First Federal Reports Strong Second Quarter - Net income of $10.4
million, up 19% over previous year LA CROSSE, Wis., July 22
/PRNewswire-FirstCall/ -- First Federal Capital Corp (NASDAQ:FTFC),
parent company of First Federal Capital Bank, reported net income
for the three months ended June 30, 2004, of $10.4 million or $0.46
per diluted share, compared to $8.8 million or $0.44 per diluted
share in the same quarter last year. For the six months ended June
30, 2004, the company had net income of $18.4 million or $0.81 per
diluted share, compared to $16.8 million or $0.84 per diluted share
a year ago, a 4% decrease. Excluding the impact of $1.2 million in
merger-related expenses, earnings would have been $11.6 million or
$0.51 per diluted share for the quarter. For the year, earnings
would have been $19.6 million or $0.86 per diluted share, a 2%
increase over the previous year. Jack C. Rusch, First Federal
President and CEO noted, "We are pleased with the excellent
earnings in the second quarter. Despite significant merger- related
expenses in connection with our pending merger with Associated
Banc- Corp (NASDAQ:ASBC), net income remains strong. We attribute
the excellent quarter to improved net interest income and increased
community banking revenue. In addition, while mortgage banking
revenue declined from last year's second quarter, results were
stronger than expected." On April 27, 2004 First Federal and
Associated Banc-Corp announced the signing of a definitive
agreement in which Associated will acquire First Federal in a stock
and cash transaction. The transaction, which is contingent on
regulatory approvals and First Federal shareholder approval, is
expected to close early in the fourth quarter of 2004. Net interest
income in the second quarter reached a record level, increasing
$9.6 million or 52% from the second quarter of 2003. This increase
was due in part to a significant increase in earning assets as a
result of loan growth, security purchases, and the acquisition of
Liberty Bancshares, Inc., in the fourth quarter of last year. Also
contributing was a 92 basis point improvement in interest rate
spread, from 2.13% in the second quarter of 2003 to 3.05% in this
year's second quarter. Net interest margin was 3.30% for the second
quarter of 2004 compared to 2.61% for the previous year's quarter.
Contributing favorably to net interest income year-to-date was loan
growth of 4.5%. The Bank has experienced increases in its consumer
loan and business loan portfolios of 9.1% and 13.0% respectively.
Rusch noted, "We are pleased with our growth in net interest income
year- to-date. The key to meeting projections in 2004 will be our
ability to grow loans and deposits. Our retail banking, business
and residential lending staff are to be commended for growing loans
by 4.5% year-to-date and deposits by 5.4%. Assuming the economy
continues to strengthen, we believe demand will further improve,
enabling us to meet our asset and earnings growth goals for the
year." Net interest income for the quarter and year-to-date
benefited from the first quarter purchase of $407 million in
collateralized mortgage obligations ("CMOs"). These purchases were
made to maintain the Corporation's capital ratio at a level deemed
appropriate by management. Additional leveraged purchases of CMOs
are not expected in the immediate future. Non-interest income was
down $759,000 or 3.7% in the second quarter of 2004 compared to the
previous year's quarter. Mortgage banking revenue, which consists
of gains on sales of mortgage loans and loan servicing fees,
decreased by $2.2 million or 22%. This decrease was principally the
result of a significant decline in loan originations and sales in
the most recent quarter, and a more favorable interest rate
environment for loan refinance activity in the previous year. Loan
sales declined from $856 million in last year's quarter to $294
million in the most recent quarter, resulting in a 67% decline in
gains on sales of loans. The decline in gains on sales of loans was
partially offset by a $10.0 million improvement in loan servicing
fee income, net of mortgage servicing rights ("MSRs") amortization
and loss provisions. MSR amortization in the second quarter of 2004
was significantly lower than the second quarter of 2003 because of
increased loan refinance activity in 2003. Mitigating the decrease
in non-interest income for the second quarter was the recapture of
a $631,000 loss allowance on mortgage servicing rights. This
allowance had been established in the previous quarter as a result
of declining mortgage rates. The recapture was triggered by an
increase in rates, which lowered market expectations for future
prepayment activity, a key component in the valuation of MSRs.
Higher rates also resulted in a lower level of amortization on MSRs
in the quarter, due to a decline in actual prepayment activity.
Commenting on mortgage banking revenues, Rusch stated, "Our results
benefited from a first quarter dip in interest rates that produced
a lag effect into the second quarter. Going forward, we expect
interest rates will remain low by historical standards, but do not
expect that the mortgage business will see the lows in rates we
experienced last summer or in the first quarter. As a result, in
light of potentially increasing interest rates, we expect mortgage
banking revenue in 2004 to be significantly lower than it was in
2003. In addition, revenue mix will shift from gains on sales of
loans to loan servicing fees." Community banking revenue, which
consists of deposit account fees, investment services income, and
premiums and commissions on sales of insurance, partially offset
the decline in mortgage banking revenue in the second quarter of
2004, increasing by $1.3 million or 13% compared to the same
quarter in 2003. Year-to-date, community banking revenue is up $2.8
million or 15% over the previous year. Rusch commented, "Community
banking revenues continue to perform well with double-digit growth.
It is gratifying to see continued increases, as this revenue source
is ongoing and not interest rate sensitive. Combined with mortgage
banking revenue, community banking revenue resulted in non-interest
income equal to 41% of our total revenue in the second quarter.
Although down a bit from 2003, we continue to out-pace our banking
peers by a wide margin in this ratio." Non-interest expense
increased by $5.0 million or 20% in the second quarter compared to
the same period last year. The increase is primarily attributable
to an increase in the number of new banking facilities opened in
the past year, an increase in the number of employees, and
merger-related expenses. Additionally, during the fourth quarter of
2003, the Corporation completed the acquisition of Liberty State
Bank, which averaged $2.6 million in non-interest expense per
quarter during 2003. Since June 30, 2003 the number of banking
locations operated by the Corporation has increased by three. The
number of full-time equivalent employees of the Corporation
increased by 10% from 1,269 at June 30, 2003 to 1,400 at the most
recent quarter end. The Corporation's provision for loan losses
declined to $809,000 in the second quarter of 2004 compared to $1.6
million in the first quarter of this year. For the comparable
period one year ago, the provision for loan losses was $139,000.
Asset quality remains strong with the ratio of non-accrual loans to
total loans of 0.34% at June 30, 2004 compared to 0.31% at June 30,
2003. The Corporation's allowance for loan losses to total
non-performing loans stood at 158% as of June 30, 2004 down from
178% one year ago. The Corporation's ratio of allowance for loan
losses to total loans was 0.54% at June 30, 2004, compared to 0.55%
on the same date last year. At June 30, 2004, the Corporation's
assets totaled $3.7 billion, up from $3.2 billion a year ago. Loans
held for investment were $2.6 billion compared to $2.0 billion a
year ago, an increase of 30%. Deposits totaled $2.7 billion, an
increase of $190 million or 8% over the previous year. First
Federal's second quarter annualized return on average equity (ROE)
was 15.2% compared to 16.3% for the same period a year ago.
Annualized return on average assets (ROA) for the quarter was
1.12%, compared to 1.14% twelve months prior. Excluding
merger-related expenses, quarterly ROE and ROA would have been
16.8% and 1.25% respectively. Stockholders' equity totaled $284
million, or $12.63 per share. About First Federal First Federal's
banking subsidiary, First Federal Capital Bank, is headquartered in
La Crosse, Wisconsin. Established in 1934, First Federal is a
community bank serving businesses and consumers through 49
supermarket banks, 42 brick and mortar locations, three stand-alone
loan production offices, a high school banking office and 138 ATMs
located in over 45 communities in Wisconsin, northern Illinois, and
Minnesota. The Company serves more than 250,000 households with
checking, savings, investment and loan products. In addition, First
Federal provides commercial real estate lending services and holds
a dominant market share position for residential mortgage lending
in many of its markets. The Company offers business banking
products in Rochester and St. Paul, Minnesota, as well as La
Crosse, Wausau, Oshkosh and Appleton, Wisconsin. Certain matters in
this press release are "forward-looking statements" intended to
qualify for the safe harbors from liability as established by the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include words and phrases such as "will
likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "intends to," or similar
expressions. Similarly, statements that describe First Federal's
future plans, objectives or goals are also forward-looking
statements. First Federal wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak
only as of the date of this press release, and to advise readers
that various factors could affect First Federal's financial
performance and could cause actual results for future periods to
differ materially from those anticipated or projected. Such factors
include, but are not limited to: (i) general market interest rates,
(ii) general economic conditions, (iii) legislative/regulatory
changes, (iv) monetary and fiscal policies of the U.S. Treasury and
Federal Reserve, (v) changes in the quality or composition of First
Federal's loan and investment portfolios, (vi) demand for loan
products, (vii) deposit flow, (viii) competition, (ix) demand for
financial services in First Federal's markets, and (x) changes in
accounting principles, policies or guidelines. Attached: Statements
of Financial Condition, Statements of Operations, and Selected
Financial Data FIRST FEDERAL CAPITAL CORP STATEMENT OF FINANCIAL
CONDITION June 30 December 31 June 30 2004 2003 2003 ASSETS Cash
and due from banks $90,083,698 $94,535,753 $84,181,935
Interest-bearing deposits with banks 12,596,108 6,444,374
133,807,232 Mortgage-backed and related securities: Available for
sale, at fair value 370,501,921 386,862,372 639,608,938 Held for
investment, at cost 267,376,318 613,076 2,663,281 Loans held for
sale 18,085,165 16,113,217 84,860,663 Loans held for investment,
net 2,631,959,157 2,518,683,388 2,025,233,473 Federal Home Loan
Bank stock 61,486,100 59,634,800 57,222,200 Accrued interest
receivable, net 16,546,470 15,802,753 16,129,770 Office properties
and equipment 54,540,216 53,020,583 38,069,139 Mortgage servicing
rights, net 40,841,443 36,340,856 26,181,528 Goodwill 78,063,720
78,168,866 38,546,438 Other intangible assets 12,345,572 13,358,976
4,887,061 Other assets 30,319,728 28,745,265 25,705,462 Total
assets $3,684,745,616 $3,308,324,280 $3,177,097,120 LIABILITIES AND
STOCKHOLDERS' EQUITY Deposit liabilities $2,690,177,909
$2,552,837,027 $2,499,811,344 Federal funds purchased - 24,500,000
- Federal Home Loan Bank advances 643,200,000 373,075,000
376,250,000 Other borrowings 22,083,790 43,624,308 15,278,940
Advance payments by borrowers for taxes and insurance 8,407,401
1,484,734 8,088,173 Accrued interest payable 2,528,726 2,234,905
2,565,540 Other liabilities 33,908,656 33,979,161 54,968,742 Total
liabilities 3,400,306,482 3,031,735,135 2,956,962,739 Common stock,
$.10 par value 2,251,749 2,239,477 2,021,593 Additional paid-in
capital 89,266,193 87,323,995 46,577,431 Retained earnings
199,472,671 188,319,179 175,709,179 Treasury stock, at cost - -
(8,510,179) Unearned restricted stock - - (4,583) Accumulated
non-owner adjustments to equity, net (6,551,480) (1,293,508)
4,340,940 Total stockholders' equity 284,439,134 276,589,144
220,134,381 Total liabilities and stockholders' equity
$3,684,745,616 $3,308,324,280 $3,177,097,120 Actual number of
shares outstanding at end of period, net of treasury stock
22,517,493 22,394,773 19,786,912 Average shares outstanding used to
compute: Diluted earnings per share 22,707,311 20,597,675
19,967,668 Basic earnings per share 22,441,047 20,352,640
19,732,813 FIRST FEDERAL CAPITAL CORP RESULTS OF OPERATIONS (Dollar
amounts in thousands, except per share amounts) Three Months Six
Months June June June June 2004 2003 2004 2003 Interest on loans
$35,658 $30,792 $71,205 $63,217 Interest on mortgage-backed and
related securities 6,068 4,619 10,989 8,098 Interest and dividends
on investments 927 1,202 1,921 2,455 Total interest income 42,654
36,612 84,115 73,771 Interest on deposit liabilities 10,497 12,977
20,868 26,634 Interest on FHLB advances and other borrowings 4,051
5,136 7,389 10,356 Total interest expense 14,548 18,114 28,257
36,990 Net interest income 28,106 18,499 55,858 36,780 Provision
for loan losses 809 139 2,415 518 Net interest income after
provision for loan losses 27,297 18,360 53,443 36,262 Community
banking revenue 11,376 10,048 21,690 18,876 Mortgage banking
revenue 7,650 9,867 12,324 18,380 Other income 685 555 1,323 1,156
Total non-interest income 19,711 20,470 35,337 38,411 Compensation
and employee benefits 18,021 14,759 36,575 28,755 Occupancy and
equipment 3,665 3,300 7,244 6,425 Communications, postage, and
office supplies 1,783 1,675 3,537 3,524 ATM and debit card
transaction costs 1,330 1,176 2,679 2,265 Advertising and marketing
989 998 1,770 1,678 Amortization of intangible assets 491 203 1,013
385 Merger-related expenses 1,164 - 1,164 - Other expenses 2,376
2,739 5,117 4,943 Total non-interest expense 29,819 24,850 59,098
47,975 Income before income taxes 17,190 13,980 29,682 26,698
Income tax expense 6,781 5,210 11,232 9,913 Net income $10,408
$8,771 $18,449 $16,785 Per share information Diluted earnings per
share $0.46 $0.44 $0.81 $0.84 Basic earnings per share 0.46 0.44
0.82 0.85 Dividends paid per share 0.15 0.14 0.29 0.27 FIRST
FEDERAL CAPITAL CORP INCOME STATEMENT DETAIL (Dollar amounts in
thousands) Three Months Six Months June June June June 2004 2003
2004 2003 COMMUNITY BANKING REVENUE Overdraft fees $5,780 $5,050
$10,897 $9,433 ATM and debit card fees 3,518 2,924 6,544 5,471
Account service charges 712 587 1,444 1,208 Other fee income 452
416 889 825 Total deposit account revenue 10,462 8,977 19,774
16,937 Consumer loan insurance premiums and commissions 42 287 186
457 Other consumer loan fees 124 79 223 185 Total consumer loan
revenue 166 366 409 642 Investment services revenue 748 705 1,506
1,298 Total community banking revenue $11,376 $10,048 $21,690
$18,876 MORTGAGE BANKING REVENUE Gross servicing fees $2,836 $2,631
$5,741 $5,155 Mortgage servicing rights amortization (2,566)
(10,739) (4,356) (19,434) Mortgage servicing rights valuation
(loss) recovery 631 (1,000) - (2,800) Total loan servicing fees,
net 901 (9,108) 1,385 (17,080) Gain on sale of mortgage loans 6,025
18,393 9,784 34,503 Other mortgage-related revenue 724 582 1,155
957 Total mortgage banking revenue $7,650 $9,867 $12,324 $18,380
FIRST FEDERAL CAPITAL CORP SELECTED FINANCIAL DATA Three Months Six
Months June June June June 2004 2003 2004 2003 Stock price at end
of period $27.83 $19.85 $27.83 $19.85 High stock price during
period $28.11 $20.57 $28.11 $21.08 Low stock price during period
$20.10 $18.50 $20.10 $18.50 Book value per share at end of period
$12.63 $11.13 $12.63 $11.13 Tangible book value per share at end of
period $8.62 $8.93 $8.62 $8.93 Return on average assets 1.12% 1.14%
1.03% 1.10% Return on average equity 15.15% 16.25% 13.30% 15.81%
Equity capital as percent of total assets at end of period 7.72%
6.93% 7.72% 6.93% Tangible equity capital as percent of tangible
assets at end of period 5.40% 5.64% 5.40% 5.64% Interest rate
spread during period 3.05% 2.13% 3.15% 2.15% Net interest income as
a percent of average earning assets during period 3.30% 2.61% 3.40%
2.61% Average interest-earning assets to average interest-bearing
liabilities during period 114.91% 118.75% 114.38% 117.56% Yields on
interest-earning assets during period: Single-family mortgage loans
5.04% 5.22% 5.17% 5.22% Commercial real estate loans 5.92% 6.76%
5.95% 7.22% Business loans 5.16% 5.14% 5.10% 5.11% Consumer loans
6.08% 6.68% 6.14% 6.77% Education loans 3.34% 3.91% 3.27% 3.91%
Total loans 5.42% 5.86% 5.47% 5.98% Mortgage-backed and related
securities 3.45% 3.14% 3.58% 3.19% Interest-bearing deposits with
banks 1.32% 1.29% 1.30% 1.21% Other earning assets 5.85% 6.37%
6.04% 5.66% Total interest-earning assets 5.01% 5.16% 5.12% 5.23%
Cost of interest-bearing liabilities during period: Regular savings
accounts 0.25% 0.25% 0.25% 0.25% Checking accounts 0.58% 0.37%
0.52% 0.31% Money market accounts 1.27% 0.78% 1.24% 0.82%
Certificates of deposits 2.61% 3.43% 2.62% 3.49% Total
interest-bearing deposits 1.85% 2.61% 1.86% 2.67% FHLB advances
2.39% 5.35% 2.41% 5.31% Other borrowings 1.60% 1.51% 1.59% 1.76%
Total interest-bearing liabilities 1.96% 3.03% 1.97% 3.08%
Non-interest income to total revenue (1) 41.22% 52.53% 38.75%
51.08% Ratio of non-interest expense to average assets during
period (2) 3.09% 3.23% 3.22% 3.15% Efficiency ratio during period
(3) 58.90% 63.25% 62.42% 63.29% Banking facilities at end of period
95 92 95 92 Full-time equivalent employees at end of period 1,400
1,269 1,400 1,269 (1) Total revenue equals net interest income plus
non-interest income. (2) Excludes impact of gains (losses) on real
estate owned and merger- related expenses, if any. (3) Excludes
amortization of intangible assets and gains (losses) on sales of
investment securities, real estate investments, and merger- related
expenses, if any. FIRST FEDERAL CAPITAL CORP SELECTED FINANCIAL
DATA (Dollar amounts in thousands) Three Months Six Months June
June June June 2004 2003 2004 2003 Activity in the allowance for
loan losses during period: Balance at beginning of period $13,901
$11,530 $13,882 $11,658 Provision for losses 809 139 2,415 518
Charge-offs: Single-family mortgage loans - (13) - (46) Commercial
real estate mortgage loans - - (642) - Consumer loans (539) (602)
(995) (1,078) Business loans (17) (3) (550) (3) Education loans (6)
(11) (20) (23) Total loans charged-off (562) (629) (2,207) (1,150)
Recoveries 64 18 122 32 Charge-offs net of recoveries (498) (611)
(2,085) (1,118) Balance at end of period $14,212 $11,058 $14,212
$11,058 Net annualized charge-offs as a percentage of average loans
outstanding 0.08% 0.12% 0.16% 0.11% Ratio of allowance to total
loans held for investment at end of period 0.54% 0.55% 0.54% 0.55%
Summary of non-performing assets June 30 Dec 31 June 30 at end of
period: 2004 2003 2003 Non-accrual loans: Single-family mortgage
loans $3,668 $3,148 $2,773 Commercial real estate loans 2,230 2,649
59 Consumer loans 2,779 2,540 2,228 Business loans 308 1,226 1,168
Total non-accrual loans 8,985 9,563 6,228 Real estate owned and in
judgement 3,178 4,068 4,158 Total non-performing assets $12,163
$13,631 $10,386 Ratio of non-accrual loans to loans held for
investment at end of period 0.34% 0.38% 0.31% Ratio of total
non-performing assets to total assets at end of period 0.33% 0.41%
0.33% Ratio of allowance for loan losses to total non-accrual loans
158% 145% 178% Portfolio of loans held for June 30 Dec 31 June 30
investment at end of period: 2004 2003 2003 First mortgage loans:
Single-family real estate $772,154 $759,490 $614,095
Non-residential real estate 482,973 426,644 280,771 Multi-family
real estate 249,197 284,991 258,036 Construction 121,216 119,196
91,948 Consumer loans: Second mortgage and home equity 442,675
396,581 365,726 Automobile 151,862 146,677 126,775 Other consumer
37,808 36,401 27,908 Education loans 202,146 195,052 195,690
Business loans 179,475 158,761 69,115 Subtotal 2,639,506 2,523,793
2,030,063 Unearned discount, premiums, and net deferred loan fees
and costs 6,665 8,772 6,228 Allowance for loan losses (14,212)
(13,882) (11,058) Total loans held for investment $2,631,959
$2,518,683 $2,025,233 FIRST FEDERAL CAPITAL CORP SELECTED FINANCIAL
DATA (Dollar amounts in thousands) Three Months Six Months Loan
origination June June June June activity: 2004 2003 2004 2003 Real
estate loan originations: Single-family mortgage loans $172,545
$106,594 $263,789 $192,861 Commercial real estate loans 32,241
30,890 72,030 63,009 Decrease (increase) in loans in process 1,859
(11,673) 18,245 (6,288) Total real estate loans originated 206,645
125,811 354,064 249,582 Consumer loan originations: Second mortgage
and home equity loans 82,706 74,435 137,508 139,624 Automobile
loans 31,526 24,328 55,456 43,076 Other consumer loans 8,356 5,622
12,792 10,674 Total consumer loans originated 122,588 104,384
205,756 193,373 Education loan originations 6,041 5,575 29,122
27,089 Business loan originations 12,447 37,011 20,107 62,125 Total
loans originated for investment $347,721 $272,781 $609,049 $532,169
Loans purchased for investment: Single-family residential loans -
$36,509 - $36,509 Commercial real estate loans $10,428 - $13,740 -
Consumer loans - - - - Business loans - 3,271 - 3,271 Total loans
purchased for investment $10,428 $39,780 $13,740 $39,780
Single-family mortgage loans originated for sale $262,686 $867,054
$471,748 $1,500,679 Deposit liabilities June 30 Dec 31 June 30 at
end of period: 2004 2003 2003 Checking accounts: Non-interest
bearing $408,764 $345,698 $530,025 Interest bearing 183,706 187,368
142,024 Money market accounts 588,710 469,097 247,445 Regular
savings accounts 248,853 256,658 181,134 Time deposits 1,260,144
1,294,016 1,399,183 Total deposit liabilities $2,690,178 $2,552,837
$2,499,811 June 2004 Weighted Balance Average Rate Time deposits
maturing within ... Three months $214,990 2.64% Four to six months
164,018 2.51% Seven to twelve months 358,126 2.20% More than twelve
months 523,010 3.43% Total time deposits $1,260,144 2.83% FHLB
advances and all other borrowings maturing within ... Three months
$276,725 1.71% Four to six months 25,000 3.91% Seven to twelve
months 33,450 1.50% More than twelve months 330,109 2.91% Total
FHLB advances and all other borrowings $665,284 2.38% DATASOURCE:
First Federal Capital Corp CONTACT: Jack C. Rusch, President and
Chief Executive Officer of First Federal Capital Corp.,
+1-608-781-4636
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