CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
DECEMBER 31
1996 1995
------- --------
(IN THOUSANDS)
ASSETS
Cash $ 1,965 $ 1,192
Interest-earning deposits 1,598 82
-------- --------
CASH AND CASH EQUIVALENTS 3,563 1,274
Securities available-for-sale, at fair value
Investment securities 5,635 2,978
Mortgage-related securities 1,837 2,013
Securities held-to-maturity
Investment securities
(estimated fair value of
$16,633,000 - 1996;
$19,531,000 - 1995) 16,583 19,364
Mortgage-related securities
(estimated fair value of
$9,247,000 - 1996;
$4,020,000 - 1995) 9,325 4,024
Loans held for sale 2,532 2,989
Loans receivable 553,995 500,535
Accrued interest receivable 3,295 3,074
Foreclosed properties and
repossessed assets 189 136
Office properties and equipment 8,350 8,417
Federal Home Loan Bank stock 3,773 3,768
Prepaid expenses and other assets 6,426 4,895
-------- --------
$615,503 $553,467
======== ========
LIABILITIES
Deposits $458,323 $449,954
Borrowings 77,272 21,000
Advance payments by borrowers
for taxes and insurance 5,447 6,550
Other liabilities 4,237 3,384
-------- --------
TOTAL LIABILITIES 545,279 480,888
-------- --------
STOCKHOLDERS' EQUITY
Cumulative preferred stock, $1 par value;
10,000,000 shares authorized; none outstanding
Common stock, $1 par value; 30,000,000
shares authorized; shares issued and
outstanding: 4,568,052 - 1996;
4,555,187 - 1995 4,568 4,555
Additional paid-in capital 14,389 14,590
Unrealized gain on securities
available-for-sale, net of taxes 385 315
Treasury stock at cost (180,623 shares) (2,853)
Retained earnings 53,735 53,119
-------- --------
TOTAL STOCKHOLDERS' EQUITY 70,224 72,579
-------- --------
$615,503 $553,467
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Interest income:
Mortgage loans $28,831 $26,982 $25,294
Consumer loans 10,725 9,948 8,045
Investment securities 1,582 1,612 1,494
Interest-earning deposits 66 100 150
Mortgage-related securities 672 383 426
------- ------- -------
TOTAL INTEREST INCOME 41,876 39,025 35,409
Interest expense:
Deposits 20,244 19,572 15,778
Borrowings 2,797 2,286 889
Advance payments by borrowers
for taxes and insurance 162 178 187
------- ------- -------
TOTAL INTEREST EXPENSE 23,203 22,036 16,854
------- ------- -------
NET INTEREST INCOME 18,673 16,989 18,555
Provision for loan losses 370 240 145
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,303 16,749 18,410
Non-interest income:
Fees on serviced loans 354 364 383
Loan fees and service charges 234 226 191
Deposit account service charges 960 813 762
Insurance commissions 320 269 246
Gains on sales of loans 259 649 170
Unrealized losses on loans held for sale (172)
Gains on sale of securities 321 299
Gains on sale of other assets 29 186 141
Other 530 382 238
------- ------ -------
TOTAL NON-INTEREST INCOME 2,686 3,210 2,258
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 6,729 6,383 6,605
Federal insurance premiums 985 998 965
SAIF special assessment 2,856
Occupancy 832 849 848
Data processing 926 917 764
Furniture and equipment 750 727 695
Telephone and postage 449 421 421
Marketing 351 331 397
Merger related costs 456
Reorganization costs 108
Other 2,061 1,917 2,127
------- ------- -------
TOTAL NON-INTEREST EXPENSE 15,939 12,651 13,278
------- ------- -------
INCOME BEFORE INCOME TAXES 5,050 7,308 7,390
Income taxes 1,767 2,718 3,192
------- ------- -------
NET INCOME $ 3,283 $ 4,590 $ 4,198
======= ======= =======
PRIMARY EARNINGS PER SHARE $0.72 $0.99 $0.91
===== ===== =====
CASH DIVIDENDS PAID PER SHARE $0.60 $0.56 $0.52
===== ===== =====
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
UNREALIZED GAIN
ON SECURITIES DEFERRED
ADDITIONAL AVAILABLE- COMPENSATION
COMMON PAID-IN FOR-SALE, DUE TREASURY RETAINED
STOCK CAPITAL NET OF TAXES EMPLOYEES STOCK EARNINGS TOTAL
---------- ---------- -------------- ------------- -------- --------- -------
( IN THOUSANDS)
Balance at
January 1, 1994 $4,428 $13,992 $ (223) $48,766 $66,963
Net income 4,198 4,198
Cash dividends
($.52 per share) (2,223) (2,223)
Exercise of stock options 67 224 291
Repayment of ESOP
borrowing 223 223
Change in net unrealized
gain on securities available-
for-sale, net of income taxes $233 233
Adjustment to conform pooled
companies' fiscal year-ends 322 322
------ ------- ----- ----- ------- ------ ------
Balance at
December 31, 1994 4,495 14,216 233 0 51,063 70,007
Net income 4,590 4,590
Cash dividends
($.56 per share) (2,534) (2,534)
Exercise of stock options 60 382 442
Reorganization costs (8) (8)
Change in net unrealized
gain on securities available-
for-sale, net of income taxes 82 82
------ ------- ----- ----- ------- ------ ------
Balance at
December 31, 1995 4,555 14,590 315 0 53,119 72,579
Net income 3,283 3,283
Cash dividends
($.60 per share) (2,667) (2,667)
Retirement of common stock (4) (62) (66)
Purchase of treasury stock $(3,698) (3,698)
Exercise of stock options 17 (139) 845 723
Change in net unrealized
gain on securities available-
for-sale, net of income taxes 70 70 70
------ ------- ------ ------ ------- ------ ------
Balance at
December 31, 1996 $4,568 $14,389 $ 385 $ 0 $(2,853) $53,735 $70,224
======= ======= ===== ===== ======= ======= ======
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
--------- ------- -------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 3,283 $ 4,590 $ 4,198
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for losses on loans 370 240 145
Provision for depreciation and amortization 756 732 721
Gains on sales of loans (259) (649) (170)
Gains on sale of securities (321) (299)
Unrealized losses on loans held for sale 172
Loans originated for sale (13,795) (14,572) (19,182)
Proceeds from loan sales 14,252 22,072 33,210
Decrease in deferred compensation 223
Increase in interest receivable (221) (235) (203)
Increase in interest payable 75 599 118
Other (245) 767 (3,607)
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,216 13,223 15,326
INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities and
interest-earning deposits 11,150 10,680 12,403
Proceeds from the sale of securities 156 33
Purchases of investment securities (10,782) (10,987) (8,980)
Principal repayments of
mortgage-related securities 556 353 2,365
Purchases of mortgage-related securities (5,697) (997) (1,981)
Loan originations and purchases (177,809) (118,923)(184,738)
Loan principal repayments 123,723 104,503 115,836
Purchases of office properties
and equipment (745) (697) (1,179)
Proceeds from sales of real estate 226 193
Purchase of Federal Home Loan Bank stock (5) (278)
Sale of Federal Home Loan Bank stock 187
Adjustment to conform pooled companies'
fiscal year-ends 322
-------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (59,609) (15,964) (65,539)
FINANCING ACTIVITIES:
Net increase in deposits 8,294 25,562 1,823
Net increase (decrease) in short-
term borrowings 17,622 (38,000) 39,900
Proceeds from long term borrowings 51,150 41,000
Repayment of long term borrowings (13,000) (23,000) (223)
Proceeds from securities sold under
agreement to repurchase 1,500
Maturity of securities sold under
agreement to repurchase (1,000) (1,900)
Cash dividends (2,667) (2,534) (2,223)
Purchase of treasury stock (3,698)
Retirement of common stock (66)
Proceeds from exercise of stock options 650 442 292
Net decrease in advance payments
by borrowers for taxes and insurance (1,103) (199) (180)
-------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,682 1,371 39,389
-------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,289 (1,370) (10,824)
Cash and cash equivalents at beginning of year 1,274 2,644 13,468
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,563 $ 1,274 $ 2,644
======== ======= =======
SUPPLEMENTAL INFORMATION TO THE STATEMENTS OF CASH FLOWS:
Interest credited and paid on deposits $20,169 $19,151 $16,661
Interest paid on borrowings 2,539 2,375 789
Payments for federal and state income taxes 2,193 2,826 3,391
Loans transferred to foreclosed properties
and repossessed assets 411 449 478
Loans held for sale transferred to loans receivable 4,391
Securities transferred to available-for-sale 5,002
Loans held for investment transferred to held for sale 11,152
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: First Northern Capital Corp. ("Company") is a Wisconsin corporation
incorporated in August 1995 for the purpose of becoming a unitary savings and
loan holding company for First Northern Savings Bank, S.A. ("Savings Bank").
The Company and subsidiaries provides a full range of financial services to
individual customers through their branch locations in Northeastern Wisconsin.
The Company is subject to competition from other traditional and nontraditional
financial institutions and is also subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial
statements include the accounts and operations of the Company since it became
operational (December 20, 1995) and the accounts and operations of the
Savings Bank and its wholly owned subsidiaries for the entire periods
presented. Significant intercompany accounts and transactions have been
eliminated. Investment in its fifty percent owned subsidiary, which is not
material, is accounted for on the equity method. On December 20, 1995,
stockholders of the Savings Bank exchanged shares of the Savings Bank for those
of the newly formed Company. In preparing the consolidated financial
statements in accordance with generally accepted accounting principles,
management is required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to change in the near-term relate to the
determination of the allowance for losses on loans and the valuation of
investments and real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for losses on loans and real estate owned, management obtains independent
appraisals for significant properties.
CASH AND CASH EQUIVALENTS: The Company considers its interest-earning deposits
which have a maturity of three months or less when purchased, to be cash
equivalents.
INVESTMENT AND MORTGAGE-RELATED SECURITIES HELD-TO-MATURITY AND
AVAILABLE-FOR-SALE: Securities are classified as held-to-maturity and carried
at amortized cost if management has the intent and ability to hold the
securities to maturity. Securities not classified as held-to-maturity are
designated as available-for-sale and carried at fair value, with unrealized
gains and losses net of income taxes, reflected in stockholders' equity.
Interest and dividends are included in interest income from the related
securities as earned. Realized gains and losses are computed on a specific
identification basis and declines in value judged to be other than temporary,
are included in gains (losses) on sale of securities.
LOANS HELD FOR SALE: Loans held for sale generally consist of current
production of certain fixed interest rate first mortgage loans and education
loans which are recorded at the lower of aggregate cost or market value. Fees
received from the borrower are deferred and recorded as an adjustment of the
sales price (Also see "Accounting Changes").
INTEREST ON LOANS: 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. 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 nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's judgement
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
LOAN ORIGINATION FEES AND COSTS: Loan origination and commitment fees and
certain direct loan origination costs relative to loans not held for sale are
being deferred. The net amounts on loans held for investment are amortized as
an adjustment of the related loan's yield. The Company is amortizing these
amounts using the level-yield method, adjusted for prepayments, over the
contractual life of the related loans.
FORECLOSED PROPERTIES AND REPOSSESSED ASSETS: Foreclosed properties (which
were acquired by foreclosure, by deed in lieu of foreclosure or in-substance
foreclosure) and repossessed assets are carried at the lower of cost or fair
market value. Costs relating to the development and improvement of the
property are capitalized; holding period costs are charged to expense.
ALLOWANCES FOR LOSSES ON LOANS, REAL ESTATE AND REPOSSESSED ASSETS:
Allowances for losses on loans, real estate and repossessed assets are
established when a loss is probable and can be reasonably estimated.
These allowances are provided based on past experience and on prevailing
market conditions. Management's evaluation of loss considers various factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loss experience, estimated sales price, and holding and
selling costs.
The Savings Bank considers loans secured by one- to-four residential properties
and all consumer loans as homogeneous loans and therefore exempt for purposes
of measuring impairment as defined by Statement of Financial Accounting
Standards ("SFAS" or "Statement") No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires that impaired loans be measured at the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. Per this definition, the Savings Bank had no impaired loans in
1996 or 1995.
OFFICE PROPERTIES AND EQUIPMENT: Office properties and equipment are recorded
at cost. When properties are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective accounts and
the resulting gain or loss is recorded in income or expense, respectively.
Provisions for depreciation of office properties and equipment are computed
principally using the straight-line method. The cost of leasehold improvements
is amortized using the straight-line method over the lesser of the term of the
respective lease or estimated economic life of the improvements.
FEDERAL HOME LOAN BANK STOCK: Members of the Federal Home Loan Bank ("FHLB")
system are required to maintain a specified investment in FHLB stock. Even
though the investment in FHLB stock represents a form of equity interest,
because of restricted ownership and the lack of marketability, the stock is
carried at cost which equals redemption value.
EARNINGS PER SHARE: Earnings per share are based on the weighted average
number shares of common stock and common stock equivalents, if dilutive,
outstanding during each year. The resulting number of shares used in
computing primary earnings per share is 4,565,222, 4,636,478 and 4,599,462 for
the years ended December 31, 1996, 1995, and 1994, respectively. The number of
shares used in computing fully diluted earnings per share is 4,598,965,
4,672,766 and 4,611,043 for the years ended December 31, 1996, 1995 and 1994,
respectively. All earnings per share amounts, dividends per share amounts and
the average number of shares outstanding for 1994 have been restated throughout
the financial statements to reflect the Prime Federal Bank, FSB ("Prime
Federal") acquisition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
ACCOUNTING CHANGES: The Company adopted Statement No. 122, "Accounting for
Mortgage Servicing Rights," as of January 1, 1996. Statement No. 122 requires
that an allocation of costs be made between loans and their related servicing
rights for loans originated with a definitive plan to sell or securitize these
loans and retain the servicing rights. The Company recognizes a separate asset
for servicing rights which effectively increases the gain on sale of loans
when the servicing rights are retained. This asset amount is amortized over the
period of and in proportion to the expected loan servicing fee revenue as a
reduction of "Fees on Serviced Loans." The unamortized balance of the asset
is carried at the lower of cost or fair value. In previous periods, costs were
fully allocated to the loan and servicing income was recognized as received
over the life of the loan. The adoption of Statement No. 122 had the effect
of increasing income in the amount of $101,463 ($60,875 after tax or $0.01
per share) for the year ended December 31, 1996.
Pending Accounting Change: In June 1996, the Financial Accounting Standards
Board ("FASB") issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides new accounting and reporting standards for sales, securitization, and
servicing of receivables and other financial assets and extinguishments of
liabilities. The provisions of the Statement are to be applied to transactions
occurring after December 31, 1996. Management does not believe the Company
will be significantly impacted by the adoption of Statement No. 125 or the
amendment of Statement No. 125 by Statement No. 127.
RECLASSIFICATIONS: Certain amounts in the 1995 and 1994 financial statements
have been reclassified to confirm to the 1996 presentations.
NOTE B--SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of securities available-for-sale
are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------- --------- -----------
(IN THOUSANDS)
At December 31, 1996:
U.S. Treasury Notes $4,495 $ 22 $ (15) $4,502
Asset Management Funds 476 (5) 471
FHLMC stock 33 629 662
------ ----- ------ ------
5,004 651 (20) 5,635
Mortgage-related securities 1,828 9 1,837
------ ----- ------ ------
$6,832 $660 $ (20) $7,472
====== ===== ===== ======
At December 31, 1995:
U.S. Treasury Notes $2,002 $ 20 $ - $2,022
Asset Management Funds 449 6 455
FHLMC stock 33 468 501
------ ----- ------ ------
2,484 494 2,978
Mortgage-related securities 1,987 26 2,013
------ ----- ------ ------
$4,471 $520 $ - $4,991
====== ==== ===== ======
Proceeds from sale of securities available-for-sale in 1996, 1995 and 1994 were
$0, $347,000 and $332,000, respectively. Gross gains of $0, $318,000 and
$299,000, respectively, were realized on those sales.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE B--SECURITIES AVAILABLE-FOR-SALE--CONTINUED
At December 31, 1996, U.S. Government and agency securities available-for-sale
have maturities of less than five years.
NOTE C--SECURITIES HELD-TO-MATURITY
The amortized cost and estimated fair values of investment securities held-to-
maturity are as follows:
Amortized Gross Unrealized Estimated
Cost Gains Losses Fair Value
--------- ----- ----- --------
(In Thousands)
At December 31, 1996:
US Government and agency
securities $16,583 $86 $(36) $16,633
======= === ==== =======
At December 31, 1995:
US Government and agency
securities $19,364 $190 $(23) $19,531
======= ==== ==== =======
At December 31, 1996, securities held-to-maturity have the following
maturities:
Amortized Estimated
Cost Fair Value
---------- ------------
(IN THOUSANDS)
Due in one year or less $ 4,800 $ 3,805
Due after one year through five years 11,783 12,828
------- -------
$16,583 $16,633
======= =======
The amortized cost and estimated fair values of mortgage-related securities
held-to-maturity are as follows:
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------- ------ -------------
(IN THOUSANDS)
At December 31, 1996:
Federal Home Loan
Mortgage Corporation $4,715 $46 $ (89) $4,672
Federal National
Mortgage Association 3,730 17 (56) 3,691
Other 880 4 884
------ ----- ----- ------
$9,325 $67 $(145) $9,247
====== === ===== ======
At December 31, 1995:
Federal Home Loan
Mortgage Corporation $3,019 $54 $(25) $3,048
Federal National
Mortgage Association 998 (33) 965
Other 7 7
------ ---- ---- ------
$4,024 $54 $(58) $4,020
====== ==== ===== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE D--LOANS RECEIVABLE
Loans receivable consist of the following:
DECEMBER 31
-------------------
1996 1995
--------- ---------
(IN THOUSANDS)
First mortgage loans:
One to four-family residential $376,189 $352,449
Five or more family residential 20,154 17,591
Commercial real estate 9,975 10,028
Construction, primarily one
family residential 18,007 12,007
Other 1,900 1,788
------- --------
426,225 393,863
Consumer loans:
Consumer 18,179 20,307
Second mortgage 59,148 46,528
Automobile 60,339 49,504
------- --------
137,666 116,339
------- --------
563,891 510,202
Less:
Undisbursed loan proceeds 5,942 6,071
Allowance for losses on loans 2,937 2,608
Unearned loan fees 1,017 988
-------- --------
9,896 9,667
-------- --------
$553,995 $500,535
======== ========
The majority of the Company's lending activity is with borrowers within its
primary market area of Northeastern Wisconsin.
Loans serviced for investors were $120,999,358, $123,901,000 and $120,999,000
at December 31, 1996, 1995 and 1994, respectively.
These loans are not reflected in the consolidated financial statements.
Transactions in the allowance for losses on loans are as follows:
Year Ended December 31
-------------------------------
1996 1995 1994
------ ------ ------
(In Thousands)
Balance at beginning of year $2,608 $2,400 $2,306
Provisions 370 240 145
Charge-offs (66) (71) (147)
Recoveries 25 39 45
Adjustment to conform pooled
companies' fiscal year ends 51
------ ------- ------
BALANCE AT END OF YEAR $2,937 $2,608 $2,400
====== ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE E--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
DECEMBER 31
-----------------
1996 1995
------- --------
(IN THOUSANDS)
Land $ 2,117 $ 2,090
Office buildings 7,177 7,088
Furniture and equipment 2,822 2,609
Leasehold improvements 74 74
------- -------
12,190 11,861
Less allowance for depreciation
and amortization 3,840 3,444
------- -------
$ 8,350 $ 8,417
======= =======
NOTE F--DEPOSITS
Deposits are summarized as follows:
DECEMBER 31
-------------------
1996 1995
--------- --------
(IN THOUSANDS)
Passbook $ 57,354 $ 56,969
Negotiable Order
of Withdrawal accounts:
Non-interest bearing 18,010 16,483
Interest bearing 36,224 36,908
Variable rate insured money
market accounts 50,017 44,886
Certificate accounts:
2.00% to 3.99% 1,801 62
4.00% to 4.99% 40,720 51,250
5.00% to 5.99% 191,536 125,955
6.00% to 7.99% 60,283 115,111
8.00% to 9.99% 24 51
-------- --------
294,364 292,429
-------- --------
455,969 447,675
Accrued interest 2,354 2,279
-------- --------
$458,323 $449,954
======== ========
Weighted average interest rate 4.42% 4.56%
==== ====
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE F--DEPOSITS--CONTINUED
Aggregate annual maturities of certificate accounts at December 31, 1996 are
as follows (in thousands):
Maturities during the twelve months ending
December 31:
1997 $193,095
1998 67,528
1999 27,666
2000 2,754
2001 3,321
--------
$294,364
========
Deposit accounts with balances greater than $100,000 were $37,751,000 and
$31,456,000 at December 31, 1996 and 1995, respectively.
NOTE G--BORROWINGS
Borrowings consist of the following:
INTEREST RATE
NOTES AT DECEMBER 31 DECEMBER 31
PAYABLE MATURITY -------------- --------------
TO DATE 1996 1995 1996 1995
- - ------ ------------------ ------ ------ ------ ------
(IN THOUSANDS)
FHLB On Deman $17,622
FHLB April 1, 1996 6.72% $ 2,000
FHLB April 30, 1996 5.99% 1,000
FHLB November 20, 1996 5.65% 5,000
Reverse
repurchase
agreement December 27, 1996 5.65% 1,000
FHLB February 16, 1997 5.08% 12,500
FHLB March 18, 1997 5.51% 3,000
FHLB May 20, 1997 5.71% 2,000
FHLB May 24, 1997 6.38% 2,000
Reverse
repurchase
agreement June 20, 1997 5.50% 1,000
FHLB July 29, 1997 5.40% 5,000
FHLB August 7, 1997 5.72% 1,900
FHLB September 15, 1997 6.04% 6.04% 2,000 2,000
Reverse
repurchase
agreement November 1, 1997 5.75% 500
FHLB November 2, 1997 5.85% 5.85% 3,000 3,000
FHLB May 27, 1998 5.74% 5,000
FHLB June 21, 1998 6.12% 6.12% 5,000 5,000
FHLB September 13, 1998 6.18% 3,000
FHLB October 2, 1998 6.08% 5,000
FHLB March 28, 1999 6.12% 2,000
FHLB October 16, 1999 6.15% 2,000
FHLB April 29, 2000 6.19% 2,700
FHLB November 12, 2001 6.18% 4,050
------- -------
$77,272 $21,000
======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE G--BORROWINGS--CONTINUED
The Company is required to maintain unencumbered mortgage loans in its
portfolio aggregating at least 167% of the amount of outstanding advances from
the FHLB as collateral. In addition, these advances are collateralized by FHLB
stock.
The Company enters into sales of securities under agreements to repurchase
(reverse purchase agreements). Fixed-coupon reverse purchase agreements are
treated as financings and the obligations to repurchase securities sold are
reflected as a borrowing in the statements of financial condition. The dollar
amount of securities underlying the agreements remains in the asset accounts.
Reverse repurchase agreements entered into with local municipalities did not
require delivery of securities. At December 31, 1996 and 1995, these
agreements had a weighted average interest rate of 5.59% and 5.65%,
respectively, and mature within one year. At December 31, 1996 and 1995,
securities sold under agreements to repurchase involve U.S. government or
agency securities with a book value, including accrued interest of $1,510,190
and $1,008,000 and a market value of $1,497,657 and $1,004,000, respectively.
Based on the month-end balances, securities sold under agreements to repurchase
averaged $1,125,000, $2,500,000 and $1,158,000 during the years ended
December 31, 1996, 1995 and 1994, respectively. The maximum amount outstanding
at any month end during the years ended December 31, 1996, 1995 and 1994 was
$1,500,000, $2,900,000 and $2,900,000, respectively.
NOTE H--INCOME TAXES
The Savings Bank qualifies under provisions of the Internal Revenue Code that
previously permitted it to deduct from taxable income an allowance for bad
debts that differs from the provision for such losses charged to income for
financial reporting purposes. Such amounts accumulated prior to 1988 are
considered permanently deferred and accordingly, no provision for federal
income taxes has been made for approximately $15,883,000 of retained income as
of December 31, 1996. If the Company no longer qualifies as a bank for tax
purposes, income taxes of approximately $6,226,000 would be imposed.
The income tax provision, for the years ended December 31, consists of the
following:
1996 1995 1994
------- ------- --------
(In Thousands)
Current:
Federal $1,616 $2,163 $2,501
State 324 454 613
------ ------ ------
1,940 2,617 3,114
Deferred:
Federal (132) 88 62
State (41) 13 16
------ ------ ------
(173) 101 78
------ ------ ------
$1,767 $2,718 $3,192
====== ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE H--INCOME TAXES--CONTINUED
The provision for income taxes, for the years ended December 31, differs from
that computed at the federal statutory corporate tax rate as follows:
1996 1995 1994
------ ------ ------
(In Thousands)
Income before income taxes
and cumulative effect of
a change in accounting principle $5,050 $7,308 $7,390
====== ====== ======
Income tax expense at federal
statutory rate of 34% $1,717 $2,485 $2,513
Increase (decrease) resulting from:
Nondeductible merger costs 157
Nondeductible reorganization costs 26
State income taxes, net of federal
income tax benefits 187 310 403
Other (137) (103) 119
------ ------ ------
$1,767 $2,718 $3,192
====== ====== ======
The components of the Savings Bank's deferred tax assets and liabilities as of
December 31 are as follows:
1996 1995
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Deferred compensation $ 619 $ 557
Deferred loan fees 197 199
Loss reserves 460 332
Excess servicing gains 62 75
Tax net operating loss carryforwards 5
Other 10 5
------ ------
Total deferred tax assets 1,353 1,168
Deferred tax liabilities:
FHLB stock dividends 160 141
Depreciation 231 257
Unrealized securities gains 251 204
Other 28 9
------ ------
Total deferred tax liabilities 670 611
------ ------
$ 683 $ 557
====== ======
There is no valuation allowance recognized for financial statement purposes
at December 31, 1996 or 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE I--STOCKHOLDERS' EQUITY
The Board of Directors of the Company is authorized to issue cumulative
preferred stock in series and to establish the relative rights and preferences
of each series with respect to rates, redemption rights and prices, conversion
terms, voluntary liquidation rights and voting powers. Cumulative preferred
stock will rank prior to common stock as to dividend rights and liquidation
preferences. Under Wisconsin State law, preferred stockholders are entitled
to vote as a separate class or series in certain circumstances, including any
amendment which would adversely change the specific terms of such series of
stock or which would create or enlarge any class or series ranking prior
thereto in rights and preferences (excluding substituting the surviving
entity in a merger or consolidation of the Company).
The Savings Bank is subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary-- actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank's financial statements. Under federal
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Savings Bank must meet specific capital guidelines that involve
quantitative measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Savings Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings,
and other factors.
As of December 31, 1996, the most recent notification from the Office of Thrift
Supervision ("OTS") categorized the Savings Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Savings Bank must maintain minimum tangible, core and risk
based ratios as set forth in the table. As a state-chartered savings
institution, the Savings Bank is also subject to a minimum capital requirement
of the State of Wisconsin. Management believes, as of December 31, 1996, that
the Savings Bank meets all capital adequacy requirements to which it is
subject. There are no conditions or events since that notification that
management believes have changed the Savings Bank's category.
The Savings Bank's required and actual capital amounts and ratios are presented
in the following table.
REQUIRED EXCESS ACTUAL
REGULATORY CAPITAL OVER
ACTUAL CAPITAL REGULATORY CAPITAL
------------ ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
As of December 31, 1996:
Tangible Capital $64,489 10.5% $ 9,204 1.5% $55,285 9.0%
(to Tangible Assets)
Core Capital 64,489 10.5% 18,409 3.0% 46,080 7.5%
(to Tangible Assets)
Risk-Based Capital 67,426 17.8% 30,295 8.0% 37,131 9.8%
(to Risk-Weighted Assets)
State of Wisconsin Capital 68,754 11.2% 36,915 6.0% 31,839 5.2%
(to Total Assets)
As of December 31, 1995:
Tangible Capital 71,317 12.9% 8,282 1.5% 63,035 11.4%
(to Tangible Assets)
Core Capital 71,317 12.9% 16,564 3.0% 54,753 9.9%
(to Tangible Assets)
Risk-Based Capital 73,925 21.9% 27,005 8.0% 46,920 13.9%
(to Risk-Weighted Assets)
State of Wisconsin Capital 75,187 13.6% 33,208 5.8% 43,363 7.8%
(to Total Assets)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE I--STOCKHOLDERS' EQUITY--CONTINUED
Applicable rules and regulations of the OTS impose limitations on dividends by
the Savings Bank. Within those limitations, certain "safe harbor" dividends
are permitted, subject to providing the OTS at least 30 days advance notice.
The safe harbor amounts are based upon an institution's regulatory capital
level. Thrift institutions which have capital in excess of all capital
requirements before and after the proposed dividend are permitted to make
capital distributions during any calendar year up to the greater of (1) 100%
of net income to date during the calendar year, plus one-half of the surplus
over such institution's capital requirements at the beginning of the calendar
year, or (2) 75% of net income over the most recent four-quarter period.
Additional restrictions would apply to an institution which does not meet its
capital requirement before or after a proposed dividend.
Unlike the Savings Bank, the Company is not subject to these regulatory capital
requirements or restrictions on the payment of dividends to its stockholders.
However, the source of its future dividends may depend upon dividends from the
Savings Bank.
On March 20,1996, the Company began its first stock repurchase program for its
common stock to be used for the exercise of stock options. During 1996, the
Company purchased 228,467 shares at an average price of $15.82 under this
program. A second repurchase program began on October 18, 1996 for up to
219,057 shares to be used for general corporate purposes, including the
exercise of stock options under the stock option plans.
NOTE J--EMPLOYEE BENEFIT PLANS
The Savings Bank has a participatory defined contribution 401(k) plan. The
plan covers all employees with at least one year of service and who have
attained age twenty-one. The Savings Bank will annually contribute three
percent of an employee's cash compensation and may fund an additional
discretionary dollar amount to the plan. Employees may annually contribute up
to 4% of their compensation and the Savings Bank will contribute 50% of the
amount of each employee's contribution up to 4%. In addition, each employee
may contribute amounts in excess of the 4% limit, up to the lesser of 15% of
compensation or federal tax limits, with no Savings Bank participation.
The Savings Bank has an unfunded deferred retirement plan for directors. All
members of the Savings Bank's Board of Directors are eligible under the plan.
Directors of a predecessor institution and who are members of an advisory board
are eligible at the discretion of the Savings Bank. Currently, there are four
advisory board members in the plan. The Savings Bank, also has supplemental
retirement plans for several of its executives. Total expense relating to
these plans for 1996, 1995 and 1994 was $265,000, $256,000 and $349,000,
respectively. The Savings Bank does not, as a policy, offer post retirement
benefits other than the plans discussed above.
The Company has elected to continue following Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its employee and directors' stock options
because, as discussed below, the alternative fair value accounting provided
for under FASB Statement No. 123, "Accounting for Stock-Based Compensation"
requires the use of option valuation models that were not developed for use
in valuing the Company's employee and directors' stock options. Under APB
No. 25, because the exercise price of the Company's employee and directors'
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company has a "1984 Stock Option Plan," "1989 Executive Stock Option Plan,"
"1989 Directors' Stock Option Plan," a "1989 Stock Option and Incentive Plan,"
a "1992 Advisory Directors' Stock Option Plan," a "1994 Directors' Stock Option
Plan" and a "1994 Executive Stock Plan." The 1984 Stock Option Plan had
240,000 shares of common stock reserved for the grant of incentive stock
options or non-qualified stock options to key officers and non-qualified stock
options to directors. The plan provided that incentive stock option prices
will not be less than the fair market value of the stock at the grant date and
non-incentive stock option prices will not be less than 95% nor more than 99%
of the fair value of the stock at the grant date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE J--EMPLOYEE BENEFIT PLANS--CONTINUED
The 1989 Executive Stock Option Plan had 170,000 shares of common stock
reserved for executive officers and the 1989 Directors' Stock Option Plan had
70,000 shares of common stock reserved for directors. The executive officers
were granted incentive stock options. Since February 1, 1990, directors have
been receiving 1,800 non-qualified stock options annually on the first business
day of February. The option price for the directors' non-qualified stock
options will be equal to the fair value on the date of the grant. Upon a
director's retirement, the options become fully vested. All options vest at a
maximum of 33 1/3% for each year of completed continuous service from the
grant date and expire no later than ten years from the grant date.
The 1989 Stock Option and Incentive Plan was acquired with the merger of Prime
Federal and has 23,140 stock options outstanding at December 31, 1996. All
options are vested and will expire no later than ten years from date of grant.
The 1992 Advisory Directors' Stock Option Plan had 24,000 shares of common
stock reserved for the grant of non-qualified stock options to certain
advisory directors. The option price for the 1992 Advisory Directors non-
qualified stock options will be equal to the fair market value on the date of
the grant. All options vest at the end of one year and expire no later than
ten years from the grant date. All options in the 1992 Advisory Directors'
Stock Option Plan were granted in 1992.
The 1994 Directors' Stock Option Plan has 70,000 shares of common stock
reserved for directors. Directors will receive 1,800 non-qualified stock
options on the first business day of February of each year. The option price
for the directors' non-qualified stock options will be equal to the fair market
value on the date of the grant. All options vest at a maximum of 33 1/3% for
each year. Upon a director's retirement, the options become fully vested.
Options expire no later than ten years from the grant date.
The 1994 Executive Stock Plan has 380,000 shares of common stock reserved for
the grant of incentive stock options, non-qualified stock options, stock
appreciation rights ("SARs") or restrictive stock to key executives. The plan
provides that incentive stock option prices will not be less than the fair
value of the stock at the grant date and non-incentive stock option prices
will not be less than 90% of the fair value of the stock at the grant date.
The fair value for these options was estimated at the date of grant of using
Black-Scholes option pricing model with the following weighted-average
assumptions for both 1996 and 1995, risk-free interest rates of 6.4%; dividend
yield of 5%; volatility factors of the expected market price of the Company's
common stock of .174; and a weighted-average expected life of the options of
7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee and directors' stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee and directors' stock options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE J--EMPLOYEE BENEFIT PLANS--CONTINUED
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
DECEMBER 31
--------------------------
1996 1995
--------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net income $3,283 $4,590
====== ======
Pro forma net income $3,220 $4,560
====== ======
Pro forma earnings per share $0.71 $0.98
===== =====
A summary of stock option transactions for each of the three years ended
December 31, 1996 is as follows:
Number Weighted Average
of Shares Exercise Price
---------- ------------------
Balance at January 1, 1994 353,661 $ 7.67
Granted 36,200 14.94
Exercised (41,298) 4.81
------- ------
Balance at December 31, 1994 348,563 8.76
Granted 54,000 12.75
Exercised (60,171) 7.34
Expired (10,600) 14.54
------- ------
Balance at December 31, 1995 331,792 9.49
Granted 45,800 15.75
Exercised (69,782) 9.31
Expired (4,000) 15.75
------- ------
Balance at December 31, 1996 303,810 $10.39
======= ======
At December 31, 1996, options for 220,777 shares were exercisable.
Concurrent with the merger the Company approved the termination of Prime
Federal's Employee Stock Ownership Plan ("ESOP") and the ESOP was terminated
in February of 1995. Participants in the ESOP had the option of receiving
their benefits in a lump-sum distribution or rolling them over into the
Savings Bank's defined contribution 401(k) plan. For ESOP Plan year ended
September 30, 1994, expenses related to the ESOP were $41,700.
NOTE K--COMMITMENTS
The Company is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit and forward
commitments to sell mortgage loans. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statements of financial condition. The contract amounts
reflect the extent of involvement the Company has in the particular class of
financial instrument. The Company's maximum exposure to credit loss for
commitments to extend credit is represented by the contract amount of those
instruments. For forward commitments to sell loans, the contract amounts do
not represent exposure to credit loss.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE K--COMMITMENTS--CONTINUED
Off-balance sheet financial instruments whose contract amounts represent credit
and/or interest rate risk are as follows:
December 31
---------------------
1996 1995
------- -------
(In Thousands)
Commitments to extend credit:
Fixed rate (7.375% to 7.875% at
December 31, 1996) $ 511 $ 394
Adjustable (6.12 % to 7.62% at
December 31, 1996) 1,983 2,401
Commitments to sell loans
(7.625% to 8.25% at December 31, 1996) 974 571
Unused overdraft protection lines
of credit for checking accounts 1,476 1,438
Unused equity lines of credit 12,869 11,979
Unused commercial real estate lines of credit 237 114
Unused credit card lines of credit 2,636 8,852
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and generally require payment of a
fee. As some commitments expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates the credit worthiness of each customer on a case-by-case basis. The
Company generally extends credit only on a secured basis. Collateral obtained
varies, but consists primarily of one- to four-family residences.
Commitments to extend credit on a fixed rate basis expose the Company to a
certain amount of interest rate risk if market rates of interest substantially
increase during the commitment period.
Forward commitments to sell mortgage loans represent commitments obtained by
the Company from a secondary market agency to purchase mortgages from the
Company and place them in a mortgage-related security pool with a defined
yield. Commitments to sell loans expose the Company to interest rate risk if
market rates of interest decrease during the commitment period. Commitments to
sell loans are made to mitigate interest rate risk on the existing loan
portfolio and on commitments to extend credit.
The Company neither has any investments in nor is a party to transactions
involving derivative investments, except mortgage related securities which
represent minimal risk to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE L--FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or
not recognized in the statements of financial condition, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement to the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The Company does not routinely measure the market value of financial
instruments because such measurements represent point-in-time estimates of
value. It is not the intent of the Company to liquidate and therefore realize
the difference between market value and carrying value and even if it were,
there is no assurance that the estimated market values could be realized.
Thus, the information presented is not particularly relevant to predicting the
Company's future earnings or cash flows.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the statements
of financial condition for cash and interest-earning deposits approximate
those assets' fair values.
SECURITIES AVAILABLE-FOR-SALE AND HELD TO MATURITY: Fair values for
securities available-for-sale and held to maturity are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
LOANS HELD FOR SALE AND LOANS RECEIVABLE: For variable-rate mortgage loans
that reprice frequently and with no significant change in credit risk, fair
values are based on carrying values. The fair values for all other loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
ACCRUED INTEREST RECEIVABLE AND PAYABLE: The carrying amounts reported in
the statements of financial condition approximate their fair values.
FEDERAL HOME LOAN BANK STOCK: Fair value for the Federal Home Loan Bank
stock is based on its redeemable (carrying) value, as a market for this
stock is restricted.
MORTGAGE SERVICING RIGHTS: The estimated fair value of mortgage servicing
rights is determined using discounted cash flow techniques. Expected cash
flows are adjusted for estimated future loan prepayments as provided by
third-party market sources or as estimated by management using historical
prepayment expense.
DEPOSITS: The fair values disclosed for interest- and non interest-bearing
negotiable order of withdrawal accounts, passbook accounts and money market
accounts and advances from borrowers for taxes and insurance are, by
definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The fair values for fixed-rate
certificates of deposit are estimated using discounted cash flow analysis
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities of the outstanding
certificates of deposit.
BORROWINGS: The fair values disclosed for borrowings are based on a
discounted cash flows basis using current offering rates of like term
borrowings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE L--FAIR VALUES OF FINANCIAL INSTRUMENTS--CONTINUED
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's off-balance
sheet instruments (lending commitments and unused lines of credit) are
based on quoted market prices or fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the credit standing of the related counter party. The fair
value of these off-balance sheet items approximates the recorded amounts of
the related fees and is not material at December 31, 1996.
The carrying amounts and fair values of the Company's financial instruments
consist of the following at December 31:
1996 1995
----------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
Cash and cash equivalents $ 3,563 $ 3,563 $ 1,274 $ 1,274
======== ======== ======== ========
Investment and mortgage-related
securities available-for-sale $ 7,472 $ 7,472 $ 4,991 $ 4,991
======== ======== ======== ========
Investment and mortgage-related
securities held-to-maturity $ 25,908 $ 25,880 $ 23,388 $ 23,551
======== ======== ======== ========
Loans receivable $559,464 $555,171 $506,132 $505,861
======== ======== ======== ========
Accrued interest receivable $ 3,295 $ 3,295 $ 3,074 $ 3,074
======== ======== ======== ========
Mortgage servicing rights $ 101 $ 101
======== ========
Federal Home Loan Bank stock $ 3,773 $ 3,773 $ 3,768 $ 3,768
======== ======== ======== ========
Deposits $455,969 $416,775 $447,675 $447,693
======== ======== ======== ========
Accrued interest on deposits $ 2,354 $ 2,354 $ 2,279 $ 2,279
======== ======== ======== ========
Borrowings $ 77,272 $ 77,109 $ 21,000 $ 19,466
======== ======== ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE M--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of December 31,
1996 and 1995 and the condensed statements of income and cash flows for the
two years ended December 31, 1996 should be read in conjunction only with the
consolidated financial statements and the notes thereto. The statements of
income and cash flows have been presented as if the Company had been formed
as of January 1, 1995.
STATEMENTS OF FINANCIAL CONDITION
FIRST NORTHERN CAPITAL CORP.
DECEMBER 31
------------------
1996 1995
-------- -------
(IN THOUSANDS)
ASSETS
Cash $ 4,337 $ 1
Equity in net assets of subsidiaries 65,817 72,579
Other assets 74
-------- -------
$ 70,228 $72,580
======== =======
LIABILITIES
Other liabilities $ 4 $ 1
-------- -------
Total Liabilities 4 1
STOCKHOLDERS' EQUITY
Common stock 4,568 4,555
Additional paid-in capital 14,389 14,590
Unrealized gain on securities
available for sale, net of taxes 385 315
Treasury stock at cost (2,853)
Retained earnings 53,735 53,119
-------- -------
Total stockholders' equity 70,224 72,579
-------- -------
$70,228 $72,580
======== =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
FIRST NORTHERN CAPITAL CORP. AND SUBSIDIARIES
NOTE M--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS--CONTINUED
STATEMENTS OF INCOME
FIRST NORTHERN CAPITAL CORP.
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- --------
(IN THOUSANDS)
INTEREST INCOME
Interest-earning deposits $ 46
NON-INTEREST INCOME
Equity in net income of Savings Bank 3,373 $4,590
NON-INTEREST EXPENSE
Compensation 13
Postage 4
Other 119
------- -------
Total non-interest expense 136
------- -------
Income before taxes 3,283 4,590
Income taxes
------- -------
NET INCOME $3,283 $4,590
======= ======
STATEMENTS OF CASH FLOWS
FIRST NORTHERN CAPITAL CORP.
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 3,283 $ 4,590
Adjustments to reconcile net
income to cash provided
(used) by operating activities:
Less equity in earnings of the Bank (3,373) (4,590)
Increase in other liabilities 2 1
------- ------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (88) 1
------- ------
FINANCING ACTIVITIES:
Cash dividends received 10,205
Cash dividends paid (2,667)
Purchase of treasury stock (3,698)
Retirement of common stock (66)
Proceeds from exercise of stock options 650
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,424
------- ------
INCREASE IN CASH AND CASH EQUIVALENTS 4,336 1
Cash and cash equivalents at
beginning of period 1
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,337 $ 1
======= =======
SUPPLEMENTAL INFORMATION TO THE STATEMENT OF CASH FLOWS:
Investment in subsidiary swapped for shares in
First Northern Capital Corp. $71,859
FIRST NORTHERN CAPITAL COPR.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
First Northern Capital Corp.
We have audited the accompanying consolidated statements of financial condition
of First Northern Capital Corp. (the "Company") and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and
subsidiaries at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/Ernst & Young LLP
ERRNST & YOUNG LLP
January 24, 1997
Milwaukee, Wisconsin