SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------------
F O R M 1 0 - Q/A
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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
incorporation or organization) Identification No.)
201 NORTH MONROE AVENUE
P.O. BOX 23100
GREEN BAY, WISCONSIN 54305-3100
- - - -------------------------------------------------------------
(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 8,912,023, AT APRIL 27, 1998.
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
ITEM 1.FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial
Condition as of March 31, 1998
and December 31, 1997. . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations
for the Three Months Ended
March 31, 1998 and March 31, 1997. . . . . . . . . 4
Unaudited Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1998 and March 31, 1997. . . . . . . . . 5
Notes to Unaudited Consolidated
Financial Statements . . . . . . . . . . . . . 6 - 8
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . 9 - 21
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK . . . . . . . . . . . . . . . . . . . . 22
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 23
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 DECEMBER 31, 1997
---------------- -------------------
(In Thousands)
ASSETS
Cash $ 4,477 $ 640
Interest-earning deposits 914 324
-------- --------
CASH AND CASH EQUIVALENTS 5,391 964
Securities available-for-sale, at fair value
Investment securities 9,247 6,799
Mortgage-related securities 555 932
Securities held-to-maturity
Investment securities
(estimated fair value of
$19,332,000 - 1998; $21,313,000 - 1997) 19,229 21,231
Mortgage-related securities
(estimated fair value of
$9,812,000 - 1998; $10,689,000 - 1997) 9,768 10,675
Loans held for sale 7,134 2,119
Loans receivable 593,689 593,529
Accrued interest receivable 3,568 3,646
Foreclosed properties and repossessed assets 211 153
Office properties and equipment 7,939 8,004
Federal Home Loan Bank stock 5,750 5,250
Prepaid expenses and other assets 14,557 14,394
-------- --------
$677,038 $667,696
======== ========
LIABILITIES
Deposits $494,909 $481,788
Borrowings 98,277 103,277
Advance payments by borrowers for
taxes and insurance 3,009 3,861
Other liabilities 5,688 4,953
-------- --------
TOTAL LIABILITIES 601,883 593,879
STOCKHOLDERS' EQUITY
Cumulative preferred stock, $1 par value; 10,000,000
shares authorized; none outstanding
Common stock, $1 par value; 30,000,000 shares authorized;
shares issued: 9,134,735 - 1998; 9,136,104 - 1997
shares outstanding: 8,917,023 - 1998;
8,845,676 - 1997 9,135 9,136
Additional paid-in capital 9,297 9,438
Unrealized gains on securities
available-for-sale, net of taxes 698 614
Treasury stock at cost (217,712 shares - 1998;
290,428 shares - 1997) (1,746) (2,316)
Retained earnings 57,771 56,945
-------- --------
TOTAL STOCKHOLDERS' EQUITY 75,155 73,817
-------- --------
$677,038 $667,696
======== ========
See Notes to Unaudited Consolidated Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
MARCH 31
1998 1997
------- --------
(In Thousands,
Except Per Share Amounts)
Interest income:
Mortgage loans $8,214 $7,598
Consumer loans 3,245 2,889
Investment securities 497 419
Interest-earning deposits 16 10
Mortgage-related securities 175 178
------- -------
TOTAL INTEREST INCOME 12,147 11,094
Interest expense:
Deposits 5,537 5,061
Borrowings 1,530 1,156
Advance payments by borrowers
for taxes and insurance 12 14
------- -------
TOTAL INTEREST EXPENSE 7,079 6,231
------- -------
NET INTEREST INCOME 5,068 4,863
Provision for loan losses 105 75
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,963 4,788
Non-interest income:
Fees on serviced loans 44 83
Loan fees and service charges 58 60
Deposit account service charges 299 289
Insurance commissions 107 106
Gains on sales of loans 196 50
Other 284 148
------- -------
TOTAL NON-INTEREST INCOME 988 736
Non-interest expense:
Compensation, payroll taxes and
other employee benefits 1,807 1,786
Federal insurance premiums 76 60
Occupancy 233 238
Data processing 364 338
Furniture and equipment 110 125
Telephone and postage 126 129
Marketing 98 100
Other 581 519
------- -------
TOTAL NON-INTEREST EXPENSE 3,395 3,295
------- -------
INCOME BEFORE INCOME TAXES 2,556 2,229
Income taxes 927 844
------- -------
NET INCOME $ 1,629 $ 1,385
======= =======
BASIC NET INCOME PER SHARE $0.18 $0.16
===== =====
DILUTED NET INCOME PER SHARE $0.18 $0.15
===== =====
CASH DIVIDENDS PAID PER SHARE $0.09 $0.08
===== =====
See Notes to Unaudited Consolidated Financial Statements
FIRST NORTHERN CAPITAL CORP.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31
1998 1997
--------- ---------
(In Thousands)
OPERATING ACTIVITIES:
Net income $ 1,629 $ 1,385
Adjustments to reconcile net income to
cash provided (used) by operating activities:
Provision for losses on loans and real estate 105 75
Provision for depreciation and amortization 215 212
Gains on sales of loans (196) (50)
Loans originated for sale (17,580) (3,044)
Proceeds from loan sales 12,760 3,772
Decrease in interest receivable 78 3
Increase in interest payable 179 37
Other 634 (206)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,176) 2,184
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 4,953 1,800
Purchases of investment securities (5,256) (3,740)
Principal repayments of mortgage-related securities 1,284 201
Loan originations and purchases (43,694) (29,339)
Loan principal repayments 43,345 31,199
Purchases of office properties and equipment (150) (501)
Purchase of Federal Home Loan Bank stock (500) (500)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (18) (880)
FINANCING ACTIVITIES:
Net increase in deposits 12,941 9,021
Net decrease in short-term borrowings (12,050) (3,397)
Proceeds from long term borrowings 8,050 13,575
Repayments of long term borrowings (1,000) (15,500)
Cash dividends paid (803) (704)
Purchase of treasury stock (68) (170)
Retirement of common stock (18)
Proceeds from exercise of stock options 421 447
Net decrease in advance payments by borrowers
for taxes and insurance (852) (2,311)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,621 961
INCREASE IN CASH AND CASH EQUIVALENTS 4,427 2,265
Cash and cash equivalents at beginning of period 964 3,563
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,391 $ 5,828
======== ========
Supplemental Information to the Statement of Cash Flows:
Interest credited and paid on deposits $5,358 $5,036
Interest paid on borrowings 1,480 1,121
Payments for federal and state income taxes 172 135
Loans transferred to foreclosed properties
and repossessed assets 116 112
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, 1998 and
December 31, 1997, the results of their operations for the three months
ended March 31, 1998 and 1997, and their cash flows for the three months
ended March 31, 1998 and 1997. The accompanying Unaudited Consolidated
Financial Statements and related notes should be read in conjunction
with First Northern's 1997 Annual Report on Form 10-K.
(3) Where applicable, the historical financial information has been adjusted
for the August 18, 1997 two-for-one stock split in the form of a 100%
stock dividend.
(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, 1998:
Asset Management Funds $ 512 $(5) $ 507
Federal Home Loan Mortgage
Corporation stock 33 $1,106 1,139
U.S. government and
agency securities 7,541 62 (2) 7,601
------ ------ --- ------
8,086 1,168 (7) 9,247
Mortgage-related securities 556 (1) 555
------ ------ --- ------
$8,642 $1,168 $(8) $9,802
====== ====== === ======
At December 31, 1997:
Asset Management Funds $ 505 $(5) $ 500
Federal Home Loan Mortgage
Corporation stock 33 $ 974 1,007
U.S. government and
agency securities 5,240 55 (3) 5,292
------ ------ --- ------
5,778 1,029 (8) 6,799
Mortgage-related securities 932 932
------ ------ --- ------
$6,710 $1,029 $(8) $7,731
====== ====== === ======
(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, 1998 $19,229 $114 $(11) $19,332
======= ==== ==== =======
At December 31, 1997 $21,231 $101 $(19) $21,313
======= ==== ==== =======
At March 31, 1998, these investment securities have the following
maturities:
Amortized Estimated
Cost Fair Value
----------- ------------
(In Thousands)
Due in one year or less $ 6,250 $ 6,253
Due after one year through 5 years 12,979 13,079
------- -------
$19,229 $19,332
======= =======
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, 1998:
Federal Home Loan
Mortgage Corporation $6,206 $ 57 $(15) $6,248
Federal National
Mortgage Association 3,562 19 (17) 3,564
------ ------ ---- ------
$9,768 $76 $(32) $9,812
====== ====== ==== ======
At December 31, 1997:
Federal Home Loan
Mortgage Corporation $ 7,028 $ 59 $(36) $ 7,051
Federal National
Mortgage Association 3,647 19 (28) 3,638
------- ------ ---- -------
$10,675 $ 78 $(64) $10,689
======= ====== ==== =======
(6) Loans Receivable
Loans receivable consist of the following:
March 31 December 31
1998 1997
----------- -------------
(In Thousands)
First mortgage loans:
One to four family residential $396,591 $393,563
Five or more family residential 28,232 24,506
Commercial real estate 8,157 9,269
Construction-residential 15,065 19,192
Construction-commercial 910 2,156
Other 2,297 2,226
-------- --------
451,252 450,912
Consumer loans:
Consumer 17,918 18,200
Second mortgage 67,893 68,596
Automobile 70,875 70,276
-------- --------
156,686 157,072
-------- --------
607,938 607,984
Less:
Undisbursed loan proceeds 10,020 10,290
Allowance for losses 3,268 3,177
Unearned loan fees 961 988
-------- --------
14,249 14,455
-------- --------
$593,689 $593,529
======== ========
(7) The weighted average number of shares outstanding, including common stock
equivalents, for the three months ended March 31, 1998 and 1997, were
9,168,788 and 9,017,844, respectively.
(8) Certain amounts in 1997 financial statements have been reclassified to
conform to the 1998 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 $4.4 million greater
at March 31, 1998, as compared to December 31, 1997, primarily as the result of
regular month end customer deposits made to demand deposit accounts on
March 31, 1998. 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 or short-term borrowings are
repaid.
SECURITIES AVAILABLE-FOR-SALE. Investment securities available-for-sale
increased approximately $2.4 million as of March 31, 1998, as compared to
December 31, 1997, primarily as the result of purchases of U.S. Government
and Agency securities and increases in the market value of some investment
securities.
Mortgage-related securities available-for-sale decreased $0.4 million at
March 31, 1998, as compared to December 31, 1997, as a result of prepayments
and repayments of the underlying mortgage loans.
SECURITIES HELD-TO-MATURITY. Investment securities held-to-maturity decreased
$2.0 million primarily as a result of maturities or calls of U.S. Government
and agency securities.
Mortgage-related securities held-to-maturity decreased $0.9 million as a result
of prepayments and repayments of the underlying mortgage loans.
LOANS HELD FOR SALE. At March 31, 1998, First Northern had $7.1 million of
fixed interest rate mortgage and education loans classified as held for sale.
First Northern originates and sells most of its thirty (30) year fixed interest
rate mortgage loans and all of its education loans. Fifteen (15) year fixed
interest rate mortgage loan originations are retained in First Northern's loan
portfolio and in the first quarter of 1997, First Northern began to retain its
twenty (20) year fixed interest rate mortgage loan originations. The retention
of the twenty year fixed interest rate mortgage was in response to First
Northern's overall asset/liability position.
LOANS RECEIVABLE. Loans receivable increased $0.2 million at March 31, 1998,
as compared to December 31, 1997, as a result of mortgage loan originations and
purchases.
Loan originations and purchases are as follows:
LOAN ORIGINATIONS AND PURCHASES
THREE MONTHS ENDED
MARCH 31
-------------------------------
1998 1997
---------- ----------
(In Thousands)
Mortgage loans originated
and purchased:
Construction $ 4,012 $ 2,278
Loans on existing property 10,186 5,758
Refinancing 37,779 6,835
Other loans 296 606
------- -------
Total mortgage loans originated
and purchased 52,273 15,477
Consumer loans originated
and purchased:
Consumer 1,815 1,887
Second mortgage 8,062 7,484
Automobile 11,293 8,418
Education 946 954
------- -------
Total consumer loans originated
and purchased 22,116 18,743
------- -------
Total loans originated
and purchased $74,389 $34,220
======= =======
Mortgage loan originations and purchases for the first quarter of 1998
increased as compared to the same period in 1997 primarily as the result of
increased refinances of existing First Northern loans and loans originated by
others. These increased originations are the result of the overall low
mortgage loan interest rates of fixed interest rate mortgage loans and the
favorable economy in First Northern's market area in the first quarter of 1998.
First Northern sold $11.7 million of fixed interest rate mortgage loans in the
first quarter of 1998 as compared to $2.9 million for the same period in 1997.
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, $0.8 million of
education loans were sold in the three months ended March 31, 1998 and 1997.
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 were $22.1 million in the first
quarter of 1998 primarily as a result of increased automobile loan originations
in the Savings Bank's jointly owned subsidiary, SFC. SFC automobile loan
originations increased as a result of new business relationships with
additional automobile dealers throughout the state of Wisconsin.
PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses and other assets, which is
primarily composed of bank owned life insurance ("BOLI") increased slightly at
March 31, 1998, as compared to December 31, 1997. This increase was the result
of increased cash surrender and account value of BOLI. First Northern's BOLI
cash surrender/account value at March 31, 1998, was $12.1 million as compared
to $11.7 million at December 31, 1997.
DEPOSITS. Deposits increased $13.1 million for the first three months of 1998
as a result of offering competitive interest rates, the acquisition of "jumbo"
(certificates of deposit in excess of $100,000) deposits and increased demand
deposits. At times, jumbo deposits are a cheaper source of funds than retail
deposits or borrowing. First Northern's jumbo deposits increased $4.9 million
in the first three months of 1998.
BORROWINGS. Federal Home Loan Bank ("FHLB") borrowings decreased $5.0 million
in the first quarter of 1998, primarily as the result of increased loan sales
and increased deposits. 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, 1998, $83.0 million are fixed interest rate
borrowings and $15.3 million are overnight borrowings. First Northern
anticipates that it will continue to utilize borrowings in 1998 if borrowings
incrementally add to the overall profitability of the Company.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. Advance payments by
borrowers for taxes and insurance ("escrow") decreased $0.9 million at March
31, 1998, as compared to December 31, 1997. The decrease in escrow dollars was
the result of the payment of First Northern's customers tax payments from
customer's real estate tax escrow accounts.
STOCKHOLDERS' EQUITY. First Northern paid a cash dividend of $0.09 per share on
February 15, 1998, to stockholders of record on January 30, 1998. The increase
of $0.01 per share represents a 12.5% increase over the first quarter of 1997
cash dividend of $0.08 per share.
On March 20, 1998, First Northern approved a third stock repurchase program to
repurchase up to 446,101 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, 1998, 5,000 shares had been purchased at an
average price of $13.50 per share.
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
1998 1997
----------- --------------
(Dollars in Thousands)
Non-accrual mortgage loans $475 $333
Non-accrual consumer loans 120 107
---- ----
Total non-performing loans 595 440
Properties subject to foreclosure 116 135
Foreclosed properties and
repossessed assets 95 18
---- ----
Total non-performing assets $806 $593
==== ====
Non-performing loans as a percent
total loans .10% .07%
=== ===
Non-performing assets as a percent
of total assets .12% .08%
=== ===
Total non-performing loans increased $155,000 as of March 31, 1998, as compared
to December 31, 1997, primarily as a result of an increase in non-performing
mortgage loans. Management believes non-performing loans and assets, expressed
as a percentage of total loans and assets, are far below state and national
averages. There are no accruing, material loans which, at March 31, 1998,
management has reason to believe will become non-performing or result in
potential losses.
In addition, management believes that the Savings Bank's allowances for loan
losses are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances may
be necessary based on changes in economic conditions. Furthermore, various
regulatory agencies, as an integral part of their examination process,
periodically review First Northern's allowances for losses on loans and
real estate owned. Such agencies may require First Northern to recognize
additions to the allowances based on the agencies' judgment of information
available to them at the time of their examination.
All of First Northern's loans are domestic.
A 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, 1998 December 31, 1997
------------------ -----------------
(Dollars in Thousands)
Mortgage Loans:
Balance at the beginning of the period $1,624 $1,453
Provisions for the period 50 170
Recoveries:
Commercial real estate 1
------ ------
Balance at the end of the period 1,674 1,624
Consumer Loans:
Balance at the beginning of the period 1,553 1,484
Provisions for the period 55 150
Charge-offs:
Consumer (4) (44)
Automobile (16) (57)
Recoveries:
Consumer 4 8
Automobile 2 12
------ ------
Balance at the end of the period 1,594 1,553
------ ------
Total loan loss allowances at the
end of the period $3,268 $3,177
====== ======
Allowance as a percent of total loans .54% .53%
=== ===
Allowance as a percent of
non-performing loans 549.24% 722.05%
====== ======
Allowance as a percent of total assets .48% .48%
=== ===
Allowance as a percent of
non-performing assets 405.46% 535.75%
====== ======
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, 1998 and 1997 have been annualized.
Three Months Ended March 31
----------------------------------------------------
1998 1997
------------------------ -------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- -------- ------ ------- ------- ------
(Dollars In Thousands)
Interest-earning assets (1):
Mortgage loans $442,440 $ 8,214 7.43% $418,218 $ 7,598 7.27%
Consumer loans 159,304 3,245 8.15 139,746 2,889 8.27
Investment securities (2) 31,800 497 6.25 26,939 419 6.22
Interest-earning deposits 1,107 16 5.78 730 10 5.48
Mortgage-related securities (2) 11,027 175 6.35 11,076 178 6.43
-------- ------- ----- -------- ------- -----
TOTAL 645,678 12,147 7.53 596,709 11,094 7.44
Interest-bearing liabilities:
Passbook accounts 60,370 331 2.19 57,587 306 2.13
NOW and variable rate insured
money market accounts 109,214 675 2.47 102,017 600 2.35
Time deposits 315,448 4,531 5.75 299,826 4,155 5.54
Advance payments by borrowers
for taxes and insurance 2,021 12 2.38 2,469 14 2.27
Borrowings 105,376 1,530 5.81 80,740 1,156 5.73
-------- ------- ----- -------- ------- -----
TOTAL 592,429 7,079 4.78 542,639 6,231 4.59
-------- ------- ----- -------- ------- -----
Net interest-earning assets
balance and interest rate
spread $ 53,249 2.75% $ 54,070 2.85%
======== ==== ======== ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $645,678 $5,068 3.14% $596,709 $4,863 3.26%
======== ====== ==== ======== ====== ====
Average interest-earning
assets to
interest-bearing liabilities 109.0% 110.0%
===== =====
- - - -------------------------
(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
-------------------------------------
1997
-------------------------------------
Interest
Average Earned/ Yield/
Balance Paid Rate
---------- --------- --------
(Dollars In Thousands)
Interest-earning assets (1):
Mortgage loans $426,748 $31,443 7.37%
Consumer loans 148,614 12,529 8.43
Investment securities (2) 29,154 1,844 6.33
Interest-earning deposits 762 45 5.91
Mortgage-related securities (2) 11,558 735 6.36
-------- ------- -----
TOTAL 616,836 46,596 7.55
Interest-bearing liabilities:
Passbook accounts 60,057 1,322 2.20
NOW and variable rate insured
money market accounts 104,665 2,536 2.42
Time deposits 307,423 17,579 5.72
Advance payments by borrowers
for taxes and insurance 6,652 149 2.24
Borrowings 82,644 4,905 5.94
--------- ------- -----
TOTAL 561,441 26,491 4.72
--------- ------- -----
Net interest-earning assets balance
and interest rate spread $ 55,395 2.83%
========= ====
Average interest-earning
assets, net interest income
and net yield on average
interest-earning assets $616,836 $20,105 3.26%
======== ======= ====
Average interest-earning assets
to interest-bearing liabilities 109.9%
=====
- - - ---------------------
(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 has a significant
impact on net income between periods. The volume of interest-earning dollars
in loans and investments compared to the volume of interest-bearing dollars in
deposits and borrowings combined with the interest rate spread produces the
changes in net interest income between periods.
The following table sets forth the relative contribution of changes in volume
and effective interest rates on changes in net interest income for the periods
indicated.
Three Months Ended March 31
-----------------------------------
1998 vs 1997
-----------------------------------
Increase(decrease) due to:
-----------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------ -------- -------- -------
Interest-earning assets:
Mortgage loans $167 $ 439 $ 10 $ 616
Consumer loans (42) 404 (6) 356
Investment securities 2 76 78
Interest-earning deposits 1 5 6
Mortgage-related securities (2) (1) (3)
---- ---- ---- ------
TOTAL $126 $923 $ 4 1,053
==== ==== ==== ------
Interest-bearing liabilities:
Passbook accounts $ 9 $ 16 25
NOW and variable rate
insured money market accounts 31 42 $ 2 75
Time deposits 157 211 8 376
Advance payments by borrowers
for taxes and insurance 1 (3) (2)
Borrowings 16 353 5 374
---- ----- ---- ------
TOTAL $214 $ 619 $ 15 848
==== ==== ==== ------
Net change in net interest
income $ 205
======
Year Ended December 31
--------------------------------
1997 vs 1996
--------------------------------
Increase(decrease) due to:
--------------------------------
(In Thousands)
Rate/
Rate Volume Volume Total
------ -------- -------- -------
Interest-earning assets:
Mortgage loans $ 763 $1,801 $ 48 $ 2,612
Consumer loans (88) 1,908 (16) 1,804
Investment securities 15 245 2 262
Interest-earning deposits 6 (25) (2) (21)
Mortgage-related securities (14) 79 (2) 63
----- ------ ---- -------
TOTAL $ 682 $4,008 $ 30 4,720
==== ====== === -------
Interest-bearing liabilities:
Passbook accounts $ (23) $ 33 $ (1) 9
NOW and variable rate
insured money market accounts 92 54 2 148
Time deposits 175 852 9 1,036
Advance payments by borrowers
for taxes and insurance (2) (11) (13)
Borrowings 77 1,976 55 2,108
----- ------ ---- -------
TOTAL $ 319 $2,904 $ 65 3,288
===== ====== ==== -------
Net change in net interest
income $ 1,432
======
STATEMENTS OF OPERATIONS AND INCOME
GENERAL. Net income for the first quarter of 1998 as compared to the first
three months of 1997 increased 17.6%. The increase was primarily the result of
increased interest-earning assets outstanding and the increase in non-interest
income.
INTEREST INCOME. Interest income on mortgage loans increased $616,000 in the
first quarter of 1998, as compared to the same period in 1997 as a result of
the increased dollar amount of mortgage loans outstanding and the increased
average yield on the mortgage portfolio. The average mortgage loans
outstanding for the three months ended March 31, 1998, increased 5.8% as
compared to the average mortgage loans outstanding for the same period in 1997.
However, since the beginning of 1998, First Northern has been reducing the
level of upward interest rate adjustments or in some cases, de-escalating
interest rate adjustable mortgage loans in response to the current interest
rates on fixed and adjustable mortgage loans. The current interest rate
environment also has made fixed interest rate mortgage loans more popular. In
the first quarter of 1998, $35.9 million of fixed interest rate mortgage loans
were originated as compared to $24.5 million in the first quarter of 1997.
First Northern retains the 15 and 20 year fixed interest rate mortgage loans in
its portfolio while selling its 30 year fixed interest rate mortgage loans.
The sale of 30 year fixed interest rate mortgage loans, along with the
refinancing of existing mortgage loans, resulted in $0.3 million growth in the
mortgage loan dollars outstanding in the first quarter of 1998.
Interest income on consumer loans increased $356,000 in the first quarter of
1998 as compared to the same period in 1997, as a result of increased consumer
loans outstanding. The average consumer loans outstanding increased $19.6
million in the first quarter of 1998 as compared to the same period in 1997.
This increase in average consumer loans outstanding is primarily the result of
increased purchases of indirect automobile loans from SFC. The average yield
on consumer loans decreased slightly in the first quarter of 1998 as compared
to the same in 1997 as a result of overall market interest rates declining and
the corresponding offering interest rates on consumer loan following the
trend.
Average investment securities increased $4.9 million for the first three months
of 1998 as compared to the first three months of 1997 which resulted in an
increase in investment securities income of $78,000. First Northern purchases
investment securities when it incrementally adds to the overall profitability
of the Company and to aid in its asset and liability management.
INTEREST EXPENSE. Interest expense on deposits increased $476,000 in the first
quarter of 1998 as compared to the same period in 1997 as a result of increased
deposits outstanding and increased cost of deposits. First Northern has
utilized non-traditional time deposit terms and "special" interest rates on
those non-traditional time deposit terms to attract new deposits. In addition,
the Savings Bank has acquired jumbo deposits to aid its deposit growth (See
Financial Condition--Branch Sheets--Deposits).
Interest expense on borrowing increased $374,000 in the first quarter of 1998
as compared to the first quarter of 1997 as a result of increased average
borrowings outstanding. First Northern anticipates it will continue to
emphasize growth in interest-earning assets and will fund a portion of this
growth with borrowings if it incrementally adds to the profitability to the
Company. First Northern primarily borrows from the Federal Home Loan Bank of
Chicago and ladders its maturities from overnight to 6 years.
PROVISION FOR LOAN LOSSES. First Northern increased its provision for loan
losses in the first quarter of 1998 as a result of changes within the
composition of the loan portfolio and anticipated growth in the loan portfolio.
The loan loss allowance as of March 31, 1998, was $3,268,000 or .54% of total
loans and 549.2% 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. Fees on serviced loans for the first quarter of 1998
decreased primarily as a result of the amortization of mortgage servicing
assets in accordance with generally accepted accounting principles. As the
principle of a mortgage loan which was sold, repays or prepays, the mortgage
servicing asset is reduced and netted from fees on serviced loans, thereby
reducing the income on the serviced loans.
Deposit account service charges increased $10,000 in the first quarter of 1998
primarily as a result of debit card fee income. Each time a Savings Bank debit
card is used, a fee, which varies with each merchant, is paid to the Savings
Bank by the debit card company. The Savings Bank promotes the use of its debit
card by direct mail.
Gains on the sale of loans increased substantially in the first quarter of 1998
as compared to the first quarter of 1997 as a result of increased loan sales.
First Northern sold $11.7 million of mortgage loans and $0.8 million of
education loans in the three months ended March 31, 1998, as compared to
$2.9 million of mortgage loans and $0.8 million of education loans for
the same period in 1997.
Other non-interest income increased $136,000 in the three months ended
March 31, 1998, as compared to the same period in 1997, primarily as the result
of BOLI. In December of 1997, First Northern purchased $7.4 million of life
insurance to partially offset the cost of employee benefits. Interest on BOLI
for the first quarter of 1998 was approximately $160,000 as compared to $43,000
for the first quarter in 1997.
NON-INTEREST EXPENSE. Compensation expense increased $21,000 in the first
quarter of 1998 as a result of salary increases and related expenses.
Federal insurance premiums increased $16,000 as a result of increased deposits.
Data processing expense increased $26,000 in the first quarter of 1998
primarily as the result of the PC based teller system installed in 1997 and its
related expenses.
Furniture and equipment expense decreased $15,000 in the first three months of
1998 primarily as a result of a reduction in furniture and equipment
depreciation. A number of pieces of furniture were fully depreciated in the
fourth quarter of 1997, thereby reducing the depreciation expense in the first
quarter of 1998.
Other expenses increased for the three months ended March 31, 1998, as compared
to the same period in 1997 primarily as a result of increased costs associated
with the operations of SFC, professional fees and costs associated with the
debit-card.
INCOME TAXES. The effective income tax rate for the first quarter of 1998 was
36.3% as compared to 37.9% in the first quarter of 1997. The decrease in
effective income tax rate in the first quarter of 1998 was the result of the
purchase of BOLI. Since the Company intends to hold the life insurance
policies until the participants death, BOLI interest income is not taxable.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Federal regulations historically have required the Savings Bank 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. The Savings Bank has historically maintained its liquidity
ratio at a level in excess of that required by the Office of Thrift Supervision
("OTS"). The Savings Bank's monthly average liquidity ratio at March 31, 1998,
was 5.90%, as compared to 5.67% at December 31, 1997. The liquidity ratio
increased slightly as compared to the liquidity ratio at December 31, 1997, as
a result of the purchase of investment securities. The 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. The 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 the Savings Bank
requires funds beyond its ability to generate them internally, it can borrow
funds from the FHLB of Chicago or other sources. The FHLB of Chicago limits
advances to member institutions to an aggregate amount not to exceed 35% of
the member institution's total assets. Wisconsin law permits First Northern
to borrow, without the prior written approval of the Wisconsin Department of
Financial Institutions --- Division of Savings Institutions, to borrow in the
aggregate amount not to exceed 50% of its total assets.
CAPITAL RESOURCES AND REGULATORY INFORMATION
First Northern's net worth to total assets ratio at March 31, 1998, for State
of Wisconsin regulatory requirements was 10.28% or 4.28% over the Wisconsin
minimum legal requirement of 6.00% of total assets established by the
Division of Savings Institutions of the Department of Financial Institutions,
which regulates First Northern. The OTS 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, 1998, the most recent notification from the OTS categorized the
Savings Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Savings Bank must
maintain minimum tangible, core and risk based ratios as set forth in the
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, 1998, 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.
To Be Well
Maximum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ------------------ -----------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ------------------ -----------------
(Dollars in Thousands)
As of March 31, 1998:
Tangible Capital $65,680 9.7% $10,127 1.5% N/A N/A
(to Tangible Assets)
Core Capital 65,680 9.7% 20,311 3.0% 33,755 5.0%
(to Tangible Assets)
Risk-Based Capital 68,948 16.0% 34,539 8.0% 43,174 10.0%
(to Risk-Weighted Assets)
State of Wisconsin Capital 68,948 10.2% 40,622 6.0% 40,622 6.0%
(to Total Assets)
As of December 31, 1997:
Tangible Capital $68,073 10.2% $ 9,988 1.5% N/A N/A
(to Tangible Assets)
Core Capital 68,073 10.2% 19,976 3.0% 33,293 5.0%
(to Tangible Assets)
Risk-Based Capital 71,250 16.7% 34,232 8.0% 42,790 10.0%
(to Risk-Weighted Assets)
State of Wisconsin Capital 72,318 10.8% 40,062 6.0% 40,062 6.0%
(to Total Assets)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
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 8, 1998 /S/ RICK B. COLBERG
----------------- ------------------------------------
Rick B. Colberg
Vice President and Chief Financial Officer
(Mr. Colberg is also duly authorized to sign
on behalf of registrant)
FIRST NORTHERN CAPITAL CORP.
(THE "REGISTRANT")
COMMISSION FILE NO. 0-27982
* * * * *
EXHIBIT INDEX
TO
FIRST QUARTER 1998 REPORT ON FORM 10-Q
Exhibit Incorporated Herein Filed or Submitted
Number Description By Reference To Herewith
- - - --------- ---------------------------------- ------------------ -------------------
11.1 Statement regarding computation
of per share earnings X
27.1 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange
Commission for information
only and not filed. X
27.2 Restated Financial Data Schedule for
quarter ending March 31, 1997, due to
the adoption of FAS 128 in fiscal year
1997, which is submitted electronically
to the Securities and Exchange
Commission for information only
and not filed. X
EXHIBIT 11.1
FIRST NORTHERN CAPITAL CORP.
COMPUTATION OF NET INCOME PER COMMON SHARE
Three Months
Ended March 31
---------------------
1998 1997
--------- ---------
BASIC:
Weighted average common shares
outstanding during each period 8,906,380 8,818,462
========= =========
DILUTED:
Weighted average common shares
outstanding during each period 8,906,380 8,818,462
Incremental shares relating to:
Dilutive stock options outstanding
at end of each period (1) 262,408 199,382
--------- ---------
9,168,788 9,017,844
========= =========
NET INCOME FOR EACH PERIOD $1,629,412 $1,385,067
========== ==========
PER COMMON SHARE AMOUNTS:
Basic net income $0.18 $0.16
===== =====
Diluted net income $0.18 $0.15
===== =====
- - - -------------------------
Notes:
(1) Based on treasury stock method using average market price.