office, New London office
and East De Pere office which contain approximately 25,000, 8,000 and 4,400
square feet, respectively. Each of the owned locations also has drive-up
facilities. The Pine Tree Mall location is approximately 1,500 square feet.
All of First Northern's services are available to its customers in each office.
The nineteen locations owned by First Northern had a book value (net of
accumulated depreciation) of $6,886,000 at December 31, 1996. The leasehold
improvements of the Pine Tree Mall location had a book value (net of
accumulated depreciation) of $28,000 at December 31, 1996. First Northern
sold two free standing offices in 1995, which had an aggregate book value of
$435,000.
All of First Northern's locations are designed for use and operation
as a savings bank, are well maintained and suitable for current operations.
ITEM 3. LEGAL PROCEEDINGS.
To First Northern's knowledge, no material legal proceedings are
pending or contemplated to which it or any of its subsidiaries are or
would be a party, or of which any of their property is or would be the subject,
other than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTES TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table contains certain information regarding those officers
of First Northern and the Savings Bank who have been determined by the Board
of Directors of First Northern to be Executive Officers of First Northern.
OFFICES AND POSITIONS
WITH FIRST NORTHERN PRESENT OFFICE
NAME AGE AND THE SAVINGS BANK HELD SINCE(1)
Michael D. Meeuwsen 43 Director, President 1988 (2)
and Chief Executive Officer
of First Northern and the
Savings Bank
Richard C. Smits 58 Director, Executive Vice President 1994 (3)
and Chief Operating Officer
of First Northern and the
Savings Bank
Rick B. Colberg 44 Vice President, Chief 1980 (4)
Financial Officer and
Treasurer of First Northern
and the Savings Bank
Marla J. Carr 41 Vice President-Human 1980 (5)
Resources and Secretary
of First Northern and the
Savings Bank
John E. Steinbrecker 46 Vice President-Retail Deposits 1984 (6)
and Brokerage Services
of the Savings Bank
Richard E. Aicher 46 Vice President-Lending of 1979 (7)
the Savings Bank
Dale J. Darmody 48 Vice President-Director of 1990 (8)
Branch Development of the
Savings Bank
Steven L. Wilmet 50 Vice President-Operations and 1994 (9)
Branch Development of the
Savings Bank
- - ---------------------
(1) Indicates date when individual first held present office with the
Savings Bank. All persons listed herein became executive officers of
First Northern in 1995.
(2) Mr. Meeuwsen joined the Savings Bank in 1980 as a branch manager
and was named Vice President of Operations and Savings Manager in 1982.
In 1984, Mr. Meeuwsen became Executive Vice President and Chief Operating
Officer, in April, 1989 was named President and Chief Operating Officer and
in January, 1990 was named President and Chief Executive Officer of the
Savings Bank.
(3) Mr. Smits joined the Savings Bank in April, 1994 upon consummation of
the merger with Prime Federal, assuming his present position pursuant to the
terms of the merger agreement. Prior to such merger, Mr. Smits was President
and Chief Executive Officer of Prime Federal commencing in 1992 and President
of Prime Federal prior to 1992.
(4) Mr. Colberg, prior to becoming Treasurer of the Savings Bank in 1982,
was Vice President since 1978,and was designated Chief Financial Officer in
1980. Mr. Colberg has been employed by the Savings Bank for 26 years.
(5) Ms. Carr has been Human Resource Director of the Savings Bank
since 1976. She was elected Vice President and Secretary in 1980. Ms. Carr
has been with the Savings Bank for 24 years.
(6) Mr. Steinbrecker was named Vice President-Retail Deposits and
Brokerage Services in 1994. Prior to that he was named Vice
President-Savings and Marketing in 1984 and was named Vice President and
Marketing Director in 1981. Mr. Steinbrecker has been employed by the Savings
Bank for 18 years.
(7) Mr. Aicher, who has been with the Savings Bank since 1974, was
elected Vice President in 1977 and designated loan manager in 1979. Mr. Aicher
has been employed by the Savings Bank for 22 years.
(8) Mr. Darmody was elected Vice President in 1990. Prior to that date,
he was Assistant Vice President and Residential Loan Origination Manager since
1985. Mr. Darmody joined the Savings Bank in 1981.
(9) Mr. Wilmet joined the Savings Bank in April, 1994 upon consummation
of the merger with Prime Federal, assuming his present position pursuant to
the terms of the merger agreement. Prior to such merger, Mr. Wilmet served as
Vice President of Operations and Secretary of Prime Federal.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
Information in response to this item is incorporated herein by
reference to "Common Stock Prices and Dividends" on page 7 of First Northern's
Annual Report to Stockholders for the fiscal year ended December 31,1996
(the "1996 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item is incorporated by reference to
"Selected Financial Highlights" on page 1 of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information in response to this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 9 through 19 of the 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item is incorporated by reference to
"Quarterly Financial Information" on page 19 and the consolidated financial
statements on pages 20 through 36 of the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by reference to
"Election of Directors" (pages 3 through 5) and Section 16(a) Beneficial
Ownership Reporting Compliance" (page 14)(which does not contain disclosure
of any filing delinquencies) in First Northern's definitive Proxy Statement
for its Annual Meeting of Stockholders on April 30, 1997 (the "1997 Annual
Meeting Proxy Statement"). See also "Executive Officers of the Registrant
in Part I hereof, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item is incorporated by reference to
"Director Compensation" (pages 5 and 6), "Executive Compensation" (other
than "Compensation Committee Report on Executive Compensation" thereunder,
which is not incorporated by reference herein) (pages 8 through 11) and
"Compensation Committee Interlocks and Insider Participation" (page 12) in
the 1997 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item is incorporated by reference to
"Security Ownership of Certain Beneficial Owners and Management"
(pages 2 and 3) in the 1997 Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated by reference to
"Compensation Committee Interlocks and Insider Participation" (page 12) and
"Certain Transactions with First Northern" (pages 13 and 14) in the 1997
Annual Meeting Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the Report.:
1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statements of First Northern Capital Corp.
and subsidiaries are filed as part of this report under Item 8, "Financial
Statements and Supplementary Data":
Consolidated Statements of Financial Condition - December 31, 1996 and 1995.
Consolidated Statements of Income - Years Ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
3. EXHIBITS. See Exhibit Index following the signature page of this
report, which is incorporated herein by reference. Each
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report is identified in the
Exhibit Index by two asterisks following its exhibit number.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST NORTHERN CAPITAL CORP.
March 28, 1997
By: /s/Michael D. Meeuwsen
Michael D. Meeuwsen
President and Chief Executive Officer
_________________
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Michael D.
Meeuwsen, J. Gus Swoboda and Rick B. Colberg, or any of them, as
attorneys-in-fact with full power of substitution, to execute in the name and
on behalf of such person, individually, and in each capacity stated below or
otherwise, and to file, any and all amendments to this report.
________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.*
Signature and Title
/s/J. Gus Swoboda /s/Thomas J. Lopina, Sr.
J. Gus Swoboda, Chairman and Director Thomas J. Lopina, Sr., Director
/s/Michael D. Meeuwsen /s/Robert J. Mettner
Michael D. Meeuwsen, President, Robert J. Mettner, Director
Chief Executive Officer and Director
(Principal Executive Officer)
/s/Rick B. Colberg /s/Robert B. Olson
Rick B. Colberg, Vice President, Treasurer Robert B. Olson, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/Howard M. Frankenthal /s/Richard C. Smits
Howard M. Frankenthal, Director Richard C. Smits, Executive Vice
President, Chief Operating Officer
and Director
_______________
* Each of the above signatures is affixed as of March 31, 1997.
FIRST NORTHERN CAPITAL CORP.
(THE "REGISTRANT)
COMMISSION FILE NO. 0-27982
EXHIBIT INDEX
TO
1996 ANNUAL REPORT ON FORM 10-K
EXHIBIT INCORPORATED HEREIN Filed
NUMBER DESCRITPTION BY REFERENCE TO Herewith
2.1 Agreement and Plan of Reorganization, dated Appendix A to the Proxy
as of August 16, 1995, by and among Statement/Prospectus dated November
Registrant, First Northern Savings Bank, 2, 1995 (the "Proxy
S.A. (the "Savings Bank") and FNGB Interim Statement/Prospectus") contained in
Savings Bank, FSB the Registrant's Registration
Statement on Form S-4 (No. 33-
98088) filed on October 13, 1995,
as amended by Pre-Effective
Amendment No. 1 filed on October
31, 1995 ( the "1995 Registration
Statement")
3.1 Articles of Incorporation Appendix B to the Proxy
Statement/Prospectus
3.2 Bylaws Appendix C to the Proxy
Statement/Prospectus
4*
4.1 Specimen Common Stock Certificate Exhibit 4.1 to Registrant's Current
Report on Form 8-K dated as of
December 20, 1995 (the "12/20/95 8-
K")
4.2 Articles III, IV and VII of Articles of See Exhibit 3.1 above
Incorporation
10.1** Management Incentive Plan of Savings Bank Exhibit 10.1 to Registrant's
12/20/95 8-K
10.2.1** Employment Agreements, dated as of Exhibit 10.2.1 to Registrant's
January 2, 1990, between Savings Bank and 12/20/95 8-K
each of the following executive officers of
Savings Bank: Michael D. Meeuwsen; Rick B.
Colberg; Marla J. Carr; Richard E. Aicher;
and John E. Steinbrecker
10.2.2** Employment Agreement, dated as of Exhibit 10.2.2 to Registrant's
January 2, 1992, between Savings Bank and 12/20/95 8-K
Dale J. Darmody
10.2.3** Employment Agreement, dated as of June 12, Exhibit 10.2.3 to Registrant's
1992, between Savings Bank and Ralph N. 12/20/95 8-K
Marten
10.2.4** Employment Agreements, dated as of April Exhibit 10.2.4 to Registrant's
28, 1994, between Savings Bank and each of 12/20/95 8-K
the following executive officers of Savings
Bank: Charles R. Albers; Richard C. Smits;
and Steven L. Wilmet
10.2.5** Amendments No. 1 to Employment Agreements, Exhibit (10)-2.5 to Registrant's
dated as of September 20, 1995, between 1995 Registration Statement
Savings Bank and each of the following
executive officers of Savings Bank:
Michael D. Meeuwsen; Rick B. Colberg; Marla
J. Carr; Richard E. Aicher; John E.
Steinbrecker; Dale J. Darmody; Ralph N.
Marten; Charles R. Albers; Richard C.
Smits; and Steven L. Wilmet
10.3** Non-Qualified Deferred Retirement Plan for Exhibit 10.3 to Registrant's
Directors of Savings Bank 12/20/95 8-K
10.4.1** 1984 Stock Option Plan (assumed by Exhibit 10.4.1 to Registrant's
Registrant) 12/20/95 8-K
10.4.2** 1989 Executive Stock Option Plan (assumed Exhibit 10.4.2 to Registrant's
by Registrant) 12/20/95 8-K
10.4.3** 1989 Directors' Stock Option Plan (assumed Exhibit 10.4.3 to Registrant's
by Registrant) 12/20/95 8-K
10.4.4** 1989 Stock Option and Incentive Plan Exhibit 10.4.4 to Registrant's
(assumed by Registrant) 12/20/95 8-K
10.4.5** 1994 Executive Stock Plan (assumed by Exhibit 10.4.5 to Registrant's
Registrant) 12/20/95 8-K
10.4.6** 1994 Directors' Stock Option Plan (assumed Exhibit 10.4.6 to Registrant's
by Registrant) 12/20/95 8-K
10.5.1** Executive Employee Salary Continuation Exhibit 10.5.1 to Registrant's
Agreement, dated July 15, 1986, between 12/20/95 8-K
Savings Bank (as successor to New London
Savings and Loan Association) and Ralph N.
Marten
10.5.2** Amendment No. 1 to Executive Employee Exhibit (10)-5.2 to Registrant's
Salary Continuation Agreement, dated as of 1995 Registration Statement
September 20, 1995, between Savings Bank
and Ralph N. Marten
10.5.3** Salary Continuation Agreement, dated as of Exhibit 10.5.3 to Registrant's
April 28, 1994, between Savings Bank and 12/20/95 8-K
Richard C. Smits
10.5.4** Amendment No. 1 to Salary Continuation Exhibit (10)-5.4 to Registrant's
Agreement, dated as of September 20, 1995, 1995 Registration Statement
between Savings Bank and Richard C. Smits
10.6.1** Supplemental Retirement Agreements, dated Exhibit 10.6.1 to Registrant's
as of January 1, 1994, between Savings Bank 12/20/95 8-K
and each of the following executive
officers of Savings Bank: Richard E.
Aicher; Marla J. Carr; Rick B. Colberg;
Dale J. Darmody; Michael D. Meeuwsen; and
John E. Steinbrecker
10.6.2** Supplemental Retirement Agreement, dated as Exhibit (10)-6.2 to Registrant's
of January 1, 1995, between Savings Bank 1995 Registration Statement
and Richard C. Smits
10.6.3** Amendments No. 1 to Supplemental Retirement Exhibit (10)-6.3 to Registrant's
Agreements, dated as of September 20, 1995, 1995 Registration Statement
between Savings Bank and each of the
following executive officers of Savings
Bank: Richard E. Aicher; Marla J. Carr;
Rick B. Colberg; Dale J. Darmody; Michael
D. Meeuwsen; John E. Steinbrecker and
Richard C. Smits
10.7 Agreements in connection with acquisition Exhibit 10.7 to Registrant's
of 50% stock interest in Savings Financial 12/20/95 8-K
Corporation
11.1 Statement regarding computation of per X
share earnings
13.1 Portions of Annual Report to Stockholders X
for the year ended December 31, 1996
incorporated by reference (pages 1, 7 and
9-36)
21.1 List of Subsidiaries of Registrant Exhibit 21.1 to Registrant's
12/20/95 8-K
23.1 Consent of Ernst & Young LLP, Registrant's X
independent auditors
24.1 Power of Attorney, contained in the X
signature page of this Report
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and
Exchange Commission for information only
and not filed.
__________________
* Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish to the SEC, upon request, a copy of any unfiled instrument
defining the rights of security holders.
** Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
EXHIBIT 11.1
(1996 10-K)
FIRST NORTHERN CAPITAL CORP.
COMPUTATION OF NET INCOME PER COMMON SHARE
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
PRIMARY:
Weighted average
common shares outstanding
during each period 4,461,263 4,523,690 4,469,384
Incremental share relating
to:
Dilutive stock options
outstanding at end of
each period (1) 103,959 112,788 130,078
--------- --------- ---------
4,565,222 4,636,478 4,599,462
========= ========== =========
FULLY DILUTED:
Weighted average
common shares outstanding
during each period 4,461,263 4,523,690 4,469,384
Incremental share relating
to:
Dilutive stock options
outstanding at end of
each period (2) 137,702 149,076 141,659
--------- --------- ---------
4,598,965 4,672,766 4,611,043
========= ========== =========
NET INCOME FOR EACH PERIOD $3,283,000 $4,590,000 $4,198,000
PER COMMON SHARE AMOUNTS:
Primary, as presented in
the Statement of Income $0.72 $0.99 $0.91
Fully diluted $0.71 $0.98 $0.91
- - ------------------------
Notes:
(1) Based on treasury stock method using average market price.
(2) Based on treasury stock method using period end market price, if higher
than average market price.