UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- - --------------------------------------------------------------------------
F O R M 1 0 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27982
FIRST NORTHERN CAPITAL CORP.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1830142
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 NORTH MONROE AVENUE
P.O. BOX 23100
GREEN BAY, WISCONSIN 54305-3100
(414) 437-7101
(Address, including Zip Code, and telephone number,
including area code, of registrant s principal executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK, $1.00 PAR VALUE
PER SHARE, WAS 4,419,335, AT APRIL 30, 1997.
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial
Condition as of March 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations
for the Three Months Ended
March 31, 1997 and March 31, 1996 . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1997 and March 31, 1996 . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . 6 - 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 19 -20
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1997 DECEMBER 31, 1996
------------------- --------------------
(In Thousands)
Assets
Cash $ 5,728 $ 1,965
Interest-earning deposits 100 1,598
---------- ----------
CASH AND CASH EQUIVALENTS 5,828 3,563
Securities available-for-sale, at fair value
Investment securities 6,338 5,635
Mortgage-related securities 1,692 1,837
Securities held-to-maturity
Investment securities
(estimated fair value of $17,743 -
1997; $16,633 - 1996) 17,769 16,583
Mortgage-related securities
(estimated fair value of $9,065 -
1997; $9,247 - 1996) 9,264 9,325
Loans held for sale 1,854 2,532
Loans receivable 552,132 553,995
Accrued interest receivable 3,292 3,295
Foreclosed properties and repossessed assets 88 189
Office properties and equipment 8,639 8,350
Federal Home Loan Bank stock 4,273 3,773
Prepaid expenses and other assets 6,730 6,426
-------- --------
$617,899 $615,503
======== ========
Liabilities
Deposits $467,381 $458,323
Borrowings 71,951 77,272
Advance payments by borrowers for
taxes and insurance 3,136 5,447
Other liabilities 4,314 4,237
-------- --------
TOTAL LIABILITIES 546,782 545,279
Stockholders' Equity
Cumulative preferred stock, $1 par value;
10,000,000 shares authorized; none outstanding
Common stock, $1 par value; 30,000,000 shares
authorized; shares issued: 4,568,052 - 1997
and 1996 4,568 4,568
Additional paid-in capital 14,140 14,389
Unrealized gains on securities available-for-sale,
net of taxes 354 385
Treasury stock at cost (148,717 - 1997; 180,623
- 1996) (2,361) (2,853)
Retained earnings 54,416 53,735
-------- --------
TOTAL STOCKHOLDERS' EQUITY 71,117 70,224
-------- --------
$617,899 $615,503
======== ========
See Notes to Unaudited Consolidated Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
1997 1996
--------- ---------
(In Thousands, Except Per Share Amounts)
Interest income:
Mortgage loans $7,598 $6,999
Consumer loans 2,889 2,508
Investment securities 419 385
Interest-earning deposits 10 20
Mortgage-related securities 178 134
------ ------
TOTAL INTEREST INCOME 11,094 10,046
Interest expense:
Deposits 5,061 5,098
Borrowings 1,156 503
Advance payments by borrowers for
taxes and insurance 14 15
------ ------
TOTAL INTEREST EXPENSE 6,231 5,616
------ ------
NET INTEREST INCOME 4,863 4,430
Provision for loan losses 75 60
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,788 4,370
Non-interest income:
Fees on serviced loans 83 91
Loan fees and service charges 60 46
Deposit account service charges 289 203
Insurance commissions 106 61
Gains on sales of loans 50 91
Other 148 104
------ ------
TOTAL NON-INTEREST INCOME 736 596
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 1,786 1,682
Federal insurance premiums 60 261
Occupancy 238 233
Data processing 338 303
Furniture and equipment 125 136
Telephone and postage 129 126
Marketing 100 67
Other 519 502
------- ------
TOTAL NON-INTEREST EXPENSE 3,295 3,310
------- ------
INCOME BEFORE INCOME TAXES 2,229 1,656
Income taxes 844 567
------- ------
NET INCOME $ 1,385 $ 1,089
======= =======
PRIMARY NET INCOME PER SHARE $0.31 $0.23
===== =====
CASH DIVIDENDS PAID PER SHARE $0.16 $0.15
===== =====
See Notes to Unaudited Consolidated Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
1997 1996
-------- ---------
(In Thousands)
Operating Activities
Net income $ 1,385 $ 1,089
Adjustments to reconcile net income
to cash provided by operating activities:
Provision for losses on loans and real estate 75 60
Provision for depreciation and amortization 212 188
Gains on sales of loans (50) (91)
Loans originated for sale (3,044) (4,520)
Proceeds from loan sales 3,722 4,806
Decrease in interest receivable 3 58
Increase in interest payable 37 183
Other (156) (551)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,184 1,222
------- --------
Investing Activities
Proceeds from maturities of investment
securities and interest-earning deposits 1,800 4,000
Purchases of investment securities (3,740) (3,000)
Principal repayments of mortgage-related
securities 201 115
Purchase of mortgage-related securities (4,963)
Loan originations and purchases (29,339) (32,958)
Loan principal repayments 31,199 28,649
Purchases of office properties and equipment (501) (144)
Purchase of Federal Home Loan Bank stock (500) (5)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (880) (8,306)
------- -------
Financing Activities
Net increase in deposits 9,021 6,704
Net decrease in short-term borrowings (3,397)
Proceeds from long term borrowings 13,575 19,500
Repayments of long term borrowings (15,500) (5,000)
Cash dividends (704) (685)
Purchase of treasury stock (170) (240)
Proceeds from exercise of stock option 447 117
Net decrease in advance payments by
borrowers for taxes and insurance (2,311) (3,222)
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 961 17,174
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 2,265 10,090
Cash and cash equivalents at beginning of period 3,563 1,274
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,828 $11,364
======== =======
Supplemental Information to the Statement of Cash Flows:
Interest credited and paid on deposits $5,367 $4,916
Interest paid on borrowings 1,914 447
Payments for federal and state income taxes 135 283
Loans transferred to foreclosed properties and
repossessed assets 112 111
See Notes to Unaudited Consolidated Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
(1) The consolidated financial statements include the accounts of First
Northern Capital Corp. ( First Northern or the Company ) and its
wholly-owned subsidiary First Northern Savings Bank, S.A. and its
subsidiaries (collectively, the "Savings Bank"): Great Northern Financial
Services Corporation ("GNFSC"), First Northern Investments Incorporated
("FNII"), Keystone Financial Services, Incorporated ("Keystone")and First
Northern Financial Services, Incorporated. All significant intercompany
balances and transactions have been eliminated according to generally
accepted accounting principles. The Savings Bank's ownership of Savings
Financial Corporation ("SFC"), a 50% owned subsidiary, is accounted for by
the equity method.
(2) The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information, Rule 10-01 of Regulation S-X and the instructions
to Form 10-Q. The financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial information. In the opinion of First
Northern, the accompanying Unaudited Consolidated Statements of Financial
Condition, Unaudited Consolidated Statements of Income and Unaudited
Consolidated Statements of Cash Flows contain all adjustments, which are
of a normal recurring nature, necessary to present fairly the consolidated
financial position of the Company and subsidiaries at March 31, 1997 and
December 31, 1996, the results of their operations for the three months
ended March 31, 1997 and 1996 and their cash flows for the three months
ended March 31, 1997 and 1996. The accompanying Unaudited Consolidated
Financial Statements and related notes should be read in conjunction with
First Northern's 1996 Annual Report to Stockholders.
(3) In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is effective for interim and annual
periods ending after December 15, 1997. At that time, First Northern will
be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements,
primary earnings per share will be replaced by basic earnings per share
and the dilutive effect of stock options will be excluded. Statement
No. 128 will have no impact on primary earnings per share for the first
quarter ended March 31, 1997, and will increase primary earnings per
share $0.01 for the first quarter ended March 31, 1996. The impact of
Statement No. 128 on the calculation of fully diluted earnings per share
for these quarters is not material.
(4) Securities Available-for-Sale
The amortized cost and estimated fair values of securities available-for-
sale are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ------------ -----------
(In Thousands)
At March 31, 1997:
Asset Management Funds $ 483 $(10) $ 473
Federal Home Loan Mortgage
Corporation stock 33 $621 654
U.S. government and agency securities 5,235 2 (26) 5,211
-------- ------- ------- ---------
5,751 623 (36) 6,338
Mortgage-related securities 1,688 4 1,692
--------- ------- ------- ---------
$7,439 $627 $(36) $8,030
====== ==== ==== ===== At December 31, 1996:
Asset Management Funds $ 476 $ (5) $ 471
Federal Home Loan Mortgage
Corporation stock 33 $629 662
U.S. government and agency securities 4,495 22 (15) 4,502
-------- ------- ------ ---------
5,004 651 (20) 5,635
Mortgage-related securities 1,828 9 1,837
--------- ------ ------ ---------
$6,832 $660 $(20) $7,472
===== ==== ==== =====
(5) Securities Held-to-Maturity
The amortized cost and estimated fair values of investment securities
held-to-maturity, which consist of U.S. government and agency securities,
are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ------------ ------------ -----------
(In Thousands)
At March 31, 1997 $17,769 $40 $(66) $17,743
====== === ==== ======
At December 31, 1996 $16,583 $86 $(36) $16,633
====== === ==== ======
At March 31, 1997, these investment securities have the following maturities:
Amortized Estimated
Cost Fair Value
-------------- --------------
(In Thousands)
Due in one year or less $ 7,504 $ 7,539
Due after one year through 5 years 10,265 10,204
------- -------
$17,769 $17,743
====== ======
The amortized cost and estimated fair values of mortgage-related securities
held-to-maturity are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ----------- ----------- ------------
(In Thousands)
At March 31, 1997:
Federal Home Loan Mortgage Corporation $5,533 $39 $(160) $5,412
Federal National Mortgage Association 3,731 5 ( 83) 3,653
------ --- ------ ---------
$9,264 $44 $(243) $9,065
===== === ===== =====
At December 31, 1996:
Federal Home Loan Mortgage Corporation $5,595 $50 $ (89) $5,556
Federal National Mortgage Association 3,730 17 (56) 3,691
------ --- -------- ---------
$9,325 $67 $(145) $9,247
===== === ===== =====
(6) Loans Receivable
Loans receivable consist of the following:
March 31 December 31
1997 1996
----------- ------------
(In Thousands)
First mortgage loans:
One to four family residential $377,431 $376,189
Five or more family residential 19,186 20,154
Commercial real estate 9,538 9,975
Construction-residential 13,149 16,306
Construction-commercial 1,521 1,701
Other 2,126 1,900
-------- --------
422,951 426,225
Consumer loans:
Consumer 17,847 18,179
Second mortgage 60,599 59,148
Automobile 59,735 60,339
-------- --------
138,181 137,666
-------- --------
561,132 563,891
Less:
Undisbursed loan proceeds 5,019 5,942
Allowance for losses 2,987 2,937
Unearned loan fees 994 1,017
-------- --------
9,000 9,896
-------- --------
$552,132 $553,995
======== ========
(7) The weighted average number of shares outstanding, including common stock
equivalents, for the three months ended March 31, 1997 and 1996 were
4,534,345 and 4,677,807, respectively.
(8) Certain amounts in 1996 financial statements have been reclassified to
conform to the 1997 presentations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY FACTORS
This 10-Q contains various forward-looking statements concerning the Company's
prospects that are based on the current expectations and beliefs of Management.
Forward-looking statements may also be made by the Company from time to time
in other reports and documents as well as oral presentations. When used in
written documents or oral statements, the words anticipate, believe, estimate,
expect, objective and similar expressions are intended to identify forward-
looking statements. The statements contained herein and such future statements
involve or may involve certain assumptions, risks and uncertainties, many of
which are beyond the Company's control, that could cause the Company's actual
results and performance to differ materially from what is expected. In
addition to the assumptions and other factors referenced specifically in
connection with such statements, the following factors could impact the
business and financial prospects of the Company: general economic conditions;
legislative and regulatory initiatives; monetary and fiscal policies of the
federal government; deposit flows; disintermediation; the cost of funds;
general market rates of interest; interest rates or investment returns on
competing investments; demand for loan products; demand for financial services;
changes in accounting policies or guidelines; and changes in the quality or
composition of the Savings Bank s loan and investment portfolios and the
investment portfolio of FNII.
FINANCIAL CONDITION
BALANCE SHEET
CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $2.3 million greater
at March 31, 1997, as compared to December 31, 1996, primarily as the result
of customer deposits made to demand deposit accounts on March 31, 1997. These
funds are not available to be used until the following day. Any cash that is
not immediately needed to fund loans or operations is invested in overnight
interest-earning deposits.
SECURITIES AVAILABLE-FOR-SALE. Securities available-for-sale increased
approximately $0.6 million as of March 31, 1997, as compared to December 31,
1996, primarily as the result of a purchase of a U.S. Government security.
SECURITIES HELD-TO-MATURITY. Investment securities held-to-maturity increased
$1.2 million primarily as a result of purchases of U.S. Government and agency
securities.
Mortgage-related securities held-to-maturity decreased slightly as a result of
normal repayments and prepayments of the underlying collateral, mortgage loans.
LOANS HELD FOR SALE. At March 31, 1997, First Northern had $1.9 million of
fixed interest rate mortgage and education loans classified as loans held for
sale. First Northern originates and sells most of its 30 year fixed interest
rate mortgage loans and education loans. 15 year fixed interest rate mortgage
loan originations are retained in First Northern s loan portfolio.
LOANS RECEIVABLE. Loans receivable decreased $1.9 million as a result of
decreased one-to four-family construction and five or more residential
mortgage loan originations. Loan originations are as follows:
LOAN ORIGINATIONS AND PURCHASES
Three Months Ended
March 31
1997 1996
----------- -----------
(In Thousands)
Mortgage loans originated and purchased:
Construction $ 2,278 $ 5,703
Loans on existing property 5,758 7,374
Refinancing 6,835 14,204
Other loans 606 723
------- -------
Total mortgage loans originated
and purchased 15,477 28,004
Consumer loans originated and purchased:
Consumer 1,887 1,589
Second mortgage 7,484 6,322
Automobile 8,418 6,238
Education 954 642
------- -------
Total consumer loans originated
and purchased 18,743 14,791
------- -------
Total loans originated and purchased $34,220 $42,795
====== ======
Mortgage loan originations for the first quarter of 1997 decreased as compared
to the same period in 1996 primarily as the result of an overall slow down of
home buying in the markets served by First Northern. Management believes the
slowdown in home buying was the result of a slight increase in mortgage loan
origination interest rates offered, snowy and cold weather and the interest in
the Green Bay Packer s Super Bowl championship. First Northern anticipates
that the dollar amount of mortgage loan originations will increase in the
second quarter of 1997 as a result of normal increased seasonal home buying.
First Northern sold $2.8 million of fixed interest rate mortgage loans in the
first quarter of 1997 as compared to $3.0 million for the same period in 1996.
First Northern retains all adjustable interest rate mortgage loan originations
in its portfolio; whereas, most 30 year fixed interest rate mortgage loan
originations are sold in the secondary market. In addition, $0.9 million of
education loans were sold in the three months ended March 31, 1997. In 1995,
First Northern's management contractually committed to sell its existing
education loan portfolio and to sell its ongoing education loan originations.
Consumer loan originations and purchases increased in the first quarter of 1997
as compared to the first quarter of 1996 primarily as a result of an increase
in automobile loan originations in the Savings Bank's jointly owned subsidiary,
SFC, and second mortgage loan originations. SFC automobile loan originations
increased as a result of developing new business relationships with automobile
dealers throughout the state of Wisconsin. First Northern has actively
promoted second mortgage loan originations by establishing a reduced
introductory interest rate and increasing its direct mail and newspaper
advertising.
DEPOSITS. Deposits increased $9.1 million for the first quarter of 1997 as a
result of offering competitive interest rates and the acquisition of jumbo
(CD's in excess of $100,000) deposits. At times, jumbo deposits are a cheaper
source of funds than retail deposits or borrowing. First Northern s jumbo
deposits grew $4.0 million in the first three months of 1997.
BORROWINGS. Federal Home Loan Bank ("FHLB") borrowings decreased $5.3 million
in the first quarter of 1997, primarily as the result of the growth in deposits
and reduced loan originations. First Northern will borrow monies if the
borrowing interest rate is a less costly form of funding for loans and
investments than acquiring deposits. At March 31, 1997, $57.7 million are
fixed interest rate borrowings and $14.2 million are overnight borrowings.
First Northern anticipates that it will continue to utilize borrowings
throughout 1997 if it incrementally adds to the overall profitability of the
Company.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. Advance payments by
borrowers for taxes and insurance ("escrow") decreased $2.3 million at March
31, 1997, as compared to December 31, 1996. The decrease in escrow dollars was
the result of the payment of First Northern s customers tax payments from
their real estate tax escrow account.
STOCKHOLDERS' EQUITY. First Northern paid a cash dividend of $0.16 per share
on February 14, 1997 to stockholders of record on January 30, 1997. The
increase of $0.01 per share represents a 6.7% increase over the first quarter
of 1996 cash dividend of $0.15 per share.
On October 19, 1996, First Northern approved a second stock repurchase program
to repurchase 219,057 shares (5% of total shares outstanding) through the open
market. These repurchased shares will be used to satisfy exercises of stock
options. At March 31, 1997, 23,000 shares had been purchased at an average
price of $16.701 per share or a total of $0.4 million. Subsequently, on April
18, 1997, the second stock repurchase program was extended to October 17, 1997.
ASSET QUALITY
First Northern currently classifies any loan on which a payment is 90 days or
more past due as non-performing. The following table summarizes non-performing
loans and assets:
NON-PERFORMING LOANS AND ASSETS
At March 31 At December 31
1997 1996
------------ --------------
(Dollars in Thousands)
Non-accrual mortgage loans $508 $509
Non-accrual consumer loans 214 235
------ ------
Total non-performing loans 722 744
Properties subject to foreclosure 40 157
Foreclosed properties and
repossessed assets 48 32
------ ------
Total non-performing assets $810 $933
==== ====
Non-performing loans as a percent
total loans .13% .13%
=== ===
Non-performing assets as a percent
of total assets .13% .15%
=== ===
Total non-performing loans decreased slightly as of March 31, 1997 as compared
to December 31, 1996. Management believes non-performing loans and assets,
expressed as a percentage of total loans and assets, remain far below state
and national averages. There are no accruing material loans known to
management at March 31, 1997, that are expected to become non-performing or
contain potential losses.
In addition, management believes that the allowances for losses on loans are
adequate. While management uses available information to recognize losses on
loans and real estate owned, future additions to the allowances may be
necessary based on changes in economic conditions. Furthermore, various
regulatory agencies, as an integral part of their examination process,
periodically review First Northern's allowances for losses on loans and real
estate owned. Such agencies may require First Northern to recognize additions
to the allowances based on their judgments of information available to them at
the time of their examination.
Summary of the allowance for losses is shown below.
LOAN LOSS ALLOWANCES
At and for the At and for the
Three Months Ended Year Ended
March 31, 1997 December 31, 1996
--------------------- --------------------
(Dollars in Thousands)
Mortgage Loans:
Balance at the beginning of the period $1,453 $1,578
Provisions for the period 75 10
Recoveries
Commercial real estate 1 1
Transfer of loss reserve (136)
-------- --------
Balance at the end of the period 1,529 1,453
Consumer Loans:
Balance at the beginning of the period 1,484 1,030
Provisions for the period 360
Charge-offs
Consumer (9) (23)
Automobile (20) (43)
Recoveries
Consumer 1 11
Automobile 2 13
Transfer of loss reserve 136
-------- --------
Balance at the end of the period 1,458 1,484
-------- --------
Total loan loss allowances at the
end of the period $2,987 $2,937
===== =====
Allowance as a percent of total loans .54% .53%
=== ===
Allowance as a percent of non-performing loans 413.71% 394.76%
====== =====
Allowance as a percent of total assets .48% .48%
=== ===
Allowance as a percent of non-performing assets 368.77% 314.79%
====== ======
RESULTS OF OPERATIONS
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS
The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets, the resultant
yields, and the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
Average balances are derived from average daily balances. The yields and rates
are established by dividing income or expense dollars by the average balance
of the asset or liability. The yields and rates for the three months ended
March 31, 1997 and 1996 have been annualized.
Three Months Ended March 31
---------------------------------------------------------------------
1997 1996
------------------------------------- ------------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------------- ----------- --------- ----------------------- ------
(Dollars In Thousands)
Interest-earning assets (1):
Mortgage loans $418,218 $ 7,598 7.27% $390,646 $ 6,999 7.17%
Consumer loans 139,746 2,889 8.27 118,058 2,508 8.50
Investment securities (2) 26,939 419 6.22 24,466 385 6.29
Interest-earning deposits 730 10 5.48 1,499 20 5.34
Mortgage-related securities (2) 11,076 178 6.43 7,927 134 6.76
------------ ---------- ------ ---------- ------- -----
TOTAL 596,709 11,094 7.44 542,596 10,046 7.41
Interest-bearing liabilities:
Passbook accounts 57,587 306 2.13 56,527 322 2.28
NOW and variable rate insured
money market accounts 102,017 600 2.35 96,304 562 2.33
Time deposits 299,826 4,155 5.54 294,613 4,214 5.72
Advance payments by borrowers
for taxes and insurance 2,469 14 2.27 2,661 15 2.25
Borrowings 80,740 1,156 5.73 33,997 503 5.92
-------- ------ ---- ------- ------ ----
TOTAL 542,639 6,231 4.59 484,102 5,616 4.64
-------- ------ ---- ------- ------ ----
Net interest-earning assets balance
and interest rate spread $ 54,070 2.85% $58,494 2.77%
======= ==== ======= ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $596,709 $4,863 3.26% $542,596 $4,430 3.27%
======= ===== ==== ======== ====== ====
Average interest-earning assets
to interest-bearing liabilities 110.0% 112.1%
===== =====
(1) For the purpose of these computations, non-accruing loans are included
in the average loan amounts outstanding.
(2) For the purpose of these computations, the available-for-sale investment
securities and mortgage-related securities are presented and yields
calculated based upon the historical cost basis.
Year Ended December 31
---------------------------------
1996
---------------------------------
Interest
Average Earned/ Yield/
Balance Paid Rate
---------- ----------- --------
(Dollars In Thousands)
Interest-earning assets (1):
Mortgage loans $401,652 $28,831 7.18%
Consumer loans 126,177 10,725 8.50
Investment securities (2) 25,215 1,582 6.27
Interest-earning deposits 1,220 66 5.41
Mortgage-related securities (2) 10,344 672 6.50
-------- ------- -----
TOTAL 564,608 41,876 7.42
Interest-bearing liabilities:
Passbook accounts 58,744 1,313 2.24
NOW and variable rate insured
money market accounts 102,338 2,388 2.33
Time deposits 292,477 16,543 5.66
Advance payments by borrowers
for taxes and insurance 7,142 162 2.27
Borrowings 48,393 2,797 5.78
-------- ------- -----
TOTAL 509,094 23,203 4.56
-------- ------- -----
Net interest-earning assets balance
and interest rate spread $ 55,514 2.86%
======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $564,608 $18,673 3.31%
======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 110.9%
=====
(1) For the purpose of these computations, non-accruing loans are included
in the average loan amounts outstanding.
(2) For the purpose of these computations, the available-for-sale investment
securities and mortgage-related securities are presented and yields
calculated based upon the historical cost basis.
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
The interaction of changes in volume and rates earned or paid with regard to
interest-earning assets and interest-bearing liabilities have a significant
impact on net income between periods. The volume of interest-earning dollars
in loans and investments compared to the volume of interest-bearing dollars in
deposits and borrowings combined with the interest rate spread produces the
changes in net interest income between periods.
The following table sets forth the relative contribution of changes in volume
and effective interest rates on changes in net interest income for the periods
indicated.
Three Months Ended March 31
-----------------------------------------------------
1997 vs 1996
-----------------------------------------------------
Increase(decrease) due to:
-----------------------------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
-------------- --------- ---------- ----------
Interest-earning assets:
Mortgage loans $98 $ 494 $ 7 $ 599
Consumer loans (68) 461 (12) 381
Investment securities (4) 38 34
Interest-earning deposits 1 (11) (10)
Mortgage-related securities (7) 54 (3) 44
--- ------ ---- --------
TOTAL $20 $1,036 $ (8) 1,048
=== ===== === --------
Interest-bearing liabilities:
Passbook accounts $ (22) $ 6 (16)
NOW and variable rate
insured money market accounts 5 33 38
Time deposits (132) 75 $ (2) (59)
Advance payments by borrowers
for taxes and insurance (1) (1)
Borrowings (16) 691 (22) 653
-------- ------ ----- --------
TOTAL $ (165) $ 804 $(24) 615
====== ==== ==== --------
Net change in net interest
income $ 433
======
Year Ended December 31
---------------------------------------------------------
1996 vs 1995
---------------------------------------------------------
Increase(decrease) due to:
---------------------------------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------------ ---------- ----------- -----------
Interest-earning assets:
Mortgage loans $ 734 $ 1,086 $ 29 $ 1,849
Consumer loans 71 701 5 777
Investment securities (52) 23 (1) (30)
Interest-earning deposits (13) (24) 3 (34)
Mortgage-related securities (30) 347 (28) 289
------ ------- ----- ------
TOTAL $ 710 $ 2,133 $ 8 2,851
====== ====== ==== ------
Interest-bearing liabilities:
Passbook accounts $ (149) $ (40) $ 4 (185)
NOW and variable rate
insured money market accounts 102 381 21 504
Time deposits 340 13 353
Advance payments by borrowers
for taxes and insurance 15 (29) (2) (16)
Borrowings (340) 1,000 (149) 511
------ ------ ----- ------
TOTAL $ (32) $1,325 $(126) 1,167
====== ====== ==== ------
Net change in net interest
income $ 1,684
=======
STATEMENTS OF INCOME
GENERAL. Net income for the first quarter of 1997 as compared to the first
quarter of 1996 increased 27.2%. The increase was primarily the result of a
10% growth in average interest-earning assets, an increase in non-interest
income and a reduction in Savings Association Insurance Fund ( SAIF ) deposit
insurance premiums.
INTEREST INCOME. Interest income on mortgage loans increased $599,000 in the
first quarter of 1997 as a result of the increased dollar amount of mortgage
loans outstanding and the increased yield on the mortgage loan portfolio. The
7.1% increase in average mortgage loans outstanding was the result of a stable
interest rate environment, competitive pricing of adjustable interest rate
mortgage loans and increased marketing of mortgage loans. The increased yield
on the mortgage loan portfolio is primarily the result of interest rate
adjustments on the existing adjustable interest rate mortgage loans in the
portfolio.
Interest income on consumer loans increased $381,000 as a result of increased
dollar amount of consumer loans outstanding. (See Balance Sheet--Loans
Receivable).
Interest income on investment and mortgage-related securities increased $34,000
and $44,000, respectively. The increases were the result of increased dollars
outstanding in investment and mortgage-related securities. Additional dollars
were invested in investment and mortgage-related securities to aid First
Northern's asset/liability position.
INTEREST EXPENSE. Interest expense on deposits decreased $35,000 in the first
quarter of 1997 as compared to the same period in 1996 as a result of a
decrease in the cost of deposits. As certificate of deposit ("CD")accounts
matured, the CDs were generally reinvested in CDs at a lesser interest rate.
The interest rates offered on CDs adjust with market interest rate movement and
competition.
To capture new deposits and aid in controlling the cost of deposits, First
Northern utilizes non-traditional terms on CDs (i.e., 10 month, 14 month,
etc.).
Interest expense on borrowings increased $653,000 in the first quarter of 1997
as compared to the first quarter in 1996 as a result of the increased dollar
amount of borrowings (See Balance Sheet--Borrowings). First Northern
anticipates it will continue to borrow in the second quarter of 1997 to fund
anticipated loan demand.
PROVISION FOR LOAN LOSSES. First Northern increased its provision for loan
losses in the first quarter of 1997 as a result of growth in the loan
portfolio. The loan loss allowance as of March 31, 1997 was $2,987,000 or
.54% of total loans and 413.7% of non-performing loans.
Management believes that the current loan loss allowance is adequate; however,
the adequacy of the loan loss allowance is reviewed as historical loan loss
experience changes, the size and composition of the loan portfolio changes,
changes occur in the general economy and as may otherwise be deemed necessary.
NON-INTEREST INCOME. Loan fees and service charges increased $14,000 in the
first quarter of 1997 as compared to the first quarter of 1996 primarily as
the result of a prepayment fee collected on a large mortgage loan payoff and
charges for late payments on loans.
Deposit account service charges increased $86,000 in the first quarter of 1997
primarily as the result of increased NOW (checking) accounts outstanding and
their related fees. The Company continues to aggressively market and price
checking accounts as it believes the checking account is the product to further
develop banking relationships with customers.
Insurance commissions increased $45,000 in the three months of 1997 primarily
as the result of bonuses received from insurance carriers. If First Northern
obtains a predetermined threshold of insurance sales and insurance losses are
at or below another threshold, insurance bonuses can be earned. In the first
quarter of 1997, such insurance bonuses amounted to $47,000.
Gains on the sale of loans decreased $41,000 in the first quarter of 1997 as a
result of decreased mortgage and education loan sales. In the first quarter
of 1997, $2.8 million of mortgage loans and $0.9 million of education loans
were sold as compared to $3.0 million of mortgage loans and $1.8 million of
education loans in the first quarter of 1996.
Other income increased $48,000 in the first quarter of 1997 as compared to the
same period in 1996 primarily as a result of increased fees earned on brokerage
commissions. GNFSC offers full brokerage service to the public, which includes
but is not limited to, mutual fund sales, tax-deferred annuity sales and the
sale of stock.
NON-INTEREST EXPENSE. Compensation expense increased $104,000 in the first
three months of 1997 as a result of salary increases and related expenses and
education costs. First Northern has continued its emphasis on employee
education, especially with the introduction of a new teller system.
Federal insurance premiums decreased $201,000 in the first quarter of 1997, as
a result of reduced SAIF deposit insurance premiums and a $15,000 refund of
deposit insurance premiums from prior periods. In 1997, First Northern, like
other SAIF insured financial institutions, had its SAIF insurance premium
reduced to $0.065 per one hundred dollars of assessable deposits as compared
to $0.23 per one hundred dollars of assessable deposits in the first quarter
of 1996. This premium reduction was the result of the special SAIF assessment
charged to each SAIF insured institution in the third quarter of 1996 to
recapitalize the SAIF insurance fund. First Northern s special assessment,
which was paid in the third quarter of 1996, was $2,856,000.
Data processing expense increased $35,000 primarily as the result of the
installation of a new PC based teller system. First Northern completed its
installation of a new PC based teller system in the first quarter of 1997 to
further automate and improve the delivery of information and customer service.
Marketing expense increased $33,000 in the first quarter of 1997 as a result
of increased marketing of deposit and loan products. First Northern believes
that growth in lending and deposit volumes necessitates increased marketing
and hence, increased marketing costs.
Other expenses increased for the three months ended March 31, 1997, as compared
to the same period in 1996 primarily as the result of costs associated with SFC
operating costs and bad check charge-offs.
Income Taxes. The effective income tax rate for the first quarter of 1997 was
37.9% as compared to 34.2% for the same period in 1996. The 1997 effective
income tax rate was higher than 1996 as a result of the first quarter of 1996
utilization of a tax expense over accrual in 1995.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Federal regulations historically have required First Northern Savings Bank,
S.A. to maintain minimum levels of liquid assets. The required percentage has
varied from time to time based upon economic conditions and savings flows,
and is currently 5% of net withdrawable deposits and borrowings payable on
demand or in one year or less during the preceding calendar month. Liquid
assets for purposes of this ratio include cash, certain time deposits, U.S.
Government and agency securities and other obligations generally having
remaining maturities of less than five years. First Northern Savings Bank,
S.A. has historically maintained its liquidity ratio at a level in excess of
that required by the OTS (as defined below). First Northern Savings Bank's
monthly average short-term liquidity and total liquidity ratio at March 31,
1997 was 3.29% and 5.98%, respectively, as compared to 3.04% and 5.97%,
respectively, at December 31, 1996. The March 31, 1997, liquidity ratios
increased slightly as compared to the ratios at December 31, 1996 as a result
of the purchase of investment securities. First Northern Savings Bank believes
that its maintenance of excess liquidity, above the 5% federally required
total liquidity ratio, is an appropriate strategy to aid in proper asset and
liability management.
Liquidity management is both a daily and long-term responsibility of
management. First Northern Savings Bank adjusts its investments in liquid
assets based upon managements' assessment of: (I)expected loan demand; (ii)
expected deposit flows; (iii) yields available on interest-earning deposits;
and (iv) the objectives of its asset and liability management program. Excess
liquidity is invested generally in interest-earning overnight deposits and
other short-term government and agency obligations. When First Northern
Savings Bank requires funds beyond its ability to generate them internally,
it can borrow funds from the FHLB of Chicago or other sources.
CAPITAL RESOURCES AND REGULATORY INFORMATION
First Northern's net worth to total assets ratio at March 31, 1997, for State
of Wisconsin regulatory requirements was 11.2% or almost two times the
Wisconsin minimum legal requirement of 6.00% of total assets established by
the Division of Savings Institutions of the Department of Financial
Institutions, which regulates First Northern. The OTS adopted capital
regulations for savings institutions effective December 7, 1989. The capital
rules require savings associations to meet three separate capital standards:
(i)Tangible capital equal to 1.5% of adjusted total assets; (ii) Core capital
equal to 3% of adjusted total assets; and (iii) Risk-based capital equal to
8.0% of the value of risk weighted assets.
As of March 31, 1997, 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 March 31, 1997, that
the Savings Bank exceeds all capital adequacy requirements to which it is
subject. There are no conditions or events since that notification that
management believes have changed the Savings Bank's categorization as well
capitalized.
The Savings Bank's required and actual capital amounts and ratios are presented
in the following table.
Excess Actual
Required Capital Over Required
Actual Regulatory Capital Regulatory Capital
------------------ ------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ----------------- ---------------------
(Dollars in Thousands)
As of March 31, 1997
Tangible Capital $65,489 10.6% $ 9,246 1.5% $56,243 9.1%
(to Tangible Assets)
Core Capital 65,489 10.6% 18,491 3.0% 46,998 7.6%
(to Tangible Assets)
Risk-Based Capital 68,476 17.5% 31.285 8.0% 37,191 9.5%
(to Risk-Weighted Assets)
State of Wisconsin Capital 69,383 11.2% 37,074 6.0% 32,309 5.2%
(to Total Assets)
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)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS:
See Exhibit Index following the signature page of this report,
which is incorporated herein by reference.
(B) REPORTS ON FORM 8-K:
No Form 8-K was filed during the quarter for which this report is
filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Northern Capital Corp.
----------------------------------------
(Registrant)
Date: May 9,1997 /s/RICK B. COLBERG
------------------ -----------------------------------------
Rick B. Colberg
Vice President and Chief Financial Officer
(Mr. Colberg is also duly authorized to sign
on behalf of registrant)
FIRST NORTHERN CAPITAL CORP.
* * * * *
EXHIBIT INDEX
TO
FIRST QUARTER 1997 REPORT ON FORM 10-Q
Exhibit Filed Sequential
Number Description Herewith Page Number
11.1 Statement regarding computation
of per share earnings X
27.1 Financial Data Schedule, which
is submitted electronically
to the Securities and Exchange
Commission for information only
and not filed.
Exhibit 11.1
First Northern Capital Corp.
Computation of Net Income Per Common Share
Three Months
Ended March 31
1997 1996
------------ -----------
PRIMARY:
Weighted average common shares
outstanding during each period 4,434,653 4,564,440
Incremental shares relating to:
Dilutive stock options outstanding at
end of each period (1) 99,692 113,367
--------- ---------
4,534,345 4,677,807
========= =========
FULLY DILUTED:
Weighted average common shares
outstanding during each period 4,434,653 4,564,440
Incremental shares relating to:
Dilutive stock options outstanding at
end of each period (2) 114,660 115,260
--------- ---------
4,549,313 4,679,700
========= =========
NET INCOME FOR EACH PERIOD $1,385,067 $1,088,866
========== ==========
PER COMMON SHARE AMOUNTS:
Primary, as presented in
the Statement of Operations $0.31 $0.23
===== =====
Fully diluted $0.30 $0.23
===== =====
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.