UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition report from __________________ to _____________________
Commission File Number 0-11889
FIRST FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1471963
- ------------------------------- ------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1305 Main Street
Stevens Point, Wisconsin 54481
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(Address of principal executive office)
Registrant's telephone number, including area code (715) 341-0400
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Securities registered pursuant to Section 12(b) of the Act Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based upon the closing price of the registrant's common stock as of
March 1, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant is: $524,968,689.
As of March 1, 1996, 29,880,322 shares of the registrant's common
stock were outstanding.
Documents Incorporated by Reference.
Part II:
Portions of First Financial Corporation's 1995 Annual Report to
Shareholders.
Part III:
Portions of definitive proxy statement for the 1996 Annual Meeting of
Shareholders.
PART I
ITEM 1. BUSINESS
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FIRST FINANCIAL CORPORATION
First Financial Corporation ("FFC"), which was formed in 1984, conducts
business as a unitary savings and loan holding company. As a Wisconsin
corporation, FFC is authorized to engage in any activity permitted by the
Wisconsin Business Corporation Law.
The principal asset of FFC is all of the outstanding stock of First
Financial Bank ("FF Bank" or the "Bank"). The business of FFC is the business of
the Bank. Other activities of FFC could be funded by dividends paid by the Bank,
borrowings or the issuance of additional shares of capital stock. FFC is
headquartered at 1305 Main Street, Stevens Point, Wisconsin, 54481, telephone
number is (715) 341-0400.
FIRST FINANCIAL BANK
FF Bank is a federally-chartered, stock savings institution whose
deposits are insured by the Savings Association Insurance Fund ("SAIF"), as
administered by the Federal Deposit Insurance Corporation ("FDIC"). Business is
conducted in both Wisconsin and Illinois through 129 full-service branch offices
and one limited loan origination office. Based on total assets of $5.5 billion
at December 31, 1995, FF Bank is the largest thrift institution headquartered in
Wisconsin. The principal mortgage lending area of FF Bank is Wisconsin and
Illinois. In addition to real estate loans, FF Bank originates a significant
volume of consumer loans, credit card loans and student loans. FF Bank has a
limited volume of commercial business lending arising from a 1994 business
combination. Consumer, home equity and student lending activities are
principally conducted in Wisconsin and Illinois, while the credit card base and
resulting loans are principally centered in the Midwest. Nearly all long-term
fixed-rate real estate mortgage loans generated are sold in the secondary market
and to other financial institutions with FF Bank retaining the servicing of
those loans. FF Bank offers brokerage services and also operates a full-line
independent insurance agency and a real estate appraisal company.
FF Bank has grown significantly through mergers and acquisitions since
its stock conversion in 1980, when FF Bank had total assets of $244 million and
14 branch offices in central Wisconsin. In 1984, FF Bank and First State Savings
of Wisconsin ("First State"), concurrently with First State's stock conversion,
combined to form FFC, which operated as a multiple savings and loan holding
company from 1984 until late 1985 when FFC acquired First Savings Association of
Wisconsin ("First Savings"). At that time, all three institutions were merged
together. In 1988, FF Bank acquired National Savings and Loan Association
("National") of Milwaukee, Wisconsin through a merger conversion. By the end of
1988, FF Bank's total assets had grown to $2.3 billion and FF Bank operated 63
full-service banking offices throughout Wisconsin.
Beginning in 1990, FF Bank expanded into the southern Illinois
(suburban St. Louis) and Peoria, Illinois markets by acquiring Illini Federal
Savings and Loan Association of Fairview Heights ("Illini") in a voluntary
supervisory merger conversion and by purchasing the deposits and nine branch
banking offices of two former Peoria thrifts from the Resolution Trust
Corporation ("RTC"). Also during 1990, FF Bank acquired two western-Wisconsin
area branch banking offices from the RTC. During 1992, FF Bank acquired ten
additional
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branch banking offices in the Peoria market, including eight from LaSalle Talman
Bank, FSB ("Talman"), and two from the RTC. In 1993, FF Bank acquired
Westinghouse Federal Bank, FSB d/b/a United Federal Bank ("United") of
Galesburg, Illinois and also purchased the deposits and the four Quincy,
Illinois-area branch banking offices of Citizens Federal Bank, a FSB
("Citizens").
In 1994, FFC and FF Bank acquired NorthLand Bank of Wisconsin, SSB
("NorthLand") of Ashland, Wisconsin through an exchange of stock. Also in 1994,
FFC merged First Financial - Port Savings Bank, FSB ("Port") of Port Washington,
Wisconsin, which had been acquired by FFC in 1989 and had operated under a
separate charter since that time, into FF Bank.
In 1995, FFC and FF Bank acquired FirstRock Bancorp, Inc. ("FirstRock")
of Rockford, Illinois through an exchange of stock. The five banking offices of
FirstRock's subsidiary, First Federal Savings Bank of Rockford, Illinois were
merged into FF Bank. At the end of 1995, FFC's assets had grown to $5.5 billion.
While pursuing its strategy of expansion by acquisition in Wisconsin
and Illinois, management of FF Bank has also curtailed certain lending
activities outside of the Midwest in recent years. In 1988, FF Bank liquidated
the West Coast mortgage banking operation which FF Bank had acquired as part of
the acquisition of First Savings. This operation had incurred continuing
operating losses. Also, in 1988 and 1994, FF Bank sold a segment of its credit
card loan portfolio, consisting of loans concentrated in California, Texas, and
the Northeastern states. FF Bank's current credit card lending activities are
now focused primarily on Wisconsin, Illinois and other Midwestern states. During
1989, FF Bank also curtailed manufactured housing lending outside of the
Midwest. Subsequently, in 1994, FF Bank exited the retail manufactured housing
lending business altogether due to competitive practices in the marketplace.
FF Bank is a member of the Federal Home Loan ("FHL") Bank System. FF
Bank is subject to comprehensive examination, supervision and regulation by the
Office of Thrift Supervision (the "OTS") and the FDIC, and is also regulated by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") as to reserves required to be maintained against deposits and certain
other matters. See "Regulation."
RECENT DEVELOPMENTS
FF Bank's deposits are insured by the SAIF of the FDIC. Deposit
insurance premiums to both the SAIF and the Bank Insurance Fund ("BIF") of the
FDIC were identical when both funds were created in 1989, with an eight cent
differential between the premiums paid by well-capitalized institutions and the
premiums paid by under-capitalized institutions (23 cents to 31 cents per $100
of assessable deposits). Deposit insurance premiums for the SAIF and the BIF,
which insures deposits in national and state-chartered banks, are set to
facilitate each fund achieving its designated reserve ratio. In August 1995, the
FDIC determined that the BIF had achieved its designated reserve ratio and
lowered BIF deposit insurance premium rates for all but the riskiest
institutions. Effective January 1, 1996, BIF deposit insurance premiums for
well-capitalized banks were further reduced to the statutory minimum of $2,000
per institution per year. Because the SAIF remains significantly below its
designated reserve ratio, SAIF deposit insurance premiums were not reduced and
remain at 0.23% to 0.31% of deposits, based upon an institution's supervisory
evaluations and
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capital levels. The current discrepancy in deposit insurance premiums between
the BIF and the SAIF could place FF Bank at a competitive disadvantage to BIF
insured institutions.
The current financial condition of the SAIF has resulted in proposed
legislation to recapitalize the SAIF through a one-time special assessment (of
approximately 80 cents to 85 cents per $100 of assessable SAIF deposits as of
March 31, 1995) and in legislation to then merge the SAIF into the BIF. If the
special assessment is enacted, a special one-time assessment of approximately
$24.0 million, net of tax effect, would be imposed on FF Bank. After the special
assessment, it is expected that SAIF would achieve its designated reserve ratio
and that SAIF premium rates would then become comparable to BIF rates. The
proposed legislation also contemplates a merger of the SAIF into the BIF, which
would require separate legislation. FFC is unable to predict whether this
legislation will be enacted or the amount or applicable retroactive date of any
one-time assessment or the rates that would then apply to assessable SAIF
deposits.
Legislation also has been proposed that could eliminate the federal
savings association charter. If such legislation is enacted, FF Bank would be
required to convert its federal savings bank charter to either a national bank
charter or to a state depository institution charter. Pending legislation may
provide relief as to recapture of the bad debt deduction for federal tax
purposes that otherwise would be applicable if FF Bank converted its charter,
provided that FF Bank meets a proposed residential loan origination requirement.
Pending legislation also may result in FFC becoming regulated at the holding
company level by the Federal Reserve Board rather than by the OTS. Regulation by
the Federal Reserve Board could subject FFC to capital requirements that are not
currently applicable to FFC as a holding company under OTS regulation and may
result in statutory limitations on the type of business activities in which FFC
may engage at the holding company level, which business activities currently are
not restricted. FFC is unable to predict whether such legislation will be
enacted or, if enacted, whether it will contain relief as to the recapture of
bad debt deductions previously taken.
FINANCIAL RATIOS
Year Ended December 31,
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1995 1994 1993
---- ---- -----
Return on average assets 1.17% .99% .99%
Return on average equity 18.03 17.21 19.15
Average equity to average assets 6.50 5.72 5.17
Dividend payout ratio 22.64 22.47 20.35
Net interest margin:
During the period 3.51 3.46 3.43
At end of period 3.46 3.37 3.38
MARKET AREA AND COMPETITION
At December 31, 1995, FF Bank conducted business from 129 full-service
branch banking offices located in 60 Wisconsin and 36 Illinois communities. The
offices are located throughout most of Wisconsin and much of Illinois, including
the Peoria, Rockford and suburban St. Louis areas. These offices include 27
locations in the Milwaukee Metropolitan Statistical Area ("MSA"), the largest in
Wisconsin, and 34 locations in the Peoria, Rockford and St. Louis MSAs,
Illinois' largest outside of Chicago.
-3-
The counties in Wisconsin and Illinois in which FF Bank has offices had
a total population of 5.3 million in 1990. Between 1980 and 1990, the population
of this area increased 1.3%, compared to 1.2% for the two-state area. The median
household income in these counties was $30,497 according to the 1990 Census,
compared to $31,402 for the two- state area. It increased 62.7% between 1980 and
1990. This area, in both states, contains a diversity of major urban and
suburban areas, smaller less-urbanized communities and predominantly rural
areas. Some of the larger companies headquartered in FF Bank's market include
Briggs & Stratton, A.O. Smith, General Electric Medical Systems, Allen Bradley,
Miller Brewing, Johnson Controls, Caterpillar and Sundstrand.
FF Bank also does business outside of Wisconsin and Illinois. At
December 31, 1995, outstanding credit card accounts of FF Bank were distributed
approximately 42% to Wisconsin residents, 11% to Illinois, 4% to California, 3%
to Texas, 3% to Michigan, 3% to New York, 2% to Minnesota, 2% to Ohio, 2% to
Florida and 28% to other states. Consumer and student loans are made principally
to Wisconsin, Illinois and other Midwestern residents.
FF Bank is subject to competition from other savings institutions as
well as commercial banks and credit unions in both attracting and retaining
deposits and in real estate and other lending activities. Competition for
deposits also comes from mutual funds, credit unions, corporate debt and
government securities. Competition for the origination of real estate loans
comes principally from other savings institutions, commercial banks and mortgage
banking companies. Consumer loan competition comes principally from other
savings institutions, commercial banks, automobile manufacturers and their
financing subsidiaries, consumer finance companies and credit unions.
The principal methods used by competing financial institutions to
attract deposit accounts include rates of return, types of accounts, convenience
of office locations, and other services. The primary factors in competing for
loans are interest rates, loan fee charges, and timing and quality of service to
the borrower.
-4-
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present selected historical consolidated financial
information of FFC(a).
December 31,
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1995 1994 (f) 1993 (g) 1992 (h) 1991
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(Dollars in thousands)
Financial Condition and Other Data
Total assets.......................................... $5,471,108 $5,501,824 $5,181,772 $4,309,067 $3,609,917
Investments (b)....................................... 249,155 223,174 360,804 241,703 164,504
Loans receivable and mortgage-related securities...... 4,860,910 4,961,202 4,427,803 3,706,080 3,110,115
Loans held for sale-net............................... 26,651 11,736 104,653 89,003 61,685
Intangible assets..................................... 21,481 26,726 31,392 23,278 22,576
Deposits.............................................. 4,424,525 4,381,455 4,388,122 3,531,062 3,234,078
Borrowings............................................ 570,508 708,446 455,797 487,237 110,353
Shareholders' equity (substantially restricted)(c).... 384,917 327,308 280,643 239,979 190,405
Number of full-service offices........................ 129 130 123 100 92
Year Ended December 31,
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1995 1994 (f) 1993 (g) 1992(h) 1991
---------- ---------- ---------- ---------- ----------
(In thousands except per share amounts)
Operating Data
Interest income....................................... $ 417,308 $ 381,864 $ 366,711 $ 325,057 $ 333,157
Interest expense...................................... 234,171 204,222 202,493 198,058 225,992
---------- ---------- ---------- ---------- ----------
Net interest income................................... 183,137 177,642 164,218 126,999 107,165
Provision for losses on loans......................... (9,738) (6,824) (10,570) (15,779) (19,037)
Unrealized loss on impairment of mortgage-related
securities........................................... (9,000)
Loan fees and servicing income........................ 18,234 17,551 17,166 15,959 19,085
Gain on sale of loans and securities.................. 3,885 3,836 7,939 4,606 5,783
Other non-interest income............................. 22,172 20,907 19,653 17,458 16,599
Non-interest expense.................................. (118,602) (120,367) (118,964) (101,540) (93,095)
---------- ---------- ---------- ---------- ----------
Income before income taxes and the cumulative effect
of a change in accounting principle.................. 99,088 83,745 79,442 47,703 36,500
Income taxes.......................................... 35,104 30,716 29,691 17,327 14,672
---------- ---------- ---------- ---------- ----------
Income before the cumulative effect of a change in
accounting principle................................. 63,984 53,029 49,751 30,376 21,828
Cumulative effect of a change in accounting principle
(d)............................... 6,600
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Net income............................................ $ 63,984 $ 53,029 $ 49,751 $ 36,976 $ 21,828
========== ========== ========== ========== ==========
Earnings per share (e):
Primary:
Income before the cumulative effect of a change in
accounting principle (d) ....................... $ 2.12 $ 1.78 $ 1.72 $ 1.15 $ .80
Net income........................................ 2.12 1.78 1.72 1.42 .80
Fully diluted:
Income before the cumulative effect of a change in
accounting principle (d)........................ $ 2.11 $ 1.77 $ 1.71 $ 1.14 $ .79
Net income........................................ 2.11 1.77 1.71 1.40 .79
Cash dividends declared and paid per share (e)........ $ .48 $ .40 $ .35 $ .22 $ .16
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<FN>
(a) In 1995, FFC completed the acquisition of FirstRock. This transaction
has been accounted for as a pooling-of-interests and accordingly,
results for all periods presented have been restated to include the
results of FirstRock. See Note B to FFC's consolidated financial
statements.
(b) Consists of federal funds sold, interest-earning deposits, and
investment securities.
(c) See Note L to FFC's consolidated financial statements.
(d) A $6.6 million credit was realized in 1992 from the cumulative effect
of the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes".
(e) Per share data have been adjusted to reflect A) a two-for-one stock
split distributed in March 1993 and B) a two-for-one stock split
distributed in April 1992.
(f) In 1994, FFC completed the acquisition of NorthLand. The acquisition
of NorthLand has been accounted for as a pooling-of-interests. Since
NorthLand was not material to the balance sheet or operating results
of FFC, balances for prior years have not been restated. However, 1994
amounts have been adjusted to reflect the acquisition as if it had
occurred on January 1, 1994. See Note B to FFC's consolidated
financial statements.
(g) In 1993, FF Bank acquired United and also purchased the deposits and
the four Quincy, Illinois-area branch banking offices of Citizens.
Each transaction has been accounted for as a purchase and the related
results of operations have been included in FFC's consolidated
financial statements since the respective dates of acquisition.
(h) During the first quarter of 1992, FF Bank completed the assumption of
deposits and the purchase of branch facilities of ten Peoria,
Illinois-area branches including eight from Talman and two from the
RTC. Each of these transactions was accounted for as a purchase.
</FN>
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Lending Activities, Including Mortgage-Related Securities
General. FF Bank has traditionally concentrated on origination of
conventional mortgage loans secured by first liens on one- to four-family
residences. FF Bank also makes loans which are insured by the Federal Housing
Authority ("FHA"), Farmers Home Administration ("FmHA"), and the Rural Economic
Development Community ("REDC"), or partially guaranteed by the Veterans
Administration ("VA") as well as home loans on behalf of or for immediate sale
to the Wisconsin Department of Veterans Affairs ("WDVA"), the Wisconsin Housing
and Economic Development Authority ("WHEDA") and the Illinois Housing and
Development Authority ("IHDA"). At December 31, 1995, FFC's total loan
portfolio, including mortgage-related securities, amounted to $4.94 billion,
including mortgage loans totaling $2.41 billion of which $2.04 billion, or 41.3%
of the total loan portfolio, before net items, were loans secured by one- to
four-family residences. In addition, FF Bank makes long-term, first mortgage
real estate loans on multiple dwelling units and commercial properties, second
mortgages and short-term construction loans. As a means of better matching
maturities of its asset and liability products, FF Bank has also originated
other types of high-yielding loan products which have either a short term to
maturity or contain adjustable-rate features. These products include education
loans, credit card loans, home equity loans and consumer loans. At December 31,
1995, these loans amounted to $1.26 billion, or 25.5%, before net items, of the
total loan portfolio. Fixed-rate mortgage loans with terms up to 15 years and
loans with adjustable interest rates are originated for FF Bank's own portfolio,
while longer-term fixed-rate mortgage loans are originated for sale in the
secondary market. The Federal Reserve Board is authorized to promulgate
regulations limiting the maximum interest rate that may apply during the term of
adjustable-rate mortgage loans originated by savings institutions such as FF
Bank. Under the regulation adopted by the Federal Reserve Board, no specific
interest rate limit is set, but lenders are required to impose interest rate
caps on all adjustable-rate mortgage loans and all dwelling-secured consumer
loans, including home equity loans, which provide for interest rate adjustments.
The regulation is applicable to loans made after December 8, 1987.
FF Bank also periodically purchases mortgage-related securities as a lending
alternative when excess liquidity is available. At December 31, 1995, these
securities amounted to $1.27 billion, or 25.7% of the total loan portfolio,
before net items. For further discussion of the mortgage-related securities
portfolio, see "Mortgage-Related Securities" below as well as Notes A and D to
FFC's consolidated financial statements, filed as an exhibit hereto.
-7-
Loan Portfolio Composition. The following table sets forth information
concerning the composition of FFC's total loan portfolio including loans held
for sale and mortgage-related securities, on a consolidated basis, before net
items, by type of loan. Total loans receivable, including net items but
excluding loans held for sale and mortgage-related securities are set forth in
Note E to FFC's consolidated financial statements. The data presented in this
table include the accounts of FFC and FF Bank for all periods, and the balances
of interest-sensitive assets and liabilities arising from the 1992, 1993 and
1994 acquisitions are included from the respective dates of the related
transactions.
December 31,
1995 1994 1993 1992 1991
----------------- ------------------ ------------------ ------------------ -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- --------- ------- --------- ------- --------- ------- -------- -------
(Dollars in thousands)
Real estate mortgage loans:
Conventional loans:
One- to four-family............ $2,006,575 40.6% $2,034,320 40.4% $1,915,516 41.7% $1,379,522 35.8% $1,245,546 38.5%
Multi-family................... 217,288 4.4 212,071 4.2 208,658 4.6 175,511 4.6 155,562 4.8
FHA and VA....................... 36,093 .7 34,672 .7 40,133 .9 52,214 1.3 61,455 1.9
Commercial and other real estate. 152,092 3.1 142,634 2.8 114,431 2.5 123,062 3.2 126,139 3.9
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total real estate mortgage loans.. 2,412,048 48.8 2,423,697 48.1 2,278,738 49.7 1,730,309 44.9 1,588,702 49.1
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Other loans:
Consumer loans................... 362,659 7.3 304,771 6.1 180,776 3.9 115,205 3.0 89,698 2.8
Home equity loans................ 284,700 5.8 240,915 4.8 199,463 4.3 168,434 4.4 148,042 4.6
Education loans.................. 240,650 4.9 192,542 3.8 168,980 3.7 164,149 4.3 159,207 4.9
Credit card loans................ 214,107 4.3 200,747 4.0 209,414 4.6 178,436 4.6 160,712 5.0
Manufactured housing loans....... 139,385 2.8 152,674 3.0 165,017 3.6 133,195 3.4 140,384 4.3
Other loans...................... 17,198 .4 19,023 .4 111 3,298 .1 4,831 .2
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total other loans................. 1,258,699 25.5 1,110,672 22.1 923,761 20.1 762,717 19.8 702,874 21.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items...................... 3,670,747 74.3 3,534,369 70.2 3,202,499 69.8 2,493,026 64.7 2,291,576 70.9
Mortgage-related securities....... 1,270,761 25.7 1,502,491 29.8 1,387,259 30.2 1,361,068 35.3 941,626 29.1
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total loans receivable before
net items and mortgage-
related securities............... $4,941,508 100.0% $5,036,860 100.0% $4,589,758 100.0% $3,854,094 100.0% $3,233,202 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
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A summary of FFC's loan portfolio, before net items, including loans held
for sale and mortgage-related securities is set forth below by adjustable-rate
loans, short-term loans and fixed-rate loans.
December 31, 1995 December 31, 1994 December 31, 1993
--------------------- --------------------- ----------------------
Percent Percent Percent
Balance Of Total Balance Of Total Balance Of Total
-------- --------- --------- -------- -------- --------
(Dollars in thousands)
Adjustable-rate:
Mortgage-related securities............. $ 1,130,750 $1,350,342 $1,159,035
Mortgage................................ 1,001,413 893,380 604,514
Home equity............................. 284,700 240,915 199,463
Education............................... 240,650 192,542 168,980
Consumer................................ 31,602 14,346 5,816
Manufactured housing.................... 2,987 4,125 5,857
Other................................... 11,805 13,947 --
----------- ---------- ----------
Total adjustable-rate............... 2,703,907 54.7% 2,709,597 53.8% 2,143,665 46.7%
Short-term*:
Credit card............................. 214,107 200,747 209,414
Mortgage................................ 96,932 47,973 241,669
Consumer................................ 91,190 83,730 66,239
Mortgage-related securities............. 32,121 32,737 2,522
Deposit account......................... 4,026 4,611 4,300
Manufactured housing.................... 9,021 2,869 1,443
Other................................... 4,847 3,014 --
---------- ---------- ----------
Total short-term.................... 452,244 9.2 375,681 7.5 525,587 11.5
---------- ----- ---------- ----- ---------- -----
Total adjustable-rate and
short-term........................ 3,156,151 63.9 3,085,278 61.3 2,669,252 58.2
Maturities greater than three years:
Conventional mortgage................... 1,277,610 1,447,672 1,392,422
Consumer................................ 235,841 202,084 104,421
Mortgage-related securities............. 107,890 119,412 225,702
FHA/VA manufactured housing............. 86,756 85,384 85,552
Manufactured housing.................... 40,621 60,296 72,165
FHA/VA mortgage......................... 36,093 34,672 40,133
Other................................... 546 2,062 111
---------- ---------- ----------
Total fixed-rate.................... 1,785,357 36.1 1,951,582 38.7 1,920,506 41.8
---------- ----- ---------- ----- ---------- -----
Total loan portfolio................ $4,941,508 100.0% $5,036,860 100.0% $4,589,758 100.0%
========== ===== ========== ===== ========== =====
<FN>
* Credit card and fixed-rate loans or MBSs with remaining contractual life of
three years or less.
</FN>
As of December 31, 1995, the total amount of loans held by FF Bank
repricing or maturing after December 31, 1996 was $2.56 billion. Of these loans,
$1.90 billion have fixed rates of interest and $653.6 million have terms of
three years or less or adjustable interest rates.
The following table sets forth, at December 31, 1995, the dollar amount
of loans maturing in FF Bank's loan portfolios before net items, plus loans held
for sale and mortgage-related securities, based on either their contractual
terms to maturity or the remaining time before the loans can be repriced during
the periods indicated.
1997 - 1999 - 2001 - 2006 - After
1996 1998 2000 2005 2015 2015 Total
---- ----- ---- ---- ---- ---- -----
(In thousands)
Real estate mortgage loans.................... $ 436,145 $491,987 $ 93,985 $449,744 $784,790 $ 87,128 $2,343,779
Construction mortgage loans................... 29,413 33,495 2,345 328 2,688 -- 68,269
Mortgage-related securities................... 1,155,811 7,059 2,733 31,559 41,651 31,948 1,270,761
Credit card and home equity
loans...................................... 474,675 24,132 -- -- -- -- 498,807
Other loans*.................................. 289,871 96,891 113,083 185,368 71,596 3,083 759,892
---------- -------- -------- -------- -------- -------- ----------
Total.................................. $2,385,915 $653,564 $212,146 $666,999 $900,725 $122,159 $4,941,508
========== ======== ======== ======== ======== ======== ==========
<FN>
* Includes consumer, manufactured housing, education and small business loans.
</FN>
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One- to Four-Family First Mortgage Loans. The primary mortgage loan
product of FF Bank is the single family home loan with some additional volume
being secured by two- to four-family residential units. In addition to a
conventional mortgage loan program, FF Bank has available various other programs
including FHA-insured, VA-guaranteed, FmHA- guaranteed, and RECD-guaranteed,
Wisconsin and Illinois state agency and veterans programs and jumbo mortgage
loans in excess of a specified balance. These mortgage loan products are
originated using either a fixed rate, or an adjustable rate of interest indexed
primarily to one-year U.S. Treasury securities yields, three-year Treasury
securities yields or the national cost of funds index as published by the FHL
Banks. Original terms to maturity vary from 10 years to 30 years. FF Bank
currently holds in its portfolio loans for terms up to 15 years and generally
sells fixed-rate mortgage loans having maturities greater than 15 years in the
secondary mortgage market.
Income-Producing Real Estate Property Loans. FF Bank, through its
commercial mortgage real estate division, has sought to diversify its loan
portfolio through the origination of loans on selected income-producing real
estate properties which meet strict internal underwriting guidelines. FF Bank
also periodically seeks to limit its overall exposure relative to such loans
through the sale of participation interests and whole loans to other financial
institutions. FF Bank provides servicing of these loans for participants (see
"Loan Servicing").
Among the projects financed by FF Bank are apartments, office buildings,
retail centers, medical clinics, industrial buildings, elderly housing and other
commercial real estate located primarily in Wisconsin, Illinois and other
Midwestern states. FF Bank's commercial real estate division has emphasized
multi-family mortgage loans in recent years. Multi-family and commercial real
estate lending involves greater risks than does one- to four-family residential
lending. The repayment of loans collateralized by income-producing real estate
is dependent upon the successful operation of the related real estate property
and also on the credit and net worth of the borrower and thus is subject to
conditions in the real estate market, interest-rate levels and overall economic
conditions. The underwriting process for such loans is structured to ascertain
that each property has sufficient value and market appeal to provide adequate
security for the loan and that the property will produce sufficient income to
meet minimum debt service coverage ratios established by FF Bank, which vary
depending upon the property type. All properties are also inspected,
independently appraised in accordance with applicable regulatory standards, and
reviewed by a qualified engineer. Loans on such properties are generally not
permitted to exceed a loan-to-value ratio of 75%. Also, each borrower is
reviewed as to management talent, integrity, experience and available financial
resources. FF Bank generally requires the personal guarantee of the debt by all
parties holding a major equity interest in the secured property when the
owner/borrower is a business entity.
Additionally, the portfolio of income-producing properties is reviewed on
a continuing basis to identify any potential risk that exists for FF Bank
through undue concentration of the portfolio in any one borrower, property type
or geographic location. These and other underwriting standards are documented in
written policy statements, which are periodically updated, and approved by FF
Bank's Board of Directors.
Lending terms for FF Bank's income-producing real estate property loans
generally call for a maturity of five to fifteen years based upon an
amortization schedule of fifteen to thirty years and an interest rate
periodically adjustable based upon a cost of funds index.
-10-
Borrowers may experience a cash flow from the property which is
inadequate to service the debt. This cash flow shortage may result in the
failure to make loan payments. Additionally, the repayment of loans secured by
income-producing properties is dependent on the successful operation of the
related real estate project and the financial strength of the borrower and thus
is subject to adverse conditions in the real estate market or the economy in
general.
Construction Loans. Loans made by FF Bank to provide interim financing
during the construction period for i) builder-owned residential properties and
ii) commercial properties are typically originated for periods of six to
eighteen months. These loans are generally limited to 75% of the value of the
property upon completion. Construction loans for properties intended to be
owner-occupied are typically structured as adjustable-rate permanent loans and
can be granted up to 95% of the value of the property upon completion.
Construction loan funds are periodically disbursed as construction progresses.
At any stage of construction, remaining undisbursed funds are in amounts
estimated to be adequate for completion or sale of the property.
Construction lending is generally considered to involve a higher level of
risk than lending secured by existing properties because properties securing
these loans are generally more speculative and more difficult to evaluate and
monitor. FF Bank's risk of loss on construction or development loans is
dependent upon the accuracy of the initial estimate of the property's value at
completion of the project and the estimated cost of the project. If the estimate
of construction or development costs proves to be inaccurate, FF Bank may be
required to advance funds beyond the amount originally committed to permit
completion of the project. If the estimate of the value proves to be inaccurate,
the lender may be confronted with a property having a value which is
insufficient to assure full repayment of the construction loan upon securing a
permanent mortgage loan. FF Bank had construction loans outstanding of $72.0
million at December 31, 1995, of which $56.3 million was collateralized by
residential real estate.
Manufactured Housing Loans. Through a series of dealer relationships in
Wisconsin and other Midwestern states, FF Bank had indirectly originated
manufactured housing loans until late 1994. The dealers closed the loans at
their locations after forwarding all necessary documentation to FF Bank for
underwriting, processing, and credit checks in order to receive approval to
originate the loans for purchase by FF Bank. The loans were either conventional
or originated under the FHA-insured or VA-guaranteed programs throughout the
various states. The term of such loans was usually up to 15 years at fixed
interest rates. During 1994, FF Bank ceased originating such loans due to
adverse competitive practices in this market. However, $18.3 million of such
loans were purchased in 1995 on a wholesale basis.
Consumer and Other Loans. FF Bank offers a variety of lending products to
meet the specific needs of consumers. These products include secured and
unsecured installment loans with fixed repayments, student loans, credit card
programs and home equity loans. Consumer loans are made directly to the customer
and are secured by automobiles, recreational vehicles, first or second mortgages
on real estate or deposit accounts. FF Bank provides financing on both new and
used automobiles and recreational vehicles using different rates and terms to
maturity to compensate for the difference in collateral value and credit risk.
In addition to secured consumer loans, FF Bank extends unsecured loans to
qualified borrowers based upon their financial statements and creditworthiness.
The vast majority of the consumer loan originations are made within Wisconsin
and Illinois through the extensive branch network of FF Bank.
-11-
Several student loan programs are offered by FF Bank through three
guarantor programs, with the majority being originated within Wisconsin. The
various student lending programs meet a variety of borrower financial
qualifications with varying rate structures. Additionally, FF Bank offers a
consolidation loan plan whereby various student loans can be combined for the
convenience and benefit of the borrower.
FF Bank offers credit card programs to the general public and has also
placed additional emphasis on issuing cards through organizations whose
membership substantially meets qualifying criteria ("affinity programs").
Certain additional benefits can be linked to card usage under the affinity
programs. These affinity programs are based on the Visa/Mastercard credit card
programs which operate on a nationwide basis. In addition to the regular credit
card products, FF Bank also operates the BasiCard program which offers the
consumer a lower cost, no-frills charge card bearing an interest rate of 14.9%
applied to all balances and advances.
During the last decade FF Bank placed additional emphasis on its home
equity loan program. The new emphasis was tied to federal income tax law changes
which were brought about during 1986, causing consumers to look for a new
vehicle through which to finance future needs on a tax-deductible basis. As a
result of federal tax legislation adopted in 1987, however, interest on a home
equity line of credit is deductible only up to $100,000 of principal. The
primary home equity loan product calls for a floating interest rate which is
linked to the prime interest rate and is secured by a mortgage, either a primary
or a junior lien, on the borrower's residence. A fixed-rate home-equity product
is also offered. As an additional convenience to consumers, the home equity
lines are generally tied to a Gold or a standard Mastercard credit card account
whereby consumers can conveniently draw against their approved line through the
use of their credit card. Fixed-rate non-revolving second mortgage loans are
also offered.
Business Loans. With the acquisition of NorthLand, FFC acquired a
business loan portfolio of approximately $23 million. FF Bank, however, is
primarily a retail lender and its strategy has been to consider business loans
only to those customers who maintain acceptable deposit balances with FF Bank.
As such, FF Bank does not aggressively market business loans and year-end loans
outstanding approximated $17.2 million.
Mortgage Related Securities. FF Bank purchases mortgage-related
securities as a lending alternative when excess liquidity is available.
Mortgage-related securities include government agency mortgage-backed
securities, privately issued adjustable rate mortgage-backed securities and
shorter-term or adjustable-rate government agency collateralized mortgage
obligations. FF Bank reviews the geographic distribution of collateral when
purchasing private issue mortgage-related securities and limits the portfolio
concentration of underlying collateral located in certain states or metropolitan
areas; however, FF Bank has not purchased any private issue mortgage-backed
securities since 1992. With the exception of six non-agency securities, all
securities in the non-agency mortgage-backed securities portfolio are, at a
minimum, of investment grade quality. The securities rated below investment
grade, four of which continue to be performing, are discussed as part of "Non-
Performing MBSs" in Management's Discussion and Analysis, filed as an exhibit
hereto. For a related discussion of the accounting for debt securities,
including mortgage-related securities, see "Investment Securities". For further
discussion of the mortgage-related securities portfolio, see i)
"Mortgage-Related Securities" in Management's Discussion and Analysis and ii)
Notes A and D to FFC's consolidated financial statements, each of which is filed
as an exhibit hereto.
-12-
Loan Originations, Purchases and Sales. FF Bank's loan originations come
from a number of sources. Residential mortgage loan originations are
attributable primarily to depositors, walk-in customers, referrals from real
estate brokers and builders, out-of-state originators and direct solicitations.
In addition, FF Bank also acquires refinanced residential mortgage loans which
were previously originated by FF Bank, but sold to and serviced for other
investors. Prior to acquisition, these loans are refinanced to a lower rate, as
per the borrower's request. Commercial mortgage loan originations are obtained
by direct solicitation and referrals. Prior to late 1994, VA-guaranteed,
FHA-insured and conventional manufactured housing loans were obtained from
approved dealers. Consumer loans are originated from walk-in customers, existing
depositors and mortgagors and direct solicitations. Student loans are originated
from solicitation of eligible students and from walk-in customers. FF Bank also
periodically purchases student loan portfolios from other lenders.
Real estate loans are primarily originated by loan officers in FF Bank's
offices. Relative to FF Bank's real estate loans, loans up to the FHLMC/FNMA
upper limit authority (currently $203,150 for single-family mortgage loans) for
one- to four-family residences are approved by an underwriter who is employed by
FF Bank. Loans in excess of this amount up to $400,000 are approved by
designated officers. Individual loans in excess of $400,000 up to $1,500,000, as
well as loans to one borrower in excess of three loans or in the amount of
$500,000, or greater, are approved by an officer loan committee. Loans in excess
of $1,500,000 require approval of the Executive Committee of the Board of
Directors of FF Bank, and loans in excess of $5,000,000 require approval of FF
Bank's full Board of Directors. The majority of conventional home mortgage loans
are written to comply with underwriting standards of FHLMC and/or FNMA to ensure
that national standards are being met and that FF Bank's loans meet or exceed
national secondary market requirements. All loans are centrally reviewed by an
underwriting staff prior to final approval to ensure compliance with loan
underwriting policies. With respect to the appraisal of properties, borrowers
may use the appraisal subsidiary of FF Bank or outside appraisers preapproved by
FF Bank's Board of Directors.
In general, FF Bank may lend up to 100% of the appraised value of real
property for residential purposes provided loans in excess of 80% have private
mortgage insurance, a government guarantee, additional collateral or a
combination thereof. In practice, most of FF Bank's mortgage loans are written
in the range of 75% to 95% loan-to-value ratio.
Real estate loans are secured by a first mortgage, subject primarily to
title insurance or an attorney's title opinion in certain areas and are covered
by fire and casualty insurance. When appropriate, flood insurance is also
required. Related costs, together with private mortgage insurance as required,
are paid by the borrower.
FF Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for costs
of cleaning up hazardous materials found on secured properties. Certain states
may also impose liens with higher priorities than first mortgages on properties
to recover funds used in such efforts. Although the foregoing environmental
risks are more usually associated with industrial and commercial loans,
environmental risks may be substantial for residential lenders, like FF Bank,
since environmental contamination may render the secured property unsuitable for
residential use. In addition, the value of residential properties may become
substantially diminished by
-13-
contamination of nearby properties. In accordance with the guidelines of FNMA
and FHLMC, appraisals for single-family homes on which FF Bank lends include
comments on environmental influences and conditions. FF Bank attempts to control
its exposure to environmental risks with respect to loans secured by larger
properties by monitoring available information on hazardous waste disposal sites
and requiring environmental inspections of such properties prior to closing the
loan. No assurance can be given, however, that the value of properties securing
loans in FF Bank's portfolio will not be adversely affected by the presence of
hazardous materials or that future changes in federal or state laws will not
increase FF Bank's exposure to liability for environmental cleanup.
The following table shows loan and mortgage-related securities
originations, purchases, sales and repayment activities of FF Bank on a
consolidated basis for 1995, 1994 and 1993.
Year Ended December 31,
--------------------------------------------
1995 1994 1993
---------- ---------- -------
(In thousands)
Loans originated:
Mortgage loans:
One- to four-family......................................... $ 476,783 $ 756,589 $1,346,350
Multi-family................................................ 34,350 55,658 91,209
Commercial real estate...................................... 31,087 63,002 16,012
Refinanced residential mortgage loans
previously sold and serviced for others.................... -- 24,643 344,862
---------- ---------- ----------
542,220 899,892 1,798,433
Consumer loans................................................. 229,697 237,651 145,474
Education loans................................................ 76,299 53,692 33,424
Home equity loans - net increase............................... 43,785 58,791 42,888
Credit card loans - net increase............................... 13,361 5,124 30,978
Manufactured housing loans..................................... 18,288 16,669 23,405
Other loans.................................................... 5,560 10,074 2,604
Refinanced manufactured housing loans pre-
viously sold and serviced for others......................... -- 475 36,953
Decrease (increase) in undisbursed
loan proceeds................................................. 7,817 (10,829) 5,920
---------- ---------- ----------
Total loans originated................................ 937,027 1,271,539 2,120,079
Mortgage-related securities purchased............................ -- 594,952 271,719
---------- ---------- ----------
Total originations and purchases...................... 937,027 1,866,491 2,391,798
---------- ---------- ----------
Add (deduct):
Loans and mortgage-related securities
from acquisitions (before net items).......................... -- 114,462 540,474
Market valuation adjustment on
available-for-sale mortgage-related
securities.................................................... 1,593 (12,470) 1,669
Unrealized loss on impairment of
mortgage-related securities................................... -- (9,000) --
Loan repayments and sales:
Repayments of loans and mortgage-
related securities........................................... (815,453) (899,405) (1,067,702)
Sales of one- to four-family real
estate loans................................................. (195,231) (393,154) (1,017,740)
Sales of multi-family and
commercial real estate loans................................. (15,471) (25,741) (25,621)
Sales of consumer-related loans............................... -- (22,712) --
Sales of mortgage-related
securities................................................... -- (182,234) (81,294)
---------- ---------- ----------
Total repayments and sales............................ (1,024,562) (1,430,254) (1,650,214)
---------- ---------- ----------
Increase (decrease) in total loans before net items (excluding change in
undisbursed loan proceeds), including loans held for sale
and mortgage-related securities............................... $ (87,535) $ 436,237 $ 741,584
========== ========== ==========
-14-
FF Bank has been actively engaged in secondary mortgage market activities
on a national basis through the sale of whole loans and participations to
pension funds, insurance companies, banks, other savings institutions and
governmental units such as FHLMC, FNMA, GNMA and special Wisconsin and Illinois
programs. On a limited basis, FF Bank and its predecessors have purchased
selected groups of loans or a portfolio of loans. FF Bank also periodically has
used its loans to securitize mortgage-related securities sold by registered
broker-dealers. Sales of loans are used to provide additional funds for lending,
to generate servicing fee income and to reduce the risk resulting from
fluctuating interest rates and loan concentrations. Under loan sales and
participation agreements, FF Bank sells mortgage loans on a non-recourse basis
and pays participants an agreed upon yield on the participant's portion of the
loan out of monthly payments received from the borrowers. FF Bank, in general,
has forward sales commitments to cover the sale of all fixed-rate mortgage loans
having maturities of greater than 15 years which are closed or approved as well
as a majority of accepted applications for such loans.
Loan Servicing. FF Bank has originated the majority of the loans it
services for others. FF Bank receives fees for those servicing activities, which
include collecting and remitting loan payments, inspecting the properties and
making certain insurance and tax payments on behalf of the borrowers. At
December 31, 1995, FF Bank was servicing $2.33 billion of mortgage and
manufactured housing loans owned by others. Mortgage loans totaling $2.30
billion were being serviced for annual fees ranging from 1/8 to 1/2 of 1% of the
unpaid principal, and $28.1 million of manufactured housing loans were being
serviced for investors. Servicing fees retained on manufactured housing loans
average approximately 2.5% of the unpaid principal, reflecting the higher costs
of servicing these loans. The following table sets forth information as to FF
Bank's loan servicing portfolio, net of loans in process, at the dates shown.
December 31,
-----------------------------------------------------
1995 1994
-------------------------- ----------------------
Amount % Amount %
----------- -------- --------- ------
(Dollars in thousands)
Loans owned by FF Bank........................... $3,642,000 61.0% $3,498,000 59.1%
Loans serviced for others........................ 2,326,000 39.0 2,424,000 40.9
---------- ----- ---------- -----
Total loans serviced....................... $5,968,000 100.0% $5,922,000 100.0%
========== ===== ========== =====
Information concerning FF Bank's servicing income from loans serviced for
others is summarized in the following table for the periods indicated.
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- ------
(Dollars in thousands)
Loan servicing income........................................... $ 7,125 $7,737 $6,587
Servicing spread for the year*.................................. .300% .344% .312%
<FN>
* The servicing spread represents the average fee earned as a percentage of
average balances of loans serviced for others, net of undisbursed proceeds,
as reduced by the periodic amortization of purchased and capitalized excess
mortgage servicing rights.
</FN>
-15-
Net loan servicing income has fluctuated between 1993 and 1995 as the
result of i) changes in the average volume of loans serviced during a particular
year, ii) changes in the average servicing spread maintained as new servicing is
added each year and iii) fluctuations in the periodic amortization of the cost
associated with purchased servicing rights, excess servicing rights recorded
prior to 1995 and originated servicing rights recorded beginning in 1995.
The $1.1 million increase in net servicing income from 1993 to 1994 was
primarily the result of a $2.2 million decrease in amortization of purchased and
excess servicing costs in 1994 compared to 1993. The 1993 lower interest-rate
environment resulted in higher loan prepayments and, consequently, higher
amortization of servicing costs. This was partially offset by higher 1994
servicing volume but at lower average gross servicing spreads. This additional
volume was a combination of purchased servicing and originated servicing.
The $600,000 decrease in net servicing income from 1994 to 1995 was the
result of both lower average volume of loans serviced for others during 1995
compared to 1994, as the table above demonstrates, and increased amortization of
capitalized servicing rights.
During 1995 FF Bank began recognizing as an asset the fair value of
originated servicing rights as discussed in Note A to FFC's consolidated
financial statements, filed as an exhibit hereto. Also, see Note P, similarly
referenced, for additional loan servicing information as part of mortgage
banking activities.
Fee Income From Lending Activities. Loan origination and commitment fees
and certain direct loan origination costs are being deferred and the net amounts
amortized as an adjustment of the related loan's yield. FF Bank is amortizing
these amounts, using the level yield method, over the contractual lives of the
related loans.
FF Bank also receives other fees and charges relating to existing
mortgage loans which include prepayment penalties, late charges and fees
collected in connection with a change in borrower or other loan modifications.
Other types of loans also generate fee income for FF Bank. These include annual
fees assessed on credit card accounts, transactional fees relating to credit
card usage and late charges on consumer loans and manufactured housing loans.
Collateralized Industrial Development Revenue Bonds. Additional income
has been earned by FF Bank by offering loans and securities in its portfolio to
third parties for their use as collateral. FF Bank has previously entered into
agreements under which mortgage loans and investment securities held in
portfolio are pledged as secondary collateral in connection with the issuance of
Industrial Development Revenue Bonds. The bonds were issued by municipalities to
finance multi-family or commercial real estate owned by third parties unrelated
to FF Bank. Under the terms of these agreements, FF Bank i) issues
uncollateralized letters of credit or ii) maintains, with a trustee, mortgage
loans or securities with a fair market value, as defined, aggregating up to 180%
of the outstanding principal balance of the bonds to provide security for the
payment of principal, interest and any mandatory redemption premium owing on the
bonds. FF Bank continues to receive principal and interest payments on the
mortgage loans or securities used as collateral. If any of such bonds were in
default, FF Bank would have the primary obligation to either pay any amount in
default or to acquire the bonds on which the default had occurred. If FF Bank
was required to perform under these agreements, it would foreclose on the
existing mortgage and
-16-
security interest in the real and personal property financed with the proceeds
of the bonds. FF Bank has discontinued this line of business and does not
currently anticipate entering into any new agreements, except for the purpose of
facilitating the refinancing of existing bond issues.
At December 31, 1995, certain mortgage-related securities and investment
securities with a carrying value of approximately $6.3 million were pledged as
collateral for bonds in the aggregate of $3.9 million. Additional bond issues
totaling $7.1 million are supported by letters of credit issued by FF Bank in
lieu of specific collateral. The bond agreements have expiration dates through
2008.
At December 31, 1995, each of the outstanding agreements was current with
regard to bond debt-service payments. Management has considered these agreements
in its review of the adequacy of allowances for losses relating to contingent
liabilities.
Usury Limitations. Federal law has preempted state usury law
interest-rate limitations on first-lien residential mortgage loans unless the
state legislature acted before a certain date to override the exemption. The
Wisconsin legislature acted to override the preemption and, therefore, loans
made by FF Bank in Wisconsin are subject to Wisconsin usury limitations,
described below.
The Illinois legislature did not override the federal preemption, and at
present Illinois law imposes no ceiling on interest rates for residential real
estate loans, including junior mortgage loans. Additionally, in Illinois,
federally-insured savings institutions can charge the highest rate permitted any
other lender in Illinois. The Illinois State Legislature has allowed state banks
to charge any interest rate on any type of loan, and, thus, there are
effectively no ceilings on the interest rate which a federal savings bank may
charge on a loan in Illinois.
On November 1, 1981, Wisconsin enacted a comprehensive revision of its
usury statutes overriding federal preemption and deregulating interest rates.
After that date, maximum interest rates were eliminated for loans secured by
first lien mortgages on residential real estate. Maximum interest rates have
also been eliminated for most forms of fixed and variable rate consumer loans
made by savings institutions after October 31, 1984. Variable rate revolving
consumer loans which are not secured by real estate remain subject to a maximum
interest rate of 18%, except that the limit does not apply following notice to
the borrower if the auction yield on two-year U.S. Treasury notes exceeds 15%
per year for five consecutive weeks.
With respect to first-lien residential real estate loans, the 1981
Wisconsin usury legislation clarified the Wisconsin law requirement that
unearned interest be refunded. However, certain items are now deemed not to be
interest for purposes of calculating the rebate. These items include charges
paid to third parties, fees and other amounts required to be passed on to
secondary market purchasers of any loans, up to two points to the lender for
"loan administration", commitment fees, loan fees paid by third parties
("seller's points") and a prepayment penalty of not more than 60 days interest
on that amount of the prepayment which exceeds 20% of the original amount of the
loan, provided the prepayment is made
-17-
within five years of the date of the loan and the parties have agreed to such a
prepayment penalty.
Since November 1, 1981, savings institutions have been permitted to use
two forms of interest-rate adjustment clauses in mortgage loans secured by one-
to four-family homes. Interest rates may either be adjusted based on changes in
an "approved index" ("indexed adjustable rate") or by providing for no more than
a 1% increase in the interest rate not more than once during each six-month
period and by permitting decreases in the interest rate to be made at any time
("non-indexed adjustable rate"). An "approved index" is defined as (i) the
national average mortgage contract rate for major lenders on the purchase of
previously occupied houses, as computed by the FHL Banks; (ii) the monthly
average of weekly auction rates on U.S. Treasury bills with a maturity of three
months or six months made available by the Federal Reserve Board; (iii) the
monthly average yield on U.S. Treasury securities adjusted to a constant
maturity of one, two, three or five years, made available by the Federal Reserve
Board; or (iv) an index approved by the Wisconsin Commissioner of Savings and
Loans. Loans made after November 1, 1981, containing either form of adjustment
mechanism, are not subject to any maximum usury interest rate; however,
increases in the rate based on increases in the index are optional with the
lender. Adjustments under the non-indexed version are solely at the option of
the lender and if no increase is made during any six-month period, the lender
may accumulate such increases and impose them at any time. A notice to the
borrower is required at least 30 days prior to an interest rate adjustment
during which period the loan may be prepaid without penalty. Loans originated by
FF Bank prior to its conversion to a federal savings bank charter may be subject
to the above provisions.
Other states in which FF Bank makes loans have varying laws concerning
usury. Management believes that all loans made by FF Bank in other states are in
compliance with the applicable usury provisions.
Collection Procedures - Residential and Commercial Mortgage Loans. Under
Wisconsin and Illinois law, a mortgage loan borrower is afforded a period of
time, subsequent to the entry of judgment and prior to sale of the mortgaged
property, within which to redeem the foreclosure judgment ("equity of
redemption"). During this period, the loan is generally a non-earning asset. The
length of the equity of redemption available in any case is dependent upon the
form of legal proceeding selected by the lender at the time the suit is
initiated and can vary between two months and one year. Further delays can be
incurred if bankruptcy proceedings intervene. A judgment of foreclosure for
residential mortgage loans will normally provide for the recovery of all sums
advanced by the mortgagor including, but not limited to, insurance, repairs,
taxes, appraisals, post-judgment interest, attorneys' fees, costs and
disbursements. The majority of foreclosure actions by FF Bank follow a form
which provides for a six-month equity of redemption. Unless the equity of
redemption is exercised, FF Bank generally acquires title to the property
pursuant to public bidding at a sheriff's sale. Thereafter, FF Bank attempts to
sell the property.
Collection Procedures - Non-Mortgage Loans. Collection procedures for
manufactured housing loans, credit card loans, consumer loans and student loans
are done in accordance with state and federal Fair Debt Collection Practices
Acts and, where applicable, governmental agencies procedures. The intent of the
collection procedures is either to assist the borrower in performing in
accordance with contract terms or to work out the problem loan in a timely
manner so as to minimize FF Bank's loss. Generally, collection efforts are
started 10 to 15 days after the payment on account was due.
-18-
Procedures for Nonaccrual Loans, Delinquencies and Foreclosures.
Delinquent and problem loans are a normal part of any lending business. When a
borrower fails to make a required payment within 15 days following the date on
which the payment is due, the loan is considered delinquent and internal
collection procedures generally are instituted. The borrower is contacted by a
Bank representative who seeks to determine the reason for the delinquency, and
attempts are made to effect a cure. In most cases deficiencies are cured
promptly. The loan status is reviewed and, where appropriate, the condition of
the property and the financial circumstances of the borrower are evaluated.
Based upon the results of any such investigation, (i) a repayment program of the
arrearage from the borrower may be accepted; (ii) evidence may be sought (in the
form of a listing contract) of efforts by the borrower to sell the property if
the borrower has stated that he is seeking to sell; (iii) a deed in lieu of
foreclosure or voluntary surrender of the property may be effected in compliance
with applicable laws; or (iv) foreclosure, replevin or collection proceedings
may be initiated.
A decision as to whether and when to initiate legal proceedings is based
upon such factors as the amount of the outstanding loan in relation to the
original indebtedness, the extent of delinquency and the borrower's ability and
willingness to cooperate in curing deficiencies. At a foreclosure sale,
representatives of FF Bank will generally bid an amount reasonably equivalent to
the lower of the fair value of the foreclosed property or the amount of judgment
due to FF Bank.
If the sum of the outstanding loan principal balance and costs of
foreclosure that have been capitalized exceed the fair market value of the
property, in the judgment of management, an allowance for loss in an amount
equal to such excess is established. In such circumstances, a deficiency
judgment may be sought against the borrower.
When FF Bank acquires real estate through foreclosure or deed in lieu of
foreclosure, such real estate is placed on its books at the lower of the
carrying value of the loan or the fair market value of the real estate based
upon a current appraisal. Any reduction from the value previously recorded on
the books is charged against the appropriate allowance for loan losses.
Loan Delinquencies. FF Bank monitors the delinquency status of its loan
portfolio on a regular basis and initiates borrower contact and additional
collection procedures as necessary at an early date. Delinquencies and past due
loans are, however, a normal part of the lending function. When the delinquency
reaches the status of greater than 90 days, the loan is placed on a non-accrual
basis until such time as the delinquency is reduced again to 90 days or less.
Non-accrual loans at December 31, 1995 have been presented separately as
-19-
a part of the discussion of Non-Performing Assets in Management's Discussion and
Analysis, filed as an exhibit hereto. Delinquencies of 30 to 90 days are
summarized as follows:
Balance At December 31,
------------------------
1995 1994
------ -----
(In thousands)
30 - 59 Days Delinquent
- -----------------------
Residential real estate loans $ 7,945 $ 8,796
Manufactured housing loans 2,888 2,886
Credit card loans 2,555 1,964
Commercial real estate loans 303 1,079
Consumer, student and other loans 9,519 7,219
------- --------
$23,210 $ 21,944
======= ========
60 - 90 Days Delinquent
- -----------------------
Residential real estate loans $ 1,193 $ 1,950
Manufactured housing loans 766 974
Credit card loans 1,315 883
Commercial real estate loans 606 1,696
Consumer, student and other loans 9,734 5,835
------- --------
$13,614 $ 11,338
======= ========
Total 30 - 90 Day Delinquent Loans
- ----------------------------------
Residential real estate loans $ 9,138 $ 10,746
Manufactured housing loans 3,654 3,860
Credit card loans 3,870 2,847
Commercial real estate loans 909 2,775
Consumer, student and other loans 19,253 13,054
------- --------
$36,824 $ 33,282
======= ========
At December 31, 1995, the 30-90 day delinquencies increased approximately
$3.5 million to $36.8 million from $33.3 million at year-end 1994. As a percent
of total loans receivable, loan delinquencies increased from 0.96% at the end of
1994 to 1.02% at December 31, 1995.
The most significant factor in the overall increase was the increase of
$6.8 million in student loan delinquencies of 30-90 days from year-end 1994 to
December 31, 1995. These loans are government guaranteed and the servicing of
this portfolio is performed by a third-party under contract. Credit card loan
30-90 day delinquencies have also increased from year-end 1994 to year-end 1995
by $1.1 million. This increase is reflective of the national trend of higher
delinquencies for this product as further discussed in the Non-Performing Asset
section of Management's Discussion and Analysis, referred to above. Despite the
increase, the delinquency levels in FF Bank's credit card portfolio are lower
than national averages.
Decreases in 30-90 day delinquencies were experienced in certain loan
categories from year-end 1994 to December 31, 1995. The more significant
decreases were i) a $1.9 million decrease for commercial real estate mortgage
loans, ii) a $1.6 million decrease for residential mortgage loans and iii) a
$500,000 decrease for commercial business loans.
All of these delinquent loans have been considered by management in its
evaluation of the adequacy of the allowances for loan losses.
-20-
Foreclosed Properties and Real Estate Investments Held For Sale.
Non-performing assets of $29.8 million and $32.3 million at December 31, 1995
and 1994, respectively, are discussed as a part of Management's Discussion and
Analysis, filed as an exhibit hereto. In that discussion, it is noted that a
portion of the balances of foreclosed properties and real estate investments
held for sale included in the non-performing assets at December 31, 1995 and
1994 are comprised of large (having a carrying value of $1.0 million or greater)
commercial real estate properties. A list of the properties referred to in that
discussion is presented below.
Carrying Value At December 31,
-------------------------------
Property Type Location 1995 1994
- ------------- -------- -------- ------
(In thousands)
Retail Milwaukee, Wisconsin $ 1,089 $1,089
Retail Fort Worth, Texas 1,000 1,012
The retail property in Milwaukee, Wisconsin had previously been developed
and owned by a wholly-owned subsidiary of FF Bank. The subsidiary carried the
property as real estate held for investment prior to foreclosure in 1994 by FF
Bank. At December 31, 1994 the property was transferred to FFC and is now
classified as a real estate investment held for sale. At December 31, 1995 the
occupancy level was 78%. Management will continue efforts to both increase the
occupancy level and sell the property during 1996. The Milwaukee property fair
value is considered to approximate the carrying value.
The second property, acquired in the FirstRock acquisition, is a retail
shopping strip center which is approximately 39% leased at December 31, 1995. At
that date, the fair value is considered to be the carrying value.
Foreclosed properties are valued at the lower of cost or fair value.
The above listed foreclosed properties, as well as all other
non-performing assets, have been considered in the evaluation of the adequacy of
allowances for losses. See Management's Discussion and Analysis referred to
above for management's review of adequacy of allowances for losses relative to
these properties.
Classified Assets:
For regulatory purposes, FF Bank utilizes a comprehensive classification
system for thrift institution problem assets. This classification system
requires that problem assets be classified as "substandard", "doubtful" or
"loss", depending upon certain characteristics of the particular asset or group
of assets as defined by supervisory regulators.
An asset is classified "substandard" if it contains defined
characteristics relating to borrower net worth, paying capacity or value of
collateral which indicate that some loss is distinctly possible if noted
deficiencies are not corrected. "Doubtful" assets have the same characteristics
present in substandard assets but to a more serious degree so that it is
improbable that the asset could be collected or liquidated in full. "Loss"
assets are deemed to be uncollectible or of such minimal value that their
continuance as assets without being specifically reserved is not warranted.
Substandard and doubtful classifications require the
-21-
establishment of prudent general allowances for loss amounts while loss assets
require a 100% specific allowance or that the asset be charged off.
In general, classified assets include non-performing assets plus other
loans and assets, including contingent liabilities, meeting the criteria for
classification. Non-performing assets include loans or assets which were
previously loans i) which are not performing to a serious degree under the
contractual terms of the original notes or ii) for which known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with current contractual terms.
This non-performance characteristic impacts directly upon the interest income
normally expected from such assets. Specifically included are the loans held on
a non-accrual basis, real estate judgments subject to redemption, and foreclosed
properties for which FF Bank has obtained title.
Classified assets, including non-performing assets, for FF Bank and FFC,
are set forth in the following table, as of December 31, 1995 and 1994,
respectively.
December 31,
------------------------
1995 1994
-------- ------
(In thousands)
Classified assets:
Non-performing assets:
Non-accrual loans $ 12,246 $ 10,564
Non-performing MBSs 12,858 15,455
Real estate held for sale by FFC 1,309 1,089
Foreclosed properties and other
repossessed assets 3,379 5,216
-------- --------
Total Non-Performing Assets 29,792 32,324
Add back valuation allowances netted against
foreclosed properties above 993 1,146
Adjustment for non-performing residential loans
not classified due to low loan-to-
appraisal value (584) (414)
Adjustment for real estate held for sale
not included in FFB classified assets (1,309) (1,089)
Additional classified performing loans:
Residential real estate 1,013 1,858
Commercial real estate 5,890 8,057
Consumer (including manufactured housing
and credit cards) 280 453
Commercial business 418 219
Other assets 135
-------- --------
Total Classified Assets $ 36,493 $ 42,689
======== ========
During the year ended December 31, 1995, classified assets decreased $
6.2 million to $36.5 million from the December 31, 1994 total of $42.7 million
as the net result of various 1995 events. As a percentage of total assets,
classified assets decreased from 0.78% at December 31, 1994 to 0.67% at December
31, 1995.
The non-performing asset segment of classified assets similarly
decreased $2.5 million during 1995. For further discussions of such
non-performing assets, see Management's Discussion and Analysis, filed as an
exhibit hereto, as well as the "Foreclosed Properties" review immediately
preceding this discussion of classified assets. Other significant changes in the
remaining classified asset categories are discussed below.
-22-
Performing commercial real estate loans which had been classified due
to the possible adverse effects of identifiable future events decreased $2.2
million in 1995. This decrease is due to the net effect of i) the removal from
classified asset status of a contractually performing loan totaling $2.6 million
which had previously been classified due to cash flow problems which have been
resolved, ii) principal payments received on performing loans and offset by iii)
the inclusion in this category of a $500,000 group of loans purchased from
another financial institution.
Classified performing residential real estate mortgage loans also
decreased from 1994 year-end by $900,000 to $1.0 million at December 31, 1995.
The reduction was primarily the result of efforts involving certain borrowers
with groups of loans requiring intensive monitoring and some charge-offs.
At December 31, 1995, exclusive of non-performing assets, the major
concentration of classified assets consists of the approximately $5.9 million of
currently performing commercial real estate loans that have been classified due
to prior delinquency and/or the potential adverse effects of possible
identifiable future events or other factors. Loans in excess of $1.0 million
included in this category are noted below (in thousands):
Loan Amount Classified
-----------------------------------
Property Type Of Property December 31, December 31,
Loan Collateral Location 1995 1994
- ---------------- ---------------- ------------ ------------
Office/Land Sheboygan, Wisconsin $ 3,596 $ 3,633
Motels Various-Tennessee -- 2,553(a)
<FN>
(a) Represented FF Bank's 20% interest in loans, aggregating $12.3 million,
for which FF Bank is also the lead lender. The loans have been removed
from the classification listing during 1995 based upon the receipt of
certain contractual principal payments in early 1995.
</FN>
All adversely classified assets at December 31, 1995 have been considered by
management in its evaluation of the adequacy of allowances for losses.
Investment Activities
In addition to lending activities, FF Bank conducts other investment
activities on an ongoing basis in order to diversify assets, obtain maximum
yield and meet levels of liquid assets required by regulatory authorities.
Investment decisions are made by authorized officers in accordance with policies
established by the Board of Directors. In addition to satisfying regulatory
liquidity requirements, investments are used as part of FF Bank's asset and
liability program to minimize FF Bank's vulnerability to changing interest
rates. At December 31, 1995, 71.6% of FF Bank's investments mature or reprice
within one year or less.
Certain of FF Bank's investment policies relate to the term of the
investment. For example, FF Bank invests in U.S. government, agency and
instrumentality obligations maturing in three years or less; obligations of
state and other political subdivisions maturing in two years or less;
certificates of deposits of insured institutions which will mature in nine
months or less; negotiable federal funds which will mature in nine months or
less; nonnegotiable federal funds which will mature in 30 days or less;
corporate debt obligations maturing in three years or less; and commercial paper
maturing in 270 days or less.
-23-
Additionally, corporate debt obligations must be rated in one of the four
highest categories by a nationally recognized investment rating service, and
commercial paper must be rated in one of the two highest categories by two
nationally recognized rating services.
Other investment policies relate to the aggregate amount of certain
investments. For example, state and municipal general obligations and revenue
bonds are limited to 1% of assets; industrial revenue bonds to 2% of assets in
the aggregate and 1% of assets for any single issue; repurchase agreements to
10% of stockholders' equity plus an additional 10% if secured by readily
marketable collateral; banker's acceptances to no more than 1/4 of 1% of such
institution's total deposits; and all other obligations, except those of the
U.S. or guaranteed thereby, to the lesser of 10% of stockholders' equity or 1%
of total assets.
Management determines the appropriate classification of debt securities
(including mortgage-related securities) at the time of purchase in accordance
with its investment policy. Debt securities are classified as held to maturity
when FFC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held to maturity are classified as
available for sale. Available-for-sale securities are stated at fair value with
the unrealized gains and losses (net of income tax effect), which are believed
to be other than permanent, reported as a separate component of stockholders'
equity.
The cost of debt securities classified as held to maturity or available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or, in the case of mortgage-related securities, over the estimated
life of the security. Such amortization is included in interest income from the
related security. Interest and dividends are included in interest income from
the related securities. Realized gains and losses, and declines in value judged
to be other than temporary are included in net securities gains (losses). The
costs of securities sold is based on the specific identification method.
For a breakdown of investment securities held by FF Bank at certain dates,
see Note C to FFC's consolidated financial statements, filed as an exhibit
hereto.
-24-
The following table sets forth the maturity/repricing characteristics of FF
Bank's investment securities at December 31, 1995 and the weighted average
yields of such securities.
After One, But After Five, But
Within One Year Within Five Years Within 10 Years After 10 Years
----------------- ------------------ ----------------- ---------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
------ ------ ------- -------- ------- -------- -------- --------
(Dollars in thousands)
U.S. Government and agency
obligations.................. $ 78,121 5.01% $67,833 5.84% $ 242 7.02% $ -- --%
Interest-earning deposits
in banks..................... 13,801 5.26
Federal funds sold............... 34,929 4.86
Corporate and bank notes
receivable................... 4,303 5.39 1,615 6.81
State and municipal
obligations.................. 718 5.85 330 8.00
Adjustable-rate mortgage
mutual fund.................. 47,263 6.06
-------- ------- ------ -----
Total........................ $178,417 5.29% $70,166 5.86% $ 572 7.59% $ -- --%
======== ======= ====== ======
At December 31, 1995, FF Bank had no investments in any issuer in excess
of 10% of net worth.
The following table sets forth the aggregate amortized cost and estimated
fair value of investment securities at the dates indicated.
December 31,
------------------------------------
1995 1994 1993
-------- -------- ------
(In thousands)
U.S. Government and agency obligations.......................... $145,331 $107,250 $161,494
Adjustable-rate mortgage mutual fund............................ 47,905 47,227 77,532
Interest-earning deposits....................................... 13,801 1,024 40,838
Federal funds sold.............................................. 34,929 23,890 21,873
Corporate and bank notes
(investment grade).......................................... 5,856 38,952 50,807
State and municipal obligations................................. 1,048 4,433 4,453
Certificates of deposit......................................... -- 504 --
Real estate investment trust.................................... -- 2,371 2,243
-------- -------- --------
Total amortized cost........................................ $248,870 $225,651 $359,240
======== ======== ========
Total estimated fair value.................................. $248,792 $218,307 $360,684
======== ======== ========
Sources of Funds
General. Deposit accounts, sales of loans in the secondary market and
loan repayments are the primary sources of funds for use in lending and for
other general business purposes. In addition, FF Bank derives funds from
maturity of investments, advances from the FHL Bank and other borrowings.
Repayments of loans and mortgage-related securities are a relatively stable
source of funds, while deposit inflows and outflows are significantly influenced
by general interest rates and money market and economic conditions. Borrowings
may be used on a short-term basis to compensate for reduction in normal sources
of funds, such as deposit inflows, at less than projected levels. They may also
be used on a longer-term basis to support expanded lending and investment
activities. FF Bank has not generally
-25-
solicited deposits outside the market area served by its offices or used brokers
to obtain deposits and has no brokered deposits at December 31, 1995.
Deposit Activities. FF Bank offers a variety of deposits having a wide
range of interest rates and terms.
The following table presents, by various interest-rate intervals, FF
Bank's long-term (one year and over) certificates as of the date indicated.
December 31,
------------------------------------------
Interest Rate 1995 1994 1993
------------- -------- -------- ------
(In thousands)
3.50 - 4.00%........................................... $ -- $ 157,220 $ 237,407
4.01 - 6.00%........................................... 1,672,639 1,979,280 1,507,747
6.01 - 8.00%........................................... 568,953 186,950 287,107
8.01 - 10.00%........................................... 4,977 125,603 246,888
---------- ---------- ----------
$2,246,569 $2,449,053 $2,279,149
========== ========== ==========
The following table presents, by various similar interest-rate intervals,
the amounts of long-term (one year and over) time deposits at December 31, 1995
maturing during the period indicated.
Interest Rates
--------------------------------------------------------------
4.01-6.00% 6.01-8.00% 8.01-10.00% Total
---------- ---------- ----------- -----
(In thousands)
Certificate accounts
maturing in the twelve
months ending:
December 31, 1996...........................$1,058,826 $157,995 $ 1,717 $1,218,538
December 31, 1997........................... 406,279 240,238 133 646,650
December 31, 1998........................... 147,552 53,389 323 201,264
After December 31, 1998..................... 59,982 117,331 2,804 180,117
---------- -------- -------- ----------
$1,672,639 $568,953 $ 4,977 $2,246,569
========== ======== ======== ==========
The following table presents the maturities of FF Bank's certificates in
amounts of $100,000 or more at December 31, 1995 by time remaining to maturity.
December 31,
Maturities 1995
- ---------- --------------
(In thousands)
January 1, 1996 through March 31, 1996.............................................. $ 72,790
April 1, 1996 through June 30, 1996................................................. 34,745
July 1, 1996 through December 31, 1996.............................................. 41,598
January 1, 1997 and after........................................................... 65,810
--------
$214,943
========
FF Bank's deposit base at December 31, 1995 included $2.945 billion of
certificates of deposit with a weighted average rate of 5.72%. Of these
certificates of deposit, $1.917 billion with a weighted average rate of 5.63%
will mature during the 12 months
-26-
ending December 31, 1996. FF Bank will seek to retain these deposits to the
extent consistent with its long-term objective of maintaining positive interest
rate spreads. Depending upon interest rates existing at the time such
certificates mature, FF Bank's cost of funds may be significantly affected by
the rollover of these funds.
Other Sources of Funds. The following table sets forth certain
information as to FFC's advances and other borrowings at the dates and for the
periods indicated. See Note J to FFC's consolidated financial statements,
incorporated herein by reference.
December 31,
------------------------------------------
1995 1994 1993
-------- -------- ------
(In thousands)
Short-term borrowings.......................................... $ 25,972 $ 13,127 $ --
FHL Bank advances.............................................. 475,368 622,209 372,381
Subordinated notes............................................. 54,925 54,977 54,997
Industrial development revenue bonds........................... 6,219 6,315 6,410
Collateralized mortgage obligations............................ 8,024 11,818 22,009
-------- -------- --------
Total borrowings........................................ $570,508 $708,446 $455,797
======== ======== ========
Weighted average interest cost of total
borrowings during the year................................. 6.45% 5.58% 5.71%
Average month-end balance of short-term
borrowings................................................. $ 59,092 $ 14,006 $ --
Weighted average interest rate of short-term
borrowings during the year................................. 5.91% 6.02% --%
Weighted average interest rate of short-term
borrowings at end of year.................................. 5.89% 5.76% --%
Service Corporations and Operating/Finance Subsidiaries
FF Bank has i) five active, wholly-owned service corporations, ii) an
operating subsidiary, and iii) two limited-purpose finance subsidiaries. The net
book value of FF Bank's aggregate investment in active service corporations at
December 31, 1995 was as follows (in thousands):
Wisconsin Insurance Management, Inc..................................... $1,169
Appraisal Services, Inc................................................. 150
First Service Corporation of Wisconsin.................................. 4
Illini Service Corporation.............................................. --
Mortgage Finance Corporation............................................ --
------
Total............................................................... $1,323
======
Wisconsin Insurance Management, Inc. ("WIM") is a full-service,
independent insurance agency. This subsidiary offers a broad range of insurance
products, including hazard, mortgage, life and disability policies, to FF Bank's
customers, as well as a full line of commercial and personal coverages to the
general public. Brokerage services are also provided through this subsidiary.
WIM had net income of $1.7 million, $1.6 million and $1.3 million for 1995, 1994
and 1993, respectively.
-27-
Appraisal Services, Inc. performs real estate appraisals for FF Bank's
loan customers, governmental agencies and the general public. Insurance
valuations and ad valorem tax services for outside sources are also performed.
Appraisal Services, Inc. had net income of $121,000, $69,000 and $111,000 for
1995, 1994 and 1993, respectively.
First Service Corporation of Wisconsin ("FSC") previously engaged in the
management and sale of commercial real estate and apartments for FF Bank and
others, as well as acting as general partner for several real estate
partnerships. In 1993, FSC's activities were sharply cut back and its principal
assets were transferred to FF Bank. This subsidiary had a net loss of $207,000
for 1993. FSC's remaining function is to serve as general partner for a real
estate partnership.
Illini Service Corporation ("ISC") was acquired in conjunction with the
Illini transaction and acts as nominal trustee on deeds of trust in Missouri.
ISC's sole corporate function is to provide the trustee's signature capability.
Mortgage Finance Corporation ("MFC") was a subsidiary of a former
mortgage banking affiliate of FF Bank and acts as a nominal trustee on deeds of
trust in California and other states. MFC's sole corporate function is to
provide the trustee's signature capability on such deeds of trust acquired by FF
Bank from the former affiliate.
First Financial Investments, Inc. ("FFII") is an operating subsidiary of
FF Bank and was incorporated in 1991. FFII, which is located in the state of
Nevada, was formed for the purpose of managing a portion of FF Bank's investment
portfolio (primarily mortgage-related securities purchased subsequent to the
recent Illinois-area acquisitions) having primarily long-term maturities. As an
operating subsidiary, FFII's results of operations are combined with FF Bank's
for financial and regulatory reporting purposes.
UFS Capital Corporation ("UFSCC") and FFS Funding Corp., Inc. ("FFS"),
which were acquired in conjunction with the United and FirstRock acquisitions,
respectively, are limited-purpose finance subsidiaries of FF Bank and function
as issuers of certain collateralized mortgage obligation bonds. As finance
subsidiaries, UFSCC's and FFS's results of operations are combined with FF
Bank's for financial and regulatory reporting purposes.
Employees of FFC
At December 31, 1995, FFC and its subsidiaries employed 1,377 full-time
employees and 404 part-time employees. FFC promotes equal employment opportunity
and considers its employee relations to be good. FFC's employees are not
represented by any collective bargaining group.
FFC sponsors retirement plans covering all full-time employees with one
or more years of service who are at least 21 years old. Additionally, FFC
maintains an employee benefit program providing, among other items,
hospitalization and major medical insurance, limited dental and life insurance,
and educational assistance. Such employee benefits are considered by management
to be competitive with employee benefits provided by other financial
institutions and major employers in the counties in which FF Bank has offices.
-28-
Executive Officers
The following table sets forth information regarding each of the
executive officers of FFC and FF Bank:
Age At
Executive December 31, Business Experience
Officer 1995 During Past Five Years
- --------------- ------------- --------------------------
John C. Seramur 53 Mr. Seramur joined FF Bank in 1966 and serves
as Director, President, Chief Executive Officer
and Chief Operating Officer of FFC and FF
Bank.
Robert M. Salinger 45 Mr. Salinger joined FFC as Corporate Secretary
and General Counsel in 1985. He also serves as
an Executive Vice President of FF Bank. In
1984, he had served as General Counsel and
Corporate Secretary for an institution acquired by
FFC. Prior to 1984, he was a partner in the law
firm of Petrie & Stocking, S.C., and associated
with the law firm of Whyte, Hirschboeck &
Dudek, S.C.
Thomas H. Neuschaefer 49 Mr. Neuschaefer joined FF Bank in 1988 and
serves as Vice President, Treasurer and Chief
Financial Officer of FFC. He also serves as
Executive Vice President-Finance of FF Bank.
From 1978 to 1988, he served as Chief Financial
Officer of National. Prior to 1978, he was
associated with the national accounting firm of
Ernst & Young LLP.
Donald E. Peters 46 Mr. Peters joined FF Bank in 1982 and serves as
Executive Vice President - Retail Banking of FF
Bank. Prior to 1982, he was an officer of
another thrift institution.
Harry K. Hammerling 45 Mr. Hammerling joined FF Bank in 1984 and
serves as Executive Vice President -
Administration and Servicing for FF Bank.
From 1972 to 1984, he served as an officer of
First State.
Kenneth F. Csinicsek 56 Mr. Csinicsek joined FF Bank in 1987 and serves
as Senior Vice President of Marketing and
Investor Relations. Prior to joining FF Bank, he
served as president of another thrift institution for
two years and operated two financial institution
consulting firms over a thirteen year period.
-29-
REGULATION
FFC, as a savings and loan holding company, and FF Bank, as a federally
chartered savings bank, are subject to regulation, supervision and examination
by the OTS as their primary federal regulator. FF Bank also is subject to
regulation, supervision and examination by the FDIC and as to certain matters by
the Federal Reserve Board. See "Management's Discussion and Analysis" and "Notes
to Consolidated Financial Statements" as to the impact of certain laws, rules
and regulations on the operations of FFC and FF Bank. Set forth below is a
description of certain recent regulatory developments.
During 1995, the OTS, along with the other federal banking agencies,
adopted safety and soundness guidelines relating to (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate exposure; (v) asset growth and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. Such guidelines set out standards that the agencies will
use to identify and address problems at institutions before capital becomes
impaired. Pursuant to such guidelines FF Bank is required to establish and
maintain a system to identify problem assets and prevent deterioration of those
assets in a manner commensurate with its size and the nature and scope of its
operations. FF Bank also must establish and maintain a system to evaluate and
monitor earnings and ensure that earnings are sufficient to maintain adequate
capital and reserves in a manner commensurate with its size and the nature and
scope of its operations.
If FF Bank does not meet one or more of the safety and soundness
standards set forth in the guidelines, it is required to file a compliance plan
with the OTS. In the event that FF Bank fails to submit an acceptable compliance
plan or fails in any material respect to implement an accepted compliance plan
within the time allowed by the OTS, FF Bank would be required to correct the
deficiency and the OTS would be authorized to: (i) restrict FF Bank's asset
growth; (ii) require FF Bank to increase its ratio of tangible equity to assets;
(iii) restrict the rates of interest that FF Bank may pay; or (iv) take any
other action that would better carry out the purpose of the corrective action.
FF Bank believes it currently is in compliance with the safety and soundness
standards set forth by the OTS.
During 1995, in accordance with changes mandated by the Community
Development and Regulatory Improvement Act of 1994 (the "Community Development
Act"), the OTS and the other federal banking agencies proposed certain
amendments to the regulations implementing the Depository Institutions
Management Interlocks Act (the "Interlocks Act"), which restricts management
interlocks in order to foster competition between unaffiliated institutions. The
proposed amendments would narrow the circumstances under which an exception to
the prohibitions of the Interlocks Act could be granted by agency order and
would clarify certain language as used within the regulations. Management
officials at FFC and FF Bank are in full compliance with the Interlocks Act.
The Community Development Act, also requires that each banking agency
implement a comprehensive review of its regulations to eliminate duplicative,
unduly burdensome and unnecessary regulations. During 1995 the OTS announced
that it will review each of its regulations to determine if: (i) the regulations
are current; (ii) the regulation could be eliminated without endangering safety
and soundness, diminishing consumer protection or violating statutory
requirements; (iii) the regulation's subject matter is more suited for a
-30-
policy statement or handbook guidance; (iv) the regulation is consistent with
the regulation of the other federal banking agencies; and (v) the regulation is
easily understood. Based upon the first part of this review, the OTS formally
deleted eight percent of its regulations including outdated, duplicative and
otherwise unnecessary regulations.
The OTS also recently issued a notice of proposed rulemaking concerning
a comprehensive revision to its regulations and policy statements concerning
lending and investments. Under the proposal certain loan documentation
requirements will be replaced by general safety and soundness standards,
commercial loans made by a service corporation will be exempted from an
institution's overall 10% limit on commercial loans, an institution will be able
to use its own cost-of-funds index in structuring adjustable rate mortgages, and
the 35% of assets limitation on credit card lending will be eliminated. The OTS
has announced that it expects to issue proposals that will reduce the burdens
imposed by its regulations governing, among other things, subsidiaries,
corporate governance and preemption. Similarly, the FDIC has issued a notice of
opportunity for comment with respect to its review of all of its regulations and
written policies.
-31-
TAXATION
Federal
FFC files on behalf of itself, FF Bank, and its subsidiaries a calendar
tax year consolidated federal income tax return. Income and expense are reported
on the accrual method of accounting.
Savings institutions, such as FF Bank, are generally taxed in the same
manner as other corporations. Unlike other corporations, however, qualifying
savings institutions that meet certain definitional tests relating to the nature
of their supervision, income, assets and business operations are allowed to
establish a reserve for bad debts and each tax year are permitted to deduct
additions to that reserve on qualifying real property loans using the more
favorable of the following two alternative methods: (i) a method based on the
institution's actual loss experience (the "experience" method) or (ii) a method
based upon a specified percentage of the institution's taxable income (the
"percentage of taxable income" method). Qualifying real property loans are, in
general, loans secured by interests in improved real property. The addition to
the reserve for nonqualifying loans must be computed under the experience
method. In recent years, FF Bank generally has computed additions to its
reserves for losses on qualifying loans using the experience method. It is
anticipated that FF Bank will continue to use this method in future years.
To the extent that FF Bank makes distributions to its stockholders that
are considered withdrawals from that excess bad debt reserve, the amounts
withdrawn will be included in FF Bank's taxable income. The amount considered to
be withdrawn by such a distribution will be the amount of the distribution, plus
the amount necessary to pay the tax with respect to the withdrawal. Dividends
paid out of FF Bank's current or accumulated earnings and profits as calculated
for federal income tax purposes, however, will not be considered to result in
withdrawals from their bad debt reserves. Distributions in excess of FF Bank's
current and accumulated earnings and profits, distributions in redemptions of
stock, and distributions in partial or complete liquidation of FF Bank will be
considered to result in withdrawals from the Bank's bad debt reserves. At
December 31, 1995, FF Bank had $79.2 million in accumulated federal income tax
bad debt reserves that would not be available for distribution to FFC without
the imposition of additional tax.
Depending on the composition of its items of income and expense, a savings
institution may be subject to the alternative minimum tax ("AMT") to the extent
the AMT exceeds the regular tax liability. AMT is calculated by multiplying
alternative minimum taxable income ("AMTI") by 20%. AMTI equals regular taxable
income increased by certain tax preferences, including depreciation deductions
in excess of that allowable for alternative minimum tax purposes, the amount of
the bad debt reserve deduction claimed in excess of the deduction based on the
experience method, and 75% of the excess of adjusted current earnings ("ACE")
over AMTI. ACE is defined as AMTI adjusted for certain items such as accelerated
tax depreciation, tax exempt interest, the dividends received deduction, and
other tax preferences. Only 90% of AMTI may be reduced by net operating loss
carryovers and most alternative minimum tax paid may be used as a credit against
regular tax paid in future years.
-32-
State
FFC and FF Bank are headquartered in Wisconsin and have significant
operations in Illinois. The State of Wisconsin imposes a corporate franchise tax
measured by the separate Wisconsin taxable income of each of the members. The
State of Illinois imposes a corporate income tax based on the apportionment of
Illinois taxable income by the entire group to their Illinois activities. The
current corporate tax rates imposed by Wisconsin and Illinois are 7.9% and 7.3%,
respectively. FF Bank also has an operating subsidiary (FFII) located in Nevada
which manages a portion of FF Bank's investment portfolio. The income of FFII is
only subject to taxation in Nevada which currently does not impose a corporate
income or franchise tax other than a nominal registration fee.
Examinations
The Internal Revenue Service has examined the consolidated federal income
tax returns of FFC and FF Bank through 1991. The separate Wisconsin state income
tax returns of the members of the group have been examined by the Wisconsin
Department of Revenue through 1990. The Illinois Department of Revenue is
currently engaged in an examination of the years 1991, 1992 and 1993.
ITEM 2. PROPERTIES
At December 31, 1995, FF Bank operated through 129 full-service savings
bank branch offices, one loan origination limited office and one insurance
agency office, located in Wisconsin and Illinois. The aggregate net book value
at December 31, 1995 of the properties owned or leased, including headquarters,
properties and leasehold improvements at the leased offices, was $42.4 million.
The leases expire between 1996 and 2021. See Note H to FFC's consolidated
financial statements, filed as an exhibit hereto, for information regarding FF
Bank's premises and equipment. Management believes that all of these properties
are in good condition. The following tables set forth the location of FFC's
banking and other offices.
Wisconsin
Address City
- ---------------------- -----------------------
609 East Spruce Street Abbotsford, Wisconsin
103 West Cleveland Arcadia, Wisconsin
926 West College Avenue Appleton, Wisconsin
221 Fourth Avenue West Ashland, Wisconsin
117 South Broad Street Bayfield, Wisconsin
201 Park Avenue Beaver Dam, Wisconsin
203 Main Street Black River Falls, Wisconsin
- ----------
(a) Leased
-33-
Wisconsin (Continued)
Address City
- ----------------------- -----------------------
1 North Moorland Road Brookfield, Wisconsin (a)
197 West Chestnut Street Burlington, Wisconsin
709 East Geneva Street Delavan, Wisconsin
308 Third Avenue West Durand, Wisconsin
3292 Main Street East Troy, Wisconsin (a)
130 South Barstow Commons Eau Claire, Wisconsin
806 South Hastings Way Eau Claire, Wisconsin
23 South Washington Elkhorn, Wisconsin
One North Madison Street Evansville, Wisconsin
211 North Highland Drive Fredonia, Wisconsin
1930 Wisconsin Avenue Grafton, Wisconsin (a)
1482 West Mason Street Green Bay, Wisconsin
2235 Main Street Green Bay, Wisconsin
5651 Broad Street Greendale, Wisconsin
4981 South 76th Street Greenfield, Wisconsin
10 Main Street Hayward, Wisconsin
Holmen Square Holmen, Wisconsin
117 Second Avenue North Hurley, Wisconsin (a)
420 South Main Street Iron River, Wisconsin
2525 Milton Avenue Janesville, Wisconsin (a)
620 Main Street LaCrosse, Wisconsin
300 East Lake Street Lake Mills, Wisconsin
205 North Eighth Street Manitowoc, Wisconsin
630 South Central Avenue Marshfield, Wisconsin (a)
705 North Center Avenue Merrill, Wisconsin
200 East Wisconsin Avenue Milwaukee, Wisconsin (a)
829 West Mitchell Street Milwaukee, Wisconsin
3027 West Lincoln Avenue Milwaukee, Wisconsin
3432 South 27th Street Milwaukee, Wisconsin (a)
5350 West Fond du Lac Avenue Milwaukee, Wisconsin
5900 West North Avenue Milwaukee, Wisconsin
7900 West Brown Deer Road Milwaukee, Wisconsin
Highways 51 & 70 West Minocqua, Wisconsin (a)
600 East Main Street Mondovi, Wisconsin
306 North Rochester Street Mukwonago, Wisconsin
600 Hewett Street Neillsville, Wisconsin
15665 West National Avenue New Berlin, Wisconsin
1093 Summit Avenue Oconomowoc, Wisconsin (a)
1101 Main Street Onalaska, Wisconsin
429 North Sawyer Street Oshkosh, Wisconsin
- ----------
(a) Leased
-34-
Wisconsin (Continued)
Address City
- ----------------------- ---------------------------
1414 South Fourth Avenue Park Falls, Wisconsin
Post Road & South Drive Plover, Wisconsin
222 North Wisconsin Street Port Washington, Wisconsin
1733 Douglas Avenue Racine, Wisconsin
140 South Brown Rhinelander, Wisconsin
135 South Mill Street Saukville, Wisconsin
1230 North Taylor Drive Sheboygan, Wisconsin
2815 South Chicago Avenue South Milwaukee, Wisconsin (a)
1325 Church Street Stevens Point, Wisconsin
108 West Prospect Thorp, Wisconsin (a)
213 North Lake Avenue Twin Lakes, Wisconsin
104 South Washington Avenue Washburn, Wisconsin
600 Main Street Watertown, Wisconsin
633 South Church Street Watertown, Wisconsin (a)
100 East Sunset Drive Waukesha, Wisconsin (a)
300 Wisconsin Avenue* Waukesha, Wisconsin
704 North Grand Avenue Waukesha, Wisconsin
1200 Delafield Street Waukesha, Wisconsin (a)
2306 West St. Paul Avenue Waukesha, Wisconsin (a)
2831 North Grandview Boulevard Waukesha, Wisconsin (a)
330 Third Street Wausau, Wisconsin (a)
2711 West Stewart Avenue Wausau, Wisconsin
2645 North Mayfair Road Wauwatosa, Wisconsin
2825 South 108th Street West Allis, Wisconsin (a)
7101 West Greenfield Avenue West Allis, Wisconsin (a)
430 East Silver Spring Drive Whitefish Bay, Wisconsin
1714 Scranton Street Whitehall, Wisconsin
219 Center Street Whitewater, Wisconsin
711 West Grand Avenue Wisconsin Rapids, Wisconsin (a)
- ----------
(a) Leased
* Insurance Agency Office
-35-
Illinois
Address City
- ------------------------ --------------------
104 Southeast 3rd Avenue Aledo, Illinois
104 Homer Adams Parkway Alton, Illinois
301 West Galena Boulevard Aurora, Illinois
100 East Washington Belleville, Illinois
6902 West Main Belleville, Illinois (a)
1007 North Fourth Street Chillicothe, Illinois
238 North Main Columbia, Illinois
305 East Locust DeKalb, Illinois (a)
1325 Sycamore Road DeKalb, Illinois (a)
12200 North Route 88 Dunlap, Illinois (a)
300 East Washington Street East Peoria, Illinois
326 Missouri Avenue East St. Louis, Illinois
101 East Evergreen Elmwood, Illinois
6550 North Illinois Fairview Heights, Illinois
10280 Lincoln Trail Fairview Heights, Illinois
16 East Fort Street Farmington, Illinois (a)
50 East Main Street Galesburg, Illinois
1865 North Henderson Galesburg, Illinois
#1 Junction Drive West Glen Carbon, Illinois
318 West College Greenville, Illinois
1035 Broadway Hamilton, Illinois
333 West Main Havana, Illinois
313 Fifth Street Lacon, Illinois
143 South Main Street Lewistown, Illinois
622 Machesney Road Machesney Park, Illinois
217 West Washington Millstadt, Illinois
119 West 5th Street Minonk, Illinois
122 West Boston Avenue Monmouth, Illinois
21 Boulder Hill Pass Montgomery, Illinois (a)
1645 State Highway 121 Mount Zion, Illinois
300 South 4th Street Pekin, Illinois
3500 Court Street Pekin, Illinois (a)
103 West Forrest Hill Peoria, Illinois
111 North Jefferson Avenue Peoria, Illinois
201B Northwoods Mall Peoria, Illinois (a)
700 Main Street Peoria, Illinois (a)
2515 West Lake Avenue Peoria, Illinois
3222 West Harmon Highway Peoria, Illinois
4125 North Sheridan Road Peoria, Illinois (a)
4600 Brandywine Drive Peoria, Illinois
7620 North University Peoria, Illinois (a)
525 West Washington Street Pittsfield, Illinois
- ----------
(a) Leased
-36-
Illinois (Continued)
Address City
- -------------------- ----------------------
116 East Main Street Princeville, Illinois
706 Maine Street Quincy, Illinois (a)
24th and Broadway Quincy, Illinois
416 West Front Street Roanoke, Illinois
308 Eagle Drive Rochelle, Illinois (a)
612 North Main Street Rockford, Illinois (a)
1601 North Alpine Road Rockford, Illinois
4400 Center Terrace Rockford, Illinois
3333 North Rockton Avenue Rockford, Illinois
116 South Congress Rushville, Illinois
2659 Farragut Drive** Springfield, Illinois (a)
1881 Washington Road Washington, Illinois
200 South Market Waterloo, Illinois
- ----------
(a) Leased
** Loan Origination Office
ITEM 3. LEGAL PROCEEDINGS
FFC and FF Bank are involved as plaintiff or defendant in various legal
actions incidental to their business, all of which in the aggregate are believed
by management of FFC not to represent an adverse risk of loss which would be
material to the financial condition or operations of FFC. See Note Q to FFC's
consolidated financial statements, filed at Exhibit 13(a) hereto, for further
discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference
from Management's Discussion and Analysis filed at Exhibit 13(b) hereto. FFC's
Board of Directors has discretion to declare and pay dividends on FFC's common
stock from time to time under Wisconsin law, unless such payment would render
FFC insolvent. Also, see Exhibit 10(k), "Form of Indenture", for further
limitations on payment of dividends on FFC's common stock.
-37-
Also, relative to OTS restrictions on the payment of dividends by FF Bank
to FFC, see Note L to FFC's consolidated financial statements filed at Exhibit
13(a) hereto. Also, see Item 1, "Business - Regulation".
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this item is incorporated herein
by reference from "Management's Discussion and Analysis" filed at Exhibit 13(b)
hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" is filed at Exhibit 13(b) hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FFC's consolidated financial statements are filed at Exhibit 13(a)
hereto. Quarterly financial information is included as a part of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" filed
at Exhibit 13(b) hereto. Schedule II, filed as an exhibit hereto, includes the
required schedule for "Guarantees of Securities of Other Issuers".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item regarding directors is incorporated by
reference from pages 5 to 9 and 16 of the proxy statement for FFC's 1996 annual
meeting of shareholders, filed with the Securities and Exchange Commission on
March 12, 1996. Information required by this item regarding executive officers
is included herein at page 28 and regarding directors at pages 5 - 7 of the
proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation required by this item is
incorporated herein by reference from pages 9 - 15 of the proxy statement for
FFC's 1996 annual meeting of shareholders, filed with the Securities and
Exchange Commission on March 12, 1996.
-38-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
from pages 3 - 4 of the proxy statement for FFC's 1996 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 12,
1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from page 17 of the proxy statement for FFC's 1996 annual meeting of
shareholders, filed with the Securities and Exchange Commission on March 12,
1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Registrant
and its subsidiaries for the year ended December 31, 1995, including the related
notes and the report of the independent auditors are incorporated herein by
reference from Exhibit 13(a) of this Report.
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1995 and 1994.
Consolidated Statements of Income - Years ended December 31, 1995, 1994
and 1993.
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows - Years Ended December 31, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements.
(a)(2) The following consolidated financial statement schedule of the
Registrant is filed at Exhibit 13(a) to this Report in response to the
requirement of Items 8 and 14(d) of this Report and should be read in
conjunction with the consolidated financial statements incorporated herein by
reference to Item 8 of this Report:
Schedule II - Guarantees of Securities of Other Issuers
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore, have
been omitted.
-39-
(a)(3) The following exhibits are either filed as part of this Report on
Form 10-K or are incorporated herein by reference.
3(a) Articles of Incorporation of Registrant dated February 21, 1984,
as amended, and restated on January 18, 1995. (Incorporated
herein by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on January 26, 1995).
3(b) Bylaws of the Registrant, as amended (incorporated herein by
reference to the Registrant's Annual Report on Form 10-K filed
on March 25, 1985).
4(b) Form of Certificate of Common Stock (incorporated herein by
reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
December 7, 1983).
10(a) Employment Contract of Registrant with John C. Seramur dated
January 1, 1989, (incorporated by reference from Annual Report
on Form 10-K for 1989 filed on March 26, 1990).
10(b) Employment Agreement between Registrant and Robert M. Salinger
dated August 16, 1989, (incorporated by reference from Annual
Report on Form 10-K for 1989 filed on March 26, 1990).
10(c) Deferred Compensation Agreement between First State Savings of
Wisconsin and Paul C. Kehrer (incorporated herein by reference
to Exhibit 10.8 to Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
February 14, 1984).
10(d) Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 2 to Registrant's
Registration Statement on Form S-1 [Registration No. 2-88289]
filed on February 14, 1984).
10(e) Supplemental Executive Profit Sharing Plan dated December 21,
1987 (incorporated herein by reference to Exhibit 10(q) to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 33- 16948] filed on
February 29, 1988).
10(f) Form of Executive Supplemental Life Insurance Plan dated April
10, 1989 (incorporated herein by reference from Annual Report on
Form 10-K for 1989 filed on March 26, 1990).
10(g) Form of Supplemental Executive Retirement Plan dated August 1,
1989, and amended on November 1, 1991 (incorporated herein by
reference from Annual Report on Form 10-K for 1991 filed on
March 27, 1992).
10(h) Employment Agreement between Registrant and Donald E. Peters
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(i) Employment Agreement between Registrant and Harry K. Hammerling
dated
-40-
August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(j) Acquisition Agreement among Westinghouse Financial Services,
Inc., Westinghouse Savings Corporation and FF Bank dated
September 14, 1992 (incorporated herein by reference to the
Current Report filed by the Registrant on Form 8-K on September
29, 1992).
10(k) Form of Indenture between the Registrant and Norwest Bank
Wisconsin, N.A. as trustee relative to issuance of 8.0%
Subordinated Notes due November 1, 1999 (incorporated herein by
reference to Exhibit 4.2 to Amendment No. 1 to Registrant's
Registration Statement on Form S-3 [Registration No. 33-52638]
on October 9, 1992).
10(l) Directors' Retirement Plan dated November 18, 1992.
(Incorporated herein by reference from Annual Report on Form
10-K for 1992 filed on March 26, 1993.)
10(m) Consulting Agreement between Registrant and Robert S.
Gaiswinkler dated January 1, 1993. (Incorporated herein by
reference from Annual Report on Form 10-K for 1992 filed on
March 26, 1993.)
10(n) Agreement and Plan of Merger by and among NorthLand Bank of
Wisconsin, SSB, First Financial Corporation and FF Bank dated
October 13, 1993 (incorporated herein by reference to Exhibit 2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-51487] filed on December 16, 1993.)
10(o) Deferred Compensation Plan and Trust, dated January 1, 1988 and
amended January 1, 1993. (Incorporated herein by reference from
Annual Report on Form 10-K for 1993 filed on March 29, 1994.)
10(p) Agreement and Plan of Reorganization among First Financial
Corporation, First Financial Acquisition Company, and FirstRock
Bancorp, Inc. dated October 26, 1994 and amended December 5,
1994 (incorporated herein by reference to Exhibits 2.1 and 2.2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on December 12, 1994).
10(q) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994. (Incorporated herein by
reference from Annual Report on Form 10-K for 1994 filed on
March 28, 1995.)
10(r) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994. (Incorporated herein by reference from
Annual Report on Form 10-K for 1994 filed on March 28, 1995.)
10(s) Promissory Note relating to Registrant's commercial bank
line-of-credit agreement dated April 30, 1995.
-41-
10(t) First Financial Corporation Stock Option Plan III dated April
24, 1991 and restated August 16, 1995.
10(u) First Federal Savings Bank of Rockford, Illinois Employee Stock
Ownership Plan and Trust, amended February 28, 1995 to reflect
a) adoption by FF Bank as successor plan sponsor and b) related
amendments thereto.
11 Computation of Earnings Per Share
13(a) Consolidated Financial Statements
13(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young LLP for Registration Statement No.
2-90005 as filed with the Securities and Exchange Commission
("SEC") on March 16, 1984, Registration Statement No. 33-17304
as filed with the SEC on September 17, 1987, Post-Effective
Amendment No. 5 to Form S-1 on Form S-8 [Registration No.
33-16948] as filed with the SEC on May 12, 1988, Registration
Statement No. 33-36295 as filed with the SEC on August 9, 1990,
Registration Statement No. 33-69856 as filed with the SEC on
October 1, 1993, Registration Statement No. 33-51487 filed with
the SEC on January 13, 1994 and Registration Statement No.
33-55823 filed with the SEC on January 27, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
(c) Exhibits to this Report on Form 10-K required by Item 601 of
Regulation S-K are attached or incorporated herein by reference
as stated in the Index to Exhibits.
(d) The report of independent auditors and the financial statement
schedules listed in subsections (a)(1) and (2) above are filed
at Exhibits 13(a) to this Report on Form 10-K in response to the
requirements of Items 8 and 14(d) of this Report on Form 10-K.
-42-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL CORPORATION
By: /s/ John C. Seramur
----------------------------------
John C. Seramur
President
Chief Executive Officer
Date: March 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ John C. Seramur By: /s/ Thomas H. Neuschaefer
------------------------------ ----------------------------
John C. Seramur Thomas H. Neuschaefer
President Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
Director Date: March 20, 1996
Date: March 20, 1996
By: /s/ Robert S. Gaiswinkler
----------------------------
Robert S. Gaiswinkler
Chairman of the Board
Director
Date: March 20, 1996
By: /s/ Gordon M. Haferbecker By: /s/ James O. Heinecke
------------------------------ ------------------------
Gordon M. Haferbecker James O. Heinecke
Director Director
Date: March 20, 1996 Date: March 20, 1996
-43-
By: /s/ Robert T. Kehr By: /s/ Paul C. Kehrer
------------------------------- ---------------------
Robert T. Kehr Paul C. Kehrer
Director Director
Date: March 20, 1996 Date: March 20, 1996
By: /s/ Robert P. Konopacky By: /s/ Dr. George R. Leach
-------------------------------- --------------------------
Robert P. Konopacky Dr. George R. Leach
Director Director
Date: March 20, 1996 Date: March 20, 1996
By: /s/ Ignatius H. Robers By: /s/ John H. Sproule
-------------------------------- ----------------------
Ignatius H. Robers John H. Sproule
Director Director
Date: March 20, 1996 Date: March 20, 1996
By: /s/ Ralph R. Staven By: /s/ Norman L. Wanta
-------------------------------- ---------------------
Ralph R. Staven Norman L. Wanta
Director Director
Date: March 20, 1996 Date: March 20, 1996
By: /s/ Arlyn G. West
--------------------------------
Arlyn G. West
Director
Date: March 20, 1996
-44-
EXHIBIT INDEX
Schedule II Guarantees of Securities of Other Issuers
3(a) Articles of Incorporation of Registrant dated February 21, 1984,
as amended, and restated on January 18, 1995. (Incorporated
herein by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on January 26, 1995).
3(b) Bylaws of the Registrant, as amended (incorporated herein by
reference to the Registrant's Annual Report on Form 10-K filed
on March 25, 1985).
4(b) Form of Certificate of Common Stock (incorporated herein by
reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
December 7, 1983).
10(a) Employment Contract of Registrant with John C. Seramur dated
January 1, 1989, (incorporated by reference from Annual Report
on Form 10-K for 1989 filed on March 26, 1990).
10(b) Employment Agreement between Registrant and Robert M. Salinger
dated August 16, 1989, (incorporated by reference from Annual
Report on Form 10-K for 1989 filed on March 26, 1990).
10(c) Deferred Compensation Agreement between First State Savings of
Wisconsin and Paul C. Kehrer (incorporated herein by reference
to Exhibit 10.8 to Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 2-88289] filed on
February 14, 1984).
10(d) Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 2 to Registrant's
Registration Statement on Form S-1 [Registration No. 2-88289]
filed on February 14, 1984).
10(e) Supplemental Executive Profit Sharing Plan dated December 21,
1987 (incorporated herein by reference to Exhibit 10(q) to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-1 [Registration No. 33- 16948] filed on
February 29, 1988).
10(f) Form of Executive Supplemental Life Insurance Plan dated April
10, 1989 (incorporated herein by reference from Annual Report on
Form 10-K for 1989 filed on March 26, 1990).
10(g) Form of Supplemental Executive Retirement Plan dated August 1,
1989, and amended on November 1, 1991 (incorporated herein by
reference from Annual Report on Form 10-K for 1991 filed on
March 27, 1992).
10(h) Employment Agreement between Registrant and Donald E. Peters
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
-45-
10(i) Employment Agreement between Registrant and Harry K. Hammerling
dated August 16, 1989 and amended August 19, 1992. (Incorporated
herein by reference from Annual Report on Form 10-K for 1992
filed on March 26, 1993.)
10(j) Acquisition Agreement among Westinghouse Financial Services,
Inc., Westinghouse Savings Corporation and FF Bank dated
September 14, 1992 (incorporated herein by reference to the
Current Report filed by the Registrant on Form 8-K on September
29, 1992).
10(k) Form of Indenture between the Registrant and Norwest Bank
Wisconsin, N.A. as trustee relative to issuance of 8.0%
Subordinated Notes due November 1, 1999 (incorporated herein by
reference to Exhibit 4.2 to Amendment No. 1 to Registrant's
Registration Statement on Form S-3 [Registration No. 33-52638]
on October 9, 1992).
10(l) Directors' Retirement Plan dated November 18, 1992.
(Incorporated herein by reference from Annual Report on Form
10-K for 1992 filed on March 26, 1993.)
10(m) Consulting Agreement between Registrant and Robert S.
Gaiswinkler dated January 1, 1993. (Incorporated herein by
reference from Annual Report on Form 10-K for 1992 filed on
March 26, 1993.)
10(n) Agreement and Plan of Merger by and among NorthLand Bank of
Wisconsin, SSB, First Financial Corporation and FF Bank dated
October 13, 1993 (incorporated herein by reference to Exhibit 2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-51487] filed on December 16, 1993.)
10(o) Deferred Compensation Plan and Trust, dated January 1, 1988 and
amended January 1, 1993. (Incorporated herein by reference from
Annual Report on Form 10-K for 1993 filed on March 29, 1994.)
10(p) Agreement and Plan of Reorganization among First Financial
Corporation, First Financial Acquisition Company, and FirstRock
Bancorp, Inc. dated October 26, 1994 and amended December 5,
1994 (incorporated herein by reference to Exhibits 2.1 and 2.2
to the Registrant's Registration Statement on Form S-4
[Registration No. 33-56823] filed on December 12, 1994).
10(q) Employment Agreement between Registrant and Thomas H.
Neuschaefer dated June 14, 1994. (Incorporated herein by
reference from Annual Report on Form 10-K for 1994 filed on
March 28, 1995.)
10(r) Employment Agreement between Registrant and Kenneth F. Csinicsek
dated June 14, 1994. (Incorporated herein by reference from
Annual Report on Form 10-K for 1994 filed on March 28, 1995.)
10(s) Promissory Note relating to Registrant's commercial bank
line-of-credit agreement dated April 30, 1995.
-46-
10(t) First Financial Corporation Stock Option Plan III dated April
24, 1991 and restated August 16, 1995.
10(u) First Federal Savings Bank of Rockford, Illinois Employee Stock
Ownership Plan and Trust, amended February 28, 1995 to reflect
a) adoption by FF Bank as successor plan sponsor and b) related
amendments thereto.
11 Computation of Earnings Per Share
13(a) Consolidated Financial Statements
13(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations
22 Subsidiaries of the Registrant
24 Consent of Ernst & Young LLP for Registration Statement No.
2-90005 as filed with the SEC on March 16, 1984, Registration
Statement No. 33-17304 as filed with the SEC on September 17,
1987, Post-Effective Amendment No. 5 to Form S-1 on Form S-8
[Registration No. 33-16948] as filed with the SEC on May 12,
1988, Registration Statement No. 33-36295 as filed with the SEC
on August 9, 1990, Registration Statement No. 33-69856 as filed
with the SEC on October 1, 1993, Registration Statement No.
33-51487 filed with the SEC on January 13, 1994 and Registration
Statement No. 33-55823 filed with the SEC on January 27, 1995.
27 Financial Data Schedule
-47-
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
-48-
SCHEDULE II - GUARANTEES OF SECURITIES OF OTHER ISSUERS
FIRST FINANCIAL CORPORATION
DECEMBER 31, 1995
Column A Column B Column C Column D Column E Column F Column G
Amount Default By Issuer
Owned By Of Securities
Person Amount In Guaranteed
Total Or Treasury In Principal,
Name Of Amount Persons Of Interest, Sinking
Issuer of Securities Title Of Issue Guaranteed For Which Issuer Of Fund or Redemption
Guaranteed By Person For Of Each Class Of And Statement Securities Nature Of Provisions, or
Which Statement Is Filed Securities Guaranteed Outstanding Is Filed Guaranteed Guarantee Payment Of
Industrial Development Revenue Bonds:
City of Greenfield, WI $3,185,000 Industrial
Edgewood Plaza Joint Development Revenue
Venture Refunding Bonds,
Series 1992 $ 2,580,000 None None P&I None
City of Maplewood, MN $4,525,000 Variable
Angeles Partners 16, A Rate Demand Multi-
California Limited family Housing Revenue
Partnership Refunding Bonds,
Series 1993 4,525,000 None None P&I None
City of Maple Grove, MN
Maple Investments, a $2,300,000 Industrial
Minnesota General Part- Revenue Bonds, Series
nership 1986 2,000,000 None None P&I None
Housing Authority For $7,000,000 Convertible
The City of Waukesha, Variable Rate Demand
WI, Caroline Apart- Multifamily Housing
ments Limited Part- Revenue Bonds,
nership Series A 1,890,000(1) None None P&I None
TOTAL $10,995,000
<FN>
P&I = Principal and Interest Payments on Securities Guaranteed.
(1) Refinanced on February 5, 1996 without the guarantee of FF Bank.
</FN>
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